US Capital Controls: New York Fed Backs Withdrawal Limits for Money Market Funds

Step by step the US seems in a transition towards capital controls.

From Bloomberg,

The Federal Reserve Bank of New York said money-market fund investors should be prohibited from withdrawing all their assets at once as a way to make the $2.5 trillion industry “safer and more fair.”

Money funds should set aside a portion of every investor’s balance as a “minimum balance at risk” that could only be withdrawn with a 30-day notice, the New York Fed’s staff said today in a report. The provision would reduce systemic risk and protect small investors who don’t pull out of a troubled fund quickly, according to the report.

“The delay would ensure that redeeming investors remain partially invested in the fund long enough to share in any imminent portfolio losses or costs arising from their redemptions,” the bank said today in a statement.

The idea, opposed by the funds industry, is already part of a proposal before the U.S. Securities and Exchange Commission that would force money funds to float their share value or build capital cushions and impose withdrawal restrictions, a person familiar with the plan said last month. The agency hasn’t made the proposal public and hasn’t scheduled a meeting for commissioners to vote on it.

Once again, policymakers are shown to be in desperation having to limit their visions towards attaining immediate goals, without vetting on the risks of potential unintended consequences from the reactions of the industry and of the public over the medium to long term.

The slippery slope towards capital controls eventually may imply deposit withdrawal limits ala Argentina during the 1999-2002 crisis

The biggest risks from all these would be…let me guess—capital flight and a US dollar crisis.

IMF Economist Resigns, Cites Conflict of Interests, Says: “Ashamed to Have Had Any Association with the Fund at all”

Brewing trouble at the IMF.

A renegade IMF economist recently resigned out of alleged conflict of interests. The Wall Street Journal Blog reports,

A senior International Monetary Fund economist is resigning from the Fund, writing a scathing letter to the board blaming management for suppressing staff warnings about the financial crisis and a pro-European bias that he says has exacerbated the euro-zone debt crisis.

“The failure of the fund to issue [warnings] is a failing of the first order, even if such warnings may not have been heeded,” Peter Doyle said in a letter dated June 18 and copied to senior management.

Doyle is formerly a division chief in the IMF’s European Department responsible for non-crisis countries. He currently acts as an adviser to the Fund but is expected to officially leave in the fall.

“The consequences include suffering [and risk of worse to come] for many including Greece, that the second global reserve currency is on the brink, and that the Fund for the past two years has been playing catch-up and reactive roles in the last-ditch efforts to save it,” he said in the letter.

Mr. Doyle’s shift in positions at the fund–from division chief to adviser–occurred around the same time that a new European Department chief was appointed. A senior official at the IMF said the new chief restructured the department, replacing many of its staff from outside the department earlier.

“After twenty years of service, I am ashamed to have had any association with the Fund at all,” he said in the letter. Mr. Doyle wasn’t immediately available for further comment.

IMF is funded by taxpayers from different member nations thus, like all other multilateral agencies, the IMF is a political institution subject to the advancement of the political interests of major contributors (represented through the quota-voting system).

Such distribution of power can already be seen from the appointment of executive directors. From the IMF,

Five Executive Directors are appointed by the member countries holding the five largest quotas (currently the United States, Japan, Germany, France, and the United Kingdom), and 19 are elected by the remaining member countries. Under reforms currently being finalized, all 24 Directors will be elected by the member countries, starting in 2012.

As a political institution, one really cannot expect the IMF to become apolitical and dispense their role in an objective manner, no matter the stated mission or job goals.

This also demonstrates of the web of complicity of the global cartelized tripartite political institutions of the welfare-warfare state, the privileged banking class and central banks whose interests has been promoted or upheld through all the political multilateral agencies.

And the uneven political representations in the IMF adds to the many reasons why bailouts or the redistribution of resources from poor nations (like Philippines) to the crisis stricken rich bankers and political class (whom fall under the umbrella of political interests of the major IMF fund contributors) has not only been financially unviable but immoral.

Phisix and ASEAN Equities in the Shadow of Contagion Risks

The common feature for today’s global financial marketplace has been extreme volatility

Sharp price fluctuations are seen by scalpers and short term traders as wonderful opportunities. On the other hand, such landscape for me, exhibits signs of increasing market distress. From a trading perspective, this implies for a low profit-high risk engagement.

In short, when the risk is high or when uncertainty dominates, I opt to take a defensive posture. For me, it is better to lose opportunity than to lose capital.

The Philippine and ASEAN markets have not been spared of such volatility.

The local benchmark fell by a measly .07% this week. But this comes after the Phisix opened strongly on Monday, lifted by the late week rally of Wall Street from the other week. Unfortunately such one day rally failed to hold ground as the following sessions essentially more than erased Monday’s gains.

Global markets have closed mixed for the week.

Almost every major equity benchmark encountered a rollercoaster week. Like the Phisix most of the early gains came under pressure during the close of the week.

