Suggested Answers to Second Short Quiz + Special Q&A Re QE-4

[johnkarls]

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SECOND SHORT QUIZ - SUGGESTED ANSWERS
(PLEASE ALSO SEE ALTERNATIVE SINGLE-QUESTION QUIZ BELOW)

Current-Events Question

Since promising at Jackson Hole WY on 8/26/2011 that there would be no QE-3 (i.e., a THIRD round of "quantitative easing" or printing money), did Fed Chair Bernanke not only engage in a STEALTH QE-3 two weeks later but also engage in a FOURTH round of "quantitative easing" or printing money (QE-4) this past week?

Current-Events Answer

Bernanke's STEALTH QE-3 was discussed in Q&A 21 through Q&A-29 of the First Short Quiz. It appears to put American taxpayers "on the hook" for $4 TRillion to keep the Italian and Spanish governments solvent through 12/31/2011.

This past week, European banks effectively stopped lending to each other because of uncertainty about how much each bank owns of the governmental bonds of Europe's "problem children" countries (Greece, Italy, Spain, Portugal, etc.) which might cause the bankruptcy of that bank -- and, in addition, how much that bank owns of the bonds of other banks that may soon be bankrupt.

This past Wednesday (Nov. 30), six central banks [the U.S. Federal Reserve, Bank of England, European (Euro-Zone) Central Bank, Bank of Japan, Bank of Canada and Swiss National Bank] announced "their intention to coordinate action to ease liquidity conditions in financial markets. The Fed will increase its dollar lending to other central banks who will do the same to other financial institutions, and all will reduce the cost of dollar borrowing. The aim is to defuse the growing trouble banks have had borrowing to finance their operations." (Quotation per The Economist article posted on this bulletin board under "Reference Materials.")

From this description, all of the lending originates with Bernanke's Fed!!!

And, like QE-3, it appears obvious that the lending by Bernanke's Fed is NON-RECOURSE secured only by ultimate loans to the presumptively-bankrupt commercial banks!!! In other words, the involvement of other central banks is merely "for show"!!!

But, unlike QE-3, it appears that there is NO LIMIT to how much money Bernanke intends to print and, therefore, how many more TRillions U.S. taxpayers are on the hook for.

Several things are painfully obvious =

(A) Like QE-1, the loans could easily total $7.77 TRillion (or more!!!)!!!

(B) Like QE-3, the loans will probably be counter-productive BECAUSE THE ROOT CAUSE OF THE EUROPEAN-DEBT CRISIS IS UNCONTROLLED SPENDING BY SEVERAL "PROBLEM CHILDREN" GOVERNMENTS (GREECE, ITALY, SPAIN, PORTUGAL, ETC.) AND, JUST WHEN GERMAN CHANCELLOR ANGELA MERKEL HAD CONVINCED THEM THAT GERMAN TAXPAYERS WOULD NOT BAIL THEM OUT SO THEY WOULD JUST HAVE LIVE WITHIN THEIR MEANS, SANTA CLAUS IN THE FORM OF BERNANKE HAS SUDDENLY MATERIALIZED!!!

(C) Moreover, despite Bernanke's obvious belief that he is "Super Man" and "Savior of the World," he will almost certainly (in the non-humble opinion of Yours Truly) prove to be merely the “Captain of The Titanic” who/which was overwhelmed by this Tsunami!!! [Yes, The Titanic was sunk by an ice berg the first time.] The "net net" result is that the U.S. will have purchased all of the toxic debt of Europe's "problem children" governments and all of the toxic debt of Europe's banks that were stupid enough to loan money to Europe's "problem children" governments.

