[QUOTE=fivemack;386469]As soon as a perceptible number of people demonstrate themselves willing to take out loans to pay for things, the cost of the things goes up to the amount at which the lowest-interest-available loan takes up some reasonable fraction of disposable income in perpetuity; and with the ludicrously low interest rates at the moment, you divide a reasonable fraction of disposable income by quite a small epsilon and come up with a number that is in principle impossible to afford without a loan.[/QUOTE]I'm quite sure that is incorrect for many things. You may have a good case for hosuing but not, I suggest, for stuff such as foreign vacations, cars, home electrical goods and restaurant meals. All of those have fallen in price in real terms over the last few decades for most people in most parts of the deveoped world. Quite a few have fallen in deflated currency prices. My first home computer, a Research Machines 380Z, would have cost me about £2000 in 1980 or so. I couldn';t afford it then and got it only because it was a gift in return for some freelance hacking for RM. My wife's first laptop was around £1700 in about 1990. Their present day equivalents are perhaps a quarter of those figures.

[QUOTE=xilman;386467]There's more than an element of the IGG attitude to many of these observations. When I were a lad, I grew up in a family where, by and large, if you couldn't afford something you didn't get it. The lesson stuck and the only significant loan I took out was a mortgage for housing. And you tell the youngsters of the day that and they won't believe you.[/QUOTE]
They won't!

The mortgage officer was giving me very strange looks when I put down 80% of my home's price and borrowed only the rest. I paid it off, too, before the 2nd year of the loan was over.

[QUOTE=xilman;386473]I'm quite sure that is incorrect for many things. You may have a good case for hosuing but not, I suggest, for stuff such as foreign vacations, cars, home electrical goods and restaurant meals. All of those have fallen in price in real terms over the last few decades for most people in most parts of the deveoped world. Quite a few have fallen in deflated currency prices. My first home computer, a Research Machines 380Z, would have cost me about £2000 in 1980 or so. I couldn';t afford it then and got it only because it was a gift in return for some freelance hacking for RM. My wife's first laptop was around £1700 in about 1990. Their present day equivalents are perhaps a quarter of those figures.[/QUOTE]

So only the really big-ticket stuff, the things people go into hock for years and decades for, have been price-inflated due to EZ-money debt programs? Great.

BTW, the vast majority of economists will tell you the price-deflation in items such as you note, i.e. the concept that advances in technology and manufacturing *should* lead to deflationary trends (= greater real wealth at the broadest societal levels) over time is aberrational and needs to be stamped out. Because if da peeps be 'tinking da prices a' 'tings be lower nex year, dey won' buy anyting dis year. (Much less going into debt to do so).

(By that 'reasoning', one would *never* buy a new computer or tech gadget, but the rare heretical economist who actually check his models via such real-life extrapolations has no future in academia or government.)

o [url=io9.com/how-chinas-rare-earth-weapon-went-from-boom-to-bust-1653638596]How China's "Rare Earth" Weapon Went From Boom To Bust[/url] (Followup on a topic that was covered in the MET threads back in 2008)

o For those of you who've been wondering what oligarchy-gadfly Matt Taibbi has been up to since leaving [i]Rolling Stone[/i] for First Look Media, the online alt-media venture funded by PayPal billionaire Pierre Omidyar, the answer is, alas, "bugger all". We can only hope that the announcement of [url=http://www.nakedcapitalism.com/2014/10/matt-taibbi-leaving-first-look.html]his leaving First Look[/url] bodes better for a return to the form he showed while at [i]Rolling Stone[/i].

As many have noted, the whole Taibbi/Omidyar dalliance seemed a bizarre marriage from the beginning: gadfly journaist famed for his merciless skewering of the oligarchy and need for investigative free-rein goes to work for control-freak tech billionaire oligarch. What could go wrong? /sarc

And ... he's back (at Rolling Stone), at least for now. That was quick!

[url=http://www.rollingstone.com/politics/news/the-9-billion-witness-20141106#ixzz3IJS13brU]The $9 Billion Witness: Meet the woman JPMorgan Chase paid one of the largest fines in American history to keep from talking[/url]

A five week online DelftX course on the economics of cybersecurity starts in January.
The price for participating is $250 (presumably U.S. dollars).

