Wednesday, October 30, 2013

“Haunted House” at New Yorker

The New Yorker picked up on the haunted House theme for their October 21, 2013 cover painting. Sadly, the image still holds true two weeks later now that Halloween is actually here — the government may have reopened, but nothing has intervened to show any life returning to the House Republican caucus. Happy Halloween!

Tuesday, October 29, 2013

Bosphorus Tunnel

A rail tunnel connecting the European and Asian parts of Istanbul is set to open in a few hours. The Bosphorus is not so wide, only about three kilometers or similar to many rivers that flow through cities, so in a way, it is odd that it took so long to build the rail connection. Initially the tunnel will only connect the two sides of the strait and relieve traffic on the two congested bridges of Istanbul, but the Turkish government imagines it eventually becoming a key link in a rail system extending from Europe to China and Japan. There is, everyone will agree, more work to be done.

Update: A short BBC News video showing the tunnel in operation: BBC inside new tunnel to link Europe and Asia shores

Monday, October 28, 2013

The Real Estate Lending Rush in Australia

The largest investment bank in Australia is rapidly expanding its presence in the mortgage market, a market in recent years dominated by the giant national banks. The banks are reporting record profits as real estate values increase year after year. Meanwhile, the central bank and other authorities are dismissing worries about a bubble in the real estate market. Smaller banks too are trying to get in on the action. The Reuters story:

Aside from the location, it all sounds terribly familiar, doesn’t it?

Sunday, October 27, 2013

Magic Over the Isolation of Work

One of the challenges of work is that so much of it must be done in relative isolation. Workers must make decisions that will determine the way people receive their work. Given the nature of most work, the customers who are affected can’t be present to guide those decisions. It is a spiritual problem that has, for those who dare to attempt it, a shamanic solution. That magical answer is what is depicted in this new Paul McCartney music video. (Video with Vevo commercial)

Saturday, October 26, 2013

China’s Confessions and Torture Deaths as a Measure of Corruption

In this morning’s news there is another story about a high-profile public confession. State-run media has been trotting these out every few days lately. At the same time, though, there are as many stories of prisoners tortured to death or dying by suicide or under mysterious circumstances, casting doubt on the authenticity of the confessions we hear. Taken as a whole, I come away with a picture of an empire that, in spite of some recent house cleaning and lofty rhetoric, is more corrupt and repressive than ever. Economically, such a system won’t stand indefinitely. Corruption means that people who are trying to get work done are being impeded, particularly whenever there is something new involved. It is like working with one hand tied behind your back — you fall behind the pace of the world around you. That is where I see China going in the next decade, until something eventually breaks.

Friday, October 25, 2013

This Week in Bank Failures

Two mortgage securities cases this week: The JPMorgan settlement with FHFA is the largest securities settlement yet. The bank will pay Fannie Mae and Freddie Mac $4 billion, and an additional $1 billion as a penalty. At issue were $34 billion in securities sold by the bank and two predecessors to Fannie Mae and Freddie Mac, which the government has said did not accurately describe the mortgages involved. In an unrelated case, a court found Bank of America liable for one specific Countrywide mortgage lending program designed to speed paperwork and lower underwriting standards below even the low standards of that era. Significantly, the court also found the executive in charge of the lax lending personally liable. The bank had described the prosecutors’ case as whistling in the dark just days before, and expressed astonishment at being found liable. That outcome, though, may make bank lawyers and executives more eager to settle cases involving sloppy and incomplete mortgage paperwork. There is certainly a lot of that around, with U.S. authorities now investigating nine banks over mortgage-backed securities, according to a list compiled by the Financial Times.

The mortgage business isn’t what it used to be, with the pace of new applications falling by about half since the start of the year. Adjusting to the slowdown, banks will have cut between 30,000 and 40,000 mortgage workers by the end of the year. Relatively few new branch closings have been announced, but that is a trend that will resume if the mortgage business does not recover next year.

U.S. consumer confidence has fallen sharply since August and is now at levels that smell like a recession, though still above the lows of 2011. Consumers responded to the possibility and then the actuality of a government shutdown, and more generally to the economic risks represented in the Republican strategy of legislative nullification. There is anecdotal evidence that consumer confidence increased when the government re-opened, but the survey data so far doesn’t show any such recovery.

