Money & Credit

Why Duration Mismatch Will Always Fail

By Keith Weiner

I have written a number of pieces on fractional reserve banking and duration mismatch.  I have argued that the former is perfectly fine, both morally and economically, but the latter is not fine.  I have dissected the arguments made against fractional reserve banking, and pointed out that it is nothing more than a bank lending out some of the money it takes in deposits.

I have debunked the most common errors made by opponents of fractional reserve

Banks print money;

They lend more than they take in deposits;

They inflate the money supply;

Money is the same as credit;

Fractional reserves banking is the same thing as central banking;

It is the same thing as duration mismatch.

Duration mismatch is when a bank (or anyone else) borrows short to lend long.  Unlike fractional reserve, durati& Crediton mismatch is bad.  It is fraud, it is unfair to depositors (much less shareholders) and it is certain to collapse sooner or later.  This is not a matter for statistics and probability, i.e. risk.  It is a matter of causality, which is certain as I explain below.

Back to the City

Young millennials prefer urban living

By Howard Husock

Serving as executive editor of Governing magazine for nearly two decades, Alan Ehrenhalt would have had a record to boast about had he done no more than assemble his crackerjack staff of writers and reporters, who made the magazine a must-read for those wishing to understand the workings of American federalism. He also penned a consistently insightful—and politically unpredictable—column on state and local government. As a columnist, moreover, Ehrenhalt often built on his own original reporting. A column, say, on light rail in Minneapolis would discuss not just transportation but also the potential impact on property taxes for the lots on one street corner. A column on politicians caught up in patronage scandals would come around to accepting the inevitability of such unfair hiring—and provide some good reasons for it. Like a policy-oriented version of Calvin Trillin’s “U.S. Journal” columns in the New Yorker, Ehrenhalt’s editorials would regularly uncover local situations that showed how America was changing—such as Chicago mayor Richard Daley’s support for neighborhood activists seeking to shut down the city’s legendary taverns.

Out Of Africa

Africa will Matter

By NOAH MILLMAN

So, I was having lunch earlier this week with an old friend of evol-con inclinations, and as conversations with such people do, the conversation turned to What Really Matters – the point of the conversation being to knock the stuffing out of whatever everybody else seems to think matters, and set them straight. We didn’t bother with obvious targets for stuffing-knocking like the Presidential election or gay marriage and went straight for the big stuff. Do schools actually matter, or it basically a combination of babysitting and sorting by IQ, with almost everybody doing their most important learning outside of formal education? Does religion actually matter, or is it an epiphenomenon, accommodating itself to whatever scientific, economic and political facts it has to in order to survive?

My candidate for something that Actually Matters: the demographic explosion in sub-Saharan Africa.

In 2010, the U.N. estimates there were over 850,000,000 people in sub-Saharan Africa. That’s nearly double what the population of the region was 25 years prior, in 1985. By 2035 – 25 years further on – the population of sub-Saharan Africa is projected to nearly double again, to nearly 1.5 billion people. In another 25 years, the population will be nearly 2.3 billion. In 50 years, over 1.4 billion people will be added to the world population from this region.

Markets First, Elections Later

Why democratization fails from Russia to Iraq

Andranik Migranian

By MARTIN SIEFF

It was November 1989, and I was in Moscow accompanying a delegation of senior Washington Times editors. They were eager to gloat over the coming collapse of communism with their own eyes.

We were in the shabby, very much the worse for wear, unpretentious little office of the chief ideologist of the Institute for the Study of Systems of Socialism. His name was Andranik Migranian. Today he is a wealthy and successful man, running a think tank in New York, and has been consulted by Russian leaders for more than 20 years.

For all his stature in Russia and his practical professional success, Migranian remains almost unknown to the American media. His influence in the halls of Congress, the White House, and the State Department is zero. In those days he was an enthusiastic champion of democracy for Russia. But he believed that it would take at least 20 years, maybe more. A free market would have to be created first. Migranian argued passionately that the worst way to create democracy was to create it instantly from a standing start.

