Tuesday, September 20, 2011

Quantitative Easing III

Here's my quick take on Bernanke's announcement, to be made tomorrow just before market close, leaving us plenty of time for a bloodbath if he doesn't give the robots precisely what they're looking for. I'll list the possibilities, coupled with my short term prognostications. In the long run, Bernanke will be unable to prop up the markets forever, and we will enter into a depression, but this will occur regardless of tomorrow's announcement.

1) Nothing. In Bernanke speak, we're keeping an eye on indicators, and we have tools, but the recovery is proceeding, albeit slower than expected. This should trigger a huge sell off. In all likelihood the markets have priced in QE3 already, at least partially. Also, tanking the market is the best way to get Helicopter Ben to use his "tools", i.e. print more money to give to corporations and bankers.

2) Operation twist. We should see a short run before a healthy sell off. This seems to be where the prevailing wisdom is heading. The problem is that the markets almost assuredly have this priced in, so it's unclear how it could help for more than a few days. If he pursues this route, the FOMC will have to consider using its tools again, at least if it wishes to save Obama from a disgraceful defeat in the coming election.

3) QE3. Or: more money for the plutocracy. This will help the markets, at least for a few months--say, through Christmas. Of course, depending on the amount, the markets could have this priced in already, which means we're looking at a shorter run before a sell off.

With the political front gridlocked--the Republicans are in full on stonewall mode, and Obama is finally pandering to his base, giving some evidence of a backbone--tomorrow's announcement is actually quite important. Bernanke can't fight economic gravity forever, but he might have a few rolls of the dice left. If we see QE3 stocks will indeed rise, but the real winners will be commodities like silver and gold. The real losers, as per usual, will be the American people.

UPDATE: The markets got the twist, whereupon they tanked. I fully expect Bernanke to announce QE3 once it is clear that: 1) Europe is in a very bad way; and 2) Obama's fifth stimulus plan is dead on arrival in the Republican controlled house. I also expect gold and silver to rebound on the news, the steep drop due to a recent margin hike notwithstanding.

Sunday, September 11, 2011

Cultural Suicide

The most important development of the twenty-first century is likely to be the great extinction of peoples and cultures. Like Greece and Rome, Europe has lost faith in itself; though incomparably richer than the peasants who built the Cathedrals, the denizens of what used to be Christendom spend only on themselves, with no thought for the morrow. They have failed to attend to the most elementary task of a successful civilization: raising children. In no European country is the birthrate at replacement level. As David P. Goldman, Spengler of Asia Times Online, tells it, not only is the old world dying, it has reached the demographic point of no return.

The title of Goldman's book is How Civilizations Die, but the addendum, And Why Islam is Dying Too, may be more important. For there is almost no awareness that the Muslim world is following in the footsteps of western civilization. Indeed, a popular narrative among those who seek to revive Europe has it that Muslims will soon rule the continent. But while European Christianity eventually lost the fight with modernity, Islam has fared worse.

Iran proves illustrative. "An educated twenty-five year old Iranian woman today probably grew up in a family of six or seven children, but will bear only one child." As of 2010, Iran's fertility rate stands at 1.7 children per woman. Decadence has enveloped the nation; drug use is rampant, and a sizable portion of the women work willingly as prostitutes. Paradoxically, this makes the Islamic world more dangerous, at least in the short term: "For in their despair, radical Muslims who can already taste the ruin of their culture believe that they have nothing to lose."

Of considerable interest was Goldman's account of the Thirty Years War, which ravaged Germany in the 17th Century. The German population declined "from 21 million to perhaps 13 million, mostly due to starvation." Ostensibly, the war was fought to decide whether the German people would become Protestant or remain Catholic. But there was considerably more afoot: Protestant armies were bankrolled by Cardinal Richelieu and Father Joseph du Tremblay, two French clergymen who had no trouble putting State ahead of Church. Their plan was to gain hegemony over Spain by bankrupting her. It worked. The senseless slaughter continued long past the point when battles decided anything—as in the American Civil War after Vicksburg. As Goldman tells it, nationalism was never fully subordinated by the Church; this failure, which first manifested itself under Richelieu, would haunt Europe until the middle of the twentieth-century.