In the ASEAN region, there have been signs of rotation.

This year’s ASEAN laggards, Indonesia (+6.8% year-to-date) and Malaysia (+7.33% also y-t-d) ended the week strongly as ASEAN outperformers, the Philippines (+19.2%) and Thailand (+17.9%) retrenched.

This only goes to show that the destiny of the Phisix has been tied with that of the region. So any belief that the local benchmark may perform independently will likely be disproven.

Also given the rotational dynamics, we might see some “catch up” play or the narrowing of the recent wide variance between the laggards and leaders overtime. But this doesn’t intuitively mean that such gaps will close.

But the fate of ASEAN’s markets will ultimately depend on the unfolding events in the US.

US Markets and Economy as ASEAN’s Anchor

Yes there have occasional instances where the Phisix has diverged from US or world markets[1], but overtime, the mean reversion capabilities of the markets govern.

Thus, the exemplary performance of ASEAN markets can be traced to the buoyancy of the US markets.

For as long as the US remains firm, so will likely be the fortunes of ASEAN markets and vice versa.

The US markets has so far been resilient from the Europe’s crisis, partly due to the capital flight dynamics from the Euro into the US, and similarly from the slowdown from major emerging markets as the BRICs.

Nonetheless such sustainability must be questioned considering that much of the world’s major economies (developed and emerging markets) have been in a marked downtrend.

Unlike in 2008, there hardly will be any China and other major emerging markets to rely on to do much of the weightlifting. Many emerging markets, particularly the BRICs have been bogged down by their domestic quasi-bubble problems.

In addition, the US Federal Reserve continues to employ talk therapy (signaling channel or policy communications management) instead of undertaking real actions. Media continues to broadcast the prospects of a Bernanke Put (“bad news is good news”), as Fed officials continue to signal verbal support in projecting hope for the steroid addicted markets.

And importantly political gridlock and regime uncertainty has been worsening (taxmaggedon, fiscal cliff, debt ceiling, Dodd-Frank[2], Obamacare, the forthcoming national elections and lately even the controversial LIBOR[3] issue) will likely intensify the current business, economic and financial uncertainties.

And considering that the US markets and her economy has been bolstered by sustained injections of steroids, the lack of and the perceived dearth of policy palliatives, as evidenced by the decelerating money supply growth, will likely bring to the surface and expose most of the misallocated investments, which has been camouflaged by recent monetary policies.

Such dynamics will be manifested through an economic slowdown if not a recession—but again this would really depend on how Ben Bernanke and US Federal Reserve will react or respond to increasing evidences of a slowdown.

Lately even the New York Federal Reserve swaggered about having to boost to US stock markets[4], which they say without them would have been 50% lower!!!

Proof that low interest rates have hardly worked: record low mortgage interest rates[5] have been amiss in providing sustained recovery to US property markets[6].

Yet steroid addicted financial markets continue to look forward to the FOMC’s meeting during the end of July in the hope for another round of policy opiates.

Add to these the soaring costs of agricultural commodities (chart from US global investors)[7], which have been mostly attributed to weather or drought conditions.

This, I believe, has been exacerbated by easy money policies and other interventions (e.g. agricultural subsidies, tariffs and etc…) which should extrapolate to higher food prices.

So we seem to be witnessing incipient signs of stagflation as I have long been predicting.

[As a side note, a UBS analyst recently noted that the risks of hyperinflation has been greatest for the US and UK[8]. But he sees less than 10% chance for this to occur in the near future.

Yet he believes that hyperinflation results from “unsustainable deficits” which “occurs after central banks monetize a large amount of debt”. Thus hyperinflation is a fiscal phenomenon.

I’d still say that hyperinflation is a monetary phenomenon meant to address fiscal concerns. Yes hyperinflation signifies a means to an end approach.

In dire financial straits and in desperation due to the lack of access to domestic and overseas private sector financing, governments frenetically print money to preserve on their political entitlements and power.

At the end of day, all these unwieldy or unsustainable levels of debt expansion will be defaulted upon directly through restructuring, or indirectly through inflation, where hyperinflation may arise as consequence to policy miscalculation, if not deliberately.

And this is why the risks of hyperinflation shouldn’t be discounted[9] despite today’s low interest rate environment]

Also, Spanish bonds at record highs are manifestations of persisting and growing financial and economic stress in the Eurozone and of the extreme fluidity of current conditions, which will have an impact to the US and to the world.

Markets have never really anticipated this.

As Doug Noland of the Credit Bubble Bulletin rightly observed[10],

It was not that many months ago that Spain was viewed as part of a financially stable European “core.” Indeed, Spain (5-yr) CDS ended Q1 2010 at about 100 bps. Spain commenced 2010 with government debt at a seemingly healthy 54% of GDP. Few anticipated the incredible pace of fiscal deterioration. With the federal government on the hook for the EU’s 100bn euro bank bailout package, the IMF now projects Spain will end 2012 with debt at about 90% of GDP – and poised for continued rapid growth.

