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[Politics] Buying the election
Oct. 15th, 2012 10:35 amI did something a bit economically foolish a few weeks ago – I took out a bet on Mitt Romney to win the US Presidential elections*. At the the time my reasoning was fairly sound. I’ve rattled on here before about the things which predict the outcome of elections and how opinion polls are pretty useless – the only two things which really matter in prediction are the funding of candidates and the betting odds.
If you aren’t aware, the better-funded candidate has only lost the US presidential elections only once since 1900. You can debate the reasons for this as much as you like. It’s possible the money can smell a winner and so flocks to the candidate where its donation is likely to pay the best return. Alternative, you can say that the elections are judst bought. Either way, it’s a powerful indicator of which way things are going to go.
On the other hand, ever since political pundits and academics have tracked betting odds back in the mid 1990s it’s been pretty clear that the odds call elections very well. Once again, it’s following money. Opinion polls? Don’t make me laugh.
Anyway, The Romney/Obama competition threw up an interesting turn of events a few weeks ago. Mitt Romney is the better funded candidate, so by one metric he’s got to be favourite, but on the other hand the gambling money and odds favour Obama. I found myself wondering if Obama was being mispriced too highly as the favourite, and figured that a punt on Romney was worth a tenner.
It turned out I’d counted Obama out too soon. You see, the incumbent always carries an inbuilt advantage – elections are lost, not won – and Obama hadn’t played his trump card. Possibly Romney gave it to him, by stating that were he elected he’d sack Ben Bernanke as head of the Federal reserve if he won, but several days after I made my bet the US Federal reserve announced that it would buy up to US$40bn of mortgage backed securities every month indefinitely, but for a minimum of two years, and they’ll be buying them with new money. In other words, they’re going to be printing a minimum of an extra trillion dollars over the next two years and supporting the housing market in doing so. House prices will be stabilised, people with mortgages will feel more confident. They’ll go out and spend and relax a little. The markets will recover. People will worry a little less about the future and people who aren’t worried don’t go out and vote for the other guy. Sorry Mitt fans, but unless your boy pulls something out of the hat then Barry has bought the election with a trillion dollars of printed money. Given that Obama supporters often say that the Republicans are the party of big money who buy elections, well, it looks like a lesson has been learned in the Democrat camp. This may well be the most spectacular example of electoral purchase the human race has ever seen. I was deeply impressed, and also tore up my betting slip on the assumption that it wouldn’t be paying out.
By the way, the effects of this printing? Don’t worry about them. You won’t notice them until long after the election is over. And anyway, you didn’t like having savings, did you? Oh, you did? Ah.
It's interesting; in the first month of eternal money printing the US mortgage market was only US$32bn, meaning that the securities purchases were 20% greater than the entire value of the current market. Now, some people say that money printing is wrong because teh greedy bankkers (etc) are just using it to pay bigger bonuses, but this isn't really the case. The printing of money is happening because back in 2008 at least 20% of all the money in the world upped and vanished and there are great, glaring holes in the accounts of, well, the entire world, really. The exercise is designed to shovel money into these holes until they fill up, and hopefully do it as fast as possible for things go wrong. This is being made worse by the amount of state debt run up in the last decade.
Traditionally the route out of a debt crisis is a jolly good war against your creditors, so it's worth considering who the US's creditors are: most of them are ordinary people whose pension funds hold US bonds. It's pretty easy to wage economic war against them because all you have to do is print money and so much for their savings. The difficulty is China, who own about 12% of US debt, and the two are performing an elegant economic gavotte in which both the US and China try to salvage as much as they can out of this situation without any actual shooting. This in turn has led to unusual events like the one I noticed last week: If you were buying platinum by the ounce, it was more expensive than gold. If you buy platinum by the kilo (or heavier) then it was cheaper than gold. I've never seen anything like that before, but as it's reported that central banks around the world are buying gold hand over fist at the moment the most logical reason for this disparity is that heavier gold bars are starting to get in short supply and the price is rising.
Anyway, back to American politics. Romney has made a fair fist of turning it into a fight and who knows? He might just swing it. But I don't reckon so. Obama has bought the election by printing unlimited sums of cash. Some people will be pleased by this - after all, buying elections is only wrong if baddies do it, right? - but what he's done hasn't solved any problems and just stores up more for later. Uncle Sam is still spending about 40% more than he earns, and that's not going to work out in the long term.
