Microsoft CEO Steve Ballmer made a useful terminological distinction last month:
“We’re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy,” said Chief Executive Steve Ballmer during a conference call. For consumers, that may mean less discretionary income to spend on a second or third home computer, he said.
Australian economist Steve Keen commented on his DebtWatch site:
Bravo. That is precisely what is happening. It is also why, though government action might slow down the decline, ultimately it can’t prevent a serious decline in economic activity. That can happen only gradually as we slowly replace debt-generated spending capacity with income-generated capacity. What the government can do is remove the logjam standing in the way of that process, which is the crippling mountain of debt accumulated by the Ponzi financing behaviour of the last 4 decades (and in particular the last one). But that will require much more drastic action than simply bailouts: given the scale of debt accumulated, either the debt has to be devalued by inflation, or written down via government decree.
We’re still a long way from any government official or politician realising that. But the fact that someone as influential as Ballmer has put his finger on the problem implies that maybe that day of realisation is approaching.
My published articles are archived at iSteve.com -- Steve Sailer
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42 comments:
Though he mentions Austrian economics, Keen does not understand it. He really needs to spend time with Mises.
That last link to Steve Keen illustrates something you've said before: the money elites have screwed up this country so badly, they've managed to rehabilitate Marx's reputation.
The World's Longest Blog
Entry-- like a 72oz porterhouse, chew and chew and chew...
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I have no idea if Keen is right, but I have to admit that when my children would ask me, "Why is a dollar bill worth a dollar?" -- I'd always start out confidently, but would end up waving my hands around, with a sinking feeling that I really had no clue.
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Astute observation. Kind of like Newtonian vs. quantum. The money works on the surface for everyday living but when you dig deeper it defies comprehension. Believe me I've tried. And tried and tried. When you get to the best, those who actually understand it they will tell that the money makes no sense.
'Ingot We Trust.'
We needed the correct big picture macro economic assessment from Steve Ballmer about two years ago. Guess he's not a visionary.
Steve Ballmer is no Bill Gates. Microsoft is a big directionless floating turd with Ballmer at the helm.
There's a video of Ballmer stomping around the stage like a coked-up madman at some queer corporate event from a few years ago. That footage alone is enough to destroy the morale of any company.
The guy who runs GE is also a disaster. Corporate America is fish rotting from the head down and the tail up.
Reading Steve's buddy Karl Denninger was an eye-opener. From what I understand there's no enough dough around to fix the debt created by the heroes on WS. An the Fed/Treasury do not want their remaining buddies on WS to go bust. So we are expected to burden their friend's debt but we cannot. Of course we also weren't asked. What now?
Wow. Microsoft's CEO thinks rebooting the machine is the solution to every problem. Sure glad he's not doing something that actually matters.
"..the Ponzi financing behaviour of the last 4 decades..": yeah, that's my interpretation. The problem goes back to LBJ's spendthrift ways and Nixon's decision not to reverse them, but to accommodate them by breaking the last tie to gold. True Clinton and Bush are arseholes, but arseholes operating in the world LBJ and Nixon made.
I can confidently predict that not a single governor, senator, or president will ever say (publicly) what Ballmer said. Bravo for him.
This economic downturn has the odor of a Depression and not merely a Recession. A Recession is an inventory cycle phenomenon; a Depression is a credit cycle phenomenon (caused by an accumulation of unpayable debt). This is Econ 1A stuff that the talking heads don't yet have the gumption to discuss openly. There is a good discussion of the subject in a book published back in the 90s called "The Great Reckoning". The authors thought the Crash would come sooner (they underestimated the resourcefulness of the usual suspects at juggling the books)but now it's here.
From Keen: "That can happen only gradually as we slowly replace debt-generated spending capacity with income-generated capacity."
I'm still digesting his model, which looks very good to my amateur eye. The above statement sounds pretty Austrian. That school would say that activity not supported by the pool of real savings must always eventually be liquidated. And that is precisely what is happening now. There was never actually enough in the pool of real savings to fund things like $700K townhomes with granite countertops in vacant lots next to highways. We just thought there was because of all the bank-created money that Greenspan and Bernanke have let slosh around for the past couple of decades. The malinvestments are huge at this point. Take a look at this doomed venture.
--Senor Doug
Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy,” said Chief Executive Steve Ballmer during a conference call.
I'm not sure what the word "leverage" means [I suppose I could Google it, but I'm too lazy]; however, what we have here is a cross between Spengler's work over at the Asia Times [suicidal birthrates] and Lynn & Vanhanen's work [smarts determine economic performance].