For further details:
[URL="https://www.edx.org/course/delftx/delftx-econsec101x-economics-4691#.VGt1AuOfp0o"]https://www.edx.org/course/delftx/delftx-econsec101x-economics-4691[/URL]

[QUOTE=Nick;387985]A five week online DelftX course on the economics of cybersecurity starts in January.[/QUOTE]

I am more interested in the security of cybereconomics myself, but thanks for the link!

[url=www.nakedcapitalism.com/2014/11/jonathan-gruber-obamacare-stupid-voters-couldnt-happen-nicer-shill.html]Jonathan Gruber, ObamaCare, and “Stupid Voters”: It Couldn’t Happen to a Nicer Shill[/url]

You have to read to the end to get to the "but note that ObamaCare is genuinely a bipartisan creation" part of the article.

Perhaps the only thing more annoying than Gruber's haughtiness, is that he is *right* - most 'merican voters *are* stupid. I don't mean in terms of IQ-style intelligence, but in terms of letting themselves be lied to, oh-so-easily distracted by partisan "hot button" distractions, and wilfully ignorantized about genuinely important issues, #1 of which is that in fact, and especially at the national level, there is very little difference between the 2 major parties in terms of who they serve, and the actions they support (e.g. with respect to warmongering, above-the-lawness of big corps, and unending support for idiotic US foreign policy and post-9/11 NatSec state trampling of the Bill of Rights.)

[URL="http://www.motherjones.com/politics/2014/11/paul-ryan-dynamic-scoring-tax"]The GOP Controls Congress. Now It Can Change How Math Works.[/URL]
An obscure budgeting trick could make Republican tax cuts for the wealthy appear less costly.
[QUOTE]Here's how it would work. In January, Republicans will be in charge of Congress. And that includes the Joint Committee on Taxation (JCT), which calculates how tax laws affect revenue, and the Congressional Budget Office (CBO), which produces official budget projections. Right now, when the CBO and the JCT calculate the impact of tax laws on government income, they consider how Americans might alter their behavior in response to tax rate changes. But these tax-math bodies do not evaluate how tax legislation could affect economic growth—largely because those sorts of impacts are hard to predict. Republicans have long claimed that tax cuts lead to greater economic activity that inexorably yields more tax revenues—a point much disputed. But Ryan, who in January will head up the House Ways and Means committee (which has jurisdiction over tax reform), and his fellow GOPers are looking to enshrine this Republican belief into the hard and fast calculations of Capitol Hill's number-crunchers.[/QUOTE]

[QUOTE=Nick;387985]A five week online DelftX course on the economics of cybersecurity starts in January.[/QUOTE]

On this theme, Bruce Schneier's [url=https://www.schneier.com/blog/archives/2014/11/economic_failur.html]Economic Failures of HTTPS Encryption[/url] links to a recent paper, "Security Collapse of the HTTPS Market", which borrows some terminology from the late great financial crisis to describe the dynamics. He quotes from the paper's conclusion:
[quote]Recent breaches at CAs have exposed several systemic vulnerabilities and market failures inherent in the current HTTPS authentication model: the security of the entire ecosystem suffers if any of the hundreds of CAs is compromised (weakest link); browsers are unable to revoke trust in major CAs ("too big to fail"); CAs manage to conceal security incidents (information asymmetry); and ultimately customers and end users bear the liability and damages of security incidents (negative externalities).

Understanding the market and value chain for HTTPS is essential to address these systemic vulnerabilities. The market is highly concentrated, with very large price differences among suppliers and limited price competition. Paradoxically, the current vulnerabilities benefit rather than hurt the dominant CAs, because among others, they are too big to fail.[/quote]

[url=thehill.com/policy/cybersecurity/225500-how-to-stop-the-government-from-snooping-on-your-phone]How to stop NSA from snooping on you[/url] | TheHill (snip emphasis mine):
[quote]While both Apple and Google have made similar security claims about their devices, Soghoian favors Apple.

“I think Apple is probably doing a better job on the security of their smartphones than any other electronics company,” he said.

[u]However, “security of Apple’s encryption is only as good as the password you use on the device,” he added[/u].[/quote]
...and furthermore, the security of Apple’s encryption is only as good as, well, the security of Apple’s encryption, which you have to take their word for - not so much in the maths of the crypto scheme(s) used as in their implementation. Article also goes on to describe that anything you store "in the cloud" is more or less completely insecure, and as most cloud-based data services back up user data to the cloud "for your convenience" they are thus incompatible with any reasonably strong notion of data security.