Who would expect that French bonds to dramatically narrow against German bunds, where “spreads on French debt have narrowed by 16 bps in the last month and are currently at their lowest levels of 2012”[11] as French government paper morph into a ‘safe haven’ from the Euro crisis?

That’s how swift and powerful events have been moving.

To consider, people stampeding into French bonds seem to have overlooked the many sins underpinning the French sovereign paper.

As the BCA Research explains[12]

The French public sector is not in good financial health and is in worse condition than that of Italy in many respects. Italy has run large primary surpluses through much of the last two decades, while France has run large deficits. The Italian debt/GDP ratio was rather stable, while France’s has been rising sharply. In fact, France has accumulated 60% more debt than Italy since 1999, and its debt service costs are rising. More worrisome is that France’s combined private and public sector debt load is higher than that of Italy, putting the French economy in a perilous situation. The only variable where France looks better is economic growth, but even this has mostly come from larger government spending, and in turn at the cost of escalating debt.

And considering the incumbent socialist administration’s penchant for more government spending, taxes and regulations[13] which again will translate to more debt, reduction of productivity and competitiveness and potential exodus of investors, today’s safehaven may become tomorrow’s epicenter for the progressing crisis.

So we are seeing existing policy error compounded by more policy errors that only aggravates such crisis conditions, from which the sentiment of financial markets shifts violently from one end to another.

Hence, while earnings report of US publicly listed corporations may seem buoyant which has given the impetus for the bulls to provide the recent strength to the US equity markets[14], all the above compounds to signify substantial headwinds that US financial markets (equities, bonds, commodities) will be faced with.

And to add, it would be big mistake to read current market activities as tomorrow’s outcome given the huge swings happening in the financial markets around the world. That’s how unstable and mercurial current conditions are.

China’s “Good News” Ignored by the Markets

Such unpredictability has been no different for China.

This week, there has been a torrent of supposed good news that should have reanimated, if not fired up, China’s financial markets.

China’s banking system has reportedly posted a big jump in loan growth or bank lending rose by 16% to 919.8 billion yuan (US$144.3 billion) last June[15]

While news say that this signifies a positive sign from government efforts, this seems largely unclear. I am not even sure if these have been contracted by the private sector. As in the recent past, most of the so-called stimulus has been directed to the overleveraged and overindebted State Owned Enterprises (SoE)[16] which only adds to the current juncture.

The property sector likewise reported a significant surge in bank loans from April to June, up by 20% from last year to the tune of 322.6 billion yuan ($50.64 billion)[17].

Reports also say that China will ease restrictions on her shadow banking system, as well as, double up investments on railway projects[18].

This goes in contrast to previous reports where 70% of China’s railways projects recently has been suspended as a result of ballooning deficit financing, as well as last year’s deadly train crash which has brought upon safety concerns and exposed corruption at the highest levels of the ministry[19]

The confusing signals from supposed government stimulus and support, as well as, positive developments seems to have been discounted by the China’s financial markets as both the major equity market bellwether, the Shanghai Composite (SSEC-top pane), and China’s currency the Yuan (CNY/USD-bottom pane) have not demonstrated auspicious responsiveness to such developments.

Unlike at the end of the 2012 where the SSEC hit a low but the yuan remain lofty, this time both the SSEC and the yuan have been treading downwards.

These are hardly reactions that could be reckoned as bullish.

In contrast these could be symptoms of deeper underlying malaise—a bursting bubble, punctuated by intensifying hot money outflows[20].

With scarcely any household savings to tap, most of the increases in savings are from government and corporations[21] there seems little room for bailouts without incurring risks of inflation.

So like the US, we have the same ingredients contributing to the current highly uncertain climate, ambivalent central bank (PBoC) and political stalemate which has been prompting for increasing manifestations of the unraveling of malinvestments that has been the driving force of the current slowdown.

The Asian Electronic Export Nexus

Many seem to have developed the hardened belief that domestic (or regional) markets have been made invincible by the recent events, particularly record high equities.

As I have been saying, today’s globalization has made the world much deeply interconnected through trade, capital, labor and even through the US dollar standard based banking system.

Embracing the idea of decoupling can be hazardous to one’s portfolio and detrimental to one’s emotions and ego.

In terms of trade, a slowdown in world growth will have impact negatively on Asia’s electronic exports.

As The Economist recently commented[22]

THE electronics industry accounts for two-fifths of manufacturing output in Asia, according to calculations by HSBC. So when electronics grows quickly, Asia's GDP tends to speed up too, to the tune of almost 0.2 percentage points for each full-point increase in the electronics sector. Unfortunately this correlation also applies when things slow down (see left-hand chart). And recent signs are that Asia’s electronics industry is doing just that: HSBC’s lead indicator, which gives a rough two-month preview of future production, has slowed sharply in recent months, in contrast to the latest available output figures. One bright side, given the economic woes of Europe and America, is that Asian manufacturing is no longer as closely tied to Western markets as it was. Three of the five components that comprise HSBC's lead indicator measure conditions within Asia. So when the next rebound occurs, it is likely to be home-grown.

