Machiavelli Ben?

Does Ben Bernanke even know what he is doing? I’ve certainly wondered about that point, and it is increasingly a topic of conversation among stock market analysts who have come to understand that all the major US stock market indexes are pushing relentlessly upward because of the Bernanke put.

There hasn’t been a significant correction in the stock market since early September, when the S&P 500 left the 1040 range to its present very lofty height of 1330. This rally has set a number of records, including days when the stock market moves less than 1%, and number of stocks above their 200 day moving average. While some analysts credit this advance to improving economic conditions, most observers point to the Fed’s deliberate policy to keep the stock market “higher than it would otherwise be”, fueling it with hundreds of billions of dollars from the quantitative easing program.

The other evidence in favor of the Bernanke put argument is that volume has fallen off dramatically at each daily advance. This past week volume has been at its low for the year, 40% off even the median volume for the market. This is never the sign of a healthy market, especially one that advances with no corrections in sight. It says investors don’t trust the advance, but are unwilling to sell or even take their profits because the direction is so clear for the short term.

The Fed, in other words, owns the stock market for the first time ever. The Fed has assumed responsibility for its move up, promises to protect investors should the market hint at going down, and will take the blame if the Fed is unable to prevent a sell off. Whether the Fed agrees to this is not relevant – this is market perception held by millions of investors. The Fed may not really be to blame when the market finally corrects (and not if, by the way), but the Fed is to blame for this perception continuing.

Given this, many analysts are concluding that Ben Bernanke doesn’t know what he is doing. He has no practical experience in the markets, and all of his other fellow-governors at the Fed are economists as he is. The last remaining governor with real-world experience in the markets was Kevin Warsh, and he quit last week with little explanation. Did he realize the Fed is heading for a devastating indictment of market manipulation that will lead to losses for millions of investors?

I’ve been wondering if there isn’t an alternative explanation – somewhat less plausible than the “Ben Bernanke is out of his depth” argument, but certainly not out of the question. It assumes Bernanke is a smart man, an ex-professor of economics at Princeton and someone who has been around the Fed for years. He therefore knows what he is doing and what risks he is taking, and this talk of goosing the stock market is really a fig leaf for the real program.

Under this theory, the Fed, the Treasury, and the administration are in a battle with China to force that government to abandon its mercantile policies. The US government wants China to significantly revalue the yuan to the dollar, stop subsidizing domestic producers, start opening up its markets to US companies, and cease stealing intellectual property.

China refuses to comply, so the Fed introduces Quantitative Easing 1, which weakens the dollar on the exchange markets and starts to stir up a little commodity inflation as well. This pressures China where it hurts: the country is resource poor and has desperate need for cheap commodities to keep its growth machine going. China retaliates by ceasing its purchases of US Treasuries, which is where it has parked its massive foreign exchange surpluses in the past. This puts upward pressure on US long term interest rates, so the Fed introduces QE2, which has several benefits for the US. First, it counteracts the interest rate pressure caused by the sudden absence of China as a major buyer of Treasuries. It keeps the dollar suppressed on the exchange markets. It also ignites a more serious commodity inflation boom that now imperils the entire Chinese economy.

Knowing in advance that QE2 will levitate the stock market, which happened in QE1, the Fed makes a virtue out of necessity and uses this inevitable levitation as a major reason why QE2 is needed. In fact, the Fed has no problem using this cover story, because there has been a demonstrable uptick in consumer spending based on the stock market “wealth effect.” The uptick has taken place in luxury goods and is limited to the wealthy, but it is there nonetheless, as justification for QE2.

The Fed can point to this success, knowing however that it now has a problem deflating the stock market when QE2 ends, assuming no QE3 is needed. Unfortunately it may well be needed; China still is obdurate about revaluing the yuan, and it has not reversed its policy to limit its purchases of Treasuries. The Fed has now surpassed China as a significant owner of Treasuries, and will likely keep on this path as long as China does not buckle to the pressure.

If this theory is correct, the stock market’s fate is sealed one way or the other, at least in the short and intermediate term looking out six months or more. If China concedes defeat, QE3 will not be needed and the stock market will react to this disappointment. If QE3 is needed, and the economy is booming, everyone will be puzzled as to what is really going on, and theories such as this one will come to the fore. The stock market will be disappointed to discover it was duped and its rally was based on false premises. If QE3 is needed, and the economy is sinking back into recession, The Fed and QE2 will be blamed because the commodity inflation that was instigated is now attacking US consumers as well as Chinese (and Egyptian) consumers as well. The stock market will be disappointed that quantitative easing is continuing and will likely make the recession deeper than expected.

