You Got to Be Kidding Me!

The Golden Rule

Posted in Economics, Politics by Stacy McMahon on February 28, 2009

So I was listening to C-SPAN Radio this afternoon, and Ron Paul was talking. He started off with a great libertarian take on the GOP’s current situation. Among other things, he said that Obama talked a good game about ending the Iraq war before he was elected, just like Bush talked a good game about ending “nation-building” before he became president and initiated two major nation-building projects. It was a great speech.

Then he launched into a rant about how the Federal Reserve is a plot to take away our freedom, the monetary system can’t possibly work, and justice can’t be restored to the universe until only gold and silver are legal tender.

Gold Standard believers tend to sound like conspiracy theorists, especially when they spin vague conspiracy theories about how central banks and monetary policy are tools of de debbil in his war for our immortal souls. The thing is, if big government is de debbil, then they sort of have a point.

Sort of.

There’s nothing magic about gold. It’s shiny, and as a group we have 4,000 years of social conditioning to believe it’s valuable. And it does have intrinsic value. Gold doesn’t corrode, break, flow down the drain, or evaporate on a hot day. It’s neither flammable nor edible. If you put an ounce of gold under your mattress, in 1,000 years it will still be an ounce of gold, exactly as it was when you put it there. You, meanwhile, will be gone with the wind.

And if that works for one ounce of gold, then it works for two ounces, and three, and ten, and so on. If you have three pieces of gold and I have four, we have a reliable way to compare what we have. And it will be mean the same thing tomorrow, the next day, and any day after that.

To put it another way, gold’s durability makes it an excellent medium for storing information. Better, maybe, than paper – though the stuff they print money on is pretty tough. But how about bits and bytes? The thing is, money is basically a point system, so any reliable way of storing everyone’s point total will do.

That said, there is at least one argument in favor of the gold standard, and it’s an important one because it’s precisely why governments prefer paper money. If gold is the only currency, then the world’s money supply is controlled by exactly one thing – the amount of gold people can dig out of the ground. But if gold isn’t the standard, then the money supply is whatever the people with the printing presses say it is.

He who gets to print money is king, and it’s good to be king. Let’s say you took out a mortgage last year for $500,000. This year, you realize you can’t make the payments. Now, you or I would have a couple of options. We could take a second job, sell some stuff and cut back on other expenses, or sell the house and find a less expensive place to live.

But if you can print money, you have another option. You can print money until there’s twice as much money out there as there was last year when you took out that mortgage. Twice as much money means each dollar is worth half as much, so now your mortgage is effectively just $250,000. Great, right? Except that everything that’s valued in money is also worth half as much. For example, everyone’s salary. And to make matters worse, anything you import from foreign economies now costs twice as much. If you’re the USA, that includes gas and heating oil. Some workers might be able to step up to higher-paying jobs, but most will make minimal gains (if any) and retirees are just going to have to get by with half the real income they had before inflation.

But it works out great for politicians, who can ensure their reelection by running up the public debt to pay for patronage programs (or ‘pork’) and then printing money to pay down that debt. Rinse and repeat. The best part, for them, is that the more the government devalues the currency, the more the people – most of whom don’t quite get how this works – will appreciate the government spending programs. The worse things get, the easier the sell is. We’re from the government, and we’re here to help!

Maybe Ron does have a point…

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How They Know the Stimulus Will Create Jobs

Posted in Politics by Stacy McMahon on February 22, 2009

Because the government said so!

“What we would be required to do would be, for the first time, increase the level of benefit for part-time workers,” [South Carolina Gov. Mark] Sanford told “FOX News Sunday.” “We can’t pay for the benefits already in the program, but to get the stimulus money, we’ve got to increase the program’s size and scale.”

The White House says Sanford’s state, which has the third highest unemployment rate in the nation, would be eligible for $8 billion from the spending bill, which administration officials say would create 50,000 jobs. Sanford said that’s not how job creation works.

Basically, the stimulus bill contains an semi-unfunded federal mandate. States that accept federal money – on a supposedly temporary basis – to prop up unemployment benefits would have to permanently change their rules to allow part time workers to collect unemployment. Sweet, three day workweek here I come!

It’s getting harder and harder to ignore the feeling that the election, the new administration and its media lapdogs, and the “stimulus” policy itself are some kind of collective emotional reaction to the banking crisis, the Bush years, or both. Plan accordingly.

Bolt-On Electric Bike Kit from MIT

Posted in Electric Vehicles by Stacy McMahon on February 20, 2009

Technically, there are a lot of bolt-on kits to turn your reg’lar ol’ bicycle into an electric vehicle, but they usually involve bolting a whole lot of stuff on. Wires, batteries, a motor, a bigger chain to handle the motor power… by the time you’re done, you have a fugly bike-like object that needs the extra power just to haul the extra weight.

This item from MIT (ht: AutoBlogGreen) looks like it might finally solve that problem. I’m not sure I buy the 25 mile range from a battery pack small enough to fit into the wheel hub, but at a reasonable price it’d surely be worth a try!

Got A Better Idea?

Posted in Economics, Politics by Stacy McMahon on February 10, 2009

The new US Treasury Secretary, Tim Geithner, announced his reworked financial-sector bailout plan today, with the main headline being its projected $1 trillion price tag.

In case you’re still keeping track, we are now at a minimum, conservatively, of $2.3 trillion just in the past two months for the various bailout plans.

Now, as Geithner has correctly identified (the first Washington official to do so, as far as I can tell), the root of the problem is the huge mass of so-called toxic mortgage-backed securities*. But his plan, weirdly, doesn’t directly address that connection.

