Who is the Man with the Name that Rhymes ?If the name don't rhyme it ain't mine.

Here's an interesting article on the life and times of 24-year-old Jordan Kavoosi, who has made a business of plagiarism. His Essay Writing Company employs writers from across the country, and will deliver a paper on any subject for $23 per page. In addition, his company will get it done in 48 hours, and he guarantees at least a B grade or your money back. From the article: "'Sure it's unethical, but it's just a business,' Kavoosi explains. 'I mean, what about strip clubs or porn shops? Those are unethical, and city-approved.'"

Read more of this story at Slashdot.

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(Cross-posted from the Google Voice Blog)

A little over a year ago, we released an early preview of Google Voice, our web-based platform for managing your communications. We introduced one number to ring all your phones, voicemail that works like email, free calls and text messages to the U.S. and Canada, low-priced international calls and more—the only catch was you had to request and receive an invite to try it out. Today, after lots of testing and tweaking, we’re excited to open up Google Voice to the public, no invitation required.

Over the past year, we’ve introduced a mobile web app, an integrated voicemail player in Gmail, the ability to use Google Voice with your existing number and more. Over a million of you are now actively using Google Voice, and many of the features released over the past year (like SMS to email and our Chrome extension) came as a result of your suggestions, so thanks!

If you haven’t yet tried Google Voice, we can’t wait for you to try it out and let us know what you think. Check out our revamped features page to learn about everything Google Voice can do, and if you haven’t seen it yet, this video provides a good overview in less than two minutes:



We’re proud of the progress we’ve made with Google Voice over the last few years, and we’re still just scratching the surface of what’s possible when you combine your regular phone service with the latest web technology. It’s even more amazing to think about how far communication has come over the last couple hundred years. To put things in context, we created this infographic to visualize some recent history of human communication and how Google Voice uses the web to help people communicate in more ways than ever before (click the image for a larger version):



Update 10:53AM: Just to clarify, though we've opened up sign-ups, Google Voice is still limited to everyone in the U.S. for now.

Posted by Craig Walker & Vincent Paquet, Google Voice Product Managers

Economists find a treasure trove of information to study and analyze in an imaginary place set 20,000 years into the future in a galaxy known as New Eden.(author unknown)

A popular question on our Webmaster Help Forum is in regard to best practices for organic link building. There seems to be some confusion, especially among less experienced webmasters, on how to approach the topic. Different perspectives have been shared, and we would also like to explain our viewpoint on earning quality links.

If your site is rather new and still unknown, a good way marketing technique is to get involved in the community around your topic. Interact and contribute on forums and blogs. Just keep in mind to contribute in a positive way, rather than spamming or soliciting for your site. Just building a reputation can drive people to your site. And they will keep on visiting it and linking to it. If you offer long-lasting, unique and compelling content -- something that lets your expertise shine -- people will want to recommend it to others. Great content can serve this purpose as much as providing useful tools.

A promising way to create value for your target group and earn great links is to think of issues or problems your users might encounter. Visitors are likely to appreciate your site and link to it if you publish a short tutorial or a video providing a solution, or a practical tool. Survey or original research results can serve the same purpose, if they turn out to be useful for the target audience. Both methods grow your credibility in the community and increase visibility. This can help you gain lasting, merit-based links and loyal followers who generate direct traffic and "spread the word." Offering a number of solutions for different problems could evolve into a blog which can continuously affect the site's reputation in a positive way.

Humor can be another way to gain both great links and get people to talk about your site. With Google Buzz and other social media services constantly growing, entertaining content is being shared now more than ever. We've seen all kinds of amusing content, from ASCII art embedded in a site's source code to funny downtime messages used as a viral marketing technique to increase the visibility of a site. However, we do not recommend counting only on short-lived link-bait tactics. Their appeal wears off quickly and as powerful as marketing stunts can be, you shouldn't rely on them as a long-term strategy or as your only marketing effort.

It's important to clarify that any legitimate link building strategy is a long-term effort. There are those who advocate for short-lived, often spammy methods, but these are not advisable if you care for your site's reputation. Buying PageRank-passing links or randomly exchanging links are the worst ways of attempting to gather links and they're likely to have no positive impact on your site's performance over time. If your site's visibility in the Google index is important to you it's best to avoid them.

Directory entries are often mentioned as another way to promote young sites in the Google index. There are great, topical directories that add value to the Internet. But there are not many of them in proportion to those of lower quality. If you decide to submit your site to a directory, make sure it's on topic, moderated, and well structured. Mass submissions, which are sometimes offered as a quick work-around SEO method, are mostly useless and not likely to serve your purposes.

It can be a good idea to take a look at similar sites in other markets and identify the elements of those sites that might work well for yours, too. However, it's important not to just copy success stories but to adapt them, so that they provide unique value for your visitors.


Social bookmarks on YouTube enable users to share content easily

Finally, consider making linking to your site easier for less tech savvy users. Similar to the way we do it on YouTube, offering bookmarking services for social sites like Twitter or Facebook can help spread the word about the great content on your site and draw users' attention.

As usual, we'd like to hear your opinion. You're welcome to comment here in the blog, or join our Webmaster Help Forum community.

Written by Kaspar Szymanski, Search Quality Strategist, Dublin

Yes, you’ll have more freedom as your own boss. But you may also face longer hours — and a degree of loneliness.

By PHYLLIS KORKKI

Buttonwood's notebook Debt, the markets and the economy Buttonwood A forty (and two thousand) year view Images: 

WHEN we talk about bubbles, we tend to think of recent history but in fact this is an age-old phenomenon. (Note to patient readers; this is a long post because it is a condensed version of my BCA speech.)

Asset bubbles and rising debt levels go together. And it is not just government debt we have to worry about. US private sector debt has increased as a proportion of GDP from around 60% in the early 1950s to almost 300% at its peak.

Some increase in debt may have been inevitable as societies became more sophisticated. Many would say a certain degree of debt is beneficial since it allows individuals and companies to smooth their consumption over the cycle.