A great deal of money is spent on the security of smartphones and other such devices, but it is not the consumer's security: most of the time, he/she is viewed as one of the potential threats.

[url]http://arstechnica.com/tech-policy/2014/12/feds-want-apples-help-to-defeat-encrypted-phones-new-legal-case-shows/[/url]

[QUOTE=Nick;388787]A great deal of money is spent on the security of smartphones and other such devices, but it is not the consumer's security: most of the time, he/she is viewed as one of the potential threats.[/QUOTE]
There was a free weekend on all channels on cable and we watched the "Enemy of the State".
Way ahead of its time, that movie.
Already then, in 1998, dealt with this question! Tony Scott apparently knew too much.

[SPOILER]Reminds me to spend an evening reading conspiracy theories about his death.[/SPOILER]

[URL="http://www.iasc-culture.org/THR/THR_article_2014_Fall_McPherson.php"]Falling[/URL] -- William McPherson (Reprinted from [I]The Hedgehog Review[/I])
[quote]Like a lot of other people, I started life comfortably middle-class, maybe upper-middle class; now, like a lot of other people walking the streets of America today, I am poor. To put it directly, I have no money. Does this embarrass me? Of course, it embarrasses me—and a lot of other things as well. It’s humiliating to be poor, to be dependent on the kindness of family and friends and government subsidies. But it sure is an education.

Social classes are relative and definitions vary, but if money defines class, the sociologists would say I was not among the wretched of the earth but probably at the higher end of the lower classes. I’m not working class because I don’t have what most people consider a job. I’m a writer, although I don’t grind out the words the way I once did. Which is one reason I’m poor.

My income consists of a Social Security check and a miserable pension from the Washington Post, where I worked intermittently for a total of about twenty-five years, interrupted by a stint at a publishing house in New York just before my profit-sharing would have taken effect. I returned to the Post, won a Pulitzer Prize, continued working for another eight years, with a leave of absence now and then. As the last leave rolled on, the Post suggested I come back to work or, alternatively, the company would allow me to take an early retirement. I was fifty-three at the time. I chose retirement because I was under the illusion—perhaps delusion is the more accurate word—that I could make a living as a writer and the Post offered to keep me on their medical insurance program, which at the time was very good and very cheap.

The pension would start twelve years later when I was sixty-five. What cost a dollar at the time I accepted the offer, would cost $1.44 when the checks began. Today, what cost a dollar in 1986 costs $2.10. The cumulative rate of inflation is 109.7 percent. The pension remains the same. It is not adjusted for inflation. In the meantime, medical insurance costs have soared. Today, I pay more than twice as much for a month of medical insurance as I paid in 1987 for a year of better coverage. My pension is worth half what it was. And I’m one of the lucky ones.[/quote]

[QUOTE=ewmayer;388752]
...and furthermore, the security of Apple’s encryption is only as good as, well, the security of Apple’s encryption, which you have to take their word for - not so much in the maths of the crypto scheme(s) used as in their implementation. Article also goes on to describe that anything you store "in the cloud" is more or less completely insecure, and as most cloud-based data services back up user data to the cloud "for your convenience" they are thus incompatible with any reasonably strong notion of data security.[/QUOTE]

Apple are quite vigorously advertising the quality of their encryption implementation, with white papers that mention most of the right things - they've got secure areas in the CPU, AES keys are generated there and never exported, unlocking the device requires you to ask the secure area to check the passcode or the fingerprint and the secure area locks up unrecoverably after some number of failed pass codes.

Backups in the cloud appear to be encrypted with a key derived from the user's password, which is nothing like as good as an unexported key produced in secure hardware but about as good as you can sensibly get while allowing the backups to be restored onto different devices.

Effectively, there used to be very substantial government pressure for encryption in consumer devices to be inadequate, but after the Snowden revelations the manufacturers have decided they'd rather be on the side of the customer than on the side of the government; I'm willing to trust Apple's crypto pretty implicitly.

Where's the inflation? (Say this in the same tone as saying "Where's the beef?")