The Fed has set a trap for itself, or at least for the stock market, but if the stock market corrects 10% to 20%, the Fed will just go back to its normal stance, which is that it can only really effect short term interest rates, and nothing else. It will be an admission of failure that will require some political containment, but it ought to allow the Fed to keep its franchise. If the stock market crashes, which is not out of the question given that it is dominated by computer programs that don’t care whether the Fed survives or not, all bets are off for the economy as well as the Fed.

This is all theorizing and speculating as to what is going on with the Fed, because the times we live in, and the Fed’s policy approach, are so out of ordinary experience that it is as if everyone is flying blind. The one thing we can all agree on is that these are perilous paths being traveled by governments and markets alike, and avoiding disaster is getting harder and harder.

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Numerian is a devoted author and poster on The Agonist, specializing in business, finance, the global economy, and politics. In real life he goes by the non-nom de plume of Garrett Glass and hides out in Oak Park, IL, where he spends time writing novels on early Christianity (and an occasional tract on God and religion). You can follow his writing career on his website,

41 CommentsLeave a comment

  • then this alternative explanation assumes that Uncle Ben and the Fed are willing to starve the poor, ruin the middle class, hurt the wealthy, and beat up the US dollar and America’s credit rating, all in the interest of US industry being able to sell more stuff into a crippled and depressed Chinese market composed mostly of distressed laborers. I’m kind of having a hard time buying into that.

    Neither do I think these people are so stupid that they’re just standing on the gas pedal until the world economy leaves the roadway. I believe they are using their resources and abilities to try to accomplish something. But as yet I can’t reckon what that might be, or for whose interests they are really working.

    I wouldn’t be especially surprised to find out pretty soon that it’s been another round of the same tawdry con game, where Goldman and a few of the other big boys cash in their chips and walk away right before some big news drops. I think they know the house is on fire, and they’re just looking to do as much nonchalant looting as they can before people smell the smoke and start heading for the exits.


    “There’ll be one corporation selling one little box
    It’ll do what you want and tell you what you want
    and cost whatever you got” — Greg Brown

  • the S&P has risen 13% since December! there may be something to the idea of QE2 impacting this latest run. But if one looks to the 4th quarter earnings there is not a simple answer because in fact interest rates have risen since the announcement. Remember in March 2009 S&P earnings were at $6.86 per share as reported earnings. By 2010 it is at $76.86. The consensus 2011 forecast is at near $90 and continually revised up. That’s a 17% gain for 2011!! The P/E in March was 116, compared to around 15 or so now.

    This is an earnings driven market right now with further upside given the continued evidence of strength in the first quarter.

    Without a doubt recent trading is thin signaling a top, but it has not been thin for an extended period. There should be some fall back after a 13% run, that would actually be normal.

    What traders are saying though is the continued residual strength powered by earnings, with investors willing to buy on any decrease in
    price. We are in a buy the dip mentality.

    As far as QE2, the Feds mission is low inflation without deflation, and fixing unemployment. QE2 right now fits the bill. Inflation to my eye is still dangerously low, and the construction markets are still weak. The threat of deflation is much greater than the threat of inflation, and the confidence injected in the markets by QE2 has contributed to the rise in long term rates. That is a good thing, meaning the threat of deflation is less.

    There is no inflation risk so long as unemployment is at 9%, and any Fed needs to try bring unemployment down. Why wouldn’t they? We will not see fear of rising inflation until unemployment can get below 8%. The unevenness of unemployment now is really starting to show. Educated regions of the country are seeing rates fall below 6.5%, and commodity rich are below 4.5%. My area is now at 6%. I have no idea how one deals with the unevenness of it, as the urban educated areas will reach full employment well below the rural uneducated areas.

    But then I am not a Fed official.

    I see Q1 blowing away earnings, and another run in the market. Summer will probably be the slow down as it usually is. We also have a surge in earnings from the payroll tax cut, the surge of spending from tax refunds, and I think pent up demand from the extensive bad weather.

    All trends are positive for spring, and the slowing in summer will be the period when the market chooses to fall back. I still see a range of 14000 to 15000 in the Dow for the year, and any correction in summer would be 10% tops. I would add that 2012 is starting to look even stronger because the commercial construction markets would be recovering well by then, and residential housing will start reacting to the rising number of households again.

    My other question is why folks continue to apply some devious intent to folks trying to figure this out and bring closure to the financial crisis. Bernanke is getting up every day and doing the best he can relative to his background, education, and ability. He’s done a hell of a job. It is dishonest and a disservice to ascribe some inner motive that is hidden. The implication of conspiracy or worse.

    What is this, Glenn Beck?? Maybe, just maybe, it’s all part of the Caliphate plot? Can’t this stuff be discussed openly and on the merits of difference of opinion.

