16 Sept

Housing woes

This argues that all the woes of the world come from our failure to sort out housing policy. It fits neatly in with this article in last week’s Spectator magazine which argues that doing anything which might unsettle asset prices, particularly house prices, is politically toxic.

I think there are more things wrong with our society than a recent failure to build houses where they are needed, but certainly this is a serious failing which has damaged our productivity, and thence our welfare, a great deal, over the last few generations.

Image of the day

![Ancient tools, modern techniques.](https://imgs.xkcd.com/comics/modern_tools.png

If you ever wondered whether lobbying works

Well, it looks like it does.

Pan African Resources

This analysis suggests that it was over-valued, at $1,500 per oz. of gold. Gold is now over $1,800/oz and so the economics of this company should look a lot better. It is a sort of option on gold, but it does pay a hefty dividend, so it’s a pretty cheap option. I have no position, and I don’t intend to open one, but it looked interesting. It has just announced a buyback programme which should keep the share price buoyed.

Another $1 trillion Fed facility that is meant to be temporary but won’t be

Wall Street on Parade writes up the overnight reverse repo facility, a tool from the Fed toolbox which now is in very active use on a daily basis. Read more here.

Money market funds, which exist because banks pay too little interest on money, were holding too much poor credit paper, so the Fed bought it all up and offered an attractive interest rate on the cash which the funds ended up holding. Five basis points probably doesn’t sound very much to you or me, but on a trillion dollars worth of reserve balances, it’s quite a sum. Half a billion, in fact.

A lot of people write about these Fed facilities, most famously Zoltan Pozsar, but I find the articles written by Pam Martens and her husband very readable.

Wrap

Unexpected bounce in retail sales in the US in August caused a moment of very mild panic. Slight weakness in equities, very slight droop in bonds (10Y US now at 1.332% gross redemption yield), dollar strong (DX at 92.9), commodities generally weaker. Monetary metals still weak. Gold back down to $1755/oz. I don’t know, but I feel that crypto investors have taken some air out of the gold price. Bitcoin is now at $47.7K: up 336% on the year.

Image of the day

from Daniel Brami

Crony capitalism and corporate welfare

The Left thinks capitalism is evil because it gives too much power to corporates. The Right thinks socialism is evil because it gives too much power to organized labour. The libertarians hate capitalism because the believe that the returns to corporate lobbying ensure that groups end with corruption in both groups (in the sense that policies end up being introduced that benefit the representatives at the expense of the general public).

The odd thing is that both sides agree on the disease, but each thinks that only its own medicine will cure the patient. It is like the refrain that one hears from the Right that whenever socialism fails, which it frequently does, defenders will always argue that it wasn’t real socialism.

A number of authors have identified the problem: A Capitalism for the People: Recapturing the Lost Genius of American Prosperity by Luigi Zingales, One of any number of books by David Stockman, Overripe Economy: American Capitalism and the Crisis of Democracy by Alan Nasser and The Myth of Capitalism by Mark Tepper.

The genius of democracy is that we get a chance to throw out our rulers once or twice a decade, not because we think the new lot will be better, but because we know that, over time, the last lot will have become corrupted by power. Unfortunately, this mechanism is lacking in modern capitalism, with it’s glacial rate of creative destruction (gifted to us by the Central Bankers).

Solving this dilemma is difficult but I think that a more aggressive regulation of monopolies would be a good start and a reduction in any regulations that can create barriers to entry. Although businesses pretend they hate regulation, they actually know that a well-crafted piece of regulation can keep disruptive innovations out of the market for ever, practically. If you have ever wondered why corporate tax rates, have come down so far, and generally taxes on capital have been going down while taxes on labour have been going up, you need to look no further than the power of corporate lobbying. If you wonder why regulation just keeps piling up while politicians keep making speeches about how damaging it is and how they are going to get rid of it, just ask yourself cui bono?