Sunday, September 27, 2009
There’s a Reason for That
Back in 1992, MTV (if I recall correctly) asked a series of questions, in writing, of each of the three candidates for president. It then published the question, and the answers of the candidates. One of those questions was, “How do you convince people that you’re telling the truth?” George Bush (the elder) answered with long-winded, political blather — a half page about this program he supported and that view he espoused. Bill Clinton answered with long-winded, political blather — a half page about this program he supported and that view he espoused. Ross Perot answered with, “By telling it.”
This was brought vividly back to mind by Clark Hoyt’s latest whitewashing of the New York Times‘ partisan reporting, this time in response to the Times‘ failure to cover the story of ACORN offering advice in tax evasion, skirting the laws on prostitution, and how to bring in underage prostitutes from foreign countries. (hat tip, Glenn Reynolds) Clark Hoyt, I should mention, is the Times‘ “public editor.” I have to commend the Times for one thing: suggesting that his position exists to edit the public is far more honest (if unintentionally so) than calling him an ombudsman, which title suggests his position exists to keep the newspaper honest. In any event, Hoyt’s response to the Times‘ failure to cover the ACORN mess, and the Van Jones mess, until after the stories had largely played out was to excuse the Times as being “slow off the mark;” once again assure the public that the Times has no partisan bias, despite its long and consistent record of playing every Republican scandal or semi-scandal to the hilt while ignoring every Democrat scandal it possibly can; point out that O’Keefe and Giles were in fact “sloppy with facts” and unethical; and tell the critics that whatever they think is wrong, because the editor of the Times disagrees with them. In the midst of this poor excuse of a justification for bad reporting and unconcealed bias, Hoyt repeatedly notes the perception of the Times as being biased, and how very, very wrong that is.
Well, Mr. Hoyt, if you want to be perceived as being unbiased, perhaps you should try Mr. Perot’s advice and be unbiased.
The Pleasures Of The Flesh: A Sunday Rumination
Hello, everyone. Fran was going to do another piece on "freedom and necessity," but some events of the week just behind me have been nagging at me, and I asked him if he could allow me today's Rumination. When I told him what I had in mind, he said yes immediately.
"Even if, according to Thoreau, 'Any man more right than his neighbors constitutes a majority of one,' it’s always better not to have to stand alone. Except before a firing squad, of course." -- Our beloved Leader
In the brief time we've been together, my fiance Matt has repeatedly amazed me. I won't go into all the details; let's just say that he's one in a million, and that I consider myself the luckiest woman in the world to have his love and devotion. (I hope it lasts after we set up housekeeping in southern California; there are an awful lot of pretty women out there.)
Matt is currently attending RCIA sessions; his idea, not mine.. We intend to wait until he's been baptized and confirmed before we marry. But that hasn't inhibited us from enjoying one another's bodies, which is something completely orthodox Catholics would condemn.
A few days ago, Matt was troubled by something his catechist said during instruction. Apparently, the catechist is completely orthodox, and has gone on more than one thundering denunciation of sexual sin. The most recent occasion was about premarital sex, which the catechist said amounted to the rejection of the sacrament of marriage and the denial of Christ.
I don't like to disagree vocally with the Church, but Matt wanted to know what I thought. The possibility that the Church might reject him when he's so eager to be initiated, especially for something he does with someone he loves, something he feels no guilt about, had him questioning the whole business of Christian belief. Basically, his position is "If God hated flesh, why did He make so much of it?"
I pointed him at the second comment to this post. He likes the logic, but he's still troubled by the orthodox position. Surely, he said, they must have some reason for believing as they do.
Maybe. I have yet to hear one that's rooted in the words of Christ. And Church doctrine on sex goes way beyond anything Christ ever said.
Catholicism has been linked for a long time to a disdain for pleasure, sexual pleasure in particular. A recent edition of the Catechism even warns against enjoying marital sex too much! I can understand a little of the logic: if you're too tightly bound to the things of this world, you have no room for the things of God. But that strikes me as an argument against outright hedonism, not physical pleasure as such.
It's risky to assign motives to God. The way I see it, God doesn't have motives; He has a Plan. He turned us loose to find our parts in His Script; the rest is up to us. A big piece of our job involves working out the implications of what His Commandments omitted, and what His Son didn't say.
There are many sexual pleasures the Church frowns on very darkly. At one time, priests even condemned deviating from the "missionary position," which has to be the biggest joke of all. Where's their authority for that? There doesn't seem to be any...which makes me think the agenda behind those condemnations doesn't belong to God, but to men.
Well, Catholics are commanded to obey their mature consciences. The proper foundation for a well-formed conscience is the Gospels, with special emphasis on the two Great Commandments. Church teaching can never go against the Gospels...and when it goes beyond them, it had better have one damned good reason. That's what I said to Matt, and he seemed to take it well. Anyway, he's going on with RCIA instruction, for the present. I'm sure I'll hear about it if he hits another stumbling block.
Besides, he's so good at...and at...and at...and he loves it so when I...or I...or when we.... A God who made the human body as it is wouldn't want us to forgo the pleasures of the flesh! If that were His Will, why not just make us insects and eliminate the whole subject?
Yes, Duyen's being silly again. No more happy diddling for you! And take that out of your mouth, you don't know where it's been! Your penance is ten Hail Marys and a good swift kick in the ass; go thou and sin no more.
May God bless and keep you all.
Saturday, September 26, 2009
Banking and the Money Supply II: Deflation
Deflation vs. inflation: which is it going to be?
We’ve looked at what the terms mean. We’ve looked at the mechanisms that bring about inflation and monetary statistics to describe the money supply. Now its time to look at the reverse process: deflation. We will also look at a few phenomena that have no influence on the money supply, but are sometimes blamed for one or the other.
Deflation
As you might have already guessed, deflation occurs principally through the reversal of the processes that lead to inflation. It can also be accomplished through a few other processes, which will also be discussed.
Sale of Assets
Just as when the FED buys assets money is created, when it sells assets money is destroyed. Because of these twin properties, I like to think of the FED as a something like an infinite capacity black-box: when assets go in, money comes out; when assets come out, money goes in. That’s the easiest description I can think of.
