Socionomics—the nitty gritty

The main argument put forth by socionomics is that arrow of causation moves from mood to action. Most people believe mood is affected by actions, thus they see the cycle in terms of actions leading to a rise or fall in mood, which leads to another action, etc. In the midst of a cycle, to some degree it doesn't matter because whether the chicken or the egg, the result is the same. It is critically important, however, at turning points. Those looking at actions will predict the trend to continue for a long time, when in fact the mood has shifted.

This isn't a post about a turning point though, it's a look at one of the more nuanced effects of social mood. Grasping the effect of mood on stock markets and popular culture is straight forward, but how about the number of accidents? The Socionomics Institute published an article earlier this year on Aircraft Accidents. The data set is small, but for the period studied, it showed correlation with the stock market.

Now consider an ongoing story that has been burning up weibo all summer. The Forbidden Palace Museum staff have been smashing up ancient relics at a steady pace and it's drawing the attention of the media and government.

The wave of blunders began May 8 when a lone burglar slipped past the museum's supposedly impenetrable alarm and camera systems and snatched valuable cosmetic cases and purses on loan from the Liang Yi Collection in Hong Kong. The thief apparently scaled a 10-meter wall and escaped a security guard's custody.

One the heels of that gaffe, rumors spread on the Internet that the museum's newly renovated Jianfu Palace, usually closed to the public, was being used for gatherings of an exclusive club's ultra-wealthy members.

Perhaps even more mortifying for museum managers was a July 30 microblog posting that quickly went viral with claims that a precious Song Dynasty porcelain plate had been broken during a routine procedure, and the loss had been covered up by museum officials.

Next, termites initially found in 2006 feasting on wood in some of the palace's nearly 1,000 buildings were rediscovered, leading some experts to conclude that five years of pest controls had failed. Caixin has learned that the insects have spread and, unless checked soon, could eat the Forbidden City to the ground.

Palace Museum managers even shot themselves in the foot while trying to make up for the string of mistakes.
The staff handed a giant thank-you in the form of a colorful banner to police officers who helped nab the cosmetics case thief. But missing from the banner's message was the character for the word "protecting." In its place was the character for "shaking." The staff thus thanked the police for "shaking the country."

China Asks: What's Eating the Forbidden City?

1931—The Tragic Year

1931—"The Tragic Year"

The year 1931, which politicians and economists were sure would bring recovery, brought instead a far deeper crisis and depression. Hence Dr. Benjamin Anderson's apt term "the tragic year." Particularly dramatic was the financial and economic crisis in Europe which struck in that year. Europe was hit hard partly in reaction to its own previous inflation, partly from inflation induced by our foreign loans and Federal Reserve encouragement and aid, and partly from the high American tariffs which prevented them from selling us goods to pay their debts.

The foreign crisis began in the Boden-Kredit Anstalt, the most important bank in Austria and indeed in Eastern Europe, which, like its fellows, had overexpanded.[1] It had suffered serious financial trouble in 1929, but various governmental and other sources had leaped to its aid, driven by the blind expediency of the moment telling them that such a large bank must not be permitted to fail. In October, 1929, therefore, the crumbling Boden-Kredit-Anstalt merged with the older and stronger Oesterreichische-Kredit- Anstalt, with new capital provided by an international banking syndicate including J.P. Morgan and Company, and Schroeder of England, and headed by Rothschild of Vienna. The Austrian Government also guaranteed some of the Boden bank's investment. This shored up the shaky bank temporarily. The crisis came when Austria turned to its natural ally, Germany, and, in a world of growing trade barriers and restrictions, declared a customs union with Germany on March 21, 1931. The French Government feared and hated this development, and hence the Bank of France and lesser French banks suddenly insisted on redemption of their short-term debts from Germany and Austria.

The destructive political motive of the French government cannot be condoned, but the act itself was fully justified. If Austria was in debt to France, it was the Austrian debtors' responsibility to have enough funds available to meet any liabilities that might be claimed. The guilt for the collapse must therefore rest on the bank itself and on the various governments and financiers who had tried to shore it up, and had thus aggravated its unsound position. The Kredit-Anstalt suffered a run in mid-May; and the Bank of England, the Austrian Government, Rothschild, and the Bank of International Settlements—aided by the Federal Reserve Bank of New York—again granted it many millions of dollars. None of this was sufficient. Finally, the Austrian Government, at the end of May, voted a $150 million guarantee to the bank, but the Austrian Government's credit was now worthless, and Austria soon declared national bankruptcy by going off the gold standard.

