Ezra Levant’s “Ethical oil” is a bad joke.

August 8, 2011 Leave a comment

I understand that a lot of people have problems buying so-called “conflict oil” from some Arab countries where they do crazy stuff like kill people for being gay or stone women to death for adultery.

EthicalOil.org has created a series of ads that juxtapose images to emphasize why Canadian oil is preferable.

 

The implication is that these countries’ governments take money for oil and use it for terrible things, so buying that terrorist oil is bad.

But Ezra Levant’s whole “ethical oil” campaign rubs me the wrong way. The concept is intuitive enough — Arab oil helps terrorists, and Canadian oil helps peace-keeping.

There is no way one can uphold the distinction with any seriousness when you actually stop to consider it. Why? It’s blatantly hypocritical!

Here in Canada, we sell a export a lot of oil. And what do we do with that money? Well, a lot of it goes to the Canadian government through taxation. The Canadian government funds the Canadian Armed Forces with taxation, which contributes to the occupation of Afghanistan through our NATO membership. “Hey, that’s peace-keeping, isn’t it?” you ask.

Well you know what? The government we are defending in Afghanistan, the government whose army we are helping to train and equip with weapons, thinks favorably of raping little boys and raping wives.

And don’t forget our wonderful contribution to NATO’s insane war on Libya, where civilians are routinely killed in bombings for absolutely no good reason at all.

Is this an “ethical” use for wealth produced by selling Canadian oil? Dear god, I hope not.

If Arab oil is “conflict oil,” then Canadian oil is “conflict oil” also. In both cases, oil is sold, money enters government coffers, and the government does terrible things with that money. There is only a difference is degree, but not in kind.

Filed under CMR, Ethics, Oil Tagged with

Geithner is an idiot, but he is right about at least ONE thing…

August 8, 2011 Leave a comment

Geithner says:

“[S&P has] shown a stunning lack of knowledge about basic U.S. fiscal budget math.”

No kidding, Tim. If they really understood the US Treasury’s economics, they’d have downgraded it to junk in 2008. But I don’t think that’s what you mean…

Filed under CMR, Economics, Intervention Tagged with

WARNING – inverted yield curve appearing in emerging markets.

August 8, 2011 Leave a comment

The inverted yield curve has appeared in various emerging nations’ economies recently. Examples: Brazil, India, China.

Read this, although keep in mind this guy’s economic understanding is demonstrably poor.

The yield curve is the most reliable predictor of recession. It’s not perfect — nothing is — but you could have used the yield curve to predict our last two recessions quite easily.

(In depth economic analysis on this can be found here at the Mises Institute. And note also that you cannot just watch yield curves and predict every recession like magic, as there are some exceptions as explained in this report — but you could have predicted each recession in the last 30 years. Not bad.)

Basically, when short-term rates are higher than long-term rates, it means businessmen see a slowdown in the rate of monetary growth — so they are desperate to borrow now at higher rates to complete ongoing capital projects.

Now is a good time to get out of emerging markets’ equities, if you have not already. I predicted last year that China would be entering recession this year. After the crash, buy foreign equities for cheap. But if you are smart, you don’t own any right now. Too risky.

Filed under CMR, Economics, Investments Tagged with

Smoke and mirrors on interest rates at the Bank of Canada

June 8, 2011 1 Comment

For their sixth meeting in a row now, the Bank of Canada has decided to leave interest rates unchanged.

Some of suggested this latest press release suggests  higher rates ahead, and the stronger dollar that comes with it. I think this is flawed and superficial analysis.

Let’s consider the press release with the awareness that all central bankers are Keynsian-merchantilists.

The possibility of greater momentum in household borrowing and spending in Canada represents an upside risk to inflation. On the other hand, the persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.

So what would curb household borrowing and spending in Canada? Higher interest rates of course. But then that would create a stronger Canadian dollar, which the BoC regards as hazardous because it would hurt exports. To me, this does not suggest higher interest rates from the BoC anytime soon.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.