Others would say it doesn’t matter. In aggregate, the world owes the money to itself; debt is just an accounting issue. A family is no poorer if a wife lends money to her husband, or vice versa. Another rationale is that asset prices have also been rising so that one needs to look at both sides of the balance sheet; it is net, not gross, debt that matters.

But that is wrong. Gross debt levels matter because, as is well known, the value of debt is fixed in nominal terms while the value of assets can fluctuate. High gross debt levels thus create a number of flash points when creditors start to doubt the value of their collateral, and when the debts have to be rolled over. These crisis points are now rippling through the system; first US homeowners, then investors in structured products, then banks, and now sovereigns.

It is no coincidence that this massive debt explosion has coincided with the end of the Bretton Woods system of the early 1970s. This destroyed the final link to gold and crucially, removed the balance of payments constraint from the concerns of economic policymakers, at least in the developed world.

The author Richard Duncan compiled this chart from IMF data showing the growth in foreign exchange reserves since the end of Bretton Woods. From modest origins, they climbed above $1 trillion in the early 1970s before accelerating to almost $7 trillion in recent years. It is his contention that these reserves allowed surplus countries to expand their money supplies, while the deficit countries were not forced to cut back.

It was true that, in the main, developed countries found that they could run deficits without being punished by the markets. Indeed, eventually, they found that they could depreciate their exchange rates without being penalised by their creditors in the form of higher yields. This was an easy option in the short-term. But it was a bit like the 25-year old who boasts that smoking, drinking and overeating hasn't harmed him; the bad habits will catch up with him eventually.

Floating exchange rates gave countries an escape valve after the 1970s. And that was very important because attitudes were changing in another area of government policy. As one contemplates today’s massive fiscal deficits, it seems incredible to remember that Keynesianism was virtually discredited in the mid-1970s. A Labour prime minister, Jim Callaghan, said

"We used to think that you could spend your way out of recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step."

He was describing what used to be known as the stop-go cycle, in which governments entered office eager to expand the economy (think of the Barber boom in the early 1970s) only to slam on the brakes as inflation rose. One could describe it as the Keynesian ratchet in which each turn seemed to bring higher inflation.

After a chaotic 1970s, the wolrd came up with a new system, based on the use of monetary policy. Inflation  would be tamed by an independent central bank, and monetary policy would be used to limit the exzcesses of the cycle. The system appeared to work brilliantly. It delivered the great moderation, two decades of steady growth with generally declining inflation and very mild recessions. There was an enormous boom in the financial markets, as lower inflation allowed nominal yields on bonds and equities (and thus capital values) to rise substantially.

And so we turn to Hyman Minsky who argued that these periods of moderation lead eventually to speculation and crisis. Rising asset prices encourage people to borrow money and buy assets, most obviously in the housing market. Initially, people take out loans where they can meet both interest and capital repayments; then they take out loans where they can only meet the interest; in the final Ponzi stage (for which read subprime) they cannot even meet the interest payments but need rising prices to service the debt (essentially by flipping the asset).

It is my contention that we switched from a Keynesian ratchet to a monetary ratchet. Lower rates encouraged more borrowing and higher asset prices; when those prices faltered, central banks worried about a repeat of the debt deflation of the 1930s so they slashed rates to help markets recover. This became known as the Greenspan put after 1987, the first time it was clearly used but it was used many times, arguably most egregiously in 1998 after the collapse of LTCM.

The end game of this process seems clear in retrospect, even though it may not have been at the time. Valuations were driven to historically unprecedented levels, first in shares in 2000 and then in housing in 2006. And interest rates have reached the event horizon of zero.

Let us think about that for a moment. The Bank of England was set up in 1694. For the next 300 years which included world wars, the Great Depression, a century or so of alternating deflation and inflation between 1815 and 1914, and the bank never previously felt the need to reduce rates below 2%. And this is combined with a fiscal deficit which, relative to GDP, is unknown outside world wars; one in four of the pounds spent by the British government is borrowed from the markets. Even with all that, the Bank of England has been obliged to add QE on top.

If zero rates and huge deficits were the answer to mankind’s problems, we would have discovered this long ago. After all, governments would be delighted to borrow as much as they can for as little as possible.

What the authorities are clearly trying to do is to wind up one more round of the ratchet. If asset prices are higher, balance sheets will look healthy; if interest rates are low, borrowers can service their debts. Indeed, the Bank of England doesn’t think British house prices are too high, even though they are well above historical averages relative to incomes; they are rational when compared to real interest rates. But who has been setting real interest rates? The bank, of course, at both the short (and via QE) at the long end.

This may be an early sign that central banks are falling into their old habits. Bubbles are very hard intellectually to deal with. Those who ride the bubble look smart; those who try to buck it, like the late Tony Dye, get fired. The bubble will often accompany a growing economy, rising corporate profits and rising tax revenues; governments, regulators and central banks tend to feel that all is well, and that the wisdom of their policies is being amply demonstrated.

But it is surely very hard to argue now that the right thing for central banks to do about bubbles is to ignore them, on the grounds that it is easy to clean up after they burst. The cost of the financial sector crisis has been enormous; never mind the actual bail-out, think of the lost tax revenues.

Surely it is clear that the monetary expansion of the last 30 years led to asset price, not consumer price, inflation perhaps because the rise of China and south-east Asia represented a massive deflationary shock for the manufactured goods sector.

The fundamental contradiction at the heart of the recovery is that the markets are dependent on the governments for support, but many governments are also dependent on the markets. The European debt crisis has shown there is a limit to the extent that markets will be willing to finance government deficits, and also a limit to the extent that politicians want to be dependent on markets. European countries, with Germany in the intellectual lead, are now acting to withdraw the stimulus. Eventually, one would expect the US to be forced, by political rather than financial pressures, to follow suit.

