Sunday, August 3, 2014

A Poem collected by Blckdgrd

I KNOW, I REMEMBER, BUT HOW CAN I HELP YOU?

A POEM BY Hayden Carruth

The northern lights.         I wouldn’t have noticed them
    if the deer hadn’t told me
    a doe         her coat of pearls         her glowing hoofs
                      proud and inquisitive
                      eager for my appraisal
and I went out into the night with electrical steps
    but with my head held also proud
                      to share the animal’s fear
                      and see what I had seen before
    a sky flaring and spectral
                      greenish waves and ribbons
and the snow         under strange light         tossing in the pasture
    like a storming ocean caught
                      by a flaring beacon.
    The deer stands away from me         not far
                      there among bare black apple trees
                      a presence I no longer see.
    We are proud to be afraid
                      proud to share
the silent magnetic storm that destroys the stars
                      and flickers around our heads
    like the saints’ cold spiritual agonies
                      of old.
I remember         but without the sense         other light-storms
    cold memories discursive and philosophical
                      in my mind’s burden
    and the deer remembers nothing.
We move our feet         crunching bitter snow         while the storm
    crashes like god-wars down the east
                      we shake the sparks from our eyes
    we quiver inside our shocked fur
                      we search for each other
    in the apple thicket—
                      a glimpse, an acknowledgment
    it is enough and never enough—
we toss our heads         and say good night
    moving away on bitter bitter snow.

Collect by   BLCKDGRD

Palestine



3 Palestine wait for water
pic.twitter.com/KFRwQl1A1g

The Coming of Age: The reactionary revolution 1857- 1876

A spectre is haunting the world, the spectre of conservatism. It is everywhere free to put peoples in chains. It claims that it is all of propriety, and sanity, even as its adherents admit that it's basic ideas just proved to be failures. For validation it presents a legendary moment in the late 19th century, when the European world industrialized, while maintaining traditional values rooted in religion. It presents itself as the inheritor of an eternal church, and a social order rooted in medieval God and Country. The truth is more brutal: the reactionary world was born in a series of revolutions and wars, starting in 1857, and reaching the final polish by mid-1870s. In the space of 14 years, a new order came about, one that was as different from what came before as any communist manifesto, or liberal constitution. This essay is an outline of the hidden realist revolutions that are the basis for the neo-age we live in now.

The past is present, because of its presence in our minds: a debased and ghostly present. Conflicts do not go on for hundreds of years, but, instead, a history of conflict creates a weighty image in people's minds, and provides a source of story. The past can be the mythic past, whose vague outlines are presented as some kind of truth, the past can be the legendary past, where events, buildings, and pictures are held up as an example, and then there is the past in the present: that which people believe, but which is no longer true. In the present a mythic conservative past stalks the discourse and the body politic: a past which presents itself as the great wave of industrialization, the path to prosperity and stability. It is a legend of God and Country, Providence and Propriety. It presents itself as the myth of the founders, and stories of "Bond Vigilantes" waiting to crash the dollar. But the myth has roots in a legend, and that legend is the legend of the Victorian Age, with its globalizing trade, and commercializing society. A society that presented itself as eternal, robust, and the culmination, in government, law, art, and society, as the culmination of a uniformitarian, almost geologic, process of human advancement. It was no such thing.

Where does the present conservative reverence for the "gold standard" come from? From the distant past? No, for most of human history, where the was a metallic metal, it was silver. From the lugal of ancient Sumeria, through Newton's assay for Queen Anne, to the Napoleonic wars, it was silver that was the metal used for currency, because there was enough of it. Gold was too precious to circulate, even when it was coined. No, it was largely establish in England by the 1840's, but globally only in 1871 by the creation of the gold Reichmark. Did Germany have a great gold strike? No, it was from their colonies in Africa. Where does the conservative idea of "liberal" "globalization" come from? There have been waves of globalization, but the idea of "liberalized" trade in a globalizing context is from the 19th century theory of Free Trade. Where did the corporation as not merely legal person, but as having the rights of the people? From the late 18th century railroad cases: remember that Adam Smith thought that few businesses should be allowed to be "joint stock companies." While nothing in human history is completely abrupt, many of the pillars of modern traditionalism date, in fact, only to the 1830's and were established as the res or order of things, with the coming of the realist revolutions.

To understand modern neo-liberalism, neo-conservatism, neo-classical economics, neo-romanticism, depressionism, limited government, and fundamentalism, one must look, not to the far past, but to the very specific era that took power beginning in 1858. Far from being a century of stability between the Napoleonic Wars and the First World War, as it is so often portrayed, the 19th century had two distinct arcs: a Romantic arc which attempted to use human emotion to harness a technological and social substratum that was coming to be, but not yet clearly superior to the post-medieval order, and a Realist arc, which placed faith in industrialization, centralization, and using ersatz traditionalism to harness them as an engine of war. In Japan the Meiji government explicitly linked strengthening the economy to building the military. In America, we take for granted that "superior industrial production" lead to the victory of the North, but one must realize that the American Civil War was the first time this had been attempted in the history of the world, it was not a settled notion that elan could be defeated by mills rolling steel.