In a more detailed analysis, the FED will sell assets into the market, withdrawing money from the deposit accounts of buyers. The FRN liability (Federal Reserve Notes, or US dollars for those of you who forgot) is redeemed and retired by the FED as it absorbs the FRN into its vaults and out of the banking system, and the asset passes from the vaults of the FED back into the market. The asset and liability columns of the T-account are wiped clean:
In the course of this process, bank reserves are reduced as those FRN leave the banking system. If the banks are comfortable with their reserves and reserves are above the legal requirement, nothing more need occur. In our example, the bank is in trouble as it has no reserves and will have to sell other assets to meet legal reserve requirements. Or go to jail. If banks choose to increase reserves for whatever reason, the process continues. By selling their own assets or calling in loans, banks increase money held in reserve, clear their T-accounts of assets and contract the money supply further:
Our example is a little extreme for two reasons. First, I am feeling lazy and did not want to draw out a whole new T-account chart. I just cut and pasted it. Normally, it would be a little strange for a bank to sell to its own depositor, but I suppose it might happen. But it does illustrate a good point. Selling assets also increases the reserve ratio by reducing liabilities, e.g. deposits, e.g. the money supply, not simply increasing reserves. It is an unwinding of the fractional reserve process. I could have had the bank sell to another bank or another private entity to simply increase its reserves. But that would have placed a strain on the buying bank, which would have lost reserves and would likely have had to shuffle things around even more. And I just can’t stand the thought of having to draw out another and another of these durn things to explain all that.
The net effect overall from the banks’ point of view is a transfer of assets out of the banking system and a reduction of bank deposit liabilities. From our point of view, it is a reduction in the money supply. Bonus question: what is the net effect when fractional reserve banking is used by banks to buy assets, then when the banks get in trouble and are unable to pay back depositors, the FED prints money to bail them out instead of forcing them to sell their assets to raise the money?
Hmmm....
Anyway, the point is that selling assets effectively reduces the fractional reserve multiplier, and the money supply.
That constitutes the “desirable” deflationary routes engineered by the FED for control of the money supply, and autonomous contraction initiated by banks themselves. Incidentally, from a graph of the AMB, it is clear that the FED rarely deflates through the sale of assets. M1 and M2 indicate that the banks themselves are more likely to contract the money supply on their own, and at those times not by very much. For the most part, the monetary base is continually increasing, with short periods of stagnation.
S0, there you have it, the two major forces of deflation: banks allocating more money towards reserves, e.g. decreased lending/selloff of assets, and the sale of assets by the FED. The exact opposite of inflation.
Other Deflationary Forces
The other routes for deflation are not nearly as important. First, depositors could withdraw currency en masse and hold it as cash outside of the banking system. This is deflationary because money held in physical cash is not on deposit with the banking system. It is held in deposit in your pocket, and cannot serve as reserves for the fractional reserve process while it is sitting in there. If enough cash is withdrawn, it will force banks to begin selling assets and call in loans in order to meet reserve requirements, or it will force the FED to purchase assets to provide banks with new reserves. Of course, eventually the money that is withdrawn is likely to be redeposited and the effect reverses.
Two exceptions exist. The first is that the withdrawn money is destroyed, as in, put into a pile and set on fire. Obviously, this is rare. As angry as some of us may get over inflation, we don’t generally do this.
The second is not so rare. The money can be held permanently by private persons outside the banking system. This is most frequently the case for money that leaves the country. Many foreigners choose to hold paper US dollars as savings in preference to their local currencies as the purchasing power of the US dollar has tended to hold up better in the recent past, despite the inflation engineered by the FED. These dollars circulate in “bankless” black markets, or are simply stored up for a rainy day.
Central banks can (and do!) also hold US dollars as reserves, though they usually prefer Treasury debt. These dollars “back” their own currencies, just as our currency is “backed” by the Treasury debt and other assets held on the FED’s balance sheet. By buying and holding dollars, foreign central banks create more of their own currency and reduce the quantity of dollars in circulation, artificially propping up the value of US dollars and distorting trade. But that is a long and involved topic of its own best left for another time…
Imagine: there are banking systems out there even more screwed up than ours! In any event, this effect tends to tamp down the inflationary effect of printing ever more dollars, but could come back to haunt holders of US dollars in the event of a major devaluation. But I suppose that in a major devaluation this will be the least of our worries.
Bank Failures and the FDIC
At one time, bank failures also resulted in deflation of the money supply. Bank failure occurs when financial strains cause the value of a bank’s assets to be substantially less than the liabilities imposed by the bank’s expenses, deposits, or depositors attempting to withdraw their funds all at once, e.g. a bank run. Over the past year or so, a few banks have failed almost every week. If you check Yahoo!Finance late on Friday afternoons, after markets have closed, you can usually read about them in the news stories. The FED closes them when markets are unable to respond to prevent panic. It’s been happening like clockwork for some time, though most people pay little attention.
Since the introduction of the FDIC, bank runs have become virtually nonexistent, but at one time they were frequent. Note that bank failure is not the same as bankruptcy. Technically, banks are always bankrupt, in that they cannot possibly honor all their contracts simultaneously. They only stay in business because not all contracts are enforced, not to mention because the FED and the government cover for them when they get into trouble.
This is different from a businessman who owes more money than his business is worth. The businessman is not obligated to pay his debts all at once; his debts are amortized, and as long as he can make his payments, he is still in business. In contrast, a bank is required to refund all of a depositor’s money at any time. All the depositor has to do is ask. This is a basic problem of time mismatch: borrowing short and lending long. The carry trade. Whatever you want to call it, depositors essentially act as ultra-short term lenders or creditors, while the bank is busy making long term investments. The bank can’t possibly fulfill the terms of its agreements, if they are enforced. The banks are fully aware of this discrepancy in expectations, and in many ways it is a sort of fraud.
This is precisely why deposits are listed under the heading liabilities. The bank is obligated to pay them back. In the old days, when a bank run would occur, word got out and depositors began withdrawing money until there was none left, then the bank was forced into liquidating its assets and repaying what deposit claims remained with the funds raised through asset sales. Naturally, there was not enough, and some depositors lost money into thin air. Money was destroyed in the process, and M1 or M2 would have reflected this loss as deposits evaporated and the money supply contracted. Hence, lost deposits due to bank failures results in deflation.
With FDIC protection, accounts are insured up to $250,000. Most people are smart enough to spread out deposits so that they get full protection, but theoretically if a deposit was over this amount, the surplus would evaporate in the event of a failure. You can simply accept that “deposits are protected” but it is instructive to look at the actual transactions to understand how money is conserved by this process.
