This Blog Has Moved!

My blog has moved. Check out my new blog at realfreemarket.org.



Your Ad Here

Monday, February 25, 2008

Reader Mail #38

Occasionally, someone googles "Who is FSK?" I looked at the results. There are a lot of people besides me going by the initials "FSK". If you see an "FSK" elsewhere, it might or might not be me! Lately, I put a link back to my blog whenever I post, but not always!



I liked this post on to Herd or not to Herd, linking to this article. Essentially, Ben Bernanke made a speech saying the US economy is ****ed.

As a serious investor, you know what this means. We are near the bottom of the current recession. Due to sharp cuts in the Fed Funds Rate, the money supply should start sharply expanding soon. There will be another economic boom (i.e. money supply expansion) starting about now.



I liked this post on the Distributist Review, referring to this YouTube video. It is an English satirical interview with an investment banker about the subprime mortgage problem.

My favorite bit is when the interviewer asks the investment banker what needs to be done about the crisis. The investment banker says that government needs to give the financial firms back all the money they lost so they can go about lending as if nothing had happened.

When a central bank cuts interest rates, essentially it is printing new money and handing it to the banks.

Of course, if the government fails to bail out the banks, the entire financial system would collapse. With debt-based money, banks are needed to issue the money that the rest of the economy uses to trade.

When banks lose money, the money supply starts shrinking. With a lower capital base, bank regulations mean that banks can issue fewer loans. Without central bank intervention/bailout, there would be a hyperdeflationary crash of the money supply.



I liked this post on Techdirt. A hacker made $300k in trading profits by breaking into corporations computers and stealing information. US insider trading laws only apply when someone obtains information *LEGALLY*. The information was obtained illegally, so the insider trading laws do not apply.

He could be prosecuted for computer fraud. He was only charged with insider trading, and was the charges were dropped based on this technicality.



I liked this post on Check Your Premises, citing this YouTube video. Someone asked me what "MSM" stands for. It means "MainStream Media".

When people read words, they read the shape of the word instead of the full word. Whenever I read "Check Your Premises", my first interpretation is "Check that you actually have male sex organs." IMHO, based on the content of the blog, I like my version of the name better.



I liked this article on Techdirt. Should newspapers be barred from writing articles on a high-profile trial?

The fact that newspaper coverage of a trial can affect the outcome is evidence that the trial system itself is broken. Someone whose judgement can be affected by newspaper coverage is UNQUALIFIED to serve as a juror in ANY trial.

The principle that "jurors should have no information before a trial" is evidence that the legal system is defective. The MOST INFORMED jurors are the ones MOST QUALIFIED to judge.

For example, I could NEVER get on a jury for a technology patent lawsuit or ANY technical case at all. I know too much; therefore, I am ineligible.

If I were being interviewed for a tax evasion or drug possession trial, and if I felt motivated to help the defendant, I might conceal my personal views. Surprisingly, I haven't been called for jury duty in awhile.



I liked this post on Bill Rempel about "spread trades", although he sort of is missing the point. Bill Rempel says "I don't understand why spread trades are so popular."

For example, a spread trade is buying April oil futures while short selling an equal amount of March oil futures. If the March price of oil goes up, the April price should go up by an equal amount. You are owning oil for about a month. As with most long positions, you are the beneficiary of inflation and receiving a massive government subsidy.

With spread trades, *HUGE* leverage ratios are allowed. Your theoretical profit is only slight, but it is massively amplified by leverage. Under normal circumstances, you will make a decent profit. However, as with most leveraged positions, there is the chance of the occasional huge loss. Under normal market conditions, the April price of oil will be greater than the March price of oil, because there's one more month of money supply inflation. If the oil market starts suffering from severe backwardation, you can get screwed over. Backwardation is when the March price of oil is HIGHER than the April price of oil. Backwardation is due to temporary supply shortages. If you need to heat your home in March, an April futures contract is useless.

The reason spread trades are popular is that their payoff profile is as follows. You earn decent 20%-30% returns 90%+ of the time. You go bankrupt the rest of the time. As a professional trader gambling with other people's money, this is a GREAT risk/reward profile. Most of the time, you'll look like a genius and get a fat bonus. The rest of the time, you switch jobs and try again with someone else's money! An experienced trader can ALMOST ALWAYS find someone else to bankroll him, even after going broke!

I'm also going to put this bit as its own separate post.



I liked this article on Techdirt. The ACLU filed a lawsuit over illegal wiretapping by the government. The Federal appeals court and the US Supreme Court tossed out the lawsuit. The reason was that *ONLY* someone who has been illegally wiretapped can sue. The ACLU can't prove that the plaintiff was illegally wiretapped; therefore, they can't sue the Federal government.

