Friday, October 28, 2016

Dean Baker is an Idiot Squared

I have frequently seen concerns about rising interest rates brushed aside with a casual argument that we “can always buy back debt at a discount” if that happens. Each time I have asked the speaker what that means I have either received a dumb look or been told that if they have to explain it to me that I will not understand the explanation.

Well, Dean Baker explained it three years ago. I suspected that it was going to be frustrating and entertaining when I saw the words “Financial Engineering” in the title, because those words never bode well. It exceeded my expectations.

“An overlooked possibility for reducing a high debt burden,” he says, “is simply buying back bonds at a discount when interest rates rise, as is widely predicted.”

“Long-term bonds that are issued at low interest rates,” he continues, “will sell at substantial discounts to their face value if market interest rates rise. Looking at publicly held marketable debt issued as of the end of February 2013, the face value of the debt is $3,857 billion. The projected market value of this debt is $3,399 billion for an implied debt reduction of $458 billion, or just under 2.3 percent of the GDP projected for 2017.”

He concludes, “The interest burden on the Treasury will not change through these transactions. The only effect will be to lower the official value of outstanding debt. However if people in policy positions continue to attach importance to this number then this sort of debt exchange should rank high on the list of policy options. There is no less costly way to eliminate close to half a trillion dollars in debt.”

The term “buying back debt at a discount” sounded to me like a self-licking ice cream cone (as in, “With what funds are you going to buy that debt?”), but it turns out to be a self-licking ice cream cone with no cone and very little ice cream.

A quick lesson on what a bond is. It is a “note” of money borrowed and has a nominal face value. It has a market value which may be higher or lower than the face value, depending on how badly someone wants to buy or sell it. It pays interest, usually quarterly, at a fixed interest rate which was determined at the time it was created.

So, let’s start with the basic principle of “buying back bonds at a discount when interest rates rise.” Since the government does not have a lot of cash laying around, the money to buy those bonds is going to come from Wait for it From selling more bonds. So how does selling high-interest bonds in order to buy and retire low-interest bonds improve your financial position?

Well, it might, if you bought the low-interest bonds cheaply enough to offset the higher interest that you will pay on the new, higher-interest bonds that you sold in order to buy them. You would have to buy them really, really cheaply, and the 12% discount that Baker cites later on is nowhere nearly enough to do that.

And if you tried to buy them cheaply enough to offset the difference in interest you would not have much luck, because that would be a bad deal for the holder of the bonds and he would just keep them until you offered him a better price. People who buy and hold bonds are not as stupid as economists are.

The net result though, in any case, is that you might have a lower debt burden, but you will be paying a higher interest rate on it. You probably, almost certainly, will not come out ahead of the game any more than the inventor of a perpetual motion machine will succeed.

He says that the “as of the end of February 2013, the face value of the debt is $3,857 billion,” but he’s more than a little off, there. According to the government, as of 9/30/2012, the debt was $16,066 billion, so he’s off by $12,209 billion, plus whatever growth the debt experienced in Oct 2012 through Feb 2013. Okay, I’m nitpicking, but this is not a minor inaccuracy.

“The projected market value of this debt,” he says, ”is $3,399 billion for an implied debt reduction of $458 billion And my projected blood pressure for 2017 is about 350/220 if I keep reading what people pull out of their asses and label as “projections.”

or," he continues, “just under 2.3 percent of the GDP projected for 2017,” as if that percentage would mean anything even if it was a real number and not just one that he pulled out of his ass.

He then says that, “The interest burden on the Treasury will not change through these transactions,” proving that he is not even living on this planet. The whole reason for this exercise in “financial engineering” is that interest rates have risen, and we just sold $3.4 trillion in new bonds at a higher quarterly interest payment in order to do it. How can that possibly make “no change on the interest burden?”

He finishes with a smug statement that, “There is no less costly way to eliminate close to half a trillion dollars in debt,” as if reducing the debt by 2.5% was some kind of major achievement.

Polling Has Spoken

We are slightly less than two weeks away from election day, and Donald Trump has lost the election. There is no longer any suspense, the polls and the media have confirmed that Clinton is our next president and there is no point in the rest of us wasting our time voting. Sick.

