[QUOTE=Spherical Cow;263112]Yep- completely agree with you on that one. But I can't help but think an academic background on unemployment/employment wouldn't be useful on the Fed board. The Long Term Capital Managment people were mostly Salomon Brothers professionals, I think.

Norm[/QUOTE]

The failure was because of one thing: they failed to include any kind of
catastrophe theory into their risk models; They ignored tails of distributions.
In Bayesian terms: the penalty functions that they used in their models
to estimate the cost of being wrong grossly underestimated those costs
within the tails of their distributions. Instead, they buried their heads in
the sand and took the attitude that the extreme cases would not happen.
In their instance, the extreme event was the collapse of the Russian
economy.

[QUOTE=R.D. Silverman;263119]The programmers used to tell jokes about the economists.

One of the favorites was "If you laid all of the economists in the world
end-to-end, they still wouldn't reach a conclusion".

Another was: What do you have with a room full of 10 economists?
Ans: 20 different opinions about how the economy will behave in the next
6 months.[/QUOTE]

Excellent- especially the economists "end-to-end"!

Below is the equivalent of your second joke from the geosciences world. In a groundwater rights court case in Nevada, in which I was an expert witness, the other side was trying to justify some pretty creative contouring of groundwater levels and flows. The State Engineer and Hearing Officer were questioning a panel of the other sides's experts- All of this is under oath, remember. I kept a copy of the transcript because this part was so entertaining.

STATE ENGINEER: So I guess we go back to this very same question is, you could have a hundred hydrogeologists draw these lines and they could have a hundred different comments.
WITNESS X: Actually, you could have a hundred different hydrogeologists and you could probably get two to 300 interpretations. The reason why the 2,200 contour
wasn’t extended over, (…).
HEARING OFFICER: So let me ask you this, Mr. X. If I had a hundred geologists who are going to give me 300 diagrams, how do I rely on any of this evidence?
WITNESS Y: Take the one with two left hands.

HEARING OFFICER: It’s a serious question.

(The courtroom became embarrassingly quiet at that point...)

Norm

Portugal: Socialists Ousted | Wienergate Newsflash
 

[url=http://www.nytimes.com/2011/06/07/world/europe/07iht-portugal07.html?_r=1&ref=world]A New Leader in Lisbon, but Little Triumphalism[/url]: [i]As jubilant supporters filled Lisbon’s Marquês de Pombal square, Pedro Passos Coelho, the Social Democrats party leader and the country’s next prime minister, had a more sobering reaction to victory.[/i]
[quote]“We have absolutely no reason to fuel triumphalism,” he said late Sunday night after the Social Democrats defeated the governing Socialists in a general election. “The years that await us will require a lot of courage from all of us and from Portugal.”

Indeed, Mr. Passos Coelho’s new center-right coalition government faces the daunting task of making painful spending cuts and other changes agreed last month with international lenders in return for a bailout worth €78 billion, or about $114 billion, at a time when Portugal’s economy is forecast to contract 2 percent this year and next.

In effect, Mr. Passos Coelho is taking charge of “an executive that will be mostly an executor of the austerity measures and reforms agreed with the European Union and the International Monetary Fund,” said Cristina Casalinho, chief economist of BPI, a Portuguese bank.

His ability to steer Portugal’s economy out of recession could also be limited by continued turmoil within the euro zone. While Portuguese government bonds rose on Monday amid relief that the election had yielded a clear-cut outcome, yields on Portuguese sovereign debt have remained close to record highs since the bailout agreement, reflecting in part investors’ concerns about Greece. The government in Athens is discussing further financial assistance after already requiring an E.U.-led bailout last year.

“Regardless of what this new government manages to do, we are unfortunately in a context where what happens to Portugal is not entirely within its control and where, if Greece collapses completely, that will mean serious contagion for us,” said Pedro C. Magalhães, a professor of politics at the University of Lisbon.

Despite his limited room to maneuver, Mr. Passos Coelho pledged during his electoral campaign to oversee an overhaul of Portugal’s economy that would go beyond the terms dictated by international lenders.