Again while it is true that Asia has been less dependent on the West, there is no guarantee that other sectors will not be affected from slomo diffusing or spreading of the global debt crisis.

A slowdown in electronic exports incidentally constitutes about half of Philippine exports[23]

So those dreaming of immunity from a global slowdown will likely be refuted.

Bottom line: The contagion risk is real.

Unless we see aggressive collaborative actions from major central banks (which may place a temporary patch or booster to the markets), or signs of economic stabilization from developed nations or from major emerging economies (whom are experiencing market clearing liquidations from domestic bubbles), we should expect global markets to remain sharply volatile and erratic in both directions but faced with greater probabilities of “fat tail” risks.

As a final note: I don’t expect the coming State of the Nation Address by the Philippine President to have lasting effects. They are likely to be meaningless feel good political rhetoric whose goals are for his party to seize the majority in the coming congressional elections in 2013.

Bubble policies and the effects thereof will continue to be main drivers of the asset markets.

Approach the equity markets with caution.

---

[1] See Phisix: Will the Risk ON Environment be Sustainable? June 24, 2012

[2] See Infographic: Dodd Frank-enstein, July 21,2012

[3] See Barclay’s LIBOR Scandal: Self Fulfilling Turmoil July 19, 2012

[4] See Bernanke Doctrine: New York Fed Boasts of Pushing Up the US Stock Markets, July 14, 2012

[5] Wall Street Journal Blog Vital Signs: Mortgage Rates Hit Record Low July 13, 2012

[6] Wall Street Journal Blog Vital Signs: Mortgage Rates Hit Record Low July 13, 2012

[7] US Global Investors America’s Competitive Spirit, July 20, 2012

[8] BusinessInsider.com UBS: The Risk Of Hyperinflation Is Largest In The US And The UK, July 17, 2012

[9] See Taking The Hyperinflation Risk With A Grain Of Salt?

[10] Noland Doug Risk On, Risk Off And The Spanish/Chinese Tug Of War, Credit Bubble Bulletin PrudentBearcom July 20, 2012

[11] Bespoke Investment Group EU Sovereign Spreads, July 20, 2012

[12] BCA Research, Watching France, July 10, 2012

[13] See Quote of Day: The Last Hurrah of Socialist Welfare States May 8, 2012

[14] See US Stocks Markets: Earnings Trump Economic Data, Leading Economic Indicators Fall, July 20, 2012

[15] Channelnewsasia.com China bank loans rise in June, July 12, 2012

[16] See China’s New Loans Unexpectedly Surged in May June 12, 2012

[17] Reuters.com China Q2 property loans rebound with sales, July 19, 2012

[18] See Will China Ease Banking Curbs? Has the Railway Stimulus been Launched?, July 17 2012

[19] Payne Amy Morning Bell: Transportation Secretary Wants Us to Be Like Communist China, Heritage Network, July 9, 2012

[20] Zero Hedge, Forget China's Goal-Seeked GDP Tonight; This Is The Chart That Keeps The PBOC Up At Night, July 12, 2012

[21] See Contagion Risk: Watch for China’s Catastrophic Deleveraging, July 16, 2012

[22] Graphic Details Chips are down, The Economist July 18, 2012

[23] RGE Analyst Blog Philippines: Reconciling Short-Circuiting Electronic Exports, Economonitor, February 17, 2012

Misrepresenting Frédéric Bastiat and the Black Swan Theory

Populist financial analyst John Mauldin seem to have misrepresented Frédéric Bastiat in his latest outlook.

Mr. Mauldin writes of Frédéric Bastiat,

He was a strong proponent of limited government and free trade, but he also advocated that subsidies (read, stimulus?) should be available for those in need, "... for urgent cases, the State should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions."

Really?

Here is the complete quotation from the great Frédéric Bastiat in Justice and fraternity, in Journal des Économistes, 15 June 1848, page 313 (Wikipedia.org) [quoted from Bastiat.org, bold emphasis mine, italics as per Mr. Mauldin’s quote]

When a great number of families, all of whom, whether in isolation or in association, need to work in order to live, to prosper, and to better themselves, pool some of their forces, what can they demand of this common force save the protection of all persons, all products of labor, all property, all rights, all interests? Is this anything else than universal justice? Evidently, the right of each is limited by the absolutely similar right of all the others. The law, then, can do no more than recognize this limit and see that it is respected. If it were to permit a few to infringe this limit, this would be to the detriment of others. The law would be unjust. It would be still more so if, instead of tolerating this encroachment, it ordered it.

