Bill Gross on the U.S. Economy

From Ritholtz:

Not exactly a blinding insight, but interesting regarding who its coming from:

“Those who advocate that job creation rests on corporate tax reform (lower taxes) or a return to deregulation of the private economy always fail to address dominant structural headwinds which cannot be dismissed: 1) Labor is much more attractively priced over there than here, and 2) U.S. employment based on asset price appreciation/financed as opposed to manufacturing can no longer be sustained. The “golden” days are over, and it’s time our school and jobs “daze” comes to an end to be replaced by programs that do more than mimic failed establishment policies favoring Wall as opposed to Main Street.” (emphasis in original)
-Bill Gross

That is significant.  The idea that Wall Street getting richer helps the rest of the country is complete bunk.  We need to continue to make things here.  Trading paper isn't productive, and yet it has grown as a percentage of GDP faster than any other activity.  The FIRE sector is robbing from the rest of the economy, and the nation is poorer.  We need an industrial policy to compete with Germany and China.  We need better pay at the low end of the scale, and less money going to the moneychangers in New York and London, who are only giant leeches sucking the lifeblood out of the body politic.  More deregulation and lower taxes are not the answer, they are part of the problem.  30 years after Reagan, it is clear that his pronouncement's time is up.  Government isn't the problem, government is the solution.  Now we need to govern competently.

A History Primer on German Debt Default-20th Century Edition

in Der Spiegel, (h/t Mark Thoma):

SPIEGEL ONLINE: Mr. Ritschl, Germany is coming across like a know-it-all in the debate over aid for Greece. Berlin is intransigent and is demanding obedience from Athens. Is this attitude justified?
Ritschl: No, there is no basis for it.
SPIEGEL ONLINE: Most Germans would likely disagree.
Ritschl: That may be, but during the 20th century, Germany was responsible for what were the biggest national bankruptcies in recent history. It is only thanks to the United States, which sacrificed vast amounts of money after both World War I and World War II, that Germany is financially stable today and holds the status of Europe's headmaster. That fact, unfortunately, often seems to be forgotten.
SPIEGEL ONLINE: What happened back then exactly?
Ritschl: From 1924 to 1929, the Weimar Republic lived on credit and even borrowed the money it needed for its World War I reparations payments from America. This credit pyramid collapsed during the economic crisis of 1931. The money was gone, the damage to the United States enormous, the effect on the global economy devastating.
SPIEGEL ONLINE: The situation after World War II was similar.
Ritschl: But right afterwards, America immediately took steps to ensure there wouldn't be a repeat of high reparations demands made on Germany. With only a few exceptions, all such demands were put on the backburner until Germany's future reunification. For Germany, that was a life-saving gesture, and it was the actual financial basis of the Wirtschaftswunder, or economic miracle (that began in the 1950s). But it also meant that the victims of the German occupation in Europe also had to forgo reparations, including the Greeks.
SPIEGEL ONLINE: In the current crisis, Greece was initially pledged €110 billion from the euro-zone and the International Monetary Fund. Now a further rescue package of similar dimensions has become necessary. How big were Germany's previous defaults?
Ritschl: Measured in each case against the economic performance of the USA, the German debt default in the 1930s alone was as significant as the costs of the 2008 financial crisis. Compared to that default, today's Greek payment problems are actually insignificant.
SPIEGEL ONLINE: If there was a list of the worst global bankruptcies in history, where would Germany rank?
Ritschl: Germany is king when it comes to debt. Calculated based on the amount of losses compared to economic performance, Germany was the biggest debt transgressor of the 20th century.

We are living in interesting times.  Will the Germans show as much forbearance with southern Europe as the United States showed with them in the twentieth century?  I don't know, but the fate of the Euro hangs in the balance.  In the end, I think this has less to do with the German people, and more to do with the giant banks and hedge funds who have been gambling buying soveriegn debt on margin, and buying and selling derivitive contracts on the likelihood of default.  The holders of capital have put too much in play in these countries, and they don't want to lose anything.  They want taxpayers to bail them out, and suffer all of the pain.  I think the bondholders should take haircuts.  There should be a risk premium attached to bonds, because there is a reasonable chance of default.  That chance of default is real.