The people of the late 19th Century are thought of now as "romantic" and their art often classified so in texts. It is not how they saw themselves. Instead, they saw themselves apart, with a critique of Romanticism as unrealistic, artificial, and shallow. These three critiques would form the basis of realism, naturalism, and symbolism. Post-romantic thinkers included Marx, who excoriated "romantic" socialism in Kapital and a host of pamphlets, Chancellor Otto von Bismark, Alfred Marshall, one of the architects of the divide from "political economy" to "economics," among a host of others. Their critique was embodied in a series of revolutions and wars of union. The major nations of the European world were created, or recreated, by these wars. The most important are the six that created the British Empire, the United States as a national Union, Germany and Italy as nations.

British Empire: Indian Rebellion 1857-1858
United States of America: American Civil War 1860-1865
Germany: German Unfication 1860-1871
France: February Revolution 1858
Meiji Restoration/Boshin War 1867-1869
il Risorgimento 1858-1871

The leading edge of this was in France a decade before, at the decisive turning against Romanticism that was 1848. Often seen as "the turning point where history failed to turn," instead it was a turning point in that reactionary forces understood the limitations of technology, social order, and ideas, and set about creating the tools to build a new form of state. Bismark would call it "realpolitick" which plays on real, meaning royal, as well as realistic. The politics of power, is the politics of an assertion that pragmatic acceptance of central power, is realism.

Napoleon III had been elected in late 1848, and toyed with the Second Republic less than three years, before declaring himself emperor, and, at the same time, the ideal of reason and Democracy. He and Bismark could form the great antagonism on continental Europe, and their struggles would define the age. Their hands would reach into the creation of Italy, and the dismemberment of Spain. Into Denmark, Russia, and Turkey. France as both a continental power and an ocean power, with dreams of a world spanning empire, would aid and clash with the rise of British sea power.

Each of these revolutions was a reactionary revolution, which simultaneously defeated the highly decentralized feudal and early aristocratic systems of complex tenure, and held at bay the forces of liberalism and socialism. Each had a period of establishing the new order, whether American Reconstruction, or Germany under the "Iron Chancellor." One could neatly book end the period with two failed Congresses of Europe, that of Paris, and Berlin, in 1856, and 1878 respectively, where the "Concert of Europe," the concept created in the wake of the Napoleonic Wars for a quintuple alliance against instability, faced momentary issues, and ignored even large ones. In 1856 the Congress dealt with the stalemate that was the Crimean War â one of the most ineffectual wars in history, in that it left almost everything as it was before the war â and ignored the growing pressures that were about to explode in Italy and Germany.

By the end, these revolutions would create a new kind of state, and a new world. The old world was of a "company-colonial" order of conquest, and an aristocratic-satrap system of rulership. These were both largely the products of the solutions to problems in the 1500's. Not just in Europe, but in the Ottoman empire, in the Arabic states, in India, and in China. Central governments were metal poor, and needed to work through intermediaries. There just wasn't enough surplus. They were also economic players, setting up factories, granting patents, and running businesses, all in the quest for the money that fueled the aristocratic court, by which they kept their once feudal nobles out of trouble. Or to put it simply: kings were always on the make, because it was expensive to bribe order, and the society was still not much more advanced than the medieval. So monarchs had to give a great deal of power to which ever freebooter promised the fastest riches for the investment of letters of marque, patents, and a loan of ships and gold. It worked for Ferdinand and Isabella.

The new world, though it would maintain the forms and norms of the old one, was to consume it utterly.

That world was like a fire, with the lightening bolt that struck on May 10th, 1857, in Meerut, a town in the Bengali Presidency, a vast and populous chunk of what is now India. On that day an open mutiny of the native soldiers boiled over, ostensibly over having to bite grease, defeating the British garrison, and then making for Delhi, then the capital of the vestigal Mughal Empire, hoping to proclaim a new pan-Indian empire to evict the British and other European invaders. The mutiny would expand to rebellion and war, with independent princely states, native governed areas under the control of the East India Company, and native military units even in loyalist or British allied areas taking up arms against the hated occupiers. There had been rebellions before, but why, at the end of this one, had the very old and successful East India Company been dismantled, and the Raj installed? Why this rebellion? Why in 1858?

At that time the Crown of Great Britain did not govern directly in India, but, instead, it had long ago given power to the East India Company. This was the pattern for four centuries in Europe: the crowns were did not undertake great ventures, but acted like investment banks in conquest: financing and providing legal cover for independent adventurers. From Cortes, through the "Massachusetts Bay Company," through the East India Companies commercial backed empire in India, commercial decentralization was the took by which conquest and war were carried out. An army may travel on its belly as Napoleon quipped, but the states of the time, unable to raise great revenues, instead sold away the rights to tax and rule, to finance private ventures of colonialism or imperialism, demanding only a sometimes very nominal control.
This was part and parcel of the old order, very much in line with there being hundreds of sovereign states in Germany and Italy, a divided and weak union in the United States, a patchwork of local and commercial control in India, warlords across China, and so on. Central states were only partially able to control their own domains, the networks of communication, transportation, and social control were only then being built.



