S&P Says Prioritized Payments Means Downgrade

One more on this and then I’ll shut up:

Standard & Poor’s has warned lawmakers privately that it would downgrade the country’s debt if the Treasury Department is forced to prioritize payments because Congress does not raise the debt limit, a congressional aide said on Thursday.

via S&P warns lawmakers on debt limit downgrade: aide | Reuters.

Janjuah on the Debt Ceiling

Bob Janjuah on the debt ceiling discussions:

Any surprise will likely come from the US rather than the euro zone and centres on the risk of no deal being reached on the debt ceiling. If that becomes the market consensus over the next few weeks, then my 1250 and maybe also 1220 S&P bear alert levels should come into play. I think USD and USTs would rally if the debt ceiling deal were not to materialise. The knee-jerk reaction may be to sell USTs and USD, but no deal on the debt ceiling would I feel ultimately send a very positive message to the bond vigilantes that the US is serious about getting its fiscal house in order. Risk markets on the other hand would likely see such an outcome as ultimately very negative, as uber loose policies have been and are the main support and driver of risky asset valuations. At this juncture, however, I see a short-term fudge as the more likely outcome.

via Bob Janjuah’s Latest Big Picture Outlook | zero hedge.

Why People Don’t Care About Better Forecasts

Robin Hanson on why we make bad forecasts and don’t generally care:

The costs of creating and monitoring forecast accuracy might be higher than we expect if in general thinking about times other than the present is harder than we expect. Most animals seem to focus almost entirely on reacting to current stimuli, as opposed to remembering the past or anticipating the future. We humans are proud that we attend more to the past and future, but perhaps this is still harder than we let on, and we flatter ourselves by thinking we attend more than we do.

The benefits of creating and monitoring forecast accuracy might be lower than we expect if the function and role of forecasting is less important than we think, relative to the many functions and roles served by our pundits, academics, and managers.

Consider first the many possible functions and roles of media pundits. Media consumers can be educated and entertained by clever, witty, but accessible commentary, and can coordinate to signal that they are smart and well-read by quoting and discussing the words of the same few focal pundits. Also, impressive pundits with prestigious credentials and clear “philosophical” positions can let readers and viewers gain by affiliation with such impressiveness, credentials, and positions. Being easier to understand and classify helps “hedgehogs” to serve many of these functions.

via Who Cares About Forecast Accuracy? | Robin Hanson | Cato Unbound.

Farm Sizes: Brazil vs U.S.

Eye-opening figure from Stratfor comparing farm sizes in the U.S. vs Brazil:

Ca62ca6fa6b30340138b592431e6c8975379610c

Is Shame Necessary?

Dense but thought-provoking reading on shame, and why it doesn’t work as well it might in controlling behavior.

1. Today’s world is rife with ephemeral, or “one-off,” interactions. When you know you’re unlikely to run into the same situation again, there is less incentive to change your behavior. Research shows, however, that if people know they will interact again, cooperation improves. Shame works better if the potential for future interaction is high. In a world of one-off interactions, we can try to compensate for anonymity with an image score, such as hygiene grade cards or eBay’s seller ratings, which sends a signal to the group about an individual’s or institution’s degree of cooperation.

2. Today’s world allows for amorphous identities. Recall the reef fish that observe Bluestreak Cleaner wrasses in the Red Sea. The wrasses seem to know they are being watched, and certain wrasses build their reputation on the small reef fish, allowing the big reef fish to observe their cooperative behavior with the small fry. Then, when the big fish comes in for its own cleaning, these wrasses eat some of the big reef fish’s flesh along with its parasites, fattening themselves on their defection. To add to the confusion on the reef, False Cleanerfish (Aspidontus taeniatus) make their living by looking very similar to the Bluestreak Cleaner wrasses. They are able to approach reef fish under the guise of cooperation and then bite off pieces of fish flesh and swim away….

3. Shaming’s biggest drawback is its insufficiency. Some people have no shame. In the research my colleagues and I have conducted on first-year students involving games that require cooperation, we have found that shame does not always encourage cooperation from players who are least cooperative. This suggests that a certain fraction of a given population will always behave shamelessly, like the False Cleanerfish, if the payoff is high enough. The banks may have gone bankrupt, but the bankers got their bonuses. There was even speculation that publishing individual bankers’ bonuses would lead to banker jealousy, not shame.

via Is Shame Necessary? | Conversation | Edge.

