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Five Hundred Million Dollar Negative Yield Bond Issued

2017 November 17

No, central banks aren’t screwing the economy up with their purchases:

Veolia (Paris:VIE) has issued a 500 million 3-year EUR bond (maturity November 2020) with a negative yield of -0.026 %, which is a first for a BBB issuer.

To be clear, central banks didn’t buy those bonds, investors did. But central bank purchases of government debt are a large part of what is causing this issue.

The ECB (European Central Bank) has been buying SEVEN times the issuance of government bonds. Seven times. Seven times.

They are straight up financing governments (which, done right, could be a good thing, but isn’t in this context).

The problem in the world today is the same as it was 15 years ago, before the financial collapse: There is too much money chasing not enough returns. Because there isn’t enough real growth, that money moves into bubbles and fraud, and destroys companies through leveraged buyouts and so on, but it also means that, if there isn’t enough fraud or predation going on, it sits and stagnates and does nothing worthwhile.

What the developed world actually needs is stuff to invest in, high marginal tax rates (higher on capital gains than on earned income), distributive policies to the bulk of the population to create wide-spread demand, and moderate inflation of about five percent a year to get people to actually invest in new businesses, not in financial speculation.

The problem with this solution set is that if it doesn’t also include effective regulation, it can have to environmentally devastating effects; for instance, because solar is not fully online, the above solution set could lead to oil price spikes.

Those problems, however, are not why this isn’t being done. This isn’t being done because current leadership does not believe in high taxes, wide distribution, or regulation. They are neoliberals, and 40  years of neoliberal disasters cannot convince them to engage anything other than neoliberalism, because neoliberalism has made them and their friends very very rich.

But the game is coming to an end. They want to tax the middle class and poor people, sparing the rich but they are now starting to tax the rich through the back door of negative interest rates. Meanwhile, the poor and middle class, especially the young ones, are losing patience and are willing to go either straight-up socialist or straight-up fascist (the Polish 50K rally).

This is going to get a lot uglier before it gets better.

There will be three choices for countries: Fascism, left-wing populism, or dystopic surveillance/police states.


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The “Missing” Inflation Shows Up as Hyper-inflation

2017 November 16
by Ian Welsh

In things that rich people buy.

Ever since the financial crisis, there has been a lot of screaming about inflation. Screaming that it should show up, with all the money being created by central banks and, privately, and isn’t.

But it is.

A painting of Christ by the Renaissance master Leonardo da Vinci sold for a record $450 million at auction on Wednesday, smashing previous records for artworks sold at auction or privately.

New York, London, and Vancouver real estate, along with a number of other cities (China’s printing more money than anyone else), is also where it showing up.

And it’s showing up for ordinary people, not as hyper-inflation, but as high inflation of some things. Whatever the figures show, anyone who buys food knows that food prices have been going up faster than normal wages for quite some time.

But mostly it is showing up at the top end, in things that rich people bid up. $450 million is damn near half a billion, the ability to blow that amount of money on a single painting is absolutely crazy, no matter who the painting is by. It could not have happened even 20 years ago, and did not happen even ten years ago.

The rich are floating on an ocean of money, and they have nothing to spend it on that really matters, so it’s going to third homes, real estate, speculation and conspicuous luxury consumption (which is what that painting is).

As an aside, one of the ways to deal with off-shore tax haven money is for the major economies to not allow it back into their countries without high taxation. It’s great that you have a few billion in an offshore haven, but you can’t spend it there. If you want to bring it back or use it as collateral then just make them pay taxes on it. 90 percent is a good rate.

What, they won’t bring it home at that tax level? Then fuck’em. You can’t buy anything that matters in most tax havens, and no one wants to live there. Let it rot, uselessly, there.


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Lewinsky Is Not Why Clinton Should Have Resigned

2017 November 15

I don’t usually write about subjects I disagree with Matt Yglesias on, but this piece on how Bill Clinton should have resigned over Lewinsky is sickening.

It’s not that Clinton’s actions with Lewinsky weren’t awful, it is the moral and ethical vacuum required to think that’s the issue over which he should have resigned.

Clinton gutted welfare. I guarantee that killed a lot of people and hurt way more. Clinton pushed the three strikes laws hard, which hit black communities brutally, locking people up for years for a third strike for things like stealing a bicycle. Bill Clinton engaged in punitive sanctions against Iraq which hit basic medicine, killing and hurting a lot of people. Bill Clinton pushed for the repeal of Glass-Steagall, and signed it; this was one of the causes of the 2008 financial collapse and, thus, killed and hurt a lot people.