One can see from these maps that in the course of the century before 1857, the East India company grew from the Presidency of Bombay, and the Presidency of Bengal, to controlling almost half of the Indian continent – I say continent because it sits on the same plate, not as the rest of Eurasia, but as Australia, and it only lately in geologic time collided with Eurasia. It is, like Europe, protected by barriers, in the case of India, the mountains spawned by its epic collision with Eurasia. The confused nature of the governmental system had had frequent political effect. Several times wars were fought between one arm of the East India Company and various polities in India, where another division denied or overturned the peace treaty or alliance, or sent aid to the other side.

In the 19th century a more unified hand was applied to control of Indian affairs, and the result was that the periodic wars between the East India Company and Mysore, the Sikh Kingdom, and the Maratha Empire swung from being chaotic and often indecisive affairs, with the Indian powers often managing to stave off or defeat the British company armies, or at least pry back concessions over time, to a string of short, sharp, decisive annexations for the British, the Second and Third Anglo-Maratha Wars (1803-05 and 1817-18) were clear and short, in contrast to the chaotic conflicts before.

However, by 1857 several important factors were in play that would lead to a very different kind of conflict, more reminiscent of the 18th century. The first is that the East India Company was in tremendous financial difficulty: it increasingly could not bear the cost of the very empire it had built, since much of it was not economically productive in the sense of extractable value. The result is that the previous Governor-General, James Broun-Ramsay, had codified a policy of annexation at will called "The Doctrine of Lapse." While previously the East India Company had seized principalities under its rule into formal company control, Broun-Ramsay had set this to paper as a formal law.
The year he did this? 1848.

It is to be remembered that the Marquess of Dalhousie saw himself as a liberal, a utilitarian, and an enlightened despot of his area of command, much as Napoleon III did. The era of 1848-1858 was, in fact, marked by this attempt to use an imposed, rational, calm, and enlightened rulership to bring about moderation, balance, sound currency, trade, and above all, modernization. He had been in charge of the powerful Board of Trade, and had helped resolve the bubble associated with "the railway mania." He was an enormously hard worker, widely read, well spoken, from a minority in England that was only just coming into its own.

His policy was to build up India, reform and rationalize the laws, and continue the very long standing policy of first gaining tax concessions in an area, collecting revenue in the name of a prince, and then annexing the principality when that same prince no longer could control his own realm. Tax farming then, as now, was the engine of corporate control. It was a policy that had worked well for almost a century.

He was also absolutely inflexible, and annexed a string of countries: Satara, Jaitpur and Sambalpur in 1849, with Karauli annexed but disallowed; Jhansi and Nagpur in 1853; three others were returned to "home rule." He left office in 1856, and was dead by 1860, but this was long enough to see the India he thought he had built out of continuous construction and conscientious reform, brought to ruin in a few short months.

The nominal cause was also a child of 1848, and a tremendous change in and of itself: the introduction of the Minié rifle type musket. This is a weapon that you have heard about by not hearing about. The old style musket either had a smooth bore, or had to be made by hand. Interchangeable parts for firearms had been demonstrated by Blanc in 1778, by Eli Whitney in his famous demonstration before Congress in 1801, by the 1830's his company was involved in mass manufacture of muskets. The problem was that rifling was not precise enough to do in this means. Thus in 1847 the Algerians were outranging the French muskets. The solution that Captain Claude-Étienne Minié hit upon was not particularly elegant, but it was subtle: he invented a conical bullet, that had grooves that were greased. The greased grooves would lock into the rifling, and thus allow a rifled musket to be made with the then possible degree of manufactured precision. In 1849 he prefected a rifle that used this bullet. The resulting weapons type was put into service for the Crimean War, and it was adopted by major armies, including the United States, Austria, and Great Britain.

The other major firearm innovation was to aim for rate of fire, instead of accuracy, this was the famous "needle gun," which the Prussians adopted. It featured a paper cartridge, but inside it had a primer which would set off the powder, the innovation of Pauly in 1808 had been to use a needle to ignite mercury fulminate.

The year? 1848. It was used to help put down the revolutions in Germany.

The minie ball changed the nature of muzzle loading weapons, which, it must be remembered were still quite slow in terms of rate of fire, however, the new weapons were accurate at short range, durable, and had long range fire capabilities. Instead of lines attacking with a blunderbuss close range, by sheer weight in general, it was possible to both skirmish, and stand off. The change was dramatic. In the Second Anglo-Sikh War, it was expected to be able to charge infantry with infantry: because the attacked forces would get only one or at most two powerful volleys off. While this lead to terrible casualties, it was not entire suicidal. For example at Battle of Chillianwala General Gough, acting under the already mentioned Marquess of Dalhousie's orders, attacked the Sikhs straight on. While he was checked, and it was a surprise to the British establishment, the fight was close to even in casualties, and it was a very near thing.

