think or thwim

Unfortunately, the average person doesn’t seem to be getting worked up about it yet.

Well, crap. I just quit my high paying job and took a large pay cut for what I hope will be a less stressful, more fulfilling job in a better city. Then I read David Leonhardt’s article run in the New York Times:

The article is one of a series Leonhardt is currently working on. Other titles include: Always Put Off Until Tomorrow What You Could Do Today, Early To Bed and Early To Rise Makes a Man Sickly and Tired, and You Shouldn’t Have Quit Your Job, Moron.

Here’s the graphic from the article:

“Don’t get rid of the penny. Rename it the dollar.”
– Bill Maher

This CNN article says that food prices increased 23% from 2006 to 2007:

The world’s poorest nations still harbor the greatest hunger risk. Clashes over bread in Egypt killed at least two people last week, and similar food riots broke out in Burkina Faso and Cameroon this month.

Commodity prices pulled back some last week, but if you look at long term charts it’s easy to see why the cost of bread is going up. Here’s wheat:

They all look like that.

Remember how the Fed stopped reporting M3 money supply two years ago? They said it didn’t really add any information that wasn’t contained in M2, so they were going to stop keeping track of it. According to this guy, the Fed said they would save $1.5 million per year by not reporting it (that’s 1/3 the price of one tomahawk cruise missile, by the way). All the wingnuts went ballistic accusing the Fed of trying to hide the fact they were going to debase the dollar to reduce the deficits, pay for the war, and bail out banks.

Luckily, John Williams had some free time and took over charting it for them:

The wingnuts were correct. The red part of the M3 line was tracked by the Fed. The blue portion is John’s continuation. Ben Bernanke ought to send John a check for his hard work. I don’t want to speak for him, but I’m sure $1 million would be fine to cover the last couple years. That’s 1/3 what the Fed would have spent doing it themselves.

• M0 = actual bank notes and coins
• M1 = M0 + checking accounts
• M2 = M1 + money market accounts + CD’s under $100k
• M3 = M2 + everything else (CDs over $100k and dollars held in accounts outside the US)

John has also been keeping track of the CPI ever since the Clinton administration changed it. CPI is a fancy acronym for a basket of goods. Somebody at the US Bureau of Labor Statistics heads over to the Safeway every month and records how much bread and milk cost (actually it’s 90,000 different items - they also shop for new britches, batteries, and tires - and they fill up with gas while they’re out).

According to John, in 1990 the BLS noticed that when steak gets expensive people start to buy hamburger, so they changed the index to adjust for that. Ever since that brilliant bit of reasoning, instead of comparing apples to apples, we’ve been comparing apples to oranges (is that what you buy when apples get too expensive?)

The BLS just started reporting CPI to three decimal places. Now we have great precision for an inaccurate number. I say we fire everybody at the Fed and the BLS and hire John to replace them all.

If you’d like to invest in inflation, here’s some ETFs to consider:

• UDN - dollar short (moves inversely to the dollar index)
• GLD - gold
• SLV - silver
• DGP - gold with 2x leverage (moves twice as fast as gold - up or down)
• DBA - sugar, soybeans, corn, and wheat

I’m sure this information isn’t worth as much as it was before Rupert Murdoch bought the WSJ, but here’s a handy article about how it works.

One morning Jill Taylor woke up with a headache, and as she went through her morning, she watched as her brain functions slowly stopped working until eventually she realized she was having a stroke. A blood vessel ruptured in the left half of her brain, and as that side of her brain shut down she was temporarily able to observe the world with only her right hemisphere.

This is an amazing presentation.

Her book: Jill Bolte Taylor | My Stroke of Insight

Another graph from The Center for Systemic Peace:

The dashed line represents the dissolution of the Soviet Union in 1991.

From their explanation:

Ethnic wars, which had previously paralleled the trend of revolutionary war, continue to rise through the late 1980s and early 1990s as separatists and other political entrepreneurs attempt to take advantage of the vast changes in political arrangements that accompanied the transformation of the post-Cold War world system. Ethnic wars stand out like a “sore thumb” in the 1990s’ security environment. Also, notice that the long-term trend in ethnic warfare increases relatively smoothly as compared to the other warfare trends. As the goals of social identity conflicts are suffused with non-negotiable identity issues, these conflicts tend to persist and, so, are less susceptible to settlement or resolution by warfare. Thus, ethnic warfare trends are less ammenable to periodic fluctuation.

chart credit: WSJ

Barry Ritholtz summed up the situation pretty well in his imagined Senate Testimony:

Senators, we find ourselves in a very challenging situation.

Following the dot com implosion, my predecessor at the Fed slashed rates to a generational low of 1%; the FOMC then kept rates at 1% for over a year.

While that re-inflated the economy, it also set off a shock wave of inflation unseen since the 1970s. Houses doubled in price, Oil is up 5 fold, food stuffs have tripled, and the dollar has collapsed. Gold is at multi-decade highs.

As always happens, these price increases in hard assets attracted speculators, and that made the situation — especially in housing — much more complex. Even worse, the housing speculation contributed to a debacle, while these other assets are actually accelerating in price.

Further, as was the political fashion, deregulation and a lack of interest in the oversight role of the banking system allowed an unprecedented expansion of credit, including to the least credit worthy consumers. Additionally, derivative selling — at is heart, an unregulated form of insurance — expanded from a few billion dollars to $46 trillion dollars.

The credit crunch is unprecedented, far worse than the S&L collapse and Long Term Capital Management — combined.

All of these factors have combined to create our present situation. Inflation remains very elevated and worse, quite sticky. Growth continues to slide towards zero — and possibly beyond.

Like many others, our forecasts in these areas have been wrong. We expected the slowing economy to moderate inflation, and so far, that has not happened. Demand for commodities from China and India is keeping prices elevated. The weakening dollar — now at levels last seen in the 1960s — is forcing all dollar denominated commodities higher. I don’t necessarily believe in “Peak Oil,” but the fact that the Saudis are one of the world’s biggest investors in alternative energy research might tell you something.

The last time a slowing economy failed to moderate prices was the 1970s. Even as the economy slid into recession, we had major spikes in the prices of energy, food, clothing.

What is particularly worrisome to me is that as we have slashed interest rates 225 basis points, consumer loans — mortgages and revolving credit — have actually moved higher.

Gentleman, this is a major problem. And our internal, non-public projections forecast it is only going to get worse for the next 4 quarters . . .

Very well said:

This was posted at the TED Blog today:

In response to the unofficial movement to draft Larry Lessig to run for US Congress, Lessig has set up his own site, Lessig08.com, to help him decide if he should run for a seat in California’s 12th District. A 10-minute video on the site lays out his platform.

Lessig08.com will also host Lessig’s yet-to-launch Change Congress initiative, an effort to fight corruption in government. Lessig has devoted himself to this effort…

A documentary about Michael Braungart and Bill McDonough’s Cradle to Cradle concept.