*I'm not that upset, as getting things wrong and making mistakes is how we learn. It is the human ability to try out ideas and behaviours and when they go wrong to step back, pop your hands on your hips, blow out your cheeks and say "Well, by crikey, that doesn't work" which is such an important part of growing up. I've always assumed that this abandoning of unworkable notions is why people tend to become less left-wing as they grow older.
If you aren’t aware, the better-funded candidate has only lost the US presidential elections only once since 1900. You can debate the reasons for this as much as you like. It’s possible the money can smell a winner and so flocks to the candidate where its donation is likely to pay the best return. Alternative, you can say that the elections are judst bought. Either way, it’s a powerful indicator of which way things are going to go.
On the other hand, ever since political pundits and academics have tracked betting odds back in the mid 1990s it’s been pretty clear that the odds call elections very well. Once again, it’s following money. Opinion polls? Don’t make me laugh.
Anyway, The Romney/Obama competition threw up an interesting turn of events a few weeks ago. Mitt Romney is the better funded candidate, so by one metric he’s got to be favourite, but on the other hand the gambling money and odds favour Obama. I found myself wondering if Obama was being mispriced too highly as the favourite, and figured that a punt on Romney was worth a tenner.
It turned out I’d counted Obama out too soon. You see, the incumbent always carries an inbuilt advantage – elections are lost, not won – and Obama hadn’t played his trump card. Possibly Romney gave it to him, by stating that were he elected he’d sack Ben Bernanke as head of the Federal reserve if he won, but several days after I made my bet the US Federal reserve announced that it would buy up to US$40bn of mortgage backed securities every month indefinitely, but for a minimum of two years, and they’ll be buying them with new money. In other words, they’re going to be printing a minimum of an extra trillion dollars over the next two years and supporting the housing market in doing so. House prices will be stabilised, people with mortgages will feel more confident. They’ll go out and spend and relax a little. The markets will recover. People will worry a little less about the future and people who aren’t worried don’t go out and vote for the other guy. Sorry Mitt fans, but unless your boy pulls something out of the hat then Barry has bought the election with a trillion dollars of printed money. Given that Obama supporters often say that the Republicans are the party of big money who buy elections, well, it looks like a lesson has been learned in the Democrat camp. This may well be the most spectacular example of electoral purchase the human race has ever seen. I was deeply impressed, and also tore up my betting slip on the assumption that it wouldn’t be paying out.
By the way, the effects of this printing? Don’t worry about them. You won’t notice them until long after the election is over. And anyway, you didn’t like having savings, did you? Oh, you did? Ah.
It's interesting; in the first month of eternal money printing the US mortgage market was only US$32bn, meaning that the securities purchases were 20% greater than the entire value of the current market. Now, some people say that money printing is wrong because teh greedy bankkers (etc) are just using it to pay bigger bonuses, but this isn't really the case. The printing of money is happening because back in 2008 at least 20% of all the money in the world upped and vanished and there are great, glaring holes in the accounts of, well, the entire world, really. The exercise is designed to shovel money into these holes until they fill up, and hopefully do it as fast as possible for things go wrong. This is being made worse by the amount of state debt run up in the last decade.
Traditionally the route out of a debt crisis is a jolly good war against your creditors, so it's worth considering who the US's creditors are: most of them are ordinary people whose pension funds hold US bonds. It's pretty easy to wage economic war against them because all you have to do is print money and so much for their savings. The difficulty is China, who own about 12% of US debt, and the two are performing an elegant economic gavotte in which both the US and China try to salvage as much as they can out of this situation without any actual shooting. This in turn has led to unusual events like the one I noticed last week: If you were buying platinum by the ounce, it was more expensive than gold. If you buy platinum by the kilo (or heavier) then it was cheaper than gold. I've never seen anything like that before, but as it's reported that central banks around the world are buying gold hand over fist at the moment the most logical reason for this disparity is that heavier gold bars are starting to get in short supply and the price is rising.
Anyway, back to American politics. Romney has made a fair fist of turning it into a fight and who knows? He might just swing it. But I don't reckon so. Obama has bought the election by printing unlimited sums of cash. Some people will be pleased by this - after all, buying elections is only wrong if baddies do it, right? - but what he's done hasn't solved any problems and just stores up more for later. Uncle Sam is still spending about 40% more than he earns, and that's not going to work out in the long term.
*I'm not that upset, as getting things wrong and making mistakes is how we learn. It is the human ability to try out ideas and behaviours and when they go wrong to step back, pop your hands on your hips, blow out your cheeks and say "Well, by crikey, that doesn't work" which is such an important part of growing up. I've always assumed that this abandoning of unworkable notions is why people tend to become less left-wing as they grow older.