Given that economies may have to slam on the fiscal brakes, and that interest rates are already near zero, central banks may be forced into other means of boosting the economy, in particular quantitative easing or QE. I confess to being rather cynical about QE. We know of occasions in history when it didn’t work (Japan) and we know when it resulted in hyperinflation (the Weimar republic). We don’t know of any occasions when it definitely did work.

And we know it is a tactic that is ancient. The Emperor Nero was short of a few denarii to pay his soldiers so he created some more by debasing the currency. In effect he financed his deficit by printing money, just as the Bank of England has bought £200 billion of gilts from a country with a £157 billion deficit. Of course, Nero didn’t have any economists to give his actions a sophisticated spin. But were his actions really that different?

I am not arguing that we are heading for hyperinflationary hell. But I think we have in the course of this long debt boom started to confuse claims on wealth with wealth itself. And I think that has been a further negative effect of the bubble mentality.

Indeed, just to provoke you, how about thinking of the last 40 years as one long bubble, in which fiat money has led to asset price inflation. Before you dismiss the idea, think about this; with gold at $1250 an ounce, the dollar has lost 97% of its purchasing power in terms of what used to be though of as "real money" since 1971. The Romans took 200 years to achieve the same effect, cutting the amount of silver in their copins by 96%. Progress!

Go back to the early 18th century and there was another experiment with fiat money conducted by John Law on behalf of the French regent. Law was hired to improve the regent’s finances and believed that a shortage of currency was holding back French growth. His clever scheme combined QE, subprime lending and an emerging markets fund.

A new bank was formed, Banque Generale, and the regent decreed that taxes could be paid in notes issued by the bank, effectively making them legal tended. Meanwhile, the Compagnie l’Occident was created to exploit the trading opportunities in the Mississippi basin, the emerging market of its day. Banque Generale lent investors the money to buy shares in this great opportunity and the money raised from the issue was used to repay the monarchy’s debts. In short, money was created via a roundabout fashion to buy government bonds; an exact description of QE.

Investors bought shares because of the promise of a high dividend. But the Mississippi delta was a swamp with no prospect of generating any actual earnings. So the key was to keep pushing up prices; this was achieved by the offer of new shares which investors could buy with only a small deposit.

The scheme faltered when some chose to take profits. So Law resorted to guaranteeing to buy the shares at a set price (think of the TARP) involving the creation of more money. When people doubted the value of the bank notes, the company bought the bank (think Fannie Mae and Freddie Mac) to keep the system going. Eventually the whole thing collapsed some four years after it started.

Now I am not trying to suggest that, in the last forty years, the global economy has not become a lot wealthier. Clearly one can point to three great changes in productivity; the entry of the communist world into the capitalist system; the use of technology to spread information and reduce frictional costs; and the entry of women into the developed world workforce.

But I think it is possible to argue that the development of the bubble mentality has distorted monetary policy, led to the rise of an overpowerful rent-seeking financial sector, and in the Anglo-Saxon economies, led to the excessive focus of investment in housing. Some of this wealth may prove illusory and just like John Law, attempts to prop up asset prices that have lost relationship with the wealth of the underlying economy, may end up being a failure.

 

(author unknown)

Buttonwood's notebook Debt, the markets and the economy Buttonwood A forty (and two thousand) year view Images: 

WHEN we talk about bubbles, we tend to think of recent history but in fact this is an age-old phenomenon. (Note to patient readers; this is a long post because it is a condensed version of my BCA speech.)

Asset bubbles and rising debt levels go together. And it is not just government debt we have to worry about. US private sector debt has increased as a proportion of GDP from around 60% in the early 1950s to almost 300% at its peak.

Some increase in debt may have been inevitable as societies became more sophisticated. Many would say a certain degree of debt is beneficial since it allows individuals and companies to smooth their consumption over the cycle.

Others would say it doesn’t matter. In aggregate, the world owes the money to itself; debt is just an accounting issue. A family is no poorer if a wife lends money to her husband, or vice versa. Another rationale is that asset prices have also been rising so that one needs to look at both sides of the balance sheet; it is net, not gross, debt that matters.

But that is wrong. Gross debt levels matter because, as is well known, the value of debt is fixed in nominal terms while the value of assets can fluctuate. High gross debt levels thus create a number of flash points when creditors start to doubt the value of their collateral, and when the debts have to be rolled over. These crisis points are now rippling through the system; first US homeowners, then investors in structured products, then banks, and now sovereigns.

It is no coincidence that this massive debt explosion has coincided with the end of the Bretton Woods system of the early 1970s. This destroyed the final link to gold and crucially, removed the balance of payments constraint from the concerns of economic policymakers, at least in the developed world.

The author Richard Duncan compiled this chart from IMF data showing the growth in foreign exchange reserves since the end of Bretton Woods. From modest origins, they climbed above $1 trillion in the early 1970s before accelerating to almost $7 trillion in recent years. It is his contention that these reserves allowed surplus countries to expand their money supplies, while the deficit countries were not forced to cut back.

It was true that, in the main, developed countries found that they could run deficits without being punished by the markets. Indeed, eventually, they found that they could depreciate their exchange rates without being penalised by their creditors in the form of higher yields. This was an easy option in the short-term. But it was a bit like the 25-year old who boasts that smoking, drinking and overeating hasn't harmed him; the bad habits will catch up with him eventually.

Floating exchange rates gave countries an escape valve after the 1970s. And that was very important because attitudes were changing in another area of government policy. As one contemplates today’s massive fiscal deficits, it seems incredible to remember that Keynesianism was virtually discredited in the mid-1970s. A Labour prime minister, Jim Callaghan, said

"We used to think that you could spend your way out of recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step."

He was describing what used to be known as the stop-go cycle, in which governments entered office eager to expand the economy (think of the Barber boom in the early 1970s) only to slam on the brakes as inflation rose. One could describe it as the Keynesian ratchet in which each turn seemed to bring higher inflation.