That Republican strategy of legislative nullification continues with procedural maneuvers in the Senate to try to delay the confirmation of Janet Yellen as the new Fed chair. Republican senators may not be able to do away with the Fed, but they will see if they can render it leaderless for a time.

U.S. credit unions will not be exempt from stress tests, with the NCUA board this week proposing to stress-test about four very large credit unions, coordinating with the Fed’s stress test schedule.

Thursday, October 24, 2013

Mobile Video Games

What happened to video games? The genre seems to be in decline, but look more closely, and you realize that people are still playing video games, just not in the same way. About 1/5 of the video game market is on mobile devices, mainly phones, but that is if you measure according to revenue. If you look at the time people spend playing, probably more than half of that time is on phones. The phone games are different — smaller, simpler, shorter, and often free. Game designers are having some success in selling expensive console versions of the games they give away or sell at low prices on phones. This marketing approach probably cannot last very long, though. With graphics improving on phones and most players saying they don’t really have time for the large-format console games that predominated five years ago, the console games are fighting an uphill battle. Of course, “uphill battle” sounds just like a scenario for a video game, and my feeling is that the games will keep coming even though the number of buyers declines.

Wednesday, October 23, 2013

OS X Release Slows Internet

My Internet connection has been draggy today, running about a tenth of its nominal speed. This is surely the result of network users in my neighborhood downloading OS X 10.9 Mavericks. The Mavericks release affects fewer users than the iOS release last month, but it is a larger download, so the total network traffic is probably higher. On the other hand, it takes a more concentrated effort to upgrade a desktop computer, so the downloads may be spread out over a couple of weeks. There aren’t many reports of choke points on the Internet since yesterday’s Mavericks release, so perhaps that shows that the pace of downloads is slower, but it is still large enough to test the Internet’s capacity at specific times and places.

Tuesday, October 22, 2013

Working Within the System

Does wealth result from work, or from occupying positions of privilege?

In the United States, it is more the latter, and government policymakers are more likely to see their role as protecting privilege than protecting work.

A particularly egregious example of this was the Louisiana law that prevented a monastery from selling caskets. Under Louisiana law, only embalmers could legally sell caskets. That law supposedly protected the public, but its real purpose was to protect those in positions of privilege and to prevent others from working, a federal appeals court decided in striking down the law. Last week, the U.S. Supreme Court decided not to consider the case.

The story at the Los Angeles Times:

Of course, a host of problems result when institutional power is used to prohibit work while rewarding privilege. Most fundamentally, from an economic point of view, when useful work is discouraged, less gets done and aggregate wealth declines. Beyond that, it is important for people not to feel that they have been shut out, or that “the system,” the combined effect of institutional power, is working against them. To simplify somewhat, people who are prevented from working within the system will work around it or against it. When monks are getting involved in “black market” funerals because it is the only practical opportunity open to them, it is abundantly clear that restrictions on work have gone too far.

Monday, October 21, 2013

Flight to Quality Hits American Fast Food in China

This month, McDonald’s and KFC reported declining same-store sales in China, in both cases surprising Wall Street analysts. Both restaurant chains are being affected by a flight to quality. No one is surprised anymore by flat same-store sales in U.S. fast food, but it’s a trend that wasn’t expected to reach China, at least not this year.

KFC parent company Yum had pinned its hopes on rapid growth in China, so the report of a sharp decline there put its business plan in doubt. McDonald’s report, though, may be more gloomy. It doesn’t have a bright spot anywhere in the world to point to, and a barrage of promotions in the United States failed to lift sales about last year’s levels. McDonald’s blames the state of the global economy for its poor results, but it may just be that it doesn’t have much to offer to people who are trying to do better for themselves.

Sunday, October 20, 2013

Post-Shutdown Shopping

Perhaps I was not the only one who went on a spending freeze during the federal government shutdown. I saw plenty of cars and people as I went shopping yesterday. Retail workers said the stores had been especially busy not just on Saturday, but also the day before. It is perhaps an indication that people were holding back on spending to a slight extent for the last few weeks as a precaution, as they were faced with the prospect of a shutdown-fueled recession. Some of that delayed spending is happening this weekend.