    Why would one ascribe Machiavellian motive? It’s silly.

    As far as the US forcing a revaluation of its yuan and opening its markets you are spot on. I’d add that I would give FULL support to QE2 on that basis alone. By the way it is working on that front too, I don’t recall such a strong manufacturing recovery in the US that is being experienced right now. For example the auto parts industry is running 24/7 and hitting supply constraints. Ford will have to throttle back growth in 2011 because they will be hitting a supply side wall. Ford will be building factories as fast as they can, and the parts suppliers will start building new factories as well. The wire harness shops are all running three shifts. Amazing, considering this was an industry that was ready to shutter its doors. The loss of GM and Chrysler would have led to the exit of auto manufacture in the US because the parts shops would not have been able to operate with enough capacity. Ford and Toyota alone would not have cut it. Now we have the most vibrant industry I can remember since the 60’s.

  • Inflation to my eye is still dangerously low

    Inflation was low in the Housing bubble, if one ignored housing.

    Inflation is low now if you ignore oil, food and commodities.

  • is 1.2% per the CPI index, I usually go by urban measures. Inflation was above 3% in the housing bubble (which is generally considered too high). One can debate the basket of goods used, but the danger of deflation is still too close for comfort.

  • The U.S. is in a war with China and the American people do not know anything about it but the future of our country is being decided. Welcome to American Democracy. Has the U.S. government overreached its own economic clout? China wins and 1934 will seem like a party.

  • The CPI chart on the home page reflects our sstimate of inflation for today as if it were calculated the same way it was in 1990. The CPI on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980. In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.

    Further definition is provided in our CPI Glossary. Further background on the SGS-Alternate CPI series is available in the Archives in the August 2006 SGS newsletter. Link

    Shadow Government Statistics
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  • I like to use affect as a verb and effect as a noun. But it is too late now to change my mistake. Nobody would know what we were talking about here.

  • That non-food and non-fuel measure of inflation are correct?

    I suppose you don’t eat or drive then.

    I call bullshit on your argument above.

  • “She can’t dive with 3 barrels on her chief, not with 3 barrels she can’t…”

    I can’t wait for the part when Ben … er, Quint, has to make a run for the shore with an engine that has been worked much too hard. I’m sure it will all end well.

  • Affect can be a verb when it means to influence, as in “affect short term interest rates”

    Effect as a verb means to cause. One wouldn’t say that something *causes* short term interest rates, but that something *influences* them, so “affect” is the correct verb to use here.

    Don’t even get me started on the nouns!

  • Another thoughtful piece by Numerian, but the operative words in the article are all in the very last paragraph. All the rest is speculation and cup half-full/half-empty if-this, then-that. Yes, there are likely outcomes and probabilities that could be assigned to one or another scenario.

    However, Bernanke and crew are NOT fools; what they are doing has risks associated with these courses of action, but there are firm, empirical bases for the phases of “quantitative easing” they’ve embarked on. One such premise is the fact that the U.S. economic system has been shown over the past several years to be one of privilege, once again. No surprise there except for those idealists that feel clearly everyone should each and all be “equal” and no one should have preferred access.

    Guess what? We may all have been in the same (sinking) boat on March 9, 2009, but some people already had life jackets on, were closer to the rafts, and just in case, had cabin cruisers waiting nearby in case the ship of state had sunk when the S&P500 was @ 666 (it is at 1328 today). So, this is a fact: wealth begets (more) wealth and some people have much exalted positions in society compared to, say, a waitress at a Wyoming truck stop. Is this anything we did not know before? All Bernanke & Company are doing is making sure public and private pension funds, insurance companies (think: annuities), mutual funds, university and other endowments, municipal and state governments, and institutional and private investors can either stay on or climb back up the over-the-side ladders of the sinking ship of 23 months ago.

    This reflating of financial instruments is one of the primary underpinnings of 21st Century civilization; should it be allowed to unravel? Why not TRY to re-establish some order in the global markets? No one can say with mathematical precision, but a fair amount of world financial stability is psychological and based on attitude and confidence.

    If fundamentals continue to improve, then so will earnings…and outlook. If there is one metric that justifies equity prices anywhere on the planet it is EARNINGS as found in trailing, current, and forward price-to-earnings (P/E’s). If forward earnings for this year as estimated by any number of trained analytical practitioners come in where the consensus is resting, the actions of the Fed are contributing to our societal stability. What’s wrong with that? Yes, it is risky, but civilization almost became unravelled. While Numerian is correct to be skeptical of what constitutes genuine Fed policies of value, I’ll gladly take ANY attempt at planetary financial stability. Voodoo Ben anyone?