The response from voters was to unseat the Socialists, led by José Sócrates, the caretaker prime minister, by a larger voting margin than anticipated. The Social Democrats won 39 percent of the vote against 28 percent for the Socialists. The conservative Popular Party, which is expected to join the Social Democrats in government as its coalition partner, won almost 12 percent of the vote. The center-right coalition is set to have at least 129 of the 230 seats in the national Parliament.

“My feeling is that lots of young people voted for the right on Sunday because they have understood that left-wing resistance to change was no longer an option given the disastrous state of the Portuguese economy,” said André Marquet, 30, co-founder of Beta-i, a Lisbon-based association that promotes start-up companies. “This new government has promised to take a much more liberal approach, including making labor laws more flexible so that it is easier to hire young people, as well as fire those who had complete job protection whatever their actual work performance.”

Overhauling labor legislation is a challenging task, as underlined in neighboring Spain, where negotiations over changing the system of collective bargaining recently faltered. Some economists also question the ability of any government to enact reforms in other areas in the face of vested interests, like a pledge to streamline local layers of government or overhaul Portugal’s cumbersome judiciary.

Mr. Passos Coelho is also taking charge as Portugal’s jobless rate has climbed above 12 percent, with unions threatening to intensify labor unrest should the new government carry out steeper spending cuts and privatize more state-owned companies.[/quote]

[i]My Comment:[/i] But enough about "the trials of Sócrates" - the really exciting news today is this shocking confession in the "Wienergate" scandal:

[url=http://cityroom.blogs.nytimes.com/2011/06/06/live-blog-anthony-weiner-news-conference/?ref=nyregion]Weiner Says He Sent Photos and Lied; Won’t Resign[/url]: [i]In a news conference, Representative Anthony D. Weiner said he had communicated with women online and sent them explicit photos. He said he would not resign. [/i]
[quote]At a news conference in Midtown Monday afternoon, Representative Anthony D. Weiner tearfully confessed to sending a photo of himself in his underwear to a woman over Twitter, then lying about it.

Mr. Weiner said the indiscretion was part of a pattern of sending inappropriate photos and messages to women he met over the Internet.

Mr. Weiner apologized repeatedly. He said he had no intention of resigning, that he had broken no laws and that while his wife was upset with him, his marriage was not ending.[/quote]
[i]My Comment:[/i] One could have some fun with the grammatical ambiguity in the above snip: "Who cares if he was in his undies when he sent the photo? What was he wearing in the photo is what I want to know".

I follow many of the scandals like Wienergate with considerable fascination -- these are [I]teh [/I]masters of the universe.

= = =

Regarding usefulness or reliability of employment or other economic indicators, I like [URL="http://en.wikipedia.org/wiki/Goodhart's_law"]Goodhart's Law [Wikipedia][/URL]
[QUOTE]Goodhart's law, although it can be expressed in a variety of formulations, states that once a social or economic indicator or other surrogate measure is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role.[/QUOTE]

I'd first heard of this expression last March in a brief blog mention by Terence Tao:
[QUOTE]Goodhart's law at work, in the citation indices of applied mathematics journals. (This article was co-published at the Australian Mathematical Society Gazette and the Notices of the AMS, and also is on the arXiv.)

[url]http://www.austms.org.au/Publ/Gazette/2011/Mar11/MathsMatters.pdf[/url][/QUOTE]This quoted link is to a journal article, not Terence's blog.

Chaos theory at work?



No, I'm not referring to weiner's weiner pickle. He is more of a rear end than a weiner anyway.

On a more serious note, sideways motion in the market indicates extreme instability. This suggests a major downward move later this summer. September and October should be "interesting".

It will be interesting to follow the price of gold and silver over the next few months.

