Inflation Inflation Everywhere and Not a Drop to Drink

...from CIGA Pedro at JSMineSet.com

At last, the doubters have nowhere to hide. The world is starkly revealed as an interconnected political economy force, and not as a disparate grouping of various nations, some authoritarian, some choosing democratically agreed upon policies, creating policy choice and thereby shaping of political outcome. Greece, Ireland, Tunisia, and now, the fulcrum of the Arab world, Egypt, stand as testimony. They are countries caught up in the machinations of a monetary policy to debase the world's reserve currency. All "he" wanted was some inflation, a little inflation to get America and the west out of the deflationary spiral caused by the failure of financial instruments (a.k.a. OTC Derivatives) and un-payable government debt - but he can't get it. Everywhere it rages, but the place he wants it - home. So it erupts in global food prices and manifests itself in the attempts to bail out stone dead banks on the backs of the marginal economic player - post-destruction of the middle class. Most of the world has no savings to get through difficult times. Most of the world cannot "hedge" inflationary outcomes. Those outcomes appear quickly and change realities violently. The inflationary reality is their reality - the difference between starvation and survival. The result? Global upheaval, leading to where, we are not sure... but probably nowhere nice. Think American monetary policy was a uniquely sovereign, American affair? Think again. You are watching QE II live on television. American monetary policy and the global "race to debase" is that raging crowd you see on the television from Ireland to Greece and Egypt. It is that nascent force which Chinese leaders awake in terror, wondering what a billion plus people might do if faced with stark choices. If you can't make the connection between the monetary policy and the political reality, you need to change the causal way you look at the world. Nations hold dollars in reserve to meet the demands of running an economy. When debasement takes place, the marginal economic player gets hit first. This is what we see now. But there is another, geo-political aspect many are missing. The western attempts to control multiple political outcomes and a global geo-political/military order rests on the ability to finance and control that order. When the money gets degraded, the ability to finance that order goes with it. Degradation of currency inhibits foreign force projection, both militarily and politically. Nobody in Egypt believes America is capable of controlling political outcomes, as they did from Suez to Mubarak. That era has passed. It passed with the Shah of Iran, and the death of the widely despised (in Egypt) Anwar Sadat. The Mubarak intermezzo is over. In the Arab world, what happens in Egypt doesn't stay in Egypt. The potential for "regime change" in Saudi Arabia is growing. Now we find  that the financial necessity for Dollar debasement wasn't as politically benign as people in Washington thought. Instability rages across a region that could usher in an era of global conflict. People say, "be careful what you wish for" when you talk about the end of western hegemony, but while the political hegemony is dying by the hour, the monetary hegemony is currently intact and its results are evident. When those results swing full circle and return to the west, currency upheaval will be guaranteed. Global system breakdown, which made its debut in 2008 is now back for its main act. Money printing didn't quite work out the way it was supposed to. This time, a rush to the security of Treasury instruments is unlikely to be the fallback position for global capital that now sees Fed monetary policy as a destructive boomerang cutting inflationary swathes across the planet... en route to its place of origin. CIGA Pedro

Jim Rogers on Commodities and the US Dollar

Contador will appeal Tour de France doping sanction

By: 

Cycling News

Published: 

January 28, 16:25, 

Updated: 

January 28, 18:25

 

Alberto Contador has said today that he will appeal the one-year ban that has been proposed by the Spanish Cycling Federation as a sanction for his positive test for Clenbuterol at last year's Tour de France. The Spaniard spoke at a press conference while at the Saxo Bank-SunGard training camp on Mallorca.

"I will do whatever is necessary to defend my innocence to the end," Contador said at the press conference. "The penalty is not fair."

Contador remains adamant that the Clenbuterol entered his system accidentally, through the consumption of contaminated meat.

"I have never doped," he said. "I think I am an example of cleanliness. I believed in the test system, not now. I do not believe in the system. I know what I'm exposed to and that's why I never doped.

"The only mistake I made is to eat meat that contained Clenbuterol. I have made some 500 controls in my life that have been in my house, on birthdays, they have taken me out of the cinema... and I accepted this because I always trusted this test system, but I do not believe in it. The system is obsolete and outdated."

