Saturday, December 31, 2011

A Fresh and Wild Perspective

This is a 25 minute piece with Slovenian born philosopher, Slavoj Zizek
looking at our almost 2012 capitalist world and telling us he sees an underlying energy for something very new. He calls himself a pessimist; but I am not so sure.

Another Miracle

A poet friend of mine, David Whyte, told me that Samuel Coleridge almost went mad after seeing the flocking patterns of starlings. Nothing in the scientific, linear world explained it. How could such complex, synchronized, flowing movements happen spontaneously, without apparent direction? Scientists can explain it now. It turns out hugely complex systems can organize themselves with as few as one simple principle - in this case, maintain distance and attitude in relation to the next starling in the pattern.This is true in complex human systems as well: any complex system organizes itself around clear principles of identity. If everyone in the system knows the principles and are committed to abiding by them, the system can self-organize, grow and develop in astounding ways. I like to look at this like Whittier did, when he said, "As for me, I know of nothing else but miracles."

Murmuration from Sophie Windsor Clive on Vimeo.

Some Questions Must Be Answered


if you move carefully
through the forest
like the ones
in the old stories
who could cross
a shimmering bed of dry leaves
without a sound,
you come
to a place
whose only task
is to trouble you
with tiny
but frightening requests
conceived out of nowhere
but in this place
beginning to lead everywhere.
Requests to stop what
you are doing right now,
to stop what you
are becoming
while you do it,
that can make
or unmake
a life,
that have patiently
waited for you,
that have no right
to go away.
~ David Whyte ~
(Everything is Waiting for You)

Sunday, December 25, 2011

Creation Charged: Two Poems and a Picture

The Sower  Vincent van Gogh

God's Word is in all Creation

By Hildegard of Bingen

No creature has meaning
without the Word of God.
God's Word is in all creation,
visible and invisible.
The Word is living, being,
spirit, all verdant greening,
all creativity.
This Word flashes out in
every creature.
This is how the spirit is in
the flesh—
the Word is indivisible from God.

 God's Grandeur

By Gerard Manley Hopkins

THE WORLD is charged with the grandeur of God. 
It will flame out, like shining from shook foil;  
It gathers to a greatness, like the ooze of oil Crushed.
Why do men then now not reck his rod? 
Generations have trod, have trod, have trod;    
And all is seared with trade; bleared, smeared with toil;  
And wears man’s smudge and shares man’s smell:
the soil Is bare now, nor can foot feel, being shod.  
And for all this, nature is never spent;  
There lives the dearest freshness deep down things;       
And though the last lights off the black West went 
Oh, morning, at the brown brink eastward, springs
— Because the Holy Ghost over the bent  
World broods with warm breast and with ah! bright wings.

Joy Expressed

Liz Foldi is a friend of mine. Among other wonderful things, she is a dancer. Part of her life is a dance ministry, using dance as an element of sacred expression, a kind of liturgy in motion. I find it profoundly uplifting. Joy Expressed. The words to the song are after the break.

Saturday, December 24, 2011

The Annunciation

The Annunciation  Fra Angelico

The Annunciation
By Denise Levertov

We know the scene: the room, variously furnished,
almost always a lectern, a book; always
the tall lily.

Arrived on solemn grandeur of great wings,
the angelic ambassador, standing or hovering,
whom she acknowledges, a guest.

But we are told of meek obedience. No one mentions
The engendering Spirit
did not enter her without consent. God waited.

She was free
to accept or refuse, choice
integral to humanness.

Aren't there annunciations
of one sort or another in most lives?
Some unwillingly undertake great destinies,
enact them in sullen pride,

More often those moments
when roads of light and storm
open from darkness in a man or woman,
are turned away from
in dread, in a wave of weakness, in despair
and with relief.
Ordinary lives continue.

God does not smite them.
But the gates close, the pathway vanishes..

She had been a child who played, ate, slept
like any other child - but unlike others,
wept only for pity, laughed
in joy not triumph.
Compassion and intelligence
fused in her, indivisible.

