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LE MARS, IA - DECEMBER 30: Republican presidential hopeful U.S. Rep Ron Paul (R-TX) speaks during a town hall meeting at the Le Mars Convention Center on December 30, 2011 in Le Mars, Iowa.

Ron Paul — Republican presidential candidate, GOP congressman from Texas, father of Sen. Rand Paul, libertarian, and dogged foe of the Federal Reserve — is touching down in Los Angeles on March 20 for a fundraiser. If you think Paul, with his desire to return the U.S. to the gold standard (bimetalism, actually, using gold and silver) and his tendency to subject Fed Chairman Ben Bernanke to lengthy disquisitions on inflation, is a litle bit different, just wait until you get a dose of the guy who's hosting this Bel Air shindig, at the former residence of Jennifer Lopez.

He's Mark Spitznagel, a very successful hedge-fund manager whose Universa Investments is based in Santa Monica. There are hedge-fund managers and there are hedge fund managers. Spitznagel is definitely in the latter category. He plies his trade in an exotic corner of the industry, making huge bets on statistically improbable events, now colloquially known as "black swans," after the 2007 book of the that title by Nassim Taleb.

Taleb and Spitznagel were partners is a previous fund that was organized along the same lines. Their ultra-contrary mantra was to lose money on most of their bets, but win big when that black swan came along — both by profiting from negative positions and by buying up assets on the cheap once the financial earthquake had occurred.

Taleb is out of the business now (he'll also be appearing at Paul's L.A. fundraiser, however), but Spitznagel is very much still in it. This is from a 2011 Forbes profiles of Spitznagel:

When things do go very wrong for the underlying markets, however, they go very right for Universa. As the Standard & Poor's 500 dropped 38.5% by the end of 2008, the fund increased its investors' money tenfold. Spitznagel says that investors generally allocate about 1% of an investment portfolio to fund such a "black swan protection protocol."

Such returns and general fear among investors have helped Universa grow to $6 billion in assets from $300 million when it launched in 2007. Its 15 or so investors, subject to $50 million minimums, include several sovereign wealth funds.

Spitznagel considers himself a kind of inverse Warren Buffett, a "value investor" who unlocks unforeseen value embedded in rare and often disastrous phenomena. If that sounds thoroughly out-there, then consider his preferred term for his investment technique: "time arbitrage." Kind of makes him sound like the Dr. Who of hedge funds.

Beyond all this esoteric moneymaking — which obviously does work, or at least has worked, although whether it's truly "black swan" investing is debatable — Spitzanagel is an enthusiast of the Austrian School of economics. This is where the Ron Paul connection comes in. But Spitznagel goes well beyond being an eccentric rich guy who dabbles in the sort of economic thinking that Paul spouts on the stump. Spitznagel is arguably Paul's main economic theorist/popularizer outside an academic context, with the publications to prove it.

If Ron were to win, you could see Spitznagel as Treasury Secretary (Spitznagel is in his early forties, and remember, though Ron Paul may be getting on in years, Rand Paul waits in the wings). And if Paul — Ron or Rand — ever did win a race to the White House...well, you'd probably have to call that a black swan.

If you want a quick download of Spitznagel's anti-Keynesian views, check out this piece for Project Syndicate, which mashes up what initially seems like a fairly adolescent reading of Ayn Rand's "Atlas Shrugged" with a very Ron Paulist contempt for the Federal Reserve. Or you can review this piece from the New York Times, in which he complains about the actions of the Fed's Bernanke, scrutinizing them unfavorably through the lens of poker. There's more than a whiff of Ayn Rand in there, as Spitznagel seems far more concerned with the struggles of the heroic investor than the responsibility of federal institutions to the economy as a whole.

Still, plenty to chew on. You have to give it to Ron Paul — there's not a lot of intellectual frivolity in his acolytes, even if there is a tendency to spin off into realms of fairly loopy, me-first speculation. 

I have to admit, if there's one political fundraiser I could attend, this would most definitely be it. Who wouldn't want to debate monetary policy in the house where J-Lo once slept?

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An employee changes the numbers of the currency information board in front of an exchange office on Aug. 8th in Budapest. The Swiss franc remained at its highs against the dollar, changing hands at 0.7594 to the dollar.

I've written several posts about Bitcoin and have used the feedback I've received from commenters to undertake a deeper dive into crypto-currencies. This led me to a recent op-ed in the Cypress Times by David Barker, tackling the idea that a "private" currency like Bitcoin could displace or at least compete with government-backed money.

Here's a salient paragraph, laying out the historical/academic case:

Nobel Prize winning economist Fredrick Hayek advocated privatization of the money supply as early as 1978. Barry Eichengreen, a respected, mainstream scholar of international finance recently wrote that “maybe the Tea Party should look for monetary salvation not to the gold standard but to private monies like Bitcoin.” Former Federal Reserve Governor Randall Kroszner and widely read blogger Tyler Cowen wrote a book in 1994 that discussed “the potential consequences of a complete deregulation of money and banking.” An article in the ultra-establishment Journal of Economic Literature by George Selgin was titled “How Would the Invisible Hand Handle Money?” Other economists study historical episodes where money was privately produced, often with favorable results.

The whole piece is a clever bit of argumentative jiujitsu. Barker takes a Tea Party call for a return to the gold standard — the U.S. went off gold, theoretically for good, during the Nixon administration — and uses it as a way to dismiss that retro notion and put forward the altogether more radical idea of allowing private money to come online.