  • “Affect” refers to the perceived emotional state displayed by an individual. They may or may not “affect” or “effect” that state. It’s in the judgment of the observer. There’s a lot of “affect” out there on the internet(s), eh.

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  • I’ll gladly take ANY attempt at planetary financial stability.

    And you will not get stability. You’ll get an illusion, followed by a sudden change.

    If the system was linear, it might be possible to apply damping(negative feedback) to ensure stability. Might.

    The system is not linear, almost by definition. A linear system passes input to output and only amplitude and phase is changed. We humans, are non linear, we overact, we distort, and we drop information.

    We also have non-linear feedback. This then become the definition of a chaotic system. Chaotic systems may have linear portions, where one believes we have control. That control is an illusion because we do not know the limits of the control, or the limits to the variable with which we attempt control.

    We do not know what’s too little or too much. At the present we have no calibrated models of the system either – hell we don’t even have an agreed definition of the variable, let alone the functions that govern their interaction.

    The system is chaotic, and does have strange attractors, and will hit another tipping point.

    Bernanke and his ilk have no idea if they are making the problem better or worse with their QE 1, 2, 3 4…999.

    You hope they have good intentions. So do I. The road to hell is paved with good intentions.

    I also believe their are opportunistic bastards in the system who do not have good intentions. I can’t tell the difference between those who have good intentions and those who don’t, but I can measure the results in individual wealth, and that looks bad, and is going in the wrong direction.

    I must then conclude, conclude not assume, from my perspective, and the perspective of 90% of the US population, that the bad actors outweigh the good by a significant ratio.

    Which leads to the observation that it is more pragmatic for me, us maybe, to believe an individual is a bad actor, acting with malicious self-serving intent, until proven otherwise.

  • The problem I have with the “it’s all good” interpretation of the economy is that it always seems to omit mention of $1.6 trillion of deficit spending for this year, or the implications of throwing an additional $600 billion of liquidity into the global economy. When you talk about the growth in S%P 500 earnings, or the supply constraints affecting the auto parts industry, or the manufacturing recovery, it is always in the context of how this compares to previous recoveries from recession in the post war period. In that context, everything looks normal to better than average.

    If you are going to be bearish about this stock market, or skeptical about the economic recovery, you have to adopt the stance that what is going on is anything other than normal. The amount of fiscal and monetary stimulus to GDP thrown at this economy is only equaled in WWII, which was a truly existential event. Certainly there were existential elements associated with the financial crisis, but unlike WWII, we seem to have no easy way out of reducing our dependency on the steroid of debt issuance, which was of course the heart of the last crisis. Washington dithers over $30 – $100 billion of cuts on a $1.6 trillion annual deficit. A lot of this stimulus is going straight to the bottom line of corporations, including the automakers who have been relieved of their promises to pay retirees, who have not really repaid their debt (merely shuffled around obligations with the government), and who have stuck it in the eye of Uncle Sam by generating most of their 2010 earnings from China, with the bulk of their manufacturing done in China! The factories put back to work here are making mostly SUVs and trucks – the same old strategy of the last decade because Americans are not encouraged to buy smaller cars. And how are these US auto sales accomplished? Through generous financing offered by GMAC (now renamed Ally), on easy credit terms, backstopped by the federal government. Nothing has changed other than huge amounts of debt are being issued.

    To be skeptical and bearish about this economy is to ask whether encouraging consumption through debt issued by the federal government or guaranteed by the federal government constitutes a healthy normal recovery. This is especially pertinent now that the US has approached the point where $1 of new debt generates less than $1 of GNP growth. In the good old days fifty years ago we could get $5 or more of growth out of our debt, but it has been progressively downhill to the point where something has to crack. We have to clear up our debt problem rather than add to it, and that starts with the private sector. The dirty secret of the S&P 500 companies is that most of them are loaded down with debt, usually pushing their ratings to near or below junk bond status. Junk bond debt issuance has soared in the past two years, just as it did prior to the 2007 collapse. Consumers have not deleveraged, other than through foreclosures. Once again, nothing has been changed, just made worse.

    So color me a permabear, someone who has watched the US pursue time and again strategies of reflation, ratcheting up the stakes at each go around, getting less and less a result from it, and refusing to accept the pain of clearing the debt decks. We’ve been at it for so long that it seems normal to do it again, only each time we need more of the drug to just stay functioning. This is certainly the definition of an addictive disease and pathological behavior.

    If this is such a normal recovery, with the greatest manufacturing rebound since the 1960s, let’s do the following: remove at least $1.0 trillion from the federal budget deficit here and now. Bring the deficit down to at least $600 billion – it was $400 billion under Bush before the crisis, but we’ll thrown in a few hundred billion more as fiscal stimulus cushion. This will necessitate canceling the payroll tax cuts and the Bush tax cuts, but these are no longer needed now that the economy is on the road to a healthy, normal recovery.