After a chaotic 1970s, the wolrd came up with a new system, based on the use of monetary policy. Inflation  would be tamed by an independent central bank, and monetary policy would be used to limit the exzcesses of the cycle. The system appeared to work brilliantly. It delivered the great moderation, two decades of steady growth with generally declining inflation and very mild recessions. There was an enormous boom in the financial markets, as lower inflation allowed nominal yields on bonds and equities (and thus capital values) to rise substantially.

And so we turn to Hyman Minsky who argued that these periods of moderation lead eventually to speculation and crisis. Rising asset prices encourage people to borrow money and buy assets, most obviously in the housing market. Initially, people take out loans where they can meet both interest and capital repayments; then they take out loans where they can only meet the interest; in the final Ponzi stage (for which read subprime) they cannot even meet the interest payments but need rising prices to service the debt (essentially by flipping the asset).

It is my contention that we switched from a Keynesian ratchet to a monetary ratchet. Lower rates encouraged more borrowing and higher asset prices; when those prices faltered, central banks worried about a repeat of the debt deflation of the 1930s so they slashed rates to help markets recover. This became known as the Greenspan put after 1987, the first time it was clearly used but it was used many times, arguably most egregiously in 1998 after the collapse of LTCM.

The end game of this process seems clear in retrospect, even though it may not have been at the time. Valuations were driven to historically unprecedented levels, first in shares in 2000 and then in housing in 2006. And interest rates have reached the event horizon of zero.

Let us think about that for a moment. The Bank of England was set up in 1694. For the next 300 years which included world wars, the Great Depression, a century or so of alternating deflation and inflation between 1815 and 1914, and the bank never previously felt the need to reduce rates below 2%. And this is combined with a fiscal deficit which, relative to GDP, is unknown outside world wars; one in four of the pounds spent by the British government is borrowed from the markets. Even with all that, the Bank of England has been obliged to add QE on top.

If zero rates and huge deficits were the answer to mankind’s problems, we would have discovered this long ago. After all, governments would be delighted to borrow as much as they can for as little as possible.

What the authorities are clearly trying to do is to wind up one more round of the ratchet. If asset prices are higher, balance sheets will look healthy; if interest rates are low, borrowers can service their debts. Indeed, the Bank of England doesn’t think British house prices are too high, even though they are well above historical averages relative to incomes; they are rational when compared to real interest rates. But who has been setting real interest rates? The bank, of course, at both the short (and via QE) at the long end.

This may be an early sign that central banks are falling into their old habits. Bubbles are very hard intellectually to deal with. Those who ride the bubble look smart; those who try to buck it, like the late Tony Dye, get fired. The bubble will often accompany a growing economy, rising corporate profits and rising tax revenues; governments, regulators and central banks tend to feel that all is well, and that the wisdom of their policies is being amply demonstrated.

But it is surely very hard to argue now that the right thing for central banks to do about bubbles is to ignore them, on the grounds that it is easy to clean up after they burst. The cost of the financial sector crisis has been enormous; never mind the actual bail-out, think of the lost tax revenues.

Surely it is clear that the monetary expansion of the last 30 years led to asset price, not consumer price, inflation perhaps because the rise of China and south-east Asia represented a massive deflationary shock for the manufactured goods sector.

The fundamental contradiction at the heart of the recovery is that the markets are dependent on the governments for support, but many governments are also dependent on the markets. The European debt crisis has shown there is a limit to the extent that markets will be willing to finance government deficits, and also a limit to the extent that politicians want to be dependent on markets. European countries, with Germany in the intellectual lead, are now acting to withdraw the stimulus. Eventually, one would expect the US to be forced, by political rather than financial pressures, to follow suit.

Given that economies may have to slam on the fiscal brakes, and that interest rates are already near zero, central banks may be forced into other means of boosting the economy, in particular quantitative easing or QE. I confess to being rather cynical about QE. We know of occasions in history when it didn’t work (Japan) and we know when it resulted in hyperinflation (the Weimar republic). We don’t know of any occasions when it definitely did work.

And we know it is a tactic that is ancient. The Emperor Nero was short of a few denarii to pay his soldiers so he created some more by debasing the currency. In effect he financed his deficit by printing money, just as the Bank of England has bought £200 billion of gilts from a country with a £157 billion deficit. Of course, Nero didn’t have any economists to give his actions a sophisticated spin. But were his actions really that different?

I am not arguing that we are heading for hyperinflationary hell. But I think we have in the course of this long debt boom started to confuse claims on wealth with wealth itself. And I think that has been a further negative effect of the bubble mentality.

Indeed, just to provoke you, how about thinking of the last 40 years as one long bubble, in which fiat money has led to asset price inflation. Before you dismiss the idea, think about this; with gold at $1250 an ounce, the dollar has lost 97% of its purchasing power in terms of what used to be though of as "real money" since 1971. The Romans took 200 years to achieve the same effect, cutting the amount of silver in their copins by 96%. Progress!

Go back to the early 18th century and there was another experiment with fiat money conducted by John Law on behalf of the French regent. Law was hired to improve the regent’s finances and believed that a shortage of currency was holding back French growth. His clever scheme combined QE, subprime lending and an emerging markets fund.

A new bank was formed, Banque Generale, and the regent decreed that taxes could be paid in notes issued by the bank, effectively making them legal tended. Meanwhile, the Compagnie l’Occident was created to exploit the trading opportunities in the Mississippi basin, the emerging market of its day. Banque Generale lent investors the money to buy shares in this great opportunity and the money raised from the issue was used to repay the monarchy’s debts. In short, money was created via a roundabout fashion to buy government bonds; an exact description of QE.

Investors bought shares because of the promise of a high dividend. But the Mississippi delta was a swamp with no prospect of generating any actual earnings. So the key was to keep pushing up prices; this was achieved by the offer of new shares which investors could buy with only a small deposit.

The scheme faltered when some chose to take profits. So Law resorted to guaranteeing to buy the shares at a set price (think of the TARP) involving the creation of more money. When people doubted the value of the bank notes, the company bought the bank (think Fannie Mae and Freddie Mac) to keep the system going. Eventually the whole thing collapsed some four years after it started.

