As everyone should know by now, my main concern with unions is specifically with public unions. While I do not care for unions at all, and never have, at least with private unions, someone other than corrupt politicians buying votes is bargaining at the other end of the table.
In the case of public unions, if politicians strike a bad deal, taxpayers foot the bill. In the case of private corporations, if management strikes a bad deal, the company goes bankrupt, shareholders take a hit, or the jobs move elsewhere, as soon as the contract is up.
Except in few cases every now and again, private unions just cannot seem to understand this simple economic fact.
Machinists Union Pickets Cessna Aircraft
The Kansas Wichita Eagle highlights the typical union response, public or private, in Cessna’s initial offer to Machinists includes wage cut
Machinist union members at Cessna Aircraft picketed near the company’s plant in southwest Wichita on Thursday to protest jobs being sent outside the city.
Members fought strong, gusty afternoon winds and carried signs that read “Keep it Made in Wichita,” “Outsourcing is Treason” and “We built the Air Capital,” as they picketed at K-42 and Hoover roads. Some carried American flags.
Cessna and the Machinists union are in the midst of contract negotiations. The current contract expires Sept. 19. About 2,300 hourly workers at Cessna are covered by the agreement. Hawker Beechcraft also has reopened negotiations with the union as it considers sending work to Louisiana, Mississippi and outside the country.
Cessna’s initial proposal is for a 10-year agreement that cuts wages 4.2 percent, weakens job security, replaces the pension plan with a 401(k) plan and increases the share of the cost of health insurance paid by the workers to 30 percent, said union spokesman Bob Wood.
“There’s no job security in the current proposal,” Wood said.
“Wichita is based on aircraft,” said Cynthia Hise. “If you don’t get a good contract….” Darren Hise finished her sentence. “It’s going to hurt the whole economy in Wichita.”
Reflections on Job Security
Here’s the deal. The Hises and the union in general appear ready willing and able to “hurt the whole Wichita economy” if they do not get what they want.
I have to ask “How stupid is that?”
The answer is “tremendously stupid”.
It is far better to have a good paying job and no job security than no job at all and no prospects of a job. That’s what it boils down to, and like it or not, that is the economic reality.
I do not know what salaries are, but a 10 year contract with only a 4.2% pay cut does not strike me as a bad deal. Those who think otherwise need to compare it to the alternative: seeing all the jobs go to Louisiana, Mississippi, or outside the country.
By the way, wouldn’t residents of Louisiana and Mississippi be very grateful for those job, regardless of what the salary was? I think so. So the bottom line is this mess, is the unions would be to blame and only the unions to blame if Cessna moves elsewhere. The union will also be responsible for wrecking the entire local economy if it happens.
Take the contract and run! It’s for 10 years! Because …. You Don’t Know What You’ve Lost Till Its Gone, Then It’s Too Late. In this case, it will be gone forever.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Cessna – Mississippi – United States – Hawker Beechcraft – Cessna Aircraft
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The IEA say global oil demand will depend more and more on OPEC, which makes syndicate chief Abdallah Salem el-Badri a very powerful man.
WSJ:
“We have seen an increase in non-OPEC supplies. But in the mid-term, non-OPEC production will decline,” Nobuo Tanaka, the [IEA]’s executive director, told reporters on the sidelines of a conference. “So, dependency on OPEC oil will increase.”
“The cost of production in OPEC countries is also much cheaper,” he added.
Many had hoped big discoveries in Russia and Brazil, along with alternate energy development, would limit dependence on the syndicate.
Of course, this also means more demand pushing oil higher.
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Linda McMahon, who made the WWE a huge financial success, has her foot on her rival’s neck. Lloyd Grove talks to the GOP upstart about her chances, dead wrestlers, and Mickey Rourke.
Wrestling impresario Linda McMahon, the GOP Senate nominee in Connecticut, has been frequently misjudged by her adversaries. A few weeks ago, when one of her Republican primary opponents in which she was shown repeatedly kicking a ref in the crotch, he must have been surprised that she reveled in the image.
“Somebody said to me the other day, ‘We’re going to get you some steel-toed shoes when you get to Washington,’ ” McMahon tells me with a smirk, flashing her baby blues. Sipping iced coffee at the Starbucks on Greenwich Avenue, the main drag of the super-rich suburb of Greenwich, Connecticut, where she lives on an $11 million estate, McMahon punctuates her little joke with a merry chuckle.