    Second, stop QE2 here and now, cease any talk of QE3, and in fact start reducing the Fed balance sheet from $2.6 trillion down to $800 billion where it was in 2007. Do it now, without any talk about shocks to the economy or the need to draw things out for a few more years. The monetary stimulus, after all, was initiated all at once, and since our economy is now recovered, it ought to withstand removal all at once.

    Bring the Fed Funds rate to 2.0% now – immediately. The Fed can do it. It shouldn’t shock the economy, and it may help the dollar, because the economy is now back to normal and 2.0% is still well below a normal level for the base rate. Start rewarding savers again.

    Stop using the unemployed as an excuse for not doing the things necessary to get us back at least to where we were under George Bush five years ago, which now appear to be the halcyon days of fiscal and monetary prudence.

    Let’s do these things now to get us back to where we were in 2006, which was still a situation with dangerous levels of debt, but one where we had time to deal with the debt. Do these things now, and then let’s come back in September and have another discussion about the great recovery we are all experiencing.

  • Vast income (and wealth) inequality breeds instability. When the stock market (and yes, the earnings that dictate its value) exist by, for, and to benefit the richest individuals only, then why would anyone on main street give a tinker’s damn about its ‘stability’?

    The DOW levels at 13,000 – oh yes, and your gas is $5.50 a gallon, eggs $6 a dozen, all clothes rise in price by 60%, and it will be x2 to heat your apartment every winter. Did I mention your wages will not only not increase, but may decline by as much as 20% if you lose your job?

    Does that sound like a stable recovery to anyone?

  • it is certainly the bearish sentiment.

    But I offer this. Every period has its ‘Crisis’ the hole we got to dig out of. Whether it is gangsters, corruption, great depression, world war II, rebuilding Europe, the red menace, nuclear obliteration, drugs, undeclared military conflict, assassination, rampant inflation, an ascendant Japan, an ascendant China, global warming, peak oil.

    It is our defining activity. The really interesting thing about it all is that when we look back in time we don’t see a 50 year lifespan, recessions every 3 years, the destitution of the elderly. We see a pristine past of bucolic fields filled with happy cows. The 50s is the pinnacle of US manufacturing prowess, not the decade of the red menace and nuclear annihilation and the US falling falling falling behind. It is our meme. The US is always on the cusp of disaster, in fact we all are. I’m one day away from irreversible cancer, and one auto accident away from paralysis, one gun shot from oblivion.

    The really deep hole we are in today is NOT debt. That is a symptom. The really deep hole we are in today is that energy costs too much. If you look historically, the US debt is really just a subsidy for high energy prices. US oil peaked in 1973, and OPEC emerged resulting in an unbelievable (to date unrepeated) spike in energy that extended through the mid-70s, likely caused the recession of 74-75 and there emerged the rising debt.

    Energy prices spiked in the early eighties, likely causing another recession in 82/83 and the sharply rising debt. Government began to subsidize industry and individuals to alleviate the cost of energy. Energy prices came down in the late 80s along with the debt.

    Then in about 1991 it spiked again, in response to the Iraq war, likely causing the recession of 92 and we were back in the hole. Energy prices fell sharply with the collapse of the Soviet Union, actually on inflated terms fell back to where they were in the 50s and 60s – and what do you know – the debt disappeared.

    Then, energy prices began to inexorably rise again. We had the fear factor of 9/11, and in came the debt again. The cost of oil spiking to an all time high in 2008, and what do you know. Another recession, and another high debt. Oil has never fallen now after this one. It is still sitting at $83 a barrel even after oil use in the US fell 8% since 2008.

    That is what the debt is, an energy subsidy.

    If you want the debt to resolve itself, you have to find a source of energy for electricity, home heating and transport that is under $20 or $25 in today’s dollar. The debt would go away.

    Technology has always been our means. Scaled, wind and solar and much much higher efficiencies can get the US to a point where its GDP generation can occur with equivalent inputs in the $10 to $20 range. But the headwinds to it are the invested interests of the fossil fuel companies. It is a battle royale. But one I believe can be ultimately resolved.

    In the grand arc of history, somehow, people manage to develop with greater connectivity, less violence, more openness, and with ever more complex systems run on essentially an equivalent cost of energy. Whether wood, or coal, or oil, or sunlight or wind. It has to be kept at a certain level relative to income.

    It can be kept there by advancing technology or by government subsidy. It is the same here as it is in the developing world, or the Arab countries. What are all the Arab countries in ‘revolution’ about – why it is the maintenance of their subsidies, same as here.