I don’t think this means people will be spending freely again at retail for the rest of the year, though. It often happens after a major interruption that people think they are going back to what they were doing before, when in fact they may be doing ten percent less.

Saturday, October 19, 2013

House Cleaning Can Make You Fat

Here is a science story from The Guardian:

The University of Ulster study of 4,563 adults found a strong positive correlation between housekeeping and body fat levels. People who spent the most time cleaning house also weighed the most. The researchers and reporter speculated that house cleaning is not the useful exercise that it appears to be.

But there are more direct ways to measure the effects of exercise. When you measure a person’s oxygen consumption, you have almost a direct read on how much fat burning is going on. Exercise physiologists can estimate within a factor of 2 just by watching video that shows the muscle movements of an activity. Such direct evidence of the exercise value of house cleaning can’t be abandoned for this kind of indirect evidence. And there is no need to. There is a simpler explanation.

We know that there is a toxic effect from breathing air that contains cleaning chemicals and dust. This effect is compelling enough that there are workplace safety regulations on the subject. There are no such rules when you clean your own home, yet chemicals and dust are found there too. Toxic effects lead to body fat buildup. Body fat is used to store some chemicals and minerals temporarily, for weeks or years, until the liver can decompose and encapsulate them. With more chemical stress, more body fat is needed. If housework is leading to body fat buildup, this suggests that the cumulative toxic effects of house cleaning are greater than previously thought.

I am not about to stop cleaning my house, but I will see what I can do to limit my exposure. People who do commercial cleaning all day long don’t seem to have the same risk, even though commercial cleaning chemicals are in some cases more toxic than the household versions of the same thing. The main difference, I think, is that professional cleaners don’t stay in a room they have just cleaned. They always have somewhere else to go. I know people who have the same habit at home: clean, then get out of the house for an hour. There must be something to that.

Friday, October 18, 2013

This Week in Bank Failures

The federal government shutdown started with great fanfare on October 1 with huge promises, house parties, and so many lights you could have thought it was Christmas time. It ended much more quietly, the lights long gone, the promises vague and muted, the final hour of debate in the House shortened by almost half because no one really wanted to be in the limelight taking credit for a political stunt turned disaster. There were no celebrations that I know of because the people most affected had to get up and go to work in the morning. (I am sure some people who got their jobs back are out celebrating tonight.) The economic damage had been done, and political damage too. Unlikely players, from Starbucks to the U.S. Chamber of Commerce, drew lines and made new enemies along the way. One lasting consequence, though, is that many people came to realize how much they liked the federal government in some way, whether it was the panda cam or the economic statistics.

The Fed and federal banking regulators operated normally during the shutdown, and though seemingly not much happened, the Fed’s balance sheet continued to grow with new asset purchases. The Fed now owns about $2 trillion in federal government debt and nearly as much in mortgage-backed securities, an astonishing amount in total. There was some hand-wringing this week about what happens when the Fed starts selling off its assets, as if it might just dump $4 trillion in securities on the market some day. Realistically, though, the Fed will never sell most of those assets — nor does it need to. Most of the worry seems to originate on Wall Street, where if they had a $4 trillion portfolio, they would immediately start day trading. Wall Street traders and analysts probably have some difficulty believing that the Fed is not planning on any London Whale-style financial maneuvers. But the Fed is a different kind of bank, and it can easily just keep bonds until they mature. That is what I imagine will happen with most of the assets the Fed is currently holding. In theory, the Fed could sell a block of assets to reduce the money supply, slow growth, and fight inflation, but I am not sure that opportunity will come up between now and 2025.

I saw the suggestion that the Fed could forgive the $2 trillion in U.S. government debt it holds. In theory, that would be a transaction with no financial impact, but there are legal and policy complications, so it won’t happen — at least, I hope the suggestion was merely rhetorical.

Bank failures are likely to resume in the coming weeks as banks post quarterly results. There are always a few unhappy surprises among banks’ income statements, and when those happen to a bank that is already on the edge, regulators can decide it is time to take action.