Now I am not trying to suggest that, in the last forty years, the global economy has not become a lot wealthier. Clearly one can point to three great changes in productivity; the entry of the communist world into the capitalist system; the use of technology to spread information and reduce frictional costs; and the entry of women into the developed world workforce.

But I think it is possible to argue that the development of the bubble mentality has distorted monetary policy, led to the rise of an overpowerful rent-seeking financial sector, and in the Anglo-Saxon economies, led to the excessive focus of investment in housing. Some of this wealth may prove illusory and just like John Law, attempts to prop up asset prices that have lost relationship with the wealth of the underlying economy, may end up being a failure.

 

(author unknown)

Buttonwood's notebook Economic growth, money supply and energy Buttonwood For those who really want to be pessimistic

FROM time to time, one reads analyses that are so gloomy they make your humble blogger seem like Voltaire's Dr Pangloss. Normally, they have the perverse effect of making me feel more cheerful. But having read Dangerous Exponentials, a report by Tim Morgan of the broker Tullett Prebon, I have to accept he has a point.   

There are two main elements to the report, two sets of exponential relationships. The first is the growth in government debt, money supply and inflation. There has been a step change in the figures since 1971, when the link to gold was removed; in past posts, I have discussed the monetary ratchet, in which lower interest rates leads to more debt, which leads to asset bubbles, which then pop; when they pop, authorities cut rates again and the whole cycle starts again. This process has reached its logical conclusion with rates at zero. The authorities have responded by resorting to QE, money printing. This has not resulted in high inflation (yet) because the velocity of money has collapsed (if you like, the money has been hoarded). Tullett warns that QE will have to be rapidly withdrawn when velocity picks up and is doubtful that will be the case. 

The other exponential relates to population and energy. Tullett describes the views of a commentator called Chris Martenson who argues that

The current population of the earth is sustainable only because of an abundant supply of hydrocarbons, and principally of oil.

Tullett argues that global population growth really started to take off in the 19th century, as man learned to exploit hydrocarbons initially coal. These hydrocarbons were a very effective replacment for human labour, creating a massive productivity boost. They allowed food to be produced with fewer people, the released labour to move into industry and the developed world to escape the Malthusian trap in which a growing population exceeded the food supply, causing famine and disease.

Now you can probably see where this argument is going - peak oil - and will be suitably cynical. We have been hearing predictions about resource constraints since the late 1960s.  But the world tends to come up with new supplies of energy and the peak gets postponed.

But Tullett has a more subtle point, and one which seems rather telling. Yes, new energy sources are discovered (tar sands, deepwater oil) but they are much more expensive to produce, both in terms of money and the energy required to extract it.

If you view the wealth of mankind as a function of the equation EROEI, the energy return on energy invested, this is a serious deterioration. The wealth added per unit of energy extracted is declining. But the structure of our societies is built not just on abundant energy but on cheap energy. Think of all those American suburbs without public transport which require people to drive miles to get to work or visit shops.

Whether the result of this deterioration is economic cataclysm, as Tullett hints, is impossible to tell. But I think the broker is right in arguing that the lack of focus on this energy in/energy out equation is

the greatest single black hole in the toolkit that economists use to understand the dynamics of the society in which we live. 

RESPONSE: Thanks for the comments and Doug Pascover is right, the closing mixed metaphor is very ugly. It is not my job to defend Tullett but perhaps my summary didn't do justice to its case. I don't think it's just a matter of higher energy prices leading to lower consumption. The key is the equation; it takes energy to extract energy; the steel for the rigs, the power needed to operate pumps or to refine the oil, or transport the gas etc etc. So as we saw in 2007, higher oil prices can lead to higher prices for other commodities as well. This is in part a tax on consuming nations and a benefit for producing nations. But another way of looking at it is a tax made by the planet on all of us; it simply requires more effort to extract its resources. Doesn't that equate to a fall in our collective wealth?

Yes, we may be able to use energy more efficiently. but given that the cost of extracting oil from tar sands in Canada is so much higher than getting it from the sands of Saudi Arabia, these savings will have to be very great indeed. Alternative energy sources are, in the absence of technological breakthoughs, quite expensive so still shift the energy in/energy out equation in the wrong direction. 

As for the green revolution and food, a lot of this comes down to embedded energy uses, in terms of fertiliser, tractors, irrigation pumps etc. (Not to mention the way we transport stuff round the planet so that nothing is out of season.)     

(author unknown)

Buttonwood's notebook Economic growth, money supply and energy Buttonwood For those who really want to be pessimistic

FROM time to time, one reads analyses that are so gloomy they make your humble blogger seem like Voltaire's Dr Pangloss. Normally, they have the perverse effect of making me feel more cheerful. But having read Dangerous Exponentials, a report by Tim Morgan of the broker Tullett Prebon, I have to accept he has a point.   

There are two main elements to the report, two sets of exponential relationships. The first is the growth in government debt, money supply and inflation. There has been a step change in the figures since 1971, when the link to gold was removed; in past posts, I have discussed the monetary ratchet, in which lower interest rates leads to more debt, which leads to asset bubbles, which then pop; when they pop, authorities cut rates again and the whole cycle starts again. This process has reached its logical conclusion with rates at zero. The authorities have responded by resorting to QE, money printing. This has not resulted in high inflation (yet) because the velocity of money has collapsed (if you like, the money has been hoarded). Tullett warns that QE will have to be rapidly withdrawn when velocity picks up and is doubtful that will be the case. 

The other exponential relates to population and energy. Tullett describes the views of a commentator called Chris Martenson who argues that

The current population of the earth is sustainable only because of an abundant supply of hydrocarbons, and principally of oil.