  • Eggs aren’t $6 a dozen, they are $1.19. Milk is $2.98 right now. Gas is $3. A whole chicken costs $5 right now. I just paid $1.99 for a pound of hamburger. The cost of heat this year is less than half what it was in 2008. An air conditioner costs $99 now, a microwave costs $30, a watch costs $4, a lap top can be bought for under $400 pretty easily, a 40″ flat screen TV is going for $400 (they weer $4,000 four years ago). There is little pricing power right now. It will stay like this until unemployment falls below 7.5% to 8%.

  • … over the next week or ten working days, take a look at the charts at BBC Business news:

    which show the three major stock markets in Europe as well as the two in the US. Pay attention to the curves, not for quantitative numbers (each is on a differing scale) but for time and change in direction of movement. Accommodation between CAC and DAX times being one hour ahead of FTSE 100, the curves show a striking similarity between those exchanges, likewise a similar curve is shown between the US exchanges at given times. The BBC Global 30 also generally follows the pattern of the exchange group activity, first the European and then segues into the US exchange activity, again a time related record of activity, either up or down, The synchronicity becomes apparent, given “local activity” of each exchange modifying the numeric values in each “independent” exchange. It looks like each exchange is being manipulated by a single “puppet master” operating from a single control over all the markets simultaneously. Take a look and see what you think. Best time to look would be after the close of business in US. I don’t think we are alone when in the stock market, there seems to be an invisible hand at work. Decide for yourselves.

  • This is what forces the revaluation of the Yuan. It will be impossible to resist revaluation. It has been this mismatch that has made US manufacture less competitive.

    When I see this, the US has been on a perfect policy trajectory regarding the dollar.

  • of the correlation. A “significance” calculation requires identical populations.

    However, on reflection

    I’d expect price of the same stock on multiple exchanges to be synchronized, for if the price on different exchanges becomes un-synchronized, then the opportunity for arbitrage is so great as to close the difference very, very quickly.

    I’d expect the exchanges to follow the same pattern. To do otherwise is almost impossible, due to the arbitrage closing the differences (buy on one exchange, sell on another).

  • It will stay like this until unemployment falls below 7.5% to 8%.

    Specifically, you are spot picking numbers to make your case. An example of comparing the cost of heat with 2008. A better comparison is to look at the moving average of cost of heat, not compare single date points.

    You a repeating the same process used by Republicans to manipulate and lie. Comparisons must be made based on trends, moving averages and variances.

  • That make us manufacturing uncompetitive. It’s the disparity in costs. Currency valuations are a result of industrial policy, not the cause, and cannot correct enough to balance trade.

    The Chinese buy assets, land, businesses, buildings, and anything else to balance the books, as is happening today, because the Chinese want to spend their dollars somewhere, and where else but by buying assets that generate income in the US (including T-Bills)?

    US Costs have many factors, including environmental and labor laws, These impose a cost on business, a cost which was only found necessary in retrospect, in reaction to some appalling conditions.

    A further burden of costs is the huge burden of the US “medical system”.

    The choice is between exporting jobs to countries that do not have these costs (cause in some part by “standards”), or erecting tariffs to “level the playing field”. The solution to the costs of the ineffective and inefficient US medical system is well know, nationalization.

    To reach parity on costs between the US an China, the yaun has to be revalued by one of two orders of magnitude, or US labor costs have to drop one or two orders of magnitude. This requires abandoning all the environmental, labor, and benefit standards in the US, Including medical Care costs.

    Do you recommend we adopt the Republican health care system, don’t get sick, and if you do, die quickly?

    If US labor costs drop by the amount required, the rest of the US “rentiers” will be come impoverished almost immediately, because there services will be priced out of the mass market.

    Good luck with your investments in that scenario.

    As usual you make a absolute statement about a topic, which is completely wrong, and misleading.

    Are you a troll?

  • … or calculate the probability that these changes and their timing are random as would be expected in non-controlled markets. Business conditions are not the same in Frankfurt as they are in Paris which would be entirely different again in London. These are alien exchanges to each other, they do not share the same businesses or stocks, arbitrage between them has about the same chance of happening as arbitrage between NYSE and NASDAQ, figure out how that is going to happen and you are certainly better than I.

    Over some period note the close correlation (giving similar curve signatures) in movement at basically the same time for: a) the European exchanges, and b) the NY exchanges, and ask if what you are witnessing can be explained by some reasonable process. Clue, Occam’s razor is your friend. But to do so, you must see the phenomenon over some period, that will be necessary, going directly to answer you will end up in gaol and forfeit your $200 for passing go.

  • China will move their dollars and invest here, to manufacture goods so we can export it to them? I’ll take that. You are missing the point I am making. Absolutely, a low dollar makes US goods more competitive, and China’s attempt to peg its currency to ours is their effort to keep a price advantage. We are calling that bluff and pushing their currency to a level deemed competitive by US. I love the policy. And it has absolutely been working.

