Merry Christmas

For anyone that doesn't live between, say, Las Vegas and the international date line, Merry Christmas. I'm in that first category there, but Christmas will get around to me shortly, when it's good and ready...

Can we pull an "Iceland" on ourselves?

To oversimplify a bit, the international component of the US economy is kind of like this: we buy materials, components and finished goods from foreign countries. They buy materials, food and other stuff from us, but in a lower dollar amount than our imports. This is an accounts deficit, which means that there's a net flow into the US of goods and services and a new flow out of the US in US dollars. Easy enough.

So, the foreign exporters are getting a bunch of US dollars. They're not spending them on US goods and services - if they were, we wouldn't have a deficit. What are they doing with them? Well, they're using them as currency among themselves. Some nations use USD as currency directly, others depend on it for purchasing oil, which is traditionally sold in terms of the USD. The rest of it? Used to purchase US government debt. The big debt holders are Britain, China and Japan, but there are scores of others holding onto US debt in smaller quantities.

That works great for us - we get a whole bunch of stuff from the foreign countries AND our government gets to spend what it wants without having to worry about covering expenses with tax revenue. It works great for the exporters too - they get a huge market for the stuff that they make, and they earn interest on our debt. Two great ways to build a national economy. As long as the US economy grows quickly enough that we don't get strangled by the interest payments on the debt (and so far it has), we're all set.

There's a crucial dependency here though - the value of the US Dollar. A few thoughts there:

1. I believe that some countries, notably Iran, are now pricing their oil in Euros rather than USD, bolstering the Euro and weakening the dollar.
2. If our current economic retraction lasts a while, our GDP growth won't continue to pace the interest on our debt, meaning that the overall percentage of the national budget that goes to interest will rise, at the expense of other programs, or even more debt (a vicious cycle).
3. If the Fed attempts to inflate their way out of the current situation (i.e., keep printing money until we recover), we're likely to see overshoot inflation, where the economy has recovered but the value of the dollar continues to fall.

A little of this might be okay - a weaker dollar favors US exporters and of course makes the overall debt picture more favorable. Too much though, and the foreign debt holders won't really want our relatively worthless USD anymore. We'll have to start paying more and more interest if we want them to buy our debt. Our economy also depends on imports. We can feed ourselves, but we need to buy oil, manufactured goods, and many of the raw materials that we use to drive our own manufacturing. We owe a lot of money to foreign countries, and our economy depends on the ability to get new loans going forward. If we inflate our way out of present debt, we could make the foreign countries very upset, shaking their faith in the dollar, and breaking our current cycle.

We could become like Iceland - unable to afford outside goods, struggling to pay for even basic necessities like oil for transport and heat, and with all the other bad side effects of runaway inflation - difficulties for fixed income earners, an even worse credit collapse, etc.

The Austrians, eternal enemies of easy money, are already worried, telling everyone that the deflation we're worried about now is way better than the alternative. Not sure how serious it is yet (what do I know really), but I'm certainly worried. I might be motivated to be the first rat off the ship, running to durable goods (dare I say gold?) at the first sign of inflation's return?

The Magic Roundabout

So roundabouts are kind of superior to how we roll here in the US. With a traffic light or a stop sign, there's always a chance (sometimes a significant chance) that folks will have to stop even if there's no one to whom they're actually yielding way. Our intersections also apparently take up more space and result in more accidents. Still, this seems a bit crazy (it actually exists, in England),

Happy Solstice

Exactly one month late, here are some photos from the SB Summer Solstice Parade.

Unintended Consequences

So guess NY discouraged Goldman Sachs from paying bonuses to their execs given that the firm was getting federal bailout $$$. Makes sense, but the unintended consequence? NY State lost $178 million as a result. We're nowhere near there yet, but this points in the direction of the class warfare endgame: whenever the middle class gets rid of the upper class, they become the upper class. If Wall Street isn't bankrolling NY State's expenses, then the remaining New Yorkers are (sooner or later).

On Silverlight

You'd think this should be obvious enough for everyone, but just in case there's any remaining doubt:

It's a trap!!!

Seriously. Microsoft. Proprietary technology. Cool gimmicks for developers. "We're totally supporting Mac and Linux this time." Yeah, and Lucy's totally not going to pull the ball this time. Good grief.

Dude, sequels are only fun if they're not clones of the original. This one won't even be worth a netflixing.

More on the missing Entwives

Giles chimes in on the paucity of women in CS and, as usual, has something useful to say.