However, by the American Civil War, it is difficult to point to a single example of an infantry charge being successful, and many that became famous slaughters. The German Needle Gun, and the Minie-ball, as well as its breechloaded descendant, would be the major arms of the 1857-1873 wars.

They would duel many times. While not as large a shift in fire power as the later automatic weapons, such as the Browning Automatic Rifle, they changed the nature of battle. Instead of lines, which had been used in European gunpowder warfare since the 30 years war in the 1600's and which had been maintained by the great generals such as the Duke of Marlborough, Fredrick the Great, Geoffrey Amherst, and Napoleon and the Duke of Wellington - infantry could strike devastating blows hundreds of yards away. Very close in fighting grew even more important, because suddenly even bayonets and cutlasses seemed preferable to being shot to pieces at range. The new muskets shattered bones more effectively, leading to more deaths after combat and more horrible wounds. Modern nursing was given a kick by tending to the masses of wounded during the Crimean War.

The problem with these new cartridges is that they had to be greased to fit tightly down the barrel. This lead to the problem of with what – since petroleum was not in great supply, the oil of choice was tallow from pigs or cows. This lead to a problem in India, since the drill of a breach loaded weapon, such as the Enfields, not to be confused with the later bolt action metal cartridge .303 Lee Enfield, was to bite the cartridge open, so as to create a hole for the spark that would set it off. Islamic troops were shocked by having to possibly bite pig, and high caste Hindu by the possibility of biting cow. While this has been over done in history, it was the cause of the nominal spark.

So the beginning of the Reactionary Revolution was at the end of a chain of commercial and corporate annexations in India. A dozen states, including the powerful Maratha Empire, the formidable Sikh Kingdom, and proud principalities such as Oudh, had been brought under the tax farming system of the East India Company.

On May 9th, a regiment was harshly disciplined for refusing to use the new guns at drill. 85 native Sepoy were court-martialed, some sentenced to years in prison. The rest of the native troops at Meerut then rescued them, defeated the British and loyalists, and set off for Delhi, hoping for support and reinforcements. The new weapons would make the rebellion that was about to occur bloody, dangerous, and surprising. In part because promotions came slowly in India, and much of the military leadership of the East India Company consisted of old men, unwell, inflexible, and unaware that they, and their opponents, now had weapons that could hit harder, farther, and in small groups, rather than being required to meet in massed firepower.

Gustavus Adolphus Magnus of Sweden would have recognized the battles of the Anglo-Sikh Wars of the 1840's, with lines attacking lines. He might have been surprised by the artillery duels, but the Duke of Marlborough, active in the the late 1600's and early 1700's, would not have been. However, the sieges of Delhi and the reliefs of Lucknow were animals of a very different kind. The commanders of the British were, however, closer in mindset to the 1600's, than to their own moment.

Thus the company colonial order, which had for 300 years dominated European conquest, and the patchwork state order, which caut of the 1400's in both India and Europe, were about to receive a jolt. Not so much in the technology, but in a wave of changes that made it possible for states to bite off more than they could chew. The corporate system was not capable of creating and enforcing loyalty to the very centralized order that its own economic arrangements demanded. This is because when feasting on low hanging fruit, it is enough to graze the most profitable businesses. But as one drills farther and farther down, the margins grow slimmer. Without the ability to create elan, one must squeeze harder. This is what elites had learned in the wake of 1848: squeeze harder with better weapons and the tide can be survived.

But starting in 1857, the wars would not be so easily withstood, because the very tools of empire made revolt as dangerous as the rulers. The "mutiny" of Sepoys turned into a war between the East India Company, and states that were supposedly under its control. It was the first of many such wars. The solution was unification under new principles. These principles of unity, based on corporations rather than companies, on God and Country under a Crown or central government, rather than a feudal-aristocratic confederation or colonial empire, of a unified hard currency system, and personal acetic militarism, are still the icons of today. The 1858-1876 period created the conservative world view as we know it, however often they may quote Burke, it is an attempt to fuse the company-colonial system with Bismark's real politick that is their real model.

In the next essay, the course of the 1857-58 War in India, and how and why it formed a model for the realist revolutions that were to follow.

a tribute by Kenneth Woods

Malcolm MacDonald



 best remembered for his much beloved book on Brahms.

whoever has destroyed MH17 has gotten away with it, for now

Kongzi



 This was produce by  unknown  author.