There are maybe three or four localities in all of the civilized world where peoples with an average IQ greater at or above 100 are breeding at or above replacement level: Utah, Alaska, parts of Israel, and possibly Iceland.
Everywhere else - EVERYWHERE !!! - high-IQ populations are in a suicidal demographic death spiral [and the situation is particularly terrible in the Pacific Rim - Coastal China, Japan, South Korea, and Taiwan will all effectively cease to exist during our lifetimes]:
IQ and the Wealth of Nations
en.wikipedia.org
List of countries and territories by fertility rate
en.wikipedia.org
The Baby Gap: Explaining Red and Blue
isteve.com
PS: Take a gander at this PDF document from the Census Bureau:
PDF DOCUMENT: The 2009 Statistical Abstract - Population Section
According to Table 8 of that PDF document, in 2007, the USA Caucasian population peaked at 16.109 million in the 45-49 age group [the height of the Baby Boom], and plunged down to a mere 11.175 million in the 0-4 age group.
For those of you who aren't good with math, that's a 1 - [11.175 / 16.109] = 31% collapse in the population, just within the span of the first half of our lives.
By contrast, these are the peoples who will inherit the future:
Of U.S. Children Under 5, Nearly Half Are Minorities
washingtonpost.com
Whites will be minority group by 2042, Census predicts
mcclatchydc.com
You simply cannot build a great nation on the backs of peoples with average IQs no higher than about 85 [and possibly substantially lower than that].
The "leverage" we lack in this country [and throughout the civilized world] are the high-IQ peoples who haven't been consumed by nihilism and who haven't given up on the practice of making babies.
Senor Doug: Take a look at this doomed venture.
Wow - if you watch the Shockwave/Flash multimedia presentation, then you'll see a picture of a bottle of 1928 Romanée-Conti.
As if there's any '28 DRC in the entire state of Georgia...
One aspect of this crisis is that Ron Paul will be proved right about the Gold Standard.
Yes, you heard me. I am not Paul's biggest fan (an understatement) but he was in fact absolutely correct about the need for the Gold Standard.
Obama plans to print money, he's not very bright and has no clue it will debase the currency. So we will get essentially Argentinian inflation, worthless currency, and be forced to revert to the Gold Standard. I expect as part of that the dropping of Paper currency and the issuing of coins, with some Gold and/or Silver in them, to re-create consumer and investor confidence (it also makes counterfeiting much harder).
Ballmer is clueless, about most things, but he's right about the Ponzi scheme. Productivity gains by the microcomputer revolution were taken in the 1990's, and the gains by the Internet Revolution were taken by 2000 or so.
I think the biggest issue will be the credit crunch, and government cluelessness about debasing the currency by printing their way out of problems. More like 1873 than 1933.
To repeat: Ron Paul was right about the Gold Standard, I was completely wrong about that one. The Gold Standard does limit government options, but I can see now why that's required. Too many idiot financial people to allow that options.
"Reading Steve's buddy Karl Denninger was an eye-opener. From what I understand there's no enough dough around to fix the debt created by the heroes on WS. An the Fed/Treasury do not want their remaining buddies on WS to go bust. So we are expected to burden their friend's debt but we cannot. Of course we also weren't asked. What now?"
Denninger has written many of his "ticker" articles on the question of "what now?" He is predicting much lower stock indexes.........something like a Dow Jones 2000 level.
Denninger also just recently claimed that the October market crash was not a random event but that it was initiated by the Federal Reserve deliberately withdrawing liquidity from the system. But he didn't say if this was a mistake or a malevolent act.
So "what now?" Well the banking system is insolvent in many countries........all around the whole world. And that's very very bad!
Another popular finance blogger Mike Shedlock said recently that "global downturns are rare" but that we are indeed experiencing one of those rare occurrences. Meaning it's very unusual for multiple countries all over the world to go into the tank together. But that is what is happening today.
So when you ask "what now?" I think the truthful answer is nobody really knows.
Debt watch is terrific. But what is someone with sailerian ability to weigh and judge what's relevant from what's not doing in academia? Not that this is all that interesting, but is the human race, like the equity of the financial sector--being subject to the engineering proposition that if anything can go wrong, it will go wrong...eventually, with enough use--likely to be suddenly, unexpectedly destroyed as a result of the weaknesses of its agents.
Nobody wants to admit it -- as evidence by it being continually edited out of Wikipedia -- but fiat currency is backed by the threat of punishment for non-payment of taxes -- taxes payable only in the fiat currency issued by the taxer. The beauty of this for the taxer is that it is easier to punish than to reward. I mean just think about how easy it is to throw some white guy in prison with a bunch of ethnic gang members and then hire some academic to tell him and everyone else that he has been "sexually awakened?"! The damn racist should be grateful!
