Eric Janszen Interview: CNBC Jan. 25, 2008

[Verrocchio]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

Sorry; to rephrase:

Given the worldwide dimensions of the ongoing collapse in the housing bubble, and the potential for geopolitical instability, it becomes increasingly important that a "next bubble" occur. Otherwise, it's time to buy one of those abandoned missile complexes, stock up, and hunker down . . .

Plus, I find tinfoil hats very uncomfortable to wear in my sleep . . .

Well said, SadSack, but if you're right, then members of the iTulip community should perhaps cheer on any means possible to extend what Steven Davis referred to as the "Period of Great Moderation." This would go against the grain, given the general disapproval of both government and private sector machinations seen on these pages. As Davis suggested in the brief moments that he had to respond, bubbles are better seen as "financial development," and that they are mere hiccups associated with financial development, that the benefits well outweighed the costs.

SadSack, is your position that we have no alternative but to develop another, yet larger mania?

[sadsack]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

Well said, SadSack, but if you're right, then members of the iTulip community should perhaps cheer on any means possible to extend what Steven Davis referred to as the "Period of Great Moderation." This would go against the grain, given the general disapproval of both government and private sector machinations seen on these pages. As Davis suggested in the brief moments that he had to respond, bubbles are better seen as "financial development," and that they are mere hiccups associated with financial development, that the benefits well outweighed the costs.

SadSack, is your position that we have no alternative but to develop another, yet larger mania?

The FIRE economy, from what I gather, is a neverending series of "doubling down" on the next "big thing."

As a statistician by training, I'm familiar with the "Gambler's Ruin" problem; i.e. at what point is a gambler, in a sequence of bets on a substantially random processs of outcomes, and with finite monetary resources relative to "the house," brought to bankruptcy/ruin?

If one believes the thesis of the FIRE economy, then one must also accept that the sequence of bubbles are successive wagers in the "Gambler's Ruin" scenario. Ultimately, if no additional wealth or value is created (as distinguished from "wealth transfer" discussed in other notable threads) in the process, then nothing but ruin is in store for the vast majority of the human population.

The "Next Bubble," in the above context, is merely buying time to better prepare for the inevitable.

EDIT:

GIS on "Carter Castastrophe", predator/prey propulation models (mankind is the pre-eminent predator)

It is my (perhaps over-pessimistic) belief that we are indeed approaching a "bottleneck" in human civilization. I'm no granola-crunching, tree hugging eco-freak; rather I hope that "human ingenuity" can get us through. The more people, the more potential Einsteins that can be be born.

Applying the Stamford-Binet norms to human intelligence, out of 10 billion people, this means that under peak world population models, approximately 300,000 people will be born with IQ's exceeding 160 - any one of which could be the next Archimedes, Newton, Einstein, etc.

"Oh, what Brave New World, that has such people in't. . ."

[Verrocchio]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

The FIRE economy, from what I gather, is a neverending series of "doubling down" on the next "big thing."

As a statistician by training, I'm familiar with the "Gambler's Ruin" problem; i.e. at what point is a gambler, in a sequence of bets on a substantially random processs of outcomes, and with finite monetary resources relative to "the house," brought to bankruptcy/ruin?

If one believes the thesis of the FIRE economy, then one must also accept that the sequence of bubbles are successive wagers in the "Gambler's Ruin" scenario. Ultimately, if no additional wealth or value is created (as distinguished from "wealth transfer" discussed in other notable threads) in the process, then nothing but ruin is in store for the vast majority of the human population.

The "Next Bubble," in the above context, is merely buying time to better prepare for the inevitable.

OK, but if your analogy holds up at all, we as the collective Gambler become progressively worse off as the night wears on. So if we "double down" our bet by huffing and puffing a new and larger bubble into existence, we are not better preparing for the inevitable impoverishment, only hastening it.

[chrisk]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

I think the phrase Next Bubble is good for catching people's attention, and is not inappropriate, but it does have connotations that don't seem to fit. I doubt if the taxi drivers will be giving out tips on infrastructure investment, for example (even if they may be participating by way of their tax dollars).