Suppose property is involved, for example. The principle is that what each has produced by his labor belongs to him, the more so as this labor has been comparatively more or less skillful, continuous, successful, and, consequently, more or less productive. What if two workers wish to unite their forces, to share the common product according to mutually agreed-upon terms, or to exchange their products between them, or if one should make a loan or a gift to the other? What has this to do with the law? Nothing, it seems to me, if the law has only to require the fulfillment of contracts and to prevent or punish misrepresentation, violence, and fraud.

Does this mean that it forbids acts of self-sacrifice and generosity? Who could have such an idea? But will it go so far as to order them? This is precisely the point that divides economists from socialists. If the socialists mean that under extraordinary circumstances, for urgent cases, the state should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions, we will, of course, agree. This is done now; we desire that it be done better. There is, however, a point on this road that must not be passed; it is the point where governmental foresight would step in to replace individual foresight and thus destroy it. It is quite evident that organized charity would, in this case, do much more permanent harm than temporary good.

Bastiat was for subsidies (stimulus)? Go figure.

This is a nice example of doublespeak or the language that deliberately distorts or reverses the meaning of the words or statement—usually employed in politics. Yes just pick out an excerpt from which to stress one’s bias, even if these had been taken out of context.

Oh by the way, Mr. John Mauldin may have also misread the Black Swan Theory

He writes,

A Black Swan is a random event, something that takes us all by surprise. Economic Black Swans are actually quite rare. 9/11 and the aftermath was a true Black Swan.

This barely represents the definition of the theory

According to the book description of Nassim Taleb’s Black Swan: The Impact of Highly Improbable [bold emphasis mine]

A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was…

Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Taleb, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don’t know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the “impossible.”

For years, Taleb has studied how we fool ourselves into thinking we know more than we actually do. We restrict our thinking to the irrelevant and inconsequential, while large events continue to surprise us and shape our world.

Black swans appear to be random when they are products of OUR failure to "take into consideration what we don’t know”. In short, the knowledge problem

For instance, 9/11 was considered a black swan for the victims, but not for the terrorists.

Mr. Taleb alludes to the Turkey problem as model for the Black Swan theory: For the turkey—after months of fattening who suddenly have been put into the dinner table for Thanksgiving—would be a (surprise) black swan, but not for the butcher.

This applies to the financial markets as well.

Graphic: Made Everywhere, Even the Apparel Industry has been Globalized

“Made in China” has been a politically colored phrase not only in the US (US Olympic Uniform controversy), but also in the Philippines –the other day while on a cab, I heard a similar balderdash coming from a local radio announcer, who in ranting against China over territorial disputes included such false claims.

In reality, even the apparel or clothing industry has been about globalization, particularly the supply chain network. (hat tip Scott Lincicome)

To add, the apparel industry’s value added comes from design and post production facilities (marketing and distribution), an article from the Businessweek/Bloomberg.com points this out,

Garment manufacturing is a low-cost commodity business. Most of the value in the apparel industry comes from design, technology, sales, marketing, and distribution—not manufacturing. The successful players in apparel, such as Ralph Lauren and Nike, figured this out long ago.

Because the economics are bad, most U.S. apparel manufacturing operations folded decades ago. Only 97,000 Americans still have jobs in apparel production, according to the U.S. Department of Labor, and most of them are making highly specialized products like DuPont Kevlar uniforms that cannot be made elsewhere.

But just because America doesn’t manufacture apparel anymore doesn’t mean we can’t lead the industry. In fact, the world’s largest apparel companies are almost all U.S.-based, including Nike, VF, PVH, and Ralph Lauren, to name a few. These companies have grown a combined 146 percent during the past 10 years, adding more than $27 billion in revenue. Nike has created more than 15,000 new jobs in the U.S. during this time, Ralph Lauren almost 10,000. And unlike the low-paying production jobs next to sewing machines, these are well-paying jobs in marketing, accounting, design, and management.

These companies are winning globally by out-designing, out-innovating, and out-marketing the competition. Nike, for example, is unveiling a new TurboSpeed running suit at the London Olympic Games that it claims can reduce 100-meter sprint times by .023 seconds. Nike’s gear will be used by teams from many countries, including Russia, China, and of course, the U.S.

What Nike and Ralph Lauren don’t do is make their own products, in the U.S. or elsewhere—and this has become their competitive advantage.

Both companies source products from hundreds of independent manufacturers in more than 30 countries (less than 3 percent coming from the U.S.). The flexibility allows them to be cost-competitive globally. It also allows their design teams to focus on creating the most exciting new products possible without having to worry whether they can be made on a legacy production line.

Remember Fruit of the Loom? Brown Shoe Co.? Cannon Mills? Levi Strauss? In 1970 these were the largest U.S. apparel and fabric companies. They all owned their own U.S. manufacturing plants. They all struggled to innovate and grow, and they either went bankrupt or were bypassed by more nimble competitors who had no factories. If only they had outsourced …

Not only is outsourcing good for business, but the future of the American economy is dependent upon it.