Why Berlin Is Balking on a Bailout

Greece has received a staggering 115 Marshall plans, 29 from Germany alone, and yet the situation has not improved
By HANS-WERNER SINN

Although Europe may seem far away from the economic life of the average American, the fate of the euro zone weighs heavily on the United States economy. Pension funds have invested in bonds issued by southern European states, while banks and insurance companies have underwritten a sizable fraction of the credit-default swaps protecting investors against default.

It’s no wonder, then, that President Obama is urging Germany to share in the debt of the euro zone’s southern nations. But in doing so, he and others overlook several critical facts.

For one thing, such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court.

Moreover, a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.

Eutopia, Limited

"Are you lost, Daddy?"

By Mark Steyn

As the advanced social-democratic Big Government state sinks under a multi-trillion-dollar debt avalanche, the conventional wisdom remains all too conventional, and disinclined even to mount an argument. So much "progressive" debate boils down to Ring Lardner's great line:

"Shut up," he explained.

It's an oft-retailed quote. But fewer people know the line that precedes it (in Lardner's novel The Young Immigrunts): a kid asking, "Are you lost, Daddy?"

The Futility of European Elections

The more elections are held, the more the public will force their leaders in various directions

By George Friedman

Europe and the financial markets watched intently June 17 as Greece held general elections. German Chancellor Angela Merkel, French President Francois Hollande and Italian Prime Minister Mario Monti all delayed their flights to the June 18 G-20 summit in Mexico to await the results.

The two leading contenders in the elections were the center-right New Democracy Party (ND), which pledged to uphold Greece's commitments to austerity and honor the country's financial agreements with the European Union and the International Monetary Fund, and the Coalition of the Radical Left (SYRIZA), a group of far-left politicians who pledged to reject Greece's existing agreements, end austerity and maintain the country's position in the eurozone. A third major party, the center-left Panhellenic Socialist Movement (PASOK), shares the ND's position of maintaining Greece's bailout agreement. PASOK had been Greece's ruling party until it formed a unity government with the ND late in 2011.

The Price of Life — Afghan and American

A lesson in the price of "collateral damage."

By TOM ENGELHARDT

“Do you do this in the United States? There is police action every day in the United States… . They don’t call in airplanes to bomb the place.” — Afghan President Hamid Karzai denouncing U.S. air strikes on homes in his country, June 12, 2012

It was almost closing time when the siege began at a small Wells Fargo Bank branch in a suburb of San Diego, and it was a nightmare. The three gunmen entered with the intent to rob, but as they herded the 18 customers and bank employees toward a back room, they were spotted by a pedestrian outside who promptly called 911. Within minutes, police cars were pulling up, the bank was surrounded, and back-up was being called in from neighboring communities. The gunmen promptly barricaded themselves inside with their hostages, including women and small children, and refused to let anyone leave.

The Chinese Kleptocracy Is Like Nothing Ever Seen In Human History

This Is How It Works

by John Hempton

China is a kleptocracy of a scale never seen before in human history. This post aims to explain how this wave of theft is financed, what makes it sustainable and what will make it fail. There are several China experts I have chatted with – and many of the ideas are not original. The synthesis however is mine. Some sources do not want to be quoted.

The Experiment Has Failed

Finance the government, save the banks, screw the people

By Simon Black

After about an hour’s worth of air traffic congestion delays around JFK airport, I finally departed New York City yesterday evening en route for Vilnius, Lithuania… one of my favorite inconspicuous corners of Europe.

The route took me through Helsinki, Finland for a brief connection, and I was on the ground long enough to witness something truly bizarre: a complete and utter lack of people.

I could practically count on two hands the number of passengers milling around the airport this morning during peak business hours… it was almost something out of a zombie movie.

Ordinarily I would have seen hundreds, thousands of people… and I have in the past as I’ve traversed this route many times before. And no, today was not a holiday.

The Folly of ObamaCare

Is it a case of bad judgment?

By Robert Samuelson

We pay our presidents for judgment, and President Obama committed a colossal error of judgment in making health-care "reform" a centerpiece of his first term. Ahead of the Supreme Court's decision on the Affordable Care Act (ACA) -- and regardless of how the court decides -- it's clear that Obama overreached. His attempt to achieve universal health insurance coverage is a massive feat of social engineering that, by its sweeping nature, weakens the economic recovery and antagonizes millions of Americans.

