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Cartoons take on the Fed

This xtranormal video going around makes the right-wing populist case against the Fed's quantitative easing campaign with a good dose of humor.

It's interesting to read how this is received on left-leaning outlets like The Huffington Post. Leftists fear the concentrated power of large private corporations and trust the concentrated power of large government bureaucracies. The accusation of corporate corruption in Federal Reserve policy making results in some dissonance. Some commenters participate in the outrage, others are quick to lecture their peers on the "proper" way of thinking.


Strange Times for Tech

In the programming world the compensation we receive for our jobs is becoming more exposed to the market. This results in higher mean compensation and higher variance.

Startups, established companies, and Venture Capitalists are hungry for competent developers that can produce results. The three groups are relentlessly bidding against each other for engineers.

This change is most strikingly illustrated by Google. It is widely perceived to be in a bidding war with Facebook over elite engineers, goading the company into instituting an across-the-board 10% salary increase and paying rumored retention bonuses of up to $500,000 for top employees. But commentators overlook an important second source of competition: the burgeoning startup universe. More startups are getting funded than ever before, though with smaller amounts of capital than during the 90s boom times. Hiring the right person into a small company can drastically alter its chances of success and the cash and equity terms of their compensation packages reflect this.

One more level of competition comes from Apple's iTunes app store which makes it easier than ever for a programmer to take his wares directly to consumers through their phones and iPods.

At the same time engineers who hope to work an easy job nestled in the comfortable embrace of a large organization and never really be responsible for shipping product are getting left behind in compensation. They are still plagued by the spectres of outsourcing and the commoditization of software development that grabbed headlines not so long ago.

Never before has a software engineer’s compensation so closely mirrored the market value of the software he ultimately produces. There has never been a better time or a worse time to be an engineer.


Ron Paul Takes the Red Pill

Paul Channels Stefan Molyneux on House Floor;
Advocates Civil Disobedience

Check from 4:50, where he pushes the "you are livestock" meme from one of Stefan Molyneux's most popular videos.

Paul then calls for people to join in Opt-Out Day at airports around America on 24 November. Opt-Out Day is a project of George Donnelly--a voluntaryist activist who has commented on Distributed Republic in the past.

The speech struck me as another milestone that has been passed. Not only are the ideas of academic anarchists (like Rothbard) influencing events, but today's breed of libertarian anarchists are shaping the future.


Wal-Mart Hatred is a luxury good

I just saved $100 by getting my eye exam done at Wal-Mart instead of the neighborhood optometrist. Wal-Mart hatred is for rich people.


Schiff vs Prechter: Celebrity Doomsayer Deathmatch

Peter Schiff, an "inflationist" interviewed Robert Prechter, a "deflationist". Both are libertarians and largely agree on most things except how the dollar-price of assets will perform over the long term.

The interview is somewhat difficult to listen to because Schiff is an annoying interviewer, constantly interrupting Prechter, and often, not really listening to his arguments. As I've said before, my personal view is that the structure of the economy is "deflating", i.e., deleveraging, but this is happening in terms of gold, not dollars. In addition, the Fed's actions are causing in a debasement of the dollar which will eventually result in hyperinflation of dollar-prices. These two processes are happening simultaneously.

So if I had to side with either one, I believe my views more closely match Schiff's. Having said that, I think Schiff too easily brushes aside the following arguments from Prechter:

* The last time people were talking about inflation was in 2008 when oil prices were acting bubbly. That was precisely just before the onset of a massive acute deflationary wave. Similarly, only over the last month have people started talking about inflation again. Personally, with the way the silver market recently had a parabolic rise and reversal, I think there's a good chance that another deflationary wave has begun. Prechter's point is a good one: just because everyone is talking about inflation doesn't mean inflation is going to happen.

It just as likely means inflation is a crowded trade and a reversal is imminent. Schiff has made this argument himself when he reminds everyone that back in 2006, as real estate was rising parabolically, everyone thought he was an idiot, but he doesn't seem to recognize Prechter's argument that we may be at a similar inflation peak today.

* Inflationists have to answer certain questions. Why are stock prices lower than their 2007 peaks? Why are interest rates low? Sure the rise of commodity prices and precious metals prices seem to point to inflation, but those are not the only data worth evaluating.

My personal view is that we will have periodic waves of inflation and deflation. 2008 was the prior inflation peak. Sept 2008-March 2009 was a great deflationary wave. March 2009-now has been an inflationary wave. As I said above, I think there's a good chance the next deflationary wave has begun. My disagreement with Precther is that I believe one of these days, the inflationary wave will take off and go to infinity. However, I take seriously the view that this may not happen and the forces of dollar-deflation will rule.

* Social mood changes. The public was largely against the prior bailouts, TARP, QE, stimulus, etc, and in their eyes, those measures have not really worked as unemployment remains high and standards of living continue to erode. Just because TPTB had the political capital to enact a bailout last time doesn't mean they will have it the next time. The environment has already changed drastically since 2008 and 2009. Republicans control the House. Obama is a lame duck. Tea Party movement exists. Keynesians like Krugman are ever-more unpopular. Jim Grant even has an opinion in the NY Times arguing for a new gold standard. A static analysis of what politicians can pull off is foolish.

As I said above, I come down on Schiff's side, but I think Schiff brushes aside Prechter's arguments too quickly.

One big takeway: There's one strategy that will work no matter which one of them is proven correct: physical gold. Everything else is up in the air.


G. Liddy


Deflation in gold, hyperinflation in dollars

I've been putting off writing my Grand Unified Theory of the Coming Monetary State Change post for a long time, and I've given up. So I'll do a short summary post instead.

