Peak Oil, Energy economics and social change from a Wyoming perspective

Cal 48 KOHO is now for sale

2012-01-27T09:29:00.000-07:00

Wellthe day has finally arrived to pass on our beloved Koho to someone who willtake care of her. We purchased KOHO in Tampa in1998, trucked her to Portland ORwhere we worked on her and then to Pocatello ID to work on her and then to Napa CA tofinish the job. In 2005 we headed south from the Bay Area to spend the Fall andwinter in Mexicowith the goal of heading across the Pacific in the spring. I had totallyrebuilt and refurbished the 1967 Yawl. In a later post I will list thedeficiencies of the old girl and all of my attempted fixes to restore her toher former glory. Major life events abrogated our world cruising plans and shewas drydocked in San Carlos MX for a few years. In 2009 my daughter Heidi and Isailed her back from southern Mexicoto Alaska where she remains in dry storage in Hoonah, Alaska, abeautiful native community across from Glacier Bay Natl Park. WE cruised her asummer in AK visiting old haunts and harbors in SE Alaska but changes to ourhealth, employment and finances necessitate our selling this sturdy, swiftboatto someone who will use her. I will post info on these fabulous Cal racers but I see theCal48 has a facebook page herehttp://www.facebook.com/#!/pages/CAL-48-Yachts/102018083197140. KOHO also has a Facebook page called Koho Owens created by Heidi here.. with more pictures.
KOHO will be for sale for $99K . She needs nothing in the way of major work tohead across the Gulf of Alaska or around theworld. She is primarily set up for Northwest cruising with extensive andexpensive electronics(Furuno) including radar, chart plotter and charts,commercial hydraulic auto pilotWH) as well as a canvas sided pilothouse withhard dodger. She has a diesel cookstove(Adriatic)as well as a deluxe Aussie propane stove and oven. We lost our furler ina minimal Cat 1 hurricane but we sailed very fast with just hank onsails as she takes little in the way of canvas to make 8-9 knots. We blew outour little mizzen in a gale off Oregonand she will need a new mizzen. She has all new overstrength 316 SS rigging,new oversize super duplex chainplates and tangs, turnbuckles etc. Weskirted a depression in MX and sailed in numerous gales on the trip upthe West Coast on our way to Al;aska. This is one strong boat. I was formerly acommercial fisherman in the Gulf(Alaska)and have seen some really rough weather and KOHO saw quite a lot of Force 6-8conditions with no worries. She is sleek. dry and fast and underwent extensivehull and deck and bulkhead reinforcement as well as installation of foaminsulation. In the cold wet Alaskan climate she is warm and dry. She hasa powerful Ideal vertical windlass with over 400' of new HT chain. She may besold with our NZ aluminum hull inflatable with a 15 hp yamaha with low hours.She has a Isuzu 60 hp diesel with a feathering 22" 3 BLADE MAX PROP.
We may be reached at our mailing address: Hugh Owens, PO Box 309, Wilson WY 83014 or through our web sites:Cal48koho.wordpress.com or cal48koho.blogspot.com or this site. I hope topost pictures, sailing videos and specs in the future as time permits. Iwouldn't rule out a partial trade of a smaller sailboat. BTW, the pictureof KOHO is in Desolation Sound B.C.

How I would Fund Wyoming Government

2012-01-24T11:15:00.004-07:00

The Corpus Callosum column by Jonathan Schlechter is always worth a look in the Jackson Hole News and Guide . His columns in the Jan 11 issue inspired me to make a few comments. To refresh your memory, Jonathan discussed how economic activity and taxable sales related to that activity have changed in the past 5 decades and particularly in the past 10 years. This mirrors changes in the state and national economy in the same period. In the 1950’s and “60’s the US was a balanced dynamic economy producing goods and services not only for its own citizens but worldwide. The industrial expansion following WW 2 fueled a growing middle class who produced “things” from our resources generating real wealth and rising incomes to a growing middle class. Government’s funding model was to tax companies and individuals involved in this post war boom .By making things, companies and individuals could buy things and people went from being citizens to becoming consumers. This was a time of real economic growth fed by very low energy costs and a huge economic advantage enjoyed by the United States who did not have her industrial base bombed to rubble as did Europe and Japan. It was a time of low debt, rising productivity and rising incomes across all strata of society. This economic model started to change in the 1970’s and ‘80s and the broken economy of today bears little resemblance to the economy of 50 years ago. But what has changed? How has it changed?

I think the most useful model of economic activity is to divide the economy into three segments: the Primary Economy, the Secondary Economy and the Tertiary Economy. I first read about this construct in The Wealth of Nature, by John M Greer. The Primary Economy is that segment involved in bringing resources to the wellhead, to the mouth of the mine, to the railhead at the edge of the forest for example. The Secondary Economy takes those resources ( eg.,oil, timber, oil and coal, and minerals) and delivers them to factories and workshops where people make things and sell them. This industrial production fueled a huge increase in services to those productive members. The sons and daughters of miners and farmers and factory workers became lawyers, doctors, economists, teachers, insurance salesmen, financiers and………bankers. This brings us to the Tertiary Economy. This Tertiary economy is the part of our economy which makes money off of money. A sound banking and finance sector is crucial to the health and growth of the Primary and Secondary economies, taking in deposits and making loans, providing liquidity to the productive members working in the primary and secondary economies. The members of the Tertiary Economy formerly made money by loans to the Primary and Secondary economy, by putting them in Debt and charging interest on the debt. Keep in mind the Tertiary Economy while valuable to the other two, does not create wealth. Ideally, the Tertiary Economy facilitates real wealth creation by the Primary and Secondary members. Government taxed the real wealth creators in the Primary and Secondary Economies. This was the government funding model that Jonathan describes in his article. In Wyoming and Teton County it was working, that is until the last few years. But the secondary economy has been losing out to the Tertiary Economy for the past 30 or 40 years. The Tertiary economy has become the dominant segment of the economy. Fifty years ago the manufacturing economy was three times the size of the financial sector. Today that ratio is reversed. The government doesn’t tax the Tertiary economy at the same rate as it taxes the Secondary economy. Members of the Tertiary economy have manipulated the political system and the tax code to their advantage so as to pay low or even no taxes. Their income is shifted away from earned income to the capital gains rate of a maximum of 15%. It is no accident that most of the 1% club lives within the Tertiary Economy.

I would like to summarize how I would fund government in the current recessionary environment. In general I believe you tax what you want to discourage or where you want to find income. You might tax smoking or alcohol to reduce consumption for example, or tax imported oil to reduce the trade deficit. The tertiary economy should be taxed at the very least at the same rate as the working economy. Even a famous conservative, Ronald Reagan in the Tax Reform Act of 1986 raised the capital gains rate to the same as ordinary income. Warren Buffet, one of the nation’s richest billionaires also has come out in support of this concept. If you want to encourage jobs and earned income, the tax rate should be low. But instead the tax rate is low or non existent for members of the Tertiary Economy. Goldman Sachs, the world’s most powerful Investment bank in some years has paid No taxes. IN 2008 they were at the 1% bracket despite receiving Billions in taxpayer largesse. It is time for local state and federal taxing authorities to tax the Tertiary economy which creates no real wealth but amasses fortunes and stop taxing economic activity, people and companies who create things and who actually work for a living.

I offer the following concrete suggestions to fund government. Some of the ideas are my own and some have been suggested before. Some would not be possible without changes to current tax law.

1. Capital gains rate at the same rate as ordinary income. FICA, Medicare and state income taxes to be assessed the same as in ordinary income.

2.Tax all financial transactions which would include real estate both commercial and residential, equity, bond and mutual funds trades, derivative trades, bank loans, hedges, insurance premiums etc. For example, the amount of derivatives in the world economy is estimated in the $ Hundreds of Trillions ! Just a 1% tax on dervatives would yield trillions of dollars. That would raise a stock trade for me at Charles Schwab from $8.95 to $9.04! Over 70% of US equity trades are said to be high frequency trades(HFTs), computer generated trades which add to the volatility of US markets benefitting only the tertiary folks in the investment banks and hedge funds.

3. Tax LBO and hedge fund activity at the same rate as ordinary income. Many hedge fund managers have made in the hundreds of millions to billions in a single year and yet pay no more than 15% capital gains rate. This would only reinstate the policy of Ronald Reagan.

4. End subsidies to companies in the tertiary economy. Under current tax law, the overseas income of corpations is often shielded and deferred, sometimes forever. The aircraft leasing arm of Gerneral Electric has used this dodge for decades and it’s corporate taxes are often way below 10%.

5. Lower earned income and corporate taxes from a top rate of 35% to say 20-25% in the non financial sectors but make it a flat tax that will be paid regardless of deductions.

6. Wyoming is a state where the 1% club flock to, to avoid punishing regional and state taxes. There are many ways to tax the unearned or inherited wealth of these newcomers arriving from elsewhere. Many Chinese and Asian newcomers are moving money out of their countries to avoid taxes. The uberwealthy newcomers to Teton County have driven up the cost of housing to levels unaffordable to what’s left of our middle class.

7. Regardless of the incorporation structure, taxes to support necessary government expenditures should be paid by anyone who straps on shoes and walks our soil and that would include non profit corporations, churches,and state and local buildings.

8. Tax all unproductive wealth. Under current Wyoming law billionaires can shield hundreds of millions by for example setting up a ranch corporation of thousands of acres and pay little or nothing in property taxes because they are taxed at an agricultural rate. The nuts and bolts of a law going after this time honored dodge of the wealthy and money launderers while not punishing productive farmers and ranchers would of course have to be worked out. Taxing raw land and raw lots at a rate to discourage buy and hold socially unproductive investment would free up the land for productive use. The way it is done now is to tax the land with a structure on it at far higher rate than raw land. Use it or lose it.

9. Institute a carbon tax on the transportation sector. Road and port construction and maintenance should be 100% supported by users.. An easy first step is toll booths on the Interstates. Many states do this now. Commercial aviation pays little in the way of fuel taxes while using vast amounts of fuel burned in inefficient turbine engines spewing an enormous carbon load. Even private aircraft pay a trivial tax of only about 20 cents a gallon while the average automobile taxes are $.51/gallon, which itself is only about 6%.

Of Course I am aware that these suggestions are anathema to the upper caste financial elites of the world who have purchased our political leaders and molded our tax laws at great personal expense. I have tried to explain how our economy has changed in the past several decades and continuing the current tax system of taxing earned income and ignoring unearned income needs to change. In an upcoming blog I will attempt to lay out our economic future if we fail to enact some or all of these ideas. Sadly, I think the most likely scenario of state and local economies will be default. As James Schlessinger has said, we seem to have only two modes, complacency or panic.

I'm Back

2011-10-26T11:03:00.000-06:00

This has been a long hiatus from blogging and now with the "termination dust" of new snow on the Tetons and outside temperatures less conducive to hiking and gardening and building, there is more time to reflect of all the interesting happenings in our world. I would like to draw attention to a recent post on thoildrum website and a valuable contribution by one of the long term editors who goes by the name of gail the actuary. It is her take on The Limits to Growth hypothesis from 1972 and how the recent world financial crisis might interact with their model. I will post the LTG illustration of various feedback loops as well as my response to her superb essay.

