Economics and...: Time to Do the Wrong Thing

Think back to 1998 and the Long-Term Capital Management (LTCM) implosion heard 'round the world. On the heels of wealth destruction by some of Wall Street's "most brilliant" minds, then-Fed chair Greenspan lowered interest rates to comfort bruised investors. The result was a ground-swell of investment in the securities market, that more-or-less, initiated the collective exuberance over widespread cheap money. This is known as the Greenspan Put.

And we are experiencing this again- to the detriment of the global economy. September will come and go, and the fed fund rate will be lowered. As is always the case, uber-sensitive (and very vocal) institutional investors will get their way, and we will all wonder in a few months why inflation has continued on the up and up.

To paraphrase SNL's Chevy Chase, "Bernanke, you ignorant slut."

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Related Reading:
Time to Do The Wrong Thing, posted by knzn

YouTube Gold: Billy Taylor, Willie "The Lion" Smith and Duke Ellington Perform "Perdido"

Three legends on the same stage (The David Frost Show), displaying their tremendous talents. All the more fascinating is how you can hear and see, these three distinctly different piano styles and how they effortlessly flow together.

Just amazing! Who needs the National Archives when we have YouTube?

Late to the Party

At best, upon graduating from Mason in 2003, I've been appropriately applying the economics I learned in undergrad. At worst, I'm a stubborn mutt, who clamps onto an idea and refuses to let go until-- well, never. With that said, imagine my shit-eating grin when I come across people hysterically claiming how this credit crunch came out of nowhere.

For Ss and Gs, I searched Beyond the Digital Decks (formerly Effin' Eh) to see how long I've been calling this inflationary real estate nonsense, beginning in July 2002 when I was still in school. (emphasis added)

July 2002: Is Real Estate The Next Bubble?

[H]ome loans are almost free -- considering interest rates are offered as low as 6 percent, discount inflation at 3 percent in addition to another 2 percent for the federal mortgage tax break. This is a great example of a federal housing policy that imposes artificial demand on the market.

An economist at Economy.com worries that there is currently overinvestment as consumers flock to the low interest rates. "If current conditions continue for another year or two years, we could have a problem," especially among lower-income borrowers and those who lend to them, he said.

August 2002: A Return to Moral Banking or Less Government Intervention?

More recently, consider the impact of the fed's inflationary policies that expand the money supply. This drives increased profits as the new money flows towards a means of investment, perhaps the stock market. This increase in profits, as we have all seen, is artificial and will need to be corrected (it is at this point that I would like to commend the Austrian school on their work on the business cycle, as it provides the clearest understanding of market behavior). Further distorting the market's reality is credit expansion which is fueled through the fed's money creation and the incestuous relationship between the fed and private banks.

July 2003: Snapshot of Current Employment Situation

Interestingly, June's decline in retail employment was not experienced in building material and garden supply stores. Sure, seasonal changes account for part of this growth but there's still that red-hot housing market that has been picking up (and driving economists to call for its inevitable collapse, in perpetuity) when much of this economy has slackened.

November 2003: Letter to My County Supervisor Michael Frey

My wife and I are life-long Fairfax County residents but are concerned that housing costs, increased further by restrictive housing regulations, will effectively price us out of the County's market.

August 2005: Living In Your ATM

On a macroeconomic scale, think of the consequences of inflation, where the government devalues the dollars held by consumers. In the short-term, everyone holding those dollars feels richer because of the sudden inflow; however in the long-term, inflation leads to the decline in the dollar's stored economic value. The same can be said for all of this "easy money" that is flooding the pockets of homeowners.

September 2005: Gain in Temporary Jobs

Even more worrisome is that the fastest growing industry continues to be the housing industry, which I feel to be overheating. The question remains: will housing developers be able to grow more jobs or even keep these peopleemployed when loans for future projects are denied? Greater need for that very capital will arise from the Gulf Coast as reconstruction is on all of our minds.

September 2005: Consumer Goods Will Feel The Burden

In contrast to the benefits that have been driven down directly to consumers, I want to consider why, particularly in times of such low consumer good prices, the consumer has not experienced even higher prices. If it is true as I present that more money than should have been was injected into the economy, then isn’t it the case that inflation would be driven even faster?

I point solely to the housing market, which nationally has continued its frothy growth of 13 percent in the last 12 months. The moment housing can no longer provide inflationary protection, look for the burden to be spread across the economy, driving prices of all goods upward.