Contador complained that he learned of the proposed sanction through press reports rather than hearing the news through official channels.

"It is shameful that it was leaked to the press before I was told officially," he said. "All this has allowed me to see the gaps and how poor the sport is, because I have given and suffered so much.

"It has been a public trial, an impeachment, with free and malicious comments that have a significant role in the proposed penalty."

Contador also confirmed that contrary to the stance he aired in October, he will not retire from the sport if sanctioned.

He was flanked at the press conference by Saxo Bank manager Bjarne Riis, who refused to be drawn on speculation that he has a contingency plan in place should he have to face the 2011 season without Contador's services.

"It's still speculation," Riis said. "We need to await the final rulings. I'm aware of the possibility that Alberto is not going to ride with us this year.

"I have a plan with Alberto and a plan for the team without him, but that is something I am keeping to myself for now."

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http://www.cyclingnews.com/news/contador-will-appeal-tour-de-france-doping-sanction

Has Gold's 'Heroic Seller' Gone Away?

by Peter Brimelow
Thursday, January 27, 2011

Gold has taken a hammering in 2011 so far. But the gold bugs think that may end soon — maybe beginning with the recent rebound.

There is a school of thought that believes very short-term action in the gold shares has predictive power in the immediate future for gold itself. So Wednesday's action in gold shares really got that community's attention.

Gold, as represented by the CME February contract, was down $8 in mid-morning. But gold shares were decisively up. With gold's subsequent recovery — it ended the floor session up 70 cents — gold shares surged.

In the electronic after-market, gold leapt over $10. Gold shares exploded. Arca Gold Bugs (^HUI -News) closed up 3.73%. It appears to have broken a downtrend in place since late December.

Could this mean the end to gold's dismal experience in January so far? At Tuesday night's close — the low for the year so far — the February contract was down $89.10 or 6.3%, reportedly the worst opening to the year since 1997.

JSMineset's Dan Norcini sees a chance: He remarked this evening that "bulls have to be encouraged by the day's action, as the technical indicators are so deeply oversold on the [Arca Gold Bugs] HUI that any signs of stability will turn them to issuing buy signals rather quickly. If nothing else, it will force the bears, who have made some pretty good profits on the way down, to snatch them before they disappear."

So too does the proprietor of the website Jesse's Café Americain. On Tuesday evening, he noted: "This intermediate gold top and correction bears a striking resemblance to the May-August 2010 top and correction just prior to gold's amazing break-out rally."

And, acidly, he added on Wednesday evening: "Nice bounce off a deeply oversold condition, as we noted yesterday."

"And of course, today was the anticipated option expiration on the Comex. How unusual," he said.

(The group I call "radical gold bugs" have long maintained that gold is openly manipulated by the official sector and its chosen instruments around the U.S. option expiry dates.)

A recovery in gold would be particularly welcome to the radical gold bugs mustered behind Bill Murphy at LeMetropoleCafe. As I reported recently, the weight they place on the meaning of high premiums for gold in key Eastern markets caused them to be confident of a quick recovery from gold's year-opening plunge.

But as the month wore on, gold slumped further, premiums went up more, and these bugs began muttering about an abnormal seller being in the market.

This week's news suggests they might have been right. On Tuesday the CME announced a staggering 81,752-lot (14.1%) plunge on the number of gold contracts outstanding ("open interest") following Monday's trading.

Added to this, SPDR Gold Trust (GLD - News) has disclosed a record drop in stated gold holdings. Someone appears to have disposed of a lot of gold.

LeMetropoleCafe said on Wednesday evening: "Clearly some huge transfer of gold ownership has occurred, and the fact that it has been allowed to become public probably means the transaction is complete. ... If it is complete, then, in the absence of another heroic seller, a sharp rise in gold seems very probable."

http://finance.yahoo.com/banking-budgeting/article/111955/has-golds-heroic-seller-gone-away;_ylt=ArZ9oFV.aJWgpTT2HKuMMva7YWsA;_ylu=X3oDMTE1YTdpOG4wBHBvcwM5BHNlYwN0b3BTdG9yaWVzBHNsawNoYXNnb2xkc2hlcm8-?mod=bb-budgeting&sec=topStories&pos=6&asset=&ccode=

The Austrian View of the Business-Cycle

Robert P. Murphy of the Ludwig von Mises Institute replies to Paul Krugman's Keynesian confusion over the Austrian Business-Cycle theory.