The FDIC does not actually have any money. It has assets in the form of Treasury debt, much like the FED itself. When the FED takes control of a failing bank, it begins the process of liquidating assets and paying off depositors. The remaining funds that must be raised are obtained by selling the assets held by the FDIC. These assets are sold to other banks, which buy them with money from reserves, initiating fractional reserve multiplication. So the money “lost” in the failure is made up for by fractional reserve multiplication. Pretty simple, really, but it took me awhile to get it.
The FDIC was created in 1933. Prior to 1933, bank failure resulted in deflation, but since that time it has not. So long as Congress continues to authorize funds for this agency, it will not. There is no need to fear a catastrophic deflationary spiral as a result of bank failures, which some claim occurred in the early years of the first Great Depression. Of course, it is still a political question, since the FDIC has already pretty well exhausted its asset base and Congress could theoretically refuse to provide any more funds, but I think it is a rather safe bet that Congress would not do that.
Other Notable Absences: Deficit Spending, Default, and Falling Asset Prices
A few readers may not see their pet deflationary or inflationary forces at work here. Of course, I have missed some, as this is not exactly an exhaustive work. On the other hand, there are many events which have been attributed as inflationary or deflationary but in reality are not. I’ll go through a few here.
Contrary to popular belief, deficit spending is not inflationary. Deficit spending is funded by issuing Treasury debt certificates. These certificates are bought by private investors and the money is transferred to the government and spent into the economy at large, passing back into private hands. No money is created in the process. Deficit spending by the government is no different from the issuing of corporate bonds. The result is private transfers of money, not creation of money, and not inflation.
Banks may buy the debt with depositor funds, yes, and in this case it results in multiplication by fractional reserve accounting. But the inflation is a result of the accounting, not the issuing of the debt itself. The FED may buy the debt directly, resulting in inflation of the monetary base, but again, that is as a result of the bank buying the asset, not the debt itself.
One way that deficit spending can get politically intertwined with inflation is that a large deficit can create a political incentive for the FED to buy the debt, increasing the monetary base in the process. Many, if not all, central banks engage in this nefarious practice regularly. By having the central bank buy debt, the government can obtain loans at interest rates far below market rates since the central bank supplies artificial demand for the debt.
And when debts begin to pile up, it can be tempting to have the central bank simply buy up all of the debt and forgive interest payments owed by the government. This results in large-scale inflation for holders of the currency and repayment of debt in currency of depreciating value, effectively giving the governments creditors the shaft and allowing the government to default on its debts without legal bankruptcy. Nice of them, huh? I guess arbitrary authority is a good gig if you can get it…
This is called debt monetization, and though it will destroy a nations credit rating and its economy, it becomes a very real possibility as interest payments begin to absorb a politically unacceptable fraction of the budget, or fiscal deficits begin absorbing politically unacceptable fractions of GDP. The former will generally lead to the latter. Many nations are approaching these levels of debt, in particular the US and Japan, two of the largest economies in the world. A rise in interest rates to normal levels after years of suppression by central bank policy could effectively render the debt unpayable, especially for Japan where debt approaches 200% of GDP.
But, as I said, fiscal deficits in and of themselves do not cause inflation. It becomes inflation when central banks like the FED fund the deficit by buying debt certificates. Whether or not the central bank chooses to do so is a political question, not an economic question, though it does have economic consequences.
Occasionally, you will encounter the belief that default on a loan destroys money and results in deflation. You are especially likely to believe it if it is your money! This is not the case, however. The lender will not be paid back, and the price of his asset (the bond) goes to zero. But the money he lent to the borrower is still in the economy, whether or not he ever sees it again. Whether or not loans are repaid has no effect on the money supply.
A fall in asset prices, like a stock market crash or the popping of a housing bubble, does not result in deflation either. The price of the asset in question simply falls. Your investment account or 401(k) does not “have less money in it.” It is “worth less” (or just “worthless,” as the case may be!) But the same amount of money is still floating around out there in the economy. A brokerage account contains assets, not necessarily money. A rising stock market does not create money and a falling stock market does not destroy it.
Conclusion
Monetary inflation occurs principally through the purchase of assets by the FED and through fractional reserve banking. Fractional reserve accounting increases the money supply by counting the same money twice, once as deposits and a second time as money lent out. By lending money out which gets re-deposited into the banking system, fractional reserve banking can increase the money supply by up to ten-times reserves, which are the initial deposits provided by the FED through purchase of assets.
Deflation occurs principally through the opposite mechanisms: sale of assets by the FED and banks choosing to increase their cash reserve holdings by selling assets and calling in loans. A few other avenues of deflation exist, but these are more limited in scope.
Deficit spending, market crashes, defaults and bank failures do not result in changes to the money supply. These forces, however, can exert political pressure for central banks like the FED to create inflation in order to “paper over” these problems and allow debtors to legally shirk their obligations.
Next up: how the FED influences interest rates!
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Cross-posted at 3CNB.
Choices
Among the things that make radio and television commentator Glenn Beck valuable to the American political discourse is that he's non-partisan. Granted that he'd condemn many more Democrat-favored policies than Republican-favored ones, but to be genuinely non-partisan requires something above and apart from that. The true non-partisan is committed to a set of principles. He embraces allies and shuns opponents on that basis alone.
There aren't many figures in political commentary who are as consistent in that regard as Glenn Beck. Indeed, your Curmudgeon suspects that Beck's readiness to castigate Republican politicians for their defections from Constitutional fidelity is part of the reason why he draws fire from "conservative" commentators supposedly attached to the same principles as he. Many a pundit, liberal or conservative, is just hoping to be invited into the corridors of power, where the big money and the big opportunities lie. A truly non-partisan pundit won't get invited inside; when his co-workers start dipping their snouts into the public trough, no one knows what he might take it into his head to say.
To put it another way, commentator Smith might be a Democrat, and commentator Jones might be a Republican, but Glenn Beck is an American.
Your Curmudgeon has said it before, but it bears repeating: They who seek power over others do so for power's sake. Whether they do so directly, through the electoral process, or indirectly, by ingratiating themselves with the kingmakers of the major parties, acquiring power, not the well-being of others, is their highest priority. Which brings us to the questions of why and how to choose political allegiances and alliances in this day and age.