Now this sounds like they are leaning towards raising interest rates. Or does it? Earlier in the press release, they say the following:

While underlying inflation is relatively subdued, the Bank expects that high energy prices and changes in provincial indirect taxes will keep total CPI inflation above 3 per cent in the short term. Total CPI inflation is expected to converge with core inflation at 2 per cent by the middle of 2012 as excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored.

Here is where we get to the “smoke and mirrors.”

They were just quoted saying they would want to withdraw the monetary stimulus to aim for the 2% inflation target.

But in this last quoted paragraph, they just said that they expected inflation to hit 2% without raising interesting rates. So … what the heck is this all about? Basically, there is no chance interest rates will be going up any time soon.

The reality is this — Carney will not allow the Canadian dollar to appreciate too significantly relative to currency of this country’s primary consumer, which is America.

One must remember that central bankers behind major currencies work together — the key idea is to have major currencies devalue at roughly a steady rate vis-a-vis each other. It is not a counter-example to refer to hyperinflation in Zimbabwe or a like event, because that is a tiny country that means little to the world economy in the grand scheme of things.  The Canadian dollar will not strengthen dramatically against the US dollar, or any other major currency.

Why not? If you are a central banker, you have two conflicting goals:

For importers, you want a strong dollar, so that you can buy foreign goods more cheaply.

If you are an exporter, you favor a weak dollar, so that you can sell more goods to foreigners.

Exporters have traditionally been a more focused and successful interest group than the mass of faceless importers — the exporters are visible and politically active, but the importers are literally… everyone else. Their influence is spread out like too little peanut butter spread over too much bread. Therefore the tendency is always for a steady level of currency depreciation. For the BoC, that is a 2% inflation target.

Because of these conflicting agendas, the central bank behind a major currency cannot allow that currency to appreciate or depreciate too significantly relative to any other major currency. It is the classic problem with central planning — how do you decide what the magic number is? The level of depreciation must be just enough to keep everyone happy — or at least minimize their relative unhappiness.

To take out price distortions, one can consider how all currencies are down significantly from where they were one year ago, in terms of gold. The Canadian dollar is down 12%. So while it has lost purchasing power in terms of gold, it has gained purchasing power relative to the USD, which is down 20% in the last year. The euro and the yen have fared relatively better than the Canadian dollar (down 8% and 11% respectively, in terms of gold), and the American dollar has fared relatively worse. The important point is that they are all down in terms of gold.

This is to be expected. Although the CDN may rise or fall a bit relative to one major currency or another, depreciation of the Canadian dollar will continue relative to gold until Economic Judgment Day comes and Great Depression II hits us. Economic Judgment Day until the big American banks start to lend, and the Federal Reserve is forced to hike interest rates. Until then, Canadian currency is just another depreciating currency in a world of depreciating currencies.

Filed under Banking and Finance, CMR Tagged with ,

Canada Post strike — good time to abolish Canada Post

June 3, 2011 Leave a comment

Things are a lot different these days than they were when Canada’s postal monopoly went on strike 14 years ago.

The Internet dominates interpersonal communication nowadays — a lot of people wouldn’t even notice Canada Post being on strike these days, other than the fact that they’d have less junk in their mail box.

In this article, we read:

Canada Post has offered to increase new employee starting salaries to $19 an hour, from the previous $18 rate, in a workforce where hourly wages top out at $26 an hour.

Canada Post counters that it needs to address labour costs, noting letter-mail business has fallen more than 17% since 2006 due to digital communications — the Internet is chipping away at its business.

Question — why do letter carriers need to be paid $18 an hour at all??? Why does their maximum wage need to be $26? This is a job that could be done by teenagers for $10 an hour. These teenagers would, at least, probably be able to put the right mail in the right mailbox, unlike your average lazy, contemptuous, and bitter Canada Post worker.