Called to a destiny more momentous
than any in all of Time,
she did not quail,
only asked

a simple, "How can this be?"
and gravely, courteously,
took to heart the angel's reply,
perceiving instantly
the astounding ministry she was offered:

to bear in her womb
Infinite weight and lightness; to carry
in hidden, finite inwardness,
nine months of Eternity; to contain
in slender vase of being,
the sum of power -
in narrow flesh,
the sum of light.

Then bring to birth,
push out into air, a Man-child
needing, like any other,
milk and love -

but who was God.

Are We Broke?

No. But it's amazing what per cent of the country thinks we are.

Expanding deficits. Public debt that has just passed 100% of GDP, or $15 Trillion. So when pundits and political leaders say we're broke, it's easy to believe them.

We are just not broke, and that's the simple truth. Why not? Because we have our own "fiat" currency that is not tied to gold or to a fixed peg to some other currency. Our currency floats freely with market conditions. The country has no debts in some other currency that could prove a problem. We can issue, or print as much as we like, whenever we like. If we owe money in dollars, we can always print dollars. Not by actually issuing a new pile of greenbacks, but by issuing notes or bonds - some IOU that says this note/bond/IOU is backed by the full faith and credit of the United States. As long as people accept that pledge, we have as much money as we want or need.

Thursday, December 22, 2011

2012: My Questions, Issues and Hopes

I am sitting in the Nashville airport, with a three hour delay in my flight to Phoenix to be with my son, Chris, who lives there with his Mom and Step-Dad, and my daughter Maren, who is flying in from Washington DC tomorrow. I want to list, in no particular order, the questions I carry into 2012; what I feel are a few of the major issues; and  one or two hopes for what may happen:

1. Europe has dominated my thinking for several months. I am deeply troubled by the top-down, imposed austerity that is being put in place by the Eurocrats. It is the apparently invariant neo-liberal orthodoxy practiced by the IMF for many years in the developing world, and adopted 100% by the Germans, and, with less power, by the French. The answer to any sovereign budget problem is "fiscal consolidation", which means austerity, budget cuts, and tearing huge holes in the social safety net and the powers of unions. Austerity will not work in Europe (as it also will not work in the UK or in the US). The problem is not public deficits, or public debt buildup. It's an imbalance in trade competitiveness, leading to large surpluses in Germany, almost identically offset by current account deficits in the periphery. Why would Germany want to punish its customers? It is nonsensical. What the periphery needs, and what they had before the 2008 crisis, is good vendor financing and PDI (Private Direct Investment). Europe, at some level, and in some form, will blow up in 2012: sooner, if the ECB continues to refuse the role of lender of last resort; later, if the ECB takes up the mantle of unlimited purchases of sovereign  bonds. There will be, early or late in 2012, I believe, a major credit event (one or more countries leaving the Euro, one or more major bank collapses, etc.) The US will get hit, and possibly, hammered. One or more banks may go down. My hope: this will give us a second chance to break up the banks into smaller, more manageable entities, and wipe out a ton of private mortgage debt that will never be repaid.

Behold, The Light!

Georges de la Tour, The Newborn

The Light that will not be put out. What an amazing promise! When we believe the Light is truly inextinguishable, our next question is "Do I belong to the Light? Am I somehow connected to the Light, so that, even if the Light stays on, I know I won't be disconnected from its Power?" Does Life have Purpose, and therefore Hope? Do I Belong? Is it all going to be OK? These are the perennial questions. Every faith tradition carries its own answers. But we need to do more than repeat the words and assurances of our personal faith tradition. We must know in our gut that this is so, and we can then repeat after St. Julien of Norwich:

          "All things will be well. And all manner of things will be well."

Thursday, December 15, 2011

Crisis Forecast

Michael Platt is the founder of the $30 billion hedge fund, Blue Crest. I believe the European crisis Platt describes has a 60/40 chance of happening by summer.This will shake up everything and hurt millions of people without any good reason. The "debtors are bad performers" and the "only solution to the debt problem is more austerity" views that Merkel and Sarkozy have rigidly carried into all policy discussions, and form the basis of the recently concluded summit agreement,are wrong, arrogant, and supremely dangerous. And when (if) this all blows up, who do you think will be deemed to be at fault? Certainly not the neoliberal economic dogmatists (Merkel, Sarkozy, Lagarde, Draghi). No, no, of course not. The blame will fall on the "worthless PIIGS" - the Portuguese, Italian, Irish, Greek and Spanish citizens who aren't disciplined enough to stay in the shops and off the beaches. It makes me weep!