There might also be some confusion because the BIG bubble, the debt bubble that is now finally starting to deflate, is a different animal than the investment bubbles like tech and housing which it enabled. In fact, once you make the distinction, it raises the question of how an investment bubble during a debt DEflation might differ from one during a debt INflation. My guess is that it will be harder to profit from an investment-bubble while overall debt levels are deflating, even if you predict the investment winds correctly. It will be harder to leverage investments, for one thing, and also everyone will be taxed one way or another to pay for the previous debt binge, including (even especially) successful investors. Not that we really have any choice but to seek out the best investments anyway...

(By the way Eric, congrats on the good interview.)

[sadsack]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

OK, but if your analogy holds up at all, we as the collective Gambler become progressively worse off as the night wears on. So if we "double down" our bet by huffing and puffing a new and larger bubble into existence, we are not better preparing for the inevitable impoverishment, only hastening it.

In this context, the ruin is inevitable, by virtue of the fact that the gambler can only absorb finite losses until he is rendered bankrupt.

The only degree of control the gambler has is to prolong the number of turns by judicious betting, so as to postpone the time of ultimate bankruptcy.

In that sense, I agree with you that "doubling down," as a betting strategy, must geometrically decrease the number of turns that are left to the gambler.


Unfortunately, the above strategy seems to have been the patten over the last generation in this country.

My hope is that we'll catch a few favorable random blips, so that human ingenuity has enough time to come up with a viable "Plan B" . . .


EDIT:

Apologies in advance for the off-topic discussion

[Chris Coles]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

In this context, the ruin is inevitable, by virtue of the fact that the gambler can only absorb finite losses until he is rendered bankrupt.

The only degree of control the gambler has is to prolong the number of turns by judicious betting, so as to postpone the time of ultimate bankruptcy.

In that sense, I agree with you that "doubling down," as a betting strategy, must geometrically decrease the number of turns that are left to the gambler.


Unfortunately, the above strategy seems to have been the patten over the last generation in this country.

My hope is that we'll catch a few favorable random blips, so that human ingenuity has enough time to come up with a viable "Plan B" . . .


EDIT:

Apologies in advance for the off-topic discussion

But you are not off topic, far from it. The problem is that a capitalist society has lost sight of the great leveller, capital. It is the consistent drive to fund all business by loans, moreover, made up from depleted "magic Bean" derivatives rather than sound money that has driven the last few episodes of bubble mania. What is needed is a return to the investment of capital, particularly as equity. I must add that is a particular theme of my own. I believe that the failure to see the depletion of the use of equity as a means of investment is right at the heart of all our financial problems today.

What is so interesting in the EJ interview is the comments by the economist drafted in by CNBC, (who, [by the way], I do not believe stopped the interview because of a hotel fire, but because likely someone in the background suddenly realised they had the great Satan of anti-republican anti-establishment Media Mogul, EJ, on their screens and I should imagine someone started screaming..." Get him off, he takes the piss out of our leaders every day".....).

As for the economist, it appears all the economists are coming out with the same story; that what EJ calls a bubble is nothing of the sort, but instead engenders a period of stability and forward growth of the economy. In economics terms, everything is hunky dory and quite stable....

[raja]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

You are seriously wrong if you think any bubble in alternative energy and Infrastructure will be larger than the real estate bubble.

Real estate hit every one in the USA and other anglo saxon markets ( spain and Italy as well).

Perhaps someone can tackle this issue mathematically, i.e., calculate the comparative size of the two bubbles, then we'd have some idea. (It's beyond my experience and knowledge to do this, however.)

It seems to me that the biggest difference between the two bubbles would be that the housing bubble put apparent spendable wealth directly in hands of home-owning consumers, whereas the infrastructure/alt. energy bubble would add wealth primarily through . . . through what?? Jobs? Investments? Adding to the wealth of already wealthy people who will rake in the profits?