It should come as no surprise to the readers of this blog that the way this truth about money is attacked is by pointing to the exceptions that prove the rule.
...given the scale of debt accumulated, either the debt has to be devalued by inflation, or written down via government decree.
At the level of national debt, that means giving the finger to all the chumps who hold Treasury bonds. After such an event no one would buy Treasury bonds for many decades. Perhaps ever. The US government currently has two ways of paying its bills: taxing its citizens and selling Treasury bonds to willing buyers, many of them in East Asia. With the second source of income gone, how would the US government pay its bills? The Wikipedia says that "In relative terms, from 2003-2007 the government spent roughly $1.20 for each $1.00 it collected in taxes." Since this crisis is going to depress tax receipts, the actual shortfall will be larger than the 1/6th of total spending that 's indicated in that quote.
So which parts of spending will be cut in case of a default or of a radical devaluation of the dollar? Social Security? Medicare? Medicaid? The Pentagon? State and local governments are financed through debt as well. I'm thinking that in case of a federal default no one will want to buy any more state and municipal bonds either.
If you stop paying salary to enough government workers, they will come out on the streets. No calamity hits everyone equally. Those who are hit hard will resent those who continue to live it up. In comparison to the world average, our society is characterized by an especially high degree of ethnic diversity and by an especially easy access to firearms.
In other words, I'm hoping against hope that this Steve Keen person whom Steve quoted is wrong in his prediction.
Lucius wrote: There are maybe three or four localities in all of the civilized world where peoples with an average IQ greater at or above 100 are breeding at or above replacement level: Utah, Alaska, parts of Israel, and possibly Iceland.
Lucius, you're forgetting North Korea. It has an above-100 IQ and an above-replacement birth rate. I've been thinking for some time now that this is the reason why the neocons hate the North Korean regime so much. They think of all such groups as potential competition. Dysgenic Hollywood crap is not allowed to pollute the minds of North Korean youngsters. Obviously, there are no gay rights or women's lib there either. Mind-relaxing drugs are off-limits there too. And unlike the Saudis, the Koreans are actually pretty smart. They can be imagined using sobriety in constructive ways. I'm sure that this scares the neocons to no end.
We're now in the "it's the recession to end all recessions" phase of the recession.
a number of good comments here as the article seems to have selected quality readers. My microbio PhD in-law occasionally emails me relayed finance questions from his remarkable 5 year old daughter, as in, "I was trying to explain (such and such), what's the answer?"--Microsoft has always been fairly sophisticated about the economy and the markets. Having billions of wealth dependent on the share price seems to focus the mind. Bill Gates was surprised that the market correctly anticipated that the firm would successfully monopolize the office productivity market, a few years before it headfaked software firms into OS2 and then sprung the windows surprise, with the only windows compatible office software. I believe this was because he himself had not known he would do it when the market apparently did. I think he later lost some regard for efficient markets theory when it appeared that, all along, the firm may have merely been priced based on historical cash flow growth. We might be better off with Balmer directing the crisis--The Fed also popped the internet bubble although it pretended not to. Greenspan always maintained that financial bubbles were the one thing that couldn't be controlled, and other fed members have stated the same. Yet, I believe the Fed became concerned about misallocation of capital and decided to pop it. "The first hints" of Fed monetary policy direction change came in the late summer of 2000 and when you combine "first hints" with either of the qualitatively evaluated sentiment factors "heady atmosphere" or "gross pessimism" you have the recipe for significant change in stock prices over the next few months. At this point, all the investor money is either in or out, and the fed policy either means new sellers or buyers, besides. The same happened in, I think late March or early April of 2001 (post Fed pop) when there was simultaneously the first hint of expansionary monetary policy (when the bubble popped a little more loudly than the fed had hoped), and a page one wall street journal article describing gross pessimism among investors in the aftermath of the tech price collapse. I think George Soros was heavily long the tech bubble in the fall of 2000, figuring that it would expand further before it collapsed, yet my two factor model triumphed.
From the doomed venture link:
"... European style, in the heart of Atlanta's cosmopolitan Buckhead neighborhood. ..."
which is just down the road from Marietta's Big Chicken neighborhood.
I'm not sure what the word "leverage" means
Buying stuff on credit, perhaps using assets previously bought on credit for collateral for the credit.
Another popular finance blogger Mike Shedlock said recently that "global downturns are rare" but that we are indeed experiencing one of those rare occurrences.