Dutch Glow

 
Dutch Glow by larsvandegoor

Lawrence Olivier and cat

from the trenches against Cuomo

"We've changed the hashtag to we gotta spread the word that there's Democrats against Cuomo, spread the hashtag Tnx"

Sherry reminds me that Joan and Marcy are up


she says:

"Joan MccCarter & Marcy Wheeler 22 VS Sundays on Jay Ackroyd will air 08/03. "

Christian Farr - a gate in the woods

Duck in New York



Central Park Covered In Snow By Dina Litovsky

M's Piano



pic.twitter.com/fRP2ItZ6HZ 1786 Mozart's piano....  note the white keys up top,  and black keys forward.

from radio opensource

It is Still a Boom, It Still feels like a Bust (2005)

Carlson gets it right, and I don't mean Tucker.
Almost a year ago I stated that we had reached the "boom phase" of the current economic expansion - that point where growth is inflationary. Booms run until the pain from inflation gets to be more than the gain from go go expansion. Pain as measured by those actors who can do something about it. When central banks, where they have autonomy, feel pain, they make the economy take the medicine.
Right now the Federal Reserve is feeling some discomfort, but they aren't in pain yet. But the yield curve continues to march towards inversion, and we look back at something I've been writing about for some time: Greenspan's bet, what it is, and whether he has enough chips left as he hands over his seat to Cousin Ben - Ben Bernanke.
Before I go any further it is important to make a clear distinction - there are two kinds of bearishness: absolute bearishness, and relative bearishness. Absolute bearishness is believing there is a decline in a stock, economy or other thing of value. Relative bearishness is believing that suboptimal choices are being made - that the opportunity cost of a decision is higher than the gain from that decision. That is, someone could be doing better, perhaps much better, than they are.
I have been a relative bear on this economy for some time, and I have been absolutely bearish on the prospects for labor, and to a lesser extent capital, relative to rent. This isn't the same thing as predicting a collapse. For a period of time in 2004 it seemed likely that the US was going to reach recession early, however, Europe saved us by going into an even deeper economic slide than they needed to. What was good for the US in 2004 and 2005, was very bad for German workers and French workers.
I have not been subscribing to a rapid energetic decline in the US dollar as the inevitable result of current policies. I say this as someone who has made a series of very good, and often contrarian, calls on currency movements over the years. The reasons for this are fairly simple - the US is paying higher interest rates on its securities than our competitors are for similar supply and risk. This means that the dollar may decline, but not substantially until US interest rates are lower than foreign interest rates. Bond holders go where the risk adjusted return is. The US can run a deficit, even a big one, so long as we are willing to shaft the future with the debt, and the rest of the world credibly believes the future won't be able to simply inflate or devalue that debt away.
So where are we? The next year is critical for this business cycle, but the decisions have already been made, what we are going to see is the playing out of those decisions. There is little any policy maker could do now that would substantially alter whether the US economy gets another landing/boom phase of this expansion, or we go into recession late in 2006 or in 2007. However, it isn't clear what the underlying economy is going to do yet.
The Bull Case Scenario
The bull case scenario runs this way: after years of having bad balance sheets loaded with non-performing assets - that's econospeak for "the money wasn't really there, we just all pretended together that it was" - companies are now loaded with real cash that they can spend. Because of the soft labor market - more on that later - they are taking the opportunity to slash benefits and harvest cash out of pension plans, or use bankruptcy in a friendly economic environment to dump long term committments.
There is then almost a trillion dollars of investment looking for a home.
On the Federal side, there is nearly 500 Billion of stimulus due this year in revenue reductions, Iraq and defense spending, Katrina rebuilding and other assorted pork projects in the transportation bill. While the government has signalled that the defense boom is at an end, and this is the last year for some of it, with reductions as far as the eye can see - the money is still coming on line.
This, plus the stimulus of foreign investment flowing here in search of higher low risk returns means that the United States has almost 1.75 trillion dollars of stimulus for the next year, minus the loss of the draw down of money from the housing sector. The American consumer bet that this would be a long economic cycle, and instead of the gloom of 1996, Americans borrowed optimistically, expecting at least 4 good years to pay down debt and sell off interest only mortgage properties. The higher interest rates are already reducing mortgage lending, so far by a total of 40 billion per month, which would mean that there would be some 500 billion less in the form of mortgage stimulus. Net of roughly 1.25 trillion in stimulus available this year. That's nominal, not real, and the difference is important.
This means, from the bull case scenario - that housing is going to give way to business investment and commercial construction. The optibulls of the far right are expecting a late 1920's burst of building and optimistic expansion of commercial capacity. The mere bulls are expecting that the stimulus will come in, that higher fed rates will keep real wages flat, and therefore inflation will be subdued. This means, from their perspective, that the stimulus will buy a great deal of real growth - that is, less will boil away as inflation, or as diminished return on investment.
The econospeak for this is that "the economy isn't going to overheat".
In this view, there will be somewhat lower growth than last year, but still very solid growth. The indicators are that there will be substantially more hiring, and that the Dow will break through its pre-crash highs, while the S&P will make substantial gains towards its all time peak. Even better will be the return of tech spending and the NASDAQ, as companies replace aging PCs and equipment with new equipment.
That's the bull case scenario, and some parts of it are correct. The hidden assumptions in it, however, bad for most people - real wages will not go up by much, percentage increases in payroll employment will stay low, benefits will erode, and home equity will fall in the bicoastal areas. In short, it might be a boom, but you aren't going to see much of it.