Goldman finds two exceptions to the ennui that will lead so many nations to destruction in the coming century. The first, Israel, is well established; even secular Jews who live in Israel have children, and the ultra-Orthodox have large families—eight or nine children on average. His second example, America, is less convincing. True, religious Americans have proven less susceptible to the siren song of modernity. This has given the country a birthrate which remains at replacement level: 2.1 children per woman. Although he offers reasons for American demographic exceptionalism, I am forced to charge Spengler with too much optimism.

He is on firmer ground when he notes that: "America's demographic momentum offers a generation's grace period." Yet what evidence is there that we will do anything but fritter it away? For that is the approach America has taken with her debt problem, one that is not altogether different from its demographic dilemma. A nation does not run up too much debt for the same reason it raises children: it believes in its future. Presently, America lacks the political will to bequeath a worthy culture to its progeny. The demographic data tell a slightly different story—for now.

Friday, September 09, 2011

Spengler's Universal Laws

I've been reading David P. Goldman's new book, How Civilizations Die: (And Why Islam Is Dying Too). For the last decade or so, Goldman has been writing brilliant columns under the nom de plume of Spengler, the German historian whose Decline of the West offers the supreme example of the fatalist view of history.

Unsurprisingly, Goldman's book is excellent, at least so far. I hope to finish it and post a review sometime this weekend, but I'd also like to enumerate Spengler's Universal Laws, which are scattered throughout this book. Some of these laws have already been featured in Spengler's columns, in which case I have provided a link to the original formulation. In any event, I thought it might be useful to have them all in one place.

Spengler's Universal Law #1: A man or a nation at the brink of death does not have a "rational self-interest."

Spengler's Universal Law #2: When the nations of the world see their demise not as a distant prospect over the horizon, but as a foreseeable outcome, they perish of despair.

Spengler's Universal Law #3: Contrary to what you may have heard from the sociologists, the human mortality rate is still 100 percent.

Spengler's Universal Law #4: The history of the world is the history of mankind's search for immortality.

Spengler's Universal Law #5: Humankind cannot bear mortality without the hope of immortality.

Spengler's Universal Law #6 (courtesy of Warren Buffett): You don't know who's naked until the tide goes out.

Spengler's Universal Law #7: Political models are like automobile models: you can't have them unless you can pay for them.

Spengler's Universal Law #8: Wars are won by destroying the enemy's will to fight. A nation is never really beaten until it sells its women.

Spengler's Universal Law #9: A country isn't beaten until it sells its women, but it's damned when its women sell themselves.

Spengler's Universal Law #10: There's a world of difference between a lunatic and a lunatic who has won the lottery.

Spengler's Universal Law #11: At all times and in all places, the men and women of every culture deserve each other.

Spengler's Universal Law #12: Nothing is more dangerous than a civilization that has only just discovered it is dying.

Spengler's Universal Law #13: Across epochs and culture, blood has flown in inverse proportion to the hope of victory.

Spengler's Universal Law #14: Stick around long enough, and you turn into a theme park.

Spengler's Universal Law #15: When we worship ourselves, eventually we become the god that failed.

Spengler's Universal Law #16: Small civilizations perish for any number of reasons, but great civilizations die only when they no longer want to live.

Spengler's Universal Law #17: If you stay in the same place and do the same thing long enough, some empire eventually will overrun you.

Spengler's Universal Law #18: Maybe we would be better off if we never had been born, but who has such luck? Not one in a thousand.

Spengler's Universal Law #19: Pagan faith, however powerful, turns into Stygian nihilism when disappointed.

Spengler's Universal Law #20: Democracy only gives people the kind of government they deserve.

Spengler's Universal Law #21: If you believe in yourself, you're probably whoring after strange gods.

Spengler's Universal Law #22: Optimism is cowardice, at least when the subject is Muslim democracy.

Spengler's Universal Law #23: The best thing you can do for zombie cultures is, don't be one of them.

Wednesday, September 07, 2011

Burke as gold bug

In his famous Reflections on the Revolution in France, Edmund Burke takes a swipe at fiat currency:

They have found their punishment in their success: laws overturned; tribunals subverted; industry without vigor; commerce expiring; the revenue unpaid, yet the people impoverished; a church pillaged, and a state not relieved; civil and military anarchy made the constitution of the kingdom; everything human and divine sacrificed to the idol of public credit, and national bankruptcy the consequence; and, to crown all, the paper securities of new, precarious, tottering power, the discredited paper securities of impoverished fraud and beggared rapine, held out as a currency for the support of an empire in lieu of the two great recognized species [i.e. gold and silver] that represent the lasting, conventional credit of mankind, which disappeared and hid themselves in the earth from whence they came, when the principle of property, whose creatures and representatives they are, was systematically subverted.

