Breaking News: California to Pay State Employees with Bottle Caps and Compacted Pencil Shavings

In what economists call the "Come On, Baby, You Know Papa's Good For It" approach to fiscal policy, the state of California is looking to pay its end of the month financial obligations to various state workers, pensioners, financial-aid recipients, and destitute grandmothers with IOUs.

Presumably, these IOUs will not be scrawled on cocktail napkins and stained with tears.

The deciding factor could be California's banks. If they're willing to honor the registered warrants, or IOUs, then the problem becomes manageable for the scores of small businesses and local governments that rely on dollars flowing from Sacramento. They'll be able to cash the IOUs.

But if the banks resist, billions in state payments will be effectively delayed – putting renewed stress on a state and region already suffering from a deep recession...So far, no banks have committed to honoring the IOUs, said Hallye Jordan, spokeswoman for state Controller John Chiang. (source: Sac. Bee)

Apparently, this particular method of addressing a budgetary clusterfuck has a tried-and-true history. In 1992 the Golden State temporary suspended its policy of actually paying people real money in favor of promissory notes. And back then, the banks were a tad more willing to play along on account of them being a tad more solvent.

On the other hand, given the state of California's real estate and financial markets, I'm sure the FDIC is running half of the banks in California already (not really, but humor the notion). And if the Federal Government is willing to throw a life-line to the likes of such a travesty of managerial judgement and civic responsibillity as AIG on the grounds that its failure would pose a systematic risk, I don't see how the same rationale wouldn't justify keeping what is effectively the world's 10th largest economy from sinking into the sea for at least another month.

i shit you not

nigaz.

talk about fat tails

if ever there was a case made for weighting statistical outliers more heavily versus the mean, it would be the story of a teenager named brooke greenberg. why, you say? take a look:














brooke, who is 16 years old, has never developed, physically or mentally, beyond being a toddler. her biological processes are described as being completely divergent; she is not following any coordinated developmental path. she still has her baby teeth, but her bones have the composition of a ten-year-old's. she's also been beset with medical problems (as serious as a stroke) that she recovers from almost instantaneously, and with no detectable after-effects. and the clincher? there is absolutely no medical reason why she is the way she is. there are no recognizable genetical abnormalities, nor anything other irregularities at different scales of observation, to account for her condition. for all intents and purposes, she is ageless, or, at least, age resistant.

already, certain institutions have decided that she is the fountain of youth, and have begunt to try and isolate the source of her 'immortality'. if it is traceable, it will almost certainly be years before anything further is discovered, and even longer before it can be given a utilitarian purpose. still, it's unsettling to think that, in addition to all of the other methods for manipulating our bodies that have exploded out of the academy in the past few decades, we may, at some point in our lives, be faced with the technique for prolonging life by an exponential degree. am i the only one here whose stomach doesn't settle too well around that scenario?

Atlantis Has Nothing on California

What a mess.

Moody's in a statement cited California's expected massive shortfall for fiscal 2010 of more than 20 percent of its general fund budget and limited options for plugging it.

The state's current A2 credit rating is Moody's sixth-highest investment grade and makes California the lowest rated of the 50 states. The A2 rating is just five notches above speculative status and Moody's raised the potential for the rating to tumble toward "junk" status.

"If the legislature does not take action quickly, the state's cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July," Moody's said in its statement.

"Lack of action could result in a multi-notch downgrade," Moody's added.

A downgrade could push California's borrowing costs up at time when state officials expect to issue up to $9 billion in revenue anticipation notes as soon as possible after a budget agreement is reached -- a deal whose timing is in doubt. (source: Reuters)

As far as I can keep up with California politics (not very well), if Moody's is making California's A2 rating contingent on the state legislature actually passing a budget, the downgrade is a virtual certainty. From what I understand (again, not much), California's budgetary paralysis can largely be blamed on three institutional issues: 1) the super-majority requirement for budget resolutions, 2) the proposition system which ties the hands of the state in allocating money with an degree of flexibility and 3) ridiculously low property taxes. Incidentally, for both #1 and #3 all us Golden Staters can thank a 1978 state proposition (see #2).