The Snake Case Scenario
Unlike the bulls, the snakes look at 2006, and see 2005 with the bottom falling out from under it. They don't see the business stimulus and federal stimulus as being effective because (1) it's going to end as soon as the Republicans win the election and have to hit the "austerity" button, (2) the global growth that is going to happen is going to push up energy prices farther than the Fed has planned for.
In this view a great deal more of the stimulus is going to show up as increased energy and materials costs. The snakes point to the recent gold rally as a sign that commodity inflation has spread out of energy and into everything, because gold is the pivot point for commodity speculation - a place to park gains while looking for the next opportunity.
They point to the probability of a European recovery, the continued Japanese recovery, and continued Chinese expansion as reasons why commodity inflation is going to continue. This inflation will force another round of Fed rate increases, and create the high probability of a fully inverted yield curve, signalling a probably recession late in the year or in 2007. George Soros is in this camp.
So, for the record, am I.
This scenario, in macroeconomic terms looks little different from the bull case scenario, with important twists. Where the bulls celebrate the low unemployment rate, the snakes point out that it means that the Fed's hands are tied - this is as close to "full employment" as we get for this economic cycle. If it is a lousy looking full employment, then it is because we've made lousy choices about where to put our effort. To give you an idea of how lousy our choices are, consider that raising CAFE standards for cars to 34.5 mpg would cost less than the amount of money we can't account for in Iraq every year, or has been misspent on DoD projects. That's right - we could slash oil imports for cost of the wastage of Iraq. (Cost estimates of CAFE standards from the Congressional Budget Office's 2003 study on gasoline taxes and Cafe standards, unaccounted for money in Iraq from the GAO).
According to the Snakes, housing was, and is, what is driving the US economy, and its collapse, like the collapse of the tech boom, is going to hobble employment, and therefore both demand and solvency of US consumers. The US consumer isn't going to "give out", but he and she are no longer going to put out for American companies.
The snakes also point to the very high structural risks in the current economy - with oil production just about at capacity, and growth straining that capacity, the world is one very large supply shock away from a very unpleasant bout of high inflation. Katrina was the model - a disruption of 1 mbpd of crude production and associated refining capacity created a short spike of double digit level inflation in the US. A spike that was evened out with the strategic petrolum and gas reserves, as they were intended to do, but which if sustained would require extremely high interest rates to slow the economy down to the available supply of oil.
This doesn't mean a recession is mandatory, but that a slow down in the US economy, rather than a popping the corks expansion like the late 1990's, is what is in the cards even if the current business cycle manages to hang on. The snakes point to the need for autos and other heavy industrial goods to slash prices, which will lead to lower wages and demand. The snakes see the end of construction demand as producing a great deal of unemployment, and leading to either dramatically reduced wages in large sections of the country, or a migration to cheap land areas as people cash out of the metro-economies. The first leads to a bust in "red zone" areas, the second in the "blue zone" areas. With job creation and growth flat in many blue states already, and construction falling, it could be both.
Instead the snakes see that there is still a bit of light between the bottom of the yield curve and the pivot point (more on this below), and believe that if the Fed can stop here, and we don't get a Katrina event, that we can sneak through this year, and perhaps get to better economic priorities. But one bad bounce is enough to send the snakes scurrying for their holes.
The Bear Case Scenario
The bear case scenario looks a the yield curve and says "there is less than one .25 basis point rise between the 1 month short yield, and the 6 month pivot - either ben stops cold, bond holders start dumping US long bonds, or we are going to get inversion by march and recession by mid year. This will lead to a collapse of housing values, a chain reaction of bankruptcies, or require Cousin Ben to drop interest rates faster than he drops his drawers at night - which leads to a meltdown of the US dollar." Several economists - Roach, Krugman, Feldstien - have outlined the possibility of a currency crisis that would dwarf anything seen in the 1990's - or even the 1970's.
Let me unpack this a bit, because there is some complex economic theory going on behind currency woes. While I don't subscribe to the idea of a currency meltdown - for those that want to make this bet, it is important to know what it is you are betting on, so you know when to double down, or throw in the hand.
A "Yield Curve" plots the cost of money against time. One takes a given kind of bond - or anything that yields a return - and one plots the interest rate vertically against the time to repay horizontally. The result is a "curve". If the curve is flat, it means that you don't get much more for being patient than for being impatient. If the curve is steep, it says that you get more for being willing to wait.
Now yield curves tend to have a "spread" between the top and the bottom. This is because the longer you wait to get your money back, the more happiness you are defering - so you want to get paid for that, and the more risk you take that inflation will happen, or that longer term risks will eat up your investment. Afterall, if you are investing for the long run, you might be dead before it gets here.
The spread between the "short end" of the yield curve, that is being paid back fast, and the "long end" of the yield curve, tells investors what the future prospects look like.
If the spread is big, it means that future prospects look bright - short term money is cheap, where as being able to invest for the long term has higher yields. Investors find ways of borrowing short term and getting long term returns. For example, start a company, pay short term interest rates, and get long term returns. Or find ways of borrowing money short term and buying long term bonds - that's "the carry trade".