Let's review why the ACA ("Obamacare") is dreadful public policy:

Energy, Democracy and Freedom

Energy Abundance vs. the Poverty of Energy Literacy

By Kenneth P. Green

Energy is all around us and we consume copious quantities of it. We only question it when it’s expensive or not there. Therein lies a challenge for politics and society

In the midst of all the debate over fossil fuels, we seem to have forgotten this fundamental role of energy in life. We think that all we need energy for is to drive our cars, fly around the world, run our electrical gadgets. But more important is that abundant energy is necessary for our way of life, for our civilization.

If that energy were to vanish, we would find ourselves once again living at the margin, and might well see the end of many things that we don’t associate with an energy supply, including democracy and the freedom and creativity that leisure makes possible. —Daniel B. Botkin

Even though energy is all around us, and we consume copious quantities of it in virtually every form imaginable, most people only really think about energy when one of two things happens: Either they open their mail one day and have an unwanted epiphany when they realize that one of their energy bills has become uncomfortably high—for diesel fuel, electricity, natural gas, heating oil, propane, and so on. Or, they suddenly have one of their energy systems or energy-dependent devices let them down, as, for example, when the electricity goes out; the alarm clock fails; the stove won’t light; the water heater breaks down; the car runs out of gas or has a flat battery; their Kindle, netbook, iPod, or Droid is powerless; or, worse, they wake up to a dead coffeemaker (something that would probably disturb many Americans most of all).

A Whole Different Kind of Innovation

New business models may not be as sexy as new technology. But their impact could be just as great.

By ELIZABETH M. BAILEY AND CATHERINE WOLFRAM

Until 2008, most people paid for their rooftop solar panels upfront, usually laying out at least $15,000 and sometimes as much as $60,000. Such a hefty cost limited the market for residential solar installations to cash-rich homeowners, restricting the potential for growth.

Then came solar leases, which allow customers to make monthly payments. Solar costs have come down, so customers with smaller systems can now pay as little as $100 per month and nothing upfront.

The result: The market has opened up to a whole new group of homeowners.

Since 2010, third-party-owned residential solar installations have taken off, while customer-owned systems have remained flat. In California, the biggest solar market, most customers are now opting for third-party installations.

Outside the Lab

Energy innovation typically calls to mind a scientist in a lab, working with new materials for solar photovoltaic cells, or a new enzyme to convert plant matter to biofuels. As important as such technology innovations are, there is another kind of innovation that is crucial to meeting the challenges associated with energy use.

Greece Is Still Doomed And So Is The Rest Of Europe

Forget The Election Results

 

by Michael Snyder

The election results from Greece are in and the pro-bailout forces have won, but just barely.  It is being projected that the pro-bailout New Democracy party will have about 130 seats in the 300 seat parliament, and Pasok (another pro-bailout party) will have about 33 seats. Those two parties have alternated ruling Greece for decades, and it looks like they are going to form a coalition government which will keep Greece in the euro. 

On Monday we are likely to see financial markets across the globe in celebration mode.  But the truth is that nothing has really changed.  Greece is still in a depression. The Greek economy has contracted by close to 25 percent over the past four years, and now they are going to stay on the exact same path that they were before.  Austerity is going to continue to grind away at what remains of the Greek economy and money is going to continue to fly out of the country at a very rapid pace. Greece is still drowning in debt and completely dependent on outside aid to avoid bankruptcy. Meanwhile, things in Spain and Italy are rapidly getting worse.  So where in that equation is room for optimism?

Right now the ingredients for a "perfect storm" are developing in Europe.  Government spending is being slashed all across the continent, ECB monetary policy is very tight, new regulations and deteriorating economic conditions are causing major banks to cut back on lending and there is panic in the air.

Honor From Our Fathers

Happy Father’s Day!

