Inflation to the rescue?

Increase the inflation target to 4%, argues[1] Tim Leunig of the LSE. I’m not sure if the central banks will officially change their targets, but high inflation seems likely in the medium term regardless.

The economic puritan[2] in me is horrified by this, but lets imagine that we do need to inflate away past debts to avoid a worse crisis now. To avoid moral hazard in future borrowing considerations, we should also require by law that all future borrowings (especially government bonds) and all new savings accounts are index-linked (to RPI) in the currency in which they are denominated[3]. Remove the option of inflating away future debt, and we are less likely to get in a position where we need to do it.

[1] Dr Leunig does undermine his argument somewhat with this statement:

But central banks have far more credibility now than in the past.

I don’t have much confidence in them. Their failure is a significant cause of the mess we are in now.
[2] I’m not (much of) a social puritan: have as much fun as you like, so long as it is between consenting adults and you pay all costs in advance.
[3] Of course the transition period could be interesting, as debtors will want to stay with their old debt and its nominal interest rates, while savers in a high-inflation environment will want to shift their money to index linked accounts.

Some interesting links (3)

Ireland and the Euro

“By keeping with the current policy, the state is ensuring that Ireland turns itself into a large debt-repayment machine. Is this the sort of strategy to win wars? ”

That’s what’s supposed to happen when you borrow money – you pay it back. To not want to do this, or to expect someone else to bail you out, is shameful. If you don’t want the pain of repayments, don’t borrow in the first place. More on the current problems and their historical causes here.

Real Letter From a CEO To His Employees. Ouch.

Causes of Credit Crunch and Recession.

Racism and other forms of bigotry take over US philanthropy.

When Clouds break down.

Jeff Nolan on great US inauguration speeches. Yes, Reagan’s was superb.

The madness continues

TImes today:

Ministers were piling pressure on the banks to increase lending before a meeting with the banking industry today.

We have an imbalance in the system: too many people want to borrow money, while the banks don’t want to lend as they are short of capital. The sensible response would be higher interest rates, but instead we will soon have the madness of zero %, and government intimidation to force lending.

Good comments on the whole from Mr Steinbrück, but where did he get this from:

The minister also suggested Mr Brown had panicked by abandoning years of fiscal discipline and budget-balancing policies in favour of Keynesian spending financed by debt.

Gordon Brown had only two years of fiscal discipline, then the reckless spending started, and even those two (Ken Clarke planned) years were not as prudent as I would have been.

Some interesting links (2)

Startup advice from David Heinemeier Hansson, via Chris Mar.

8/28/2006-Peter Schiff Predicts The US Economic Collapse

Why Germans just hate to spend, spend, spend

“Millions of Americans,” croaked the US Treasury secretary, were being denied credit or facing rising credit card rates, “making it more expensive for families to finance everyday purchases”. The notion that families should finance everyday purchases on credit, the [German radio] anchor commented, “suggests Washington has still to understand what brought us there in the first place”.

At least common sense survives somewhere.

Some interesting links…

… on finance related matters:

• Jim Rogers on the bailouts
• Why large companies won’t pay dividends
• Mark Cuban on stockmarkets
• Fallout from the collapse of Lehman Brothers

  This anecdote explains a lot:

  One man I know who worked at Lehman Brothers accumulated stock in the company for decades and never got around to diversifying his portfolio. This week he saw his net worth drop from a paper high of about $100 million (£56 million) some months ago to virtually nothing.

  No schadenfreude here, but it’s hard to have any sympathy.

• Reader’s letter on asset price bubbles. I couldn’t agree more.
• Taleb and black swans

Negative equity

The Times and the Telegraph both report that 1.3 million UK households could find themselves in negative equity if the downturn in the housing market continues. In other news, they report that millions of consumers are in negative equity on their car loans, borrowings to buy computers, holidays etc.

Of course, I’m lying about the “other news” – the media would never publish such an obvious fact. Houses are different you see. Cars are an expense, as they go down in value. Property is an investment, as it goes up in value[1]. Except for when it doesn’t, when the government (i.e. the taxpayer) must save us. Madness.

I’m sure this is not an original observation, but bubbles happen when people are more obsessed by capital values than either the usefulness of the item or the income it generates. We saw this in the recent housing bubble, with homeowners worrying their mortgage was not large enough, landlords who didn’t care that the rents they charged didn’t cover the mortgage, and banks lending on the basis of rising prices rather than the character of the borrower and their ability to pay. We also saw this in the dotcom bubble (and seeing it now in Web 2.0?), with grossly exaggerated share prices of many companies with no business model for making money[2], the debt fueled insanity of, for example, Marconi (GEC), and a crusade by Gordon Brown and others against dividends[3].