If the spread is small, it means that while short term prospects might be quite good, longer term prospects are not so good. One will see a large number of bullshit explanations about bond holders locking in expectations and other nonsense. But if that were true, the yield curve would work in a closed US economy, instead, it has been predictive during the period of an open US economy. The real reason that spreads get smaller is this - as an economic expansion goes on, people make long term bets. They have to sit and wait for them to return. These long term bets show up, sooner or later, as the need to park money long term. That means that as the expansion goes on, more and more people have long term bets, and therefore long term rates can't go up.
Now we get to "inversion", that is when short term money is more expensive than long term money. When does this happen? Three things have to be true - one is the Federal Reserve has to be making short term money more expensive. And there have to be fewer and fewer people borrowing short term, the third thing that has to be true is that long term buyers can't have someplace else to go, otherwise, they would sell the long end, buy the short end, and then shift back to the long end later.
The claim that long term buyers are "locking in" long term rates doesn't hold up emprically - inverted yield curves have predicted recessions during times when long term rates actually went up soon afterwards. There's always been a chance to lock in rates once the Fed admits that the recession is on, there is no reason to do it until then.
When the yield curve inverts, there is a particular dance that it does. First, it flattens on the long end - from 2 years and up. This makes it develop a "knee" or a pivot point, below that point the yield curve is steeper than above it. As the Fed raises rates, that knee gets sooner and sooner - first the two year, then down to 6 months. Played as an animation, it looks like a door swinging shut.
That's what has been happening for almost two years now - the door on the expansion has been swinging shut. To stop a recession requires a burst of spending, and finding a way to make whatever is expensive in the economy cheaper. LBJ managed it in 1966-1967, but no one else has once the yield curve slams shut.
The bears argue that Greenspan's foot dragging on raising interest rates will only make the recession worse, and that Bernanke will get hit with a challenge to Fed authority, and he will have to raise rates even further. Sites such as bondtalk subscribe to the fed challenge theory - even though they aren't bears.
The bears believe that the fed will be challenged, that it will have to raise rates and choke the economy, or fail to raise rates and allow the dollar to cascade downward. Which means that either the fed funds rate should go above 5%, or CPI-U should crack 5% nominal with gasoline above $3/gallon for an extended period of time. In their view, the current breather is a respite bought by dumping the SPR and SGR, and will go away shortly.
Making Better Choices
Which ever view you subscribe to, wages and jobs are not going to grow robustly. Instead, this economy is as good as it can get given the choices we have made - bail out US corporations from their bad bets during the boom (the tax policies), war with Iraq, and a protectionist boom in health care and housing. These were all explicit choices, choices which could have gone in other directions. Americans repeatedly backed these choices by giving Bush high approval numbers, and accepting in three successive elections his party in power.
So what are better choices?
The worse choice is protectionism. We are in this mess because of protectionism. If you look at the choices made by Bush they amount to:
  1. Protectionism for big business.
  2. Protectionism for big military.
  3. Protectionism for doctors and red state contractors.
Imagine for a minute a perotista party took power, and slammed the doors shut and protected manufacturing workers - in 4 years, you can be sure that the red zoners would be screaming, as the price of their pick up trucks would be going up and up and up, while there would be no cheap chinese money to buy houses. Protectionism is one group of workers fighting another group of workers. If you look back on the "Gilded Age" of the late 19th century and Republican dominance of the Congress and the White House, you will see high protective tariffs from one side to the other. High tariffs benefit those accumulating capital, they can help industrial workers in the sectors that are being built out, but only to the extent that there is someplace to dump the results. Who, exactly, other than an American, is going to be buying Hummers that get 8 mpg?
It isn't that "American jobs are going to China". Because China turns around and lends all the money they make back here - what has happened instead is that civilian employment has gone down - and we have spent that money on "The War on Terror" and the War in Iraq, creating defense jobs. Virginia and Texas have gained, while Michigan and Pennsylvania have lost. But slamming the door shut won't create new jobs, but, instead, destroy them.
Instead, if you want to see where the missing jobs are, look again at the bull case scenario. Realize that corporations have cleaned up their balance sheets and are holding huge amounts of cash, cash that they haven't been taxed. That money isn't going any place, except to be parked in safe places. This has kept long term rates low, and therefore acted as a disincentive to long term investment - because there is less of a reward for it. Instead, it has been focused on soaking up the carry trade money.
Now businesses still aren't investing this in the US, or even as much overseas as you would think, if they were, prices would be dropping even faster on manufactured goods here. They are sitting on it. Good for the privileged, not so good for the rest of us. The famous line about banks applies to government - go where the money is. The money isn't in slamming the door shut on China - though we could definitely force the Chinese to play buy the (supposedly free trade) rules that everyone else (except the oilarchies) has to play by.
Instead, the money is in the trillions of parked money that is sitting around looking for free returns. Back in the days of gold standards, it would have sat in gold, with gold getting more valuable every year, and been used to create big factories with spectacular products, and vast human misery at the same time. Without gold, it has to be juggled carefully - and that has been the objective of the reactionary movement over the last 30 years - a gold standard, without the noxious limits of gold that stop them from bailing themselves out when they need to just print money. Soft money for the creditors, hard money for the borrowers.