OSU Hides Behind BMV Report on Car Sales

ESPN:

An investigation by the Ohio Bureau of Motor Vehicles of two Columbus-area automobile dealerships found that no state laws were broken in the recording or pricing of some of the used car deals given to Ohio State football players and family members.
Looking at one aspect of players' access to local cars, the BMV examined 25 purchases between 2006 and 2010 at Jack Maxton Chevrolet and Auto Direct, dealerships where salesman Aaron Kniffin had worked. Kniffin has said he sold about 50 cars to athletes and their relatives.
In May, the Columbus Dispatch raised questions about whether athletes had received special discounts on cars, based on their status as athletes. The BMV did not address whether any NCAA rules were broken -- that is outside the department's purview -- but in its summary report said that only one of the used cars was sold at a loss.
"The only vehicle on which Jack Maxton lost money was a car that had been in inventory for more than 150 days," the report states. "In such cases, the dealership provides incentives to its sales force to sell the vehicles, even at a loss."
In one of the attached exhibits, a BMV investigator notes that the average markup on the cars at the Maxton dealer was $1,211 and that "six vehicles sold at a negative profit."
However, that statement was not correct, BMV spokeswoman Lindsey Bohrer said after the release of the report.
Asked by ESPN if the BMV could provide an unredacted version of the Maxton document, listing the dealer cost of and profit on each car sold to an Ohio State athlete or family member, Bohrer declined, citing state privacy law.
Later Tuesday, Ohio State said it is dropping its own review of the purchases by players and family members.

So because the BMV says the cars were sold for reasonable prices, Ohio State drops their investigation.  How about whether some booster was financing the cars for the players?  It seems surprising that football players would be driving nicer cars than anyone else on campus.  How about Terrelle Pryor and his loaner cars?  I see the university trying to use this report to sweep questionable stuff under the rug.  This program is dirty, just like USC.

Operation Barbarossa

Hitler's greatest miscalculation began 70 years ago today:

Operation Barbarossa (German: Unternehmen Barbarossa, for Frederick I) was the code name for Germany's invasion of the Soviet Union during World War II that began on 22 June 1941.  Over 4.5 million troops of the Axis powers invaded the USSR along a 2,900 km (1,800 mi) front.  In addition to the large number of troops, it also involved 600,000 motor vehicles and 750,000 horses.   Planning for Operation Barbarossa started on 18 December 1940; the secret preparations and the military operation itself lasted almost a year, from spring to winter 1941. The Red Army repelled the Wehrmacht's strongest blow, and Adolf Hitler did not achieve the expected victory, but the Soviet Union's situation remained dire. Tactically, the Germans had won some resounding victories and occupied some of the most important economic areas of the country, mainly in Ukraine.  Despite these successes, the Germans were pushed back from Moscow and could never mount an offensive simultaneously along the entire strategic Soviet-German front again.
Operation Barbarossa's failure led to Hitler's demands for further operations inside the USSR, all of which eventually failed, such as continuing the Siege of Leningrad,  Operation Nordlicht, and Battle of Stalingrad, among other battles on the occupied Soviet territory.
Operation Barbarossa was the largest military operation in human history in both manpower and casualties.   Its failure was a turning point in the Third Reich's fortunes. Most important, Operation Barbarossa opened up the Eastern Front, to which more forces were committed than in any other theatre of war in world history. Operation Barbarossa and the areas that fell under it became the site of some of the largest battles, deadliest atrocities, highest casualties, and most horrific conditions for Soviets and Germans alike — all of which influenced the course of both World War II and 20th century history.

We in the West tend to look at D-Day as the beginning of the end of Nazi Germany, but this decision by Hitler, and the failure it engendered, sealed the fate of the Germans.  The army of the USSR suffered greatly in fending off and then grinding up the Nazis, and their sacrifices should be better remembered in the West.  U.S. equipment granted through Lend-Lease, helped keep the Soviets going, but their citizens and military lived (and died) through unimaginable conditions to turn the tide of the war.

Some stats:

Strength of the opposing forces on the Soviet Western border. 22 June 1941

	Germany and allies	Soviet Union	Ratio
Divisions	166	190	1 : 1.1
Personnel	4,306,800	3,289,851	1.3 : 1
Guns and mortars	42,601	59,787	1 : 1.4
Tanks (incl assault guns)	4,171	15,687	1 : 3.8
Aircraft	4,389	11, 537	1 : 2.6

The war on the Eastern Front went on for four years. The death toll may never be established with any degree of certainty. The most recent western estimate of Soviet military deaths is 7 million that lost their lives either in combat or in Axis captivity. Soviet civilian deaths remain under contention, though roughly 20 million is a frequently cited figure. German military deaths are also to a large extent unclear. The most recent German estimate (Rüdiger Overmans) concluded that about 4.3 million Germans and a further 900,000 Axis forces lost their lives either in combat or in Soviet captivity. Operation Barbarossa is listed among the most lethal battles in world history.