Here is the graph which will get the ball rolling:

And after you read her essay, here is my reply:

Blockbuster post, Gail. You added the necessary link to a likely affect of how debt based finance interacts with the LTG model and the various postulated feedback loops. Some of the comments were highly incisive and useful as well especially the comment of responses of non linear systems to these loops. The political financial powers know that the debt based house of cards is wavering and if you can't keep the galley slaves pulling on the oars and making their payments, their whole world could collapse and every plan from Brussels to DC is an attempt to prop up the banks and prevent losses to the banks and the bond and equity holders, pension plans, hedge funds etc. All the plans are attempts to privatize the profit and socialize the risks and dump debts onto society and off the bank's books. Will these central banks and financial elites succeed? I suspect this time they will fail and have to suffer losses. If they do again succeed they may find that their own heads may be at risk. If a debt cannot be repaid, it wont be repaid and banks will topple all across the world. The world is over banked and the TBTF banks need to fail to be replaced by new real domestic banks, not international casinos where the taxpayer backstops the house but doesn't share in the profits.
I also have a bit of a quibble that I rarely see criticism of how GDP is calculated inconsistently not only in the US but across the world. It would seem obvious that the US deficit borrowing which counts as + GDP should be subtracted from GDP in all deficit years. That of course would lead to downward GDP revisions for the past decade. For example pulling off this years deficit would drop our GDP from $14.6 Trillion to $13 Trillion or so. It is hard for this writer to stomach the fact that a huge portion of our GDP is financialization, real estate transactions and various financial and insurance and governmental services which of course is paper pushing generating nothing of lasting durable value. We still produce "things" of course but that is now a trivial 9% of the economy and a good portion of that manufacturing is aerospace and defense and armament "things." If you contrast how GDP is calculated for the US with countries that are not top heavy with paper pushers, countries such as the northern European countries and the BRIC countries where manufacturing is a much higher proportion of their economies, economies that produce things for export as well as domestic consumption, then you would find that the US share of world GDP would be lower than commonly assumed. The additional fact that increases the risk to a US collapse is how little the US produces of things that people need in their day to day activities as well as what industry needs in terms of tools, clothing, transportation, industrial tools, critical minerals and so forth. I now find that even box cutters which brought down 2 airliners in 2001 are almost entirely produced in China. If you add the political system which is held in universal contempt by a huge majority of citizens layered as a pathetic feed back loop to our current predicament, it would seem that all these factors are baked into a cake which is not going to turn out well no matter what is done, no matter what is proposed.Once a system has passed the point of no return, there may not be solutions to avoid decline and collapse. Growth may now be nearing an end as energy becomes ever more scarce and dear, and all those economic assumptions built up since Adam Smith may have to be tossed onto the dung heap of history.

Hiatus

2011-04-20T10:07:00.000-06:00

I have been absent from the blogosphere for both family reasons(time to visit the kids and escape snowy Wyoming) and maintenance duties here at home and farm. I generally blog when I see topics of compelling interest and they certainly are out there in spades but the economic and social future is bleak with a president incapable of leadership and political parties incapable of rational thought. The financial establishment in Wall Street who should have been facing indictments and certainly jail time remain firmly in control having been instead bailed out by the hapless American taxpayer who derives his information from a clueless media and a managed political propaganda machine controlled by big finance and their sorcerer economists. The financial elites and the central bank continue on the path of dollar destruction and unsupportable spending. The real Depression still lies ahead. I'll be back as soon as I can find time to reflect.

Hosni got HOSED!!!

2011-02-11T11:00:00.001-07:00

Should we move to a pure natural gas transport model?

2011-02-06T10:28:00.001-07:00

What follows is the text of a rebuttal letter I wrote to Michael Fitzsimmons who is a retired engineer and a proponent of moving all transport to natural gas as a way to free the US from reliance upon imported oil. We had a series of letters on the Seeking Alpha financial web site. This is my final letter to him:

MF: Your idea of a dialog is "Your figures are wrong"? (I offered him a link to the US Energy Information Agency, the definitive governmental website on all aspects of energy). These are up to date(November 2010) EIA's figures for proven reserves. They are not mine. Did you click on the link? It is apparent you have made up your mind because you don't bother to rebut anyone's arguments in a respectful fashion using credible data. You merely rewind your tape and repeat your arguments.You have chosen to include ALL categories of reserves which you do not mention anywhere that I could find. You argue like Hugo Chavez, the Oil Shale advocates , the Coal proponents and even the Saudis. There is only a certain small portion of the resource that will be economically available at any remotely affordable price. Chavez says there is more oil in Orinoco sands than in the middle east. Probably true. There may be more oil and gas in Western US shale as well. More in Canada than Saudi Arabia. So what, Mike. Even Rigzone, the respected Oil & Gas trade publication, throws cold water on estimates of supply from people such as yourself who have a simplistic agenda and a mission short on details. You are however absolutely correct that the 2/3 reliance on imported oil is an ongoing disaster which is not being addressed as part of a coherent energy policy. Your statement of how much could be saved by a switch to NG takes the lowest price I could find which was about $1.50 for gasoline equivalent. Prices actually seem to range from $1.50-2.50. I don't see a fuel tax on NG in our nearest metro area. Plan on at least 25-50 cents a gallon. The kind of expansion of NG you are proposing would require many new pipelines. You say rail is too expensive and too slow which is incorrect. You also fail to mention that natural gas on a btu basis is about 1/4 of oil. That is a temporary aberration which would certainly evaporate if vast amounts of gas were to be used as a transport fuel. What will be the price of NG fuel on an oil btu equivalent or even half of an oil equivalent? Do the math. We have a gas pipeline being constructed from here in Wyoming to Oregon, 675 miles. It is the Ruby Pipeline. It will cost at least $3 billion which is $4.4 million per mile. It is going thru open empty land, Indian land, barren land and it is still $4.4 million/mile. Rail in Wyoming laying a new track in flat terrain. for freight(not high speed) is ball park $1 million/mile.(source: a friend in Idaho who works for UP) In Southern Cal adding a second main line is higher for many urban reasons. It is about$2-3 million mile depending again on terrain and location. Urban Rail costs range from numbers like this to absurdly high numbers in the range of $20-60 million a mile in cities.. Rehabbing Freight rail in open country in 1995 estimate(Google) from MO DOT was estimated at $248,000/mile. That is more than double now. Urban rail costs for rail generally include the cost of everything, cars, rail, ties, switches, stations etc. The costs of digging up an urban area and sinking a pipeline of relatively short life is equally expensive. In the US we use rail for freight. In Europe they use Rail for people. It would be stupid to ruin a decent freight rail system in the US by jamming passengers down the throats of UP and CSX. Laying new track alongside an existing ROW@ is relatively cheap as I have pointed out and is very fast, far faster than digging a pipeline. I see no credible estimates of the ultimate buildout costs of your NG plan. There are damn few pipelines in the US and you would need massive expansion of spur pipelines? Your costs? You haven't provided them because it would be almost impossible to estimate the costs. If you stick to say, Interstate corridors I am confident you could generate credible figures. I could generate equally credible figures for rail lines coexistent with interstate road corridors. What is clear to me is that laying rail extra main lines is massively faster than burying pipelines and it is undeniably cheaper . When the rail buildout is completed you will have the ability to transport all conventional forms of transportation energy, people and goods. What would result is a massively improved transportation network which could have trains driven by whatever fuel most feasible at the time, whether electricity, oil, coal, firewood, biofuels, nuclear and yes even gas. What we would have with your not original proposals would be pipes in the ground which would in a few decades would be just that, but they would be empty. Your proposal is unworkable, unaffordable, unnecessary and deeply flawed on multiple systemic levels. You might ask the folks in New Mexico what happened to their gas. With no easy way to store gas at 3000 psi, when the pressure drops in the pipe for whatever reason, the party is over. While there will be some transport by CNG and electric in the future as part of a broad transport model, using CNG as the fuel model to move to is bogus and delusional. It is delusional just as Obama's high speed rail proposals are equally delusional,impractical, and unaffordable. We are long past the time to have a national energy plan. Gas will be part of that plan if it ever happens as will all the fossil and non fossil energy resources. Switching all transport to gas alone is as ludicrous as switching to a pure coal or pure solar.

Hosi! Ease up! Disappear Brother.. You’re making the CIA and the US look really bad.

2011-02-04T14:36:00.002-07:00

So by now you’ve probably heard about that little brouhaha going on over in Cairo with students and little old ladies protesting against another close dictator ally of the United States, and getting stomped by Hosi thugs wielding swords from stampeding camels and galloping Arabians. I am sure the events are not being lost on Robert Ludlum and Hollywood. Talk about grist for the next Jason Bourne movie. Of course, they might be filming as we speak. Of course who knows what intrigues are going on behind closed doors. We have learned that Hillary, our current Secretary of State and her husband, old whathisname regard Hosni’s Family as family friends.
That’s Hosni and his adorable wife Susan and the boys. It looks like Hosni is not taking any chances. He is either doing his best Napoleon imitation or hanging on to his Glock. In case you were starting to feel bad for the old dictator, don’t. Hosni has done all right by himself and his boys. They’re all billionaires and I don’t mean just billionaires. I mean mover over Bill Gates and Warren Buffet BILLIONAIRES: From Todays Guardian:

Mubarak family fortune could reach $70bn, say experts

Egyptian president has cash in British and Swiss banks plus UK and US property

Gamal and Hosni Mubarak are reported to have built up huge fortunes, including properties in London. Photograph: Cris Bouroncle/AFP/Getty Images
President Hosni Mubarak's family fortune could be as much as $70bn (£43.5bn) according to analysis by Middle East experts, with much of his wealth in British and Swiss banks or tied up in real estate in London, New York, Los Angeles and along expensive tracts of the Red Sea coast.
After 30 years as president and many more as a senior military official, Mubarak has had access to investment deals that have generated hundreds of millions of pounds in profits. Most of those gains have been taken offshore and deposited in secret bank accounts or invested in upmarket homes and hotels.
According to a report last year in the Arabic newspaper Al Khabar, Mubarak has properties in Manhattan and exclusive Beverly Hills addresses on Rodeo Drive.
His sons, Gamal and Alaa, are also billionaires. A protest outside Gamal's ostentatious home at 28 Wilton Place in Belgravia, central London, highlighted the family's appetite for western trophy assets.
Amaney Jamal, a political science professor at Princeton University, said the estimate of $40bn-70bn was comparable with the vast wealth of leaders in other Gulf countries.
"The business ventures from his military and government service accumulated to his personal wealth," she told ABC news. "There was a lot of corruption in this regime and stifling of public resources for personal gain.
"This is the pattern of other Middle Eastern dictators so their wealth will not be taken during a transition. These leaders plan on this."
I’m sure all the boys in Langley are chain smoking and burning the midnight oil wondering where the hell are they going to be able to do their renditions if Hosni and the fam have to make a mad dash for Riyadh or Tel Aviv. Course, the dark side is that Hosni and his whiz kids might be coming home to the auld sod to roost as they have lots of property here on , namely NYC and Rodeo Drive. Don’t know how long he might last over here with every state moving to concealed carry laws. That’s the nice thing about Cairo, only his thugs have guns.

The real serious issue is of course yet another revelation of the utter failure and corruption of US Foreign policy in its decades long attempt to set up and prop up dictators friendly to US corporate interests. You can just about name any country . If we have had or have significant corporate interests, the CIA and its thugs have probably been there, done that. Think Central and South America. There’s a reason that the Latins have a long tradition of hating us. In central America the Corporation du jour was the United Fruit Company which had huge plantations all over the region. The business model was slave labor wages, corrupt politicians and monopoly. Eventually in many of the countries the natives eventually pushed back./ There are a myriad of examples but the CIA special OP PBSUCCESS, toppled the Guatemalan government when it started talking about peasant rights and expropriating property with or without compensation. This sounded like communism to Langley and in 1954, the CIA gave those socialists an attitude adjustment. Much the same thing had happened the year before over in Iran. That was the CIA’s ” Operation Ajax” :
This happened on August 19, 1953 overthrowing the democratically elected Prime Minister Mohammad Mosaddegh. Mohammed with the unanimous support of the Iranian Parliament attempted to nationalize the Anglo-Iranian Oil Company. England had other ideas and called Langley and launched AJAX which toppled Mohammed and installed the Sha of Iran who lasted until 1979. You know the rest. The problem was, this infuriated the entire coutry of Iran and in Iran, memories die hard. Ajax was a debacle of historic proportions. Iran was a highly civilized wealthy educated country with a proud cultured history, who today might have become a bulwark of stability and prosperity in the region and we and the Brits destroyed all trust and hope for the future. The United States didn’t even need the Oil as we were the WORLD’S LARGEST OIL PRODUCER. It is no wonder that the Iranian people demanded payback. The blunder continues today. Talk about reaping what you sow. We are long past the time when we could have sat down with the Iranian leaders who were not radicalized and said ”Listen Mohammed. We’re sorry. What can we do to make this right.” Frankly I still think it is not too late to sit down and try to have a conversation if it were done cleverly and diplomatically starting with an apology to the Iranian People. Instead we continue to sanction and threaten a radicalized regime which doesn’t even represent the Iranian people. These same winning CIA strategies continued in SE Asia(Think Viet Nam) Chile, Iraq and much of Central America and of course now in Iraq and Afghanistan . No empire has ever taken over Afghanistan for long and the CIA plans on trying to rectify that little quirk of history. It is depressing to think how our extra governmental agencies like the CIA and the Federal Reserve are so ineffably unaccountable and un answerable to the American People. And now we have their little water boarding torture basement in Egypt at risk of being shut down. What will be the next chapter coming out of Langley? God help the world if the dominoes in the middle east continue to topple and we get the CIA involved.The Bozos still rule.