"My father gave me the greatest gift anyone could give another person: he believed in me."- Jim Valvano

by Dr Zero

Honor is essential to the maintenance of a free society. We learn about honor from our fathers.

When the duties of fatherhood are widely dismissed, or rendered poorly, our understanding of honor is diluted… and freedom soon begins to wither.

This is not to belittle the importance of mothers. Many single mothers do a spectacular job of providing their children with an understanding of personal honor. We can respect and celebrate the achievements of extraordinary individuals, without blinding ourselves to the effect of broad trends upon vast populations. Both fathers and mothers are uniquely important. Our society is suffering from a pronounced deficit of fatherhood.

There are many ways to define honor. I suggest viewing it as an expression of faith, in both yourself and others. An honorable man or woman displays honesty and integrity because they believe others deserve such treatment. It is a sign of faith in other people that we deal honorably with them, and presume they will do the same, unless they prove otherwise. Honor is also a gesture of respect we offer to ourselves, because we have faith that we can succeed without deceit and savagery. If you truly respect yourself, you believe you can win without cheating.

A good father reveals the nature of honor to his sons and daughters through his conduct. He is loyal to his wife and children, despite the easy temptations offered by the modern world. He works to build a better future for them, rather than waiting for it to be dropped in his lap, or demanding others provide it for him. He rejoices in this task, and his joy is so obvious that his family forgives his occasional moments of weariness or frustration. Through marriage, he has chosen duty over indulgence. He sees the intricate beauty of permanence, when the flickering neon light of passing fancy is more obvious. Honor is one of the many frequencies of love.

The absence of a father is a terrible burden for children, and their mother, to bear. I know, because I’m one of the many children who grew up without my father in the house. It’s a pain that is not always easy to understand. What’s missing is too big to be seen clearly. Generations have grown up listening to the seductive lie that fathers are less than critical. They are portrayed as a dangerous accessory, prone to explosion and meltdown, easily replaced by a wad of cash or a government check. Some men have disgraced themselves by allowing this lie to spread, because it suits their convenience. Some women spread it because they have lost faith in the human race, and believe they armor themselves against an inevitable tragedy.

The opponents of freedom spread this lie because they understand honor sustains liberty, and it flows from the loyal union between fathers and mothers. Honorable people carry their freedom with dignity. They understand the difference between charity and dependence. They are energized with faith in themselves, which makes them courageous enough to take risks. Honor builds trust between individuals, enhancing the value of voluntary cooperation.

The honor we inherit from our fathers makes us adventurers, explorers, architects, and paladins. Without it, too many people become predatory, or sessile. Either way, those people are clay to be molded by the will of others. When we act in the name of our fathers, we bear the strength of history. Deprived of this strength, many are trapped forever in the present moment, with past and future beyond their reach. A good father teaches us that the past and future come as a set.

Some fathers are absent without ever leaving the house. To them, I would say that fatherhood is your greatest opportunity to testify, before all Creation, that you are not a beast. Follow its difficult path, in the company of your wife and children, and you may come to understand the true meaning of forever… and then I will envy you, until I am fortunate enough to join you. If you grew up without a father, then I hope you answer the challenge to give your children what you and I did not have. An honorable man understands the world is not fated to lose its battle against entropy. He knows he can help his children make it better. Look upon them, and understand: you are indispensable.

Happy Father’s Day!

It’s Not a Welfare State, It’s a Special Interest State

The concept of ‘welfare’ has become an open, bottomless vessel into which every desire can be poured

By James V. DeLong

One of the most successful linguistic hijackings ever is the Left’s appropriation of the term “welfare state.”

No one opposes the most basic version of a welfare state, one that provides essential public facilities, cares for the destitute and unfortunate, educates children, and protects public health and safety. Indeed, as the Supreme Court said in 1881, during an era regarded by the Left as a dark-age trough, “It will not be denied by any one that these are public purposes in which the whole community have an interest.”

A democratic polity can bicker over the scope of these functions. Some think care for the unfortunate should go a long way in the direction of income redistribution and that protecting public health requires extensive regulation. Others are more cautious. But these disagreements, while sometimes acrid, are within the bounds of civil political contest.