Wednesday, October 26, 2016

They Still Have The Browns

Sports media is making much about Cleveland shedding the "loser image," first with the Cavaliers and now with the Indians. They assume, I guess, that the baseball team will win the World Series, but the Cubbies might throw a monkey wrench into that assumption. And Cleveland will always have the Browns, an NFL team which currently has an 0-7 record.

Sunday, October 23, 2016

Paul Krugman is an Idiot

Paul Krugman has a column yesterday in which he once more assures us that we should not worry about the debt. Eat, drink and be happy because big debt is good and bigger debt is even better.

To bolster this he shows a nice chart about the ratios of debt of GDP as calculated back in ancient history when economists were stupid and ignorant and now, six years later, when the wisdom of Solomon has descended upon them from God knows where.

There are several things wrong with his chart. The first is that the ratio of debt to GDP is an utterly meaningless figure that economists began using instead of the ratio of debt to federal revenue when the latter, which does have some meaning, became so high as to freak out the public. The current ratio of debt to federal revenue is 585% which would send the average taxpayer into heart failure, while the ratio of debt to GDP is 105%.

It also doesn’t occur to him to question why the projection has changed or to wonder if it might change again. Is he certain that we will not have another recession between now and 2046, or that Congress might mess around with federal revenues?

Nor does he seem to question the validity of his own chart, but perhaps he should. The current debt is $19.3 trillion, while the GDP is $18.4 trillion, giving me the 105% that I cited earlier. But if you look at his chart, it shows the ratio at somewhere near 75% from 2013 until at least 2022. If they can’t get the current numbers right, I don’t have a lot of confidence in their future projections.

Saturday, October 22, 2016

Let's Not Party

There is a proposal on next month’s ballot to build a “convadium,” which isn’t even a thing, for the Chargers to play football in and comic book fans to hold conventions in. Hopefully, these events will not happen at the same time, but that points out one of many weaknesses of having a convention center that doubles as a football stadium.

Fifty thousand cars converging on downtown San Diego at one time on a single freeway is another.

The paper today had a breakdown of a poll regarding voting on this issue, and one thing struck me as possibly noteworthy. Of Republicans, 38% intend to vote against this idiocy, while among Democrats 37% intend to do so; not a big difference. The big difference is that among Independents, 53% intend to vote against alienating tourists in order to build a half-assed convention center for a half-assed football team.

Unlike both Democrats and Republicans, Independents seem to think that maybe a football team doesn’t need a convention center, which suggests to me that political parties make you stupid.

Wednesday, October 19, 2016

Short Takes

A drunken driver driving at high speed breaks through the railing on the Coronado Bridge and kills four people in the park below. A clamor is immediately raised to make the bridge more safe.

People. That bridge did not kill anyone. Some jackass got drunk and decided to drive like a maniac. We are killing each other and demanding that the government prevent us from the consequences of our own actions. How about directing your anger at drunk drivers that kill 38,000 people every year, one third of all traffic deaths, rather than at one bridge?

The latest ad against Proposition 61, requiring drug companies to sell to Medical at the same rates that they sell to the Veterans Administration, is a real doozy. They claim it only applies to 12% of the population (people receiving Medical) and "only helps a few people, like state workers and prisoners," because only DMV employees and prisoners get their prescription medication from Medical.

Actually, the measure doesn't benefit the recipients of Medical ("state workers and prisoners"), because they are not paying for those drugs. Medical is paying for those drugs and the money comes from taxpayers, so Prop 61 actually benefits everyone who is a taxpayer in California, and that's closer to 100% than it is 12%.

Saturday, October 15, 2016

Lies, Damned Lies & Statistics

The New York Times informed us yesterday the the federal deficit in the current fiscal year ending last month rose to $587 billion. You can go to a nice government website which shows colorful charts illustrating this deficit and confirming the story told to us by the Times.

I’m always a little suspicious when I see something this elaborately stage managed, not to mention that I saw the word “budget” in that report, so let’s dig a little deeper.

It took a while, and this government website is nowhere as pretty, but the Treasury Department does publish a monthly statement of the total debt outstanding owed by the federal government. Guess what, it doesn’t verify the $587 billion deficit. It doesn’t contain the word “budget” either. The amounts are in trillions.

lego mania
So it would appear that the deficit was closer to $1.5 trillion than it was to the $.5 trillion that the Times is telling us about. Where did the other $835 billion go?