The US needs China to finance its deficits, or does it?

2011-02-04T13:01:00.001-07:00

Of course you recognize this building, right? It’s the Bank of China in Bejiing. These are the boys that the US is afraid to annoy with rants of undervalued currency, balance of payment issues, human rights abuses, Tiananmen Square, North Korea, intellectual property abuses, theft of patents and technology, carbon pollution, you know, the works. The US can’t unsettle China with anything economically threatening. We have been told by the Economists in the State Department as well as the Globalized Banks( a branch of the State Department) that raising these sorts of issues with the Chinese might tick them off and that would be bad, right? After all, it’s the Chinese who fund our debt. It’s the Chinese who fund our ability to run big budget deficits. Sure, other folks fund the deficits besides the Chinese like Japan, Asian countries and rich individuals in the US and elsewhere, collectively known as the bond market. So imagine my surprise when I saw this headline in the Financial Times:

Fed passes China in Treasury holdings

By Michael Mackenzie in New York

Published: February 2 2011 00:01 | Last updated: February 2 2011 00:01

The Federal Reserve has surpassed China as the leading holder of US Treasury securities even though it has yet to reach the halfway mark in its latest round of quantitative easing, according to official figures.

Based on weekly data released on Thursday, the New York Fed’s holdings of Treasuries in its System Open Market Account, known as Soma, total $1,108bn, made up of bills, notes, bonds and Treasury Inflation Protected Securities, or Tips.

According to the most recent US Treasury data on foreign holders of US government paper, China holds $896bn and Japan owns $877bn.

“By June [the Fed] will have accumulated some $1,600bn (!!!)of Treasury securities, likely to be in the vicinity of China and Japan’s combined holdings,” said Richard Gilhooly, a strategist at TD Securities. “The New York Fed surpassed China in the past month as the largest holder of US Treasury securities,” he noted.

Whoa horsey! Talk about cognitive dissonance. !! You may remember before the bernank showed up replacing the last guru of financial psychobabble, Senor Greenspan, the US Government had to raise money to finance it’s budget by issuing debt, but no more. I guess we don’t need China and the bond market any more. Maybe there is something I don’t understand but is this yet another sign that we are nearing our economic "” End of Days?” Can we now demand: Mister Chinaman, Tear down this wall!”

How Obama is making the Depression Worse

2011-01-30T12:04:00.001-07:00

When Obama stepped into the Oval Office, the train was on shaky footing threatening a full derailment because of the horrible governmental and financial mismanagement of the previous 10 years, both in the waning Clinton term and the debacle of the Bush years. When I like many other Americans stepped into the voting booth presented with the usual American choice of the lesser of two evils, in this case an over the hill geriatric and his inarticulate aging beauty queen bimbo and an untried but articulate black Harvard lawyer, I held my nose and filled in my ballot. Unlike many Americans I wasn’t expecting much from a political system owned and controlled by corporate elites but I held a wee little hope that the situation might not get worse with Bush gone. Wrong . Well before the election Obama had been assembling an economic team drawn from the same entrenched Wall Street financial crowd of the previous two administrations but there at least was a few old warhorses in the crowd, notably Paul Volker which gave me a sliver of hope. Wrong again.Whether Obama was captured well before, slightly before or just after his accession to the throne is irrelevant. That he is a tool of Wall Street against Main Street is undeniable. There are many factors contributing to this Great Depression which I and many folks far better than I have covered in great detail. The takeover of the American Government and the structural transformation of the American Economy from a mixed manufacturing, construction, technological and Service economy to one dominated by a non productive financialized economy is complete and for the moment an intact and rollicking kleptocracy. The TBTF banks and Insurance companies who caused this depression are stronger than ever aided and supported by by the financial elite who transferred their almost impossibly large losses to the impotent and withering middle class and their hapless children. The casino investment banks forced with devastating losses were converted to bank holding companies, which supposedly means full service banks but doesn’t under Obama. They are just continuing the bulk of their gambling with public funds. and in the process rolling up vast increases in national debt which has exploded under Obama. Under new FASFA rules the banks were allowed to change their accounting rules of realistic audits of assets and liabilities to a system where the liabilities became assets. All those mortgage backed securities went from being a few cents on the dollar to 100 cents on the dollar. How could that have happened? Well pardner, if you used truthful auditing principles, the banks would be bankrupt. Can’t have that. So banks like Citigroup and BOA are fine and dandy. Only they’re not but I guess they could eventually become solvent as long as the taxpayer courtesy of a Federal Reserve Banking Cartel who answers to no one continues to prop them up and allowing the bernank and his treasury Tonto Tim to keep feeding them chips from the Fed Casino. Much of Obama’s first team has left to be replaced by an absolutely outrageous second team of Aryan Pure Wall Streeters. JP Morgan bank gave us Bill Daley, GE gave us Jeff Immelt who we are told is going to give the jobs back to Americans that GE outsourced to the rest of the world,. This is the same GE that I pointed out in a previous blog who is one of the world’s largest companies but who normally pays little to no taxes because GE in the 1980’s rewrote the tax laws to benefit their business model. Jeff wants Obama to lower the corporate tax rate even though GE has never paid any where near the putative 35% rate. In fact in the disastrous year of 2009 GE, one of the world's largest companies still managed a profit of $11 billion and paid how much in taxes? Zip. In fact the government had to send a tax refund to old Jeff Immelt. The details of how this huge company can make money hand over fist decade after decade and pay little or no taxes is repeated endlessly with one globalized company after another who has outsourced production to slave labor rate countries like China. GE rigged the tax system to defer taxes on earnings overseas, in many cases indefinitely, while shifting losses to the US. It's the perfect scam and the globalized corporate world all do it, deducting the cost of overseas business and deferring profits. The actual tricks of how they use the tax code to swindle the US taxpayer and US workers would take a book. I have explored the scam at some length and may revisit this in the future but I am a big picture guy and I'd rather leave it to someone with business or accounting background. I should also state that the big TBTF banks are also at the top of the list of companies that pay little or no taxes, also courtesy of the tax system. These are the same companies that steal bailouts from the taxpayer's children who then go on like Lloyd Blankfein at Goldman Sachs to pay $16 billion in executive bonuses to himself and his apostles. Of course they can deduct these bonuses as employee compensation. That way they don't have to return these rapacious profits to the shareholders. Wouldn't it be a fair and simple matter to allow only limited deduction of employee compensation, say $100,000 per employee and not allow unlimited compensation? The other egregious tricks that most people are familiar with are shifting money for compensation to the much lower capital gains rate to compensate the oligarchs at for example, the hedge funds. That way you can avoid all those petty charges from social security and medicare. But to return to Jeff Immelt. Does he sound like a guy who will bring good paying manufacturing jobs back to main street? Conflict of interest is hardly a strong enough term to describe having a bona fide robber baron in charge of restoring American jobs that he and his ilk destroyed. If he were to do the unlikely, returning good jobs to our shores, he would be slitting his own throat. So it wont happen. I'm sure he would be happy to return slave labor to the United States at slave labor rates. There simply is no limit to what the corpocracy will do to maximize profits to themselves. I look at trends and try to extrapolate what I think could be the logical consequences of trends and trying to devise non violent and effective strategies to counter the pernicious influence of the ruling elites. It is difficult and discouraging in a nation of sheep who have shown no inclination to take to the streets and return the democracy that has been stealthily ripped from their hands(hoofs?) in the past thirty years. I am skeptical of any meaningful change until the society and the economy experiences and out and out train wreck.

Why Big Ag Has No Future

2011-01-29T14:50:00.001-07:00

I blog when I have something useful to say. For that reason I sometimes go long periods of no posts. Here is a stunning picture of a topic near and dear to my heart. The picture c/o National Geographic and the website on sustainable AG says it all. It shows in pictorial form the amount of energy used from fossil sources to produce a given amount of beef flesh for human consumption. AS the website states, the fossil energy comes from many sources, not just oil and so oil was chosen as the proxy for the sources. The article states that 26 units of fossil energy is needed to produce one unit of “beef” energy. I would like to source this research to verify these numbers as the previous data I have in hand states the ratio more like 7 or 8 to one. A graph from the site is included sowing the correlation from IEA and other sources of the correlation of food to oil price which I have long suspected but never have previously seen in such graphic form. It is obvious that this has societal, financial and ethical implications. I suspect this graph would only be valid in an energy profligate big ag type of agriculture but perhaps not. The website is here. Click on the images to enlarge them.

Davos 2011 vs the SOTU

2011-01-27T14:57:00.003-07:00

Now that America's annual irrelevant recitation of platitudes and clichés in the SOTU is over in DC, I need to clue you in on where the real party is jumping. I am referring to the World Economic Forum being held high in the Swiss Alps in a secure berg/sometime ski area by the name of Davos. I long ago gave up on the political circus of the State of the Union(SOTU) years ago in which nothing of substance is ever said interrupted by loud applause from the dominant party de jour. I do confess I generally read a transcript of what the president says but ESPN college basketball and the Australian Open was far more compelling boob tube fare than watching the latest lesser of 2 evils political leader spouting cornpone shibboleths, half lies and sheer nonsense.
Davos is where it's happening. It is the annual by invitation only FORUM to the 2500 masters of the Universe, the people who actually rule the world, the echte ruling classes to engage in deal making, kibitzing and partying and receiving the latest in financial and economic wisdom handed down from the various think tanks associated with the WEF. I will report on one of those economic reports in a bit but let's take a look at who the WEF really is. Their slick website is here:http://www.weforum.org/. The featured face that popped up when I clicked the link was the famous bankster Jamie Dimon so I knew what I was in for even before I did my due diligence research. First some background. The WEF was founded by a German businessman named Klaus Schwab in 1971. It is structured as a NGO non profit organization but it appears to be well funded from the profits of its members. Here is a citation from Wikipedia of who pays to play:

Membership

The foundation is funded by its 1,000-member companies, the typical company being a global enterprise with more than five billion dollars in turnover, although the latter can vary by industry and region. In addition, these enterprises rank among the top companies within their industry and/or country and play a leading role in shaping the future of their industry and/or region. As of 2005, each member company pays a basic annual membership fee of CHF 42,500 and a CHF 18,000 annual-meeting fee which covers the participation of its chief executive officer at the annual meeting. Industry Partners and Strategic Partners pay CHF 250,000 and CHF 500,000, respectively, allowing them to play a greater role in the foundation's initiatives.^[11][12].

Organization

Headquartered in Cologny, the foundation opened, in 2006, regional offices in Beijing, China; and New York City, New York, United States. It strives to be impartial, and is not tied to any political, partisan or national interests. The foundation is "committed to improving the State of the World",^[9] and has observer status with the United Nations Economic and Social Council, and is under the supervision of the Swiss Federal Council. The foundation's highest governance body is the Foundation Board consisting of 22 members.
So we are told that it is an impartial organization funded by more than 1000 global corporations who do at least $5 Billion per annum with a nice sliding scale allowing more play to those that pay. I did look up some of the members of that highest governing board which consists of some curious souls like George Bush lapdog Tony Blair and Queen Rania of Jordan? Who woulda thunk it? You may remember her when she was a bank executive working in Jordan for Citibank. I enclose a passport size picture for your viewing pleasure. But I digress…..Naturally every TBTF bank on the globe is a member and the members list is thick with unindicted banksters as well as the uberwealthy oligarchs from industry and technology like Bill Gates as well as every hedge fund you can think of. Some impartiality there. I see George Soros gave a speech there the other day castigating the world’s central banks for being asleep at the switch. His harsh remarks did hurt some feelings. It does appear that some of the talks and seminars purport to have lofty goals but the nature of the participants being the Kings( and queens) of Globalization does trigger a blip in my cynical BS meter. Unfortunately for the world, the members list includes an assortment of discredited Sorcerers, excuse me, I mean Economists drawn from Ivory towers as well as the expected economic Think Tanks. And that brings me to my next topic.
Here is the headline in The Telegraph. I’d say the headline speaks for how the WEF thinks:

World needs $100 trillion more credit, says World Economic Forum

The world's expected economic growth will have to be supported by an extra $100 trillion (£63 trillion) in credit over the next decade, according to the World Economic Forum.