I think I’m ready for this she tells me. “I think I’m ready for whatever they’ll bring out.”
A trim, stylish grandmother of six—who, with her notorious husband, Vince McMahon, has built what many view as an unsavory, brutish, dirty pastime into a billion-dollar business empire—the 61-year-old McMahon is surprisingly calm and polished for a political novice running her first statewide campaign. She laughs a lot and her eyes sparkle—like a woman who’s having fun in the throes of combat.
As the purveyor of a form of entertainment that occasionally results in injuries and even deaths, she surely has administered a throbbing pain to the Democratic frontrunner.
Not long ago McMahon was trailing the once-invincible attorney general, Richard Blumenthal, a two-decade veteran of Connecticut politics and the state’s most popular public official, by 40 points in the race to succeed retiring Democratic Sen. Chris Dodd. Now, after spending $22 million of the $50 million of her own money that she has budgeted for the campaign, she is polling within 10 points of the badly bruised Blumenthal.
Her relentless attacks on his character—for fudging the facts of his military record (and later apologizing for stating erroneously that he served in Vietnam) and fuzzing up his acceptance of special-interest donations (he vows he won’t; she claims he does)—has left him a victim of battered-candidate’s syndrome. (I look forward to giving Blumenthal equal time.)
“I don’t think he’s a bad guy at all,” McMahon tells me with a smile. “I would hope that the campaign would focus on the issues. I think it was necessary to draw some contrasts with Dick Blumenthal. He has been the attorney general for 20-some years and I think there was a certain reputation, if you will. I think he’s spent a great deal of time building that goodwill. You probably heard the saying that the most dangerous place to be in Connecticut is between Dick Blumenthal and a camera.”
Unless, of course, the most dangerous place is between Linda McMahon and a Senate seat. “It would be my goal to win, absolutely,” she tells me, acknowledging that as a former high-school athlete, she is, by nature, extremely competitive.
Having grown up in rural North Carolina—a fact that accounts for her vestigial Southern accent—Linda and Vince were teenagers when they met and fell for each other. She was married at 17 and soon pregnant, and the young family struggled financially. She was a stay-at-home mom with two little kids and Vince was working for his father, a small-time wrestling promoter, and having a hard time making a living. At one point, when they were living in Gaithersburg, Maryland, in the 1970s, they went bankrupt and briefly depended on food stamps.
“I think it was one or two weeks when we were on food stamps, when Vince was working at a rock quarry, making little ones out of big ones, working about 90 hours a week,” McMahon tells me. “I’d get up early in the morning and pack an almost hockey bag-sized athletic bag for sandwiches, a couple of thermoses and hot meals.”
Being down and out and needing government assistance was “not fun,” she says. “I didn’t like it at all, and I just said, ‘You know, I can’t do that,’ ” she recalls. “I’d rather find another job and supplement our income. That’s actually when Vince took on more hours at the rock quarry…After our son Shane was born we saved S&H Green Stamps, and actually bought a high chair and Shane’s formula with them.”
As wealthy and successful as she is today, McMahon says her previous experiences have made it easy for her to relate to Connecticut citizens who are suffering in the sour economy.
“I’m out on the campaign trail and I’m talking with people, I say, ‘Look, I understand where you’ve been,’” she tells me. “I connect with them right away. I’ve had them tell me, ‘One of the things we like about you is you get it, you feel what we do.’ It’s humiliating and then you get desperate. Some of the people I talk to are desperate at this particular moment.”
The race is expected to get increasingly down and dirty as the November election draws nigh. According to political pundits, it is likely to become a negative contest between Blumenthal’s bloopers and McMahon’s role in an unappetizing business in which performers are smacked in the head with chairs for the enjoyment of the mob.
Despite her attempts to portray wrestling as “soap opera” and good clean fun, critics call it an enterprise in which illegal steroid use, painkiller abuse, and serious brain injuries are still factors. They also note that five former WWE wrestlers have died from causes ranging from heart attack to suicide just since the Senate campaign started. But McMahon claims to have helped reform the business, making it more family-friendly than in its grubby, raunchy past, and she likes to tout the free medical care provided to contract employees who suffer on-the-job injuries, as well as free financial advice to help performers manage their money.
I ask her what she thought of the movie The Wrestler.