_________________

As many readers already know, last week Paul Krugman linked to one of my Mises Daily articles explaining the importance of capital theory in any discussion of the business cycle. Although Krugman graciously described my fable about sushi-eating islanders as "the best exposition I've seen yet of the Austrian view that's sweeping the GOP," naturally he derided the approach as a "great leap backward" and a repudiation of 75 years of economic progress since the work of John Maynard Keynes. To bolster his rejection, Krugman listed several problems he saw with the Austrian understanding.

In the present article I'll first summarize the Austrian (in the tradition of Ludwig von Mises) positions on capital theory, interest, and the business cycle. With that as a backdrop, I will then answer Krugman's specific objections.

The Austrians on Capital

In contrast to mainstream macro models, which either do not possess capital at all or at best denote it as a homogenous stock of size "K," Austrian theory explicitly treats the capital structure of the economy as a complex assortment of different tools, equipment, machinery, inventories, and other goods in process. Much of the Austrian perspective is dependent on this rich view of the economy's capital structure, and mainstream economists miss out on many of the Austrian insights when they make the "convenient" assumption that the economy has one good. (Krugman will be glad to know that yes, I can spell all this out in a formal model — and one that referee Paul Samuelson grudgingly signed off on.)....

http://mises.org/daily/4993

Answering Krugman

My reason for the lengthy summary is that I still get the sense that Krugman truly doesn't understand the Austrian position. For example, he asks, "Why is there overwhelming evidence that when central banks decide to slow the economy, the economy does indeed slow?" But because the Austrian theory says the bust occurs when the central bank backs off and allows interest rates to rise toward their "correct" level, this is hardly a problem. In fact, if central banks couldn't slow the economy, as an Austrian economist I would be worried about my theory.

Krugman also poses questions concerning (price) inflation rates and the connection between nominal and real GDP. But I think he is conflating the Austrian theory with a purely "real" business-cycle theory. Austrians understand that monetary influences can have real effects. To repeat, that is the veryessence of the Mises-Hayek theory.

Although most of Krugman's objections are due to his unfamiliarity with the actual Austrian theory, I think one source of confusion came from the particular illustration I used in my article. First let's set the context by quoting Krugman:

So what is the essence of this Austrian story? Basically, it says that what we call an economic boom is actually something like China's disastrous Great Leap Forward, which led to a temporary surge in consumption but only at the expense of degradation of the country's underlying productive capacity. And the unemployment that follows is a result of that degradation: there's simply nothing useful for the unemployed workers to do.

I like this story, and there are probably other cases besides China 1958–1961 to which it applies. But what reason do we have to think that it has anything to do with the business cycles we actually see in market economies?

First, I should say I'm glad that Krugman at least concedes that (his understanding of) the Austrian explanation both is theoretically possible and actually happens in the real world — coming from the guy who referred to it in 1998 as equivalent to the "phlogiston theory of fire," this is progress!

However, Krugman still doesn't have quite the right understanding of the Austrian view of the "capital consumption" that occurs during the unsustainable boom. As I said above, on this particular issue the fault lies with the necessarily simplistic "sushi model" I used in the article that Krugman read.

In that article, in order to make sure the reader really saw why Krugman (and Tyler Cowen) were overlooking something basic, I had the villagers boost their daily sushi intake even while they developed a new technology to help augment their fishing. So during their "boom," it would have seemed to a dull villager that both consumption and investment were rising.

In my fable, this was physically possible because the villagers neglected the regular maintenance of their boats and nets. This neglect wouldn't show up overnight, but eventually the village economy would crash. To repeat, I chose this illustration to make basic points about the capital structure and how short-term consumption binges can be physically possible, but must still be "paid for" in the long run.

Unfortunately, my fable and the lessons I drew from it gave the impression (see Tyler Cowen's critique) that the Austrians think the "capital consumption" during the unsustainable boom period must show up in things like reduced spending on building maintenance, or perhaps in the owner of a fleet of trucks neglecting to have the tires rotated.