We've had central banks across the world printing money like a house on fire yet inflation worldwide is under 2 percent. We have had QE1, QE2, and QE3, and face the potential for QE4 here in the U.S. So I want to know, if we printed all these trillions of dollars, where's the inflation? If the Fed had printed 6 trillion dollars in 1980, we would have had Zimbabwe style inflation of thousands of percent a year. To control inflation, the Fed raises interest rates and reduces money supply until inflation runs screaming to hide in a corner. We saw that in spades between 1978 and 1985. But interest rates are sitting effectively at zero. I can borrow money at the bank for 4% interest on personal loans and about 2.5 percent for a mortgage. So I ask again, Where's the inflation?

Think about this for a minute. We are in uncharted territory. All the money printing and interest rate manipulating they could throw at the market barely kept inflation at the 2% level. This highlights an unprecedented level of deflationary pressure. Japan went into a deflation/stagnation economy 20 years ago and still has not recovered. I submit that the U.S. is in a deflagnation economy right now and there is no end in sight. What are the effects? Wages are effectively frozen to even shrinking a bit. Prices for critical goods like food are increasing. The market is riding a QE_heroin high that sees no end in sight. Where will this house of cards end?


On a separate note, look what is happening to power utility companies as solar penetrates the market.

There are fixed costs to maintain the grid power distribution network. The power utility companies bundle those grid maintenance costs into the retail price of power. By doing this, large power consumers disproportionately pay more to "subsidize" the grid. This results in the average consumer paying a relatively low price for grid access.

As these large consumers install alternative energy sources, power utility margins are squeezed making residential power service unprofitable to provide. Adding to the problem, residential users are now joining the party by installing solar. So the power company bottom line is being whacked by large businesses that jump ship and insult on top of injury, residential users are jumping ship too.

This leaves the utility company with no choice but to raise prices on the remaining consumers because solar users are no longer subsidizing the system. I'm not a whiz expert, but I can easily run the numbers to show that if solar reaches 1% of electricity consumption, the power utility business will begin to destabilize. They will have no choice but to raise prices on remaining users.

Wind power does not trigger this dynamic. The power utilities own outright or purchase from dedicated suppliers of wind power. There is no significant loss of user base with wind power.

Now the utilities are desperately working to insert access fees onto monthly bills. Solar businesses are screaming about unfair business practices. Regulators are anxiously scanning rate requests and trying to figure out what to do. Anyone with an ounce of forethought can see that buying a solar system now will not change a thing about the power utility raising the price for grid access, in fact will just speed up the process. The U.S. tax subsidy is still a potent motivator to install a system now, after all, it expires in 2016 and given the congress that was just elected, is unlikely to be renewed.

The inflation you seek is to be found in financial-asset (and housing, but the central wankers have effectively turned homes into financial assets, at least in most buyers' minds) valuations, which are once again deep into bubble territory.

At the consumer-price level, you shouldn't believe government-published inflation metrics -- There was an article back in August to the effect that the average cost to raise a child to age 18 in the US [url=http://money.cnn.com/2014/08/18/pf/child-cost/index.html]has hit nearly a quarter-million dollars[/url]. I posted that to [i]Naked Capitalism[/i] - forgot if I cross-posted here, don't feel like checking right now - and as I added at the time: [i]"the 10x increase since 1960 implies an average annual inflation rate of around 4.4%. As this survey does not include college education costs, factoring those in would give an even higher inflation rate."[/i].

At the same time, the one place inflation would actually be welcome in terms of helping the 99%, wages, we have been seeing persistently the opposite. To the economic & financial-policy elites, that's a bug, not a feature, even though in the long run it destroys demand, the lifeblood of genuine economic recoveries. Japan is example #1 in that regard. Thus, when debtor governments say "deflation", that may still be accompanied by real-world purchasing power erosion to the tune of several % per year.

Pair of related pieces on the turmoil in financial markets due to the recent collapse in oil prices:

[url=www.nakedcapitalism.com/2014/12/did-wall-street-need-to-win-the-derivatives-budget-fight-to-hedge-against-oil-plunge.html]Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge?[/url] | Naked Capitalism

[url=globaleconomicanalysis.blogspot.com/2014/12/russian-ruble-turkish-lira-ukrainian.html]Russian Ruble, Turkish Lira, Ukrainian Hryvnia Hit Record Lows; Global Currency Crisis on Deck[/url] | Mish

Massively leveraged junk-debt-fueled speculative oil bubble meets global glut due to drop in demand (as embodied by the major economic slowdown in China as the multiyear housing/credit-bubble chickens come home to roost there), in the context of "the global recovery that wasn't" -- looks like a set-up for a perfect storm to me.