“I think it portrayed a business of years gone by, and I think Mickey Rourke did an excellent job,” she says. “But it was an industry of many men, and some women, who didn’t look to their future, because they believed the life they were living today would continue forever.”
All that’s changed now, she argues.
“It’s not a sport, it’s an entertainment industry,” she says. “I don’t think regulation is necessary. You’d be crazy not to protect the men and women [in the wrestling business]”—but the industry can take care of that, without the government intervening. “WWE is the first company to build barricades to separate audience from performers—and to pad the barricades and to pad the floor around them, in case somebody went over the top rope, There was some push-back from old-timers, who said, ‘No, you’re supposed to be rugged.’”
For the moment, Blumenthal has yet to match McMahon’s rugged blows with equal force. And she declines, metaphorically anyway, to remove her heel from his throat.
“The fact was that he misspoke several times and in several different instances [about Vietnam], and it was a pattern and practice over several years,” McMahon says. “I felt that after the New York Times broke the story”—with a big assist, as McMahon has acknowledged, from her opposition research team—“it was absolutely fair that the people of Connecticut needed to understand that.”
I ask her if she really sent her own stealth camera crew to Vancouver, Canada, to catch Blumenthal unawares traveling to a fundraiser where political action committee money was being dispensed to Democrats.
“I don’t think we did that—that was the NRSC [National Republican Senatorial Committee]. Here’s the point I want to make: I don’t have any issue with taking special interest money. I’m funding my own campaign. I don’t have to do that [take PAC money], and I’m glad I don’t. But my issue with Blumenthal is he said he wouldn’t. The people of Connecticut need him to state the facts.”
McMahon is no Sarah Palin Republican, but solidly in the tradition of New England moderates. Although she markets herself as a tax-hating deficit hawk, she is pro-choice on abortion (with a couple of caveats: she’s against legalizing late-term “partial-birth” abortions, opposes federal funding except when the life and health of the mother are at risk, and she supports parental notification for girls 18 and under). And she endorses the right of states, like Connecticut, to legalize gay marriage—a position socially more liberal than President Obama’s.
In the meantime, she has become friendly with Sen. Joe Lieberman, the Democrat-turned-political independent who has held out the possibility of endorsing McMahon over Blumenthal. “You know if Joe endorsed me that would be fine with me,” McMahon says of Lieberman, a self-styled cultural critic who in times past has been disapproving of the violence, real and imagined, of the wrestling business. “I’m not seeking his endorsement.”
I ask her why she decided to run in the first place, given that her only previous political experience was as an appointed member of the state board of education and, like any prudent corporate executive, as a contributor to Republican and Democratic candidates alike.
“I reached a point in my career where I wanted to start giving back,” she says. “I served on the state board of education. I’m on the board of trustees for Sacred Heart University, and I really felt that I wanted to commit more time and effort to give back and to be involved at a very critical time in our government. Honestly, I’m very concerned about what we’ve become and what this country is, and I really wanted to step in.”
She adds: “I do believe that what our country needs today is more people like me, and not people like Dick Blumenthal, who actually said lawsuits create jobs. We need people who understand how to create jobs, and understand the consequences of taxes and regulations when they are placed on businesses. Dick Blumenthal has none of that kind of experience, and in this day and age, I think more is necessary than the typical politicians.”
Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
This article originally appeared on The Daily Beast and is republished here with permission.
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Linda McMahon – Richard Blumenthal – Connecticut – Vince McMahon – Mickey Rourke
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The market surged on better-than-expected jobs data, capping a 5% rally from Tuesday lows.
But first, the scoreboard:
Dow: +128
S&P 500: +14.4
NASDAQ: +33.7
And now, the top stories:
- Asian stocks rose on the back of yesterday’s US rally. Then European markets surged when US jobs data hit.
- The jobs report pushed futures up around 100 points at the open. Although 54K jobs were lost and unemployment increased to 9.6%, this was seen as a good report. Disappointing data from the ISM non-manufacturing index ate away half of early gains, but the rally trickled back by the close.
- Hurricane Earl fizzled out to a Category 1 storm, which means you’re clear to head for the beach.
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Goldman Sachs – Wall Street – Business – Proprietary trading – Investing
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Japan and Switzerland are facing the same threat to their economic health. And so far, every step they’ve taken to make things better has only made them worse.