Is it the difference between the budget and actual spending? Perhaps so, but to some degree it is the result of a distortion caused by lumping Social Security revenue into the general revenue stream. That money is paid into a trust fund, not into the government’s coffers, and the government borrows from the trust fund, borrowing which is largely concealed in the reporting by the ploy of including non-government funds into government revenue reporting.

This is just one of many ways in which our government lies to us.

Friday, October 14, 2016

The Idiocy of Economics

Dean Baker produced a response today to a column in Bloomberg News in which he says it is “almost impossible to exaggerate how absurd” the premise of the column is. He then proceeds to illustrate that the columnist cannot hold a candle to an economist when it comes to being absurd.

First, he says that “it only takes the debt side of the ledger,” which is something that “no business would ever engage in.” This after spending years pointing out repeatedly that the government is not a business in that governments do not repay debt, but we’ll let that one slide.

Then he points out that “Microsoft has much more debt than the restaurant down my street,” and suggests that Bloomberg should be “highlighting Microsoft's massive debt.” All of that is, of course, irrelevant to the column’s argument about the increasing size of government debt. In any case, if you look up Microsoft’s balance sheet, it has a rather small debt, 32% of its assets and only 75% of its annual revenue.

He than explains that Bloomberg’s business reporters would “report on Microsoft's debt in relation to its assets and its debt service in relation to its revenue or profits,” and that if they reported on the government debt in this fashion, “it would be pretty obvious and totally non-scary that our per capita debt rises through time.” Actually, that’s precisely what the column said and was, in fact, the whole point of the column. Baker may consider that “totally non-scary,” but not everybody agrees with him.

Besides which, it’s not clear to me how reporting the government debt “in relation to its assets and its debt service in relation to its revenue or profits” would make it in any way obvious that government debt is increasing over time, or especially why it would make that fact “totally non-scary.” For one thing, how does one determine the assets of the federal government?

The big lie, though, is the part where he advocates reporting of government “debt service in relation to its revenue or profits,” and then says that if they did so then “it would be reported on the ratio of debt service to GDP,” which he cites as being 0.8% currently. That is an utterly false picture, because the Gross Domestic Product is an order of magnitude larger than federal revenue. The government does not have access to the money represented by the GDP, it only has access to the money that is paid into its coffers by taxes and other sources.

Federal revenue this past year is $3.3 trillion, but of that $1.1 trillion is social services taxes which are paid directly into a trust fund for Social Security and medical care. The general fund revenue is $2.2 trillion, then, of which $432.7 billion was paid to service the debt, i.e. interest charges, which amounts to 19.7% of revenue. That is not the trivial amount that Dean Baker wants us to believe it is.

There is a very large difference between the reality of “19.7% of federal revenue” which Dean Baker says Bloomberg should be reporting and the meaningless “0.8% of GDP” which he cites instead.

He then declaims the “absurdity that in the Bloomberg Halloween debt story our children would be better off if we eliminated public schools and funding for their education altogether,” which apparently came entirely from his feverish imagination, because it certainly is not contained in the Bloomberg column. He then claims they say that it “would be even better off if we stopped spending to maintain and improve infrastructure,” despite the fact that the column doesn’t say that and apparently unaware that we’ve already stopped such spending decades ago.

He finishes up with a tirade on patents, which is a pet peeve of his, but is pretty much irrelevant to government debt. Sort of like writing about a football game and complaining about a baseball rule. He considers patents as a government plot to permit corporate graft and overpricing and thinks patents and copyrights should be outlawed. Authors and inventors may disagree.

Thursday, October 13, 2016

Consensus Prediction

I have been reading, and watching, the local sports media too much, resulting in a brainwashed prediction of a Chargers win tonight by a score of 24-0. The reason that the Broncos will be scoreless is that every time their quarterback attempts to throw a pass Joey Bosa will sack him. San Diego will miss eighteen field goals, be successful on one, and Rivers will throw three touchdown passes.


lego maniaReturning home after running some errands, I walked into the room where Molly was hanging out. I had not begun petting her, had not yet even spoken to her, and she was already purring audibly. Merely at the sight of me. That's why one houses a cat.