Just now, America suffers one of the most anti-Constitutional, anti-American regimes it has ever endured. We might be better off under Vladimir Putin's rule; at least he appears to understand the superiority of capitalism over socialism. We suffer thus because the Republicans to whom we'd entrusted the federal government for the previous decade were almost completely unfaithful to their nominal principles. The GOP's platform proved to be nothing but wastepaper; once securely installed in office, its legislators did whatever they pleased, regardless of the party's supposed positions or the cost to the republic. So on November 5, 2008, Americans went to the polls and voted them out, and thereby invoked the H. L. Mencken Effect:
At each election we vote in a new set of politicians, insanely assuming that they are better than the set turned out. And at each election we are, as they say in Motherland, done in.
...which should settle once and for all the question of whether "voting against," in general elections at least, has any merit whatsoever.
It's simply not sufficient to know what, or whom, you're against. You must also know what you're for, and must contrive to support it affirmatively. The two-party system, with all the preferences it's managed to build into our electoral laws over the years, is one major obstacle to that undertaking; a second, perhaps even larger, is the system of geographical representation.
Anyone who pays attention to electoral politics is aware that a candidate not backed by either major party has almost no chance of winning election to anything higher than the school board. This is by design. After the Civil War, both parties went to work on the electoral systems of the several states. They succeeded in installing provisions in state laws concerning ballot access that gave outsider candidates a strong headwind to overcome. Concurrently, the high officials of the major parties worked to particularize the editorial boards of major newspapers, such that the news organs accessible to the majority of Americans would prefer to speak only of the two major parties and the positions taken by their candidates. In combination, the ballot access laws and the biases of America's regional dailies marginalized, ab initio, anyone outside the Democrat / Republican orbit. Such candidates, we were told, had no chance to win, and we believed what we were told. Combine that effect with the absence of None Of The Above Is Acceptable from our ballots, and we get the "If you reject us, you'll get them" theme that plays so strongly in every campaign.
Geographical representation compels each citizen to vote as an involuntary member of a specific collectivity: his Congressional district or state. Gerrymandering and enduring one-party control of state and county capitals have reduced the great majority of constituencies to permanent one-party satrapies, where only the ruling party's candidate has a Chinaman's chance at the polls. Ferdinand Lundberg noted this in his 1968 book The Rich And The Super-Rich:
...it is a settled conclusion among seasoned observers that, Congress apart as a separate case, the lower legislatures -- state, county, and municipal -- are Augean stables of misfeasance, malfeasance, and nonfeasance from year to year and decade to decade, and that they are preponderantly staffed by riffraff, or what the police define as "undesirables," people who if they were not in influential positions would be unceremoniously told to "keep moving." Exceptions among them are minor. Many of them, including congressmen, refuse to go before the television cameras because it is then so plainly obvious to everybody what they are. Their whole demeanor arouses instant distrust in the intelligent. They are, all too painfully, type-cast for the race track, the sideshow carnival, the back alley, the peep show, the low tavern, the bordello, the dive. Evasiveness, dissimulation, insincerity shine through their false bonhomie like beacon lights....As to other legislatures, Senator Estes Kefauver found representatives of the vulpine Chicago Mafia ensconced in the Illinois legislature, which has been rocked by one scandal of the standard variety after the other off and on for seventy-five years. What he didn't bring out was that the Mafians were clearly superior types to many non-Mafians.
Public attention, indeed, usually centers on only a few lower legislatures -- Massachusetts, New York, New Jersey, California and Illinois -- and the impression is thereby fostered in the unduly trusting that the ones they don't hear about are on the level. But such an impression is false. The ones just mentioned come into more frequent view because their jurisdictions are extremely competitive and the pickings are richer. Fierce fights over the spoils generate telltale commotion. Most of the states are quieter under strict one-party quasi-Soviet Establishment dominance, with local newspapers cut in on the gravy. Public criticism and information are held to a minimum, grousers are thrown a bone, and not many in the local populace know or really care. Even so, scandalous goings-on explode into view from time to time in Florida, Texas, Louisiana, Oklahoma, Missouri and elsewhere -- no state excepted. Any enterprising newspaper at any time could send an aggressive reporter into any one of them and come up with enough ordure to make the Founding Fathers collectively vomit up their very souls in their graves.
With apologies to Lundberg's shade, Congress is no longer a separate case...if indeed it ever was. But your Curmudgeon must not stray too far from his point.
Geographical constituency's polar opposite is "at-large" constituency. Classically, all the members of the largest applicable polity can vote for their choice for an at-large position. That is, if one seat in the House of Representatives were dedicated to an at-large holder, every American citizen, regardless of his place of residence, would be empowered to vote for his preference for that seat. The major parties would have less of an advantage over outsider candidates for an at-large position; what would matter most would be candidates' overall popularity and ability to communicate.
In his libertarian classic The Moon Is A Harsh Mistress, the late Robert A. Heinlein had a leading character suggest that all the seats in Luna's proposed new legislature be made at-large. He went further: perhaps, he said, we should fill seats solely according to affirmative petition: if Smith could get 5,000 persons to agree on him as their representative, he would be seated. In such a scheme, no one could speak of being disenfranchised -- and the parties and their boughten allies in the media would be stripped of their dominance.
Food for thought.
America is a little more than a year away from what could be the most momentous general election in a century. If the prognosticators are correct, more House and Senate seats will be seriously contested than since 1896. There could be another wild swing in party dominance of Washington. Nevertheless, your Curmudgeon is convinced that until the two-party lock on our electoral system is broken, we will see little substantial change in American governance...or in the characters of the men we raise to office.
Quite regularly these past few decades, we have been exhorted to get involved early, to try to bring really good people into and through the primary process, so that our ultimate choice needn't be between a horse thief and a con man. But the major parties are averse to that sort of participation by us groundlings. They'll take our money quickly enough, but their inside networks will provide the candidates, thank you. Those of us who don't like it can just sit down and shut up.
We need real alternatives. We need structural alterations to our electoral system that will allow us genuine choices. We need changes to the prevailing incentives, so that decent persons will be less averse to entering the arena and will have more of a chance of prevailing. We won't get such changes from the powers that be, who are quite content with things as they are.
No, your Curmudgeon doesn't know how to bring that about. Do you?