But there is one way they could conceivably get out of this mess. And even though no one is talking about it yet, a mere hint of the possibility could send China-sized shockwaves throughout the global currency markets.
Their joint problem is a strengthening currency. As a country’s currency strengthens, domestically manufactured products become more expensive when shipped abroad – making them uncompetitive in foreign markets. That’s bad for Switzerland and Japan, which depend of export income for growth.
Right now the situation for Japan is so bad that Bank of Japan Governor Masaaki Shirakawa left the economic symposium in Jackson Hole, Wyo., to meet with the prime minister and fellow central bankers.
The Japanese yen (JPY) has strengthened by more than 10% since May against the US dollar. But up till now, Japan has been loath to intervene. Instead it has employed verbal intervention – promising action without actually taking action, a practice that has been used quite often in the last couple of weeks. Clearly it isn’t working, making actual intervention a possibility…even though that might be doomed to fail, too.
The last time the bank stepped in was at the end of the first quarter in 2004. Hoping to stop a 15-month bull run in the yen, central bankers applied a $400 billion brake.
At first, it worked. The Japanese yen weakened for a couple months following the intervention. But it might not work again. Investors already anticipate such a move, so the effectiveness of such a strategy would fall to the wayside – likely to only delay another inevitable advance of yen strength.
On Aug. 30, the Bank hashed out a new monetary plan. It extended a loan facility to institutions in need. The existing facility was expanded to 30 trillion yen (approximately $350 billion) from 20 trillion. The duration was also extended, with a percentage of the 30 trillion yen pie being available for as long as six months.
Although good in theory, the loan facility expansion will do little to deter current speculation in the yen. Setting aside market expectations, the loan facility is far too small to deter yen speculators at this stage in the rally. The 10 trillion yen boost is only one-third the amount used to in the 2004 intervention.
Back towards Europe, Switzerland finds itself in a similar situation. Like the yen, the Swiss franc (CHF) has also strengthened against the greenback. Since June 1, the franc has appreciated by 13% against the US dollar, falling to within 2 cents of a one-for-one exchange with the US currency.
Things are even worse compared to the European Union’s euro (EUR). The Swiss franc has risen to a record-high exchange rate – trading as high as 1.2891 francs per euro. The situation places enormous pressure on the Swiss export market, creating a monetary headache for Swiss National Bank President Philipp Hildebrand.
And just like Japan, direct market intervention may not be enough to solve the problem. Since the beginning of the year, Swiss National Bank policymakers have spent almost 200 billion euros markets to stem franc’s rise – with about 37% being applied in May 2010 alone. Reserves grew 50%, pushing it from the world’s 13th-largest reserve holder to the 7th-largest.
Yet the franc continued to strengthen. In fact, speculation has remained so strong that the Swiss bankers abandoned their intervention efforts at the end of June.
So, more currency intervention doesn’t look like it will help either Japan or Switzerland – at least not separately. But what if they joined forces?
A coordinated effort by both central banks may be just enough to cool down FX speculation – helping the US dollar gain ground against the Swiss franc and Japanese yen. Traders and investors bullish the yen and franc would have to contend with a massive combination of foreign currency reserves. Together, both Japanese and Swiss reserves would rank second only to China – the world’s largest holder of foreign exchange reserves.
But more importantly, the combined size of both countries’ reserves would overshadow the size of UK reserves when the sterling came under attack in 1992. As speculators hit sterling markets en masse that year, UK monetary authorities were only able to access approximately 27 billion pounds (or roughly $50 billion) in foreign currency reserves to ward off traders. In the end, it proved to be too little as policymakers were unable to support the underlying cable.
Although circumstances were different – traders bet for a collapse in the sterling (GBP) rather than a surge as in the yen and franc – the underlying basis of speculation remains the same. With a total of over $1.2 trillion to work with, Swiss and Japanese central bankers may be able to deter speculative appetite in the short term.
A united front would also raise the specter of further collusion with other countries. Let’s face it – anything of this magnitude is far from becoming a reality. But the possibility of it actually happening would be enough to make FX traders reconsider their positions. This would be especially true if the United States and Europe were added to the mix. The likelihood of four international central banks forming an alliance to combat FX speculation would take on a different meaning in the market. Central bank rhetoric would be taken more seriously – keeping every investor and trader on his or her toes.
