2011 economic predictions

1. U-3 unemployment will climb above 10 percent. The real unemployment rate will be much higher, but it will be masked by a decline in the Labor Force Participation rate below 64 percent. The employment-population ratio will fall below 58 percent for the first time since 1984.

2. Real GDP growth for 2011 will fall short of the 3.4 percent predicted by Goldman Sachs. It will remain positive in initial reports throughout the year, but the final quarter will eventually be revised down into negative territory. The legitimacy of GDP as a valid metric for economic growth will increasingly be called into question as the positive numbers are belied by actual conditions.

3. The 2011 federal deficit will exceed the projected $1.27 trillion despite the Republican House majority. This will likely be the result of emergency spending required for an economic or military crisis.

4. More than 230 banks will fail or be seized by the FDIC. This will represent around 1.2% of total deposits. Bank of America will be effectively nationalized to prevent it from failing.

5. TOTLL will decline below $6.3 trillion on an unadjusted basis. (Below $5.9 trillion adjusted.)

6. The two government sectors will not be able to maintain their present rate of debt expansion which presently averages around $450 billion per quarter. As the financial and household sectors continue to decline, all sectors credit market debt outstanding, (Z1), will fall below $50 trillion for the first time since 2007.

7. The national median existing-home price will fall below 160k from the present 170,600.

8. There will be a serious Euro crisis, most likely brought about by a sovereign default or a nation announcing it will be leaving the Euro. Italy is the most likely candidate.

9. One U.S. state and at least three major cities (100k population plus) will attempt to file for bankruptcy or federal bailout. (It’s unclear if states can file for bankruptcy and public employee unions will oppose the city filings.)

Bonus: Sitemeter-recorded visits to the blog will increase from 2,370,028 visitors in 2010, (197,502 per month) to 2,750,000.

You might reasonably object that these predictions are essentially the same as they were last year. And while that’s true, you should also observe that very little has substantially changed since one year ago. The downside factors have increased somewhat thanks to Europe’s problems, the growing budget deficits and the uncovering of the mass mortgage fraud, but aside from anemic G-driven GDP growth, and higher gold and stock market prices, I don’t see much that’s been added on the upside.

Reading list 2010

I often get asked about what books I’m reading, so around March of this year I started keeping track of what I am presently reading and what I’ve read already. I only include books that I finished here; I’m still reading sporadically through Manzoni and the second volume of Isaac Asimov’s Guide to Shakespeare and there have also been a few books that I picked up and abandoned here and there. I read a lot of Project Gutenberg books this year; P.G. Wodehouse always makes for excellent travel reading on a smartphone. It turns out that I read about one book per week now, which is considerably down from the days when I ripped through several science fiction and fantasy books per week. On the other hand, it takes a bit longer to get through Procopius and Dante than Heinlein and McCaffrey.

Anyhow, here’s the list, divided by how well worth reading I happened to find the book. This isn’t a statement about the quality of the book or the writing, just whether I happened to enjoy it or found it to be either useful or thought-provoking. For example, I think Gladwell is vastly overrated, but he’s quite readable and I picked up one tremendously useful insight from an essay in What the Dog Saw. And while it’s no secret that I don’t think much of Sam Harris’s ability to make his case, I quite enjoyed the fact that he dared to try making it as well as how he went about it. It’s always difficult to narrow it down to a single choice, but I think the most interesting book I read this year was probably Bourrienne’s Memoirs of Napoleon.

Five Stars
Memoirs of Napoleon, Louis de Bourrienne
Life of Nelson, Volume I, Alfred Mahan
Life of Nelson, Volume II, Alfred Mahan
Blood, Sweat and Chalk, Tim Layden
Free Trade Doesn’t Work, Ian Fletcher
The Divine Comedy, Inferno, Dante
This Time It’s Different: A Panoramic View of Eight Centuries of Financial Crises, Carmen Reinhart & Kenneth Rogoff

Four Stars
The Moral Landscape, Sam Harris
The Fuller Memorandum, Charles Stross
The Makers of Ancient Strategy, VDH ed.
What the Dog Saw, Malcolm Gladwell
Asimov’s Guide to Shakespeare, Vol. I, Isaac Asimov
The Armada, Garrett Mattingly
Goblin Moon, Teresa Edgerton
My Own Kind of Freedom, Stephen Brust
Economic Calculation in the Socialist Commonwealth, Ludwig von Mises