Tuesday, December 13, 2011

Balance Sheet Recessions

A balance sheet recession occurs when some major asset class valuations collapse. The US experienced a balance sheet recession beginning in 1929 when the stock market tanked. Japan experienced one in 1990 when its real estate market collapsed. The US, and then most of the world, experienced one in 2008 when the US housing bubble burst. Recessions centered around the collapse in personal and corporate wealth are very different from a "normal" inventory/business cycle recession. In the one, both the consumer and business have been badly burned, and they are not willing to borrow for new spending or investments. In the other, borrowing and spending pick up soon after businesses begin rebuilding inventories, and money is moving back into the economy.

Why does this matter? A balance sheet recession requires a very different policy response than a normal business cycle downturn. Specifically, government spending must replace private spending, until both households and companies have repaired their balance sheets and are willing to invest/borrow/spend again. During the Depression, it took 12 years and a World War to pull the US out. In Japan, the deleveraging took 16 years. There is no reason to think the US will get by with a fast turnaround, especially when the fiscal hawks are committed to austerity and budget cutting. The lesson, as outlined by Richard Koo in The Holy Grail of Maroeconomics: Lessons from Japan's Great Recession, is that the government must be willing to step into the private sector's place, while households and companies deleverage, and deficit spend to support employment and economic growth. Let's take a look:

First let's look at a comparison between our housing price collapse and Japan's:

From Richard Koo's recent paper


From zero

There's a slow-rolling run on Greek banks. Deposits are down 20% from June 2010. Quite simply, this will not end well for Greece, or the Eurozone as a whole. 

The Grand Bargain "fiscal compact" agreed to in principle Friday morning by the entire EU, save Britain, is already developing cracks. Problems are showing up in Finland, France and even Germany. The tentative agreement is a stability-cum-budget discipline pact: all stick and no carrot. The market had imagined that Mario Draghi, head of the European Central Bank, would see this commitment to austerity as a green light to start buying sovereign bonds and printing money. After all, mid-last week he had hinted at exactly this; but Friday he said no, and asked, rhetorically, "How could anyone have thought the ECB would break its charter to print money by buying new issues of sovereign bonds?"

More and more commentators are now writing: "Why austerity, when the problem is trade imbalances?" Remarkably, I have never seen any quotation from "Merkozy" indicating they understood this was the problem, not excessive public spending.

There is no "deus ex machina" that will emerge onto the stage (or as Paul Krugman wrote, there will be no "Draghi ex machina" to save the day.) The Germans and the French determined that this was a morality tale, and that the bad countries had to be punished. Wrong story. Wrong solution.

I am, quite frankly, outraged by the level of their arrogance.

So now the tragedy will unfold. First up, most likely, will be the downgrades: sovereigns and banks, surely France and possibly Germany. Equity markets may shrug, but credit will react. Sovereign yields will rise and values will fall, exacerbating the capital raise problem for the banks, holding tons of sovereign debt on their books. Almost no one has money to pump into the banks, with the exception of Germany; so most will shrink their balance sheets to get to the 9% target by the required June 30 deadline. The just beginning recession will accelerate as credit flows slow down.

Somewhere, some time in the not too distant future, there will be the dreaded "credit event" (a Greek default, one or more big banks going under, etc.), and the messy pot of bad stew will overflow. When? Surely by spring or early summer, but no one really knows. Remember: Argentina chose Christmas to default; so this could break open in the next few weeks.

This is an entirely unnecessary and avoidable problem. The decision by Merkel and Sarkozy to frame this as a good guy/bad guy morality play, causing everyone to castigate the "worthless, underperforming Mediterranean countries", is an unmitigated disaster. I hope they both get flat out fired in the next elections.