By Emma Rowley 8:49PM GMT 18 Jan 2011
Here is a clip from Emma Rowley’s article:
This doubling of existing credit levels could be achieved without increasing the risk of a major crisis, said the report from the WEF ahead of its high-profile annual meeting in Davos.
But researchers warned that leaders must be wary of new credit "hotspots", where too much lending takes place, as the world emerges from a financial catastrophe blamed in large part "to the failure of the financial system to detect and constrain" these areas of unsustainable debt.
"Pockets of credit grew rapidly to excess – and brought the entire financial system to the brink of collapse," said the report, written in conjunction with consulting firm McKinsey. "Yet, credit is the lifeblood of the economy, and much more of it will be needed to sustain the recovery and enable the developing world to achieve its growth potential."
The global credit stock has already doubled in recent years, from $57 trillion to $109 trillion between 2000 and 2009, according to the report.
The WEF said the continued demand for credit could be met "responsibly, sustainably – and with fewer crises". However, it cautioned that to achieve this goal, financial institutions, regulators, and policy makers need more robust indicators of unsustainable lending,
I really don’t know where to start. It is simply baffling to me that there are people who actually draw a salary to write this stuff. By way of background, world GDP is somewhere in the vicinity of $60 Trillion. We see that debt doubled in the last decade. Most of the world banking system is now holding that debt not marked to market as we say in the economic blogosphere. If it were held at what the market would pay, most of the banks would be bankrupt. Instead this debt is held at what the bank says it is worth, which in most cases is the amount that was lent out with interest. Much of that debt went to fund a massive worldwide building expansion which became a bubble and is beginning to pop everywhere. All these banks are pretending that the money they lent to belly up developers will be coming back to the banks with interest. But of course it isn’t and in most cases it wont. This is capital, credit, debt, money, or whatever you choose to call it, that is going poof. Of course the banks and central banks have had a solution: Hit the taxpayers up for the bank’s mistakes and this has been the solution not only here in the US but all over the world where this banking model of loaning money to anyone with a pulse was the modus operandi. In a few cases, namely Iceland, the people said Hell NO and told their government that they the people, were in no way responsible for their bank’s mistakes. This sort of behavior terrifies the types of Oligarchs who are partying in Davos. God forbid. What would happen to them if the serfs of the world refuse to pay for the crimes of these plutocrats. WE need austerity! More austerity! So the solution to all this bad debt is GOOD DEBT, like maybe another $100 trillion or so. These sorcerer economists assure us the demand for credit can be met sustainably and responsibly with fewer crises. The kind of people that could write such a paper are living in a parallel universe. a never never land in which debt doesn’t matter, jobs can arbitraged to the lowest bidder nation, economic growth can grow to the sky even as the population soars, world energy supplies are in decline and pollution fills the skies, the rivers and the oceans. I have some friends who cry out “When will we be free of these Bozos?”, My guess is no time soon.

Latest News from the Auld Sod

2011-01-27T11:46:00.000-07:00

I generally only blog when events merit and on January 18, we had one of those events. The news from Ireland was simply stunning. It seems that the building pictured above which looks more like a parking garage than the Irish Central Bank had done the unthinkable. It had printed $51 Billion Euros out of thin air, with no backing whatever and handed them over to the insolvent Irish Banks who were continuing to suffer from an ongoing bank run. Many banks around the world are insolvent and the Irish Banks are among the worst in that respect. To my knowledge this money printing is unique in the history of the Euro. The early reports were not clear to me whether the money was the result of a keystroke transfer to the Irish banking system or was in fact euro printing. In fact it may have been both but I did discover(Wikipedia) that Euro notes have country codes on them listing which commercial or national printing press did the printing. Euros with the letter “T” are Irish euros . What this central bank did presumably with the permission of the European Central Bank is pure and simple money printing exactly as done by Zimbabwe and the 1920’s Wiemar Republic. What stunned me even more was the deafening silence in the European Press. I would have assumed that the German Public would have rioted in the streets. If one country in the Euro community can print money without issuing debt, why can’t they all do the same ? I guess the Irish decided that if Ben Bernanke can employ QE to feed to America’s TBTF banks, then so can they. The process is fundamentally the same in both countries but the Irish did it baldly and directly. Who will be next? Greece obviously along with Portugal, Spain, Italy. It is amazing to me what the banks of the world will do to save their fat asses and how little the world notices. People! This is a big deal. German People! French People! It is time to march on your central bank and demand and explanation and reversal of this crime against your currency. IF this act is not reversed, I cannot imagine how the Euro can survive.

Beware the Parabola

2011-01-05T15:00:00.011-07:00

This overlong post has been churning in my Kitchenaid brain machine for some time and I couldn't find my way clear to post it as a series because I feel the interrelatedness of the concepts demanded a coherent single post. Blogs shouldn't be this long. If it seems to long to bother with, my apologies. Just like the Irish cop I will say:" Comon folks. Move along. It's all over." I I have used this graph before and it remains extremely worrisome:(click to enlarge)

The rise in debt is parabolic and only goes through 2006. The past 5 years have only steepened the curve.This curve is just official debt and doesn't include other unfunded mandates like public sector pensions, Medicare promises, hidden military debt and future losses for example in commercial and residential real estate. Nor does it include all the casino gambling debt of the major banks with their derivative exposure and toxic mispriced assets hidden on falsified fraudulent bank balance sheets. Also keep in mind that this debt/gdp graph has similar morphology across a variety of European countries, most notably the PIGS countries. And yet astoundingly, those governments as well as ours continue to add to the debt as they extend and pretend with their deliberate lying statistics of a turn in unemployment and job statistics, manufacturing, housing and the economy returning to normal . This deliberate structured propaganda originates from government economic channels reporting to formerly trustworthy mainstream media as well as the thousands of economists working at the major banks and investment houses and hedge funds who themselves are victims of crowd psychology and flawed econometric models. Dick Cheney mouthed their cherished beliefs when he said "Debt doesn't matter." My contention is that debt matters a great deal and the assumption of more debt is riding the tail end of Joseph Tainters curve of diminishing marginal returns. I think I will venture a prediction: this will all end very badly. Our industrial society is driven and formed by debt and this debt bubble will eventually collapse as do all phenomena characterized and described by a parabolic or exponential curve. This curve of debt is indistinguishable from other financial bubbles and manias as far back as the South Sea bubble and the Tulip Bubble. The only way to put this debt laden economy on a secure footing is to extinguish this debt by either paying down the debt through a prolonged period of austerity or defaulting on the debt by outright default or by inflating it away. Again: this will all end very badly.It cannot help but end badly. What form this bubble collapse will take is subject to debate and educated and uneducated guessing but it will likely include deflationary price collapse early on if debt is defaulted on. Credit will become extinguished as well . Imagine an economy where as debt and credit disappears, so does in effect, money. Money in our society is primarily a function of debt and credit. Money is debt and credit in my opinion.Money is brought into being as part of a fractional reserve model in which a unit of money loaned out again and again from one financial institution to another which has the effect of multiplying the original issued amount by a factor or 10-40 times . If the loaned out money can't be paid back with interest, it wont be loaned out, debt will not be assumed and as a consequence, credit collapses, and in more than just a theoretical sense, money disappears.

The next important trend is the role of energy in supporting and maintaining this debt and credit based economy. This next graph displays the world's consumption of energy from the dawn of the industrial age to the present in a convenient unit of derived work called exjaoule which is 10 to the 18th joules. A joule as you may recall from high school physics is one watt over a period of one sec. joules can be described in electrical terms as well but I digress.… The dashed line represents real GDP in 1990 dollars. The world used 474 exjoules in 2008. Wikipedia mentions that the world in the last 20 years has used up over half of the energy consumed in the last 200 years. In this graph there is an obvious relation between world GDP and energy production. In the last graph we saw a debt parabola. I posit that there is a direct relation of energy use and economic output. It takes work and energy to produce stuff . And you can produce a lot more stuff if you can use machines running on energy provided by the amazing concentrated power contained in fossil energy. Under the right economic conditions you can make one heck of a lot of stuff using a credit and debt based system leveraging this energy availability to make your stuff. More debt using More energy=more jobs=more stuff=more GDP. A powerful and parabolic positive feedback loop.The converse applies as well. If energy availability diminishes or its cost goes up, one could suppose that the dashed GDP line would turn down. A Panglossian neo classical economist would dispute my conclusion. He would say energy is an externality to the production process. If fossil energy became scarce,then the market would substitute another form of energy and that dashed line could resume its parabolic ascent. This is where I part company with the Panglossians and the cornucopians who loudly assert that there is plenty of oil and gas and coal, algae, cow farts, hummingbird wings and unharnessed dark energy. With the right technology, the dream can go on, the future is unbounded. I acknowledge that there is a possibility that some new cheap form of energy could be found which could keep that graph of GDP parabolic. But parabolic curves make me very nervous. Parabolic curves describe bubbles, unstable finite systems, immanent collapse. If I were sharing a cabin on the Titanic with a Panglossian after the iceberg incident, my conclusion just like George Bush would be to shout “This sucker is going down,” and head for the lifeboat deck.. Msr Pangloss would hopefully assert that “there ought to be some way, some technology to get the water out of this tub.” Peut-etre monsieur but once that curve goes parabolic it is time to get worried. So let’s pull all this together. It looks like we have parabolic debt, parabolic energy use, parabolic world GDP rise, parabolic population increases. I mean, what could go wrong? The key driver is cheap energy and cheap credit. Pull out cheap energy and I hazard that the parabola will collapse as all parabolas describing biologic or economic systems eventually do.

There are optimistic voices in the environmental let’s save the world community who offer what is to them the obvious solution. They see that energy and peak oil may be a real threat and suggest a shift to renewables, renewable energy. Of course in an absolute sense they are right. We need to return to a world which can exist on the energy availability of sun, wind and water and with a little luck and hard work, we will. But dig a little deeper and you will hear that they don’t want a return to a pre industrial, pre oil and coal past. They want to keep the existing party going on renewable energy with a little conservation thrown in, of course. They see electric cars powered by Li Ion batteries made from lithium mined in Afghanistan and Chile. But to my mind, it doesn’t compute, it doesn’t scale. Unless the society is willing to subsidize renewable energy on a massive scale the way we subsidize corn ethanol, the whole concept is flawed on many levels but cost alone is a deal breaker, especially in a country that is functionally bankrupt. Let’s use the example of wind as our renewable energy source as it is widely regarded as the cheapest renewable. Our earnest and well meaning lefties point to success stories like Denmark which gets 70% of its power from wind. What they omit to mention is Denmark is a tiny densely populated country, wealthy and with a lot of wind. They also omit to mention that Demark has the world highest electricity rates at 36 cents per kilowatt hour. It is also true that some areas of the United States have undeniable wind potential which given subsidies could compete with 3 cent/kw coal and 5 cent natural gas. My home state of Wyoming is awash with wind almost every dusty day but nobody lives here and our wind resource is a long way from the metro centers who could use it. Wyoming is also the country’s largest producer of that 3 cent/kw coal produced electricity. The coal and gas and oil lobby in Wyoming has formidable political power as do the globalized oil and gas companies . Their lobbyists own Congress. Do you still think you’ll get your subsidy? They have their subsidies and definitely don’t want to share. There are a myriad of other issues. Electric cars have the same range as they did in 1910 and building a nationwide network of battery or CNG stations would take decades. That Chevy Volt is $40,000. The Toyota Prius hybrid is over half that and gets about 50 mpg with complex electronics and an expensive battery pack and a wimpy gas engine. I have a Toyota Corolla which gets up to 50 mpg which is a brutally simple manual transmission plain jane econobox with a 100 hp engine, and its operating cost per mile is far less than a Prius with much less complexity. Currently most hybrids are charged from Coal or gas power plants which would have to be massively increased to generate enough electricity to fuel a hybrid fleet. Keep in mind also that the wind towers were built using electricity generated not by wind but from coal and gas . They were transported vast distances by oil powered ships and on huge trucks running on asphalt roadbeds capable of heavy loads, hoisted into place with huge diesel powered cranes . The service life of the towers transmissions and blades is short compared to other energy plants
and most of these wind towers were manufactured in China and Europe. There is a place for wind power in some regions but intermittent wind still needs fossil or nuke or hydro backup. Water and wave energy has obvious potential but only in coastal regions. One could imagine San Francisco running entirely on wind and water with its fierce tidal currents and reliable afternoon breezes but all I hear from there is a deafening silence. Energy nerds know that I am talking about and around the crucial concept of EROEI, acronym for energy return on energy invested, or just Net Energy. As the resource diminishes, the cost to discover and process the resource increases. It takes energy to get energy. If it takes as much energy to acquire it as you receive, you are out of business. EROEI is normally expressed as a ratio of energy consumed to energy obtained and realistically depending on the type of equipment in use, distance to transport, wages paid and so forth, once you get to about 3:1 with oil for example using one unit of oil to get 3 units of oil, you are perilously close to shutting down. Germany in WW2 had minimal access to oil and used a coal to oil conversion which used an awful lot of coal to get a little diesel oil and their inability to seize and hold oil fields and refineries is one of the factors that finished them. They were defeated by the US with access to vast reserves of oil with EROEI ratios exceeding 100:1. Had Germany had the same reserves of cheap energy when the war began, we might all be speaking English with a German accent.
Now I will give you yet another crucially important graph illustrating what I have just explained, entitled the Net Energy Cliff and it is all about EROEI ratios:

