The gold bug

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Partner, who knows a lot about finance, was advising a friend recently on the purchase of gold. “I want it,” she said, “but what happens if the government collapses? Can I trade the gold for a quart of milk?”

 

 

He tried to explain the system to her. He even helped her to buy some small gold coins on the Internet, from a reliable dealer who offers decent prices. (She bought half an ounce of gold, so the coins will be very small. I think she expects to receive a chunk of gold about the size of a manhole cover.)

 

 

Why gold? It occurs naturally worldwide. It’s malleable and can be made into almost anything. It’s beautiful. It’s rare, and difficult to obtain.

 

 

It is, in Karl Marx’s terminology, a “fetish.” You can’t eat it, or benefit from its ownership in any natural way. But you know that you (and many others) are fascinated by it, and will give you outlandish amounts of useful goods (currency, food, clothing) in exchange for a small amount of it.

 

 

Gold will keep its “value” if even a vestige of the current civilization continues. People will still want it, and will barter valuable items for it. (Don’t barter it for milk, however. You can probably find something else around the house to barter for milk. Extra bedsheets? Candles? A family member?)

 

 

I’ve seen gold coins in museums, and I can vouch for the fact that they’re beautiful. They are also usually (as I said above) very small.  (I saw a great advert in Reader’s Digest recently offering gold coins for $150. The picture accompanying the advertisement made the coins look as if they were the size of Oreo cookies. Given the price, however, they can’t be larger than the nail of your little finger, and perhaps smaller than that.)

 

 

But gold enchants people.

 

 

Partner’s friend has been bitten by the gold bug.

 

 

She will never be the same.

 

 

(I’ve looked at the websites too. My goodness, those coins are pretty. And they’re not all that expensive . . . )

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Iceland

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There was an wonderful piece in the Financial Times recently, all about Iceland.

 

 

What?  You don’t know about Iceland?

 

 

Iceland was very hard-hit by the recession of 2008-9. It had a couple of banks which were offering miraculous rates of interest back in the mid-2000s, and people from all over Europe (especially the UK) were putting their money there. Then the crash hit, and Iceland was hit hard, and those banks died.

 

 

What happened then?

 

 

The Icelandic government, out of necessity (it’s a small country) went on an austerity kick. It sought to increase revenue and decrease expenditures.

 

 

It’s a small country – did I say that before? – so its defense budget was not enormous. It made cuts across the board, but it cut social welfare programs less than other programs. Also: it increased taxes on wealthier individuals, but sheltered people who made less money.

 

 

Are you getting this?

 

 

Four years later, Iceland is doing very well. It’s almost completely recovered. Another thing: all the depositors who lost money in those failed Icelandic banks will (over time) get their money back. Not the investors in the banks, but the depositors. See?

 

 

There’s a lesson in here somewhere.

 

 

I wish I could figure out what it was.

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“Fraud is the new business model”

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I don’t like watching politics on television, even when I agree with the people I’m watching. It gives me a funny uncomfortable feeling in my stomach, and what with my whole kidney-stone situation, one more abdominal complaint is not what I need.

 

 

 

But Partner and I happened upon a good interview the other day: Bill Moyers (whom I respect immensely) interviewing Bernie Sanders, the Independent Senator from Vermont. (I capitalize “Independent” on purpose; that’s his political affiliation. He generally caucuses with the Democrats, but he’s very much his own person. He identifies himself with the Scandinavian Socialists, believing with them that the purpose of a government is to ensure quality of life for its citizens, including essential human services like health care and education.)

 

 

 

Bernie was passionate and brilliant in the interview, as he generally is. Along the way, he spoke of Wall Street and the various feeble attempts that have been made to regulate it, and said this: “Fraud is the new business model.”

 

 

 

Both Partner and I nearly leapt out of our chairs when he said this. It’s such a perfect description of the current situation in the business world. In a word: the wealthy are using every means necessary to maintain and increase their wealth. Taxes are not for them.  (They’re “job creators,” so we mustn’t rile them up.) They don’t like government regulation either, which naturally drives up their expenses. They are not keen on paying benefits for their employees either, nor are they in love with the minimum wage. 

 

 

 

It’s the regulation thing that drives me wild. Before the Bill Moyers program, we’d been watching a program about derivatives. These are elaborate exchanges of packages of debt, currencies, etc., so cunningly crafted and marketed that the buyers often don’t really know what they’re buying (and often the sellers aren’t quite sure what they’re selling.) The buying and selling of derivatives was one of the bombs that blew up in 2008, torpedoing the world economy.