Three Stars
The Economic Consequences of the Peace, John Maynard Keynes
Making Money, Terry Pratchett
The Letters of Cicero Vol. 1, M. Cicero
Space Cadet, Robert Heinlein
Ensign Flandry, Poul Anderson
A Circus of Hells, Poul Anderson
The Rebel Worlds, Poul Anderson
The Day of Their Return, Poul Anderson
Agent of the Terran Empire, Poul Anderson
The Persian Wars, Procopius
The Father of Us All, Victor Davis Hanson
Eugenie Grandet, Honore de Balzac
A Feast for Crows George RR Martin
The Magician, W. Somerset Maugham
Death at the Excelsior, P.G. Wodehouse
The Coming of Bill, P.G. Wodehouse
The Cutting of Cuthbert, P.G. Wodehouse
The Adventures of Sally, P.G. Wodehouse
Jill the Reckless, P.G. Wodehouse
Mike and Psmith, P.G. Wodehouse
Mike at Wrykin, P.G. Wodehouse
A Damsel in Distress, P.G. Wodehouse
The Gem Collector, P.G. Wodehouse
The Girl on the Boat, P.G. Wodehouse

Two Stars
The Greatest Show on Earth, Richard Dawkins
The Stress of Her Regard, Tim Powers

One Star
On the Road, Jack Kerouac
The Diary of a U-boat Commander, Stephen King-Hall

2010 predictions scorecard

1. The BLS will report U-3 unemployment to be in excess of 11 percent. The actual number of unemployed workers will be much higher.
U-3 is at 9.8 percent.  There are some minor shenanigans going on at the BLS, of course, as the size of the labor force is shrinking even faster than the number of employed workers, thus keeping the unemployment rate artificially low, but I factored that into my prediction.  INCORRECT.
2. The BEA will report real GDP to be less than 12,973 in billions of chained 2005 dollars. A “double-dip recession” will be the official description, but rumors of a “second great depression” will be increasingly heard as the evidence mounts that a single large scale economic event is taking place.

A sluggish recovery is still the story.  There are negative rumors, but of a double-dip recession, not a large-scale depression.  The most recent GDP for Q3 was reported at 13,278.5 and it’s highly unlikely that Q4 will be reported any lower.  INCORRECT.

3. The Federal budget deficit for 2010 will exceed the projected $1.17 trillion.

The 2010 deficit is presently being reported at $1.47 trillion.  CORRECT.

4. More than 200 banks will be seized by the FDIC. Their deposits will represent more than two percent of all U.S. bank deposits. 
The FDIC seized 157 banks with deposits representing 1.1 percent of all U.S. bank deposits.  INCORRECT.  

5. Commercial bank loans and leases (TOTLL) will fall below $6.3 trillion.
This one is hard to call since there were some SERIOUS statistical shenanigans, namely, an anomalous and unprecedented $452 billion increase in reported loans in one week at the end of March.  ( The average weekly change is + or – $12 billion.)  If that anomaly is removed from the equation, as I would argue it must be, TOTLL stands at $6.293 as of the December 22nd report.  If you’re wondering why I’m inclined to give myself the benefit of the doubt here, keep in mind that TOTLL has historically increased an average of 8.4% per year and would normally have been expected to end 2010 around $7.3 trillion. So, predicting not only a decline, but a sizable one of $350 billion, was a very high risk prediction.  CORRECT.
6. All sectors credit market debt outstanding, which is published in the Fed’s quarterly Z1 Flow of Funds Accounts, will fall below $52 trillion. This will mostly be the result of continued deleveraging by the financial sector, and to a lesser extent, the housing sector, which between them will decline by more than $1 trillion.
Z1 was retroactively reported at $51.9 trillion for Q1 and Q2 in the Q3 2010 report.  The financial sector credit dropped $1.2 trillion through Q3 and the housing sector declined $106 billion.  CORRECT.
7. The national median existing-home price will not rise 4% from $172,600 to $179,500 as predicted by NAR’s lead economist Lawrence Yun, but will fall below 165k instead.
NAR reported the national median existing home price at $164,600 in February 2010.  In fairness to Mr. Yun, however, it spiked to $183,000 with the end of the homebuyer’s tax credit in June before collapsing again.  The final year end report had it at $168,800. So we both got it right, but I was three times closer at the end of the year.  CORRECT.
8.  I also expect an increase in Sitemeter-recorded visits to the blog to increase from 1,942,640 in 2009, (161,887 per month) to 2,250,000, primarily as a result of an increased interest in economic matters.

Sitemeter reported 2,367,971 visitors in 2010, (197,331 per month), a 21.9 percent increase from 2009. CORRECT.