September 2005: Pop Goes The Bubble

I have repeatedly discussed what I consider to be the impending collapse of our housing market. If there is anything that will push us beyond the comfort level that has provided homeowners pure price-to-equity bliss, it will be the enormous growth of no-money-down housing buys as well as the artificially-low interest rates that wrongfully incentivize everyday Americans to leap into the homeowning world risk-free.
I'll be cautious in where I step here, but let us remember the popularity of interest-only mortgages during the 1920s. Great timing, eh? While interest-only loans may have contributed to the eventual monetary contraction that destroyed wealth in the 1920s, consider that these aren't your grandfather's interest-only loans. They're even riskier.

Related Reading:
That Which Is Seen, and That Which Is Not Seen; by Frederic Bastiat
Interest-Only Mortgage deja vu; Bankrate.com

Music as Heard Through Turntables

Birdy Nam Nam. Un-fucking-real. Do check them out.

Birdy Nam Nam are a DJ crew from France whose members are Crazy-B, DJ Pone, DJ Need, and Little Mike. Birdy Nam Nam have won several prizes throughout their career including the DMC Technics 2002 World TEAM Championships. Birdy Nam Nam's goal is to use the turntable player as an actual musical instrument. Their self-titled debut album was released in 2006 on Uncivilized World Records, and in March of that year, they performed at the internationally-renowned music conference SXSW. The group's name is taken from a line in the 1968 Peter Sellers film The Party, directed by Blake Edwards^[1].

They gain their music from friends, owned albums, and press beats and patterns into vinyl to assemble their music live.

Flip your wig and check this out.




Hat tip to my brother, the Left Coast Penn.

Music You Will Need to Know

The Heliocentrics have provided drums for several HipHoppers you already know, as well as being the backup band for DJ Shadow in the studio and on stage (when you're lucky).

StonesThrow Records, the great people who brought us the Kashmere Band (reprint), Madlib, and the late (but not forgotten) J-Dilla, should not be ignored. Check out their site and see (hear?) why I'm bobbing my head.

In case it isn't apparent, these guys get the djconnor seal of approval, for whatever it's worth. Check it. Hitting the pavement on September 25th.

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ANNOUNCING: THE HELIOCENTRICS "OUT THERE" CD/LP - SEPTEMBER 25TH
From the drummer sampled by Madlib and Yesterdays New Quintet, and the band that backed DJ Shadow. This is a Now-Again Records project. Read More:
+ http://www.stonesthrow.com/nowagain/heliocentrics/

MP3: THE HELIOCENTRICS & GUILTY SIMPSON - "BEFORE I DIE"
Out now on "Now-Again Re:Sounds"
+ http://www.stonesthrow.com/jukebox/heliocentrics-guiltysimpson.mp3

Dissent in Black America: Need Not Apply

Shame on XM Radio. More specifically, shame on the station "The Power." Casey Lartigue is a friend who was briefly hosting a show on the satellite radio station, offering a breath of fresh air for what I consider to be a rather stale and disappointing forum- Black America and its ongoing allergy to accepting responsibility for it's own failings.

Please do not get me wrong. This is not to take away from the institutional problems that have occurred in the past. However, I strongly believe that there is no good in dwelling on the past, particularly when it prevents any positive growth. I would extend this line of thinking into everyday problems we have within ourselves, our families, you name it.

Casey was fired on June 25th because he rubbed the wrong people the wrong way. Read his story in the Washington Post here.

Check out his blog here for further information regarding the so-called Memorandum 46.

Finally, here's the comment I posted on Casey's blog once I discovered what happened.

Fascinating read. I am ashamed to say I was not aware of what happened to your show on "The Power" until I happened upon this post. This is a setback, no matter how you slice it.

Sounds like you were hired by XM to falsely advertise its willingness to consider diverse thoughts that question the status quo.

As you rightly point out, Opie & Anthony are free to exercise their, um, different viewpoints, so long as the ratings they pull in can justify them.

It's tough to say how much can be inferred from this episode- but I'm content to settle for (at least) this: Mouthpieces of the black community are not ready for their wakeup call.

If you step back from this, this is all very ironic. Memorandum 46, if believed, is a conspiracy to contain individual thought. Isn't that exactly what your silence has brought about?

I hope the article in the Post alerts many others to what is going on. This is a general dilemma facing all of America, transcending the matter of race:

The Individual is under attack by group think and bullyism. I wish you the best of luck in your struggle to wake up a community of victims bearing self-inflicted wounds.

If you are so sure of what you believe, why be concerned with dissension that challenges your way of thinking? Everyone is so keen on healthy debate until it breaks skin.

Come on, Joe Madison. Be a man and face a challenge without cowering behind your easy answers.