(D) Obviously, Bernanke needs some "adult supervision" not only because he continues to pull the rug out from underneath German Chancellor Angela Merkel's "wood shedding" of Europe’s profligate "problem children" countries, but also because Bernanke thinks he has the "butterflies causing hurricanes on the opposite side of the globe" authority to "tilt with windmills"!!! Which he will have pursued to the detriment of maintaining a stable dollar!!! [And if he is intent on de-stabilizing the dollar, isn't he MORALLY BANKRUPT not to have done so on the altar of re-building America's inner cities and providing a decent education for America's inner-city children instead of bailing out Europe's "problem children" countries???]

Question 1

What historically has been meant by a "Renaissance Man"? Who was Leonardo da Vinci?

Answer 1

A "Renaissance Man" was a person who excelled in many different fields.

Leonardo da Vinci is the person most often cited as the quintessential "Renaissance Man." Indeed, since he was so outstanding in more than half a dozen different fields, he only had time for 15 undisputed paintings, all of which are masterpieces including the world's two most famous = The Mona Lisa and The Last Supper. [In addition to the 15, there are 5-6 paintings of disputed authenticity.]

Digressing momentarily, because Leonardo was such an outstanding artist, Dan Brown in his best-selling book "The Da Vinci Code" (played by Tom Hanks in the movie version) displayed his ignorance by claiming that Leonardo produced "hundreds" of paintings for The Vatican alone. [For anyone interested in how such an ignorant author can write a book that is riddled with errors and that still becomes a best seller, here for her/his amusement is the 9/17/2003 Book Report of Yours Truly on The Da Vinci Code.]

n917-BookReport-TheDaVinciCode.doc

(38 KiB) Downloaded 154 times

Question 2

What is a specialist?

Answer 2

The polar opposite of a "Renaissance Person." Though both terms also connote expertise. A "Renaissance Person" lacking expertise is usually called a dilettante instead.

Question 3

Can a given population produce more by specialization or by everyone being a "jack of all trades" (aka, "Renaissance Persons")?

Answer 3

Of course they can be more productive with specialization.

Just ask yourself how much trouble it would be to teach yourself how to fix a plumbing leak one day, and then teach yourself how to repair your car's engine the next, and then brain surgery the following week.

Question 4

Is this principle true on an international level as well as within a population on an inter-personal level?

Answer 4

Of course.

Question 5

What is the role of international balance-of-payments surpluses/deficits vis-à-vis specialization? Vis-à-vis Keynesian economics?

Answer 5

Balance-of-payments surpluses, currency appreciation and specialization are correlated.

For example, Germany historically has exported 3 of the world's best automobiles (BMW, Mercedes and Porsche, not to mention Audi in recent decades) as well as another automobile in mass quantities = Volkswagen. Export receipts produced balance-of-payments surpluses which the Germans, unlike the modern Chinese, permitted to result in currency appreciation. However, because the German Deutsch Mark during the 1960's became so pricey vis-à-vis other European currencies, everything else in Germany suffered a competitive disadvantage -- driving, for example, most German farmers into bankruptcy. Nevertheless, the German specialization in automotive engineering/production at the expense of, for example, German farming increased the overall value of the German economy.

In terms of Keynesian economics, a balance-of-payments (B/P) deficit is a drag on the economy. In economic theory, going from B/P equilibrium to a deficit of 10% of Gross Domestic Product (GDP) because, for example, the Chinese have under-valued their currency and horde U.S. dollars, means that demand for U.S. goods has shrunk by 10%. Everything else being equal [the famous Ceteris Paribus assumption constantly made by economists], US GDP will contract by 10% and 10% unemployment will result.

Question 6

What was the famous/infamous "beggar thy neighbor" policy that had such a great role in creating the Great Depression?

Answer 6

During the run up to the Great Depression, virtually all nations imposed high tariffs on imports in order to keep their domestic industries humming -- in an attempt to employ the Keynesian principle described in the last answer.

However, this policy was ineffective in staving off the Great Depression because every country did it!!! So eliminating imports was offset by the other countries' eliminating your exports!!! [And everyone suffered from the reduction in international specialization, though this was only the proverbial "teat on the whale" contrasted with the economic devastation of the Great Depression itself.]