The US Supreme Court did *NOT* rule the wiretapping was acceptable. They merely ruled that the ACLU lacked legal standing to file a lawsuit.

This is a neat catch-22. There's no way to *PROVE* you are the victim of a secret illegal wiretap. Therefore, nobody will ever be able to successfully file a lawsuit!

Of course, the real solution is, as always, "Who says the US Supreme Court has legitimacy? Why do those 9 people have the right to tell everyone else what to do?" Ironically, the US Supreme Court writes *MORE* laws than members of Congress! Most members of Congress let lobbyists write laws for them. Very few Congressmen read or write the actual laws; it would take forever! Most Supreme Court opinions are actually written by the members of the Supreme Court! The Supreme Court handles few enough cases that they have time to seriously review everything.



I liked this article on Techdirt. The Chinese government does not have well-defined guidelines for what content on the Internet should be censored. Instead, they aggressively go after ISPs after the fact whenever inappropriate content appears. In turn, this causes ISPs to be super-aggressive when it comes to censorship. Every once in awhile, the Chinese government needs to put some people in jail, just to keep everyone else scared.



I liked this post on Classically Liberal. Biofuels are *NOT* really more efficient than oil at this time. They only are profitable in the context of government regulations requiring their use.

As usual, government environmental regulations are an excuse for a handful of people to line their pockets at the expense of everyone else.



I liked this post on The Long Tail. Suze Orzman appeared on Oprah's show and offered her book as a free download. Even though people could download the book for free, her Amazon.com sales rank *SKYROCKETED*.



When I watch CNBC, all the analysts are saying "SELL ALL YOUR STOCKS! CONVERT ALL YOUR MONEY TO CASH! SELL! SELL!! *SELL*!!!" It's like they're calling the market bottom.

In 2002, my coworkers were bragging about how they all pulled all their money out of the stock market. At the time, I was thinking "This must be the bottom of the stock market."

If you invest in long-term bonds at the bottom of the business cycle, you will lose money. As interest rates rise, existing bonds become worth less money. With bonds, there are two risks. First, you're practically guaranteed to lose out to inflation, which is really 7%-15%. Second, when interest rates rise, the market value of your existing bonds becomes worth less. Only banks and hedge funds, which can borrow at the Fed Funds Rate, can profitably invest in bonds. They don't care that the inflation-adjusted return is negative, because they get to use substantial leverage.



I liked this post on George Washington's blog. There are plans to keep the US government going in the event of a disaster. Were "continuity of government" processes invoked after 9/11 and never revoked? Has the US Constitution been officially suspended. The poster is 140 years or 90 years or 70 years too late, depending on how you count.

When the southern states walked out of Congress in 1861, Congress no longer had a quorum. At that point, the US Constitution technically expired as a voluntary agreement among states. President Lincoln issued an executive order to get the government going again. Technically, the US Constitution was never properly reestablished.

In 1913, with the establishment of the Federal Reserve and the income tax, that was effectively the end of the US Constitution. The "limited government" principles of the Constitution went out the window with the Federal Reserve and income tax. Other sources *ALWAYS* take the official blame for problems with the economy. The Federal Reserve and income tax are never questioned.

In 1933, President Roosevelt defaulted on the US dollar and declared the US bankrupt. Some people say that, technically, the US government has been operating illegitimately under a state of emergency since 1933.

For all practical purposes, the US Constitution is "just a piece of paper". If the people who control the government have no interest in following the US Constitution, it is useless. The form of the US Constitution is still vaguely followed so that people don't outright revolt. The US Constitution is a failed and discredited model for organizing a government.



I liked this post on George Washington's blog.

phrases like "bankruptcy" and "future" trigger all portions of a person's brain (logical, emotional, and survivalist) and so are very persuasive.

Let's play Overcoming Bias' "taboo your words" game with "bankruptcy". What do we mean by "The US government is bankrupt".

The US government has made future promises in the form of Social Security and Medicare that cannot possibly be kept. In that sense, the US government is bankrupt.

The US government has a debt of $10 trillion that cannot ever be repaid. This is only technically true. If the US government had a debt of 10 trillion euros, then it would be very bankrupt. However, the US government is the issuer of dollars. If Congress wanted, it could amend or repeal the Federal Reserve act, and directly print and spend $10 trillion to pay down the debt. The US government is *NOT* bankrupt because of its $10 trillion "national debt". With fiat money, the "national debt" is a legal fiction. The national debt is merely an excuse to transfer money to a certain group of people in the financial industry.