To put the numbers into perspective, let’s do some math. Around 3 million homes were in foreclosure proceedings during 2008, on top of a million or more in 2007. Foreclosure is a process, not an event, and it can take months, so some of those might be double-counts. Still, let’s say we have 3.5 million foreclosures, and that that number is a reasonable proxy for the total value of “toxic” assets in the banking system.

The National Association of Realtors says the current median home price in the US is $200,000. That’s for houses that actually sell, so it’s likely a bit high for a foreclosed property, which on average will have sat vacant for months and need several thousand dollars of repairs to be marketable.

3.5 million X 200,000 = 700 billion

That’s an astronomical number, but it’s still just 1/3 of what we’ve committed to spend sofar to treat the symptoms caused by the toxic assets sitting like a lump of mucus at the bottom of the financial sector’s collective throat. And we shouldn’t need to buy them all. Even half the total should be sufficient to give banks confidence that other banks aren’t going to suddenly collapse tomorrow. And the nice thing about owning real estate is that someday you can sell it and break even – or better. So the ultimate cost to the taxpayer of simply buying toxic mortgage-backed securities could range from a small loss to a small profit. Still, I’m talking about an initial cash outlay in the neighborhood of $500 billion, so let’s go with that number.

Sound better than $2.3 trillion?

UPDATE: Administration officials met with laughter while explaining Geithner’s plan to Congress. At this point, the mere fact of Congress being against something might be a reason to take a closer look, but it seems they were laughing specifically at the idea of “guaranteeing” toxic assets. I probably would, too. Not good.

* Roughly, the problem is that there isn’t a 1:1 correspondence between mortgage-backed securities and actual subprime-financed dwellings, so it’s difficult or impossible to nail down the exact value of the securities. What the big banks do know is that they all own enough of them to turn the bottom line red, and that several formerly respected institutions have already gone under without warning. That’s why the credit markets are “frozen”. You can’t lend money to someone if they might be flat broke or even dead tomorrow.

Building Things

Posted in Home Improvement by Stacy McMahon on February 9, 2009

I was reading over Vicky’s description of an unexpectedly interesting Civil War reenactment in her new locale of Elizabeth City.

But my personal favorite of the whole day was Al Mitchell. He’s a naval engineer reenactor. He spoke passionately (very passionately) about how engineers kept the war ships running. He discussed a number of antique tools he had with him, many of them procured on eBay. One unexpected tool made a cameo– the sliderule. Al had no shortage of specialized knowledge to share. I could have talked to him all day.

Sadly there are only five engineers among the three divisions’ worth of Civil War reenactors in the US today. I’ve always been a military enthusiast, but I have to agree with Vicky that building things is more exciting than destroying them.

I’ve been getting more into building things lately myself. For example, back in November we installed the optional grilltop cartridge in our oldie-but-goody Jenn-Air downdraft cooktop. Problem: after its first removal and cleaning, the heating element drooped down so far it was touching the drip tray underneath.

Droopy Grill

Droopy Grill

I thought about it for a couple days and decided to try making a brace to hold it up on the other end. One trip to Lowes and I was equipped with a roll of 16-gauge aluminum wire and a general idea of what I wanted to do. My goal was to make a triangular frame with cradles at the top to hold the cross-brace under the heating element, and a wide base for stability.

My first observation was that holding one end of the wire in my hand and trying to bend the other end with pliers doesn’t work very well. I switched to needlenose pliers and braced the wire against my workbench, resulting in a couple of 16-gauge gouges in the tabletop. I had now discovered why humankind invented the anvil. After looking around for a few minutes, I decided that my wood-splitting wedge would make a reasonable substitute, and in another ten minutes or so I had this:

The finished product

The finished product

And the droop is gone!

Thats better...

...

I’m planning a few more (and bigger) projects this spring, including an underground watering pipe in the front, also connected to the gutter. It will be sort of a reverse french drain and will serve two purposes – to passively water the mulch bed next to the garage, which tends to be shadowed by the roof overhang, and to divert the outflow from the downspout, which is causing mangy grass in a very visible part of the front yard.

Stimulus!

Posted in Economics, Politics by Stacy McMahon on February 7, 2009

Reason.tv on the topic of economic stimulus (via Instapundit)

Here’s the thing. The root cause of the economic crisis is the credit crisis (sorry for all the ‘crisis’ – lack of a better word and all that) and the root cause of the credit crisis is mortgage-backed securities, where the mortgages in question are defaulted subprime loans. The answer is and always has been to put the bulk of these junk investments into federal receivership and get them off the banks’ books so they can start to lend to each other again. We didn’t, and don’t, need $1 trillion of pork projects to get the economy rolling again, but it’s easy to see why career politicians want this. Forcing cash to flow without fixing the underlying private credit problem moves the economic engine from the private to the public sector (at least until the expropriated money runs out) and becomes in effect a back door route to socialism. I know how that sounds, but think about it. The private sector remains immobilized and the government is the only entity that can spend money. Does that sound good or sustainable? Really?

Also, this is a government-made problem because the government made the rules that allowed – for the first time ever – mortgage lenders to package loans into securities and resell them. If you’re looking for whom to blame, it’s basically two groups: the mortgage brokers who wrote bad loans, knowing they’d be resold right away and become someone else’s problem (and their bosses who allowed the practice – not every bank partook) and the politicians and regulators who set up the system that allowed the abuses. For example, Chris Dodd and other ‘friends of Angelo’.