Question 7

Who were Messrs. Hawley and Smoot?

Answer 7

Hawley-Smoot were the Congressional sponsors of the U.S. "beggar thy neighbor" tariffs.

Question 8

What was the General Agreement on Tariffs and Trade (GATT)? What is the World Trade Organization (WTO)?

Answer 8

GATT was a post-World War II multi-lateral "free trade" treaty vastly reducing or eliminating tariffs and import quotas.

GATT morphed into the WTO. It currently has 153 member country-members with Russia, the last significant non-member country, about to join. In addition to eliminating tariffs and import quotas, the WTO also requires the protection of intellectual property such as honoring trade secrets and providing a minimum of 20 years protection for patents.

Question 9

What economic sector has always been an exception to economic treaties, whether the European Common Market (ECC) which morphed into the European Union (EU), or GATT which morphed into the WTO?

Answer 9

Agriculture, since most countries are unwilling to expose themselves to the choice of starving or succumbing to international blackmail.

Question 10

Is there another economic sector that has enjoyed semi-special status vis-à-vis economic treaties?

Answer 10

Defense industries, though the U.S. in recent decades has been willing to permit some weapons and some weapons components to be manufactured in NATO countries.

Question 11

Under age-old international law, how long does a treaty last?

Answer 11

Under age-old international law, every treaty can be renounced at any time for no reason whatsoever.

Question 12

Would it be advisable, given today's economic conditions, for WTO members in general and/or the U.S. in particular to renounce the WTO?

Answer 12

No. Because "beggar thy neighbor" policies are counter-productive.

Question 13

How many states in the U.S. have "Balanced Budget Amendments" in their state constitutions?

Answer 13

49.

Question 14

Why did Republicans insist that the "Debt Ceiling Agreement" of last August contain a requirement that Congress vote this fall on a "Balanced Budget Amendment" to the U.S. Constitution?

Answer 14

It would appear that Republicans thought that American voters would believe that, just like their own household budgets, the budget of the federal government should also be balanced. And voters might even believe the rhetoric that the gigantic federal-budget deficits in recent years contributed to, or failed to alleviate, the recent economic meltdown.

It would appear that Republicans also thought that being forced to vote on a Balanced Budget Amendment would be a "wedge issue" since, according to U.S. Senator Lindsay Graham (R-SC), 20 Democratic U.S. Senators are on record as favoring such an amendment. It should also be noted that 23 of the 33 Senate seats up for election in 2012 are held by Democrats.

Question 15

How many co-sponsors in the U.S. House of Representatives did the 1995 "Balanced Budget Amendment" have?

Answer 15

The text of the 1995 Balanced-Budget Amendment is posted on this bulletin board under "Reference Materials."

It shows that 182 members of the House co-sponsored the Balance-Budget Amendment.

Question 16

Did the 1995 "Balanced Budget Amendment" receive the 2/3 vote in the House of Representatives necessary to send it to the states for ratification? The necessary 2/3 vote in the U.S. Senate?

Answer 16

It easily achieved 2/3 approval in the House.

However, it fell one vote short of the required 2/3 vote in the Senate.

Question 17

Does House Speaker John Boehner appear to be having "buyer's remorse" with respect to the "Balanced Budget Amendment" vote required by last August's Debt Ceiling Agreement? Why?

Answer 17

Yes.

There have been news reports that he has offered a mealy-mouthed cryptic Balanced-Budget Amendment.

Apparently the Republicans are having "buyer's remorse" because the "track record" in the 49 states that have Balanced-Budget Amendments in their constitutions is that Republican legislators regularly vote for tax increases on the grounds that they are required to do so by the Balanced-Budget Amendments.

Question 18

How would a Balanced Budget Amendment be enforced? Who would enforce it?

Answer 18

God (aka "Allah" in Arabic since "Allah" per Islam is the God of Abraham AND Christ AND Muhammed) only knows how it would be enforced, if at all!!!