[Verrocchio]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

But you are not off topic, far from it. The problem is that a capitalist society has lost sight of the great leveller, capital. It is the consistent drive to fund all business by loans, moreover, made up from depleted "magic Bean" derivatives rather than sound money that has driven the last few episodes of bubble mania. What is needed is a return to the investment of capital, particularly as equity. I must add that is a particular theme of my own. I believe that the failure to see the depletion of the use of equity as a means of investment is right at the heart of all our financial problems today.

What is so interesting in the EJ interview is the comments by the economist drafted in by CNBC, (who, [by the way], I do not believe stopped the interview because of a hotel fire, but because likely someone in the background suddenly realised they had the great Satan of anti-republican anti-establishment Media Mogul, EJ, on their screens and I should imagine someone started screaming..." Get him off, he takes the piss out of our leaders every day".....).

As for the economist, it appears all the economists are coming out with the same story; that what EJ calls a bubble is nothing of the sort, but instead engenders a period of stability and forward growth of the economy. In economics terms, everything is hunky dory and quite stable....

Certainly possible, Chris. I for one would rather have heard what was coming next from the economist Davis, whose last words were, "Can I just make a comment about that?"

[zmas28]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

I thought it interesting that Marc Faber has also mentioned a couple of points that, taken together, support EJ's thesis: (1) that US policy is wrongly geared toward (further) stimulation of consumer spending and would be better served by encouraging capital investment and (2) US infrastructure is in a poor state of disarray.
On a separate issue, he is sometimes more agnostic on whether the Fed will succeed in fighting off the deflationary forces in play, although at other times he does seem to think they will succeed in supporting asset prices in nominal terms although not in real (inflation-adjusted or measured against gold) terms.

[FRED]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

Bubbles charted here : http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1514434&cmd=show[s118756172]&disp=P

You are seriously wrong if you think any bubble in alternative energy and Infrastructure will be larger than the real estate bubble.

Real estate hit every one in the USA and other anglo saxon markets ( spain and Italy as well).

Bubble market capitalisation size has been rising upwards from Tech to Liquidity , then to real estate, and no way will Itulps bubble of "alternative energy and Infrastructure" be larger than all previous bubbles.

The next bubble always must be larger than the previous to keep things going up at the same pace. Thus I think it wont, hence world GDP will trend down from 2007 onwards.

EJ writes in:

We sent out the first batch of Feb. 2008 Harper's issues to subscribers. If you haven't had a chance to read it you, you'll see some of the math we used to come up with over $20 trillion in spending.

My philosophy is that it’s not enough for me to identify how screwed up things are and how bad things are going to get if I don’t also have any constructive solutions to offer, and that’s really what the Harper’s article is all about. As the economy and financial markets devolve over the next few years, we all going to be looking for ways to get things going again and I’m hoping we go the re-industrialization route without the global depression, de-globalization, and war that followed the collapse of the last major debt financed asset price inflation, back in the 1920s. To help readers see what I see, I ask a number of questions.

Why can’t the US have the best auto industry in the world, leading with the best next generation technology? Why not build a national high speed rail network where you can work as if you’re in your office as you head to Texas, Florida, Chicago, or California from Boston or New York? Why not build safe and simple pebble bed nukes for local electricity and hydrogen fuel production for local personal transportation and wean ourselves off imported fossil fuels? Why not install fiber to ever home to enable communication tools that vastly reduce the need for in-person contact and commuting.

These are the kinds of energy, transportation, and communications projects I have in mind, massive investments to make the US economy more efficient for private businesses. Get government out of the business of subsidizing industry directly as it does the real estate industry today. Participants are government, private industry, private equity, and Wall Street. Capital gains tax rate on private company investment? Zero. If as an entrepreneur you’re taking all the risk to compete to, say, make the best ceramics technology for the high temperature turbines for the new nukes, you and your investors should not pay any capital gain taxes if the bet wins. How to make up for the tax revenue shortfall? Shift taxes back onto the FIRE Economy, especially real estate and other non-productive assets. The economy will shift its focus from debt-financed consumption to equity financed production.

The FIRE Economy V2.0 is as good as over anyway. What we need is a place to transition to.