There is no need to dwell on the international difficulties that piled up in Europe in latter 1931, finally leading Germany, England, and most other European countries to renounce their obligations and go off the gold standard. The European collapse affected the United States monetarily and financially (1) by causing people to doubt the firmness of American adherence to the gold standard, and (2) through tie-ins of American banks with their collapsing European colleagues. Thus, American banks held almost $2 billion worth of German bank acceptances, and the Federal Reserve Bank of New York had participated in the unsuccessful shoring operations. The fall in European imports from the United States as a result of the depression was not the major cause of the deeper depression here. American exports in 1929 constituted less than 6 percent of American business, so that while American agriculture was further depressed by international developments, the great bulk of the American depression was caused by strictly American problems and policies. Foreign governments contributed a small share to the American crisis, but the bulk of responsibility must be placed upon the American government itself.

Similarities Between the Great Depression and Today

This is frequently bumped to the top as events unfold. The bulk of it was written and first posted on March 23, 2009.

Similarities between the Great Depression and current events. Historical information from America’s Great Depression, Fifth Edition, by Murray Rothbard. (If you haven't read it, I highly recommend it.) Many of the similarities below were selected because Rothbard identified them as causing/prolonging the Depression. In some cases, the correlation is not one-to-one, but I felt the similarities were worth noting. There are more economic similarities, such as the decline in exports, imports and manufacturing, but I focused on the political responses from government and the Federal Reserve.

—Federal Reserve inflated the money supply in the years leading up to the 1929 crash.
—Federal Reserve inflated the money supply in the years leading up to the 2008 crash.

—The U.S., the world’s largest exporter, inflated its currency to aid Great Britain’s economy.
—China, one of the world’s largest exporters, inflated its currency (through the currency peg) and aided the U.S. economy.

—European importers could not export to the U.S. due to tariffs. Instead they financed their imports with loans from America.
—American importers could not export to China due to, among several factors, tariffs. Instead they financed their imports through loans from China (via the Treasury market).

—Under President Harding, Secretary of Commerce Hoover pushed for State Department oversight of foreign loans. Although voluntary and ad hoc, the public came to believe that all of these loans had the State Departments approval.
—Fannie Mae and Freddie Mac entered the subprime market in the early 2000s and subprime lending quickly exploded, while purchasers of Fannie & Freddie debt assumed the loans had Federal approval.

—Throughout the 1920s, the U.S. government aided the agricultural sector.
—Throughout the 2000s, the U.S. government aided the housing sector.

—In October 1929, Boden-Kredit-Anstalt was about to fail, but it merged with Oesterreichische-Kredit-Anstalt, financed with loans from J.P. Morgan and the Federal Reserve.
—In January 2008, Countrywide was about to fail, but it merged with Bank of America, financed by the Federal Reserve.
—In March 2008, Bear Stearns was about to fail, but it merged with J.P. Morgan, financed by the Federal Reserve.
—In September 2008, Washington Mutual failed and was merged with J.P. Morgan, financed by the Federal Reserve.
—In October 2008, Wachovia failed and was merged with Wells Fargo, financed by the Federal Reserve.

—After the crash, President Hoover rejected the calls to allow markets to clear and failed businesses to liquidate.
—After the crash, President Bush/Obama rejected the calls to allow markets to clear and failed businesses to liquidate. AIG, GM, Chrysler are among the most prominent examples.

—After the 1929 crash, the Federal Reserve cut interest rates from 6% to 4.5% and inflated the money supply by 10%.
—After the initial 2008 crash, the Federal Reserve cut interest rates from 2% to 0% and inflated the money supply by 81%.


—One year after the crash, the Federal Reserve cut interest rates from 4.5% to 2% and inflated the money supply, but the actions of banks and borrowers reduced the total supply of money and credit.
—After the crash of 2008, the Federal Reserve cut interest rates to 0% and inflated the money supply, but the actions of banks and borrowers reduced the total supply of money and credit.