DarJones

Triumph of the Debt Pushers
 

Check out how successful decades of marketing and pushing-their-way-into-every-aspect-of-people`s-financial-lives have been for the debt merchants - That is a very sick, twisted [i]Lebenssanschauung[/i] they have promoted, reminds me very much of the "smoking is sexy and cool" marketing used so successfully for decades by Big Tobacco (whose methods the debt-promters likely studied very closely):

[url=http://researchnews.osu.edu/archive/youngdebt.htm]WHAT, ME WORRY? YOUNG ADULTS GET SELF-ESTEEM BOOST FROM DEBT[/url]
[quote][b]Instead of feeling stressed by the money they owe, many young adults actually feel empowered by their credit card and education debts, according to a new nationwide study.

Researchers found that the more credit card and college loan debt held by young adults aged 18 to 27, the higher their self-esteem and the more they felt like they were in control of their lives. The effect was strongest among those in the lowest economic class.
[/b]
Only the oldest of those studied – those aged 28 to 34 – began showing signs of stress about the money they owed.

“Debt can be a good thing for young people – it can help them achieve goals that they couldn’t otherwise, like a college education,” said Rachel Dwyer, lead author of the study and assistant professor of sociology at Ohio State University.

But the results offer some worrying signs about how many young people view debt, she added.

“Debt can be a positive resource for young adults, but it comes with some significant dangers,” Dwyer said.

“Young people seem to view debt mostly in just positive terms rather than as a potential burden.”[/quote]
What do you mean, "potential burden"? It`s a guaranteed burden, the only question is how onerous it is. and the "positive terms" view of debt is precisely what its peddlers work relentlessly to promulgate.
[quote]For this study, the researchers examined data on two types of debt: loans taken out to pay for college, and total credit-card debt. They looked at how both forms of debt were related to people’s self-esteem and sense of mastery – their belief that they were in control of their life, and that they had the ability to achieve their goals.

“Debt can be a good thing for young people – it can help them achieve goals that they couldn’t otherwise, like a college education,” said Rachel Dwyer. But the results offer some worrying signs about how many young people view debt, she added.

Researchers have had two competing views of how debt might affect people’s self-concept, Dwyer said. Some have said debt should have positive effects because it helps people invest in their future. Others have said credit should have negative effects because it allows people to spend more money than they make, thereby risking their future.

“We thought educational debt might be seen as a positive because it is an investment in their future, while credit card debt could be viewed more negatively,” Dwyer said.[/quote]
Why am not surprised that a professional educator would unquestioningly view educational debt as a positive "investment in one`s future"? No mention of "will that degree funded by debt actually pay off in any meaningful way?" or "What is the expected return on investment for various kinds of degrees, schools and debt profiles?"
[quote]“Surprisingly, though, we found that both kinds of debt had positive effects for young people. It didn’t matter the type of debt, it increased their self-esteem and sense of mastery.”

Some young people may be using credit card debt to help finance their college education – for items like textbooks -- which is why they may see it as a positive, she said. But there is no way to know that from the data.

“Obviously, they are probably using credit cards for multiple purposes. Along with education spending, they could be using credit cards to pay for non-essential items. They may feel good about their debt only because it allows them to buy the things they want without having to delay gratification.”

But how debt affected young people depended on what other financial resources they had available, the study found.
[b]
Results showed that those in the bottom 25 percent in total family income got the largest boost from holding debt – the more debt they held, both education and credit card, the bigger the positive impact on their self-esteem and mastery[/b].[/quote]
...Until they get to the "you have to pay this back, you know that, right?" stage of their self-awareness ... probably happens for most once the debt burden gets sufficiently large, say between the ages of 28-34. (See above)

The actual research paper (hat tip [url=http://market-ticker.org/akcs-www?post=187671]Karl D.[/url]) has a more sobering conclusion than the above popular-media description of it:
[quote]More broadly, the sociological implications of the new debt society extend beyond the travails of the individuals caught up in this transition and their behaviors, stresses, and adjustments. The debt society also has important implications for the broader political economy of contemporary society. [b]State and Federal policies that reduce tuition supports and substitute college loans for affordable tuition all but guarantee that current generations of college graduates will enter the labor force with significant, sometimes grinding, debt (Jacoby, 2002). Spiraling debt is thus not accidental or the result of a failure of character by the current generation. The privatization of college loans and the windfall profits accruing to lenders charging relatively high interest rates on loans that are guaranteed by the government and thus have limited risk is not an accident either. It is a result that has been directly engineered by political appointees to Sallie Mae and other government lending agencies that represented the interests of lenders over those of borrowers – including students (Schemo, 2007)[/b]. These actions have implications for our nation as a whole, not just for young people, not the least of which is the privatization of what are in fact societal-level problems and shortfalls and the furthering of a society that mortgages the future rather than pays forward.[/quote]