The US government has defaulted on its promise that $20 is redeemable for an ounce of gold. In this sense, the US government is very bankrupt. If a person did the exact same thing, they would be in bankruptcy court. However, governments are not subject to the same accounting rules as people.

So there are 3 different definitions of "bankrupt" that are commonly used:

If by "bankrupt", you mean "made future promises that cannot possibly be kept", then yes, the US government is bankrupt.

If by "bankrupt", you mean having a nominal debt in a currency the US issues, then the US government is NOT bankrupt. Congress can always raise the national debt ceiling. The Federal Reserve can create as many paper dollars as it chooses. Anytime it chooses, Congress can directly print and spend money to pay off the national debt.

If by "bankrupt", you mean having defaulted on a big promise in the past, then the US government is VERY bankrupt. The default on the gold standard is very serious. Technically, the US government has been bankrupt since it defaulted on the gold standard. The default on the dollar is the BIGGEST CREDIT DEFAULT in history, yet people say "The US government has a perfect credit rating". The US government has a perfect credit rating because it can ALWAYS print more dollars to pay off its debt.

The default on the dollar is not 100%, because it still has some purchasing power. The rate of default is 6%-15%, depending on what measure of inflation you use.

This topic deserves its own separate post.

Do people mind if I take some of the bits from these Reader Mail posts and publish them later as their own full post? Sometimes, I find myself writing a long and interesting bit in these Reader Mail Posts.



I liked this post on George Washington's blog. Some sources estimate that the total number of people who read blogs is GREATER than the total audience for network news.

The people who get on in this world are the people who get up and look for the circumstances they want, and, if they can't find them, make them.
- George Bernard Shaw

I want to create the circumstances of an underground agorist economy.



I liked this post on Unqualified Offerings. It's about replacing the word "test" with "assessment".

Let's play the "taboo your words" game. (That sure is useful.) Describe what is going on WITHOUT using the word "test" or "assessment".

What does someone mean when they say "test our students"?

Do you mean "Evaluate how well students are actually learning."?

Do you mean "Administer an evaluation with punitive results for those who fail, ensuring that students make a sincere effort to learn."?

In the context of education, "test" or "assessment" usually means the latter instead of the former. A "test" is about punishing those who fail to learn, instead of evaluating how much learning is actually occurring.



I liked this post on George Washington's blog. Surprise! The trials for prisoners held at Guantanamo bay aren't fair! That should be one big "Duh!"



I liked this post on Cafe Hayek. Creating jobs and creating wealth are not the same thing. For example, suppose the government passed a law mandating every child take 2 hours of piano training each day. This would create a lot of jobs for piano teachers. It would not create any real wealth.



I liked this post on Bubblegeneration, referring to this post. Google is now requiring domains to be 5 days old before allowing Adwords to be used on them. This effectively kills "domain tasting".

Actually, Google could go one step further. They could say "A new domain is not covered by our search index unless it is at least 5 days old." That would inconvenience zero legitimate users, while shutting out the "domain tasters".

This move by Google may actually be selfish. Some trademark owners have been considering suing Google over revenues lost due to domain tasting.



I liked this post on Bubblegeneration. Eventually, "open" social networks will shut "closed" networks out of the market. For example, Myspace and Facebook are "closed" networks, because they don't interact nicely with other social networking sites.

With Google's "open social" protocol, perhaps this will change.

Also, sites like Digg, del.icio.us, and Wikipedia have not rolled out any substantial new features in years. They are stagnating, while Google is continually coming up with lots of new products and tweaking its old products.

For example, Google Knol has the potential to eliminate Wikipedia, Digg, and many other websites. If Google Knol was implemented properly, it could be awesome! Google Knol, if done really well, could replace blogging!



I liked this post on Carnival of the Capitalists. As we already discussed, blog carnivals are an obsolete idea. Feed aggregators and other tools make blog carnivals irrelevant.

The Carnival of the Capitalists also had the "too much crap" problem that the Market Anarchist Carnival had.



This post on Yannone's blog is an interesting story about a fool. The State owns full allodial title to your house, and not you. Similarly, the State owns full allodial title to your car. You need permission from the State in order to drive.

Frustrated with this state of affairs, this individual decided to end all association with the DMV. He gave up the license plates for his car and gave up his driver's license.

*HOWEVER*, the harassment he faced from the police was *FAR GREATER* than the cost of complying with the regulation. He personally lost more time and effort than the damage he caused to the State. As a resistance tactic, this was extremely ineffective.

If you're the victim of inappropriate government activities, seeking redress in a government court is *POINTLESS*.