    The SSE has flatlined and the Dow has surged.

  • The question I’d have is how many markets the fields of high frequency trading robots can operate on, lurching the fake liquidity around etc. The bot cloud is going to make things more closely coupled in different exchanges I’d think. Especially as retail investors give up on the casino, causing this low volume and constant melt-ups that the bots can ride on.

  • Scaled, wind and solar and much much higher efficiencies can get the US to a point where its GDP generation can occur with equivalent inputs in the $10 to $20 range.

    This is probably not achievable, nor is it necessary.

    There are three very large consumers of energy. Cars, Heating and Air Conditioning.

    Mass transit can replace 60 to 80% of energy used in Cars. The suburbs become the new slums, or home to legions of people who can work from home.

    Heating could almost be eliminated by investment in insulation. Super insulated homes are proven, and are effective. This issue behind this is that to be effective it would have to be a subsidy to the homeowners, that is a socialized program.

    Air conditioning is mostly unnecessary. Open the damn windows and sweat. Build with shade. However, most office buildings built since the ’50s would become obsolete, because they require a/c to be inhabited. Possibly saving these would spawn a large industry (other than the demolition industry).

    That begins to address the demand side of energy. One further place for change in energy use remains, and that’s food production. Consuming 7 kcal of energy for 1 kcal of food is not sustainable. This energy deficit will have to be eliminated, probably by local and person production of food.

    Now to the supply side. The alternative energy sources Scotjen61 so glibly outlined all suffer from two disadvantages, the first is 7×24, and the second is the second law of thermodynamics.

    This is embodied in the inability of, first, any known technology to store as much energy as the chemical bond in hydrocarbon based fuels, and, second, the losses, 50% or more, for each and every energy conversion, so leading to expensive, or unavailable energy when it is dark or cold.

    As a digression, lets discuss wind. It has low energy density (a function of the second law, 50% or more loss from sunlight (heat) to wind, 50% loss from wind to rotation, 50% loss from rotation to generation, and 50% loss from generation to demand, for an overall maximum theoretical efficiency of 6.25%), and can probably never deliver the amount energy that we consume today; that aside from the physical problem of installing the number of wind generators required for a significant (let’s say 10%) source of the US’ energy consumption.

    Here’s a reference to the various alternative energy solutions:

    The need for 7×24, continuous energy production, deliver the storage problem. Any storage solution will always deliver “energy in the dark” at three or more times than energy cost in the day. There is no magic “advanced technology” which will defeat the second law. As for government subsidies, government cannot print enough money to subsidize energy consumption.

    Conclusion: Conservation first, but without subsidies it will not happen to homes. In commercial buildings, the NNN lease is a major impediment, as is the poor design of modern, commercial buildings.

    Or in political terms, 1) Subsidies to the poor by the rich, 2) The destruction of a large portion of rent earning commercial buildings.

    Pigs will fly first.

  • As here-to-fore described, HFT was designed to preclude and divert profits on purchases and sales to the investment agency (raising market price for purchase or lowering market price in the case of equity sale, depriving the equity owner of the rewards of investment). If you are right (high probability) they also act to artificially manipulate, preordain and fix the daily outcomes of any market they are insidiously present. No individual or even an investment fund can prevail naturally in the market without succumbing to this hidden tax on their investments in the current market, a bakhshish to the unscrupulous worthy of any mid-eastern oil potentate. The enormous reserve required to accomplish this legerdemain in multiple international markets has to be beyond anything existing before in all history. Interesting times indeed.

  • on all fronts through distributed systems, and energy storage systems.

    I think the most promising is the thermal solar plants, one was completed in Spain. These are large scale thermal concentration of sunlight that use molten salt as the storage medium. The molten salt create steam that drive generators. Can generate large scale electric and is considered a Tier 1 energy, ie. 24/7.

    Offshore wind in many areas is a 24/7 source as well.

    As far as the demand side, I am 100% with you on what can be done there. I am a huge proponent of public transport systems, super insulation (which has a myriad of breakthroughs there as well), and all the other efforts.

    Addressing demand and supply side there are huge huge advances that can be made. But the result is the same, a return to energy equivalent $10 to $20 per barrel oil equivalent energy. I mean doubling the transport efficiency of gasoline results in a halving of the effective cost of the energy. Since 2007 gasoline use has fallen 8%, and with the new CAFE standards the consensus is that is will not trend higher than 8.2 million barrels gasoline again, and the long term forecast is gradual decline.