Why is it considered a right to get subsidized mail delivery to your house? Why shouldn’t you have to pay the appropriate market price? Shouldn’t you have to pay more for mail when you live in Nunuvut than if you live in Toronto? After all, “mail delivery in the big city” is a very different service than “mail delivery to the desolate Canadian tundra with a population of 17 people”! Why should mail delivery to the middle-of-nowhere be subsidized by people who don’t use Canada Post for anything? This is not moral, and it is not economically efficient!

The whole postal monopoly system is a disgrace. Canada should use the opportunity of this postal strike to abolish Canada Post, which is a complete waste of all resources allocated to it. Then competition should be legalized and the free market can provide real mail service with true market prices.

Here is a 3-step solution to the Canada Post strike. Only these options are consistent with good economics, good ethics, and not being a complete idiot.

1) Fire everyone who works for Canada Post at the moment. That way they can get jobs that actually contribute to the economy.

2) Remove all legal restrictions preventing private firms from providing mail service.

3) Abolish all regulations on courier services so that such services can be more affordable and more readily available to all consumers.

ONLY if this solution is adhered to, will Canada have good postal service. Giving Canada Post’s union ANYTHING, be it more vacation hours, better wages, “better working conditions,” is a complete waste, and will produce more of the same garbage we expect from Canada Post.

We need less Canada Post, not more.

Filed under CMR, Monopoly Tagged with

Even ECB crank concedes that core inflation is a lame tool

June 3, 2011 Leave a comment

Even a broken clock is right twice a day. Unless it’s a 24-hr digital clock, then it’s only correct once. Which is still better than an ECB crank like Bini Smaghi, who seems to have recently been right for the first time in his life, by disparaging the idea of core inflation (i.e. without food and energy prices) as a good measurement of monetary policy.

“For central banks around the world, this means that core inflation is no longer a very useful indicator for monetary policy, and should probably be abandoned,” Bini Smaghi said.

NO WAY. This is actually a shocking statement coming from someone like this. Of course, this would probably present itself as an opportunity for monetary authorities to devise statistical methods that are more arcane and obfuscating, rather than less so. I bet the next inflation measuring tool will be a basket of goods consisting 100% of iPads.

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Goldman Sachs gets lucky on Libya

June 3, 2011 Leave a comment

Goldman Sachs is getting a subpoena from the Manhattan DA about their role in the 2008 financial meltdown. That’s kind of a drag, I guess, but at least they don’t have to sell Gadaffi a piece of their firm.

Turns out Goldman invested $1.5 billion for Libya’s sovereign wealth fund back in 2008.

They lost 98% of that money.

To ameliorate this disaster with pissed off Libyan officials, Goldman offered to sell preferred shares in their firm.

But now that that Gadaffi is now on the “list of mini-Hitlers for Americans to fight”, Goldman can get out of that deal easily enough.

You kind of have to admire the sheer self-confidence of Goldman, offering to sell a stake in itself to Libya after losing so much of the country’s money. It’s like a used car dealer offering to let you loan money to the dealership after selling you a lemon.

 

Filed under Banking and Finance, CMR, Foreign Affairs Tagged with

As QE2 ends, let us consider where the money went.

June 2, 2011 1 Comment

Well QE2 is supposed to be ending soon. Or something. The cranks at the Federal Reserve kind of make things up as they go along. But for now the whole thing can safely be considered a classic disaster, as central planning is wont to produce.

For the moment, let’s take a moment and consider where the money went. Behold two wonderful graphs:

ADJUSTED MONETARY BASE

FRED Graph

 

 

EXCESS RESERVES

Graph of Excess Reserves of Depository Institutions

You can draw your own conclusions here.

It is obvious that there will be QE3, QE4, QE5… and so on, until either the entire monetary system collapses or until the central banks stop printing money and produce the Great Depression II (aka Greatest Depression).

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Austrian economics in Mainstream Canadian Newspaper…!