So let’s stop whining about a few “Made in China” tags and start cheering for all of the great athletic performances made possible by superior U.S. innovation.

So when you hear someone rail about “Made in China” you can be assured that the person regurgitating such absurdities have either been ignorant of the real developments or have been deliberately employing deception as part of political propaganda to invoke nationalist (us against them) sentiment.

15-Year Old Wonderkid Dramatically Improves Pancreatic Cancer Tests

Talk about the magnificence of human capital.

From Make: (hat tip Professor Mark Perry) [bold mine]

Maryland young maker Jack Andraka isn’t old enough to drive yet, but he’s just pioneered a new, improved test for diagnosing pancreatic cancer that is 90% accurate, 400 times more sensitive, and 26,000 times less expensive than existing methods. Andraka had gotten interested in pancreatic cancer, and knew that early detection is a challenge. He gleaned information on the topic from his “good friend Google,” and began his research. Yes, he even got in trouble in his science class for reading articles on carbon nanotubes instead of doing his classwork. When Andraka had solidified ideas for his novel paper sensor, he wrote out his procedure, timeline, and budget, and emailed 200 professors at research institutes. He got 199 rejections and one acceptance from Johns Hopkins: “If you send out enough emails, someone’s going to say yes.” Andraka was recently awarded the grand prize at the Intel International Science and Engineering Fair for his groundbreaking discoveries.

Additional thoughts:

Access to technology has vastly been improving people’s capability to acquire knowledge, learn and pursue innovation: All it takes are the WILLPOWER or the PASSION to attain a goal, and importantly, the courage or having a constructive perspective of failure.

Youthful Andraka seems like another Steve Jobs in the making: focusing on matters of personal (or career) interests or “what you love” than of the traditionalism and conventionalism.

Talk about extreme determination and persistence: 199 REJECTIONS!!!

Mr. Andraka’s experience demonstrates how conventionalism abhors the unorthodox—where what works has not been reckoned as the priority, but of the conventional mindset, methodology and standards.

Nevertheless it took only ONE acceptance to prove that his theory has been viable and aptly got recognized for it.

What an accomplishment for a 15 year old! Jack’s parents must be so proud of him.

May Jack Andraka’s tribe increase.

Quote of the Day: Liberty is the Solution to Social Problems

It seems to me that this is theoretically right, for whatever the question under discussion -- whether religious, philosophical, political, or economic; whether it concerns prosperity, morality, equality, right, justice, progress, responsibility, cooperation, property, labor, trade, capital, wages, taxes, population, finance, or government -- at whatever point on the scientific horizon I begin my researches, I invariably reach this one conclusion: The solution to the problems of human relationships is to be found in liberty.

From the great Frédéric Bastiat (courtesy of the Bastiat Institute at Facebook)

Timeline of Mass Shooting Incidents during the Last Two Decades

Following the Colorado Denver massacre at the midnight showing of ‘Dark Knight”, here is a compilation or a list of mass shooting incidents as reported by Chicago Tribune/Reuters.com

Here is a timeline of some of the worst shooting incidents carried out by one or two gunmen around the world in the last 25 years:

March 13, 1996 - BRITAIN - Gunman Thomas Hamilton burst into a primary school in the Scottish town of Dunblane and shot dead 16 children and their teacher before killing himself.

April 28, 1996 - AUSTRALIA - Martin Bryant unleashed modern Australia's worst mass murder when he shot dead 35 people at the Port Arthur tourist site in the southern state of Tasmania.

April 1999 - UNITED STATES - Two heavily-armed teenagers went on a rampage at Columbine High School in Littleton, Denver, shooting 13 students and staff before taking their own lives.

July 1999 - UNITED STATES - A gunman killed nine people at two brokerages in Atlanta, after apparently killing his wife and two children. He committed suicide five hours later.

June 2001 - NEPAL - Eight members of the Nepalese Royal family were killed in a palace massacre by Crown Prince Dipendra who later turned a gun on himself and died few days later. His youngest brother also died later raising the death toll to 10.

April 26, 2002 - GERMANY - In Erfurt, eastern Germany, 19-year-old Robert Steinhauser opened fire after saying he was not going to take a math test. He killed 12 teachers, a secretary, two pupils and a policeman at the Gutenberg Gymnasium, before killing himself.

October 2002 - UNITED STATES - John Muhammad and Lee Malvo killed 10 people in sniper-style shooting deaths that terrorized the Washington, D.C., area.

April 16, 2007 - USA - Virginia Tech, a university in Blacksburg, Virginia, became the site of the deadliest rampage in U.S. history when a gunman killed 32 people and himself.

November 7, 2007 - FINLAND - Pekka-Eric Auvinen killed six fellow students, the school nurse, the principal and himself with a handgun at the Jokela High School near Helsinki.