Forget the words "inflation" and "deflation" for a moment. These are meaningless concepts. Think instead about "debasement" and "deleveraging."

What we've had over the last 30 years (100 years?) is a massive build-up of debt. Debt is a form of leverage. The way excess debt is resolved is deleveraging. In deleveraging, capital has to be sold off to pay back debts. Defaults happen. Personal bankruptcies occur. Value transitions from capital goods to value's most liquid form: money. Nature's money is gold.

Summary: The coming deleveraging will transfer value from capital to gold. Now, back to the popular price-level words. Deleveraging is essentially deflation in terms of money (gold).

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In our fiat system, the powers that be are intent on preventing falling prices and paying off debts with useless dollars. Thus, they have the printing presses running day and night. They think they can control the amount of debasement that occurs, but like any central planner, they underestimate their limitations. Value is subjective, and the value of dollars is dependent not just on how many are in circulation, but how much the rest of us desire them.

Summary: The dollar will be debased nearly completely.

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Super summary: The future involves a deleveraging carried out with respect to gold and a debasement of the dollar. In the parlance of the times, deflation in terms of gold, and hyperinflation in terms of dollars.

SuperDuper summary: The price of most things in dollars should increase. The price of most things in gold will decrease, or said another way, gold will increase in value faster than pretty much everything else.

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Corollary: The prevailing disagreement among people who follow this stuff seems to be inflation vs deflation. So which is it?

Yes.

This is the wrong framework. They're both correct. The underlying structural change to the economy involves a deflation, but it's deflation priced in gold, not dollars. At the same time, the Fed's money printing will cause a hyperinflation priced in dollars. The dollar price of gold will rise faster than the dollar price of anything else.


Hayek vs. Keynes Sequel


Tea-Party: No monopoly on stupidity

The Rally to Restore Sanity hardly compares to the once grass-roots tea party activities, so indeed I am comparing apples to oranges when place these side by side, but the point stills stands. The Tea Party movement has no monopoly on uninformed adherents, apparently (if voting records aren't apparent enough) the democratic party has its share of useful idiots who will vote party line without any sort of idea what constitutes the policy the party advances.

Now, I know this is not a surprise to anyone, but I found the video just as humorous as the "worst of the Tea Party" videos.

Forget voting, contending with all these mouth breathers just to waste an hour of my day participating in a purely symbolic act of granting moral authority to whichever thief king spoke the fanciest on the glow box last.


What are the rules? And what are the judgments?

Remember my co-worker who was thinking about walking away from his mortgage? Well, he recently did exactly that. His mortgage was around $2500/month. Now he's renting a similar sized house (maybe a bit smaller) for about $1200/month. Financially, it's a no-brainer for him.

When I talk to him about it, he doesn't see himself having any role in what went wrong--"You know, Jonathan, I work hard, pay my taxes, and keep my promises, but when the housing market does something as crazy as this, I really have no other choice."

In other words, the fact that his house dropped in value by $200,000 is something akin to a natural disaster...an earthquake or hurricane. He had nothing to do with it. He's a victim. His purchase of the house was something within the rules, within the background structure of society. It's something that people do at a certain point in their lives. It was not a judgment.

Of course, I don't see it that way. He bought the house at a bubble peak. When someone makes a purchase by taking out a loan, he's making a judgment call. Sure, there are background rules - mortgage laws, tax rates, interest rates, etc. But the purchase is a judgment about the future value of that purchase. And people are indeed responsible for that judgment.

My co-worker sees himself as a good citizen who follows the rules and was victim of the whims of nature. I see him as a good citizen who follows the rules and made a bad judgment for which he bears some responsibility.

I bring this up because there was a recent essay by Gonzalo Lira called "The Coming Middle-Class Anarchy" (not the good kind) in which he talked about a retired couple who are simply giving up on the system.

Just like the poker player who’s been fleeced by all the other players, and gets one mean attitude once he finally wakes up to the con? I’m betting that more and more of the solid American middle-class will begin saying what Brian and Ilsa said: Fuckit.

Fuck the rules. Fuck playing the game the banksters want you to play. Fuck being the good citizen. Fuck filling out every form, fuck paying every tax. Fuck the government, fuck the banks who own them. Fuck the free-loaders, living rent-free while we pay. Fuck the legal process, a game which only works if you’ve got the money to pay for the parasite lawyers. Fuck being a chump. Fuck being a stooge. Fuck trying to do the right thing—what good does that get you? What good is coming your way?

Fuckit.

When the backbone of a country starts thinking that laws and rules are not worth following, it’s just a hop, skip and a jump to anarchy.

TV has given us the illusion that anarchy is people rioting in the streets, smashing car windows and looting every store in sight. But there’s also the polite, quiet, far deadlier anarchy of the core citizenry—the upright citizenry—throwing in the towel and deciding it’s just not worth it anymore.

The essay got a lot of readers and was reprinted in innumerable places. The featured couple is a lot like my co-worker: they follow the rules, pay their taxes, etc. They're middle America.

What few people notice about Lira's couple is that they took out a massive loan during their retirement! Is that wise? Isn't that risky? Retirement should be a time of thrift, a time to live off your accumulated savings, not the time to take out a massive loan for a house in a gated community on the golf course. I guess the easy credit of the past few decades has become such an essential part of American life that taking a big loan during retirement is, ahem, par for the course.

What bugs me about both the couple in Lira's essay and my co-worker is a refusal to see how their poor judgment was a big part in their current woes. They see the bursting of the housing bubble as a random event that they had no way of predicting.

Sure, when middle-class people say "fuckit", that doesn't bode well for society. But what's worse is when people refuse to take responsibility for their own foolish, risk-laden decisions. The next decade is going to teach some painful lessons.