Naked Capitalism has reprinted the story Central Banks Goose Stock Markets.

China’s State Administration of Foreign Exchange has become “the world’s largest public sector holder of equities”, according to officials quoted by Omfif. “In a new development, it appears that PBoC itself has been directly buying minority equity stakes in important European companies,” Omfif adds.

You didn’t really think they would hold their foreign reserves in a way that bore no interest and no control in other countries, did you?

Of course, there are well founded fears that such intervention, including massive growth in reserves, has led to such a benign period of volatility and the expectation of continued price appreciation is cooking “the goose” that laid the golden egg.

In Europe, two years of stimulus from the ECB has pushed the various bourses to record valuations, as measured by the price-to-earnings ratio, which is also pushing the boundaries of delusion when it comes to chasing yield.

This is the sort of thing that makes me worry about the stock market. I am a follower of Investment Quality Trends which uses the history of dividend yields for each stock it tracks to judge the value of the stock at the moment.

I keep oscillating between two thoughts about IQT and the current market. First, I wonder if the measures that IQT uses need to be adjusted because we have entered a new age of yield environment. An historically low yield might undervalue a stock in today’s environment. Then I say to myself, this time it is not different. The yield environment will return to normal sooner or later, and it will have been wise for IQT to stay with the longer term historical record.

With so few undervalued stocks in the IQT universe of stocks it considers, I have taken to having about twice as much in ultra-liquid investments in my portfolio as I have had historically. Even though I have felt I have had more cash in my portfolio in recent years than I would ultimately want, it is now double the rate it has been since I retired. By the conventional wisdom, I probably have less cash and liquid assets than the normal investor my age would have. The level of cash is just high for me.

This is not investment advice. Keep in mind that two stocks I sold recently because of more than 8 quarters without a dividend increase have jumped over 5% in a single day since I sold them. (That does not change my mind that I did the right thing. You may have a different opinion, and you may very well be right.)

The Daily Show has an extended interview titled in many other places as Jon Stewart Makes Tim Geithner Squirm Through Extended Interview.

The above link will take you to the extended 40 or so minute interview. Comedy Central only allows the embedding of pieces, so I will just embed part 1 below. If you use the link above, you won’t have to watch it a piece at a time.

Jon Stewart made a valiant effort to get Geithner to understand where the Obama administration failed despite the fact of all that the Obama administration accomplished. Geithner stuck tenaciously to the point of all that the administration achieved despite the many things it failed to do.

The argument at the very end was around whether or not the administration could have done more than it did. Geithner stuck to his perception that their were insurmountable roadblocks to their having done more.

The points that Jon Stewart failed to make that would have got this discussion unstuck are the points I have tried to make many times on this blog.

Whether or not the Obama administration could ever have gotten more support from the Congress than they had at the time, they did nothing that would make the voters understand that it was the Congress that needed to be changed. From this failure of the administration, they lost control of the House of Representatives in 2010 and they failed to restore the super-majority of 60/40 that they needed in the Senate to overcome the filibuster.

Jon Stewart and Timothy Geithner kept going around and around in circles about perceptions. The fact remains that the Obama administration put very little effort in changing the perceptions. They failed to take into account how important it was to get the perceptions right. Even more important than winning a single battle with the Republicans, and they did not even win a single battle with the Republicans after all the effort they put in on just this one tactical objective.

Jon Stewart could have asked Geithner why he wrote a book to justify the administration’s failures rather than to promote the efforts to undo the damage that was allowed to happen? That damage is still going on, and Geithner is doing nothing to change it. Six years later, Jon Stewart has to drag it out of him that there were insurmountable roadblocks. Could they have explained that to the American people six years ago, and possibly gotten some help over those roadblocks?

Contrast his current efforts with those of Elizabeth Warren. She is trying with all her might to accomplish the parts the Obama administration failed to accomplish and that administration is still failing to accomplish.

The point about the Obama administration is still failing to accomplish the goals that Geithner agreed should have been the goals is something that Jon Stewart should have hung on Obama.

The Real News Network has featured the video Banned Interview with President George W. Bush on Iraq Invasion.

This is a good time to take a look back in history. One of the many problems with Bush’s theory is the claim that the UN told Hussein to disarm and he refused and hid his weapons. In fact Hussein did allow for inspections and did tell us about his weapons. We just wouldn’t believe him. Nor would we believe our own weapons inspectors.

You might find the links on the YouTube site of some value.

The New Yorker has the article In Extremists’ Iraq Rise, America’s Legacy.