What happened to Lewinsky was sad, gross, and wrong. But it came nowhere near the harm Clinton did with other actions.

This inability to think at scale haunts us when dealing with powerful people. What matters most is by far and away what they do as policy. One intern and a cigar is a tragedy, to paraphrase Stalin, but thousands of deaths and people locked up for decades is a statistic.

Oh, there are arguments against this: That killing and impoverishing people is the role of the US president, but that screwing around with interns isn’t, basically.


I actually can see the case. Some things are over the lines. Rape, for example. Or torture. But war causes both, and Bush, Jr. served out his terms, as did Obama. Heck, by some accounts Bush, rather closely supervised some of the torture in Guantanamo and enjoyed doing so.

The bottom line is that we choose our leaders in part because they are functional sociopaths–able to do great evil and sleep at night. We shouldn’t choose them that way, but for a variety of reasons, we do.

But to be concerned about one abuse of position (which was consensual, however) and not about all the vast harm Clinton did to people even more powerless than Lewinsky, to say that’s where you draw the line rather than at, say, welfare reform—I don’t know, it sticks in my craw.

About the only good argument is that people who abuse power in that manner shouldn’t be allowed near power. I agree. But by the time Lewinsky occurred, Clinton had already shown he was willing to hurt the weak and poor at scale.

It’s the statistics that matter. The individual cases only can warn you about the statistics that might follow, and they aren’t always so accurately predictive. (FDR had an affair with his principal secretary. It didn’t make him a bad President and if he’d stepped down it would have been disastrous.)

I wonder if we evolved killer apes are capable of running large civilizations in anything close to an effective and beneficial fashion. The evidence coming in is looking grim.

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Brexit and the Work-to-rule of the Managerial Class

2017 November 13
by Mandos


I mostly concur with Yves Smith’s assessment of the on-going, cruel tragicomedy that is Brexit. However, she points out a Twitter thread that has been making the rounds, and it is interesting. It concurs with everything I have read about grassroots Brexitism:

However, Prof. Finlayson analyzes this in terms of Utopianism, which is not entirely wrong:

And while it’s not entirely wrong, I think it’s incomplete. I’ve written before about the Brexit phenomenon here before (and pretty much everything I said there has been borne out, not to toot my own horn too much), and one of the factors here is the role of the managerial/technocratic class. I interpret the hostility towards the details that Brexiters seem to exhibit (“Don’t talk down Brexit!!!”) partly in terms of something else. What grassroots Brexiters want is to force the managerial class, the people with the technical skills in government administration, to implement something (whatever it is) that the managerial class visibly doesn’t like and doesn’t agree with, and to do it enthusiastically as a duty to the Brexit-voting public. In any discussion, people arguing for the Remain side are therefore seen as proxies or stand-ins for that class, even if they themselves aren’t necessarily responsible for the implementation. Therefore, the Remainers demand for detail is seen as shirking, i.e. a threatened refusal to accept the legitimacy of the Brexit vote, because it is the Remainers’/managerial class’ job to come up with the details for whatever policy course is chosen especially via referendum.

The problem is that the managerial classes/technocrats in question do not believe that they can deliver a good Brexit and do not want to, and even if they go to work every day to produce the policy and administration required to do it, they are only going to do it on a work-to-rule basis. Work-to-rule is an effective labour disruption strategy—and the managerial classes are expected to do labour on someone else’s behalf in this instance, obviously—because it turns out that a lot of jobs really require the worker not only to be there and do the work in the job description, but to give an additional surplus of energy and attention for the enterprise to produce a good outcome.

Now in all probability, in particular due to the conditions under which Brexit has been unleashed, it is impossible to deliver a “good” Brexit even with the most enthusiastic of technocratic staff. But that is not the real demand—rather, the demand is that the technocratic class visibly demonstrate that it shares the identity markers and self-image of certain large sectors of British society, instead of appearing wholly alienated. However, if the technocrats genuinely don’t believe that there can be a good Brexit, that puts everyone in an impossible position: If technocrats impertinently ask the pro-Brexit public what they really expect is to signal that they are shirking their duty to come up with those ideas and that they really aren’t “of the people” (keeping in mind that enthusiastic pro-Remain positions also represent a wide grassroots in British society!). The reality of the situation is that there simply are no good ways to go about doing this, under the schedule of Article 50 and particularly under the political dysfunction of the British Tories and pro-Brexit vested interests.