[vcif]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

In honor of Sir Allen, how about the MAESTRO Bubble?

Morphing
Alternative
Energy and infra-
Structure
To
Reinflate
Oblivion

;)

[zmas28]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

EJ writes in:

We sent out the first batch of Feb. 2008 Harper's issues to subscribers. If you haven't had a chance to read it you, you'll see some of the math we used to come up with over $20 trillion in spending.

My philosophy is that it’s not enough for me to identify how screwed up things are and how bad things are going to get if I don’t also have any constructive solutions to offer, and that’s really what the Harper’s article is all about. As the economy and financial markets devolve over the next few years, we all going to be looking for ways to get things going again and I’m hoping we go the re-industrialization route without the global depression, de-globalization, and war that followed the collapse of the last major debt financed asset price inflation, back in the 1920s. To help readers see what I see, I ask a number of questions.

Why can’t the US have the best auto industry in the world, leading with the best next generation technology? Why not build a national high speed rail network where you can work as if you’re in your office as you head to Texas, Florida, Chicago, or California from Boston or New York? Why not build safe and simple pebble bed nukes for local electricity and hydrogen fuel production for local personal transportation and wean ourselves off imported fossil fuels? Why not install fiber to ever home to enable communication tools that vastly reduce the need for in-person contact and commuting.

These are the kinds of energy, transportation, and communications projects I have in mind, massive investments to make the US economy more efficient for private businesses. Get government out of the business of subsidizing industry directly as it does the real estate industry today. Participants are government, private industry, private equity, and Wall Street. Capital gains tax rate on private company investment? Zero. If as an entrepreneur you’re taking all the risk to compete to, say, make the best ceramics technology for the high temperature turbines for the new nukes, you and your investors should not pay any capital gain taxes if the bet wins. How to make up for the tax revenue shortfall? Shift taxes back onto the FIRE Economy, especially real estate and other non-productive assets. The economy will shift its focus from debt-financed consumption to equity financed production.

The FIRE Economy V2.0 is as good as over anyway. What we need is a place to transition to.

All this sounds very exciting and makes so much sense. However, for this massive industrialization and infrastructure buildout to take place, the right political forces have to be in the ascendancy and overcome entrenched business interests. In particular, I am thinking of the defence industry, the fossil fuels industry and the FIRE economy interests. I can see where companies like GE might be on board.
Do you think the political forces are in place (or developing) for this to happen?

[FRED]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

All this sounds very exciting and makes so much sense. However, for this massive industrialization and infrastructure buildout to take place, the right political forces have to be in the ascendancy and overcome entrenched business interests. In particular, I am thinking of the defence industry, the fossil fuels industry and the FIRE economy interests. I can see where companies like GE might be on board.
Do you think the political forces are in place (or developing) for this to happen?

EJ sez:

As I have said starting way back with The Big Bet back in 2005, first a crisis has to occur to empower new leadership. USA, Inc. needs restructuring and new management. Paradoxically, if economic problems don't get bad enough fast enough, this will make matters worse because new management will be aligned with old interests who got them elected, and they will try to keep the system working. Then it's four years of throwing everything and the kitchen sink at it (ala Japan 1990 - 1994) versus a well thought out New New Deal.

[Rajiv]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

The problem that you do not address and raise is the whole issue of interest - particularly compound interest -- which requires indefinite growth to service debt. This is the issue that Michael Hudson raises -- and I have raised the issue before -- and nobody wishes to directly address it.

This problem has been discussed by others -- in particular Margrit Kennedy

[donalds]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

Seeds for the bubble mania economy began with the Reagan administration following on the heals of the Volcker regime. That amounted to privatization, deregulation, and the shift from away from labor (income) to capital (credit creation gradually from banks to shadow banks and debt as substitute for income). Now we are witnessing the aftermath: credit destruction/debt deflation.

The answer to this: another bubble, except this one will be socially redeeming? Seems a stretch to me. And lets not attribute this to human nature - epistemologically weak, to say the least.

How about a bubble in a steady state, sustainable economy? OK, no chance of that.