"Mish" Shedlock -- another nickel-a-dozen financial guru. Mish was bearish about gold and therefore wrong during most of 2008.
It has an above-100 IQ and an above-replacement birth rate. I've been thinking for some time now that this is the reason why the neocons hate the North Korean regime so much.
Yes, Jews hate North Koreans because the Norks are so rich and successful ... and so tall, because of all the nutritious food most North Koreans eat.
The one and only solution is finally starting to percolate into our collective conscious: DEBT CANCELLATION! We must demand a Jubilee Year from our leaders.
Nationalize the banks, and declare all debts void, while backing all savings and pensions. Then: distribute bank-owned homes through a lottery to the renters.
Reset the dysfunctional financial system in one stroke, and switch us from a debt-based to a savings-based economy. Incidentally, it would also force balanced budgets and balanced trade.
The sooner we do it, the more social chaos we can head off. Spread the good news of the Jubilee Year, now!
"Jubilee Year said...
Nationalize the banks, and declare all debts void, while backing all savings and pensions."
But what about savings for retirement, i.e. a pension, in the form of......debt. As long as the government is forgiving debts, it will probably figure it may as well forgive it's own too. Tens of millions of us poor middle-class suckers have a lot of dough tied up in treasury bonds.
Steve Ballmer is no Bill Gates. Microsoft is a big directionless floating turd with Ballmer at the helm.
Bill Gates still lives. If he didn't think Ballmer capable he would replace him. Ballmer's been with Microsoft since '81, I think, and helping lead the company ever since. If Microsoft seems like a directionless floating turd now that's because it always has been - a directionless floating turd with a monopoly cash cow.
"As long as the government is forgiving debts, it will probably figure it may as well forgive it's own too."
Yes, after our modern Jubilee, treasuries will be worthless, but think of how rich you will be not having to pay off any of your debt.
Without these imaginary debts to liquidate, real economic activity can begin again. In our current situation, real economic activity is being destroyed in the liquidation of debt. This is the very definition of irrational behavior.
t99,
I'm a bit wary of your first post. Is that you?
Anyway, the second was interesting:
"Obama plans to print money, he's not very bright and has no clue it will debase the currency."
Think Zimbabwe. One thing about African pols is that they see the treasury as their personal till. This is why Zimbabwe's currency is now virtually defunct. Whenever Uncle Bob wanted anything he just ordered more notes. I dunno if African Americans think like this.
Going back to Gold is a great idea but it will cause the Gold price to skyrocket. Maybe ultra deep mining is feasible to raise the amount of gold in circulation, which then becomes the bottleneck. Watch for more Boer War type campaigns to get control of the Gold fields, not the oil fields. Bush was thinking of the wrong mineral when he invaded Iraq. He should have invaded South Africa like the Brits did in 1898 and 1902!
Anon sed:
"So when you ask "what now?" I think the truthful answer is nobody really knows."
Thanks. (My spelling was terrible, as often.)
David Davenport said...
"It has an above-100 IQ and an above-replacement birth rate. I've been thinking for some time now that this is the reason why the neocons hate the North Korean regime so much.
Yes, Jews hate North Koreans because the Norks are so rich and successful ... and so tall, because of all the nutritious food most North Koreans eat."
I didn't realise Neocons were Jews?
Wow. Microsoft's CEO thinks rebooting the machine is the solution to every problem.
POW!
Steve,
You need a "quote of the article" somewhere close to each post. I propose this one which was hilarious:
"John Mansfield said...
Wow. Microsoft's CEO thinks rebooting the machine is the solution to every problem. Sure glad he's not doing something that actually matters."
"Jubilee Year said...
Yes, after our modern Jubilee, treasuries will be worthless, but think of how rich you will be not having to pay off any of your debt."
I don't have any debt (other than a very responsible mortgage), but I do have money saved as treasuries.
Debt forgiveness will result in penalizing the financially responsible - those who have incurred little debt and have saved their money. It's a bad idea.
Whenever Uncle Bob wanted anything he just ordered more notes. I dunno if African Americans think like this.
Cargo cult mentality? Well, I've been logging on to mises.org since 2000 and the photos of their summer seminar attendees are awfully white.
BTW, big ups to t99 for his come-to-Jesus moment. This time next year he'll be posting from Idaho.
--Senor Doug
Anonymous: Lucius, you're forgetting North Korea.
Possibly for different reasons, North Korea seems to be following the rest of the Pacific Rim into the vicinity of suicidal fertility rates:
List of countries and territories by fertility rate
en.wikipedia.org
UN, 2000-2005
North Korea 1.92
UN, 2005-2010
North Korea 1.85
CIA, 2000
North Korea 2.30
CIA, 2008
North Korea 2.00
So by either the UN or CIA estimates, fertility rates are plummeting in North Korea.