If you're serious about resisting the State, you should only pursue resistance activities that undermine State power *AND* show a profit at the same time. That's the whole point of agorism! The burden of taxes and government regulations are so great that this is easier than it sounds, once an underground economy gets started.



I liked this post on Techdirt. Adobe is adding DRM to Flash. According to the DMCA, this means that Adobe can sue third-parties who make Flash-compatible add-ons or Flash-compatible players.

This tactic by Adobe may backfire. It could mean that people switch from Flash to another scripting language.



I liked this post on The Picket Line.

Gandhi commented: “Withholding payment of taxes is one of the quickest methods of overthrowing a government.”

A former U.S. Secretary of State dismissed the threat of peaceful protestors with a similar argument, “Let them march all they want as long as they continue to pay their taxes.”

the great American writer Mark Twain remarked on the importance of legitimacy, “At bottom we know that the throne which the people support, stands and that when that support is removed, nothing in this world can save it.”

It is not strange that some people fear change. Mark Twain commented a century ago, “There are some that never know how to change. Circumstances may change, but those people are never able to see that they have got to change too, to meet those circumstances. All that they know is the one beaten track that their fathers and grandfathers have followed and that they themselves have followed in their turn. If an earthquake come and rip the land to chaos and that beaten track now lead over precipices and into morasses, those people can’t learn that they must strike out on a new road — no; they will march stupidly along and follow the old one to death and perdition.”

Actually, I *DO* consider it strange that some people fear change. If things aren't working, you should try something else.

Non-compliant tax avoidance operates on the principle that an illegitimate government has no right to levy taxes. This form of tax resistance should only be attempted in a collective exercise under the direction of a recognised authority, say the Law Society of Kenya or other civil society organisation.


I disagree. You can also resist taxes individually in secret. This is pro-State trolling again. "Humans need one form of authority to resist another form of authority"?



I liked this post on Overcoming Bias. The "Hawthorne Effect" says that if you change the lighting, workers' productivity improves. This has been cited in psychology texts as fact for decades.

It turns out that the original experiment was flawed. The results are incorrect. For 70 years, nobody bothered attempting to reproduce the experiment and verify the results. A commonly cited "fact" turns out to be false.

The problem is that scientists only receive grant money for *ORIGINAL* research. There is no grant money for checking previous results.

For example, why doesn't some professor at a research university perform an experiment to test "anti-psychotic drugs improve a patient's quality of life"? There is no research money for that. Instead, most psychiatrist professors study "Is drug A better than drug B?" The *LAST* thing a drug company wants is an independent evaluation of "Is drug A better than placebo?"



I liked this article on the Swedish recycling system. The government requires people to sort all their trash before throwing it out. Naturally, the cost of people spending time sorting their trash does *NOT* figure into the government's cost calculation.

When the red market forces people to waste time, that counts as a tax even though it never shows up on a balance sheet anywhere.



I liked this article on Techdirt. Google's Knol project may be a viable replacement for Wikipedia.

Unlike Wikipedia, Google's Knol will allow multiple competing articles on the same subject. If I write a article titled "Federal Reserve" that is sharply critical, then pro-State trolls will *NOT* be able to vandalize my article.

Probably, I will submit some of my best blog posts to Knol, to see how that goes.



I was Google Searching for "How do I get a Knol Invite?" My request was the #1 search result!

It's amusing reading all the articles on Knol. Google issued a single webpage/statement. Almost every other page I visited was just rehashing the information presented by Google in that one page.



David_Z has left a new comment on your post "Reader Mail #37":

"I don't get it. How does this post show what's wrong with Mathematics education?

A PhD is a waste of time. It is merely a piece of paper that says you wasted a certain number of years."

FSK - i was a little obtuse there. I'm fascinated by the B/S analysis you're doing. But much of the mathematics escapes me. This, I attribute to the failure of government schools.

I agree that the PhD is largely a waste of time, it was intriguing to me only as a personal academic pursuit, nothing more.

Mathematics education is bad *ON PURPOSE*. If people learned Mathematics well, they would be able to think properly. That would lead to all sorts of problems.

The Black-Scholes series is proving to be popular in Google search. It's getting me a few steady visits per day. It appears to be headed for the "Best of FSK" list. Usually, a popular post leads to a traffic spike, but that post series appears to merely be hitting a lot of Google searches where there isn't much competition.



Anonymous has left a new comment on your post "Reader Mail #37":

It is ridiculous to think human adults can live without some form of authority. It is not bullshit, it is wishful thinking. Even the market needs regulating to make sure there are no criminals operating.

Let's play the "Taboo Your Words" game. What do you mean by "authority"? Let's debate "Humans need authority to live" *WITHOUT* using the word "authority".