Thursday, October 17, 2013

The Cost of the Government Shutdown

What did the government shutdown cost? It was a costly distraction. Roughly speaking, the United States lost close to one day of GDP during the actual time of the shutdown, but other costs are spread out over a longer period. Some employers, for example, will freeze staffing levels at current levels until the government budget problems are definitively resolved — that is, for at least one more quarter. And so, the lingering economic damage over the coming months will be roughly another day of GDP. In total, the loss was less than one percent of annual GDP, and that might not sound like much when you look at it that way, but if you describe it as two to three months of normal economic growth — so that a political stunt set the whole country back by two to three months — then you start to realize how big it is.

Wednesday, October 16, 2013

Turning Away

Now that the Senate has passed a debt ceiling measure that will also reopen the government till at least January, and the House has agreed to take a vote tonight for the first time this month, I can say it: the people who looked at the government shutdown controversy for maybe five minutes and then went off to practice piano, go running, or wash the dishes were right. Washington did not earn our attention this past month. Those who were paying attention learned that the House collectively has all the energy of a dying music box, perhaps an important thing to know, but of course, that quality does not make them a useful example to study and emulate. It is better if we spend our time doing the things we know we have to do.

After all that, and with the government already two steps over the edge, one sixth of the Senate still voted to continue the government shutdown and to repudiate the government’s debts. I am told we can expect a much larger number of votes in that direction from the House. It is a reminder that there are still plenty of politicians who don’t want us to be feeling good about where we are, or who don’t want us to be in a place we can feel good about. It is the kind of thing that can be infuriating to watch, but only, of course, if we stop to watch. All the more reason not to watch for very long.

Sunday Night Crash

There were two reports yesterday of an imminent deal on the debt ceiling, but both plans fell apart within hours. A complication is that House Republicans must seek a solution that doesn’t involve breaking up the dysfunctional alliance between the Republican Party and the Tea Party. It is no victory for Republicans if they save their country but lose their party, yet the Tea Party has made it clear they won’t mind destroying both if that’s what it takes. Another complicating factor is that while the Treasury will run out of money and start delaying payments on Thursday or Friday, Congress seems to see Sunday night as their deadline. It is a setup for a Sunday night crash in the House, followed by stock market crash the next morning — because after Sunday, every day is a step backward to the tune of a few billion dollars, making it very hard to form an agreement in principle that means anything while working at the speed of Congress.

House leaders want to go right up to the edge because they think it gives them more leverage, but then when the time comes they don’t have the basic vitality it takes to get their work done. If recent history is a guide, the House will meet Sunday, but end up not taking a vote. Of course, it is foolish to suggest a prediction, but even more foolish to just assume that when push comes to shove, the House Republican caucus will be able to agree among themselves.

Tuesday, October 15, 2013

Credibility and Proportion

Yesterday I was asking about credibility. The common advice on credibility is that consistency and attention to detail are a big part of establishing credibility. It has been observed that associating with credible people helps and that making distinctions is important. It has also been suggested that smoothness and personal beauty are more important than people would like to admit.

In addition, though, I would like to suggest that proportion is an underrated component of credibility. If you can consistently separate the big stuff from the small stuff, that is more credible than if you get the big stuff and the small stuff confused, or if you mix them together in an attempt to confuse others. At the other extreme, people who react to every event as if they are all equally big or little give the impression that they are not paying attention — and attention, it seems to me, is where credibility starts.

Monday, October 14, 2013


Where does credibility come from? It is a big question that seems to turn up often these days. I don’t have the answer, but I can see in this weekend’s news stories some approaches that don’t work. Changing your public positions and opinions to ones that you think should sound more credible won’t make you more credible. Complaining about lost credibility won’t bring it back. After looking at these and other examples, it seems to me credibility starts with paying attention. Paying attention by itself is certainly not much, but if everyone can see that you have stopped paying attention, then there is nothing you say that can make you credible again.

Sunday, October 13, 2013

Arctic Freight Picks Up in Spite of Ice

Freight companies are discovering that Arctic sea ice in September and October is not quite the barrier it appears on the satellite pictures and maps. Perhaps that is especially true this year, with Arctic ice more dispersed than at any time in recent memory. The satellite maps show the Northwest Passage closed, but there are reports of ships passing through, none to my knowledge accompanied by icebreakers. Officially all freight traffic in the Northern Sea Route is guided by Russian icebreakers, but other freight vessels travel farther north to avoid the paperwork, and those get through too.