Not particularly impressive, I’m afraid, but still better than the mainstream economic prognosticators.  The Fed’s strategy of extend-and-pretend is still in effect and holding.  I don’t see it holding up through 2011 for several reasons, but I’ll take a look at what the mainstream predictions are before making my own.  I think the key thing to learn from this is that government will go to great extremes in fighting economic contractions and one cannot necessarily extrapolate limits from previous efforts.  I also think it’s important to note that although I was incorrect with regards to U-3, GDP, and FDIC seizures, I still had the general direction correct, just not the extent.  Bank seizures didn’t decline as expected, they increased, just not as much as I’d anticipated.  Real GDP did grow in chained 2005 dollars, but that was the direct result of the almost unprecedented explosion of government deficit spending and loan incentives rather than private sector growth.  And unemployment didn’t fall, it simply didn’t rise as much as I’d thought it would.

DIY drone

This makes me think that the security forces of the world must be getting more than a little nervous. The state no longer possesses air supremacy.

Mailvox: the Genesis account

JC writes from the Philippines to ask about an interesting atheist argument concerning the Fall:

First of all I have to thank you for TIA. In my circle of friends and acquaintances, both online and offline, are a few atheists. I knew something was profoundly wrong with their arguments for the non-existence of God but for the most part I didnt have any data to back up my logical counter-arguments. Until TIA. You may be pleased to note that I now notice a considerable absence of the usual lame arguments for atheism/scienticism such as the ‘science will save us all’ crap and nobody invokes the ‘Flying Spaghetti Monster’ baloney anymore. The ‘Stalin’s pogrom’s had nothing to do with atheism’ hogwash still shows up every once in a while but that’s no problem. In fact, when I presented evidence, I actually got one atheist to exonerate Roman Catholicism from being a driving force for the Inquisition in his lame attempts to exonerate atheism from Stalin’s pogroms. The latest discussion with a science-fetishist atheist involved my challenge for him to prove the existence of human rights via Science and if he couldnt, renounce the existence of his rights as a silly superstition. He wasnt willing to do that and came back saying that he was willing to postulate their existence without proof. Sort of like “We hold these truths to be self-evident…” but without a Creator. For which I thanked him for being irrational.

Anyway, he presented me with an argument against the Fall against which I could only argue against by invoking some quantum physics mumbo-jumbo. It goes like this:

Assuming that the universe and therefore the Earth is billions of years old (both he and I agree that this is so) and that Man showed up only recently, that is, after the dinosaurs, how come the fall of Man affected the Earth even before Man showed up, that is, how come Man’s fall affected the past such that life on Earth underwent cataclysms such that entire species went extinct only to be replaced by more species which also went through a cataclysmic extinction event, etc? In other words, the Earth even before Man showed up showed every sign of being a fallen Creation even before Man had a chance to fall — lions werent sitting with lambs for instance. On the contrary. T. Rexes were eating Parasaurolophuses. I can only counter that by saying Man’s Fall affected the past as well. I may be missing some salient theological point but I dont recall anything in the Bible that addresses how Man’s fall affected the past. It just says Man’s fall caused Creation’s fall as well and Creation is also awaiting its transformation. Any ideas how to respond to his argument?

It’s mostly regulars around today, so why not go ahead and open up a theological can of worms? Let me begin by saying that I have never agreed with the common Christian assumption that pre-Fall animals were vegetarian and therefore there is no need to resort to logical trans-temporal gymnastics in order to balance observations of a T-Rex-eat-Parasaurolophus world with the Book of Genesis. The assumption about animal vegetarianism presumably comes from the following verses in the very first chapter:

God blessed them and said to them, “Be fruitful and increase in number; fill the earth and subdue it. Rule over the fish in the sea and the birds in the sky and over every living creature that moves on the ground.”

Then God said, “I give you every seed-bearing plant on the face of the whole earth and every tree that has fruit with seed in it. They will be yours for food. And to all the beasts of the earth and all the birds in the sky and all the creatures that move along the ground—everything that has the breath of life in it—I give every green plant for food.” And it was so.

Now, notice something here. The fish aren’t given anything for food. Does anyone therefore conclude that fish did not eat prior to the Fall? Of course not. Therefore, the giving of the plants to animals and Man does not comprehensively determine the limits of their diets, it’s merely setting up their positions in the hierarchy of Creation. Next, in both Genesis chapters 2 and 3, a distinction is made between “livestock” and “wild animals”, prior to the Fall in the first case and right at the time of the Fall in the second. Then, in Genesis 4, it is written that Abel brought the fat portions from the firstborn of his flocks… which suggests that Adam as well as others were eating meat before the Fall. (Notice that I said “suggests”, not proves, one can seldom justify the use of conclusive terms in discussing past events.) Since the livestock obviously were not being used for clothing purposes, the reference to the “garments of skin” in Genesis 3:21 also tends to support the idea that livestock were being eaten before the Fall.