And --

[url=http://www.reuters.com/article/2014/12/14/us-railways-crude-insight-idUSKBN0JS0DR20141214]U.S. taxpayers help fund oil-train boom amid safety concerns[/url] | Reuters

One more reason I'm cheering every added fall in oil prices, even though that conflicts with my "SUVs are evil" stance. Lesser of 2 evils, just like US electoral politics!

Deductable bank settlements with DOJ
 

[url]http://readersupportednews.org/news-section2/318-66/27583-banks-are-allowed-to-deduct-75-percent-of-fines-imposed-by-justice-department[/url]

Note to Ernst: The original is firewalled, and I have exceeded my 5-piece allowance at Newsweek. Besides, doesn't it add a special something, that RSN headed the article with photo of a very happy-looking Lloyd Blankfein?

[URL="http://www.treasury.gov/press-center/press-releases/Pages/jl9727.aspx"]Treasury Sells Entire Ally Financial Stake, Taking Total Recovery to $19.6 Billion and Closing Auto Rescue Program[/URL]
[QUOTE]In total, taxpayers recovered $19.6 billion on the investment, roughly $2.4 billion more than the original $17.2 billion investment in Ally, formerly GMAC. Including today’s proceeds, taxpayers have recovered $441.7 billion on TARP investments including the sale of Treasury’s AIG shares, compared to $426.4 billion disbursed. [/QUOTE][URL="http://www.detroitnews.com/story/business/autos/2014/12/19/ally-financial-government-exit/20633063/"]Treasury exits Ally, ends six-year auto bailout[/URL] (The Detroit News)
[QUOTE]The losses on the $85 billion auto industry were about $10 billion, but they saved hundreds of thousands of jobs.
"The auto industry financing program helped save the auto industry, more than 1 million jobs, and prevent a second Great Depression," Treasury Secretary Jacob J. Lew said.[/QUOTE]

So the Treasury and the FR were right on the bailout. Hmm.

[QUOTE=davar55;390549]So the Treasury and the FR were right on the bailout. Hmm.[/QUOTE]

Even if you believe this accounting (remember the administration will make every effort to put the best possible light on the numbers), then the Treasury made a $15 profit on a $400 billion investment. These investments were hugely risky (companies on the verge of bankruptcy). These companies were in dire need (days away from bankruptcy). These companies had no other options. And under those circumstances the best deal these so-called brilliant minds could negotiate yielded a whopping 4% profit in 7 years!!!!!! IMO, that is the very definition of a disgraceful giveaway. Coupled with no prosecutions and you have what can only be described as gross incompetence.

[QUOTE=Prime95;390553]Even if you believe this accounting (remember the administration will make every effort to put the best possible light on the numbers), then the Treasury made a $15 profit on a $400 billion investment. These investments were hugely risky (companies on the verge of bankruptcy). These companies were in dire need (days away from bankruptcy). These companies had no other options. And under those circumstances the best deal these so-called brilliant minds could negotiate yielded a whopping 4% profit in 7 years!!!!!! IMO, that is the very definition of a disgraceful giveaway. Coupled with no prosecutions and you have what can only be described as gross incompetence.[/QUOTE]

Exactly. And to put the risk/reward here in perspective: Warren Buffett made a $2 Bln profit (after 5 years) [URL="http://blogs.marketwatch.com/thetell/2013/09/30/buffett-to-make-2-billion-on-crisis-era-investment-in-goldman-sachs/"]on s similar $5 Bln depths-of-the-crisis investment in Goldman Sachs[/URL], with far less risk, due to the type of warrants he obtained (senior preferred shares) for his money.

Also, it is entirely pointless to blather about "how we made on this chunk" without discussing the status (and likely returns and default risks) of the remaining monies.