In the news today is a snippet that the EU/ECB and IMF do NOT know what to do about Greece.

Let me give you a hint folks. You have a choice between sinking the entire ship or tossing Greece overboard.

[url]http://moneywatch.bnet.com/economic-news/news/dow-falls-below-12k-stocks-drop-6-weeks-straight/6245500/[/url]

DarJones

Mish also has a post today about the escalating cat-fight over Greece:

[url=http://globaleconomicanalysis.blogspot.com/2011/06/open-revolt-against-trichet-german.html] Open Revolt Against Trichet: German Politicians Demand "Private Creditor Involvement"; Finland Support for Bailout Vanishes[/url]
[quote]The feud between ECB president Jean-Claude Trichet and German finance Minister Wolfgang Schaeuble escalated in a major way today with members of German Parliament siding with Schaeuble and against the wishes of the ECB.

As expected ... Trichet went into another hissy-fit, insisting that he, not the markets, not voters, not the German parliament knows what's best for the EU.[/quote]

Greece has a credit problem. They have borrowed beyond their ability to repay. Now the debt is cascading with ever higher interest rates demanded by lenders.

Greece turned to the ECB and IMF for funding because that was the only way they could avoid the debt squeeze coming from the bond market. A bailout package worth about $158 billion was put together last May to give them roughly 2 years of breathing room.

Austerity measures were implemented with typical Greek enthusiasm.... meaning that they were ineffective at best. The austerity measures were supposed to get Greece on firm footing to borrow from the bond market with reasonable interest rates. They were too little too late so now ECB/IMF funding is the only way Greece can borrow at a rate that might be sustainable.

Now we have squabbling breaking out among EU member nations over further funding. You can compare this to borrowing $150 billion from your rich uncle Joe. The reason you had to borrow from uncle Joe is that you lived a riotous life and spent more than you made and by the way, ruined your credit in the process. Now the only way you can borrow money to sustain your riotous lifestyle is to borrow from Uncle Joe who lives within his means and has excellent credit. There is only one problem. Uncle Joe insists you give up the riotous lifestyle and buckle down to paying him back.

This highlights the risks associated with the European Common Market. One failing economy can put the entire zone in a near default situation. While I would like to say there is hope for Greece, realistically, the only way this can be resolved is to suspend Greece from the EU, let them spend as long as needed to get their financial house in order, then re-admit them. This would take a minimum of 10 years and would involve major blood letting when Greek bonds are devalued. Sadly, I don't think the EU has the gumption to take this hard line approach.

DarJones

[QUOTE=Fusion_power;263530]Greece has a credit problem.[/QUOTE]The Beeb has a good coverage of the latest Geek situation. See [url]http://www.bbc.co.uk/news/world-europe-13783224[/url] and links therein.

Executive summary: no-one can see any way out other than a default of some kind, even if it's not called that in order not to frighten the neighbours.


Paul

[QUOTE=xilman;263859]The Beeb has a good coverage of the latest Geek situation. See [url]http://www.bbc.co.uk/news/world-europe-13783224[/url] and links therein.