Tuesday, October 11, 2016

Limited Reading

I ditched places like Salon and Democratic Underground a couple of months ago. Now I'm having to abandon even Facebook in order to avoid being inundated with the personal shortcomings of Donald Trump. It's not that I support the guy, I don't, but I'm not a chimpanzee and I don't participate in feces flinging contests.

Delusion Abounds

Just to illustrate how delusional the San Diego sports writers are, Nick Canepa is claiming today that head coach Mike McCoy should not be fired, at least not until the end of the season. As evidence of this theory he cites another sunken ship, "McCoy is the captain. When the Exxon Valdez crashed into Bligh Reef, people didn’t blame the reef."

No, Nick, they blamed the captain, and they didn't wait until he crashed into a dozen more reefs before they fired him.

Update: No, Canepa does not have a valid point regarding injuries. The Chargers lost their best receiver to a season-ending injury. So they are going to lose a whole bunch of games because the team doesn't have any other receivers? Those other guys are no-talent window dressing that were added just as a formality to fill out the roster? They didn't expect them to, you know, actually catch any passes? I guess we only had one linebacker as well, right?

Monday, October 10, 2016

Well, It Was Creative

We did all the traditional things, yes -- fumbles and interceptions, two of each. The sixteen-yard punt from our own ten yard line was pretty creative, but we did that before in game one.

Lining up for a game-tying field goal at the opponent’s twenty and having the holder fumble the snap from center – well, you have to admit that adds a nice note of novelty.

Raiders 34, Chargers 31. Chargers season: 1-4

One has to think we saw 20,000 or so votes in favor of the new stadium disappear yesterday, which should kill the subject permanently because the deal made with the NFL was that if we did not build a new stadium the Chargers had just one year to move in with the Rams in Los Angeles.

This past week, however, Hizzonor the mayor made some deals with the Chargers which allowed him to support the measure to build the stadium. They are not being incorporated in the measure, are only “verbal assurances,” but Hizzonor says they can be worked into whatever stadium deal is proposed next year.

He doesn’t seem to recognize that he is a) acknowledging that he knows this “convadium” deal is going to fail notwithstanding his support of it and b) admitting that he knows that the Chargers and the NFL were lying when they said the Chargers would move to Los Angeles in 2017 if we didn’t build them a stadium this year.

Politics as usual. Here, Sacramento and Washington.

Update, Monday, 4:30pm: A poll taken this afternoon has support for the "convadium" at 36%. That's down from 41% last week.

Friday, October 07, 2016

More on Proposition 64

A couple of excellent points were raised in comments on my discussion regarding Proposition 64.

Based on the title of the book she referenced, I think that Barbara was suggesting that the “War on Drugs” is worse than drugs themselves, and I have little doubt that such is the case. I suspect that the “War on Drugs” has caused infinitely more suffering and death than has drug abuse, and certainly we are doing this wrong.

I don’t have the answer, and I suspect that solution lies much closer to the legalization end of the spectrum than it does to where we are now. I think my argument yesterday was more that we need to know how to assess “responsible use” more than than it was taking a position in opposition to legalizing it.

And I'm talking about the users themselves, actually, as well as the law. It's by no means uncommon for people impaired by alcohol to insist that they are not impaired, and that phenomenon is much more pervasive in users of marijuana. We need a way to measure that impairment in order to help establish a subjective standard for users of the substance to measure themselves against.

Bruce also raises the problem of “citizen measures,” and many official ones, which are poorly worded, sometimes deliberately so. It’s not unusual to have measures so deceptively worded that a liberal position requires a “no” vote while appearing to require an affirmative one. The whole “citizen’s initiative” process in California is badly broken.

Thursday, October 06, 2016

Proposition 64

Proposition 64 would legalize marijuana for recreational use for persons over 21 years of age in California. Our Attorney General warns against the crime wave that revolves around the weed, but the idiot fails to recognize that said crime wave is the result of the weed’s illegality. A very similar crime wave revolved around alcohol during prohibition.

Reality is that legalizing marijuana is likely to reduce crime, not increase it, and the Attorney General is not as stupid as her argument would seem to indicate. She is merely as dishonest as most of the advocates on both sides of pretty much all of the measures on this year's ballot.