Unfortunately, until the Swiss National Bank and the Bank of Japan act as a coalition – or enact bolder moves other than just plain vanilla FX intervention – yen and franc strength will linger on for the rest of the year. Speculators require more than just jawboning and weaker monetary promises in turning their opinions. Modern central banks aren’t able to completely control their respective currencies.
But a surprise and gutsy move by both bodies may be just enough to slowdown any FX appreciation – and support a turnaround in the market.
Richard Lee
for The Daily Reckoning
How Japan and Switzerland Could Reshape the Currency Markets originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
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NASA has posted beautiful photos of Hurricane Earl over the North Atlantic. This pretty storm monster is about to ruin your Labor Day weekend. See more amazing photos of the storm >
30 Aug. 2010 –– Photographed by an Expedition 24 crew member on the International Space Station, this is an oblique view of the eye (center) of Hurricane Earl (at this time a category 4 but later downgraded to a category 3), centered just north of the Virgin Islands near 19.3 north latitude and 64.7 west longitude packing 115-kilometer winds. The photo was taken with a digital still camera using a 50mm lens.
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Hurricane Earl – International Space Station – Virgin Islands – NASA – Atlantic Ocean
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Now that August is finally over, which turned out to be the worst August in 10 years, investors are now looking for direction. The big question on most people’s minds is, will it be inflation or deflation?
What is deflation?
Deflation is a general decline in prices, income, and credit. Right now we are seeing all three. For the last twenty years we have spent a dime for every nickel earned, and to do this we borrowed.
We came up with things like “teaser rates,” and “liar’s loans,” and “ninja loans,” and that’s just in housing. To accommodate all this new borrowing, the shadow banking system sprang up, satisfying our thirst for more credit, more debt. We rang up almost $18 trillion at the top of the biggest party ever.
Cheap rates and easy credit helped create the largest bubble the world has seen since the great Tulip Bubble in Holland in 1637. As of just 2 years ago, consumers had over 130% of debt to discretionary income.
This is the highest level in history and almost twice the long term average. Unfortunately, we depended on this growing flow of debt to keep our spending high and our country employed.
Now it’s time to pay the piper and actually pay off our debts (imagine that!), either by choice (not renewing loans, paying off cars and credit cards) or by force (mortgage foreclosures, boat and car repossessions, credit card charge-offs). Very simply, this is no way to run a nation and certainly doesn’t lead to a robust economy.
In an effort to ease the inevitable pain, our beloved government is borrowing at a pace that would rival that of a banana republic, and throwing the money into our economy. This has many thinking that this is likely to create inflation. However, what many fail to realize is that the private sector is destroying capital, largely debt, more rapidly than the government can spend it. This creates deflation.
The government may be adding debt, but the private sector is dramatically lowering their debt levels at a torrid pace.
Interestingly, over the past few years, our debt has been in steady decline and will continue to do so no matter what the government does.
Eventually the government will be successful in its bid for inflation, so stay alert. For now however, deflation is upon us so prepare your finances accordingly as it requires an entirely different investment approach than we are all used to.
That’s where we can help. Our active hands-on approach to managing portfolios can help you manage risk and deliver returns. If you would like to discuss the market, economy or get a free second opinion on your portfolio, simply call for a free consultation (916) 925-8900.
Keith Springer is President of Capital Financial Advisory Services.
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A little before 3:33 on CNBC today, floor traders erupted into loud screams and yells that anyone watching could hear in the background. (Watch the video below.)
All the noise really confused the guy who was on the show talking about how high frequency trading screws him over, Dennis Dick. As soon as the yelling starts, he begins tripping over his words (circa 00:25).
Then the yelling starts getting louder and the other guest tries to talk, louder, over the yelling like it’s no big deal. The CNBC host just laughs it off.
We emailed a floor trader to find out what all the fuss was about. He told us:
Haha…it’s a little tradition…
At 3:33:33 on a Friday before a 3 day weekend we scream, yell, and go nuts.
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CNBC – Business – Investing – Day Trading – Algorithmic trading
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Goldman has confirmed that they’re disbanding their prop trading unit, Principle Trading.
From economic burn:
This just out.. Goldman’s stock has been up quite a bit today.. Where are the traders going to go? Speculation is they are heading to another firm.