Tullett argues that global population growth really started to take off in the 19th century, as man learned to exploit hydrocarbons initially coal. These hydrocarbons were a very effective replacment for human labour, creating a massive productivity boost. They allowed food to be produced with fewer people, the released labour to move into industry and the developed world to escape the Malthusian trap in which a growing population exceeded the food supply, causing famine and disease.

Now you can probably see where this argument is going - peak oil - and will be suitably cynical. We have been hearing predictions about resource constraints since the late 1960s.  But the world tends to come up with new supplies of energy and the peak gets postponed.

But Tullett has a more subtle point, and one which seems rather telling. Yes, new energy sources are discovered (tar sands, deepwater oil) but they are much more expensive to produce, both in terms of money and the energy required to extract it.

If you view the wealth of mankind as a function of the equation EROEI, the energy return on energy invested, this is a serious deterioration. The wealth added per unit of energy extracted is declining. But the structure of our societies is built not just on abundant energy but on cheap energy. Think of all those American suburbs without public transport which require people to drive miles to get to work or visit shops.

Whether the result of this deterioration is economic cataclysm, as Tullett hints, is impossible to tell. But I think the broker is right in arguing that the lack of focus on this energy in/energy out equation is

the greatest single black hole in the toolkit that economists use to understand the dynamics of the society in which we live. 

RESPONSE: Thanks for the comments and Doug Pascover is right, the closing mixed metaphor is very ugly. It is not my job to defend Tullett but perhaps my summary didn't do justice to its case. I don't think it's just a matter of higher energy prices leading to lower consumption. The key is the equation; it takes energy to extract energy; the steel for the rigs, the power needed to operate pumps or to refine the oil, or transport the gas etc etc. So as we saw in 2007, higher oil prices can lead to higher prices for other commodities as well. This is in part a tax on consuming nations and a benefit for producing nations. But another way of looking at it is a tax made by the planet on all of us; it simply requires more effort to extract its resources. Doesn't that equate to a fall in our collective wealth?

Yes, we may be able to use energy more efficiently. but given that the cost of extracting oil from tar sands in Canada is so much higher than getting it from the sands of Saudi Arabia, these savings will have to be very great indeed. Alternative energy sources are, in the absence of technological breakthoughs, quite expensive so still shift the energy in/energy out equation in the wrong direction. 

As for the green revolution and food, a lot of this comes down to embedded energy uses, in terms of fertiliser, tractors, irrigation pumps etc. (Not to mention the way we transport stuff round the planet so that nothing is out of season.)     

(author unknown)

eldavojohn writes "It's no secret that Google doesn't create content, but rather helps people find it. And Google News is no different. So what does the company plan to do about complaints from the news industry that profits are dropping drastically? In a lengthy and comprehensive article, The Atlantic diagnoses the problem and looks at Google's plan to 'save' the symbiotic organism it is attached to, which older generations have traditionally branded 'the news.' The answer, of course, hinges on moving news from dead tree print to the information age via Google's many projects: Living Stories, Fast Flip, and YouTube Direct. But Google is also exploring the more traditional options of displaying ads and designing a paywall so users can easily migrate back to subscriptions like the newspapers of yore. You may also recall that last week the Internet was abuzz with the idiocy of suggestions the FTC had aggregated from inside the industry. Ars brings mention of other proposed plans, both good and bad, from the FTC's report on ideas that newspaper companies are kicking around."

Read more of this story at Slashdot.

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TechCrunch submits:

By Sarah Lacy

As I walked in the headquarters of the Jawa Pos—the flagship newspaper of one of South East Asia’s largest print media empires—I was wondering just how screwed my profession is; globally I mean.

Complete Story » TechCrunch

Lexington's notebook How the police seize your stuff Lexington Work hard, obey the law and have your property seized

HE ARRIVED in Houston with $500 in his pocket. A man he met on the Greyhound bus gave him a room until he found his feet. Zaher El-Ali, a Jordanian immigrant, worked hard and built up a small business renovating and selling cars and houses. He is now a proud American citizen. But, ridiculous though it sounds, his truck is in trouble with the law.

(author unknown)04684015004799272671

Lexington's notebook How the police seize your stuff Lexington Work hard, obey the law and have your property seized

HE ARRIVED in Houston with $500 in his pocket. A man he met on the Greyhound bus gave him a room until he found his feet. Zaher El-Ali, a Jordanian immigrant, worked hard and built up a small business renovating and selling cars and houses. He is now a proud American citizen. But, ridiculous though it sounds, his truck is in trouble with the law.

(author unknown)04684015004799272671

When I was growing up, my dad had the best job I could possibly imagine: he was an arcade game and pinball technician. For me, that meant summer trips through Poland’s coastal cities with their seasonal arcade parlors; peeking inside cabinets to learn programming and engineering secrets; and—of course—free games!

One of my favorites was PAC-MAN, whose popularity transcended the geopolitical barriers of that time. During the heyday of space shooters, Tōru Iwatani’s creation stood out as one of the first video games aimed at a broader audience, with a cute story of pizza-shaped character gobbling dots in a maze, colorful (literally!) characters, friendly design, very little violence and everlasting fun.

Today, on PAC-MAN’s 30th birthday, you can rediscover some of your 8-bit memories—or meet PAC-MAN for the first time—through our first-ever playable Google doodle. To play the game, go to google.com during the next 48 hours (because it’s too cool to keep for just one day) and either press the “Insert Coin” button or just wait for a few seconds.

Google doodler Ryan Germick and I made sure to include PAC-MAN’s original game logic, graphics and sounds, bring back ghosts’ individual personalities, and even recreate original bugs from this 1980’s masterpiece. We also added a little easter egg: if you throw in another coin, Ms. PAC-MAN joins the party and you can play together with someone else (PAC-MAN is controlled with arrow keys or by clicking on the maze, Ms. PAC-MAN using the WASD keys).

PAC-MAN™ & ©1980 NAMCO BANDAI Games Inc.
PAC-MAN seems like a natural fit for the Google homepage. They’re both deceptively straightforward, carefully hiding their complexity under the hood. There’s a light-hearted, human touch to both of them. And we can only hope you find using Google at least a quarter as enjoyable as eating dots and chasing ghosts. You know, without actually needing any quarters.