    As far as subsidies for insulation. A total of $3 billion was spent on free insulation for homes of the poor who applied for home energy assistance. In the last two years 800,000 homes were fully insulated in the program with an average annual savings of $550 per family. About one-third of the folks applying for energy assistance got their homes insulated for free.

    So I guess pigs do fly.

  • that shows how declining fossil fuel energy is replaced with alternatives then it is extremely dangerous to talk like this because it is leading people into a false sense of security. Given the median projection for oil supplies over at the oil drum then beginning in 2012-2013 the United States will need to build the equivalent of 20 nuclear plants of alternative energy per year for 20 years to maintain the status quo. Impossible given anything resembling current technology. Where is the plan?

  • is still coal and natural gas.

    Consider that gasoline use has already dropped 8% in three years. And in the area of electricity there has been no new coal plants built in three years, and all growth in electricity use has essentially come from alternative non-fossil sources which is a huge transition. But yes the challenge is daunting.

    Solar power is likely the little mouse that will grow to be an elephant. Being based upon silicon it is very likely subject to the same technological advantage of accelerating returns as the computer industry. If one looks at the last twenty years, photovoltaic energy has doubled in its use on the energy grid and halved its cost every two years to the point that it now represents 1/2% of all energy produced. It scales very very well and efficiencies continue to improve.

    It is actually following a similar trajectory as computers, that started earlier, which doubled every 18 months at half cost. Scaling will likely bring cost to parity with fossil fuels in two more doublings (four years) at which point it would achieve 2% generation and it would be at this point that utilities would begin installing solar for economic and not just subsidized reasons. If the doubling continues just 6 more times it could provide all electricity consumed. That would be twelve years. Starting today we would be looking at 2023.

    Who, looking out from the 1970s envisioned lap top computers and the internet. Even though the elements of those devices both existed at the time?

    Batteries do not scale in the same way as solar but the energy density in batteries can still be made four to eight times greater than today, and that would provide an auto with a range that is equal to fossil fuels. A doubling in efficiency could also achieve a halving of gasoline use. Public transport tied to the electric grid would also shift transport off the auto. Trucks transitioned to rail, and the electrification of rail.

    The path is clearly visible. And the technology of solar, the manufacture of silicon wafers, is identical to that of the computer. In other words it scales at lower cost.

  • Somebody has to take what we have and say OK we will need to make 100 of these and 600 of those a year and we will need this much rare earths to dope silicon etc; we will need to electrify this that during 20xx 20yy at rate such and such. The difference between a plan that works and just going for it is life and death.

  • when market price becomes competitive.

    Nobody planned computers, and the internet, or cell phones for that matter once the market demand moves in place. There are early aspects of planning, but that has been largely in the works.

    We now have a scaling photovoltaic product that has been in the works since NASA invented it for satellites in the 1960s, same as they developed a more portable computing platform for the Apollo project.

    There is a scaling and a critical mass that emerges. It takes on its own dynamic, and as the plan phase falls away it can move much more quickly. That is why new technologies in the US can get the starts that they do, it is ad hoc, scaled, and unplanned.

    I’d add that the newest tech for photovoltaic is emerging without need of rare earths. Same for computers. Same for autos and same for batteries. Toyota will have a rare earth free prius within two years. That is the power of market substitution.

  • This is what got us here. It is a mistake that all the economists seemed to have make. This mistake lies in an assumption, which is that market forces can overcome any constraint once certain initial conditions are met. Market forces cannot, however, overcome the laws of physics unless you make assumptions about undiscovered science and technology.

    Let me use an example, Gold, which is everywhere even in Sea Water and we have the technology to extract Gold at a few parts per million. Then you have to ask yourself, why are we mining less Gold every year even as the price triples. The answer is of course, that it takes more energy than the Gold is worth to extract it from the sources that are left here on Earth. According to Economists though, we should be mining more Gold than ever but exactly the reverse is happening.

    Now in the case of the assumptions you are making, scaling cannot violate certain physical constraints. For example, Silicon used for Photo-voltaic cells requires doping with rare substances. So when the energy needed to make the photo-voltaic Solar cell, i.e., mine the rare earths as they get rarer, run the Silicon furnace, etc exceeds the amount of energy that the Solar cell will ever produce, that is negative EROI and solar cells would no longer scale. What percentage of U.S. fossil fuel energy could ever be replaced by rooftop solar without exceeding a hard constraint? One percent? Five percent? These are the questions that need to be answered.

  • they are developing photovoltaic cells that do not require rare earths. Same as the substitution of gold in manufacture processes. That is what markets do, substitute, improve, and adapt. The most recent rare earth substitute has been pyrite, a very low cost and highly available metal mine waste product.

    This is the innovative arc that can be seen in this industry. thinner surfaces, less costly materials and at higher efficiencies.

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