Today, many Iraqis, including some close to Maliki, say that a small force of American soldiers—working in non-combat roles—would have provided a crucial stabilizing factor that is now missing from Iraq. Sami al-Askari, a Maliki confidant, told me for my article this spring, “If you had a few hundred here, not even a few thousand, they would be coöperating with you, and they would become your partners.” President Obama wanted the Americans to come home, and Maliki didn’t particularly want them to stay.

I wonder how this would have worked.  Would a few hundred privates do it?  Maybe sergeants? Or how about colonels?  I  know, a few hundred generals. Is a Maliki confidant a good source to explain how a few hundred American soldiers in non-combat roles would have been enough to prevent Maliki from giving into his worst instincts? Is this healthy skepticism on my part, or am I just unwilling to put the blame on President Obama?

If an existential threat to Maliki and the Shia led Iraqi government isn’t enough to change Maliki’s behavior, would a few hundred soldiers have been able to do it?

Thanks to Nadeem Kalil for posting this on his facebook wall.

The Real News Network has the video which they have titled Did the U.S. Bargain On ISIS Undermining al-Maliki? This is probably the most inflammatory way to advertise this interview, but there are many more things discussed here that are worthwhile to think about.

Maybe the headline is not so inflammatory if you read it as “Did the U.S. Plan on ISIS Undermining al-Maliki?” The original headline first struck me as saying that the U.S. had held bargaining sessions with ISIS. The second way of stating it makes it clear that is not what this story is about. The term planning means to me that they needed to get something to move al-Maliki from his intransigent position of refusing to implement the kind of government needed to stabilize the region. Perhaps an existential threat to his government might actually get him to act for the benefit of all the Iraqi people, for once. If even this threat cannot get al-Maliki to be reasonable, then I think the best idea is to leave him to the consequences of his own behavior. He is not too big to fail.

This interview, at the very least, gives you some ways to think about the situation that you are not going to hear from the Lame Stream Press.

John McCain and Lindsay Graham may be playing games in cahoots with President Obama to influence al-Maliki. If they are not playing games under those auspices, then they are playing their usual uninformed and thoughtless games of trying to drive us into war. In this case, the alternatives to war could actually help to solve problems in this part of the world rather than make them worse. Which path do you think the US will actually take?

The right wing in this country keep saying they want a smaller government.  Who could be against shrinking the size of institutions that are too big?

What they really want to do is shrink the part of government that favors the 99% of us.  They are surely in favor of the part of government that favors the 1% and is controlled by the 1%.

As harmful as government that is too big is (whatever that means), private corporations that are too big are as harmful if not more harmful.  The right wing representing the 1% doesn’t complain about excess corporate power.

If corporate power were brought under control, we might be able to do with a little less government power.

Roger Goun posted on his Facebook page a link to the article Why Should We Support the Idea of an Unconditional Basic Income?

If you want actual evidence of how much better capitalism would work with basic income, look at the pilot project in Namibia:

“The village school reported higher attendance rates and that the children were better fed and more attentive. Police statistics showed a 36.5% drop in crime since the introduction of the grants. Poverty rates declined from 86% to 68% (97% to 43% when controlled for migration). Unemployment dropped as well, from 60% to 45%, and there was a 29% increase in average earned income, excluding the basic income grant. These results indicate that basic income grants can not only alleviate poverty in purely economic terms, but may also jolt the poor out of the poverty cycle, helping them find work, start their own businesses, and attend school.”

Think about that for a second. Crime plummeted and people given a basic income actually created their own jobs and actually ended up with even greater earnings as a result.

I have read about the idea of Job Guarantee or Employer of Last Resort, but this proposal goes a step farther and puts the idea into words that are very appealing. The one “mistake” is to think that taxes must be raised to “fund” this proposal. It might be a good idea to raise taxes for other reasons (that may even be related to this), but it is not essential.

If the government just gave out this Unconditional Basic Income with created money from the Federal Reserve Bank (FED), then it might lead to too much money being put into the economy. To prevent this problem, the government could raise taxes to suck out some of that excess money. However, this understanding is an important nuance that is different from “we must raise taxes to fund this expense”. Putting in created money and sucking out money through taxes is not a useless circular exercise. This exercise would change the distribution of money amongst different types of people as described in the article. For one thing, it would take money from the excess saver and put it in the hands of the spenders. When unemployment is high, this is a very valuable shift in distribution. Please notice the qualifying clause on the previous sentence. I am not saying that one prescription should be applied at all times. I am saying it should be prescribed when appropriate.

See the article MMP Blog #42: Introduction to the Job Guarantee or Employer of Last Resort.

I thought of an existing government program to which we could compare this.

The FED has a program called Quantitative Easing. The following is part of the WikiPedia definition.

Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the monetary base. This is distinguished from the more usual policy of buying or selling short term government bonds in order to keep interbank interest rates at a specified target value.