In reality, it's more accurate to say that during the boom period, entrepreneurs (led by false signals) invest in projects that are individually rational and "efficient," but that don't mesh with each other. In other words, it's not so much that a farmer forgets to plant some of the seed corn in order to have a future crop. Rather, it's that a farmer plans on expanding his output, and so he plants much more than he did in the past, but unbeknownst to him, the owners of the silos and railroads (needed to bring the harvest to market) aren't expanding their own operations at the same pace.

In summary, it's not that the Austrians think an inspection of an individual enterprise will reveal a technological deficiency. Rather, it's that all of the entrepreneurs are "getting ahead of themselves," trying to develop too quickly. There aren't enough real savings to allow all of the new processes to be completed. To capture this aspect of the Austrian theory, Mises's analogy of a homebuilder (who draws up blueprints thinking he has more bricks than he really does) is still the best.

Krugman Wants to Know: Where's the Evidence?

This leads into Krugman's central complaint:

Oh, and what evidence is there that the economy's capacity is damaged during booms? Investment rises, not falls, during booms; yes, I know that Austrians take refuge in cosmic talk about the complexity of production and how measured investment may not show what's really happening, etc., but where's the positive evidence of what they're claiming?

I can sympathize with Krugman, but there is no simple statistic to which we can point. Austrians arecorrect to say that "measured investment may not show what's really happening," and correct to say that production is much more complex than depicted in Krugman's models. This isn't "cosmic talk" but a statement of basic facts.

But to answer his question, Austrians certainly can point to positive evidence of their view. For example, Austrians argue that during the housing boom years, Americans didn't save enough out of their wage and salary income, because they were misled into thinking they were much wealthier than they really were. Then when reality set in the illusion was shattered, and valuations of capital assets fell sharply. Realizing they had made terrible decisions during the boom, Americans sharply increased their savings. The data match this story pretty well:

The above chart shows that the savings rate (blue) plummeted during the peak years of the housing bubble, as the S&P 500 (red) zoomed upward. Then in late 2007 the stock market began crashing, while the savings rate increased very sharply. The stock market turned around in early 2009, of course, but from the Austrian perspective, this is because the Fed's massive interventions — capped off by the first round of "quantitative easing" (which was announced at this time) — started artificially blowing up asset prices again.

We can also get hard empirical support for the Austrian claim that the housing boom drew an unsustainable amount of real resources (including labor) into that sector, which eventually collapsed and caused a spike in unemployment. The following chart compares total construction employment (blue line) with the home vacancy rate (red line), which is a good indication of a speculative bubble: people were buying homes not to live in, or even to rent out, but to "flip" when the price went up. Notice the connection between the speculative housing bubble and the workers sucked into — and then expelled from — construction:

When it comes to applying the generic Austrian theory to the recent boom-bust cycle, we have to think globally. During the boom, much of the rising stream of consumption goods enjoyed by Americans was physically produced in China and other foreign countries. To put it in terms Krugman will appreciate, we could say that the boom period's surge in imports (which "subtract" from GDP) was consistent with a "healthy" string of GDP increases, not because of counterbalancing exports, but rather because Americans and their government kept spending more and more each year (thus boosting C, I, and G), more than offsetting the growing trade imbalance.

There is nothing wrong with a trade deficit (or more accurately, a current account deficit) per se; elsewhere I explained how a very healthy and sustainably growing economy could have an indefinite stream of such deficits, as the rest of the world rushed to invest in a country blessed with attractive policies.

But when it comes to the actual housing boom under George W. Bush, Americans' accumulation of SUVs, plasma-screen TVs, and gaming consoles was clearly unsustainable. This is not because — as in my sushi story — Americans were forgetting to do standard maintenance. Rather, it is because Americans couldn't possibly have kept "total output" — which is very imperfectly captured in our official GDP figures — at the dizzying height at the end of the boom period, because it required foreign producers to continue sending us goodies in exchange for ownership claims on a growing collection of McMansions in which nobody could afford to live.

To make sure that this intuitive story fits the facts, we can chart an index of home prices (blue) against the current account balance (red). The figure below illustrates quite nicely that as the housing bubble inflated, the current account sank more deeply negative. Then the housing bubble and the trade deficit both began collapsing at roughly the same period, as American consumers (and foreign investors) came to their senses.