Granted, they haven't plummeted quite as much as in South Korea & Taiwan [pointwise, the decline is more like Hong Kong, Macau, or Japan], but the North Koreans are getting there:
UN, 2000-2005
South Korea 1.24
Taiwan N/A
UN, 2005-2010
South Korea 1.21
Taiwan N/A
CIA, 2000
South Korea 1.72
Taiwan 1.76
CIA, 2008
South Korea 1.20
Taiwan 1.13
BTW, the news out of Iceland is difficult to decipher:
UN, 2000-2005
Iceland 1.99
UN, 2005-2010
Iceland 2.05
CIA, 2000
Iceland 2.08
CIA, 2008
Iceland 1.91
David Davenport: Yes, Jews hate North Koreans because the Norks are so rich and successful ... and so tall, because of all the nutritious food most North Koreans eat.
Since when, exactly, is the light unto the nations allowed to ridicule people who are starving to death [starving to death precisely because of the political philosophies imposed upon them by that very same "light"]?
Good point Senor Doug,
Seems the whites at the switch in the US and Europe are doing secret workshops with Uncle Bob. To think it would come to this in just a few decades. I guess (lending a quote) I need to reboot my brain.
Lucius Vorenus,
I hate these semitic dogfights but I'll butt in just once:
N-Koreans are struggling because of their Marxist/despotic political system, not so much because of the neocons, who otherwise are a pest. SK for instance, is doing fairly well so far. I don't think that genetically there is much difference between NK's and SK's.
Jubilee year said...
Yes, after our modern Jubilee, treasuries will be worthless, but think of how rich you will be not having to pay off any of your debt.
My entire debt amounts to $50. Why the hell should I care? Besides, if the treasury defaults on its' obligations then the dollar loses whatever value it once had, at which point we are all screwed. Also, Latin American countries default on their debts all the time, but no one should ever consider them as exmples of how to run a country.
david davenport said
Yes, Jews hate North Koreans because the Norks are so rich and successful ... and so tall, because of all the nutritious food most North Koreans eat.
Talk about missing the point! The reasons are the North Koreans' high average IQ and healthy birth rate. These two factors would make them evolutionary competitors on the order of Europeans prior to the World Wars (or Mormons today).
Ronduck said
My entire debt amounts to $50. Why the hell should I care?
The national debt is more than that. You should care because some portion of that will be taken out of your hide one way or the other - so long as it exists (the debt, I mean).
Anonymous: N-Koreans are struggling because of their Marxist/despotic political system, not so much because of the neocons, who otherwise are a pest.
I don't think you understood my point.
David said...
The national debt is more than that. You should care because some portion of that will be taken out of your hide one way or the other - so long as it exists (the debt, I mean).
If we default on our debt we become Argentina, meaning that you and I would end up a lot poorer. If we took Jubilee's suggestion seriously and wrote down private debts the main beneficiaries would be the irresponsible. If individuals need to escape their debt they can file for bankruptcy.
Besides, even if we default on our debt, judging by the behavior of Latin America we could easily end up deeply in debt again, causing us to repeat the cycle. Do you want to see a default every twenty years?
Defaulting on our debts as a nation would not solve the underlying problem, which is the left's bloodsucking on our economy and government. We either need to kill the leech or dissolve the USA.
Actually, Ron, it would solve the leftist problem. A Jubilee debt forgiveness would force the government to keep balanced back-looking budgets.
In a sense Jubilee would reward the irresponsible, but in our current economic collapse, even the responsible are being punished anyway. The Depression occurs to the just and unjust alike, and ending it is more important than moral posturing.
We should default on those treasury bonds held by foreign governments with the stipulation that for the next 15 years they can be redeemed at face value in payment for U.S. exports. That would end the trade deficit immediately. The budget deficit would disappear within two years because of the export-driven economic boom. (In the meantime, any government securities issued by the treasury would have to be backed by the gold in Fort Knox.)
I have no idea whether this would work or is even possible, but it appeals to me as a way of turning our weakness into leverage. We could say to the Chinese who hold over two trillion in U.S. treasuries, "Either buy American goods or see your holdings of American debt become worthless.
Anon, if we default on our debt then we would not be able to buy fuel for the US Navy. leaving the US coastline defenseless. The Chinese could theoretically decide they want the West Coast and decide to colonize it. Do you think the little brown people who populate our western shores will fight for the USA?
Stop living in fantasy land.
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