Posted by Marcin Wichary, senior UX designer and developer

Lexington's notebook Why immigrant-bashing is popular Lexington It's a class thing Images: 

I WAS lying asleep on a park bench in Picardy one day, when a couple of French policemen kicked me awake and demanded to see my papers. It was a bit like that scene in "The Bourne Identity", except that instead of beating the stuffing out of the two gendarmes, I deferentially handed them my passport.

What was I doing asleep on a park bench? It was a long time ago. I was a student, and I was doing a sponsored hitch-hike to raise money for some charity or another. But the reason I bring this up is that the new anti-immigrant law in Arizona is pretty similar to what happens in some other rich countries all the time.

For me, the experience was no big deal. But that is probably because my papers were in order and it only happened once. If you are constantly harassed by the police as you are going about your lawful business in the town where you live, that would be quite different. And if you are selected for harassment largely on the basis of belonging to a marginalised minority group, that makes for explosive relations between communities. In France, it contributes to the palpable tension between Muslim immigrants and everyone else. In Britain a few decades ago, the police's habit of constantly stopping and frisking young black men led to riots.

This is why the great and the good are so united in condemning Arizona's new law allowing the police to demand papers from anyone they think might be an illegal immigrant, if they have stopped that person for some other legal purpose. The law's defenders insist that it won't be used to harass Hispanics. But it obviously will. I'm completely on board with elite opinion here. I think it's an atrocious law.

But it is also extremely popular. A Pew poll finds that nearly three quarters of Americans "approve of requiring people to produce documents verifying their legal status if police ask for them." Even when possible drawbacks of the law have been explained, 59% still approve of it and only 32% disapprove. 

One reason that elites think differently about this subject is that they experience it differently. For us, skilled immigration is great because it means we can swap ideas with brainy foreigners, and unskilled immigration is great because we get ethnic food and cheap child care. Less-educated people, by contrast, fear that immigrants will steal their jobs. Economists vigorously dispute whether immigrants drag down the wages of the native-born, and if so, how much. But to the man in the street, it seems intuitively obvious that they do.

Much of the disgruntlement we see in the rich world today is due to the recession, of course. But there is a longer-term problem. As technology advances, the returns to brains and education increase, while the returns to having a strong pair of hands do not. As consumers, everyone benefits from technological progress. But we are likely to see a lot more inequality in the future, and that could cause a lot of trouble.

It is easier to blame immigrants for one's lot in life than to blame technology. Scientific progress is obviously not going to stop, and hardly anyone would want it to. But the idea of building higher fences and deporting more Mexicans or Muslims has broad appeal. And that is something supporters of freer immigration are going to have to deal with.

(Photo credit: AFP)

(author unknown)11832170832713152045

Lexington's notebook Why immigrant-bashing is popular Lexington It's a class thing Images: 

I WAS lying asleep on a park bench in Picardy one day, when a couple of French policemen kicked me awake and demanded to see my papers. It was a bit like that scene in "The Bourne Identity", except that instead of beating the stuffing out of the two gendarmes, I deferentially handed them my passport.

What was I doing asleep on a park bench? It was a long time ago. I was a student, and I was doing a sponsored hitch-hike to raise money for some charity or another. But the reason I bring this up is that the new anti-immigrant law in Arizona is pretty similar to what happens in some other rich countries all the time.

For me, the experience was no big deal. But that is probably because my papers were in order and it only happened once. If you are constantly harassed by the police as you are going about your lawful business in the town where you live, that would be quite different. And if you are selected for harassment largely on the basis of belonging to a marginalised minority group, that makes for explosive relations between communities. In France, it contributes to the palpable tension between Muslim immigrants and everyone else. In Britain a few decades ago, the police's habit of constantly stopping and frisking young black men led to riots.

This is why the great and the good are so united in condemning Arizona's new law allowing the police to demand papers from anyone they think might be an illegal immigrant, if they have stopped that person for some other legal purpose. The law's defenders insist that it won't be used to harass Hispanics. But it obviously will. I'm completely on board with elite opinion here. I think it's an atrocious law.

But it is also extremely popular. A Pew poll finds that nearly three quarters of Americans "approve of requiring people to produce documents verifying their legal status if police ask for them." Even when possible drawbacks of the law have been explained, 59% still approve of it and only 32% disapprove. 

One reason that elites think differently about this subject is that they experience it differently. For us, skilled immigration is great because it means we can swap ideas with brainy foreigners, and unskilled immigration is great because we get ethnic food and cheap child care. Less-educated people, by contrast, fear that immigrants will steal their jobs. Economists vigorously dispute whether immigrants drag down the wages of the native-born, and if so, how much. But to the man in the street, it seems intuitively obvious that they do.

Much of the disgruntlement we see in the rich world today is due to the recession, of course. But there is a longer-term problem. As technology advances, the returns to brains and education increase, while the returns to having a strong pair of hands do not. As consumers, everyone benefits from technological progress. But we are likely to see a lot more inequality in the future, and that could cause a lot of trouble.

It is easier to blame immigrants for one's lot in life than to blame technology. Scientific progress is obviously not going to stop, and hardly anyone would want it to. But the idea of building higher fences and deporting more Mexicans or Muslims has broad appeal. And that is something supporters of freer immigration are going to have to deal with.

(Photo credit: AFP)

(author unknown)11832170832713152045

My last two posts were designed to stimulate discussion.  But lets talk the real problem that regulators, public companies, investor/shareholders and traders face.  The problem is that Wall Street doesn’t know what business it is in. Regulators don’t know what the business of Wall Street is. Investor/shareholders don’t know what business Wall Street is in.