September 23, 2008 - FINLAND - Student Matti Saari opened fire in a vocational school in Kauhajoki in northwest Finland, killing nine other students and one male staff member before killing himself.

March 11, 2009 - GERMANY - A 17-year-old gunman dressed in combat gear killed nine students and three teachers at a school near Stuttgart. He also killed one other person at a nearby clinic. He was later killed in a shoot-out with police. Two additional passers-by were killed and two policemen seriously injured, bringing the death toll to 16 including the gunman.

June 2, 2010 - BRITAIN - Gunman Derrick Bird opened fire on people in towns across the rural county of Cumbria. Twelve people were killed and 11 injured. Bird also killed himself.

April 9, 2011 - NETHERLANDS - Tristan van der Vlis opened fire in the Ridderhof mall in Alphen aan den Rijn, south of Amsterdam, killing six before turning the gun on himself.

July 22, 2011 - NORWAY - Police seize a gunman who killed 69 people at a youth summer camp of Norway's ruling political party, on the small, holiday island of Utoeya. Anders Behring Breivik is later charged with the killings, as well as with an earlier bombing in Oslo which killed eight people. The trial ended last month with Breivik saying that his bombing and shooting rampage was necessary to defend the country - prompting a walk-out by relatives of his victims.

December 13, 2011 - BELGIUM - Gunman Nordine Armani killed three people, including a 17-month-old toddler, wounding 121 in a central square in the eastern city of Liege, before shooting himself. The next day Belgian investigators found the body of a woman in warehouse used by the gunman raising the death toll, including the killer, to five.

July 20, 2012 - UNITED STATES - A masked gunman killed 14 people and wounded 50 others when he opened fire on moviegoers at a showing of new Batman film "The Dark Knight Rises" in the city of Denver.

Infographic: Dodd Frank-enstein

How burgeoning financial regulations will kill productive enterprises.

For a crispier view of the graphic proceed to Bob Wenzel's EPJ site here

From Amy Payne of the conservative Heritage Morning Bell

There’s a reason the financial regulation law has been called “Dodd-Frankenstein.” This monstrous creation will swell the ranks of regulators by 2,849 new positions, according to the Government Accountability Office. It created yet another new bureaucracy called the Consumer Financial Protection Bureau (CFPB) that has truly unparalleled powers.

This new bureau is supposed to regulate credit and debit cards, mortgages, student loans, savings and checking accounts, and most every other consumer financial product and service. And it’s not even subject to congressional oversight.

Frighteningly, the CFPB’s regulatory authority is just as vague as it is vast. More than half of the regulatory provisions in Dodd–Frank state that agencies “may” issue rules or shall issue rules as they “determine are necessary and appropriate.”…

The results of this haphazard regulation are dire, Katz says, because “consumers will experience tight credit, higher fees, and fewer service innovations. Job creation will suffer.” She adds that “financial firms of all sizes are shelling out hundreds of millions of dollars for regulatory compliance officers and attorneys rather than making loans for new homes and businesses.”

So the law that was supposed to fix the financial sector—and created something called the Consumer Financial Protection Bureau—is hurting consumers rather than “protecting” them. Congress should repeal Dodd-Frank before it can do any more damage.

Dodd Frank is an example of arbitrary statutes that leads to regime uncertainty which adds to the prevailing economic and financial uncertainty.

How Food Stamp (Welfare) Enriches Cronies

This is an example of how the welfare state is tied up with crony capitalism.

From Breitbart.com (hat tip Bob Wenzel)

The Farm Bill is reapproved every five years; in the 2007 bill, the biggest lobbyists included the agriculture biotech giant Monsanto, which spent $8.8 million. Other large corporate lobbyists included American Farm Bureau, Kraft Foods, PepsiCo Inc., American Beverage Association, Tyson Foods, Coca-Cola Co, Wal-Mart Stores, and the GMA (Grocery Manufacturer Association).

Big Agriculture lobbies Congress knowing hundreds of millions of dollars are on the line for their corporations.

Lobbying also takes place at the state level, where Big Agriculture has been fighting off further regulation of SNAP. State laws cannot strictly mandate that certain purchases be forbidden with the use of SNAP; the USDA (United States Department of Agriculture) has jurisdiction on how SNAP money is spent. State laws are required to seek a waiver from the USDA on certain products. Nine states proposed bills to alter SNAP to make it a more health-conscious program, but none of the proposed measures passed due to the pushback by Big Agriculture.

States contract with large banks in order to administer SNAP benefits; such banks charge fees, mostly to the states, for the use of electronic benefit transfers (EBT). The largest of such banks is J.P. Morgan Chase, which has EBT contracts in 24 states and makes a fortune from the Food Stamp Industrial Complex. J.P. Morgan Chase signed two contracts to administer EBT for the states of New York and Florida totaling $209 million. So much for liberals’ supposed disgust for the 1%.