Mason: A Crisis of Growth

Paul Mason has been incisive on current debt affairs:

Britain’s problem is its lack of manufacturing and high-skilled industry, combined with the low skill base of its workforce: when the one-time kick of £200bn quantitative easing and 20% currency depreciation wears off, we will begin to feel this.

And in the US the problem is writ even larger: even with $1.7tn of money pumped into the banking system by the state – and make no mistake, central banks, with one exception in the world, is part of the state – the jobs market has not recovered; growth is poor; house prices are still declining, although as the ever-optimistic rubbish that comes into my inbox from analysts constantly reminds me “at a slower rate”.

And that is before austerity. Much of Middle America already looks like a museum of the 20th Century. The stimulus has succeeded only in averting a slump; it has not pump-primed growth. When austerity comes, even if the pro-austerity economists are right, and the medicine eventually revives the patient, in the interim it should provoke a second dip, or a flat line.

2011 is turning into the year when the unabsorbed shocks of the credit crunch collided with the failure to find new sources of growth.

via BBC News – Behind the downgrades and the doubt: A crisis of growth.

World’s Most Expensive Cities

 

 

Anti-Debt Ceiling Sorts, Innumerate, or Pining for Great Depression 2.0?

From StreetLight:

[In the absence of debt ceiling increase] federal spending would instantly have to be reduced by about $100bn per month. By the end of 2011 federal spending would be about $500 bn lower for the year than it would have been otherwise.

I’ve made this point before, but for numbers that large, anyone who wants to pretend to have some understanding about the economy has to think about macroeconomic effects. In particular, spending cuts of that size would reduce the US’s 2011 GDP by multiple percentage points. The Q3 and Q4 GDP growth rates wold probably be on the order of between -5% and -10%. Recall that during the recession of 2008-09, GDP only fell by about 4% in total. The unemployment rate would be likely to rise by several percentage points from its current level of 9.2%, to perhaps 15% or more of the US population. Recall that at its worst, the unemployment rate during the Great Recession only reached 10%.

So when you read someone blithely writing that the federal government will not default in the absence of a debt ceiling deal, and instead will merely have to trim excess spending, remember that what they’re really advocating is a new and deliberately caused Great Depression.

via The Street Light: Great Depressions.

Twitter Digest: 2011-07-13

  • "Superman never made any money saving the world from Solomon Grundy". Hard to believe it's 20 years old. http://bit.ly/aTW2OV ->
  • .@davehod We need to be careful what we wish for: Credit agencies trying to be early are as dangerous as agencies that are late. in reply to davehod ->
  • Moody's went on to say that ADP, ExxonMobil, J&J and Microsoft are all more Aaa-ish than US is. ->
  • Reinhart/Rogoff: The Economy Can’t Grow With Debt (plus bonus Krugman diss) http://t.co/FqbOquJ” ->
  • In transit today finally read "Ender's Game". Had always meant to, but never got to it. Liked it, but would have liked it more at 16. ->
  • I'm late to this — flying all day — but link to Moody's placing US Aaa Bond Rating on Review – http://t.co/oxnwcf1 ->

Being a Patent Troll Now Patented

The end is nigh: Being a patent troll is now patented. Despair.

SYSTEM AND METHOD FOR EXTRACTING VALUE FROM A PORTFOLIO OF ASSETS

Abstract

A system and methods for extracting value from a portfolio of assets, for example a patent portfolio, are described. By granting floating privileges described herein, a portfolio owner can extend an opportunity for obtaining an interest in selected assets from the portfolio to a client who lacks the resources to accumulate and maintain such a portfolio, in return for an annuity stream to the portfolio owner. The floating privilege can take many forms, depending on the needs of the client and the nature of the assets in the portfolio. The privilege is executed for a set of assets selected by the client and approved by the portfolio owner in accordance with a floating privilege agreement controlling the floating privilege.

via United States Patent Application: 0070244837.