Now here is where it gets more interesting, from my perspective. After Adam and Eve are driven out of the Garden of Eden, Cain kills Abel, then is marked so that no one will kill him and goes out from the Lord’s presence into the land of Nod to the east. This indicates that there were human civilizations established well prior to the Fall. So, because there is reason to believe that both animals and humans ate meat and there was human and animal activity outside of the Lord’s presence in the Garden of Eden, there is no necessary contradiction between the Genesis account and the effects on the earth cited by JC’s atheist friend.

The key, I think, is to understand that there is at least a possible distinction between “the man he had formed” in 2:8 on the third day and the mankind that God created male and female in 1:26-28 and instructed to “Be fruitful and increase in number; fill the earth and subdue it” on the sixth day. This is not only indicated by the text, but also by the fact that Adam and Eve lived in the Garden for an indefinite and presumably long period of time until they were evicted. The instruction to “subdue” the earth also offers some tantalizing hints regarding its lack of pre-Fall tameness outside the Garden of Eden.

Of course, this raises far more questions than it answers, the primary one being what the potential differences between Adamic man and non-Adamic man might have been, since they were obviously able to interbreed. Now, one can certainly choose to assume that the entire account is fictional, allegorical, or incestuous, but my point is that even if one takes the Genesis account to the literal extreme, one quickly reaches conclusions that are very, very different than the assumptions that most people, including literalist Christians, make regarding it. I am most certainly not attempting to argue that this is how it happened; given that people not infrequently cannot correctly understand something I have written even when I subsequently walk them through it slowly, using very small words, I am extremely dubious that anyone is capable of correctly interpreting Genesis to any significant degree of accuracy.

Prehistoric theology is an interesting subject upon which to speculate, but I stress that it is absolutely not relevant to one’s Christian faith or the lack thereof. This is why I am so relaxed about the TE(p)NS debate. Because even the demons believe in God’s existence, it is obvious that mere belief or unbelief in a particular account of His historical actions cannot possibly be considered a more significant issue where salvation is concerned. Like any good parent, God has always been much more concerned with our obedience than with our belief; He knows He exists and most certainly doesn’t need our faith to sustain Him. And like all children, we have very little understanding of why and how that obedience matters.

The high water mark

The bank industry claims the worst is over:

As the financial crisis of recent years recedes, the FDIC has been predicting that 2010 will be the high-water mark for bank implosions. “Going forward, the FDIC looks to see fewer failures,” agency spokesman Greg Hernandez said.

Some industry observers agreed. “I think we’re over the hump of the problem but far from the end,” banking consultant Bert Ely said. Gary B. Townsend, president of Hill-Townsend Capital, said the industry is not just out of the woods, “we are far beyond the woods.”

By one measure, the trouble is already abating. On average, the banks that failed this year were much smaller than those that failed last year. The banks that failed this year had assets totaling $92.1 billion, a decrease of 45.7 percent from the $169.7 billion in assets of the banks that failed in 2009.

It’s true that the average assets and deposits held by FDIC-seized banks were much smaller in 2010 (157 banks, $587 million assets, $500 million deposits) than either 2009 (140, $1.2 billion, $995 million) or 2008 (25, $14.9 billion, $9.4 billion). Average assets also declined in a similar manner. However, the number of unofficial problem banks has grown from 545 banks at the end of 2009 to 919 now. That represents about 12 percent of all the banks in the country and does not include the four giant banks that are facing enormous putback penalties thanks to the fraudulent unbacked-securities they sold during the housing bubble.

In other words, color me very skeptical.

Dogs are not people

Tucker Carlson goes flying wildly off the rails:

“I’m a Christian, I’ve made mistakes myself, I believe fervently in second chances,” Carlson said. “But Michael Vick killed dogs, and he did in a heartless and cruel way. And I think, personally, he should’ve been executed for that. He wasn’t, but the idea that the President of the United States would be getting behind someone who murdered dogs?”

Killing dogs is not called “homicide” for a reason. It’s not murder anymore than killing a cow for its beef is murder. Now, I love dogs considerably more than most people do – Spacebunny laughs at how I carry the Viszla puppy around the house with me and he watched the entire Vikings game on my lap – but I didn’t even think Vick merited the legal punishment he received.

(That being said, Vick probably needed the slap to the head that the bankruptcy and jail sentence provided him.)

Now, I would no sooner want to be around a person who mistreats a dog than one who is prone to defecating in public. But if Vick deserves execution for killing his own dogs, then the people at the Humane Society are clearly worse than the Nazis and Soviets combined. And should the police investigate every suspicious canine death? Tucker clearly needs to take control his emotions on the subject; he is normally sharper than this.