USA Today has an article What exactly is quantitative easing? that mentions the size of the FED’s program.

The Federal Reserve is in the spotlight for its move to slow down its $85 billion a month of bond purchases, designed to pump money into the economy and nurture the recovery. USA TODAY’s Tim Mullaney explains the details.

On an annual basis this is $1.02 trillion. So the Fed creates this amount of money out of thin air in one year to buy almost worthless paper assets from the banks.  At the moment that QE was meant to stimulate the economy, there was not enough economic demand to create much in the way of good investments for the banks to make or good opportunities to lend the money.  The banks could actually make more money by giving the money back to the Treasury in exchange for Treasury securities.

Suppose that instead of buying paper from the banks, the Fed had funded a Basic Unconditional Income.  The people who received the money would have bought a lot of  goods and services.  This would have created huge demand for more of these commodities than the economy was producing.  Investment in new capacity and in more jobs would have been driven by the increased consumer demand.  Even the banks could have profited from lending to and investing in building the new capacity (or at least reactivating mothballed production capacity).

How does this amount of money compare to an estimate of the cost of the proposed Basic Unconditional Income? Here is a quote from Why Should We Support the Idea of an Unconditional Basic Income?

Basic income is entirely affordable given all the current and hugely wasteful means-tested programs full of unnecessary bureaucracy that can be consolidated into it. And the cost also depends greatly on the chosen plan. A plan of $12,000 per U.S. citizen over 18, and $4,000 per citizen under 18 amounts to a revenue need of $2.98 trillion, which after all the programs that can be eliminated are rolled into it, requires an additional need of $1.28 trillion or so. So where do we come up with an additional $1.28 trillion?

Boston.com has the article and video Here’s What It Looked Like to Drive Through Boston 50 Years Ago.

This is the description of the video that you will see posted on YouTube, despite what it says on the title of the video. The initial credits in the video show 1958.

A drive through the Boston area circa 1958. Footage originally by Kevin Lynch. Music by Buddy Holly, Chuck Berry, Danny & the Juniors, and Elvis Presley

I did see a Corvair in the early part of the video. WikiPedia has an article on the Chevrolet Corvair.

The Chevrolet Corvair was a compact automobile produced by the Chevrolet division of General Motors for the 1960–1969 model years.

So that does cast some doubt on the 1958 date.

I was driving around Cambridge on a daily basis from 1961 to 1966. Toward the end of that period, I was driving a 1964 Corvair convertible. I did visit most of the places in the video at one time or another.

Thanks to Richard H for forwarding this to me.

The Real News Network has a series of videos Reality Asserts Itself – Robert Johnson.  I started watching the series when 4 of the 8 segments had already been published.

Growing Up in the Cauldron of 1960’s Detroit – Robert Johnson on Reality Asserts Itself (1/8)

Reaganomics Was Crazy – Robert Johnson on Reality Asserts Itself (2/8)

Finance Is Building the Architecture of Their Own Rules – Robert Johnson on Reality Asserts Itself (3/8)

How We Broke the Bank of England – Robert Johnson on Reality Asserts Itself (4/8)

At this point I have grown tired of explaining why these videos are important and interesting.  So suit yourself if you want to watch them.  I don’t really care.

June 13, 2014

Friday, oh lucky day.

Heads, Finance Wins, Tails, Society Loses – Robert Johnson on Reality Asserts Itself (5/8)

June 16, 2014

A Civilized Critic of Savage Behavior – Robert Johnson on Reality Asserts Itself (6/8)

Has Capitalism Lost the Ability to Reform Itself? – Robert Johnson on Reality Asserts Itself (7/8)

New Economic Perspectives has the article Why the Worst Get on Top – in Economics and as CEOs by William K. Black.

Libertarians are profoundly anti-democratic. The folks at Cato that I debate make no bones about their disdain for and fear of democracy. Friedrich von Hayek is so popular among libertarians because of his denial of the legitimacy of democratic government and his claims that it is inherently monstrous and murderous to its own citizens. Here’s an example from a libertarian professor based in Maryland.

The article goes on to pick apart the ideology of Friedrich von Hayek. I ignore von Hayek unless someone brings him up in the conversation. Now I have this post to refer to when the next time he comes up.

The issues that William K. Black raises seem to be a perfect description of the behavior I have noted in right wing conservatives. The nastiest things that they can imagine and accuse the liberals of are only the things they dream up for doing themselves. If you want to know what conservatives are secretly trying to do, you only have to refer to what they accuse others of doing. The Naked Capitalism reprint of this article was titled Bill Black: How Hayek Helped the Worst Get to the Top in Economics and as CEOs.