That being said, I do see a couple of problems with legalization, one being that after the state of Washington legalized marijuana they experienced a large increase in fatal highway crashes involving drivers who had been using marijuana, in fact the number of such crashes doubled. A direct cause and effect is hard to prove because of the second problem, which is that we have no way to detect when a person’s use of marijuana has become an impairment.

Alcohol use is generally defined as an impairment when the content in the blood reaches .08%, but even that, while close enough for legal action, is really only an approximation. Under some circumstances and for some people a blood alcohol content significantly lower than .08% can impair performance to a dangerous degree. We have nothing of a similar nature to determine safe levels of marijuana use.

Until we know more clearly what degree of impairment is caused by marijuana, when it is caused, and how to measure the effect of that impairment I think it is unwise to release it for general and unrestricted use.

Wednesday, October 05, 2016

Coaching Change

It has been suggested that the Chargers should fire head coach Mike McCoy and hire Les Miles, and I think the idea has merit.

LSU, despite it's recent woes, has had a much better winning record than the Chargers over the years, even this season, and it faces considerably tougher competition, relatively speaking.

Even if we didn't win more games, Les Miles would be a hell of a lot more entertaining on the sidelines and in the media than McCoy. If nothing else, the media could discuss his habit of eating grass.

Okay, perhaps "habit" is a bit hyperbolic, but even having done it once is a lot more interesting than anything Mike McCoy has ever done.

Tuesday, October 04, 2016

Double Standard

Various accusations have been made regarding Clinton and donations to the Clinton Foundation, in response to which Clinton dares anyone to show any instance where “I did any specific favors for those donors.” Typical Clinton triangulated denial in which she may actually be admitting to have taken bribes, but claiming that she didn’t fulfill her part of the bargain.

The media, of course, blows off any suggestion that donations to the Clinton Foundation while she was Secretary of State could possibly have been improper in any manner; says that anyone making such suggestions are irresponsible louts and are probably unpatriotic to boot.

But then the media pounces on a story about Trump’s use of his charitable foundation, including a headline that he “Used Foundation Funds for 2016 Run, Filings Suggest.” Given the last two words, the beginning of the headline should have read “May Have Used,” not “Used.”

The story revolves around Trump meeting with various conservative groups early in his campaign, many of whom asked for contributions, and he gave them money from his foundation in a perfectly legal manner.

The person reporting the issue to the media points out that “Trump did not explicitly ask for favors in return for the money,” but the article continues with vague accusations of illegality about what may have been wandering around in Trump’s mind when he wrote the check.

Does that sound familiar? Sure it does. See Hillary’s challenge to name anyone for whom she “did specific favors.” No one speculates about what may or may not have been wandering around in her mind when she received the money.

Meanwhile, the New York Attorney General is investigating the Trump Foundation and has shut it down for the moment. The investigation involves filing errors, and no on will be surprised to learn that the AG is a Democrat.

There are two parallel sets of standards for media reporting and legal investigation. There is Comey’s “no intent” standard for investigating those who are in power, and there is Schneiderman’s “file charges and shut it down now” standard for those who seek to gain power.

Sunday, October 02, 2016

Well, That Was Epic

Not only did the Chargers lose to an 0-3 team, they lost after leading by 13 points with 8:39 left in the game. In their last three possessions they fumbled twice and threw an interception and, on the two New Orleans possessions that counted, could not prevent touchdowns and lost by one point. Awesome. Beyond awesome. I truly believe there is only one team in the league that could do that.

Saturday, October 01, 2016

Proposition Nonsense Again

Backers of the proposition to build the "Convadium" in downtown San Diego... For those who don't know, that is the combination of a convention center and a football stadium, and the idea is every bit as ridiculous as you think it is. Chargers ownership knew they could not pass a measure paying for a stadium, but that the expansion of the convention center to accommodate ComicCon is a popular cause, so they jumped on board that one. The organizers of ComicCon want no part of it but aren't saying what they will do if it is built.

Anyway, the Convadium backers are saying that raising the hotel tax to 16.5% will not hurt tourism because two other California cities already have taxes that high and draw lots of visitors. Yes. Well, Anaheim has Disneyland, and San Francisco has, um, San Francisco. San Diego has nice beaches, but so do about eight other cities just to the north and south of us. And, have you stayed in a San Diego hotel lately?