[1] Interesting post by Mahalanobis on the fact that (in the US at least) housing has been a terrible investment.
[2] The usual “lose money on each customer, but make it up in volume” approach.
[3] By contrast, see the “Bring Back Dividends!” section in this speech by John Bogle.

Housing market ‘rescue’

Vince Cable seems reasonably sensible, as MPs go, even though he is a (so-called) Liberal Democrat. Not sure about this idea though. Social housing is needed because houses are too expensive for many people to afford. Thus a “downward spiral” of the market is a good thing. Why does he want to spend council taxpayers’ money to stop houses getting cheaper, so we can provide cheap housing?

EU taken for granted

Bruno Waterfield has this quote from Robert Cooper, a senior EU official:

The EU provides real benefits: some are incalculable, like peace; some are important, like big markets and competition; some are concrete, like work permits, travel without passports. But once achieved they are taken for granted

The EU created peace in Europe? This was nothing to do with the backing and protection provided by the USA, the creation of NATO and the threat of attack from the Warsaw Pact?

Big markets and competition are very important, so why does the EU restrict trade from other countries?

Freedom of movement for citizens of EU countries is a great thing, and Mr Cooper is correct that we take this for granted. However, why did the EU have to exist for this agreement between nations to come about? The scale of this scheme may be unique, but other countries have mutually agreed easy travel and residency for their citizens without having to create an expensive, unaccountable supranational body to do this. Examples are the USA+Canada, Australia+New Zealand, or even the EU’s own agreements with the likes of Switzerland and Norway.

I am willing to accept that without the existence of the EU, the nations of western Europe may not have agreed to do this. The influence of unions and “Little Englanders” (and equivalent in other countries), objecting to Johnnie Foreigner coming to “steal” their jobs and introduce strange customs, may have prevented these free movement and trade agreements without the driving force of the EU behind the proposals. However, now that we have these arrangements in place, with broad popular support from tourists, businesses, students, intermarriage, people with holiday homes, ex-pats, etc., why do we still need the EU to exist? I don’t mind paying the builders constructing an extension to my house for their work, but after it is finished why should I continue to pay them? Why should I have to put up with them sitting in my kitchen every day, drinking my tea, eating my chocolate digestives, and planning lots more work (at my expense) that I don’t want?

One could argue that the EU should be retained if it is constantly coming up with such fantastic schemes as freedom of movement. However, considering the EU’s other “achievements” (the evil CAP, the stupidity of the CFP, its utter contempt for the opinion of the people of the countries in the EU, the disregard for its own rules and processes, the financial waste of the Strasbourg parliament, the inability to balance its books and the endemic corruption), I think we should hold a modest party to thank them for the few good things they have done and then close it down.

Icelandic banks

From the FT:

The central bank tied its own hands so as to leave only the interest rate as its control instrument. It gave up reserve requirements on grounds that the banks did not want them

It seems obvious to me that the banks would not want them. It also seems obvious that that is exactly why you should have them.

That was a good week

I’m referring to the week of 8-14 June. Why? Irish voted No to the EU constitution/Lisbon treaty, and I discovered that AdBlock Plus is available for the Nokia n810. Obviously the former is vastly more important than the latter. However, given the way the EU works, I suspect (sadly) that the improved web browsing experience on my n810 will be a longer lasting benefit.

I’ve commented elsewhere on the EU, and may return to discuss it more in later posts here. BTW: the bad news that week was the 42 day detention bill passing, thanks to the cretins in the DUP.

Getting back to n810 and ads: Ads have become a curse on the web, for several reasons:

1. Bad implementations that obscure the content. Hint for website authors: Internet Explorer is not the only browser.
2. Ads that automatically play music or other sounds when loaded. Not a hanging offense, but worthy of a severe flogging.
3. Phorm et al (a.k.a. bastards).
4. General performance problems. Charles Stross has some interesting example figures.

These problems are bad enough on a normal PC. On a handheld like the n810, with limited processor power, memory and screen size, they are even worse. Now I need to check if NoScript is available.

Update: No NoScript that I can find for MicroB, but there is Flashblock. I’ll have to check Fennec/Minefield when I have time.