At the moment, it's #1 that's causing all the immediate trouble. The Democratic majority has put forward a bill that would fill in the deficit with tax increases* on the upper income brackets and large businesses, but exactly zero of the state Republicans in the Senate will support the bill. I honestly don't know the specific details of the arguments on either side, so if the Democrats actually do happen to be overlooking some potential spending cuts, I'm unaware of that. But given the terrible state of so many of California's services, I'd have to see some pretty conclusive evidence before I stop rejecting the Republican line out of hand.

So while a potential bond downgrade is really only one of California's many fiscal and financial concerns this summer, it sure won't help.

*On that note, here's an interesting snippet from a Brad DeLong article, though any deficit hawks out there might find it more than a little nauseating:
The federal government's discretionary actions are expanding aggregate demand by about $400 billion over fiscal year 2010, but state governments are right now cutting their spending and raising their taxes in order to offset this federal fiscal expansion more or less completely. On net, the government sector will be on autopilot as far as discretionary policy moves to stimulate the economy are concerned: federal-level expansion is offset and neutralized by state-level fiscal contraction. This is not an appropriate macroeconomic policy stance: this is the largest economic downturn since the Great Depression. (source: GRWBH)

Update: What Farse Bottom, Mr. Adams?

A lengthy analysis of Obama's new regulation proposals it ain't, but pretty funny nonetheless.

What I find most amusing is that in the reporter says that there are just a bit over $100 billion worth of outstanding non-electronic bonds. The amount these guys were trying to smuggle into Switzerland? $135 billion. Japanese businessmen: always shooting for the stars.

You Say You Want A Revolution, Well You Know...

...Allahu Akbar!

In sharp contrast to any stories about Ninja Bond Counterfitters escaping to Switzerland to Assassinate Jason Borne, the Almost Just A Little Bit Further 2nd Iranian Revolution has not exactly gone unnoticed by the various news-media outlets of the world. But if you're anything like me, you'll never get tired of watching video after grainy video of angry Iranians burning police motorcycles and screaming at assholes with beards.

The first video is of that sort, though it gets into how this Revolution is so Web 2.0. I never thought I'd see Twitter make a valuable contribution of any sort to the world, but there you go.



The second video gets into what the face-off between Ahmadinejad and Mousavi actually represents in real political terms. There seem to be a divergence in opinion in the U.S. when it comes to understanding Iran's de-facto political structure. On the one hand, we have the neoconservative's who claimed in 2005 that with Ahmadinejad's election innevitably will come Israel's nuclear holocaust lest the Bush administration mercifully and preemptively start dropping the bombs. But on the other hand and in virulent opposition, we have the neoconservatives who claimed in claimed in 2009 that Ahmadinejad's potentially fraudulent re-election meant absolutely nothing since, even if Mousavi were to somehow be handed the Presidency, the Guardian Council is the true source of power in Iran and with the power in their hands innevitably will come Israel's nuclear holocaust lest the Obama administration mercifully and preemptively but probably still insufficiently and without enough tax cuts since he was born in Kenya anyway start dropping the bombs. But this video gets into the nitty gritty.

oh no, prease, mistah adams

have you heard that two japanese men were caught with a briefcase full of u.s. bearer bonds in italy? have you also heard that those bonds were worth $134.5 billion? the blog that i read this on, and that i have referenced, is called market ticker, and it is run by a very, shall we say, bombastic individual by the name of karl denninger. i know nothing about him further than what i can glean from his posts; from those, i guess that he is some kind of finance analyst, libertarian and possible conspiracy theorist. he's good at reporting actual news, seeming to come up with little tidbits that fall all too easily through the cracks elsewhere, so i wouldn't doubt the story's authenticity. his conclusion--that the bonds may be an indication that the federal government is issuing shadow debt to other countries in order to cover unreported liabilities--doesn't strike me as likely, but then, what the hell do i know? the bonds, though they haven't been authenticated yet, struck the italian police as so genuine-looking that, if they were a forgery, they would be totally indistinguishable from the thingo authentico. what the men hoped to do with the bonds, besides get them to switzerland, is anyone's guess. i think even a bank in zuerich might be a little suspicious of two besuited asian gentleman carrying a tenth of japan's total american bond portfolio who wanted "preasuh to depositu, prease."

i smell a mystery, and all roads lead to international banking/socialist conspiracy.