Then he ratchets it up another notch, with a "pity the Federal Reserve" gambit:

Economists at the Federal Reserve are bright and well intentioned, but they have been given an impossible job. Just as Soviet planners could not run an efficient economy, Fed planners cannot provide money as efficiently as free markets. Just as government monopolies give us poor mail, train, and urban highway service, the government monopoly of money gives us low-tech currency, periodic money valuation crises, and a dysfunctional banking system. Competitive money supply would be an improvement, and far better than a gold standard.

The Fed would be intrigued to discover that it, the institution that controls America's monetary system, is as hapless as Soviets apparatchiks allocating resources to assembly lines producing customerless products. The Fed would be even more surprised to learn that it's as bad at its job as the post office. From the Fed's perspective, its people have done a fantastic job of keeping the U.S. out of Great Depression 2.0. And the work is far from over.

In this respect, Barker is aligned with Vivek Ranadive, a wealthy technology entrepreneur who wants to replace the Fed with a computer program.

I think both these ideas would be a disaster for the economy. However, an ongoing experiment is being conducted, with Bitcoin at its center. Bitcoin mining is ongoing, as is Bitcoin trading. "Molecular," a commenter on one of my Bitcoin posts pointed out that Bitcoin is actually ahead of current fiat currencies, in terms of its evolution:

USD value was "bootstrapped" using gold backing in the beginning. This backing was slowly removed over time. The USD has something else, that gives it value: its legal tender status. It has yet something else that gives it value: the fact that US military threatens everyone who starts selling crude oil for anything else than USD (kassim tried in iraq, iran has ideas,...). So one could argue the USD is, since 1971, backed by oil.

The fact that bitcoin has acquired substantial value without having such powerful high-level support and without any gold-bootstrapping is astonishing and it happened through making it freely tradable against fiat on the various exchanges.

Having studied Bitcoin and the Bitcoin culture — or subculture — for a while now, I'm impressed at Bitcoin's resilience. It might not be the cyber-currency that knocks off the Almighty Dollar. But if the dollar ever does go down, Bitcoin will have had something to do with it.

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Americans hold up 'I want to work' placards as they join a protest of several thousand people demanding jobs outside City Hall in Los Angeles on August 13, 2010. A Labor Department report showed 131,000 jobs were lost in July and the unemployment rate remained stuck at 9.5 percent.

Here's what we know: unemployment nationally is stuck at 9.1 percent; job "creation" is stuck at less than 100,000 per month; applications for unemployment benefits are stuck above 400,000 per month; and GDP growth is stuck below 3 percent.

And that's just four "stucks." Add in numerous other datapoints and you get a Big Stuck — the story of the American economy.

It's far worse in California, where we're stuck on everything that the nation is stuck on, but because of our thousands of unemployed construction workers have an jobless rate of 12 percent.

There are exactly two sets of ideas about how we can get out of this quagmire. On the right, the argument is to cut taxes, reduce government spending, and eliminate regulations that encumber business activity. On the left, the argument is to raise taxes on the wealthy while cutting them for the poor and middle-class, spend more on economic stimulus, and more rigorously regulate high-risk financial and business activity. 

Unfortunately, as the failure of parts of President Obama's jobs bill in the Senate shows, neither side is going to get all or even most of what it wants until the government is revamped by the 2012 election.

If you're keeping track, that's another full year of stuck.

I've taken to calling this the "Lesser Depression" because unlike the Great Depression, we're not confronting mass unemployment. We're like a patient with severe lung damage. We can't get in enough oxygen to move with any kind of speed. So we shuffle along, if we shuffle at all. And we're being forced to run in mud. Sticky mud.

However, I now think that a new term is in order. Our current situation reminds many people of the late 1970s, — the "malaise era," when stagflation, a combination of high inflation and low economic growth, choked the country.

We don't have the high inflation this time around. But although prices have remained stable, demand for goods has flagged. This is because households and business took on too much debt when credit was loose and are now "deleveraging," repairing their balance sheets, and either not pursuing more credit or having it taken away from them by banks that are more risk-averse. Bascially, everyone feels far too poor to spend. And everyone has felt this way for years now.

I'm calling this "stuckflation" (Nate Beller, a cartoonist, was the first to use the word, as far as I know). It's as much as psychological state as anything else, although I think it describes the economic struggle we're up against. It explains why some pundits maintain we're in a recession in all but name, even though the data doesn't support their case (we haven't seen two consecutive quarters of falling growth, we're adding jobs, some sectors like autos are doing well).

It's stuckflation, defined as subpar post-recession growth, high unemployment, low inflation but a credit-binge hangover, and an omnipresent threat of deflation that never quite shows up but keeps the macroeconomists freaked out nonetheless. You often hear Japan and it's "lost decades" mentioned in this context. But that's true, scary deflation.

What makes stuckflation different is the "exorbitant privilege" of the U.S. dollar as the world's reserve currency. We'd probably be in another recession now or headed for it if the downgrade of the U.S. bond rating by Standard & Poor's had made investors flee U.S. debt, rather than flock to it. 

It's not really clear how we're going to get out of the Big Stuck. You hear the argument that we should go back on the gold standard — sacrificing the dollar's reserve status and returning to the old model of the world's currencies being pegged to an objective measure — but this tends to come from conservative anti-government types who lionize "rational" markets and despise central banks, like the Federal Reserve. They blame currency manipuation for all our troubles and insist that if we take that political power away, the markets will self-correct.

That sounds like a fantasy. More likely, what will vanquish stuckflation is sustained, innovative business activity, along with some industrial-strength re-employment of the jobless. Eventually, there will be enough economic growth to end the pain. But we may have to wait a while. 

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