There are a few explanations for ships passing through areas that seem to be covered in ice. One is that for a ship to get through, it needs a gap in the ice only the size of a ship. You can’t see the ship on the satellite map, so you can’t see the ice at the level of detail that matters to a ship. Another point to consider is that ice comes in a wide range of sizes and forms, some of which are perfectly innocuous. In October, large areas of ocean are covered by what is sometimes called grease ice, and this is no more of a barrier than it sounds. In late summer when weather is calm, a sheet of ice may shrink to a thickness of a tenth of a meter before it shatters. This thin ice may still look just as formidable as a meter-thick sheet of ice, but it is not an obstacle to a ship any more than it is safe for a person to walk on.

I imagine that freight navigators, many on their third or fourth year of Arctic crossing, are gaining experience with the ice and gaining confidence in crossing it. That confidence is not necessarily a good thing, but it does help to explain a continuing increase in Arctic freight traffic, even this year when weather is less favorable.

Saturday, October 12, 2013

Now Open, ObamaCare Popularity Surges

The polls are surprising: the popularity of “ObamaCare” is surging after a week in operation. People were tired of all the negative talk and perhaps expected to see something as monstrous as what they had heard, but the reality turned out to be much smaller, simpler, and easy to describe (try “a web site where freelancers can buy group health coverage”). When something actually exists, it is easier to see how it might be useful.

There may be other reasons for the abrupt shift in the polls. The House Republicans’ government shutdown, purportedly to protest ObamaCare, is so unpopular that people find themselves liking ObamaCare, or at least the general idea of access to health care, out of spite. It is hard to find anyone who agrees with the idea of just canceling everyone’s coverage and shutting the system down — yet that is the exact idea that House leaders had staked their reputation on.

Given that contrast, it makes sense that Republicans have taken a hit from their high-profile attempts to gut health care. All polls this month place the Republicans, the Tea Party, Republican leaders, and key Republican ideals well below major-party levels. Compare the Republicans’ latest 24 percent favorable rating to Ross Perot’s 46 percent going into the 1992 election, or Ralph Nader’s 34 percent in 2000, and you get an idea of how far the Republicans would have to climb to be competitive again. More worrisome still are the nearly identical poll numbers for the Republican Party and the Tea Party. As far as most of the public is concerned, the smash-and-grab politics of the Tea Party have already come to define the identity of the Republican Party.

Friday, October 11, 2013

This Week in Bank Failures

On the political calendar in Washington, we are more than halfway from government shutdown to sovereign default. It is worth remembering that two weeks ago, a majority of pundits, voters, and politicians did not believe the government shutdown would happen. The House inaction, we imagined, would give way to action when there were three or four hours to go, as we had seen in the past. But that transition did not come about. Flash forward to yesterday. Some in the House Republican caucus thought they needed a six week extension on the debt ceiling to give them more time to dither — while the government remained closed, of course. But in the end they could not agree on that either. Instead, today’s plan to get the House of its rut of inaction is . . . more talks. It is not Halloween yet, but can we all practice a ghostly wail for a minute?

I say all this just to put the risk of default in context. Most of the people who say a default can be easily avoided are not paying any attention to what is actually going on in Washington, and in the House Republican caucus specifically. It is a narrative worthy of the fall of Rome, so who is to say that now is not the time for the fall of Washington?

The reliability of United States government debt instruments is an unstated assumption in finance worldwide even today. Precisely because it is accepted as fact and not seriously examined, we cannot predict what parts of the global financial system will break when that assumption is broken. I will cite just two of many possible breaking points.

  1. Money market funds famously keep much of their liquid assets in government bonds, especially ones issued by the U.S. Treasury. If the Treasury is seen as no longer liquid, that could provoke a run on money market funds. And that, of course, is on top of the withdrawals already taking place now that furloughed employees of government contractors are living off their savings. Sponsors of funds that made mistakes while trying to keep their funds liquid could end up illiquid themselves.
  2. A huge sum, I am guessing about $3 trillion, in deposits are kept in banks in the United States at considerable inconvenience, just because of the perception of the United States as a safe haven for deposits. If that perception is shaken only slightly, so that a small fraction of deposits are moved to other countries, the giant banks in the United States could be looking at deposit flight on the order of $250 billion in a matter of a few weeks. That could easily be enough to change the color of a bank’s balance sheet. Half a dozen boutique banks that rely disproportionately on the deposits of foreign billionaires could be seeking emergency capital.