From the Ersatz Quotes School of Statehood

Israeli Prime Minister Benjamin Netanyahu has announced he will back a Palestinian state - but only if it is completely demilitarised.

He said a Palestinian state must have no army, no control of its air space and no way of smuggling in weapons. (Source: BBC)

Also, Jerusalem's indivisibility under Israeli jurisdiction is non-negotiable.

In other news, Kim Jong-Il recently announced that North Korea would abandon its nuclear program just as soon as everyone in South Korea goes to Japan and never returns, while the press secretary of Mahmoud Ahmadinejad conceded that the President would be willing to resign from his post as long as he can then be reinstated as the Grand Generalissimo Neo-Shah Forever No Tag-Backs.

You Know We're Good For It

As more facts, figures and graphs emerge from the organizations that both to compile such things, here's a bit more detail on what shouldn't really be called the "Krugman-Ferguson Debate," but for the sake of simplicity will be called that anyway.

Essentially the argument boils down to this: we're in a nasty recession and the government wants to spent a lot of money to make the recession a little bit less nasty. At the same time, the government already owes a lot of people a lot of money. Recently, interest rates on government debt have gone up a bit. So, as Martin Wolf summarizes:

Prof Ferguson made three propositions: first, the recent rise in US government bond rates shows that the bond market is “quailing” before the government’s huge issuance [i.e. those who buy and sell government debt are worried that all these fresh IOUs aren't going to find enough reciprocal lenders willing to pony up, which would push up interest rates and push down bond values, so as a self-fulfilling collective response, bond-traders are hesitant to buy up the new debt, worried that these investments would devalue]; second, huge fiscal deficits are both unnecessary and counterproductive [i.e. since U.S. government debt securities sit at the center of the world bond market, any increase in U.S. treasury rates ripple throughout the economy. Higher rates across the board make it harder for businesses to expand, home-owners to refinance and, in short, for the economy to recover]; and, finally, there is reason to fear an inflationary outcome [First, because all the government spending will push more money into circulation which is by definition inflationary and second, because when bond-holders start selling U.S. government debt and buying the debt of other countries, they are selling U.S. dollars and buying foreign dollars, which devalues the dollar, and pushes up the prices of imports and most commodities in general]. These are widely held views. Are they right? (Source: FT)

Martin Wolf says "No." So does Paul Krugman. And Brad Delong. And Brad Setser.

First, the concern that all this public deficit spending is pushing up on our overall deficit levels. Not to worry, says Setser, and he has the graph to prove it.

In fact, according to Setser, the increase in government largess is more than offset by the decrease in private debt. In other words, companies are continuing to "deleverage" and households continue to be "responsible" faster than the Treasury can issue its securities.

Of course, the simple fact that we're only borrowing slightly less than last year isn't necessarily encouraging. This is especially true if many of our foreign friends are loosing their appetite for our collective dead-beatishness. Are they? Setser says:

Foreign demand for Treasuries — as we have discussed extensively — hasn’t disappeared, unlike foreign demand for other kinds of US debt. But foreign demand hasn’t increased at the same pace as the Treasury’s need to place debt. The gap was filled largely by a rise in demand for Treasuries from US households. (Source: CFR)

Which is where Krugman comes in. According to him, it would be one thing if China and Friends were becoming less willing to lend and U.S. households were saving at 2006 levels (the technical term is "zilch"). But that isn't the case. U.S. households are suddenly, frantically saving a lot. That's kind of the key reason for this whole recession thing. So we have a lot more saving than usual and, because borrowing has decreased so severely, less private demand for it. Filling in that gap is Uncle Sam.

This is not to say that chronic deficit spending is something to shrug off, nor is it to say that we shouldn't start planning to slow things down once private borrowing starts to pick back up. But the idea that the recent increase (though by historical standards, it's really a normalization) or interest rates is a text-book case of "crowding out" is pretty questionable.