Thursday, September 24, 2009
The Tie That Binds Kate with IV Drug Users
[This is a follow up/conclusion post to my previous entry earlier this week.]
Well. My pain wasn’t a pinched nerve.
And it wasn’t caused by a burst ovarian cyst.
I knew the ovarian cyst thing was pretty fishy from the get-go; there were a couple big warnings. First, the doctor said the burst cyst was on the right side, while my pain was very much on the left. Second, that diagnosis in no way accounted for my fever. Third, I had no abdominal swollenness/tenderness/etc.
My suitemates who have had more hospital/medical experience than I developed a game plan on Monday that went like this: we would set up an OB-GYN appointment for Friday, but if my fever spiked before that we would go to the University of Michigan hospital. The fever hit 101 on Tuesday morning which launched us on our hour and a half road trip to Ann Arbor. I honestly didn’t feel too badly on the trip up and I started getting a kind-of “ooo, maybe we should have stayed” feeling.
In retrospect, that feeling was wrong.
I checked into the ER. I was given a bed and in short order I was talking to a doctor, telling him what was wrong and what I had previously been diagnosed with. He smiled and said, “No.” That night (Tuesday) I had an MRI which uncovered an abscess inside one of my muscles that was pressing on my sciatic muscle (thus giving me sciatic pain).
This was the problem.
My first sleep was in the ER and it was horrible. I was given morpheme which did absolutely nothing. I was then given a stronger form that started with the letter ‘d’ which I will just call “the Good stuff.” It relieved my pain and knocked me out. I woke up roughly every hour either because my IV had run out or because I needed more pain medicine (I received three doses that night).
At 4 a.m. a neurologist came in and asked me to retell the story of my ailment to determine if that department was going to claim me.
As the morning wore on I met more doctors from different sections of the hospital. My “main doctor” changed a few times, and each time the new person would come in and shake my hand. One lady was just so cool and told me, “Yeah, the only reason you’re still here [i.e. in the E.R.] is because they can’t decide where to put you. It’s ridiculous. They are going to figure it out [with the implication that she was going to make them].”
Me : “*blink* Ok. Thank you.”
Wednesday was pretty slow, painful, and boring. I moved out of the ER after about 24 hours and lazed in bed. I talked to teams of doctors. I was given supper but I wasn’t hungry. I had part of a cookies and cream shake and checked my email/wrote a Facebook note on my friend’s computer.
They put me back on morpheme, but they made the dosage far too small (as in, it needed to be doubled/tripled). It was just enough to make me stupid for about 15 minutes, but not really alleviate the pain for any amount of time. The picture on the wall was totally moving and it was trippy. Because of this I was still in enough pain to be pretty uncomfortable/awake, and I was generally annoyed.
Thursday began early. I got a new “roommate” and their entrance was loud, so, keeping with tradition, I didn’t get much sleep. I finally found out that I had been given to “General Medicine” and that I was due up for a CT procedure at 11 a.m. to rid me of my demon.
Well, it didn’t happen until 1 p.m., but it did happen. In brief, I was awake, they used a local anesthetic and a CT scanner/imaging machine, and it took maybe twenty minutes. I stared at the ceiling because I didn’t really want to see the length of the needle they were using to break the abscess. I didn’t feel immediate relief, but once I got back to my room I started feeling… good.
Which was a strangely familiar, wonderful feeling.
I, for the first time in a week, had a legitimate appetite. Not a “and now I’ll eat so I can take my painkillers” appetite, but a “I could eat for the sake of wanting food for itself” hunger. I felt like talking and laughing and I did not despise my existence. I still had some pain, but I didn’t want to take any medicine because I wanted to live just a little bit.
Eventually I did take some medicine so I could move around a little easier, and now I’ve been downgraded to Tylenol, but holy cow. This is what it’s like to live.
I’m still in the hospital and I probably will be for at least another full day. They have to make me some antibiotics based off of the information they get from the stuff from my (ex)abscess, but for now I’m in the clear excruciating-pain-wise.
Which begs the million dollar questions: how did this happen in the first place?
I have no idea.
The doctors, thus far, have no idea.
The type of abscess I got is seen in patients who have HIV, are IV drug users, are chemo patients, etc. I do not fall into those categories and have had a relatively unblemished health record until this point. Who knows.
Thus, hopefully, ends this tale.
Thank you for your prayers and emails.
Fuhrerprinzip
Americans focused narrowly upon particular matters of policy such as Waxman-Markey or the proposals for government-controlled health care are in danger of missing a far broader and more ominous trend. Nor is it coincidental that the moving force behind that trend has marshaled its full powers at this time.
Noel at Cold Fury has cited parts of Barack Hussein Obama's recent speech before the United Nations General Assembly:
It is my honor to address you for the first time as the 44th President of the United States. I come before you humbled by the responsibility that the American people have placed upon me, mindful of the enormous challenges of our moment in history, and determined to act boldly and collectively on behalf of justice and prosperity at home and abroad. I have been in office for just nine months — though some days it seems a lot longer. I am well aware of the expectations that accompany my presidency around the world....I took office at a time when many around the world had come to view America with skepticism and distrust....
America has acted unilaterally, without regard for the interests of others....
On my first day in office, I prohibited — without exception or equivocation — the use of torture by the United States of America. I ordered the prison at Guantanamo Bay closed, and we are doing the hard work of forging a framework to combat extremism within the rule of law....
In Iraq, we are responsibly ending a war....
I have outlined a comprehensive agenda to seek the goal of a world without nuclear weapons....
Upon taking office, I appointed a Special Envoy for Middle East Peace...
We’ve also re-engaged the United Nations. We have paid our bills. We have joined the Human Rights Council....
We have signed the Convention of the Rights of Persons with Disabilities. We have fully embraced the Millennium Development Goals....
The 250 words above contain twelve self-references: that is, twelve uses of "I", "my", or "me." Please pardon your Curmudgeon for not searching the entire speech for such things; his tolerance for grandiose self-flattery is quite limited. Anyway, it seems clear that Barack Hussein Obama regards himself as the central subject of his remarks, and that the gaggle of tyrants, kleptocrats, and hand-wringers assembled before him needs to hear about his sterling qualities above all else.