Large retailers are also cashing in on SNAP benefits. Stocking the shelves with food stamp-approved foods, Wal-Mart made about half a billion dollars in SNAP purchases in two years just from the state of Oklahoma. That is a significant returns for Wal-Mart’s lobbying effort in the 2007 Farm Bill, where Wal-Mart lobbied for five provisions, all having to do with food stamps.

This is not an uncommon story; big business colludes with big government in the name of the public’s interests while they are making themselves rich with regulation, bailouts, corporate welfare, and government contracts. Americans don’t bother to get riled up about it because they expect it, because human nature reduces itself to whatever conditions the culture allows.

What is sold as ‘public good’ to get the approval of the gullible public, is in reality, political privilege.

Next time you hear political agents say that so and so programs are needed for interests of the public, behind the scene are snickering cronies waiting to grab your purse.

Why Macroeconomics as Policy Tool Shouldn’t be Trusted…

…especially of the Paul Krugman strain.

Writes author and University of Rochester professor Steven Landsburg, (bold original)

Supply and demand (and, especially, triangles of welfare loss, etc) are not entirely rigorous, but they’re good useful simplifications that actually give useful (though approximate) answers to important policy questions. Sort of like Ohm’s Law for electrical circuits.

But IS-LM is not like that at all, because IS-LM does not even address the key policy questions in macroecomics. IS-LM can tell you, perhaps, how to fight a recession, but it can’t tell you whether the recession is worth fighting — not even loosely, because the model contains no individual utility functions and no social welfare function. It therefore does not allow you even to formulate the question of whether a given policy is worth its costs, because it provides no framework for weighing costs against benefits.

Analyzing policy via supply and demand is like analyzing electrical circuits with Ohm’s Law. It answers questions, and over a fairly wide range of situations, it answers them with tolerable accuracy. But analyzing policy via IS-LM is like analyzing electrical circuits with a barometer.

Canadians Have Overtaken Americans in Wealth

From the USNews.com

For the first time in recent history, the average Canadian is richer than the average American, according to a report cited in Toronto's Globe and Mail.

And not just by a little. Currently, the average Canadian household is more than $40,000 richer than the average American household. The net worth of the average Canadian household in 2011 was $363,202, compared to around $320,000 for Americans.

If you're thinking the Canadian advantage must be due to exchange rates, think again. The Canadian dollar has actually caught up to the U.S. dollar in recent years.

"These are not 60-cent dollars, but Canadian dollars more or less at par with the U.S. greenback," Globe and Mail's Michael Adams writes.

To add insult to injury, not only are Canadians comparatively better-off than Americans, they're also more likely to be employed. The unemployment rate is 7.2 percent—and dropping—in Canada, while the U.S. is stuck with a stubbornly high rate of 8.2 percent.

Besides a strengthening currency and a better labor market, experts credit the particularly savage fallout from the financial crisis on the U.S. economy and housing market, which torpedoed home values and gutted household wealth. According to the report, real estate held by Canadians is worth more than $140,000 more on average and they have almost four times as much equity in their real estate investments.

In contrast to most of mainstream reporting, Canada’s strong currency has been imputed as manifestation of a relatively “superior” performing economy than the US.

Of course commodity exports have been partly responsible for the this but has barely been an indication of the resource course: the Dutch Disease.

Canada’s strength, according to the report, has been founded on two aspects: one relatively “better” labor market, and two, America’s boom bust cycles which has “torpedoed home values and gutted household wealth”.

While there are many other factors to consider for comparison, I would focus on three;

One, Canadian banks has outperformed the US. Like in the great depression, the US financial crisis of 2008 barely dinted on Canada’s banking system.

Two, Canada tops the US in Economic Freedom…

Canada ranks 6th in the Heritage Foundation’s world’s country ranking of economic freedom index compared to the US…

The economic freedom in the US has been in a steady descent.

Finally, Canada’s government has been relatively fiscal prudent than her neighbor.

As Cato’s Chris Edwards writes

The spending reforms of the 1990s allowed the Canadian federal government to balance its budget every year between 1998 and 2008. The government's debt plunged from 68 percent of GDP in 1995 to just 34 percent today. In the United States federal debt held by the public fell during the 1990s, reaching a low of 33 percent of GDP in 2001, but debt has soared since then to reach more than 70 percent today.

Bottom line: Economic freedom and fiscal prudence are once again depicted as key to economic prosperity.

Quote of the Day: Economics versus Social Darwinism

Economics doesn't point to people and say, "Look what they can't do." Economics instead asks, "Well, what can they do?" If the answer is "something productive," then the Law of the Comparative Advantage implies gains to trade. Economics, known for its hard-headed methods, culminates in an optimistic and humane conclusion: Regardless of their Darwinian "fitness," the existence of people - even those well below average - makes the world a better place.

This is from Professor Bryan Caplan at the Econolog.com [hat tip Prof Don Boudreaux]