And don't believe anyone who tells you we are decoupled from Europe!

Hang on!

Saturday, December 10, 2011

Princeton Students Occupy Goldman Sachs

As a Princeton grad, class of 1963, I cannot tell you how proud I am of my alma mater. We need to find ways to encourage our future leaders that they must do more with their lives than moving and making money. For their county's and for their own sakes, they need to reach higher, towards the distant stars, with dream building and deep contribution in the service of mankind.

Dragonflies Draw Flame


Gerard Manley Hopkins

As kingfishers catch fire, dragonflies dráw fláme;
As tumbled over rim in roundy wells
Stones ring; like each tucked string tells, each hung bell's
Bow swung finds tongue to fling out broad its name;
Each mortal thing does one thing and the same:
Deals out that being indoors each one dwells;
Selves - goes itself; myself it speak and spells,
Crying Whát I do is me: for that I came.

Í say móre: the just man justices;
Kéeps grace: thát keeps all his goings graces;
Acts in God's eye what in God's eye he is -
Chríst - for Christ plays in ten thousand places,
Lovely in limbs, and lovely in eyes not his
To the Father through the features of men's faces.

Walking in the Embers of Ayn Rand

Wednesday, December 7, 2011

Osawatomie, Kansas - 101 Years Later

In 1910, Teddy Roosevelt gave a fiery speech in Osawatomie, Kansas, declaring a "New Nationalism" and calling for a "Square Deal" for middle Americans. Yesterday, in the same city, Obama gave a fiery speech saying a time of decision for America is upon us, and calling for a"fair deal, a fair shot, and a fair shake" for the American middle class. Here's the speech:

Tuesday, December 6, 2011

A Greek Economist Speaks Out

Three Strange Angels


Three Strange Angels

Not I, not I, but the wind that blows through me! 
A fine wind is blowing the new direction of Time.
If only I let it bear me, carry me, if only it carry me!
If only I am sensitive, subtle, oh, delicate, a winged gift!
If only, most lovely of all, I yield myself and am borrowed
By the fine, fine, wind that takes its course through the chaos of the world
Like a fine, an exquisite chisel, a wedge-blade inserted;

If only I am keen and hard like the sheer tip of a wedge
Driven by invisible blows,
The rock will split, we shall come at the wonder, we shall find the Hesperides.
Oh, for the wonder that bubbles into my soul,
I would be a good fountain, a good well-head,
Would blur no whisper, spoil no expression.

What is the knocking?
What is the knocking at the door in the night?
It is somebody wants to do us harm. 
No, no, it is the three strange angels.
Admit them, admit them. 

~ D.H. Lawrence

Monday, December 5, 2011

Spirit Shining Everywhere


Will Europe Muddle Through?

It's possible, but my bet is no, although for at least the rest of this week, it may look like all the problems are behind us.

Take a look at this chart from today's markets, about an hour ago, from Zero Hedge.

Equities have screamed up in the last week, but short term Treasuries carry a negative interest rate, and have done so for two months. Tyler Durden, author of Zero Hedge, calls this market divergence between equity and credit "schizophrenic". Only a few minutes after Durden put up this chart, S&P announced Germany, France, Austria, the Netherlands and Finland were being put on 90 day negative credit watch, with the chance that their AAA ratings would be knocked down to AA. The S&P immediately gave up half its day's gain.

So what's the story? What narrative is at play here?

Friday, December 2, 2011

Newt Rising

Pretty amazing. First Bachmann, then Perry, then Cain, and now Newt. Will he crater too? I don't think so. Too many Republican primary voters want somebody other than Mitt Romney. And only Santorum, Huntsman and Paul are left (candidates who have not had a big run). Santorum lost his Senate reelection bid; Huntsman is too moderate; and Paul is simply way off the Republican reservation.

So Newt's it. One month to go until Iowa. Then New Hampshire, South Carolina and Florida. Romney is only favored in New Hampshire, and Newt is closing. In Iowa, South Carolina and Florida, Newt has a strong lead.