Martin Wolf again:

The jump in bond rates is a desirable normalisation after a panic. Investors rushed into the dollar and government bonds. Now they are rushing out again. Welcome to the giddy world of financial markets.

Which is to say that, yes, investors are becoming somewhat less willing to lend to the U.S. government, but this is relative to late 2008, the height of the financial panic, when, seeing potential default and economic demise in every stock, commodity, derivative and commercial bond, every Tom, Dick and Mutual Fund was suddenly willing to take close to nothing in return just as long as their cash was held by the most reliable borrower there is.

There could of course be some considerable undershooting in the bond market, since that market is only as saavy as its participants. If everyone starts to freak out about inflation and devaluation, rates could keep climbing. But if that is the case, I would imagine that the Fed will keep buying up Treasury bonds to keep rates low and wait until investors remember how high the unemployment figures really are.

Awesome

http://www.xkcd.com/594/

on last month's labor statistics, and elsewise

the bureau of labor statistics has once again figured in a sizable number of job creations through firm birth in this last round of labor market statistics. apparently, 220,000 new hirings were estimated to have been effected by new business openings. relative to recent months, this is a staggering development: the bls thought net job creation from firm birth and death was -345,000 in january, returning to positive territory (+134,000) in february, before doubling in the past two months. they apparently have two approaches that make up their methodology in this regard, the first being to exclude firm birth/death completely. the other is

an ARIMA time series model designed to estimate the residual net birth/death employment not accounted for by the imputation. The historical time series used to create and test the ARIMA model was derived from the UI universe micro level database, and reflects the actual residual net of births and deaths over the past five years.

meaning that they are getting their data from five years of (ultimately baseless, but contemporarily accepted) economic boom. in other words, they're sticking to gaussian methods typical of intervals of regular normalcy, and excluding the characteristics of this particular period because they represent an outlier. at least, this is what i'm assuming of them; their own explanation is terse and so not very helpful.

in other news, a guy with 'von' in his name shot up the holocaust museum. is this the first shot in a militia uprising? i hope so. if they all did just come out and stand in one place together, it'd be that much easier for the national guard to blow their maladjusted brains out.

In this corner...

In recent (and largely irrelevant news), two of the more prominent public intellectuals of our time have decided to have a spat over the snoozingly unspatworthy topic of long-term U.S. treasury rates. The issue at a glance: 10-year and 30-year T-bill rates have been hiking up over the course of the past few weeks, which may or may not signify something very good or very bad or nothing at all. The contestants: Paul Krugman and Niall Ferguson.

Here's a good Slate article that picks apart the differences of their respective positions. I liked the article. In fact I liked it so much that I can't think of anything substantial to add.

Unsubstantial? Here are my two cents: when a Nobel Prize winning economist decides to hammer it out on the topic of finance with a historian who subscribes to the right-leaning revisionist school of intellectual shit-stirring, bet on the guy with the Swedish medal.

And just for fun, I looked up this old Sadly No! article on Mr. Ferguson ("an Oxbridge neo-Thatcherite to take Wingnuttia by storm") because it's hilarious.

The CAT is out of the bag...*

The wheels in the House are starting to whirl and turn with all the elegance and haste of a steam ship towards the issue of climate change. The Waxman-Markey bill is just making its way out of committee where it will surely be flogged, beaten and carved up upon the floor of a the entire chamber. Without getting into the political viability of the bill itself ("even bleaker than prospects for the Nationals’ pitching staff,"(WSJ)), how does the thing stand before the gaze of economic and environmental policy wonks?

Apparently, the bill is some thousand or so pages, so I'm getting everything here second hand. But first, the basics: the bill would propose a cap-and-trade system on the U.S. economy. And if you're a certain member of the McGill economics department (Chris Green), that's already an enormous problem. His argument is that whereas a carbon tax would impose predictable and established costs on the entire economy, a cap-and-trade system where all the carbon output in the U.S. is capped at some arbitrary level by design allows for no flexibility and therefore little adaptation to the program. If the cap is set "too high," as it was when the E.U. decided to adopt a similar system, nothing has been accomplished climate-wise. On the otherhand, if the cap is set "too low," permit costs will skyrocket and may wipe out a sizeable portion of U.S. industry before anyone has time to invest in the long-term carbon-reducing capital. Furthermore, since carbon permits will be traded on an exchange like any other, like any other exchange, speculation, mania and panic may prove to be the rules of the game, soo too will price volitility. And on top of that, depending on how the permits are allocated (and according to the bill, they're being distributed, not auctioned-off), we could be opening ourselves up to an enormous amount of potential corruption and manipulation.