But then, this is the man who, a bare seven days in the Oval Office, peremptorily terminated discussion of the proposed "stimulus" package by growling, "I won." Considering other things he's said:
"Only I am president of the United States." -- Barack Hussein Obama, June 23, 2009
...and what others in his administration are allowed to say on his behalf:
But one official said: "Obama is now driving this process. He is saying these are the president's weapons, and he wants to look again at the doctrine and their role."
...it's easy enough to conclude that Obama identifies the federal government, the armed forces, and perhaps all American interests, with himself: If he likes it, it must be right; if he dislikes it, it must be wrong.
The National Socialist German Workers' Party called this the Fuhrerprinzip, and by insisting on it set Adolf Hitler and his decrees above every law of God or Man. Obama's admirers approve of this; he's their boy, and they want all power concentrated in his hands. One of those admirers is Muammar Qaddafi, dictator-for-life of Libya, who said at the recent United Nations session that he'd like to see Obama remain president forever.
Somehow your Curmudgeon doubts that Qaddafi sees the separation of powers and the constitutional constraints on government quite the way America's Founding Fathers did. Judging from his behavior to date, Obama is more likely to share Qaddafi's view than that of the Founders.
It's historically well confirmed that in troubled times, when many are suffering even if only in a relative sense, the great mass of men will follow a resolute leader into Hell itself, if he displays sufficient strength of will to keep to his course despite all opposition. Indeed, Hell is the usual destination. After all, a leader of such resolve can't be expected ever to admit that there are limits to his knowledge or abilities, can he? As for opposing the Leader or asserting that he's wrong... well, saying that sort of thing can get your whole family murdered.
Obama plainly sees himself as above error and free of human frailty. He's surrounded himself with persons eager to reinforce that conviction. He's encouraged PR goon squads to slander his opponents without limit, and union goon squads to intimidate and assault those who dare to organize against his agenda.
"We are one people, one nation, and the time for change has come!" -- Barack Hussein Obama, January 20, 2009"Ein Volk, ein Reich, ein Fuhrer!" -- Adolf Hitler
It might take more than an election, or a Constitutional term limit, to remove this man from office.
Keep your powder dry.
Tuesday, September 22, 2009
Banking and the Money Supply I: Sources of Inflation
In order to determine whether we face a future of mass inflation or a deflationary spiral, we need to understand exactly what these terms mean, by what mechanisms they occur, and how the consequences of inflation and deflation play themselves out in the broader economy.
Last time, we knocked the first one out when we looked at two possible ways to describe inflation and concluded that the expansion of the money supply was more useful than descriptions of price movements. Conversely, deflation is best defined as a contraction in the money supply. We also briefly touched on the effects that expansion of the money supply has on the economy, and even society at large.
We will now examine just how the money supply is influenced by America’s central bank, the Federal Reserve (FED), and the banking system it serves. Once we are finished, we should have a general idea of the “rules of the game” and the laws that govern the creation and destruction of money under the present banking regime.
Warning! I have been told by many sources, some of which I consider reputable, that I haven’t a clue what I’m talking about when I discuss fractional reserve accounting. Occasionally I have been told that goes for pretty much everything else, too, whacko, so why not shut the heck up. That may be the case. I might get a few things wrong. I am, after all, an amateur.
But I try not to let snide remarks and piddling considerations of fact prevent me from making a fool of myself. If you want the story straight from the horse’s mouth, check out “Modern Money Mechanics,” a self-indicting document put out by the Federal Reserve Bank of Chicago some years ago.
Inflation
You have probably heard the charge of government “printing money” from many sources. You may have heard the charge refuted by stating that all money is “debt based,” and since debts must be repaid, money is therefore not printed and that this system is therefore “fair.” The reality is that the new money created by the banking system is generally not “printed”—printed and coined money are called currency to distinguish them from the broader concept of money, which may have no physical existence at all except as entries on an accountant’s books. It is debt based, but this is not to say that “it eventually gets repaid” or somehow isn’t real.
Money is created through accounting practices used by the banking system. I hope that sounds as irrational to you as it does to me. After all, how can it be called “accounting” when the result of doing it is an increase in the thing we are supposed to be “counting?” When I count things, I usually wind up with the same quantity at the end as when I started, though sometimes things get hairy when I run out of fingers and toes. But banks don’t; they usually manage to come up with more, at least right up until the point that they fail and start taking money from taxpayers. Wouldn’t it be more honest, you might ask, to call it something else, like maybe “multiplying?” Or, some more judgmental types might suggest, “lying” or “fraud?” But as we will see, honesty is really beside the point here. We are talking about America’s financial system!
Boring as it may seem, to understand inflation and deflation we will have to understand at least a little bit about how banks do their accounting. But I promise, it isn’t that bad. You’ll make it. The inflationary accounting trick that results in changes to the money supply comes from two primary sources: fractional reserve banking and asset purchases/lending by the FED. Neither is really that hard to understand. Well, not “understand,” since it doesn’t actually make any sense. It’s just the way things are done, that’s all, and if you want to know what’s going on, you’ll just have to get used to it.
Fractional Reserve Banking and the FED
You probably heard about how the practice of fractional reserve banking multiplies the supply of money in your high school economics class. For most young people, this seems a little strange, but hey, more money is better, right? And it says so in an actual textbook. On economics, no less.
It is not until we reach adulthood that we recognize that most statements appearing in textbooks are either lies, blasphemy, or incoherent nonsense. Luckily, like most of those other bothersome fact thingys that inflict themselves on us while we’re at school, it probably went in one ear and out the other without really sticking anywhere in between. But since that is the subject of today’s post, for most of us we’ll need to go over it one more time.
Reserves
Most such discussions start out with “when you go to your bank and deposit $1000 in your bank account...” But I’m not going to start there, because that’s not where money starts. If money started with you, you probably wouldn’t go to work every day. You’d probably sit at home and exude money. I would.
But here in the US of A, most private parties that make a habit of exuding money wind up in prison on charges of counterfeiting. There’s only room for money exuder in the US, and that is the FED. As we’ll see, money starts with the FED. So in talking about fractional reserve accounting, I’m going to start with “reserves,” which is a deposit of money sitting in a bank that is initially provided by the FED.
The FED produces reserves by buying assets and lending money. In banking, buying assets vs. lending money is usually a distinction without a difference. Banks usually buy “debt instruments,” like bonds and mortgage notes. So, they are buying a contract that stipulates that the holder of the contract is entitled to regular payments with the return of principle plus interest over time. Just like a loan extended by the bank. Either way, money it transferred out of the bank to somewhere else, and some party owes the bank money.