Thursday, October 10, 2013

Black Friday on Black Friday

One plan that was floated today calls for a six-week extension on the debt ceiling while the federal government stays closed. I have an uneasy feeling about that idea, because depending on how you line it up with the calendar, that could put the new debt ceiling deadline, along with the potential government default and the accompanying stock market crash, on Thanksgiving. Of course, it wouldn’t really be on Thanksgiving because payments can’t really be due on a national holiday, so the dreaded day would be the following day, Black Friday. Just the suggestion of a financial calamity occurring on a day called Black Friday is enough to make Wall Street gamblers think about hedging their bets. But it is not just a funny double meaning. The threat of a default could cast a pall over the Thanksgiving celebration. Try to say this with a straight face: “Today we are thankful for living in a country that has always met its financial obligations, until now.” Then a stock market crash could preempt the biggest shopping day of the year, leaving retailers in the red. Just imagine a family out shopping on Black Friday, but anxiously asking Siri about the stock market as they go along. They might find themselves spending less and less as the morning wears on, until they finally pack it in and go home to eat a lunch of bread and water as the reality of the new austerity sinks in. Cyber Monday could then be the day when panic selling overruns the stock market computers and broker web sites, causing a stock market crash of a different kind — and wiping out another important day at retail.

I have a better idea. For a short-term debt ceiling extension, put the deadline on Veterans Day. Then the picket signs in the Veterans Day parades might remind lawmakers of the urgency of funding the Veterans Administration along with the rest of the government, so that they actually meet the deadline. Oh, I know, politicians don’t actually care about parades, but it is still a better thought than crashing the global financial system on a day called Black Friday.

Tuesday, October 8, 2013

The Haunted House

The calendar said Halloween was still three weeks away, but on Capitol Hill, that frightful holiday had already arrived. Some unknown force or spell had transformed the previously cheery House of Representatives into Washington’s Haunted House.

A murky darkness that seemed to rise from deep within the ground had engulfed the Capitol’s lower chamber, its usual assembly of gentlemen and gentlewomen replaced by ghosts and ghouls.

Messages sent over from the Senate went unanswered. Urgent pleas from the White House and petitions from across the country arrived and lay on the doorstep amid dust and cobwebs. There were days when the local people wondered whether any living person remained within these ancient walls.

Yet it was no reassurance when one or two of the old men of the House stepped outside for a few moments. They looked pale and scared half out of their wits, as if all the stories people had heard were true — that they had been spending their days bargaining with demons and witches and their nights being chased around by rats and spiders. When someone asked them for the good news of the day, they shook their fists and exclaimed, “My God! Is there no one who can help us before it is too late?!” Then they retreated into the deep shadows of the lower chamber, a place seemingly unlit in spite of a thousand burning torches, to toil away again at what, no one knew.

A strange musician arrived, having traveled all the way from Hamelin to offer his services. With his pipe and his song, he said, he could chase away the ghosts, the ghouls, the rats and spiders, the darkness and the gloom, so that the light of day could shine on the House again. But it was no use. There was no money to pay him.

Monday, October 7, 2013

Differing Perspectives

Some of my friends heard of the federal government shutdown only today. I have to admit, I was initially surprised to discover this, but then I remembered what different interests and perspectives people have. I have a natural interest in big economic events, so I knew of the shutdown plans a month in advance. But there are thousands of others, who tune into political strategy in a way that I can’t imagine, who knew all about the shutdown plans as long ago as December, when the idea was first formed into an organized plan at a series of conservative meetings. It was planned, they tell me, complete with a sequence of actions and many of the talking points we are now reading on Twitter and seeing on the news. That story you keep hearing about the park police going too far in enforcing the national park closings? A strategist wrote that story in detail ten months ago. I would have no idea except that there are people who follow such things, and they were there and taking notes. On the other side of things, there are millions of people who will never find out that the government shut down. They may not even hear of the economic depression that follows if the debt ceiling stays where it is and the spending bills continue to die in the House.