The CIA Lies and So Does Putin

2017 November 12
by Ian Welsh
Vladimir Putin Official Portrait

Vladimir Putin

So, Trump said he believed Putin when Putin said he did not meddle in the US election. He was criticized for it, because the American intelligence community says otherwise. He backed down.

Newsflash: The CIA has the track record of a pathological liar. Putin lies as well.

Maybe the best thing to do is disbelieve both, and make up your own mind based on the evidence (which, by the way, is far weaker than the news articles, which assert but do not prove, would suggest.)

The CIA and the rest of the US intelligence establishment are not due benefit of the doubt.

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Reasons for Hope: The Cultural Shift on Rape and Sexual Abuse

2017 November 10

The election of Trump depressed a lot of people–in many cases literally causing depression. One of the worst parts of Trump’s success was that he was a known sex-abuser, with many accusers and who was caught on tape talking about grabbing pussies.

It was clear what he was, and it wasn’t enough to stop him being elected.

Now, Presidents make decisions that affect billions of people, and if George W. never sexually abused anyone himself, who cares? His war led to a pile of rapes that wouldn’t have occurred otherwise. The same is true of Clinton and Obama in Libya.

Still, Trump’s a sexual abuser and it didn’t matter.

So it’s nice to see that in Hollywood, at least, the culture has shifted. Weinstein appears to have been as big an abuser as one can imagine: straight up rape accusations, and they’re quite believable.

This was an open secret, as with Kevin Spacey’s predilection for young men and teenagers.

It didn’t matter in the past, and now it does. All the money and power these men have (especially Weinstein) isn’t enough to keep the lid on.

It needs to be said clearly that sex is one of the reasons that men pursue money and power. And having sex with people who don’t want it is clearly a buzz for many people.

Guys like Weinstein pursued power as much so they could abuse and rape as they did for the money.

Rape, in particular, ranks up with torture in the ranks of evil actions: It causes depression and PTSD like almost no other experience. People are truly traumatized by it for the rest of their life.

But sexual pressure to commit sexual acts to get a job or “otherwise you’ll never work in this industry again” is also pernicious. Not only is this sickeningly unjust, it impoverishes everyone, by making it so that capable people don’t get the chance to do the work they are best able to do.

Whenever we choose people for positions of influence and power based on anything but the candidate’s ability to do the job (a criteria which should consider character and what they intend to do as well as technical ability) all of us lose. The more important those positions are, the more of a tragedy it becomes for everyone when they are filled by people who do not deserve them–and positions in film and television are important, because they tell stories which lay down behavioral tracks for billions of people,

“Deserve” is a tricky word, we tend to to use it as if it means, “If you manage to get it, you deserve it.” But good societies know that it means “the person who will do the job best,” not “the person who can get the job by out-competing.”

There’s some overlap between the two, of course, top jobs often require assertiveness, but nowhere near the level at which we pretend it is.

Sexual abuse, casting couches, and rape all damage people terribly and, in so doing, do harm far beyond the damage to those individuals directly involved (though that is enough alone to condemn them).

We can expect this cultural change to redound for the good. Having more, less damaged people given a chance to contribute benefits most of us.

It doesn’t benefit all, of course. There is only so much room, and if you’re someone who isn’t sure if they’d make it in a space, well, more competitors may not be a good thing.

But we don’t need to make this into an entirely zero-sum game. One of the interesting things about female-centric films is that they do very well, AND they bring people to the theater who don’t necessarily go to films made for young males (this shouldn’t be a surprise, but apparently is.)

In a positive sum game, more people win. The only people who don’t are those who wanted power so they could rape and abuse, and those are the people we want to lose.

So, lots of bad stuff in the world, but the culture continues to shift, and some of those shifts are good.

This is one.

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China Thinks Strategically and We Don’t

2017 November 9
by Ian Welsh

In the West, we have not lived in rich states for over two generations.

This statement will strike most readers as nonsense, and should, but it’s true.

We think of ourselves as rich because we have a lot of consumer goods. Cars, electronic devices, and so on.

But the states we live in–the governments–have been poor. Their money is tied down and large projects do not get mobilized–things like the moon shots, interstate highways, and so on.