—In 1930, unions and the “Progressive Block” pushed for the Smoot-Hawley Tariff.
—In 2009, unions and the “Progressive Block” pushed for a “Buy American” clause in the stimulus bill.

—In 1930, Hoover effectively banned immigration through a State Department press release.
—In 2009, illegal immigrants are returning home due to the bad economy, and the crackdown begun under Bush continues under Obama. Congress also has its immigration opponents, “[Senator] Grassley (R-IA) is urging Microsoft to furlough those temporary foreign workers first before handing out pink slips to Americans and permanent U.S. residents.”


—Hoover pushed for public works and a tax cut, both passed.
—Obama pushed for public works and a tax cut, both passed.

—In 1931, Oesterreichische-Kredit-Anstalt (see above) failed, forcing Austria off the gold standard.
—In 2009…"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna.
-In 2009, Dubai???

—In 2010, Greece and other indebted nations threaten the euro system.
—Austria back on the front burner as Hungary says default is possible.

—In summer 2011, Europe is in the midst of a banking crisis.

—In 1931, the money supply declined even as the Federal Reserve desperately tried to inflate.
—In 2008/9, the money supply declined even as the Federal Reserve desperately tried to inflate.

—GDP fell 16.2% in 1931 and government spending increased 30.7% relative to GDP. Federal spending rose 42%.
—GDP grew 3% in 2010 (changed from 2009 on 8/28/09), but government spending increased 7%. However, when one adjusts for government borrowing, the real private GDP contracted.
Federal spending is up 23% since the FY 2009 budget (pre-crisis) , not including off budget spending on bailouts.

—Throughout the depression, Hoover uses moral suasion to pressure industry into maintaining high wages. Congress passed Bacon-Davis Act, mandating “prevailing wages”.
—On February 6, 2009, “Obama issued an executive order Friday requiring federal agencies to consider putting in place agreements that set wages, work rules and other benefits when awarding major construction contracts.”

—Hoover created the National Credit Corporation in 1931 to lend to banks, who were then expected to lend to business.
—Bush/Paulson/Bernanke/Obama/Geithner created TARP in 2008/9 to lend to banks, who were then expected to lend to business.

—In 1931, State and Federal governments collude to increase oil prices through restrictions on production and imports.
—In 2008/9, State and Federal governments’ efforts to fight global warming and attack foreign oil will have the effect of increasing energy prices.
Update: Climate Change bill passes House, massive cost increases on every American household, estimates range from about $850 to $1500 and higher.

—In 1932, Hoover accomplished nine goals.
1.Creation of RFC (originally NCC)
2.Creation of Home Loan Bank
3.Aid to Federal Land Banks
4.Public Works
5.Aid to the States
6.Restrictions on natural resource production
7.Increase Federal Reserve powers
8.Reduce immigration
9.Bankruptcy reform

—In 2008/9, Bush/Obama accomplished, are implementing, or plan the following:
1.Creation of TARP
2.Mortgage relief
3.Aid to banks
4.Public Works
5.Aid to States
6.Restrictions on natural resource production (carbon taxes)
—Deepwater Horizon disaster has led to ban on new drilling in the Gulf of Mexico
7.Increase Federal Reserve powers
8.Reduce immigration
9.Bankruptcy reform

—In 1931, Hoover asked for, and in 1932, received, tax increases on income (then only paid by the rich), estates (the rich) and sales, to close a huge budget deficit. Despite the tax increases, federal receipts dropped 10% in 1932.
—In 2009, there are plans to increase taxes in the states, and we may yet see Federal tax hikes on the rich in 2010.

—In 2010, discussion of a VAT tax has increased.
—In 2011, following the debt ceiling battle, the Bush tax cuts for the wealthy may expire.

—Overall, from 1929 through 1932, government’s share of the economy increased sharply. Rothbard’s “private GDP”, which excludes government enterprises, shows government grew from 14.3% of the economy to 24.8% in 1932, a 73 percent increase.
—Obama's 2009 budget spends 28% of GDP.
—Private GDP remains depressed and shows little sign of recovery.

—In 1932, Virgil Jordan, economist for Business Week, supporting the public works said, “Just as we saved our way into depression, we must squander our way out of it.”
—In 2009, supporting pubic works, Jon Meacham and Evan Thomas writing in Newsweek, “In the short run, since neither consumers nor business is likely to do it, the government will have to stimulate the economy.”