What do you mean by "authority"? Authority means a lot of different things.

"Humans need role models in order to live." That's acceptable, provided the role models lead by example instead of by force.

"Humans need to have their property violently stolen from them in order to live." This one is false. Do you agree? Once you realize "Taxation is theft", *ALL* forms of monopolistic government lose their legitimacy. Taxation is *ALWAYS* theft, whether it occurs in a monarchy or democracy.

"Humans need to have someone else make rules and violently enforce them in order to live." This one is false. Do you agree? What about the people who make the rules? What force makes sure that their rules are reasonable, IF THEY HAVE A MONOPOLY ON VIOLENCE?

"Humans need to have a mechanism for settling their disputes fairly." This one is true. Do you agree?

"Humans need to have a single person who is the ultimate final authority for settling disputes, with the ability to violently enforce his decisions." This one is false. Do you agree?

A monopolistic government court is *NOT* fair. A government court is expensive. It is possible for both parties to spend more on the trial than the value of the disputed property. If I think a government court is expensive and unfair, I do *NOT* have any alternatives.


Monarchist wars and Monarchical crisis of government do not tend to impact on the lives of the subjects, they still largely continue to live as they have always done. Democracies involve whole populations in their wars and their 'crisis' create social and civil unrest.

Is no authority better than monarchy. I think at some level the buck has to stop somewhere. Let us say, we have a conflict on interest over access to a river where our respective homesteads join, we cannot come to an agreement amongst ourselves...so we both agree to submit to a 'neutral' judge to decide for us. This is submitting to an authority. We can refuse and fight it out of course, but in such a society the hired gun and the hired army would be King, not anarchy.

If two people agree to the same judge and respect his decision, this is one of the valid instances of authority.

If you are rational, you will prefer a nonviolent resolution to a violent resolution. In a true agorist society, if you both purchased property insurance, you would be compensated in the event of an unfavorable ruling.

Ultimately, someone will own the river, or several people will jointly own it. In my vision of an agorist society, *ALL* property is owned. Once the ownership of the river is settled, and the owner uses it without injuring others, everything will be fine. As the government collapses, there probably will be some disputes over who owns the previously "public" land. In the present, the government has full allodial title to *ALL* property!

As for calling me a troll, or a fool just because I happen to disagree with your views..I think that is up to you, but not really conducive to our discussion. I dislike the State and consider it the ultimate and biggest criminal, I also think the genuine free market is largely self regulating, however we would need some final authority, with final say on things. Someone who can be reasoned with.

We are ultimately disagreeing over the definition of "authority". If you are unable to see that we are disagreeing over definitions, then yes, you are a troll or fool. If you are 100% certain that an agorist society would be a failure, then you are a fool. I'm not 100% certain of anything! I'm pretty sure that 2+2=4, but you'll never convince me that there isn't some contradiction in the laws of Mathematics that hasn't been discovered yet.

Democracies and structural governments have had wars were 50 and 60 million people have died! Such figures are beyond compare in a monarchy, even their largest battles only involved tens of thousands and usually only combattants not civilians.

You are making another logical fallacy. You have not convinced me that monarchy is superior to an agorist society. Both a democracy and a monarchy are illegitimate government from my point of view. Anyone who claims the right to steal is a criminal. It doesn't matter if you're a tax collector in a democracy, a monarchy, or Nazi Germany. All are equally criminals.

My point is "agorism is superior to both democracy and monarchy". You are saying "monarchy is superior to democracy". Such invalid reasoning convinces me that you are either a pro-State troll or a fool.

If you wish to continue this, play the "Taboo your words" game. Explain "people need authority" *WITHOUT* using the word "authority". We are using different definitions of the word "authority", and the word "authority" has many simultaneous meanings.

2 comments:

Bill aka NO DooDahs! said...

Yeah, I hit up on that concept with my 6 a.m. comment on Thursday:
"One additional possibility is that the rules, culture, and payout structure of hedge fund management create a situation where the rational, profit maximization strategy is to take risks that the trader would find unreasonable with their own money."

Zhwazi said...

"Humans need to have a single person who is the ultimate final authority for settling disputes, with the ability to violently enforce his decisions." This one is false. Do you agree?

You used the word "authority"! You lose!

I only find the concept of "authority" to be useful in the sense of a "delegation of authority" or "authorization", and IMO, any other use of the word "authority" is an abuse based on the idea that the state is supposed to be authorized by "the people", and the resulting conflations. There is no authority without authorization. Authority in this sense is not logically necessary, but it is extremely useful.

This Blog Has Moved!

My blog has moved. Check out my new blog at realfreemarket.org.