On the other hand, a carbon tax is fairly straight forward. All the costs are on the table, they're universally applied, and rather than allowing the market to determine the price with all the potential financial manipulation entailed, the market determines the carbon output. That may be less satisfying than some definite cap on carbon, but according to Green, it's likely to be more effective and politically viable in the long run. Ironically, (in the Morissettian sense, I think) the Republicans are already trying to retitle the plan "cap-and-tax" (...or "tax-and-cap"...or "tax-and-wed gay aborted fetuses," I don't remember). But, at least according to Green, and having been sufficiently brainwashed by him during his class, I'm close to agreeing with him, a tax would be the better policy.

On top of the inherent problems with a CAT system, there is a whole lot of other add-ons in the bill--"bullshit," in political jargon. Apparently, the cap (which I assume with be adjusted annually between implimentation period and 2050) can be met almost entirely with so-called "offsets." I've always thought the entire idea of offseting was a crock-of-shit. Reminicent of the 15th century Catholic Church, throwing a bunch of money at the nebulous and often questionably useful green industry rather than actually changing ones behavior isn't behavior our policy should be encouraging. If you think there are too many scam faux green products and charities trying to cash-in on the yuppie self-congratulation, just wait until there become a direct policy-mandated fiscal incentive to buy "Easy Ecopods" or to donate to organizations promoting eco-awareness in rural Ethiopia.

And then there's the problem with enforcement. Unfortunately, this problems seems to be a universal one, affecting both a carbon tax and a trade system alike. Here's Peter Dorman at EconoSpeak on that issue:

Never mind that it will take an incorruptible army of inspectors to determine just who is behaving how badly, that most small emissions will have to be left outside of such a system altogether, and that parceling out emission budgets this way is an open invitation to rent-seeking.

The simple, effective, non-moralistic solution is to cap the extraction of fossil fuels from the earth, or their importation from other countries. That will make these fuels scarce and expensive, and we can all decide how much we are willing to pay for them according to any reason, noble or base, that moves us. Why is this not on the table? (source)

I've never heard that idea, but it's an interesting one. Good luck with it.

*this pun is dedicated to Sarah, with apologies to everyone else.

Margaret Wente on the murder of Dr. Tiller

Dr. Tiller was a Kansas-based late-term abortion provider who was murdered in church on May 31st.

Margaret Wente (who is generally fairly conservative/libertarian by Canadian standards) has an opinion piece in the Globe and Mail today about Dr. Tiller.

What I found interesting about the piece was the fact that she devotes a fair amount of column space to the issue of the conservative right "inciting" people to kill Tiller. There's a piece from the Wichita Eagle about it here, which deals specifically with Bill O'Reilly and his lovely habit of referring to Tiller as a "baby killer."

I tend not to agree with Ms. Wente on most things, and so I was surprised to find myself nodding along with a lot of the article. One reason why I enjoy reading her article so much is that she is rarely emotional about any of the topics she chooses to cover, so I was amazed at how compassionate she was about the issue of late-term abortions and the circumstances that often surround them.

I don't know how much the influence of extremist Christianity is on the decline. Sure, the President is no longer a right-wing nutjob, but it's the extremist Christians who are having a gazillion kids each and whose sheer numbers are growing. Their influence may no longer be federal, but I'm sure that in individual states and districts they continue to hold a lot of clout.

Be that as it may, Wente's final thought is a chilling one: if this kind of brutality continues, despite its condemnation by most pro-life groups, the religious right's ability to limit women's access to reproductive choice will continue to grow.




Also, on an unrelated note, PETA is apparently using the murder to promote their cause using billboards playing on both pro-life and pro-choice, featuring baby chicks. Seriously, fuck PETA.