—In 1932, Hoover bullied the NYSE into effectively banning short-selling.
—In 2008, politicians pressured SEC Chairman Cox into banning the short-selling of financial stocks.
—In 2011, in the midst of a banking and sovereign debt crisis, Greece banned short selling for two months.

—In 1932, until Congress forced the RFC to publicize its activities, its loans were made in secret.
—In 2008/9, Bloomberg sued the Federal Reserve to learn who it lent to, but the information is still secret. Update: Bloomberg won its lawsuit, but the info is still not public. (08/28/09)

—In 1932, RFC money, intended for banks, eventually went to the states.
—In 2009, states asked for TARP money.

—In 1932, the first Glass-Steagall Act allowed the Federal Reserve to use government bonds as collateral, in addition to commercial paper.
—In 2008, Federal Reserve Chairman Bernanke mentioned the possibility of the Federal Reserve issuing its own debt.

—In 1932, Federal Reserve monetary reserves grew 36%, but deflation reigned.
—In 2008/9, monetary reserves grew more than 80%, but deflation reigned.

—In 1932, Federal Reserve inflation of reserves was ended by foreigners and citizens who drew cash and gold out of the banking system.
—In 2010/11 (assuming we are roughly in 1930), will foreigners and citizens finally give up on the U.S. dollar?
—In 2011, U.S. Treasury debt was downgraded by S&P Ratings, though there was no immediate impact on the dollar.

—In 1932, bankruptcy reform weakened the rights of creditors.
—In 2009, bankruptcy reform will weaken the rights of creditors (though many argue they were strengthened too much in 2005).

—Politicians and economists expected a recovery in 1931.
—Politicians and economists expect a recovery in late 2009-early 2010.
—Politicians and economists expect a recovery in 2011, but fears of a "double-dip" are now widespread.

Originally posted on March 23, 2009. Periodically bumped and/or updated.
April 12, 2009 Update: Economic indicators show the beginning of this contraction surpass the Great Depression. A Tale of Two Depressions.
June 28, 2009 Update:Tale of Two Depressions has been updated. Also, climate change legislation added above.
August 28, 2009 Update:Some changes updated due to new data and Bloomberg suit.
November 26, 2009 Update: Dubai sovereign default could potentially set off the next deflationary wave.

May 4, 2010 Update: Greece is going down.

June 4, 2010 Update: Hungary says default is possible and now the focus turns back to the Austrian banks. Also BP has brouhgt about natural resource restrictions.
August 9, 2011 Update: Private GDP and other areas updated.

The fall of Warren Buffett continues...

Schiff - Gold up $27, Dow Futures Down 276, Buffett Wrong

When asked about Warren Buffett’s comments where he said S&P made a mistake by downgrading US debt Schiff responded, “Well he owns a big chunk of Moody’s doesn’t he? Moody’s hasn’t lowered their rating, so somebody is mistaken, it’s either Moody’s or S&P. It stands to reason that Buffett would say his competitor was mistaken rather than himself.

What’s important, people are criticizing S&P, and I think it’s kind of funny because they are criticizing them for missing the subprime crisis. Well, why not criticize Moody’s and Fitch for the same reason, and what makes us think that their AAA rating is right?

So, potentially the real mistake they’ve made is to have had the US government at AAA so long because they (the US) are just as AAA as those mortgage backed securities that went under.”

Junior gold miners ETF

Is this a head and shoulders?If it is...low 20s is the target.

Throwing rocks at rescued miners

Whoa. Chile's economy has been growing, it's stock market has been one of the better performers since 2009. How to explain this story except by social mood?

Protesters throw fruit at Chile’s rescued miners

It has been a bittersweet anniversary for Chile’s rescued miners, who were honored as heroes in their home town only to come under attack by anti-government protesters who threw fruit and small stones at them, accusing them of being ungrateful, greedy sellouts.

...But the events were marred by scuffles between riot police and protesting students, teachers, environmentalists and other miners, all trying to pressure Pinera to accede to their demands on reforming public education, increasing miners’ pay and stopping controversial dams and power plants.

Throwing rocks at the miners is partly explained by what sounds like the leftist makeup of the protest. Spitting on soldiers or throwing rocks at people trapped underground for 69 days is OK in the advance of politics. But still, the greater story is the shift in social mood, how else to explain the large drop in the president's popularity?