You will note that the author used the ratio of 8:1 as the minimum ratio needed to just maintain our extravagant lifestyle. There are many ways to calculate EROEI ratios and the reader will note differences depending upon who is crunching the numbers but the general concept is the important thing. For example, absent a $.50/ gallon subsidy for corn ethanol combined with tariffs on Brazilian sugar cane bagasse ethanol from our percipient congress, there wouldn’t be any corn ethanol which is said to have a EROEI just above or below 1:1. Corn ethanol exists as a gift to the Industrial corn producers who wrote the legislation. Canadian tar sands are said to be in a 3:1 EROEI range which would using my methodology, be uneconomical to produce but tar bitumen production is still economical because it is an energy arbitrage using very cheap(at the moment) Canadian natural gas as the primary energy source to heat and remove the thick bitumen from the sand. If and when the energy or BTU content of oil and gas reach parity, you can say bye bye to the tar sands in Canada which just so happens to be our largest source of imported oil. You will also note the general shape of the net energy cliff curve resembles an exponential or parabolic curve. The conclusion I draw from the curve is that once energy starts to be withdrawn from society, things happen in a big hurry. It is not an arithmetic decay curve where the resource diminishes gradually. When it begins to bite, it will bite you hard and fast, with precious little time to react.
And that brings me to my summary phase. Systems characterized or described by parabolic or exponential growth phases are inherently unstable. I am characterizing our national debt as a bubble, as is 200 years increasing use of fossil energy, growth of GDP, and population growth. These are all systems characterized by some factor increasing at an increasing rate and if uncontrolled or ungoverned, collapse eventually ensues which is by definition the pop of a bubble, an uncontrolled collapse. Up to a certain point if the growth curve can be moderated , modulated or reduced to growth at a sustainable rate, the bubble can be deflated and a descent to sustainability can be slow and controlled. There is a period or window within which it is still possible to avert a collapse or uncontrolled chaotic descent to the abyss. But because we are talking about complex adaptive or maladaptive systems on a globalized scale, knowing where the point of no return is, is probably an unknowable situation. For example we almost certainly have a debt bubble in the United States but the bubble is not just conventional debt but bets on the debt and bets on bets using derivatives which leverage the debt into the stratosphere. Since the possibility or probability of a bubble or multiple simultaneous bubble collapses may not be knowable or predictable, the only strategy for the individual whether contemplating financial or personal survival is to prepare and think of actions to mitigate personal, familial and social pain. Clearly an obvious strategy is to put some distance between yourself and the bubble. If your existence is tied to the bubble, you will pop along with the bubble. My conclusion is that lack or scarcity or simply high cost of energy will be the impetus to a financial collapse. A financial collapse doesn’t necessarily imply a societal or cultural or political collapse. Russia experienced a political and financial as well as a regime collapse twenty years ago and they recovered amazingly well for many reasons not the least of which includes their vast energy resources and relative lack of globalized interconnectedness in their financial system. WE in the United States do not have those advantages. We have other advantages but there is no way of knowing whether we could quickly recover as Russia did. Ancient Rome made several recoveries in the waning centuries of its existence and it was able to maintain its power and wealth by expanding and stealing the wealth and energy of its neighbors. Once that wealth extraction hit a point of diminishing returns, Rome was finished, and really finished. 1200 years after Rome's collapse, only livestock were grazing on the Palatine Hill above the Roman Forum and the Circus Maximus.

Abandon hope all ye who enter here

2011-01-04T09:47:00.002-07:00

This of course is the inscription for all who are entering hell in Dante's Divine Comedy. But there is nothing comical about President Obama's deliberations over who should replace Larry "Lucifer" Summers as White House Director of the Council of Economic Sorcers. Multiple news orgaizations are naming the sorcerers under consideration to replace larry who could one day be remembered as one of the most economically destructive devils ever to bend the ear of a national leader. A number of economic commentators from Paul Krugman to Jim Kunstler have tried to cut our community organizer slack as he tries to learn the job blundering from one compromise to another with the ruling class of Wall Street Corporate and Finance Oligarchs.
Among the men(not women ) under consideration is former JP Morgan executive William Daley and Gene Sperling, close compadre of Tim Geithner, and Roger Altman, who founded investment bank Evercore Partners all of whom who have worked closely with Summers to perpetuate and protect and conceal the mounting losses and influence of the Wall Street banking establishment from from the American People. So Obama will make no mid course correction to resist the pernicious influence of the Federal banking Cartel. Wall street banksters have been enscounced in the past three administrations and they are maintaining their stranglehold on what passes for the tattered democracy of the United States. These men, the creators who invented toxic securitization of mortgages, nationalized Ponzi finance, free money to the investment casino banks and finally backstopping of their enormous losses by forcing them on helpless taxpayers remain in plac and in power. Obama could have demanded Eric Holder at the justice department to prosecute the criminal TBTF bank executives for fraud in mortgage securitization and Mexican money laudering to just name a few possible avenues of inquiry. But why shoud Eric get off of his FA to investigate the very folks who own him and the legislative and executive branch. The corporate takeover of government was complete more than a decade ago and wishin' and hopin' that the corrupt military corpocracy will investigate itself is delusional thinking.
Rep Joe Wilson shouted down Obama last year yelling "You Lie!". Change you can believe in, has been Obama's big lie.Abandon hope, all ye who live here.

Oh Canada

2010-12-26T14:34:00.001-07:00

Today being Boxing day, it seemed fitting to start off this post with an example of the coinage being offered to our friends north of the border. That is a Canadian quarter my wife is holding with her magnetic bracelet. And yes, that spanking new Canadian quarter is magnetic. It contains iron. This recalls the debasement of the denarius in the latter days of the Roman empire where each successive emperor seemed to remove more and more silver from the coin of the realm from about 92% silver with Nero(60AD) to 43- 58% with Septimius Severus (200 AD). The same thing has of course happened in the declining empire south of Canada, which itself has a multitude of almost exact parallels with the decline and fall of the Western Roman empire. Like Rome, the military is the single largest item in the budget. Joseph Tainter writes: "At all times the single largest expense was the military, although the Roman dole was not inconsequential.". Sound familiar? Of course the difference in the US is that we put TBTF banks on the dole instead of citizens. The official pentagon budget is said to be in the $700 billion range but Mish of Globaleconomicanalysis.com reports that it is certainly twice that with the hidden costs, secret off budget costs associated with a bloated military with over 1000 bases and outposts scattered throughout the galaxy. And like the Roman Emperors, our emperors court the military even going so far as to dress up in military flight jackets and strut around aircraft flight decks schmoozing with the troops thanking them for their service defending the nation when they are offensive military actions defending the corporate military state back home with expenditures bankrupting the country as a whole. here is our putative budget which is fraudulently reported as I have stated:

The true red line would extend to the edge of the page. You will observe that our offense budget is larger than the rest of the world combined. When you combine military expenditures with the massive unfunded pension and health care costs of the states from bloated public sector pensions and health care costs combined with underfunded SS and health costs of the rest of us, the country is indeed without a doubt BROKE. And the politicians who goose step ahead of the corporate ruling military class just keep adding shamelessly to the nations debt with QE from the banking cartel to stimulus plans from Iraq Obama and his congressional and senate pals. But not to worry. The selfsame corporate mainstream media including Fox and NPR(National Pentagon Radio) dispense reassuring propaganda of the return to growth and mindless consumption as our economy turns the corner back to prosperity, conveniently omitting that in America, we make nothing and consume everything. The longer this flawed model is drawn out the bigger and more sudden the crash. The crash is likely to be triggered by events almost anywhere as the world Bond market finally loses patience with political morons everywhere and demand risk premiums commensurate with the sovereign default risk profiles of the bankrupt countries whose debt they hold.

Time for a Haircut

2010-12-16T11:21:00.002-07:00

Tis the season to be jolly but the recent cascade of not so jolly events suggests that financial delamination not to mention social delamination is starting to take hold. The past 4 months have seen most the action in Europe with multiple attempts by the ECB and IMF to plug holes in the dike by saddling the PIGS with more debt than can ever be paid back. These bailouts are more of the same manure being shoveled out of Europe's money barn purportedly to bail out nations but as anyone with an IQ over 81 knows are bailouts of imprudent and insolvent bankers. It is the system that is imploding as it tries to save itself and all the big players. The world bond markets are starting to get a wee bit restive. The financial markets are awash with rumors and statements from a variety of corners. Angela Merkel says that it may be time in a year or two for senior bondholders taking on a little more risk and that is angrily denounced by ECB finance ministers and outcry from the other usual suspects denouncing such heresy. The fact of the matter from my unsophisticated perspective is that forcing insolvent countries to borrow their way out of debt is foolish and pointless and does nothing to start to solve the European and worldwide financial crisis. The situation is bankers trying to save bankers and banks by forcing debt onto citizens. Citizens can and should push back against the austerity measures imposed by legislators owned lock stock and barrel by their financial cartels. What needs to be done is for citizens to either vote to denounce and remove these governments or find other ways to bring down the governments. There is no way to begin to solve these debt issues without rescheduling or repudiating the debt and that means telling senior bondholders they will not be getting 100 cents on the dollar which is what AIG and Goldman Sachs and a multitude of other European banks received from the US taxpayer not so long ago. These bondholders do not intend to see this happen but unless and until they are taken down and given marine corps haircuts, there will be no way to even begin to rebuild the world economy. Some countries like Greece are skating perilously close to the edge and the riots are ratcheting up in severity with Molotov cocktails being thrown. The next riot may involve real bloodshed which will either result in bringing down the government or the government imposing a police state.
The situation is Ireland is hardly less dire as Mr Lenihan keeps insisting that the Irish have an agreement to pay back bank debt and those bondholders and that anyone who thinks that not paying the bondholders 100 cents on the dollar "is living in a fantasy world." The elections coming up in Dublin in the next few months may determine who is living in a fantasy world.As I have written repeatedly, the Irish citizenry should throw out the bums and tell the European banking establishment that they will not pay. It worked in Iceland. If they do, there will be a lot of unhappy banks. Look at the different country exposure to PIGS debt which I pulled from Mish's website:

Exposure to Spain
Germany - $216.6 billion
France - $201.3 billion
Great Britain - $136.5 billion
US - $172.8 billion

Exposure to Ireland
Germany - $186.4 billion
France - $77.3 billion
Great Britain - $187.5 billion
US - $108.3 billion
Spain - $17.7 billion

Exposure to Portugal
Germany - $44.3 billion
France - $48.5 billion
US - $35.6 billion
Spain - $98.3 billion

Exposure to Greece
Germany - $65.4 billion
France - $83.1 billion
US - $36.2 billion

Germany's exposure is over half a trillion and what I found surprising was that US bank exposure was around $350 billion. IF Ireland defaults, a lot of rich people will be less rich and the Euro will be endangered and almost certainly lose value. I have a feeling that the impact of these events will hit the US pretty hard as well.
Bumbling Ben is under assault from all sides for continuing the tradition established by his predecessor of clueless incompetence. Bernanke has no idea what is going on or what to do but his imprudent actions are destroying the currency and world wide confidence in the US dollar. My best trade in the markets has been shorting treasuries. My double short has been twice as good. The yield on the 10 year treasury is up 1% in the last month or so. Muni bonds are in free fall and the traitor Iraq Obama has joined the Republican Party .
If you look at economic historical events and the time frame within which significant events occur, what you see time after time is how long things lurch and limp along until WHAM-O!!. The manure hits the fan and chaos ensues. Bond market, step right up. It's time for your haircut.

Ireland: Just say NO. Time for a December Rising.