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Proprietary trading – Business – Investing – Day Trading – Commodities and Futures
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This column was promised to introduction of MMT, or Modern Monetary Theory, since it is the only economic approach that comes close to mapping to the vast literature about known, biological model market systems, i.e. species and ecosystems. The parallels are of paramount utility to investors able to swing between hyper-local and systemic views in the endless pursuit of adequately managing both known risks and uncertainties.
My conclusion, up front, is that investors need to invest as much or more time & resources in upgrading operations at the SEC, US Treasury, Federal Reserve and US Congress as they do in choosing winning stocks. Market platforms, like all other systems, must be created and maintained, and the highest cost in all systems is eventually the cost of maintenance, alternately known as the cost of coordination.
To broaden perspectives, let’s start with a particular biology model, the social amoeba Dictyostelium discoideum since it carries so many parallels to human market systems, and proceed from there to MMT. Comparing diverse market models provides quick, powerful methods for seeking consistency and spotting inconstancies. There are far too many useful parallels to mention in one column, but “dicty” will be introduced as a fantastically useful model which future columns will return to consistently.
Here’s one, useful comparison useful for reducing confusion over the nature of currency, and of currency creation. The USA is a social collection of over 300 million agents now. Every amoeba is a collection of well over 300 million molecules. Each market, human and single-cell amoeba, utilizes a currency system to denominate transactions and carry liquid value between delegated transactions.
What primary currency system does the amoeba, and all known cells use? A molecule called adenosine. Adenosine can be loaded with energy value by attaching one, two or three phosphate bonds, making adenosine mono-, di- or tri-phosphate, respectively AMP, ADP or ATP.
How much adenosine does every cell make? As much as it needs. What’s the mystery?
Does any cell “borrow” adenosine? What a silly question. No system borrows bookkeeping methodology.
What entity in cells manages adenosine production? There are multiple synthesis & degradation paths all capable of recycling adenosine, and they are all kept in dynamic equilibrium by universal feedback. The self-reporting system becomes it’s own Federal Reserve.
Can a cell ever “run out of” it’s adenosine bookkeeping currency? No, as a bookkeeping “issuer”, cells are tasked with managing real-goods budgets. Short of absolute death or damage, cells can always synthesize as much adenosine bookkeeping currency as is needed in order to carry resources between transactions waiting to happen. Bookkeeping in any system is infinitely self-generating, as a byproduct of the system itself.
How do cells manage the thorny issue of “price stability”? What? The question has no logical base. The cell must survive. No secondary framework for determining price stability has any relevance. The actual relevance of any given transaction has no consistent frame of reference other than survival of the aggregate. Local measures of value relevant to that framework are ephemeral, change every picosecond or faster, and are constantly re-established so randomly that there is no aggregate purpose in tracking it other than in assuring adequate component maintenance.
Now you can see why a biologist first addressing economics would ask, “in human economics, what is the equivalent of the adenosine molecule”?
Surprisingly, there is no absolute consensus on that definition, and the history of human market bookkeeping systems is comically convoluted, understood by few, yet vociferously argued over by many. That’s to be expected in still-emerging systems. What’s especially comical is the certainty of so many people in claiming permanent definitions for an obviously still-forming operational system.
Without consistent, axiom definitions of components, it is very difficult to make a self-consistent system capable of smoothly scaling up markets of any size. A lowly “market-amoeba” such as dictyostelium can routinely scale up from small to large size, aggregate and dis-aggregate “international” markets, and emigrate and colonize – all without EVER having a “depression” caused by currency mismanagement. In contrast, what are we struggling with?
To begin to parse currency operations in human markets, let’s start digging through it’s history, and arrive at MMT, which is not a theory at all, but rather just a description of how monetary operations actually occur in current market systems. It is the only economic data base I’ve come across that, like cells & adenosine, deals only with operational facts, and can scale up smoothly to handle any contingency, on demand. In short, it is geared to the operations of aggregates, not encumbered by the non-scalable perspectives of components alone, nor the limiting ideology of any market component. To a biologist, that sounds promising, and like something an aggregate can successfully work with and on.
There are useful reviews of early decisions on currency matters mentioned in the Constitutional Proceedings of 1776, see
“Public initiative and the beginning of US currency. How a confused electorate can end up pretending to borrow it’s own currency, instead of creating it.” and Understanding Modern Money. Such links make it clear that currencies are initially created, on demand, by aggregate entities, whether nation states or market-amoebas. So far, so good.