 

 

 

One of the experts interviewed was a little defensive about this, however. I can’t quote him exactly, but I can paraphrase him: “I don’t think the sellers were entirely to blame for this. I blame the purchasers too. They needed to be more careful about what they bought. It’s an open market, after all; you can buy and sell what you want.”

 

 

 

So evidently you can sell fraudulent securities, so long as you can find a buyer. Or tainted meat, or poison baby formula. No one is forcing the buyers to purchase them, after all.

 

 

 

And that’s why government needs to be a policeman: because a significant number of businesspeople will not hesitate to use fraudulent means to make money. And that’s all kinds of business.

 

 

 

Sadly, Bernie Sanders is only a voice in the wilderness now.

 

 

 

I hope more and more people come to this realization.

 

 

 

Otherwise: well, go to Netflix and watch “Rollerball.” Because, America, that’s your bleak ol’ future right there.

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Economics: fitting together the pieces

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We got back the other day from a Cape Cod vacation, and I was reading over the last few issues of the Financial Times to make sure I didn’t miss anything important.

 

 

And I had the odd impression that I was actually catching on to something.

 

 

Articles about Yemen, Germany, Bahrein.  An article about the Durban summit on the environment (heard much about that in the American news, kids?).  A commentary by Lawrence Summers.

 

 

It all began to feel like – well, do you remember that scene in “A Beautiful Mind” when the crazy genius mathematician John Nash (played by Russell Crowe in a very tight t-shirt) began to understand how everything fit everything together?

 

 

(Of course, John Nash was insane.)

 

 

But this little epiphany of mine doesn’t feel insane.  This feels like the edge of enlightenment. It feels if, if I only knew a tiny bit more about the world economy, the role of Brazil, the intentions of India and China, I could actually figure out what was going to happen next.

 

 

It was exciting.

 

 

This is probably what economics is all about.  I suspect this is what economists feel like all the time; they seem so dry and bookish, but they’re constantly in a state of orgasmic epiphany.  A few months ago, when Dominique Strauss-Kahn was first accused of sexual abuse, the obnoxious Ben Stein did a piece on CBS Sunday Morning defending him (which he basically repeated in print, in the American Spectator), stating (among other things) that such a man wouldn’t do such a thing. 

 

 

The implication was that respected economists don’t do sex.

 

 

I rather suspect that they do.

 

 

Another epiphany!

 

 

So give me the Nobel Prize already. 

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Science and economics: getting there is half the fun

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I have been inundated with science magazines lately.  I think I must be signing up for subscriptions in my sleep. 

 

 

In any case, I am learning a lot. 

 

 

For one thing, according to an article in a recent issue of Science, population growth turns out to be not a problem; people adapt to it, as technology continues to improve. 

 

 

Aren’t you delighted to hear this?

 

 

This study was based on a location in Kenya where, in the early twentieth century, overfarming and overgrazing looked as if they might overwhelm a whole area.  Experts were gloomy.  But!  Technology rescued everyone!  (After a while.)  Nowadays, it’s a thriving area!

 

 

Everything about this story is wonderful, except that middle term: “after a while.”  There was considerable human suffering and stress for perhaps ten, twenty, thirty years. 

 

 

That middle term worries me.

 

 

Macroeconomics has the same middle-term blind spot. Allow me to oversimplify: “Markets shift.  There are busts, and booms.  If you can just hang on long enough, recessions and depressions will ease, and the market will shift to an upward trend.”

 

 

Ah yes.  If you can hang on long enough.

 

 

And getting there is half the fun.

 

 

Re the Kenya story: how many people suffered / starved / died before the present optimal state was achieved?  Re the macroeconomics theory (let’s take the 1930s in the USA for an example): how many people suffered / starved / died before the economy recovered?

 

 

One does not have the numbers at one’s fingertips, but one seems to recall that, during the 1930s here in the USA for example, the human-suffering level was significant.

 

 

So: problem leads to solution.  The laws of nature, and demographics, and economics, take their course.

 

 

But getting there is half the fun.

 

 

And you had better dearly hope that you are not one of the (statistically insignificant) people who suffer, or starve, or die in the middle of the equation, during the time in which the situation is correcting itself from negative to positive . . .

 

Ah me.

 

 

Hang on.  It’s going to be a bumpy ol’ ride.

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Economics for dummies

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Economics has never been my strong point. I still don't understand a lot of the jargon and concepts.