Why Greece Is Still Headed for the Exits

Greek Elections: What they mean for Greece, the euro, the EU—and beyond

By James Pethokoukis

Based on final exit polls, Greece’s New Democracy party will —  narrowly — be the leading vote getter in today’s big elections in Greece, edging out  left-wing coalition Syriza.

Again, this means the Status Quo party (accept the bailout and its condition with some tweaks) has defeated the Stop the Austerity Party (reject the bailout conditions and dare the EU to stop the money) and will have a parliamentary majority. That, of course, if ND successfully enters into a coalition with Pasok, the socialist party.

Here is the breakdown based on those exit poll results:

– New Democracy 127 seats

– Syriza Party 72 seats

– Pasok 32 seats

A Greek Reprieve

The Germans might have preferred a victory by the left in Athens

By WSJ Editors

Europeans—at least the non-Germans—breathed a sigh of relief Sunday as a plurality of Greek voters took a step back from jumping out of the euro zone. Now we'll see what Europe's leaders can do with their latest reprieve.

Tallies as we went to press Sunday indicated the center-right New Democracy party won some 29.5% of the vote, up from its 18.8% showing last month. New Democracy told voters it wants to remain in the euro zone while claiming it would be better able to renegotiate the terms of the Greek bailout provided by the rest of the Europe.

Trailing New Democracy was the hard-left Syriza coalition with 27.1%—up substantially from its count from last time. The center-left Pasok, which dominated Greek politics for a generation and won the 2009 elections, was slated to take a mere 12.3%. Pasok polled only slightly more votes than the combined tally for the Communists and the neo-Nazi Golden Dawn.

New Democracy leader Antonis Samaras has a better chance at forming a government than he did two months ago—if only because failure would mean repeating the protests and violence that seem to increase with each Greek election. Pasok leaders have been coy about joining a New Democracy government, but that may change if the alternative is another election or more chaos.

Secular Religions

Early Secular Communism

by Murray N. Rothbard

During the havoc and upheaval of the French Revolution, the communist creed, as well as millennial prophecies, again popped up as a glorious goal for mankind, but this time the major emphasis was a secular context. But the new secular communist prophets were faced with a grave problem: What will be the agency for this social change? In short, religious chiliasts never had problems about agency, i.e., how this mighty change would come about. The agent would be the hand of Providence, specifically either the Second Advent of Jesus Christ (for premillennialists), or designated prophets or vanguard groups who would establish the millennium in anticipation of Jesus's eventual return (for postmillennialists). King Bockelson and Thomas Müntzer were examples of the latter. But if the Christian millennialists possessed the assurance of the hand of Divine Providence inevitably achieving their goal, how could secularists command the same certainty and self-confidence? It looked as if they would have to fall back on mere education and exhortation.

The secularist task was made more difficult by the fact that religious millennialists looked to the end of history and the achievement of their goal by means of a bloody apocalypse. The final reign of millennial peace and harmony could only be achieved in the course of a period known as "the tribulation," the final war of good against evil, the final triumph over the Antichrist.[1] All of which meant that if the secular communists wished to emulate their Christian forbears, they would have to achieve their goal by bloody revolution — always difficult at best. It is no accident, therefore, that the heady days of the French Revolution would give rise to such revolutionary hopes and aspirations.

Greece—What matters and What does Not

Dealing with incorrect facts leads to incorrect conclusions

By Mark Grant

The bond market is heading East while the equity markets heads West because they have two totally different focuses at present. I have seen this often enough in my almost four decades on Wall Street and I am always amused when this differentiation takes place. It is really just a reaction to what either market is staring at that causes this phenomenon to take place and, eventually, one market proves to be correct while the other gallops along to catch up. The stock markets seem buoyed by the possibility of the more EU friendly government to win this Sunday’s election and they are taking comfort in the hope for support of the world’s major central banks and the possibility of more easing; a new or redefined QE3. The fixed income people are concentrating on the possibility of a systemic financial shock, the recession in Europe that will affect the United States and the plight of the European banks. In my experience the bond markets generally get it right and get there first and I expect nothing different this time.