All of this is fair enough. We need to have different people keeping track of different things. I tweeted over the weekend about the possibility of tracking flu outbreaks on Twitter, since the CDC is out of action for the current flu season. Some people thought the suggestion was a joke — and that reminded me how relatively few people understand what kind of information makes it possible to track an infectious disease. I am not an epidemiologist, but just the knowledge that is possible to track trends in certain ways means something.

Yesterday John Boehner said the shutdown can be expected to continue indefinitely, and the debt ceiling probably could not be raised either, as the House Republican caucus remains unable to come to an agreement on any action. We will, of course, collectively survive both the lack of a spending bill and the absence of any borrowing ability, but this will involve a picture the world has never seen before of a government dismantling itself. Even this could be a manageable process, but other things will happen in the world at the same time, and that is what makes the situation so interesting and unpredictable. But as long as different people continue to keep track of different things, I think we will know what to do.

Sunday, October 6, 2013

Radioactive Flow in Fukushima

The nuclear power station at Fukushima is not under control. Most of the reports to that effect along the way were exaggerations or wishful thinking. Perhaps the reactors are under control in the sense that the main masses of nuclear metals can be expected to stay generally where they are now, but at the same time, traces of radioactive materials, which add up to tons over time, are getting away from the plant and into the surrounding area, especially the ocean.

Japan officially describes this problem as a “leak,” but with only very limited containment for the reactors in their current state, it is more accurately understood as a “flow,” a continuous movement of materials under the influence of geological and hydrological forces. It is a flow we may have to live with for another 20 or 30 years, as no one seems to know a way to stop ground water from getting into the ocean, and it may take that long for the reactors to stabilize enough that they can be disassembled, cleaned up, and shipped out. In the meantime, forces such as mechanical failure, rust, and radioactive decay will eat at away at what containment there is, so that over time, there will be less containment and more flow.

It is a frustrating situation to manage. The cultural inclination is to pick up the mess, put it in the garbage, and haul it away. For many years it will remain too dangerous to get close enough to attempt that. Japan is asking for help in controlling the radioactive “leaks.” The question authorities should be asking is where it might be practical to intercede to influence the radioactive flow.

Friday, October 4, 2013

This Week in Bank Failures

As the day started, the betting money on Wall Street was saying that the government shutdown would end this weekend with a Saturday evening House vote on a funding bill with the poison pills removed. Twelve hours later this scenario seems unlikely. Instead, it now seems most likely that the House inaction will continue for at least a few more weeks. The government will remain shut down and around mid-month, the debt ceiling will be breached. The Treasury would then be unable to borrow money to make payments on bonds, a substantially more serious problem than the government shutdown. But this is what it looks like tonight. By tomorrow everything could change again. Government contractors, though, cannot afford to take chances, and there will be thousands of layoffs every week for the duration of a shutdown. Layoffs will occur in the millions if a debt ceiling crisis causes much of the government to be suspended.

If the United States is the picture of a government in crisis, it is little better in Italy, where convicted tax cheat Berlusconi almost managed to bring down the government to avoid being expelled from the Senate for his crimes. That attempt failed, however, and a committee recommended expulsion for Berlusconi today. The criminal mastermind and former prime minister is a step closer to being expelled from politics, at which point, he would presumably be sent off to jail to serve his sentence.

In both countries, the fragile political environment makes any new bank bailout impossible. This could end up mattering for banks in either country. Italy’s third largest bank is technically insolvent at this point and does not know what to do, and in the United States, several banking giants are just a handful of legal setbacks away from a similar fate.

A debt default by the United States would not count against banks’ financial positions — at least not in the United States itself. In U.S. law, U.S. government debt is unable to be questioned, so it counts at its nominal value on a bank balance sheet even if payment is delinquent and regardless of debt rating agencies’ opinions.