God/Allah only knows who would enforce it!!!

Yours Truly could write pages of speculation on what might happen, or fail to happen. But you will be spared!!!

Question 19

What is a CR (aka a Continuing Resolution)? Did President Obama and the Democratic House and Senate produce a budget in 2009? In 2010?

Answer 19

In recent decades, Congress has followed the practice of passing Continuing Resolutions which permit all federal agencies to continue, for a specified period until the next CR, spending at an agreed level. When CR's were first invented decades ago, the CR spending levels were typically the prior year's levels. In recent years, they have been the levels specified in the President's proposed budget, even though President Obama's budgets have proposed gargantuan increases in spending and even though President Obama's most-recently proposed budget was defeated 97-0 by the U.S. Senate earlier this year.

No, President Obama and the Democratic-controlled House and Senate did not produce a budget in 2009 or 2010.

The Republicans gained control of the House last January and, as a by-product of the Debt-Ceiling imbroglio, actually approved a budget.

Question 20

Would CR's as well as budgets have to be balanced since President Obama and the Democrats proved prior to the Republicans gaining control of the House in Jan 2011 that there is no need for the U.S. government to have a budget?

Answer 20

God/Allah only knows!!!

Question 21

Would a Balanced Budget Amendment be too great an economic "straight jacket"? How did the 1995 Balanced Budget Amendment deal with economic recessions? With wars?

Answer 21

Not necessarily.

The 1995 Balanced Budget Amendment provided that a 2/3 vote by both the House and Senate would be sufficient to declare a national emergency (recession or war) so that the budget would not have to be balanced.

Question 22

What was meant by the following labels and what is their continuing significance in the budget debates -- "guns and butter" (Lyndon Johnson), "starve the beast" (Ronald Reagan), "read my lips" (the first President Bush)?

Answer 22

The Vietnam War began in earnest when President Kennedy assassinated South Vietnamese President Diem a mere 3 weeks before his own assassination. In short order, President Johnson built up America's military forces inside Vietnam from approximately 20 thousand "advisers" to 625,000 combatants!!!

[The term "inside Vietnam" was always used to make clear that the 625,000 American soldiers and marines did NOT include any of the US Air Force personnel bombing both North and South Vietnam from external bases, or the US Naval carriers whose planes were bombing both North and South Vietnam or the many US Navy surface ships that were shelling Vietnamese villages -- indeed, the U.S. Navy famously reactivated the New Jersey, a World War II battleship that fired from its 16-inch guns 2,000-pound shells as far as 20 miles inland.]

"Guns and butter" referred to President Johnson's famous decision to NOT raise taxes to pay for the Vietnam War.

"Feed the beast" was the way President Reagan disgustedly described all historical Republican collaborations in raising taxes because doing so had only resulted in additional spending. Accordingly, President Reagan famously described his policy as "starving the beast" which was to reduce taxes as the only way to reduce spending.

"Read my lips" was the reason why the first President Bush was defeated for re-election. Frustrated that Republican audiences would not believe his promise NOT to raise taxes, he finally lost his temper and said the fateful words = "Read my lips, I will not raise taxes."

But he did. Which produced a third-party candidate by the name of Ross Perot who took 19% of the popular vote, enabling Bill Clinton to sneak past the first President Bush with only 43%.

Incidentally, the famous "Bush-era tax cuts" that we hear so much about these days were the roll-back by the second President Bush of the rate increases imposed by the first President Bush in violation of his "read my lips" promise. In other words, they are a roll-back to the Reagan rates.

Question 23

What is the famous "pledge" that so many national Republican politicians have signed? How does the "pledge" related to "Taxed Enough Already" (aka TEA as in TEA Party)?

Answer 23

Grover Nordquist is a famous lobbyist who raises money from donors to combat tax increases. He supports for election/re-election candidates who sign his "pledge" and recruits/funds candidates to oppose anyone who has violated one of his pledges.