But, if you watch CNBC, you'll quickly see that an understanding of economics isn't really necessary. As with political programming, it's really all about the screaming.

With sound effects, yet, if you're Jim Cramer. (Actually, Cramer seems to have sobered up a bit; he still does the “booyah” routine, but the carnival sound-effects board with mooing and yelling and oinking seems to have gone by the wayside. Can it be? Can our boy Jim have grown up, a little?

Nah. I think he just had a talking-to by some folks at the network.)

CNBC features stentorian ranters like Larry Kudlow, for whom capitalism is sacrosanct, and who can't say President Obama's name without a sneer. They have Joe Kernan of “Squawk Box,” sort of a minor-league Chris Matthews, who likes to hoot and mock and talk over other people. Most chillingly of all, they have Rick Santelli, who reports from the floor of the Chicago Board of Trade, and who snorts and spins and shrieks and waves his hands in the air. In case you're not familiar with his work, Santelli credits himself (and is credited by others) with helping to found the Tea Party, with a famous / infamous on-air rant. Rick continues to fly into rages and make speeches on the air, hoping for another through-the-roof YouTube success; he did one the other day, in which he compared himself to the Founding Fathers standing up to King George. (Honestly, you can't make this stuff up.)

(To be fair, the whole hyperactively angry thing probably made Rick Santelli very successful in business; trading is notoriously competitive, and I'm sure it's an advantage to be bouncier and crazier than the other guy. On the air, however, these things don't make you a journalist; they makes you a clown.  They certainly don't make you a peer of the Founding Fathers.)

CNBC also has the pretty ones: Carl Quintanilla, Maria Bartiromo. These are mostly memorable for their fresh complexions. They seldom have anything deep to say. They ask questions that seem thoughtful and probing, but I wonder sometimes who writes these questions.

But – and here's the thing – most of these “journalists,” the pretty ones and the howlers and the sneerers, make the most howlingly ridiculous statements on a daily basis.

For example: stupid generalizations and truisms. “Markets always fluctuate.” Hell, I barely passed Econ 101, and I could have told you that.

Also: I know the difference between macroeconomics and microeconomics. Macro is the economy as a whole; micro is economics as it applies to a family, or to a business. They are vastly different.

Then why do these CNBC people treat them as the same thing?

Debt, for example. For a family, and for a business, it 's a problem. For a sovereign nation, less so. Countries can print money. I certainly can't. Countries can manipulate interest rates. Can you do that? I can't.

But the Kudlows and Kernans speak as if the rules that govern the national economy are the same that govern you and me.

So: are they experts, or idiots, or wannabe demagogues?

I don't know. It's like watching Spongebob. It's very unreal.

At least Spongebob is cute and well-meaning.

Because, I tell you frankly, these guys aren't.

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Foxwoods

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Partner and I went to Foxwoods, the gigantic Connecticut casino, a few days ago. When you approach it from the east, it's impossible to believe that they didn't plan the view: you're driving through a pretty-but-dull New England landscape, and then you come around a corner, and there, framed perfectly straight ahead of you, is a Disney castle of cream-colored brick, with a roof of angelically beautiful blue.

 

 

Welcome to the Mashantucket Pequot Nation.

 

 

I hated it the first time I went there. There's the continual din of slot machines chiming in C major, and the smell of stale cigarette smoke, and the grim spectacle of people with oxygen tanks riding from slot machine to slot machine in their scooter chairs. And you don't see a lot of smiling faces, oh no children you don't.

 

 

But it's fascinating nonetheless. And you might win a million dollars.

 

 

We go a couple of times a year. The food ain't bad, and once in a while you leave with more money than you arrived with. (Not this time, unfortunately.) I love watching the table games, especially things with names like Pai Gow and Dragon Poker and Caribbean 21. Also, I am amazed at the security staff, which is mostly made up of overweight men over seventy years of age with ambulatory disabilities. I think I could have kicked their asses, for the most part, if I'd wanted to.

 

 

Partner tells me that business is off at the casinos, and I think it's true. It felt – empty. Foxwoods is an enormous place, and normally it's swarming with people, but the other day there were big lonely spaces. And the machines weren't paying. You could tell that all the machines were set to some slightly-lower payoff point; you won a little, once in a while, but never enough to inspire or encourage you. The grim faces were a little grimmer than usual.

 

 

It's beginning to feel like a fancy upscale mall on the verge of going into decline.

 

 

Next time we're going to Mohegan Sun.

 

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