Pinera’s popularity has plunged to 26 percent, the lowest of any president since Chile recovered its democracy in 1990, as protests have roiled the country. Environmentalists hope to block hydroelectric dams in southern Patagonia and a huge coal-fired power plant in northern Chile. Unionized miners have briefly paralyzed the nation’s largest copper mines, costing companies millions in lost production. Mapuche Indians have occupied ancestral lands, setting off violent confrontations with police and landowners. Striking high school and university students have stopped classes for more than two months.

European right headed for bigger victories?

Many people instinctively viewed the attacks in Norway as bad news for anti-immigration politicians in Europe, but the trend they are riding is too powerful to be derailed by one incident. Here's an older article (from April 2011) on the issue, but which makes it clear that the right is winning a total victory.

Strict Immigration Laws 'Save Denmark Billions'

But things may soon get pushed even further. Elections are due to be held this fall, and the ruling parties apparently want to put forward even stricter rules, driven by the xenophobic rhetoric of the right-wing populists. In polls, the approval ratings of more liberal politicians have fallen, and the opposition center-left Social Democrats have promised not to change current immigration laws if they win the election. Immigration will always be a big issue in Denmark -- almost 10 percent of Denmark's 5.5 million people are migrants -- and the issue was a decisive one in the last election, in 2007.

I have no doubt that if the United States and other European nations tightened their immigration laws, they would prove just as popular and the pro-immigration politicians would be forced into the position of Denmark's left, one of accepting current changes by fighting further changes. Which, as any conservative can tell you, is a losing strategy in the long run. Immigration restrictions will continue tightening until social mood has bottomed.

Social mood in China

What can save this country?

After the high-speed rail accident, a poll on Kaixin, a social media site, asked what could save the country. Choices included freedom, economics, technology, etc. Respondents could vote for up to five choices. Two received votes over 10%: faith and law. The top response, with 73%? There’s no hope; don’t want to save it

Social mood in the polls

Are People Becoming Ruder in the Obama Economy?

It's from a political site, but why cover this aspect and why does the author have their own examples? Most likely because the author is "feeling it", it being the declining social mood.

Socionomics—Rise of mob violence

Scare at State Fair: witnesses describe mobs, including some claiming racially-charged attacks

"I saw them grab this white kid who was probably 14 or 15 years old. They just flung him into the road. They just jumped on him and started beating him. They were kicking him. He was on the ground. A girl picked up a construction sign and pushed it over on top of him. They were just running by and kicking him in the face."

Then, Eric talked about trying to get out of the car to help the victim.

"My wife pulled me back in because she didn't want me to get hit. Thankfully, there was surprising a lady that was in the car in front of me that jumped out of the car real quick and went over there to try to put her body around the kid so they couldn't see he was laying there and, obviously, defenseless. Her husband, or whoever was in the car, was screaming at her to get back into the car. She ended up going back into the car. These black kids grabbed this kid off the ground again, and pulled him up over the curb, onto the sidewalk and threw him into the bushes like he was a piece of garbage."

Eric claimed that the victim in that beating was by himself, and that there was a split of white people on one sidewalk and black people on the other.

"There was nobody else around to help him. There were no other white people, period, on that side of the street. They were going in the opposite direction because, those people who were coming out of the fair that saw these people coming, they either went back into the fair or took off running south on 84th Street."

Generational conflict and social mood

Neil Howe talks about the growing conflict in America between competing visions of America's future.

Financial Sense Newshour

He discusses the return of nationalism, Generation X values, the decline of compromise and more.

Debt ceiling fracas

The above chart shows federal discretionary spending after the debt ceiling deal. The executive and legislative branch of the government, much of the mainstream media and even Nobel-prize winning economists went nuts in the past few weeks and many of them are still screaming about massive cuts and economic crisis. Politics is just expressing the negative social mood. Imagine what happens when the real cuts are made (when social mood is much more negative)...

Socionomics Alert—NBA, NHL Contraction

Contraction talk is picking up for hockey and also a bit for the NBA.