Our states are poor. Their ideology, with a few exceptions (smaller countries, all) is to let the rich get richer and have the rich spend money. So instead of NASA leading a huge space program, we have a variety of private companies like SpaceX building technology which a rich state would have created 20 years ago.

China doesn’t think this way. Chinese citizens may not be as rich as the average westerner (though there are plenty of rich Chinese as every world-class city that allows foreigners to buy its real-estate has found out, much to the sorrow of its ordinary citizens), but the state is rich, and the state and the companies it controls and influences are rich.

Most of our companies are not driven by the bottom line. Rather, they are driven by how much money they can create for those who control them. This is often not the case for Chinese companies.

Case in point: The global shipping industry is in grave trouble. Who is buying up those shipping companies in trouble? China. And they’re also buying up control of ports all over the world. China has majority control over many European ports, but no outsiders have majority control over any Chinese ports.

These are strategic assets. With control of shipping and ports, China is sure to be always able to move products and commodities wherever it wants, and its navy also has places to dock.

This simple strategy was understood for centuries. Countries went far out of their way to create large merchant marines, to protect ports and to retain control of them. Some assets are worth more than their market price in a slump, because everything else relies on them when things go bad. (Imagine Britain and the US without strong merchant marines in WWII.)

This is the way China thinks: They are buying up vast quantities of northern land in preparation for global warming, creating entire new waterways, deciding to build entire green cities.

China’s state is rich. The Chinese companies the state considers important are rich. They can do big things because China recognizes that those big things will matter in ten or twenty or forty years.

Chinese leadership still thinks strategically, and they can afford to do so.

Whether this will continue to be the case is unclear. The next generation of Chinese leadership will draw heavily on the princelings, who have never known real adversity. The economy is still suffering from the mercantalist trap, and widespread corruption and lack of a quality ethic causes huge issues. Aquifers are being drained ferociously, and climate change will hit China hard.

But unlike most of the rest of the world, China is actually trying to tackle problems, to think decades ahead, to plan, and to do big important things.

Some of what China considers important, I don’t like–for example, its expansion of a truly oppressive surveillance citizen which will include a public score for every citizen. However, this doesn’t change the fact that China does big things, good, bad, or flawed, while we watch approaching catastrophes and gently hum to ourselves, then check our phones.

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Bitcoin Is a Bad Way to Do Something Necessary

2017 November 8
by Ian Welsh

I don’t write about crypto-currency often because its proponents are fanatical. (You’d be fanatical too if you combined rabid self interest that might make you a multi-millionaire with a social engineering project you thought was utopian.)

But more and more, I am inclined to agree with a judgement my friend made years ago: While Bitcoin does something important (creates a peer-to-peer payment network) it does it in a terrible way.

This averages out to a shocking 215 kilowatt-hours (KWh) of juice used by miners for each Bitcoin transaction (there are currently about 300,000 transactions per day). As the average American household consumes 901 KWh per month, each Bitcoin transfer represents enough energy to run a comfortable house, and everything in it, for nearly a week. On a larger scale, De Vries’ index shows that bitcoin miners worldwide could be using enough electricity to at any given time to power about 2.26 million American homes.

This is crazy. Looked at from this point of view, Bitcoin is terrible: Its actual transaction costs are far higher than those for any other form of money of which I am aware.

Bitcoin was also a libertarian project. Libertarians hate inflationary money, so Bitcoin was made deliberately deflationary. There are a limited amount of bitcoins which can be created. There is a strong first mover advantage even without the fact that bitcoin is acting more like stock in a company than money.

Deflationary money is reactionary. It rewards people for being first, not for being productive. It encourages people not to spend and not to invest in something other than money, which is bad for economies. Moderate inflation, contra-gold bugs and Austrians, is a good thing, as it devalues effort from the past. It’s great that you did something wonderful 40 years ago, but what you do today should matter more.

It shouldn’t matter completely more, I’m not saying that retired people shouldn’t be able to eat and pay rent, but it should discount and discount more and more over time.

People who won the past shouldn’t control the future for all that long. People who are winning the present should, if anyone should.

This piece will likely have people screaming in the comments, but just because Bitcoin is not government money does not mean it gets a pass from general economic principles.

And none of this is to say that blockchains are not an important innovation, or that Bitcoin isn’t important, won’t make its early movers lots of money, and so on. Just that its embedded economic assumptions and power requirements won’t produce maximum welfare.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.