2010-11-29T12:36:00.008-07:00

     While Americans were stuffing their Type 2 faces with turkey flavored tryptophan-laced fixins’, the hard drinking tag team of Cowen and Lenihan were meeting behind (very) closed doors with the bond thug representatives of the IMF and the Eurozone to traitorously sell out an entire nation of 4.5 million people. I am talking about Ireland.
This sellout which would burden the Irish state with somewhere between $89 and $113 Billion depending on which news source you believe. If I am doing my math right, that is saddling every single Irish soul with a debt(plus interest!) of over $25,000. I would remind the Irish people
how the people of Iceland reacted when   a similar absurd sellout into debt slavery was proposed early this year that would have saddled every Icelandic citizen with over $17,000 in debt. This so called oxymoronically labeled Icesave legislation was resoundingly defeated by over 90%. of Icelanders. Iceland is a remarkable place, a little island of democracy where the people stood up to Dutch and UK bondholders who were demanding that Icelandic citizens make good on the gambling activities of their unregulated banking system. The situation in Ireland is eerily similar to Iceland and for that matter to the US where the bondholders of AIG were bailed out by a corrupt American political system owned lock, stock and barrel by the bond market. As you may recall, that bailout went not just to the Blood Squid Goldman Sachs in New York but to European and Asian bondholders, all of it paid with borrowed money from our American children’s futures.
     But wait, there is more. The dipsomaniac Cowen agreed to a raid of the Irish pension system to the tune of $17.5 Billion. This has been done and tried in other nations, Argentina among them, to try to bail out the nations banks at the expense of the citizens of Ireland who had no direct role in the collapse of banks in Ireland, most notably the Anglo-Irish bank. Do you notice the name? The Irish serfs, which is what they will soon become, are being forced to bail out not just Irish banks but US,UK, German, French, and other European bondholders. The worldwide bond market has been getting away with jamming it’s blood funnel into the citizens of the world to cover its bad bets. Is it possible that the Irish people do not see that they are being asked to bail out international banks ? This loan is to save not the the Irish state, or Irish banks. This loan is to try to save bondholders in the globalized banking system at the expense of the Irish citizens. It is simply outrageous. When the Iceland Parliament was debating whether to sellout the Icelandic citizens this spring, Icelanders showed up in a vast mob banging on pans and demanding justice. And it worked. It can also work in Ireland but the Irish people are going to have to get serious. They had a march a few days ago which was supposed to be a “family friendly” rally of about 100,000 well behaved people. Well, family friendly didn’t cut it and when it is so painfully apparent that the bond market owns the Irish politicians, the next rally will need serious teeth and I am not suggesting that Cowen and Lenihan and Peter Sutherland, the former AG of Ireland now in the pay of Goldman Sachs should be dragged out of their comfy offices and placed in stocks in the town square. Violence also doesn’t cut it. A French Revolution style protest would be internecine . I would suggest a lot of pots and pans and true to Irish tradition, perhaps armed with thousands of PVC or ABS potato guns, open fire on Cowen’s bunker and demand the immediate resignation of the whole pusillanimous pack of cowards. The Irish people need to demand that default is the only option.
     Would default endanger economic stability in the Eurozone? Of course. Would an Irish default endanger the Euro? Perhaps. Would default stick it to the bondholders? Obviously. The banks and bondholders hold vast amounts of not only Irish but Greek, Portuguese, Spanish, and Italian debt. But should the citizens of these countries bail out these banks? Obviously not. The misnamed “bailout” of Ireland is just more can kicking and the first and only rule of thumb when you have dug yourself into a hole is to what? STOP DIGGING! If it is debt that caused the failure, then how will taking on more debt fix it?! Even Paul Krugman of the NY Times is having second thoughts about borrowing and throwing money at the Irish problem. If Ireland defaults, what who will be next? Portugal, Spain? Italy, Greece? California? Probably. Will the EEU fail? Perhaps. But these solutions by the bond market gangsters solve nothing. The mountain of debt is not being restructured or reduced because the bond market just hates losing money. Eventually this mountain of debt will hit it’s angle of criticality and implode in a disorganized fashion. A scheduled, organized, orderly default is the only solution. I would suggest that the Irish Parliament book a flight on Aer Lingus to Stockholm and ask the Swedes for their recipe of bank restructuring which they employed in the 1990’s to take care of their bank default. There simply is no other option.

Wake up Call on China

2010-11-17T15:15:00.006-07:00

The Air Show in Zhuhai started yesterday and that is a model of the Comac C919 which may be in your future.The powerplant is a LEAP X1C, a joint venture with COMAC, a French company and no surprise here:GE. And guess who placed an order for their aircraft leasing arm: GE. The CEO says that China has plans to develop their own propulsion engines. I'll just bet the C919 is giving the execs at Boeing and Airbus heartburn. And it should. All those deals by Boeing to subcontract out bits and pieces of Boeing airliners to Chinese suppliers to avoid paying Boeing machinists will within the next few years be more nails in the coffin for good paying American Jobs. The C919 is just the latest egregious example of a huge multinational profiting(for a while) selling out to the Communist Chinese for the greater good of the Boeing Corporation at the expense of American Workers. It was just a few years back that our media and our government referred to China as Communist China because communism was the enemy and the masses had to be reminded of the dangers of all the socialist pinko countries out there trying to bring America to its knees. But the Corporate Military state soon woke up and let bygones be bygones. The chance to make even more lolly employing hard working Chinese at slave labor rates was too good a money making deal to pass up. China is still a centrally controlled communist state and if you don't think the Chinese military poses a strategic military threat to the world, perhaps it is time you strike up a conversation with your neighborhood Korean Army or Marine veteran who was there when the Chinese troops swooped down on them near the Yalu River inflicting terrible casualties and ending the American advance. For the American Military who was used to winning wars, this was the first wake up call. It was our first military defeat. Of course in the US we called it a "stalemate." Think Viet Nam, Afghanistan, Iraq.    I brought up this 1950 era example as a metaphor for the next takeover of America which is well along. The ironic tragedy of this takeover is that it has been facilitated by our corporate globalized capital machine who just couldn't resist the chance to make a few trillion . I was called a "conspiracy theorist" recently and nothing could be further from the truth. I don't believe that Boeing or GE or Wall mart are traitors intent on undermining American Military and economic superiority. I don't believe that the Chinese economic and military leaders have a developed mission plan to militarily defeat the United States, yet. I do believe that the Chinese are a proud and determined extremely hardworking people who are intent on bettering their station and making as much lolly as possible, not unlike the immigrants who settled this nation.
My point is that the Chinese by dint of hard work and strategic cooperation would have risen in the world economy but someone over there in the secret councils in Beijing decided that the old state run model of centralized production wasn't paying the bills and needed a kick start. And what a kick start it was and has been. And the model was this: Open up China to the wonders of comparative advantage, let the yellowhairs come and build their factories with tax advantages galore and a starving population from the country willing to work at slave labor wages, sell salad shooters to Americans and take the enormous profit generated to buy treasuries. But here is where the Chinese were crucially foxy and the US government was criminally insane. The Chinese said we will build your salad shooters but we want you to send over the machinery and the technology to build those shooters. Of course it didn't stop with salad shooters. It soon began to include machine tools, building materials, computers,textiles,solar and wind technology and now aircraft manufacturing. They made transfer of the technology and the machines a precondition of the deals and our government was stupid and greedy enough to permit and encourage the destruction of the American economy. The Chinese didn't destroy and take over our economy, we actively encouraged it.
      Now again, this is no conspiracy. If you recall at the time in the 1980's when the Chinese ascent began, we had an imbecile running the Federal Reserve and a demented retired actor running the country who told us we were a nation of ideas, and would not miss these dirty manufacturing jobs. This was the dawn of the computer age and consumerism, cheap gasoline, the toppling of the Berlin Wall and the Soviet Union dissolving before our eyes. And so began globalization, shutting down American Plants who paid living wage jobs to uneducated folks who could afford to buy American cars, shoes, clothes and tools and appliances and live in their slab boxes in the suburbs. I guess you could call it some early post industrial version of the American Dream. What we have here then is analogous to a war and it is hard to argue that America has won any battles and if we don't start winning a few pretty soon, it will be all over.
        The Chinese are sitting on cash, a pile of treasuries,and agency debt. They have not come by this cash hoard by sheer hard work. They have ignored patents, intellectual property laws and have stolen machinery outright as well as engaging in cyber theft and espionage. They are just doing what a lot of countries have done but on a huge scale, What I find most ominous is that the Chinese have been making big energy deals with any country willing to sign an exclusive contract with them and of late they are using those treasuries to buy up mines and mining companies all over the world supplying only China. They are willing now to retaliate against anyone who crosses them. When a Chinese trawler strayed into disputed waters last month near Japan and banged into a Japanese Coast Guard vessel, the skipper and ship were impounded and the Chinese immediately cut off deliveries of crucial metals and rare earths to Japan. For a country like Japan which relies on these metals for export, that was big deal. Whatever. Maybe it was payback for the Rape of Nanking but it got the world's attention. The Chinese play for keeps. They are spending money like a drunken sailor buying up every crucial asset in sight. But remember this: It was money that we gave to them and if we keep giving it to them, in time, they will own us. What we can do about winning a skirmish or two in this war will be the subject of an upcoming blog. Now a disclaimer:A few years back our family hosted a choir from the University of Nanjing and it was an eye opening experience to meet such fine and warm people. I became an instant fan of the Chinese people and their rich and varied culture and history. I think we have more to learn from them that they from us.

IEA 2010 Report:Peak Oil Exists After All(sorry folks).

2010-11-16T12:48:00.007-07:00

I follow the periodic reports from the International Energy Agency(IEA) and our own domestic equivalent the EIA. World supply and demand figures form a big part of the reports out of the Paris based IEA and this recent report seemed benign and banal enough until I had some time to study the graphs and contrast them with the text. For many years, the IEA has been predicting world oil demand and expected production with figures that seemed chimerical to me and increasing every year. Their production forecasts always kept up with world demand out many decades to come and were in line with our domestic think tanks like like Daniel Yergin at Cambridge Energy Research Associates(CERA). CERA and the IEA debunked Peak Oil as an immediate or even near term issue. IEA years back predicted world production into the distant future of up to 120 MBD but in the past few years that number has been ratcheted back to 105 MBD, then to the mid 90’s. Here is the graph I saw yesterday oil global oil production and you tell me what you see:

Click to this link if you want a enlarged look also at this graph and others :http://www.worldenergyoutlook.org/docs/weo2010/key_graphs.pdf. This link will also get you to the 2010 Annual Report which is 63 pages and well worth a critical read.A whole lot of very percipient authors starting with M King Hubbert in 1956 have predicted an imminent peak to first domestic then world oil production. They have included many distinguished petroleum geologists like Ken Defeyes, Colin Campbell as well as CEO’s of various energy and energy financing companies like Matt Simmons and a whole raft of authors such as Richard Heinberg, Jim Kunstler, James Michael Greer and others. The fact and the reality of Peak Oil as it was then called was certainly known in high political circles but was systematically concealed from the public. The super secret energy conferences at the beginning of the Bush administration almost certainly discussed this reality as the invasion of Iraq and Afghanistan and the isolation of Iran virtually prove. The invasion of these middle east countries were no more about democracy than cow pies are about pie. Dick Cheney and his oil goons knew the US was 30 years past our peak and those wars were about access to oil and nothing else. Of course, if a few of our mercenary forces could nail a few jihadists, so much the better. It made good press and concealed the real purpose of the mission which was to secure oil access corridors. There are 28 members of the IEA and most are also OECD countries. Chile, Iceland, Mexico and Slovenia are OECD Member countries but currently not IEA Member countries. You will note some rather curious countries in the mix many of whom have no significant petroleum resources. In fact none of them have significant petroleum resources except the US, Canada and perhaps England. These countries are a curious collection of countries that just need petroleum even though a few like Iceland, Greece and Ireland are virtually bankrupt. What is also obvious is that none of the petro powers are members. Curioser and curioser. This motley membership list is just one of the odd things about the IEA. What is also apparent if you are used to reading the much vaunted IEA reports is that the IEA is primarily a political organization putting out often unverifiable energy data for the consumption of its members. Now to get back to the graph, if you look at the navy blue portion, you see that peak oil is staring you in the face. For the time being look only at the blue portion of the graph. That is conventional oil. Forget the unconventionals, biofuels, tarsands, ethanol, propane and so forth. Most of the non oils are subsidized or of lower btu content. To repeat, look at just crude oil. That is the real story, the only important story. The other "fuels" are fog and mirrors, fluff, fog, and mud thrown into your face hoping you don't notice the blue portion of the graph. In fact we hit it in 2005 and have been clattering along on the summit ridge for 5 years or so but until this years report which made Peak Oil impossible to ignore. Another oddity:The IEA with this graph has announced in effect , all is well. Just look at our graph. It slopes up(Yea!) and only minimally in the report is there a mention of EROEI, the net energy required to produce this petroleum to the right of the vertical line marking 2009. The really REALLY important thing to take away from this graph is that it takes vast and increasing amounts of energy, usually oil, to be able to produce the new oil. The old oil was cheap to produce. The new oil will be expensive.Once you reach the point where it takes one gallon of oil to produce one gallon of oil, you are out of business. In fact by the time you get to say 3 gallons to get one,according to some experts, you are toast. Lets look at some of those other colors which are supposed to save us..Unconventionals are things like oil sands and shales, biofuels, coal to liquids(CTLs). They are almost entirely subsidized fuels. In the case of the Canadian oil sands, the extraction is subsidized by tax policy,governments and mostly by the rock bottom cost of natural gas which is far below the cost of oil on a btu basis. Remove the subsidies and the sands are dead or nearly dead as their EROEI ration is approaching 3:1. The subsidiers will argue that it is much higher of course because they are on the receiving end of that tit. Forget oil shales and CTLs most especially. Germany lost the war because it’s distillates for its war machine relied upon CTLs with low net energy. Once they failed to hold oil fields and refineries, they were toast. Biofuels have very low net energy unless they use non petroleum energy or are used on site. They are kept alive by subsidies, currently $.45/gallon for ethanol in the US. Remove the subsidies and they are toast. Natural gas liquids are compounds like propane, butane,ethane, , natural gasoline and a few others that come out of oil wells as well as the gas wells. The predominant component of gas wells is CH4, methane, but it is mixed in with these other gasses along with nitrogen, SO2 and water vapor. It’s production stays constant out to 2035 . The obvious implication is that NGL’s will be coming in vast quantities from gas wells, not oil wells. NGl’s have a market value currently of about 35% of what oil goes for, about $30/barrel. Methane doesn’t go for much these days so my gut tells me that just going after NGL’s will not be cost effective as net energy costs rise. The next color, the light blue just has to be total guesswork. It implies there is a lot of new oil to be found, a dubious assumption. Certainly there is likely that amount of oil to be found but it will be expensive hard to produce oil in dangerous and distant places. It will likely have a high EROEI, or net energy. The gray is perhaps a bit more reliable with fields to be developed. Some will be very expensive oil, most offshore and most in politically unstable areas like Iraq. Will peace break out and the Shiites shake hands with the Kurds and Sunnis? I would say unless that happens or Iraq is partitioned into 3 countries, that graph could get pretty slender. Now there is one other graph of vital interest which is Pg 5 on the IEA report which is rarely mentioned. Oil demand in the future will be driven not by OECD countries who don’t have much oil, but by countries like the Persian Gulf, Russia, and Brazil who do. Curiously, the graph shows declining consumption of fossil energy in the richer nations and increasing consumption in the poorer nations. So if I am reading this correctly, the more scarce and expensive these fuels become, only the poor nations will be able to afford them. This is patent nonsense. The poorer nations will soon be priced out of the market, outbid by the richer nations.The poorer nations have been late to the industrial party and just as they are beginning to taste the dubious fruits of industrialization, the rising cost and scarcity of energy will cut them off at the knees. The richer Western nations got to the cheap energy first and partied like there was no tomorrow at the expense of the third world nations.. The Persian Gulf exporters will party on for a while longer surrounded by highly militarized nations running on fumes. It doesn't take an Einstein to figure out the next step. Many of the Gulf nations are incapable of making anything. The Saudi terrorists who caused 911 had to use imported box cutters to break into the cockpits. Many of the desert exporters grow very little of their own food from their harsh desert landscape and are buying up rich farmland in distant poor lands to feed their people. Imagine the thoughts going through the mind of a starving native watching convoys of food passing through his impoverished village on the way to Riyadh. These long complicated food supply chains carry obvious seeds of their own destruction.But I digress. There is a so called Land Export Model which states that as oil consumption in he exporting lands increase, oil will go to the producers first and the rest of us get what’s left. Mexico, for example is fast approaching this point when they will have only enough oil for Mexicans. So not only does net energy shrink the IEA graph(imagine it made of wool and then put it through a hot wash and a hot drier), but the availability of that oil reduces what’s left for the largely white, post colonial members of the IEA. Hey you say, What about China? That will be the subject of an upcoming post.

Burn the Bondholders

2010-11-15T16:44:00.002-07:00

The picture depicted above is of a cement truck crashing the Irish Parliament protesting the bailout of the Insolvent Anglo Irish bank and the government's attempts to shovel the debt onto innocent Irish Citizens. Ireland is of course one of the PIGS(Portugal, Ireland,Greece and Spain) facing big debt problems. It is currently running a budget deficit of 14.4% of GDP, just behind Greece, the current champ at 15.4%. Greece is utterly hopeless as the Germans have figured out with huge public sector union and pension costs, a tradition of entitlement for doing no productive work, flagrant tax corruption,no significant resources and astonishing growth in their debt. Austerity has been imposed by the government after some visits from the heavies at the IMF and the EEU Central Bank but a cursory glance suggests that the center wont hold and the Greek Citizens, always treading near anarchy will not tolerate these measures for much longer. Meanwhile over in Ireland, our old Celtic Tiger, the situation is similar. The Irish Citizens have groused and grumbled but so far haven't really rioted in the streets but the government has been plodding along grinding their hardworking freckled faces into the cobblestones with behind the scenes machinations by among others, Bond Thugs from Goldman Sachs but things are starting to heat up. There are indications that the heretofore well behaved citizens may have had it with their pusillanimous politicians. The existing government of hard drinking Brian Cowen's coalition Fiana Fail party could fall by the end of the year. The cost of insuring Irish debt has soared along with bond yields of Irish Bonds. The proximal impetus seems to have been from some courageous remarks by Angela Merkel who suggested that it may be high time for the bondholders of the world to share in the pain instead of just the citizens. That's an original thought from a politician but of course she is German, not American and not Irish. Angela has been lambasted by the bond market heavies who thought they owned the world and are now starting to get a wee bit nervioso. My solution is for Ireland to abrogate the bailout, and adopt Sweden's measures of the 1990's by nationalizing the banks, firing the executives, letting the bond and equity holders drown in the Irish Sea and this deleveraging along with the native industry and educational level of the Irish citizens could restore Ireland to Celtic Tiger status within 10 years. At this point Celtic Kitten status would be welcome.

Spartacus 2.0

2010-11-06T11:01:00.001-06:00

I have incorporated the concept of cognitive dissonance in several past blogs because living under our current civilization is an exercise in CD. The last election cycle was just more of the same. Voters in many states were given choices of a conflict of interest corrupt incumbent or a whackjob nutcase who either was or was not a witch. I'm not sure why being a witch should disqualify anyone for public office in the first place. Given the current political system it would seem to be a fruitless exercise to vote on a national or federal level. The political system is owned by the ruling class composed of globalized banks, corporations, and the myriad capital movers and shakers in the bond market who provide the lobbyists to educate and coddle the political class with the judicial system protecting both classes allowing secret donations and no scrutiny, no accountability. Now why is it again that you want to vote? It is like living in the antebellum south where every few years you allow the slaves to vote on whether to retain the massah. The slaves vote and nothing happens. At best they vote out one Simon Legree and substitute another.
The reason the system doesn't work is obvious. You are voting on the posturing puppets in the political class and not the ruling and ownership class. If you want fairness and change you have to be able to vote on whether to keep the Federal Reserve banking cartel, hedge funds banks, a million secret LLC's and transnational banks and corporations and all the other bond market participants who really call the shots. But they are beyond reach and unaccountable. So again, why is it you think you should vote? We are beyond the point where voting has efficacy. The capital controlling ruling class holds all the cards. They made some stupid greedy bets which could have cost them their beloved capital and in an act of self preservation shifted the losses to the slobs down the hill in the slave quarters. This process is by no means confined to the United States. An example of their current scam mediated by the IMF, World Bank, the ECB and the other banking cartels is to impose austerity on the slaves. Mr Blankfein, over at your local Irish branch of Goldman Sachs is now doing doing his covert best to make those hapless potato pickers pay Mr Legree's bondholders in the Anglo Irish Bank taken over by the Irish Government. What is interesting and not surprising is that the Head of Goldman Sachs in Europe is Peter Sutherland who has been meeting behind closed doors with Brian Lenahan, the current finance minister of Ireland. Peter Sutherland of GS was(surprise surprise) the former recent Attorney General of Ireland.!! What these Legrees are doing exactly mirrors what happened in the US under the inspired leadership of Hank Paulson and the whole rogues gallery who preceded and followed him. Their goal was and is to force the responsibility of their bad bets onto the backs of the laboring slaves. Ditto in Greece, Portugal and who knows how many other countries at Europe's periphery. The slaveholders made the mistakes and the slaves must pay. What the Simon Legrees have not counted on is a good old fashioned slave rebellion and my bet is that it could easily happen in Greece or Ireland. While the capital holding class is the defacto ruling class, in fact they have no authority over the slaves. The US dominated IMF has no authority over slaves in Iceland, Ireland, or Greece and if the slaves figure that out, we could have a real game changer. The capital owning giant squid are sitting on vast bags of debt they have foisted on the world assuming that the hapless slaves will just keep picking cotton ad infinitum paying off bad debts.
The Industrial West is staring into the abyss of perhaps the greatest depression it has ever seen and the debt has not been repudiated and until the debt is shifted to the shoulders of the bondholders, and the wealthy capital owning class who by any standard of fairness should be shouldering the burden, there will be no end to the looming deflationary depression. So far this battle has been waged in secret councils and banking , corporate and legislative conference rooms far from the prying eyes and ears of the slaves. The world now awaits the arrival of a modern day Spartacus.

A Visit from a Circuit Rider

2010-11-03T12:50:00.005-06:00

     This weekend, we had the pleasure of a visitor to our log cabin by one of the principals of a well known blogsite by the name of theautomaticearth. The pseudonym that she goes by on the blog is Stoneleigh, which is a name of a town in England nearby where she grew up. She was on a lecture tour of the Inter mountain West on her way to Denver from Livingston Montana and we had the honor of spending some time with her as she shared our table and lodging.
    Stoneleigh and her associate Illargi post their blogs at http://theautomaticearth.blogspot.com/. The blog deals with concepts of peak oil, finance, politics and economics . Their blog is a detailed exhaustive look at how the darker aspects of these disciplines could interact and contribute to a depression that would be long, deep and severe. The blog is well organized and contains primers on finance and economics and a variety of other useful informative links, and I would urge the reader to examine it in detail. The single best way to grasp her message is to purchase a professionally produced video from the website entitled "A Century of Challenges." which mirrors her current lecture.
Stoneleigh is currently on a world tour   which has aspects of a circuit rider, a Chautauqua and the ride of Paul Revere. She accepts invitations from interested groups and gives her lecture at no charge but is willing to pass the hat at the conclusion of her talks to which the audience is welcome to donate to if they derive value from the presentation.She often stays in the homes of her sponsors to keep her costs down.
   I agree and understand most of the concepts and opinions promoted by Stoneleigh which I might attempt to summarize (at my peril!) here for folks not familiar with the website. She and Illargi believe that what we are experiencing worldwide and most particularly here in the US is the early stages of a deflationary depression the root cause of which has been the largest expansion of debt and credit in world history. One of the biggest problems is that this credit has many claimants to the same pie making it impossible to satisfy these multiple claims in a collapse scenario unless of course you have as your ally the political class who is willing to borrow trillions from future generations to attempt to pay off current claims. Stoneleigh contends that the money supply is composed not only of cash in circulation but credit, with credit comprising 95 % of what we call money. Hence when the value of the items financed on credit plummet, credit collapses which has the effect of contracting the money supply which Stoneleigh contends is the very essence of deflation. Although I did not hear Stoneleigh explicitly say this, if she is correct, I would conclude that Federal Chairman Bernanke's feeble last ditch attempts at quantitative easing which amounts to money printing to inflate the money supply with many billions could be foolish and fruitless trying to fight deflation which could be in the many trillions. Another important feature she related is that subsidized fossil energy has fueled this worldwide economic expansion on the way up but it will be the collapse of finance and credit on the downside that will lead to the greatest depression. She also said that hope and greed drive markets on the ascent but fear drives them on the descent. Hope and greed can exist for a long time as markets rise but fear is a far more powerful factor, and fear can destroy markets far faster than greed can build them. The next big dip in the markets could occur with the speed of a New York minute, a gnat's eyelash. It is not surprising that Stoneleigh and Illargi are adamantly opposed to taking on any debt and holding most equities. They stand squarely in the Cash is King crowd and Stoneleigh even believes that the US dollar is the currency of choice to hold in the near term. I'm not sure I would I am totally comfortable with that choice.
One of the most remarkable features of this woman and her financial partner is that they are not Amuricans!! Both hold European passports. Their knowledge of American economic and financial history both current and distant is remarkable.Neither of them in fact has any formal training in finance or economics which probably contributes to their big picture view of the trends driving the sputtering corporate industrial economy.
     The final factor which will likely impact this deleveraging deflationary depression is simply a matter of bad timing as the world has hit the peak of cheap oil and in the near future will be riding down the backside of the so called Hubbert Curve in which energy will get ever more scarce and expensive.