Nordquist's "Taxpayer Protection Pledge" promises "to oppose any and all efforts to increase the marginal income tax rate for individuals and business; and to oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates."

Currently 238 of 242 House Republicans and 41 of 47 Senate Republicans have signed the pledge.

The "pledge" is the Maginot Line of the TEA Party against tax increases.


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ALTERNATIVE SINGLE-QUESTION QUIZ RE PENTATONIC SCALES

The alternative single-question quiz, and the e-mails that provoked it, appear at the end of the Second Short Quiz which is posted on this bulletin board in this "Participant Comments" section.

They had nothing to do with this month's topic but, for all of us as good liberals, they had everything to do with the Civil Rights movement and African-Americans in society.

The reason for sending it on Nov 5th to the 27 known classical-music lovers on the list of 150 recipients of our weekly e-mail, was that I did not have time to do any more than provide on Nov. 3 some off-the-cuff reactions to what I interpreted as some extremely-offensive remarks that related to African-American Spirituals being based on the pentatonic scale. [After all, it takes a fair amount of time to devise the RL quizzes and research the answers since the questions, more often than not, are based on speculation rather than advance knowledge. And this month, there was not even the luxury of a suggested book, so a fair amount of scrambling was required to marshal a good set of Reference Materials for the bulletin board.]

[The five black keys in each octave on a piano comprise a pentatonic (five-tone) scale, vs. the 12-tone per octave scale that predominates in classical music in Europe & the U.S.]

The reason for re-sending the single-question quiz last Saturday with the weekly e-mail to all 150 recipients was that only one comment was received.

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This time there were quite a few responses. Thank you!!!

The earliest evidence of the use of the pentatonic scale is in Ancient China and its use there might even be pre-historic in the sense that the pentatonic instruments appear to be older than the oldest writings.

Much, if not most, Asian music is based on the pentatonic scale.

[Including traditional Indonesian gamelan music which my off-the-cuff comments had speculated might seem as alien to a Buddhist as it does to Westerners.]

Celtic music also uses the pentatonic scale.

The Middle-Eastern Hittites mentioned in The Bible are the Celts -- if you are going to study Hittite language/linguistics/culture/mythology/etc./etc., it is a waste of time not to study Celtic (and vice versa) since they are virtually identical.

Celtic culture spread throughout Northern Europe but the Celts were eventually pushed Westward by tribes from Central Asia so that now little more than Ireland, Scotland and Wales are still virtually-pure Celtic.

And, as we learned from the youtube audio/video that precipitated this exercise, African music and African-American Spirituals are also based on the pentatonic scale.

As are Jazz and Blues, both of which came predominantly from African-American culture.

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More than two dozen of you who responded inquired who the people mentioned in the e-mails were. [If you aren't interested, you can skip the rest of this report.]

I have three siblings.

Lois, who made what I interpreted to be the extremely-offensive remarks, is an older sister. When it appeared that she would fall short of a career as a concert pianist, she became a Chemistry Professor instead. Then, after raising a son, she assumed responsibility for disbursing Chemistry Grants for the US Gov's National Science Foundation. [Her husband, Dick Nicholson, who was on the Berkeley faculty when Lois did her graduate work, spent half of his career as the Deputy Director of the National Science Foundation and then half of his career as the Executive Director of the American Academy for the Advancement of Science and, ex officio, the Publisher of Science Magazine.] They are both retired and now live, of course, in Orange County CA.

James, who was described as engineering undergrad before his MBA, is the older of two younger brothers. Suzanne, who first encountered the youtube audio/video, is James' wife and a life-long piano teacher. They live on Chicago's North Shore.