Military casualties for the Wehrmacht:

By Front (Per R. Overmans)

Front	Total Dead
Eastern Front until 12/31/44	2,742,909
Western Europe until 12/31/44	339,957
Final Battles in Germany 1945	1,230,045
Other (including Sea and Air War Germany)	245,561
Italy	150,660
The Balkans	103,693
Northern Europe	30,165
Africa	16,066
Prisoners of War	459,475
Total	5,318,531

Overmans believes that there is not sufficient data to breakout the 1,230,045 deaths in the 1945 Final Battles in Germany between the Western Allied invasion of Germany and Eastern Front in 1945, although he estimates that 2/3 of these casualties can be attributed to the Eastern Front. Soviet sources claimed that “In 1945 the German Army lost more than 1,000,000 men killed on the Soviet-German front alone.”
Russian figures for German losses on the Eastern Front Total 6,923,700: Killed 4,137,100, taken prisoner 2,571,600 and 215,000 dead among Russian volunteers in the Wehrmacht. Deaths of POW were 450,600 including 356,700 in NKVD camps and 93,900 in transit.

All in all, the Soviets did a lot of Nazi-killing.

Update:  This also marks the 67th anniversary of the beginning of Operation Bagration, in which the Soviet army pushed the Nazis out of Belorussia and Eastern Poland in their drive to Berlin.

Happy Midsummer's Night

Today is as long as a day gets.

Good Riddance to Sodium Vapor Lights

Hal Espen:

When I was growing up in suburban California in the 1960s and ’70s, the world after dark was lit by warm incandescence and whitish mercury-vapor street light. Although the latter had a spectral signature with vampiric overtones, turning reds to black and casting a blood-drained pallor on white skin, it still approximated something akin to plain white light. But after the energy shocks of the 1970s, high-pressure sodium lights gradually took over the night. Following the economic imperative to use the most cost-effective lighting—high-pressure sodium lights consume half as much energy as mercury-vapor lamps and can last up to 16,000 hours longer—transportation departments and cities embraced sodium light. It was as though someone said “Fiat lux sulfurea—“Let there be light from hell.” The relentless spread of sodium streetlights is documented in NASA night photographs from space: New York City and Los Angeles are circuit boards of glowing orange, and Long Beach, one of the world’s busiest ports, is a flare of tarnished gold. It’s even worse in the United Kingdom, where 85 percent of streetlights use sodium. The jaundiced weirdness of sodium light has become a vexing challenge to photographers (one filmmaker, Tenolian Bell, called it “the ugliest light known to the cinematographer”); movie cameras simulate its color by using a gel filter named Bastard Amber. Significantly, retailers have avoided inflicting the unpleasantness of sodium lights on their customers—most commercial parking lots and shopping malls use the costlier white metal halide lights.
Our forced acceptance of sodium light’s ghoulish tint, an accident caused by the electrical vaporization of sodium metal in a gas-filled tube, makes outdoor lighting an example of a “bossy technology,” to borrow a term from Kevin Kelly’s recent book, What Technology Wants. Even worse than this inherent bossiness is the larger problem of light pollution. “Mankind is proceeding to envelop itself in a luminous fog,” wrote the authors of a paper on artificial night-sky brightness in 2001. This “perennial moonlight” that we’ve created enhances our safety and security, but it also dims our view of 10,000 stars and destroys the dance of light and dark.
But now we have a chance to bid good riddance to sodium vapor, and perhaps even resist the heedless trend of adding more and more light. The color of night is changing again.
In the next decade, a large percentage of America’s 37 million streetlights will be equipped with light-emitting diodes, or LEDs, and other kinds of solid-state lighting. Once again, energy-saving is the driving force. “We’re still at the front end of the wave,” says Mark S. Rea, the director of the Lighting Research Center at Rensselaer Polytechnic Institute, “but LEDs are inevitable as a replacement technology.” He predicts that LEDs, which are already 10 to 20 percent more energy-efficient than high-pressure sodium lights, will have a 40 percent advantage within a year or two.

Like Hal Espen, I hate sodium vapor lights.  I also hate mercury vapor lights.  I just prefer the barnyard to be dark.  I'm not too concerned what's going on out there after dark, and I like going without outdoor light.  I don't have the crime concerns of the city, so I'm a-ok with darkness.  LED or not, I'm not interested.