I predict Newt will win it. And if he doesn't, there will be a True Conservative 3rd party candidate. Probably not Newt. He's a loyal Republican. Keep an eye on Trump or Palin.

Most Conservatives/Republicans think Obama will lose. I don't. Democrats are winning the messaging war: the "Only Say No" Republicans are seen as acting on behalf of the  wealthy, not the middle class. The "Tax and Spend" label doesn't fit Democrats so well any more. Unemployment just dropped from 9.0% to 8.6%. One war is ended. Another is winding down. No successful terrorist attack on Obama's watch. And, in my opinion, Newt is unelectable.

Interesting times.

Europe Revisited

A great week for equities, both in Europe and the US. Is the crisis over? What's driving the markets?

The simple answer to both questions is: I don't know.

Let's try to figure out what the market drivers might be. The first big boost to the market was the coordinated Central Bank action to lower the cost of buying dollars. This launched the Dow on a 490 point upward ride that to many seemed hardly justified. And then outlines of a Grand Bargain began to emerge: first in a speech by European Central Bank head, Mario Draghi, calling for a "new fiscal compact", and hinting that with this in place, the ECB would loosen the pursestrings; then it was Sarkozy's speech on Thursday saying it was time for all the Eurozone countries to step up, to agree to new, more intrusive rules on supranational measures to ensure fiscal discipline, and thereby save the Euro; and finally today was Angela Merkel's turn to make the case for a new, disciplined financial structure for the Eurozone, as the only way forward.

Sarkozy and Merkel will meet on Monday, leading up to a Eurozone summit on Friday. I believe the markets believe an agreement will be reached on a "new fiscal compact" for the Eurozone, and with that agreement, the ECB will open up its big guns and begin broad-based, Eurozone-wide sovereign bond purchases to keep rates down and provide liquidity.

So now we must ask two more questions: will a deal be reached, and will the ECB then agree to be the lender of last resort?

My quick answers: a better than even chance a deal will be reached, but, in my view, a less than even chance that the ECB will then open up the printing press. The result would be generally positive for the markets.

Here's my problem: I think the fiscal compact for the Eurozone, designed as it will be to ensure minimal deficits and enforce fiscal discipline, is a horrible idea. And I strongly believe it will be rejected by a number of countries, possibly even its co-author, France, if it makes it to a popular vote.

Why horrible? If you exclude Greece, which really has behaved very badly on almost every dimension (overspending by the government, hiding true government debt levels to gain Eurozone entry, unaffordable social welfare programs, massive tax evasion), the other GIIPS countries have not been fiscally out of control. Italy came into the Eurozone with 120% public debt/GDP and was actually working that down, until the 2008 Crisis. Italy, Spain, Ireland, and Portugal have run consistent Current Account deficits, which they got by buying lots of good stuff from Germany. Pre-2008 private markets were financing these trade deficits. After 2008, when the private "hot" money dried up, these trade deficits had to be financed by the government sector, causing a blowout in public deficits.

I do not think these countries should be forced to endure years of austerity, huge amounts of unemployment, just to force down wages to make them more competitive with Northern Europe. Italy, Ireland, Portugal and Spain need ongoing, permanent "vendor financing", providing a predictable way to support their import purchases. This financing, possibly coordinated by the European Investment Bank, would take the form of direct investment in the countries. This way these countries could keep public deficits under control, and they would not get caught in the austerity/deflation trap.

If Merkel's idea of a fiscal compact is not modified in some way to provide financing for intra-Eurozone trade imbalances, I believe it will be rejected by voters in a number of Southern European countries. This will provoke a Eurozone breakup, and quite possibly a huge financial mess.

What am I looking for short term? First, will a deal be reached next Friday? If so, will the ECB become a consistent buyer of sovereign bonds? Then, what is the popular reaction in South Europe to "putting themselves under the German fiscal discipline yoke." And through it all, are the banks (where liquidity is drying up) staying alive? And finally, how bad is this austerity-created recession in Europe going to be?

Do I think Europe will muddle through? Quite possibly for a while. But if the all stick-no carrot approach to a new fiscal compact is not changed, a crisis cum true credit event will happen in Europe before the 2012 elections.