Sprint Center doing fine without NHL or NBA franchise

“A prospective owner or management group is going to look at the attendance potential, because ticket sales are so much more important in hockey than it is in other sports,” said Patrick Rishe, an economics professor at Webster University in St. Louis. “In other sports, ticket revenue is the second-leading source of revenue. Media is first. In hockey, ticket revenue is first, and media revenue is second.”

NBA commissioner David Stern told The Star in April that his league hasn’t ruled out Kansas City as a potential market. But while the New Orleans Hornets are often rumored to be a relocation candidate, Rishe has his doubts, even if LeBron James and the Heat sold out the Sprint Center for an exhibition game last fall.

“They have more revenue overall, but 17 of 30 teams are losing money,” Rishe said of the NBA. “… I think if you’re going to see anything in the NBA, it’s going to be contraction of two teams at some point in the next couple of years rather than seeing a relocation.”

Islanders arena vote fails: What now?

Hamilton: We have to throw it on the list because, quite frankly, the number of markets is drying up fast for the NHL to move in to. You have to wonder if Gary Bettman and the Maple Leafs would be OK with another team in southern Ontario when faced with a possible alternative of contraction. No commissioner wants to have that on their resume.

NBA Lockout: CBA Changes NBA Must Make During Lockout

Some are calling for contraction, and I am one of those people.

It's like pruning a nicely kept yard. If your bushes get too big, you cut them back down to size, don't you?

The league doesn't need 30 teams. Not at all. The league could conceivably contract 4 or 5 teams and be perfectly fine, if not better off, on even just a competitiveness level.

Sports leagues expand during periods of rising social mood and they contract or go bust during periods of declining social mood.

Social mood in China extremely negative

Fury unabated on websites

Despite signs the government may be clamping down on traditional media, internet users were still furious over the handling of the accident on July 23 near the eastern city of Wenzhou , in which at least 40 people died and 190 were injured after one bullet train rammed into the back of another that had stalled.

I saw one television report where the anchor lashed out at the government and listed a number of scandals that have occurred in the recent past. For the first day following the accident, the station spent 30 minutes on the story, but the next day, coverage was down to a few minutes and avoided the most sensitive issues. Anger is in search of a target here and the rail disaster provided one.

Against gold, the Chinese stock market is at a new post-2008 low.

How deep will the change in social mood reach?

Possibly very deep, overturning several generations of cultural change. And it will have some help from new developments, such as incurable STDs.

Scientists find first superbug strain of gonorrhea

Euro spec bulls jump ahead of the big drop in the euro

So I go to a 4th of July Party

Bruce Krasting sets off the fireworks early.

I go to a 4th of July party

-The local Pastor is having a set-to with an accountant.
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-A nurse is fighting with a doctor.
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-Two mothers are ganging up against the middle school principal.
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-The soccer coach is arguing with two Wall Street wives.
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-Two oldsters are defending the fact that they get SS benefits with five younger workers who are complaining they will not see a penny of what they have paid. The grey hairs are losing big time. “Boomers Suck!” is heard.
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-The car dealer is fighting with the insurance salesman. This is getting physical with both sides pushing. (I learned later that infidelity, not politics or economics was the issue)
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-A guy who runs a decent sized lawn business is fighting with two of his customers over the fact that illegal aliens are mowing the lawns. One of the wives is screaming at the poor bastard.
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-Four people are fighting over the local nuke (Indian Point). Some wanted it closed, those who work there were fighting like hell.
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-Young kids are crying. Dogs are barking. Adults are shouting.
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-Husbands are trying to pull back wives. Wives are pulling back husbands.
..
-Fingers are pointing and swearing is happening.

And then it got ugly.

Euro speculative positions

SoCal wants to secede

Interesting, this may be politically possible depending on which party the Senators would join. A Western New York secession movement has been discussed for some time, but since it would mean two more Republican Senators, Democrats would oppose it. I know some of these Cali counties are Republican and the guy proposing it is Republican, but if it leans Democrat, it could be a balance to a New York secession.

Either way, social mood in action.

Official Calls For Riverside, 12 Other Counties To Secede From California

Borders up!

Danish committee approves government’s controversial border control plans

A Danish parliamentary committee has approved the government’s contested plan to re-establish permanent customs checkpoints at Denmark’s borders.

Opponents to the plan, including Germany and the European Union, say it would violate EU rules on unrestricted travel in the Schengen zone and regulations on the bloc’s internal market.