April 21, 2011 3 Comments

I thought it was crazy enough to see the Canadian War Street Journal National Post to have a columnist calling out the Bank of Canada for its counterfeiting operations. The influence of Austrian economics hangs over this article like a halo.

Now shades of the Austrian School are back at National Post.

Peter Foster comes out citing Austrianism on the topic of monetary growth and inflation leading to malinvestment. Hayek’s name is dropped. Contra Keynesianism, which he calls a systemic failure, producing only debt and inflation and no real economic solutions. This is not too exciting by itself — this Peter Foster guy is nothing special as a commentator, other than his general favor of markets over governments. But the fact that it gets reference in a publication like this is interesting however.

I discovered Austrian economics in 1998, sort of by accident. You would have never, I mean NEVER seen a reference to Austrian economics in a mainstream paper back then. Austrianism was just … a complete non-issue. Fortunately, Austrian economics has become more mainstream, due in large part to the Mises Institute and Ron Paul’s 2008 presidential campaign in America, and outspoken fellow travelers of the Austrian school on the financial news networks, such as Peter Schiff and Marc Faber.

The more people discover the Austrian school of economics, the more people will become impervious to the dogmas and deceptions that have made them blind to how the market makes them free and the government enslaves and impoverishes them.

Filed under CMR, Economics, Mainstream Media Tagged with , , , , , ,

Bank of Canada — engine of too much debt — warns about too much debt.

December 10, 2010 Leave a comment

The Bank of Canada is warning Canadians about too much debt.

Experience suggests a long period of very low interest rates may be associated with excessive credit creation and undue risk-taking as investors seek higher returns, leading to the underpricing of risk and unsustainable increases in asset prices.

This is a remarkable statement, really — it reveals that the Bank of Canada’s economists either don’t know economics, or they pretend not to know. The issue should not be about how low interest rates “may” be associated with excessive credit and excessive risk. Rather, there is a direct causal relationship here.

Mises wrote:

If there is credit expansion [by the central bank], it must necessarily lower the rate of interest. If the banks are to find borrowers for additional credit, they must lower the rate of interest or lower the credit qualifications of would-be borrowers. Because all those who wanted loans at the previous rate of interest had gotten them, the banks must either offer loans at a lower interest rate or include in the class of businesses to whom loans are granted at the previous rate less-promising businesses, people of lower credit quality.

This is not rocket science. It is not a complex relationship to understand at all — if interest rates rise, there will be fewer risky loans than there would be otherwise; if interest rates falls, there will be more risky loans than there would be otherwise.

But if you have a PhD in economics, like our ex-Goldman central planner at the BoC, Mark Carney, you probably are incapable of understanding this, and would say something inane like, “In light of the high level of indebtedness of Canadian households, some caution in banks’ lending to households is warranted.”

Carney does not realize that lending standards are directly related to the ease with which credit is made available. Talk is cheap. If Carney jacked up interest rates to 10% tomorrow, that would have a dramatic impact on lending standards, much more so than his oracular admonitions about risky lending.

On the other hand, what would happen if Carney decided the economy was too weak, and he cut interest rates down to zero? Then we can rightly expect that more loans would be made to those businesses and individuals would have been previously deemed unworthy of credit. 

A lot of Canadians like to think we breezed through the financial crisis without too much pain and suffering — “our banks didn’t need a bailout,” and that we are leading the way out of economic ruin.

All is not well, however. The mammoth growth of consumer debt in this country, the worst of all OECD countries at about 140% debt-to-asset levels, is a very serious problem . With our housing market still in bubble territory, unemployment relatively low, and implausibly low interest rates, Canadians have been piling on more and more debt.

It’s so bad, even the banks — you know, the ones making all these questionable loans to Canadians mired in debt — are raising concerns. You have to acknowledge this is a bit rich — but don’t worry big Canadian banks — I am sure you can keep making your risky loans and if (when) things turn ugly, someone will bail you out.

Filed under Banking and Finance, CMR Tagged with , , , , ,

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