Of course, Krugman's models and interpretation can incorporate the above evidence too. So he could understandably claim that he has no reason to credit the Austrian view over his own.

But I can point to at least two episodes where the "sectoral-readjustment" story of the Austrians clearly has more explanatory power than Krugman's "insufficient demand" story. Specifically, in late 2008 Krugman argued that the housing bust had little to do with the recession, because the latest BLS figures showed that unemployment at the state level bore little relationship to the declines in home prices across the states.

However, I pointed out that looking at year-over-year changes in unemployment at the end of 2008was hardly the right test. If we looked at changes from the moment the housing bubble burst, then five of the six states with the biggest housing declines were also in the list of the six states with the biggest increases in unemployment.

On another occasion (last summer), Krugman once again thought he had dealt the readjustment story a crushing blow when he pointed out that manufacturing had lost more jobs than construction. I pointed out that this too wasn't a valid test, because manufacturing had more workers to begin with. When we looked at percentage declines, then construction did indeed crash more heavily than manufacturing. Furthermore — and just as Austrian theory predicts — the employment decline in durable-goods manufacturing was worse than in nondurable-goods manufacturing, while the decline in the retail sector was lighter than in the other three.

These are very important episodes. When Krugman thought the numbers were on his side, he was happy to cast aspersions on the sectoral-readjustment story; he thought his own model was perfectly able to explain the situation if the crash in housing really didn't have much to do with the upheaval in the labor markets. And, as Krugman himself argued, had he been using valid tests, then the outcomes would indeed have been challenging to the Austrian story.

So now that we see the changes in employment really do match up with the Austrian explanation, we should be much more confident that it is capturing at least an important part of the story. To repeat, I didn't set out to find data that matched the Misesian exposition and then finally settled on some charts that did the trick. Rather, Krugman thought he had found a falsification of the theory, but it turned out he had conducted a poor experiment.

Because Krugman was the one who set up these two challenges, it is significant that the Austrian theory passed with flying colors. Furthermore, it is significant that Krugman's own theory cannotexplain the actual sectoral shifts in the labor markets. Remember, Krugman wasn't at all embarrassed by the data when he (erroneously) thought the housing bubble had little to do with the unemployment problem.

This is very important, because it was Krugman who notoriously advocated (in 2002) and thendefended (with caveats in 2006) the creation of a housing bubble.

ConclusionI am not engaging in a character attack or "gotcha" by pointing this out: it is very significant that Krugman's model prescribed a housing bubble as a solution to the dotcom crash, even though — as we've seen — Krugman's model is obviously inferior to the Austrian explanation when it comes to assessing the fallout from the housing bubble.

I do not claim that the Austrian theory of the business cycle captures every pertinent feature of modern recessions. What I doclaim is that a theory — including any of Paul Krugman's Keynesian models — that neglects the distortion of the capital structure during boom periods cannot possibly hope to accurately prescribe policy solutions after a crash.

Schopenhauer: Transhumanist

Written By: Thomas James

Date Published: January 20, 2011

Schopenhauer

History holds many thinkers who have dabbled in transhumanist ideas.  One such thinker was the philosopher Arthur Schopenhauer.

Arthur Schopenhauer was a philosopher who lived in the part of the world we now know as Germany.  He lived from 1788 to 1860, and spent most of the latter part of his life in the city of Frankfurt am Main.

Although conservative in his political views and personal habits, Schopenhauer’s philosophy appeals to me as a transhumanist.  This is because it emphasises the negative aspects of the human condition, and suggests how we might escape these, and achieve a higher state of being.

Schopenhauer’s brand of transhumanism is rather different from the modern, progress-centred view of humanity.  It is negative, emphasising the bad aspects of humanity from which we must escape.  Schopenhauer suggests that the way in which we can become better is through ceasing to be conscious beings, and immersing ourselves in art, music, or intellectual pursuits.

At the core of Schopenhauer’s world view is the idea he drew from his intellectual hero, and fellow German philosopher, Immanuel Kant (1724-1804).  This idea is that human consciousness is split into two areas.  These are ordinary consciousness and a higher state of being that could perceive things as they really are.