Executive summary: no-one can see any way out other than a default of some kind, even if it's not called that in order not to frighten the neighbours.[/QUOTE]
The problem for Greece, the entities holding wads of its IOUs and most especially the ECB is the major ratings agencies - shocking as it is to see them actually doing some semblance of 'their job' after so many years of ratings-whoring-for-pay - have put the interested parties on notice that any kind of significant debt restructuring (such as is in fact needed), no matter how it is weasel-worded, will be treated as a default in terms of counting as a 'triggering event' for manifold billions in credit-default swaps outstanding on Greek debt. No one really knows how much, since the iBanks which write most of these have purposefully ensured that the CDS markets remain as murky as possible. Here is an excellent recent post from Mish with links to articles about the latest twists in the "Greek Tragedy" - the last section of the post has some very interesting commentary on the CDS angle here:

[url=http://globaleconomicanalysis.blogspot.com/2011/06/emergency-session-fails-market-calls.html]Emergency Session Fails; Market Calls Trichet's Bluff; French Banks Under Downgrade Review; ECB Divorced From Reality; What is US Exposure to EU Mess?[/url]

To me it appears that the rift between the "banks must be protected from the consequences of the own folly at all costs" attitude of the ECB leadership and an ever-more-skeptical Germany appears to be unbreachable at this point. The ECB of course has bought boatloads of Greek debt and knows that a default would trash its balance sheet and probably destroy what little it has left of its dwindling credibility. But ECB head Trichet is one of the ur-EMU backers and is committed to going down with the ship, even if it means dragging most of the still-viable Eurozone economies down with it.

For a refreshing contrast to the situation in Greece and Ireland (and Portugal, and Belgium, and soon Spain and Italy, and not too long from now, France, Japan, and the U.S.), note that a scant 2 years after resolving its own banking crisis by nationalizing the blown-up banks, firing their management (and even pursuing criminal prosecutions of some of same), telling bondholders to get stuffed and suffering dire warnings about currency collapse and "being shut out of the international bond markets forever", Iceland is well on the way to recovery:

[url=http://www.theglobeandmail.com/report-on-business/international-news/global-exchange/icelands-no-bailout-stance-hasnt-chilled-investors/article2060163/]Iceland’s ‘no bailout’ stance hasn’t chilled investors[/url]
[quote]Iceland’s method of coping with the financial crisis had a brutal charm about it. In essence, the country hoisted its middle finger to the owners of bank bonds, and a few other people it owed money to, and walked away.

It worked. For evidence, note that Iceland made a triumphant return to the international bond markets late last week, and that its tiny economy is growing at a fair clip, both remarkable achievements when you consider its punishing economic and banking collapse in late 2008.

And therein lies a lesson. Make that two. The first is that bond holders of clapped out banks can, and should, take losses for the greater good of the recovery. The second is that keeping your own currency is a terrific idea when you’re going through economic hell -- it gave Iceland the fiscal freedom that Greece, Ireland and Portugal entirely lack.

Iceland’s sale of 5-year bonds raised $1-billion (U.S.) at 5 per cent, not cheap but a bargain compared to the outrageous yields of comparable Irish and Greek bonds (though neither is able to borrow and is relying on emergency European Union and International Monetary Fund loans stay afloat).

Given the way Iceland treated bondholders, it seems a miracle that the government was able to push the new bonds out the door. Three of Iceland’s banks collapsed in October, 2008, shortly after the Lehman Bros. implosion tore the global financial system apart. Iceland refused to bail out the bank bond holders -- they took “haircuts,” to use the argot of the debt markets.

Iceland determined that it was under no legal or moral obligation to underwrite the reckless behaviour of its commercial banks, whose assets soared to 10 times gross domestic product, making them grenades ready to explode. Ireland took the opposite view and guaranteed its banks, much to the rage of the taxpayers. As a result, Ireland’s debt-to-GDP has climbed four-fold since the financial crisis.

Iceland also refused to compensate Britain and the Netherlands for reimbursing the more than 300,000 depositors of Icesave, one of Iceland’s dud banks. The depositors should have received the money from the Icelandic government’s depositor protection scheme, but the country did not have a kronor to spare (proceeds from the liquidation of Landsbanki are expected to meet much of the liability, which explains why Britain and the Netherlands, though angry, have not gone berserk).[/quote]
[i]My Comment:[/i] When it comes to dealing with bankers and big finance, the rest of the world should endeavor to "think Viking".