Mark was described as a math major for both undergrad and grad school. His goal was to become a Mathematics Professor, but the Vietnam War draft caught up with him. Like his two older brothers, he went through Navy OCS. But unlike his two older brothers, he was Gunnery Officer (as well as Engine Room Officer) on a DLG during two deployments to Vietnam where their mission was shelling Vietnamese coastal villages. Mark developed ulcers, literally, both times. And decided after his stint in the Navy to become a Methodist Minister. For several decades now, he has been the pastor of our old family church in Saginaw MI which is inside the city limits and, as a result, now enjoys a predominantly African-American membership. [Incidentally, he follows somewhat in the footsteps of our father who, though an attorney and CEO of the local bank, often served as a substitute preacher around the state and holds the records for being elected a delegate to the greatest number of quadrennial conferences governing the US Methodist Church (13) and for being elected a delegate to the corresponding quadrennial conferences governing the international Methodist Church (also 13).]

[For anyone who thinks we were born with "silver spoons in our mouths" you may be right. But my father's father was a janitor in the Saginaw MI public schools and my father worked his way through U/Mich & U/Mich Law School while finishing in the top 3 of his class and while still sending money home to his widowed mother and 4 younger brothers during the Great Depression. And my mother's mother, wife of a farmer with no public high schools for 40 miles around, had an ambition that all her children should graduate from high school and spirited her oldest child (my mother) off one day while my grandfather was in the fields to become a domestic servant 40 miles away in return for room, board and the right to attend the 4 years of the local high school. After working as a secretary for my father for two years, she worked her way through U/Mich to earn a teaching degree during the Great Depression and was set to accept a teaching position in the Chicago area "unless she received a better offer" which was forthcoming. HOWEVER, BEING RAISED BY TWO SURVIVORS OF THE GREAT DEPRESSION WAS NO "CAKE WALK"!!!]

[Incidentally since we are discussing music, my mother had an interesting relationship to the pentatonic "black keys" on a piano. Like my father, she was a superb pianist and organist. But, in addition, she could "sight read" the most complicated compositions including piano reductions of opera scores. Which she managed by never looking down at the piano keyboard. She would explain with a twinkle in her eye that because of her experience as a secretary, she would never have to look down if she was using all five black keys as "anchors"!!! So if you handed her a piece of music with which she was unfamiliar, she would pause for a nano-second to ascertain which of the three major keys (or three minor keys if the piece was in a minor key) that utilize all five black keys would be closest in pitch to the piece as written -- and then she would play it at the proper tempi while simultaneously transposing what she was sight reading.]

[Pat]

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The foregoing Suggested Answers to the Second Short Quiz begin with a "Current Events" Q&A because events are moving so quickly.

On 11-30-2011 which was between the preparation of the Quiz and the preparation of the suggested answers, the Federal Reserve and five other central banks issued press releases regarding new steps that they were taking to ward off the impending bankruptcies of European commercial banks which were no longer sufficiently liquid. In other words, the commercial banks were insolvent because European commercial banks are no longer willing to make "overnight loans" to each other -- and these were the commercial banks that were short (presumably because word had leaked that they were heavily invested in the toxic debt of Greece, et al.) and needed the loans from the other commercial banks.

The third paragraph of the "Current Events" answer quotes an article that appeared in The Economist. The article describes the new program, but includes quite a bit of additional information that was not included in the Federal Reserve Press Release to the effect that the other five central banks are participating because the Federal Reserve has "printed" enough dollars to loan to them that they will be able to participate in the new policy. The "Current Events" answer draws the obvious inference from this additional information that the participation of the other five central banks is merely "for show" and that the loans that the Federal Reserve has made to the other central banks are non-recourse and secured only by the loans that the other central banks made to the insolvent commercial banks.

I have posted a few moments ago under "Reference Materials" the official press release of the Federal Reserve.

As usual (in light of the Federal Reserve's "stone walling" about releasing any information about its mid-September policy of "printing" enough dollars to keep the Italian and Spanish governments solvent through 12/31/2011), the official press release of the Federal Reserve did NOT include the additional information about the Fed's "printing" of sufficient new dollars to secure the participation of the other five central banks in the new policy.

Kudos to The Economist for digging into the underlying facts!!!