When the FED buys an asset or extends a loan to another bank, it assumes ownership of the asset/loan obligation and credits the seller/borrower with money that never existed before. The FED creates money when it buys assets. Simple as that. The FED is taken to be able to issue an endless supply of money, so that it can buy as many assets or as few as it likes, regardless of price, and extend loans of any quantity whatsoever. The money issued is considered a liability of the FED balanced by the asset it purchased, which becomes part of the FED’s balance sheet. Our money units are called Federal Reserve Notes (FRN) because they constitute liability claims against the assets held by the FED. Theoretically, anyway. Try enforcing your pathetic little “claim.”
It keeps track of such purchases with neat little 2-column charts called “T” accounts that look something like this:
Looks nice, doesn’t it? Clean, tidy and “balanced.” Neat little charts produced by highly educated, meticulous people in spiffy suits have the uncanny ability to create the air of legitimacy, don’t they? I mean, look at the balance. These people are smart! And so meticulous! Brings a certain German political movement to mind…
Legitimate or not, money is created out of thin air, ex-nihilo, from nothing, by this process. This ex-nihilo money is called the “monetary base.” It is also sometimes called “high-powered money” because it has yet to be multiplied by the fractional reserve system.
Fractional Reserve Banking
The money which the FED spent to buy the asset from the private seller enters the banking system as new “reserves” in the seller’s deposit account with his bank. A fraction of these new reserves must be kept “on reserve” while the remainder may be lent out. Thus begins the process of fractional reserve banking. At this time, the legally required fraction is 10%, but banks are not required to lend up to this amount. Usually, they do not. Whatever fraction is left over above the 10% that is not lent is termed “excess reserves.”
Like the FED, banks use the same neat little T-account charts to keep track of their own pilfering shenanigans. A bank which has lent out money up to its reserve requirement would have a T-account that looked something like this:
Remember: virtually all money is held in some bank account, somewhere. Though it is conceivable that the borrower is walking down the street with a large roll of currency in his pocket, it isn’t likely. The money lent out to the borrower will more likely wind up in another bank account as soon as the borrower spends it on whatever it is he borrowed the money to buy. This is indicated by the T-account above.
Notice that the money deposits fall in the liability columns. Deposits are considered a liability with the bank and do not disappear when money is lent out. The entity holding the deposit account is still considered to have money on deposit with the bank. It may withdraw and spend this money at any time, and the bank simply has to come up with the money for transfer. Both the money lent out and the deposit held at the bank are considered and accounted as money at the same time. Lending up to the required minimum reserves increases the money supply by 90% of the initial reserves.
I don’t care what neat little chart some bankster wants to show me, this accounting is not legitimate. It is not accounting when the money supply increases as a result of a transaction. It is fraud.
Further, the money which has been lent out is spent by the borrower and winds up in the deposit account of the seller in another bank as new reserves exactly as before. From there it can be lent out to yet another party and held as a deposit simultaneously, getting counted twice, exactly as before. If this continues up to the theoretical limit, which it rarely does, the initial asset purchased by the FED will result in 10X the purchase price in circulating money.
You’d think this system would strike any sane, reasonably intelligent person as stupid. But that’s how we do things. Most of us go along with it without giving it a second thought.
What could possibly go wrong?
Notice the difference between bank lending and lending you might do on your own. Suppose you buy a bond from a corporation that needs to borrow money. You give your money to the corporation, and they give you the bond with a promise to pay you back over time. No money is created or destroyed by this process, whether you get paid back or not. It simply changes hands.
Purchases and loans by banks are unique in this regard. Why they are afforded such privileged status, I do not understand. But that is the system.
Monetary Statistics: AMB, M1 and M2
The “money supply” can be monitored by a variety of monetary statistics which are available for free at the website of the Federal Reserve Bank of St. Louis. You may ask, “Why are there several measures? Isn’t there only one supply of money?”
Yes, there is. But in another of those zany aspects of the world of economics, economists cannot even come to an agreement on what money actually is. You might have guessed as much considering the type of accounting they permit right under their noses.
I do not want to go into any boring details trying to define money. Most of us have a basic understanding of it as the thing we use as the universal exchange medium for other goods. For the absolute best, most readable, concise introduction of money I have ever read, see Mises on Money, a free mini e-book hosted by LRC. Here, I will stick to the basic gist of the monetary statistics I think are most useful.
The Adjusted Monetary Base (AMB) is simply the supply of money put into circulation as the result of the accumulated transactions of the FED. This is the “high-powered” money supply which enters the banking system as the result of FED asset purchases, before multiplication by the fractional reserve process.
M1 and M2 are two different descriptions of the money supply which are produced by adding up money in circulation. The principal difference between them is that M1 does not contain money held in “time deposits,” a.k.a. savings accounts and CD’s, since this is not considered as “available” for spending as is money held in “demand deposits,” a.k.a. checking accounts. These money statistics do include the results of fractional reserve multiplication.
MULT is the M1 multiplier. It is equal to M1/AMB. It is an expression of the effect that fractional reserve multiplication has on the monetary base to produce the circulating money supply.
Now that we’ve dealt with the principle sources of money and monetary inflation, and have had a look at how to describe these quantities, it is time to consider the sources of deflation.
But I’ll leave that for next time…
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Cross-posted at 3CNB
Celebritarianism
AMERICAN POLITICS IN A NUTSHELL:
- Liberalism: The political creed that advocates free ice cream for everyone, to be paid for with defense cuts.
- Conservatism: The political creed that argues against doing anything for the first time.
- Libertarianism: The political creed that commands you to "do whatever the hell you want -- let's see you break that law!"
- Celebritarianism: The political creed that awards power on the basis of air time and column-inches.
With the elevation of Bill Clinton to the presidency, we were said -- mostly by performing arts celebrities -- to have entered, at long last, the Aquarian Age. With the elevation of Barack Hussein Obama to the presidency, we have entered, well and truly, the Celebritarian Age: the age of Man in which all that matters about a political figure is how much media adulation he can garner for himself.