Moreover, focusing on TARP ignores the $trillions in other kinds of bailouts, whose amounts dwarf TARP and many of which were of the "backdoor" variety. A notable example being the roughly $1.5 Tln is mortgage-backed securities purchased from the TBTF banks by the Fed. In effect the banks exchanged trash ('illiquid' MBSes which never saw anything resembling a market pricing attempt) for cash - new money created by the Fed, most of which got parked right back at the Fed as interest-earning reserves, but which *belongs* to the banks. No provision for the banks to repurchase any of the debt "when market conditions improve", nor for the Fed to sell it back into the markets under similarly more-favorable conditions. In other words, the asset purchases appear to have been structured in a way which delays the loss recognition on the purchased debt as long as possible, that is, a decade or more, depending on the precise mix of mortgage terms involved.

All of these trillions in backdoor bailouts obviously helped hugely to make the banks going concerns again, thus making it possible for them to "repay TARP monies, with interest". It's as if you had a spendthrift kid who pesters you to help him build a lemonade stand - you give him $25 for lemons and sugar (TARP), blow another $200 to rent a spot at the local farmer's market for him to park the stand (backdoor bailouts), he makes $26 gross, and you brag to your work buddies the following Monday about how your kid learned the beauty of free-market capitalism and made you $1 in profit, to boot.

Much more on the Big Lie of "banks paid back TARP money, with interest" courtesy of David Stockman (here via ZH). Compare the overall amounts of the "total consumer-borne bank subsidy due to financial repression" to the 'profit' from TARP - heck, compare it to the entirety of TARP, period. In other words, as I've noted on several occasions in the past few years, TARP was constituted as (or quickly morphed into) the "PR-oriented public face of the bank bailouts"; the real bailout [i]Schmutz[/i] was going on via multiple less-easily-grasped-by-the-rubes channels, and is in fact ongoing, with no end in sight, except for a temporary suspension of overt (= asset-purchase-based) QE which you can rest assured will be restarted with zeal once the latest ginormous bubble begins to deflate in earnest:

[url=www.zerohedge.com/news/2014-12-23/greater-abomination-washingtons-lies-about-tarps-success-are-worse-original-bailouts]The Greater Abomination: Washington's Lies About TARP's "Success" Are Worse Than The Original Bailouts, Part I[/url] | Zero Hedge
[quote]The policy apparatus of the state has subjected savers to brutal punishment for one reason alone. Namely, to enable the insolvent big banks of America to dig their way out of the deep hole they were in at the time of the financial crisis. By scalping false profits from the Fed’s regime of financial repression, they have, in fact, been able to return accounting profits to pre-crisis levels and beyond.

And here’s why. Thanks to the Fed, banks’ “cost of production”—–that is, the funding cost of earning assets—–has been practically eliminated.

Click on graph area to view data points table

Stated differently, ZIRP has enabled banks to carry $10 trillion of deposits at negative real interest rates. During the 72 month since ZIRP was officially embraced in December 2008, the CPI has risen by 12% (1.9% per annum). That compares to an average return on six months CDs over the same period of 0.4%. Call that a negative 1.5% real rate on the banks cost of funds.

This has been called the Fed’s “No Banker Left Behind” program and for good reason. [b]Financial repression extracts at least $700 billion annually from bank depositors[/b]. At current tax and inflation rates, an honest free market would require at least a 4% deposit rate or 350 bps more than the average bank cost of funding shown above.

And that’s just for starters. As will be shown in Part II, banks—especially the giant Wall Street banks and financial supermarkets—-have profited in many other ways from financial repression. These include hundreds of billions of mortgage banking profits that were skimmed from the mortgage “refi” boom of 2010-2013. When the Fed used QE to scoop up more than $1 trillion of GSE securitized mortgages, and thereby drove home mortgage rates to as low as 3.25% in 2012, banks led by Wells Fargo booked massive gains through the magic of “gain-on-sale” accounting.

The banks’ financial repression windfall also included the underwriting profits from the huge boom in investment grade and junk bond issuance. This multi-trillion issuance frenzy over the last six years had very little to do with market economics or real asset investment; these new funds went overwhelmingly into stock buybacks, LBO’s, cash M&A deals and other forms of financial engineering.

And, it goes without saying, that the Fed’s massive buying of US treasury debt provided yet another form of windfall. Banks loaded up with government securities during the past five years, knowing that the Fed had put a floor under bond prices, permitting them to scalp virtually risk free returns owing to their 0.4% funding costs.[/quote]