Better decisions are not hard to make. Consider the CBO survey I mentioned earlier. Consider how cheap the increase in fuel standards is compared to the war in Iraq. This is merely one example. Given a period of borrowing to meet a recession - which is what you should do, have the government spend when prices are going down - we could have employed the 500K lost tech jobs to develop a great deal of a wireless/hybrid/telecommuting America - which would be one step more along the ultimate trail of a scaleable, sustainable and accessible America - reduced the price of oil, still had a substantial house build out, and had a lower federal budget deficit when it was all over anyway. It also would have been able to bail out pension funds and start us towards national health care. We chose to kill Iraqis rather than save children here, burn gas rather than save it, devote our research to domestic spying rather than cheaper wireless.
People have often asked me about solutions - here is the root of all solutions: change incentives. We created incentives to build houses and consume. People responded by following the jobs and the money. Why am I back in the private sector? Because they pay me a great deal more that the progressive political sphere can. What do I do here? Screw consumers out of money and help ship jobs to China and India. It isn't lack of protectionism that is shipping your jobs to China and India, and you can pass every "worker protection" law you want. The jobs that are going to China are nice jobs, in cubicles no different from yours - they would meet any "parity of worker standards" rule that you want to set, because the same jobs aren't unionized over here either.
Changing incentives means changing one's vision of society. It does not come from endless arguments over which technology will get you there - politics is about saying where we are going, and what we are willing to give up to get there. The "market place of ideas" and the free market will provide the solutions that the public - collectively as government and individually as consumers and producers - will choose.
The guy who did the best over the last five years - other than the big share holder - was the guy who followed the defense and housing boom, or the finance and health care boom, or is in the energy business making holes in the ground. He's what we incentivized, him and his SUV and mcmansion. He's happy. Happier than he has ever been in fact. He goes to his big bucket church, eats at his big bucket restaurant, votes for a big bucket of pork and corruption, and wants a big bucket of cheap money and oil out there for that taking.
The basic roots of the solution are to charge for unsustainability. Build the price of dismantling into the cost of anything, and prices snap into proportion. We've been doing the reverse - corporations want to get out of the costs of asbestos, pension plans and health plans. They want to leave broken down cities, broken down workers, broken down veterans from Iraq, and "move on". The China they are going to leave behind isn't going to be pretty looking either.
Over the Next Year
I am, as noted, a snake. I believe that next year is going to wiggle along like last year, even as the bottom erodes from beneath the economy. The dotconomy busted in early 2000, but it took another year for the economy to go into recession - and then only because Bush was intent on sending it there. The same thing is going to happen now in my view - it is going to take time for Americans to run out of borrowing, and for companies to realize that the easy profits are goin and start slashing prices, and workforces. This means that the recession is still off in the distance for the whole economy - but it is going to arrive in different places at different times. Many blue zones are going to feel it earlier, as the ability to suck money out of houses is going to end.
What people should do is realize that it takes strong nerves to hang in there - the time when people know there could be a big bust, but the panic hasn't started yet. It is easy to panic early. This is the best year to hang on to your job. The best year to switch to a job that is in a less recession prone industry. I get asked alot of questions about "where do I put my money?" the answer varies - close to retirement? young? with kids in college? one size doesn't fit all. The simple one size fits all answer is to stop wasting money - eat out less, pay down your credit cards, make sure you have the right amount of term life insurance, cancel entertainment expenses that you don't need - these will do you more good than timing the crash. When the crash is about to hit, we will know, they send big loud signals.
Most of all - invest in your relationship. A divorce does the same thing to your assets as a stock market crash - and worse, things aren't cheap on the other side. Economists talk about "opportunity costs" - spending an hour on your primary relationship is an hour better spent than trying to find the next hot stock.
For investing - invest in inflation that the fed thinks is good. For a long time that was housing inflation. Now it is energy inflation. In stocks - buy index funds of the major world indexes - US, France, Germany, UK, Tokyo - and in major oil companies. When the fed gets serious about energy inflation - it will be time to sell. But regardless of who takes power, the US is going to have to put huge amounts into electrical power generation and transportation generation - we are going to spend almost a trillion dollars a year on these projects. Invest in them for the long term.
Summary
There are three cases for the next year: the bulls think the money is coming raining down, and that the fed has stopped inflation. The snakes thing that interest rates are going to bleed the consumer, and that the stimulus is destined to produce inflation, that will be reigned in after the elections. The bears think that the conditions for a major disruption are in place, and that at some point during the year, there will be a shock that will send the economy spiralling down.
Regardless of your scenario - hiring is going to be slow, though not dead the way it was in 2002 and 2003 - and wages are going to be tough.
To me this means that the best strategy is to tend to ones own garden - work, retrench, invest in ones family, and put ones money to work in long term trends that will pay off regardless of the shape of the rest of the business cycle.