The Celebritarian Ascendancy came upon us gradually, like a nasty cold. First we were introduced, mostly via television, to the offstage personalities of actors and entertainers, whom we'd previously known solely from their performances. Then came the explosion of popular music, pushed upon unprecedentedly affluent American youth by a nationwide web of radio stations in collaboration with the major recording firms, and the promotion of rock and pop stars as figures to admire and emulate. Then came the penetration of performers into the political sphere, first in their entertainments (for example Robert Redford's The Candidate) and subsequently as political activists and aspirants to public office.
Our fate wasn't quite sealed when Ronald Reagan became Governor of California, but the path toward it was getting ever harder to deviate from. Today, your Curmudgeon would posit that most of the nation's actors are involved in politics...and that, whether AFTRA or SAG admits it or not, most of the nation's politicians are actors.
As with Orwell's Party, Celebritarianism has an Outer and an Inner circle. The function of the Outer Celebritarian circle is to maintain an unceasing drumbeat of propaganda that numbs the proles, mobilizes the more energetic to scrutinize their relatives and neighbors for deviationism, and generally lauds the rule of the Inner Celebritarians. The purpose of the Inner Celebritarian circle is exactly this: to acquire all power, grip it tightly, and permit no alternate authorities nor nodes of resistance to arise. As O'Brien said to Winston Smith, the purpose of power is power.
Note especially this: dictators everywhere want to be adored, to be regarded as quasi-divine by their subjects. To this end, they all strive to marshal the Celebritarians to their cause. Matters Celebrtarian have crested in our time, as the politicians of democracies have striven to harness the power of Celebritarianism to their own ends.
Celebritarianism is relatively young for a political movement; it's been with us less than sixty years. Yet it has achieved greatly, and the results are before us. Never before have performers been so completely immersed in politics; have a gander at the "I Pledge" video made by Demi Moore et alii if you disagree. Never before have they been so influential. And never before has a president of the United States relied so completely upon Celebritarian charisma and propaganda.
There's a certain logic to that, for Barack Hussein Obama is as close to being a perfect deceiver -- "perfect" in the sense that he couldn't become any more so with any exertion of effort -- as a human being can get. A deceiver cannot argue for his true intentions; that's impossible on its face. As he knows that what he wants to do to you will be to your detriment, he has to seduce you into acquiescence without exciting your suspicions. As human beings are naturally suspicious, especially of politicians who claim to have "the people's" best interests at heart and no ambitions for their own aggrandizement or gain, this requires well planned, consistently executed propaganda: that is, systematic nationwide deceit.
Fortunately for Mankind, the universe has unalterable laws. One of those laws is that a purposeful deceit must eventually be laid bare. Another is that a man who repeats himself endlessly, who shoves his face before every available camera, and who strains to silence and delegitmize those who criticize him, will evoke resistance equal to his efforts on his own behalf. People simply don't cotton to that kind of treatment. Americans are already rising against Obama for that reason.
Perhaps the crescendoing distaste for our Actor-in-Chief will spill over onto the Celebritarians who've been instrumental in his rise. We can count on their continued support for their demigod; he gives their lives, dominated by words and melodies composed by smarter others, meaning it would otherwise lack. But we can also count on the anger of the ordinary American, as the extent to which the Celebritarians have deceived him becomes more visible.
We shall see.
National Endowment For Incompetent Whores
There's a new power abroad in the land.
When the blog first matured into something other than a joke, there was InstaPundit. As blogs proliferated and developed topical specialties, we saw the emergence of Atlas Shrugs, Gates Of Vienna, and Ace Of Spades. And the Old Media, whether dead-tree or electromagnetic, were not pleased.
They'll be even less pleased with Big Government, Andrew Breitbart's blockbuster new offering. Breitbart and his collaborators are bidding fair not merely to supplement the "traditional" journalistic outlets, but to supplant them entirely. Their latest scoop, on the Obama Administration's use of the National Endowment for the Arts as a propaganda organ, will soon have the entire country agog.
Quite a lot of Americans, particularly young ones, allow the political opinions of artists and performers more respect than they deserve. MTV's "Rock the Vote" campaign in 1992 was responsible for much of the support for Bill Clinton. The enthusiastic support of artists and performers for Barack Hussein Obama, and their participation in the campaigns of slander against John McCain and Sarah Heath Palin, undoubtedly had something to do with his elevation to the presidency.
The aspect of this your Curmudgeon hopes will strike home with the general public is the way it cross-cuts the "traditional" attitude of the artist as a counterweight to the established order. It wasn't as apparent in 1992, or even in 2008, as the politicians who received the preponderance of the arts community's support were running against Republican incumbents, but things are different today. Apparently it was a shallow tradition, easily shrugged aside for thirty pieces of silver.
After the era of aristocratic patronage, when artists-by-trade largely had to make it on their own or starve in an unforgiving capitalist order, their orientation morphed from toadies toward the powerful to enemies thereof. The reasons for this should require no elaboration. Over the decades, the public gradually accepted the arts community's self-hype about its mission being to "speak truth to power," to "comfort the afflicted and afflict the comfortable," and so forth. With occasional exceptions, their behavior was superficially consistent with their representations of themselves. (Compare Ochs's deification of Kennedy to Dylan's savaging of Lyndon Johnson.)
How times have changed ...and how eager the Left has been to change them.
What we see from the NEA scandal and the arts community's willing collaboration is that charity can destroy anyone. We've known it for a while about welfare; today, with the return of aristocratic patronage in the guise of state-supported arts, we can see it happening to the very persons who were most ardent about "speaking truth to power," "questioning authority," et cetera ad nauseam infinitam.
Your Curmudgeon predicts that Americans outside the arts world will not be pleased.
"A government-supported artist is an incompetent whore!" -- Robert A. Heinlein, Stranger in a Strange Land
Bravo Sierra Alarm Going Full Blast
ALTHOUGH, AS SEEMS to be the routine these days, nobody’s paying it much mind…
When Doctor Zero, on This Week With Georgie Snuffaluppagus, asserted that “This is hardly the biggest issue facing the country...” about the A.C.O.R.N. scandal.
Trust a corrupt politician to handwave a question of corruption.
But the fact is that this is exactly the biggest issue facing the country. It is existential: will America continue down this road of incremental drift toward socialism, statism, dictatorship, disenfranchisement of the individual? Or will We the (Little) People be able to claw back power from Washington and restore our liberty to a semblance of what it was dreamed to be at the Founding? And… can it be done without bloody civil war?
There can be no greater issue.
Which brings us to…