Yuengling Comes To Ohio

Akron Beacon-Journal (h/t Cubs Dad):

 D.G. Yuengling and Son will enter the Ohio market later this year — possibly as early as October. “It’s going to be so exciting,” said Pat Noone, the brewery’s business development manager and the one spearheading the move into the Buckeye State.” The launch in your state is going to be huge. It’s probably going to be the most successful launch in Yuengling’s history.”
Yuengling is the oldest operating brewery in America and has a cult following for its popular brands, which include Traditional Lager, Original Black & Tan, Porter and Lord Chesterfield Ale. The company — which is in 14 states now — isn’t distributed in Ohio, forcing hardcore fans to drive to neighboring Pennsylvania to stock up.
“The reason we haven’t been in the state is because we haven’t had the beer to service the state,” Noone said. “Ohio is one of largest states in the country and in terms of beer consumption, and we needed to make sure that when we did come, we were able to service the state properly.”

Now that it will be legally sold here, I predict the novelty will wear off.  Sales will increase a while, then plateau and drop, as another fad catches on.  Is anybody drinking Coors these days?  Don;t get me wrong, it's good beer, but not that good.

Chart of the Day

Where did those productivity gains go? From Mother Jones, via Ritholtz:

Well, I'm glad that clears that question up.  I say tax it back from them, the thieves.

The Shortcomings of Intrade Gambling on the GOP Primary

Via Ritholtz, the New Republic:

InTrade, for those unacquainted, is a website where betters trade “contracts” on whether an event, from a raised debt ceiling to a Charlie Sheen arrest, will or will not occur. If the event comes to pass, the contract pays out $10 to its owner; if it doesn’t, the contract becomes worthless. For example, if lots of people think that Mitt Romney will get the nomination, a contract predicting as much will be in demand, and its price, translatable into a probability, will go up accordingly. The idea—using the same collective judgment that sets prices on Wall Street to forecast the future—is tantalizing, and many media outlets have been serving up spreads from the website for months now, including Dave Weigel, The Hill,Bloomberg, Salon, The Spectator, and even the venerable quant Nate Silver. Business Insider is the most enthusiastic; last Tuesday following the GOP debate, it reproduced the latest InTrade numbers under the headline, “Ranking the Republican candidates: Here Are Their Odds Of Winning.”
But in the context of the GOP nomination, InTrade simply isn’t up the task. The first and biggest problem with the predictions market is its tiny trading volume. As of this piece, the site reports that only 74 contracts were traded on Monday on the nomination of frontrunner Mitt Romney. Moreover, the bets wager no more than $4 apiece. In other words, in a barely-begun race between many candidates, there simply isn’t the volume or risk necessary for InTrade’s market to work its supposed magic. As Yale economist and electoral predictor Ray Fair explained to me, this is the site’s Achilles heel. In general, Fair says, low volume is a problem for all the bets placed on the website, but “for small contracts like [the GOP nomination], it’s even worse.” Mark Perry, a University of Michigan-Flint financial economist and American Enterprise Institute scholar, agreed, arguing that “with a thin market like that, you have less information transmitted through the odds.” And financial journalist Felix Salmon made the same argument to explain why he quit the site. 

They go on to make another couple good points.  This really is more about entertainment than actual prediction, but it plays to people's bias that markets can be rational predictors.  I don't buy it.

Job-Killing Government Spending?

Alan Blinder points out that Republican claims don't make sense:

The generic conservative view that government is "too big" in some abstract sense leads to a strong predisposition against spending. OK. But the question remains: How can the government destroy jobs by either hiring people directly or buying things from private companies? For example, how is it that public purchases of computers destroy jobs but private purchases of computers create them?
One possible answer is that the taxes necessary to pay for the government spending destroy more jobs than the spending creates. That's a logical possibility, although it would require extremely inept choices of how to spend the money and how to raise the revenue. But tax-financed spending is not what's at issue today. The current debate is about deficit spending: raising spending without raising taxes.
For example, the large fiscal stimulus enacted in 2009 was not "paid for." Yet it has been claimed that it created essentially no jobs. Really? With spending under the Recovery Act exceeding $600 billion (and tax cuts exceeding $200 billion), that would be quite a trick. How in the world could all that spending, accompanied by tax cuts, fail to raise employment? In fact, according to Congressional Budget Office estimates, the stimulus's effect on employment in 2010 was at least 1.3 million net new jobs, and perhaps as many as 3.3 million.

More people need to call shenanigans on Republican bullshit.  Their arguments don't make any damn sense, but people believe it because it makes them feel better.  Hey, guess what folks, Fox News is lying to you.