Thursday, October 3, 2013

Your Own Personal Government Shutdown

Imagine that you decided to live according to the personal version of the federal government shutdown rules when it came to the way you spent your money and time. You would be continuing your revenue collection activities, so you would still go to work, and you would pay for the bus ticket to get there. You would continue spending where necessary to protect life, health, and property, and you would honor your contractual commitments, so that would mean buying food and paying the cell phone bill. But your TV subscription would have to go. Magazines and newspapers, when they came up for renewal, would stop coming. If you were paying someone to mow the lawn, that would stop. You wouldn’t go to the movies. But activities with an independent source of funding would carry on, so if someone else wanted to pay for your haircut, you could still get your hair done.

It’s all very complicated, but the bottom line is that you would have a lot of spare time that you could use to further protect your health (or life or property, as the case may be). Possibly you might exercise for a couple of hours a day and get a full night of sleep.

I am not saying anyone would ever do this. It is just a thought.

The Tea Party Recession

A Deutsche Bank analysis suggests the government shutdown will start to reduce U.S. GDP at a rate of 0.2 percent per week after October 14. Assuming it were valid to extrapolate that over the entire fiscal year, that would turn into a decline of 5.1 percent — an ugly recession. A decline of 5 percent in one year seems a reasonable prediction to me based on everything that is involved.

If you can take House leaders at their word, the government shutdown will last for the entire fiscal year, so it’s only natural to try to estimate the consequences. And when you look at the scenarios, it makes sense that the United States’ credit rating would be reduced a few weeks from now. If a political group that represents the views of 3 to 4 percent of citizens has the clout to launch a recession on a whim or as a stunt, that’s an institutional risk that investors have to consider.

Recessions come about when different parts of a national economy are moving in different directions — and moving too fast to adjust to each other’s changes. When such a condition persists, eventually something has to break. Looking at the United States through a political lens, this condition is easy to see. Health policy is just one example: one group is now convinced that free health care for all is the answer, while another is even more convinced that it has become necessary to prevent most people from getting routine medical care. Views on everything from business organization to clothing style are equally divergent, and continue to move apart at an alarming rate. There is the risk of a recession as a consequence of this rapid divergence, and government policy is only one way such a recession could come about.

Wednesday, October 2, 2013

Keep Moving

Pennsylvania route 23 runs through Valley Forge National Historical Park, and so you can still see the place, the site of the military camp that was the birthplace of American national identity, by driving through on route 23, or even on foot, if you can find a place to leave your car with the parking lot gates closed. However, if you stop and look closely at one of the sights for more than a few minutes, the park police will be along to remind you that the park is closed and to urge you to keep moving.

“Keep moving” is good advice in general right now. It’s tempting to stop everything you’re doing just to watch the details of the government shutdown, but there is still work to be done today and, in spite of the unusual circumstances of the situation, much of that work can proceed. It is when the world is distracted that you have the best chance of gaining an advantage by quietly solving some of your own problems, but that becomes possible only after you turn your attention to the specific things you can do.

Tuesday, October 1, 2013

If Congress Were a TV Show

If Congress were a TV show, it would be canceled today.

That’s one way to explain how unpopular Congress has become, with just 10 percent approval in the latest CNN poll. That’s the lowest that that particular measure has ever recorded.

The approval rating for the Tea Party movement is also the lowest ever recorded, and the Republican and Democratic parties aren’t doing so well either in the poll. But it is Congress’s rating that has fallen by half in the past month, and it is an understandable reaction when people read of Washington fat cats cheering and slapping each other on the back over their refusal to go to work. Political ratings go up and down, but there is a risk when they sink this low. The public tunes out, the show is canceled, and then there isn’t a way to talk your way out of the jam. The previous president discovered this after the bungled Jackson Square speech in New Orleans, in which he appeared to be hallucinating in the immediate aftermath of a major natural disaster. After that, few were eager to give him another chance. He gave better speeches over the next three years, but only his friends and family were listening. Leaders in Congress can continue to talk to the TV microphones, but it’s not a given that the public will listen for longer than ten seconds, and that’s not long enough to explain away a mess like this.

Of course, this is a much worse problem for the Republicans in Congress than it is for the Democrats. The Congress Show may have been canceled, but the White House Show is still running, with ratings basically where they have been all year. Ironically, a government shutdown makes the President a more important and intriguing character than he was already, virtually guaranteeing that the White House can be renewed for another season.