These two states of consciousness correspond to the two sides of the world.  These are the world or representation (Vorstellung, as Schopenhauer called it in the original German) and the world of will (Wille).  The world of representation can be thought of as the world that is apparent to us, and that we perceive using our senses and the empirical methods of science.  The world of the will is the world as it actually is.

These two worlds are related, but it is a mistake to conflate the image with the real thing, and as human beings, we can only ever perceive images, glimpses of the shadows of a deeper reality.

This idea of the will is a complicated one.  Schopenhauer doesn’t mean god, or any other kind of metaphysical consciousness.  The will is probably best described as a constant, mindless, unconscious, bloody-minded striving on the part of everything in the universe to be rather than not to be.

Human beings have the capacity to engage in rational thought, which corresponds to the world of will.  However we also have an underpinning volition to strive and to survive.

Humanity is poised between a life of base survival and reproduction, and that of intellect.  Schopenhauer believed there are ways we can escape the world of mindless striving, and escape into a timeless contemplation of a higher reality.

For Schopenhauer, a keen flautist, these were the escapes of music and art.  In losing ourselves in aesthetic contemplation we could transcend our baser selves.

Schopenhauer came to many of the same conclusions as those found in Buddhism, although he came to them independently, having published his major works in 1818 whilst the ideas of Buddhist philosophy were only introduced to Europe in the 1830s and 1840s.

Schopenhauer’s philosophy blended that of Plato, Kant, and the Hindu Upanishads to create a worldview that manages to be both compelling and depressing: existence is suffering.  It is an endless buffet of boredom and pain, combined with a constant striving for that which cannot be attained.  And yet there is escape.  Human beings can perform works of art and lose themselves in the craft of music, game playing, or workmanship.

What Schopenhauer means by “losing ourselves” in artwork is very similar to the idea of “flow” as described by the modern psychologist Mihály Csíkszentmihályi.  Flow is a mental state of full involvement with an activity.

This idea of flow is ironic as it suggests in that most human of activities, that of artistic expression, we do not use that most human of faculties of conscious awareness.

Schopenhauer is usually portrayed as the pessimists’ pessimist, but I can’t help feeling that Schopenhauer could be interpreted as saying something profoundly optimistic: even if conscious existence is suffering, it is within our power to lose ourselves in art, and transcend our baser propensities for violence and conflict.

This is a powerfully transhumanist idea, but it raises profound questions about humanity and what it is to be human.  What exactly is consciousness anyway?  Do we lose our humanity when we reject it, or do we become something different?

The British mathematician and logician Alfred North Whitehead (1861-1947) once wrote that “civilization advances by extending the number of important operations which we can perform without thinking about them.”  What progress has meant over the last two hundred years of industrialisation has been just that.  The mindless drudgery of Adam Smith’s pin factories has been replaced by machinery (not everywhere and in every case, mind you).  Humanity as a whole is no longer “conscious” of many of the things it produces.  Human attention is not needed for many of the day-to-day activities of civilization.

This is true on an individual level as well.  I wake when an alarm sounds.  I move about the place in an automobile whose operation I barely understand and that I don’t have to consciously “think” about to use.  I just do it.  In fact I am “conscious” for only a very small portion of my time.  What does consciousness add to my life?

So to return to Schopenhauer: perhaps consciousness, like greed or hunger, might just be another human attribute the transhumanist sloughs off on the road to posthumanity.

I would say anyone who recognises the frailty of the human condition, and the necessity of escape, can be counted a transhumanist.  Schopenhauer could not have dreamed of the emerging technologies that grant us the possibility of escape, so Schopenhauer advocated an ascetic life dedicated to the arts.  Perhaps we can do better.

Further Reading
Straw Dogs: Thoughts on Humans and Other Animals by John N. Gray.  This book offers a sketch of Schopenhauer and how his ideas tie into a negativist conception of transhumanism.

Gloom Merchant by Roger Scruton.  Scruton disagrees with what he calls Schopenhauer’s “comprehensive gloom” and offers a contrary view on human progress.

The Stanford Encylopedia of Philosophy has a brilliant entry on Schopenhauer and introduction to his philosophy.

http://hplusmagazine.com/editors-blog/schopenhauer-transhumanist