The only people who know what business Wall Street is in are the traders. They know what business Wall Street is in better than everyone else.  To traders, whether day traders or high frequency or somewhere in between, Wall Street has nothing to do with creating capital for businesses, its original goal. Wall Street is a platform. It’s a platform to be exploited by every technological and intellectual means possible.

The best analogy for traders  ? They are hackers. Just as hackers search for and exploit operating system and application shortcomings, traders do the same thing.  A hacker wants to jump in front of your shopping cart and grab your credit card and then sell it.  A high frequency trader wants to jump in front of your trade and then sell that stock to you. A hacker will tell you that they are serving a purpose by identifying the weak links in your system. A trader will tell you they deserve the pennies they are making on the trade because they provide liquidity to the market.

I recognize that one is illegal, the other is not. That isn’t the important issue.

The important issue is recognizing that Wall Street is no longer what it was designed to be.  Wall Street was designed to be a market to which companies provide securities (stocks/bonds), from which they received capital that would help them start/grow/sell businesses. Investors made their money by recognizing value where others did not, or by simply committing to a company and growing with it as a shareholder, receiving dividends or appreciation in their holdings.  What percentage of the market is driven by investors these days ?

I started actively trading stocks in 1992. I traded a lot. Over the years I’ve written quite a bit about the market. I have always thought I had a good handle on the market. Until recently.

Over just the past 3 years, the market has changed. It is getting increasingly difficult to just invest in companies you believe in. Discussion in the market place is not about the performance of specific companies and their returns. Discussion is about macro issues that impact all stocks. And those macro issues impact automated trading decisions, which impact any and every stock that is part of any and every index or ETF.  Combine that with the leverage of derivatives tracking companies,  indexes and other packages or the leveraged ETFs, and individual stocks become pawns in a much bigger game than I feel increasingly less  comfortable playing. It is a game fraught with ever increasing risk.

The Pimco (who I think are the smartest guys on the Street) guys talk about a new normal as it applies to today’s state of  the world economy. I think just as important is the new normal as it applies to Wall Street.  Wall Street is now a huge mathematical game of chess where individual companies are just pawns.  This is money in the bank for the big players like Goldman, Morgan, etc. Why ? Because the game of chess is far too complicated for 99pct of the institutions out there investing money. So to keep up, they turn to Goldman, Morgan and the like to invent products for them. “You don’t know how to play the housing boom, let us show you”. “You think the housing boom is about to crash, let us show you how to play that”. “You think that PIIGS are in trouble because they can’t print money to pay debt holders, let us create a product to allow you to play that game”  The big houses have the best hackers in the business and they put together the games and sell them to the many, many institutions managing Billions and Billions of dollars.  They are the ultimate Hackers selling their attacks to the highest bidder, regardless of which side they are on. That is a new normal.

Again, I’m not passing judgement one or the other.  I’m just recognizing what is going on in the financial world today.

It’s rare for companies to go public these days. Just as rare for secondary offerings.  The only thing that keeps me in the market is that most of the stocks (not all) pay dividends or some other sort of cash payout. For the first time in my life, I bought outside the United States.  I bought Australia in a big way because it is becoming increasingly hard to find new domestic investments that are not influenced by the “hackers” and the games being played on a macro level. It’s hard to believe, but evaluating countries as an investment is now easier than evaluating companies . Even with all the unrest in Europe. Or maybe because of it.

So back to the original question. What business is Wall Street in ?

Its primary business is no longer creating capital for business. Creating capital for business has to be less than 1pct of the volume on Wall Street in any given period. (I would be curious if anyone out there knows what percentage of transactions actually return money to a company for any reason). It wouldn’t shock me that even in this environment that more money flows from companies to the market in the form of buybacks (which i think are always a mistake), then flows into companies in the form of equity.

My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business.  Whether its through a use of taxes on trades, or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 5 years or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.  However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy.  It won’t come from traders trying to hack the financial system for a few pennies per trade.

And solutions won’t come from bureaucrats trying to prevent the traders from hacking the system. The only certainty when bureaucrats step in is that the law of unintended consequences will smack us all in the head and the trader/hackers will find new ways to exploit the system that makes them big money and even more money for the big institutions that develop products for the other institutions that are desperate to play the game.

Regulators have got to start to recognize that traders are not investors and vice versa and treat them differently. Different regulations. Different tax structure.  Different oversight. Individual investors and the funds that just invest in stocks and bonds are not going to crash the market.  Big traders who are always leveraging up and maximizing the number of trades/hacks they make will always put the system at risk.  We need to recognize that they do not serve much of a purpose other than to add substantial risk to the global economy.  That their stated value add of liquidity does not compensate the US and World Economy nearly enough for the risk of collapse they introduce into the system.

Wall Street as a whole needs to be in the business of creating capital for companies and selling shares to investors who believe they are shareholders.  The Government needs to create incentives for this business and extract compensation from the traders/hackers for the systemic failure level of risk they introduce.

There will be another crash, because there are too many players looking for the trillion dollar score. They can’t all win, yet how many do you think wouldn’t risk everything, even what is not theirs, for that remote chance to score big ? Put another way, there is zero moral hazard attached to any trade. So why wouldn’t traders take the biggest risk possible ?

Update at 10pm 5.9.10

One more consideration. If there are traders of any kind that are unregulated or unmonitored, and trade for their own account, how do we know how big they are and how much of a threat they pose to the system, individually and in aggregate ?. For any High Frequency or big leverage derivative folks out there- is it possible there could be firms that have billions at risk with questionable ability to make a margin call or fulfill their side of the trade  if things went against them ?  Could there be hidden AIGs that few people know about  or a bunch of AIG like situations ,which in aggregate fail and put the system at risk ? I have no idea. Just asking the question.

The financial teaching grade is in for teachers -- and it's not good.Michelle Singletary

The financial teaching grade is in for teachers -- and it's not good.


Financial Services - Business and Economy - Business - Government - FinanceMichelle Singletary

The Obama administration has sent Congress a proposal to create a $30 billion program to unfreeze credit for the nation's small ...

(author unknown)