Burke's argument may seem insubstantial, yet he was right to distrust the French currency. For the Assignat was destroyed through hyperinflation. Napolean replaced the worthless currency with the Franc in 1803, shortly after he came to power.

If one were to argue in favor of fiat currency, one would be compelled to insist upon government restraint. So long as the government could be trusted to refrain from debasing the currency, even worthless paper could serve well enough for a period of time. But governments do debase the currency if those who govern believe it will serve their ends.

On a related note, our own master of the Assignats is to speak tomorrow night, before giving way to our Napolean who will also speak. The president's plan is irrelevant since the Republicans house will stonewall anything which originates from the desk of the chief executive. Bernanke could conceivably announce QE3, but I think this unlikely--at least for now. Regardless, we will be entertained by some fine political theater, after which the NFL season begins.

But if I were looking to invest, I would follow Burke, and move my fiat currency into "the two great recognized species... that represent the lasting, conventional credit of mankind."

Sunday, September 04, 2011

Back to Barbarism

Regnery Publishing makes a pretty penny putting out books written by conservatives which are, judging from the paucity of substantive negative reviews, read almost entirely by the choir. Although the appetite for books of this type appears to be significant, their corresponding value tends to be slight; one's progressive uncle is not going to see the light by reading After America. There's enough Obama bashing that an inattentive reader will be able to conclude that this is simply more political pap, meant to fire up the base for another meaningless election.

This is too bad, because Steyn's book is actually much more than that. Sure, it contains an obligatory plan to roll back Big Government, filled with the sorts of empty promises Republicans have reneged on for nearly a century. But Steyn's heart isn't in it: he tells us that this will prove "difficult", which is a little like explaining that Sisyphus has some hours of work to do.

After America highlights the recklessness of the present administration, but it does so by noting that "Barack Obama is a symptom rather than the problem." If the president does not value life, liberty and limited government, this is equally true of the citizenry that elected him. A government that steals from generations unborn to finance its profligacy and views entrepreneurs as annoying hindrances to the business of government is problematic. Yet it is only a manifestation of a much larger flaw: its citizens no longer value those things which—Steyn argues—have made America so great.

The book is less a defense of things American than it is a critique of the soft socialism typified by Great Britain and Greece. Since FDR at least, the US has sought to shed its Jeffersonian trappings for a Big Government patterned on those of Europe. This trend has only accelerated as of late, not simply under Obama, but also under Bush, the "compassionate conservative" who gave the American people Medicare Part D and the TSA, which now gropes granny lest it be found guilty of profiling.

Greece and Great Britain are both doomed, and for essentially the same reasons. Government debt is overwhelming demographic reality. The people have lost the will to thanklessly perpetuate civilization. Both have middling productive sectors, upon which a large parasitic class feeds. And what feasts! In Greece, public sector employees retire at fifty-eight, whereupon they receive fourteen monthly pay checks until death. That was the plan, anyway. With the Greek birthrate at 1.3 children per couple, the math doesn't work. One can only run a Ponzi scheme if there are ever more suckers from whom to appropriate funds—as the soon to default Greeks are about to realize.

Great Britain may actually be in worse straits: "The United Kingdom has the highest drug use in Europe, the highest incidence of sexually transmitted disease, the highest number of single mothers, the highest abortion rate; marriage is all but defunct, except for toffs, upscale gays and Muslims." And this was before the London riots. Technically this makes Steyn something of a prophet, as does his insistence that America will soon see its credit rating downgraded. The remarkable thing is not that Steyn can point out the obvious consequences of liberalism, but that so many remain oblivious even while its fruits are rotting before our eyes.

The paradox of progressivism is that the creation of a social safety net has rendered man ever more fearful of risk. Instead of starting a business or raising a family, corpulent westerners curl into the fetal position in the gentle hands of government. This is not the way of civilization: it is the path to barbarism, shortly coming to the post-American world near you.

UPDATE: As a commenter from Amazon pointed out, Steyn's publisher is Regnery, not Regency.