However, what happened next? Why so much historical confusion over currency creation and management of currency supply? A biologist would simply conclude that we have an incompletely formed aggregate, not coordinated to the degree ensuring coherent actions and guaranteeing national survival.
When that state holds, there is mass confusion, and the bulk of relevant feedback is not yet parsed, and hence ignored. That certainly seems to be the case when reviewing current monetary policy. See Robert Eisner, The Misunderstood Economy, p.90;
“Almost everybody talks about budget deficits. Almost everybody seems in principle to be against them. And almost no one, literally, knows what [they are] talking about”.
Given this degree of ideological confusion, it is not surprising that so many residents, even financial professionals, know so little about our fiscal history, and possess even less systemic perspective. Here is just a few examples of the many fiscal and financial misbeliefs blatantly muddying our current financial press.
Teaching the Fallacy of Composition: The Federal Budget Deficit.
Taxes for revenue are obsolete.
Fiscal sustainability 101.
One of my favorite exchanges on fiscal policy occurred in 1941, after we’d had to jettison the cumbersome gold-std in order to gain the focussed speed & flexibility needed to successfully wage WWII, an example of a nation acting like a market-amoeba.
“ECCLES: We [the Federal Reserve] created it.
PATMAN: Out of what?
ECCLES: Out of the right to issue credit money.
PATMAN: And there is nothing behind it, is there, except our government’s credit?
ECCLES: That is what our money system is.”
- Federal Reserve Board Governor Marriner Eccles in testimony before the House Committee on Banking and Currency in 1941, during questioning by Congressman Wright Patman about how the Fed got the money to purchase two billion dollars worth of government bonds in 1933.
This exchange drives home points that make consistent sense to a biologist. First, any sovereign currency system is, by definition, always tied to a “public initiative” standard, and nothing else. Second, momentary tactics are not written in stone, only enduring national goals and policies. If we can direct our Central Bank to arbitrarily create the currency to “buy” bonds, in order to quickly force innovation through outdated methodology, then it’s also immediately obvious that we don’t even need to “buy” the bonds, and may bypass them as well. If Treasury-bonds were irrelevant & obsolete in 1941, then there is no reason for US citizens to be limiting their ability to think creatively in 2010!
Warren Mosler has a simplified essay driving home many of the diverse inconsistencies in how most people, even banker and economic policy exerts, view modern monetary operations. The 7 Deadly, Innocent Frauds of Economic Policy.
In summary, will our national market system eventually have to act more like a self-consistent market-amoeba? If we are to survive, that seems to be an inevitable conclusion. How will we continue to evolve successful operations? By exploring, on demand, whatever options present themselves. Certainly not by refusing to go where context is forcing us. Our last great depression was both the result and cause of a confluence of factors, yet we traversed it by aggressively exploring options. The rate of bold activities explored during the 1930s rivals in scope those explored during the 1860s and 1770s-1780s. See a calendar of some of the notable events and dates during the 1930s.
How should an investor leverage these sweeping insights to shepherd short and long term returns? As a component is one, particular market-amoeba, the obvious lesson is to continuously invest in your market platform, not just your isolated trades. The surest way to lose market value is to eradicate the market which allows value creation.
Rather than endorsing MMT as an ideology, I’ve specifically only provided links revealing operational facts. The biological approach is that any and all methodologies are incessant works in progress, and that survival comes ONLY with initially full integration of all approaches, followed by relaxation to the leanest subset fitting a fleeting context. Our only hope, as Ben Franklin cautioned, is for ideologues of all stripes to fully engage, openly share, and honestly compromise views in light of rapidly unfolding operational reality. There is always less time than we believe.
“But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.”
For those further interested in MMT, here is an early attempt to enclose most of the operational insights that have come to be loosely described as Modern Monetary Theory. It’s an unfortunate name. A simpler term like “A List of Current Monetary Operations” would be more accurate, but as usual, mobs and markets come to be ruled by logic after the fact, if ever.
Roger Erickson is a systems entrepreneur based in Maryland. A biologist by training, he worked for years in neurophysiology system research, at the Humboldt Stiftung, MIT, Yale, and NIMH before becoming more interested in community, business and market systems. Roger’s newest interests are being pursued through several startups, including Operations Institute, PILS Group, and ADB Group, as well as pilot agriculture commercialization projects with the USDA.
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