It seemed to me that Stoneleigh has approached her role in explaining and preparing audiences for events she feels are certainly in our future with an almost messianic fervor . She does not appear to be gaining financially from her mission but she is indeed a compelling personality and an awfully nice Canadian to boot.She is an important voice who needs to be heard.

Who's In Charge Anyway?(Hint: it isn't you).

2010-10-18T13:54:00.003-06:00

In my last blog I dealt with GMAC halting foreclosures in about half of US states. I mused at the time why they were taking such drastic action and I wondered if their action might be the tip of a greater iceberg and in fact that has come to pass. It is becoming evident that our banking and financial system is systemically corrupt and has allegedly engaged in deliberate fraud in what has now been termed "fraudclosure". My initial motivation in writing this blog was an honest and deliberate attempt to try to make sense of an economic and political system which seemed to be ever more divorced from the needs and desires of the American People. It was the bailout of Wall Street that finally clarified the issue to me. There are a lot of very smart people analyzing and dissecting this issue but I was perplexed by the actions of our government which continually poured money into the largest banks and corporations bailing out too big to fail institutions with borrowed taxpayer money against the expressed will of the majority of the American people. Why did our president come to the aid of the banking and corporate interests who brought down the entire economic system, in effect rewarding the criminals for their crimes? Why have there been no subpoenas, no indictments, no investigations...no punishment for the perps? Wasn't Barak supposed to change the culture in Washington? Barak was becoming as I stated, Bush in Blackface in one of my blogs? The president was different but the policies hadn't changed. Why was it that that the policies of the last 3 or 4 presidents in regard to banking and finance seemed so similar? The dawn of my understanding has been a long time coming, if in fact my understanding is correct . Much of my quest to sort out the real factors behind the dismal events of the past 3 years began with a statement by James Carville some years ago in which he said:"I used to think there was reincarnation. I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." His quote stuck in my mind like an advertising jingle you can't shake. I never forgot the quote which mystified me but in the past few months his quote has begun to make sense. There is a reason for all these seemingly contradictory and destructive shocks to our democratic republic, to our representative form of government with it's system of checks and balances. It was Lincoln who said we had a government of the people, by the people and for the people. Maybe in fact we did when Lincoln mouthed those patriotic words so beloved in civics textbooks. But no more. The power is not with the people. It is a government of the banks, by the banks and for the banks. The power has shifted almost entirely to the nations largest banks and the banking cartel that is the Federal Reserve. The Federal Reserve banking cartel controls the allocation of money, credit and debt and with it the power of being able to issue debt and credit without any significant check on its power. This cartel has seized control of the government and the American people. The bond market controls who gets what money,what credit and what debt is issued, and of course what the cost of the money will be to each recipient, be it the federal government, corporations, states and municipalities all the way down to the debt slaves grubbing at the bottom of the pyramid, the American people. The bond system and the banking cartel are the three branches of government, The process began in 1913 with the establishment of the Federal Reserve System which was also the same year that the IRS was established, no mean coincidence. It has taken less than 100 years for this cartel to seize the country and the government.This seizure has been slow, steady and stealthy and below the radar. There were advantages accruing to the the nations economy by such a system which allocated capital in a growing nation following the World War. Factories were built, jobs were created and the nation and the banks prospered. But with this money and power came a desire for more money and power and greed for more money and power and once this cartel had positioned its soldiers in the important governmental posts of Treasury and the financial regulatory bodies, the takeover was complete. The cartel wrote the rules, blocked governmental oversight, rewrote the tax system and invented ever more arcane and abstruse debt instruments , all of which served to increase their wealth and of course their power. What these people did not see and still do not see is that their greed and lack of attention to ethics has come at a terrible cost not just to ordinary Americans but ultimately to themselves. It has not occurred to these banksters that their reprehensible behavior has carried with it, the seeds of their own destruction..
These TBTF banks do not create value or wealth. Zip. Nada. Their wealth derives from what they can suck out of the wage slaves below them who actually produce something of value. They can only grow if they can create ever more debt. Starve them of that ability and their bloated bodies will shrivel. With the exception of the out of control Federal Corporate Military bureaucracy, finding willing suckers for this debt is becoming ever more difficult. Their latest ploy to stay alive and be able to pay out ever more compensation has been to game the system to receive money at virtually no cost from their brethren Frat brothers at the Fed which they trade and leverage in their own ponzi casinos for their own benefit even as they are technically insolvent, zombies hoisted by their own petard. Collapse is inevitable.What is in doubt is what form it will take and over what time span.

GMAC-WTF?

2010-09-22T09:35:00.005-06:00

An odd news blip on NPR caught my eye yesterday. It seems the mortgage side of GMAC halted all foreclosure processes in 23 states yesterday . As is usual with the now impotent NPR, no reason was given. A search of Bloomberg Business News revealed little more by way of explanation and explication. I brought it up with the neighborhood finance wizard and he offered the possibility that perhaps GMAC was halting foreclosures for fear of adding to an already bloated inventory and thereby further depressing prices. His explanation was of course plausible but I wondered if there could be another explanation. In the local Jackson Hole free newspaper this morning, Wells Fargo halted the foreclosure of the Inn at Teton Village,a large hotel on the hook to Wells for $19+ Million. AS is usual in banking matters, no explanation was given. I did turn up some worrisome tidbits.
It seems that JPM in Florida is a mortgage "servicer" operating under the MERS(mortgage electronic Registration System). Even though servicer sounds like a whore for the real estate banks, it's really more like a pimp working for GMAC in Florida. As a pimp, the servicers job is to collect the monthly mortgage payment and deliver it to the holder of the mortgage, likely a MBS after taking out a cut for the service. So it seems JPM foreclosed on properties in Fla when in fact they did not technically own, and in fact never had never owned . And here it gets worse. Neither JPM nor Wells Fargo had the legal right to foreclose but they did anyway because the borrowers who were living in the house without making mortgage payments had no reason to show up in court for the foreclosure. So let's say the house gets foreclosed upon and later resold. Would Wells Fargo be liable if it conveyed a bogus title? Yves Smith of Naked Capitalism writes:
"In the event that the loan goes into foreclosure at a later date, the then-current owner of the loan files the foreclosure and sells the property to a new owner, often at auction. The land records would show a deed of transfer from the investment bank to the new owner. This creates a break in the chain of ownership of the mortgage rights. In many cases, the transfer of ownership of the mortgage loan has gone from the original lender, through several owners, and then to the foreclosing bank, none of which is recorded on the property title history. Technically, the foreclosing bank has no recorded title rights to foreclose in the first place…
There are reports that some title insurers are indicating that they will not insure for this title defect.
Yves here. Some readers may take this all to be unduly alarmist. But confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.
Now why is this a big deal? Go reread the boldfaced sentence above. If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own.
Let’s say you buy a vase from a store. You open the box when you get home and find out the box is empty. You’d clearly be within your rights to get your money back.
With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada."

What occurred to me is that GMAC kerfuffle may in fact just be the tip of a finance iceberg in which most of the big mortgage banks have criminally mishandled the mortgages they issued and foreclosed upon. If some or many of these foreclosed and bundled mortgages are bogus, the title companies wont touch them and the bundled mortgage backed securities which containing these mortgages which were already toxic may become untradable. If that becomes the case, the already concealed losses of these bad banks could become finally realized. The TBTF banks of which Wells Fargo is one, are fraudulent overbearing rapacious corrupt giant squid continuing to dip their blood funnels into the heart of America as stated by Matt Taibi. They are corrupt lying corporations whose insolvency has been concealed by our willing indebted politicians who are the water carriers of banks like Wells Fargo. The banks own our politicians and it is this chain of ownership that must somehow be broken. These corrupt banks can be fought by the people. The first and easiest way to battle them is to have absolutely nothing whatsoever to do with them. Close your bank accounts, your savings and CDs and walk, no Run. Our family recently moved to another local bank in Jackson. Anyone who is foreclosed by Wells or a servicer of Wells needs to at the very least contest the foreclosure. Demand that they provide proof of a clear title. The big corrupt TBTF banks need to be reined in and returned to their proper role as handlers and conveyors of financial transactions, just the way they were in the days when Glass-Steagall was the law of the land. The giant Wall Street banks have destroyed the world economy and are continuing to claw at what is left in the periphery of the economy into their maw. None of these sociopaths have been punished, indicted or in any way reined in. There are many parallels between our current predicament and what happened at the Estates General with Louis XVI and the Bourbons in France at the end of the 18th century. France was deeply in debt and there were attempts to increase public spending to buy France out of debt. Taxes were assessed, and lest we forget, the Bastille was stormed, an event in which old Louis lost his head. I wonder if anyone in the administration reads history. As we have been told, those who don't read about the mistakes in history will be condemned to repeat them.

A Saudi Collapse

2010-09-19T16:07:00.002-06:00

I expend a great deal of time analyzing the fragilities and pressure points of our industrial system and while there are many possible scenarios impacting on oil supply and production, one of the more likely would be a collapse and overthrow of the Saudi Royal family. This spring Al Qa'eda suggested that it might be a good time to kidnap Christians and Saudi Princes. It was probably no accident that last month a Saudi Prince by the name of Prince Turki bin Abdul Aziz Al Saud, now in exile in Cairo, issued an open letter to his fellow royals, suggested that his fellow princes should consider fleeing the kingdom lest they lose their heads in a revolution in the streets. Interesting recommendation. This statement impelled me to google news reports and data about the KSA and I found some disturbing trends which merit revelation of the secretive kingdom. The first is population. In the 1970's as oil production began to ramp up with the discovery of the world's largest oil field, the Ghawar. At that time the population of Saudis was about 6 million. As of 2000 it had exploded to 23 million(28.7 million is you count the 5 million + foreign nationals) and projected to rise to 50 million by 2030. In the 1980's per capita net income was $28,000 and that has fallen to $7000 by 2009 as revealed by an article in July 13 2010 Fortune by Ilan Berman. He contends that the KSA is polarized by wealth and income disparity mirroring many other countries around the world. The CIA Factbook had some stunning statistics: 38% of the population is between the age of 0 and 14 and 60% is between 15 and 64. There are an estimated 30,000 Saudi princes projected to grow to 60,000 by 2020, many of them drawing huge salaries doing nothing beyond jet setting around the world to destinations like the Four Seasons resort here at Teton Village or secretly contributing to nascent Wahabbist causes around the middle east.
KSA has no manufacturing base outside of the oil and petrochemical industry and must import most of its food.It makes so little stuff of consequence that it had to use imported box cutters to storm the cockpits of the hapless 9-11aircraft. Despite the fact that the 9-11 terrorists were mostly Saudi citizens, the US government continues to sleep with the devil and the Obama Administration is no different than the equally undistinguished predecessor Bush Administration. KSA supplies the world with about 8.6 million barrels a day of mostly high quality low sulfur oil, just a bit under the current production leader, Russia.We get about 12% of our oil from KSA, behind Canada and Mexico. Saudi Arabia is said to be the only country with spare production capacity but even that boast by Aramco is subject to some doubt. Should a Wahabbist revolution occur in Saudi Arabia with a cessation of oil exports, the shock to the world economy would likely be profound. If a revolution were to occur similar to what happened to its neighbor to the north(Iran) , the implications to the energy import dependent US economy would be obvious. The US has strong military ties to the kingdom as the recent $60 billion arms and aircraft deal indicates, but F15-16 fighter aircraft would have little value quelling internal dissent. Despite the fact that the kingdom has the worlds largest petroleum reserves, power blackouts are a common occurrence in Saudi Arabia and an attack upon the electrical grid and communications infrastructure could quickly disable any response by the Royal Family and the military. I was not able to find any articles about the likelihood of internal dissent leading to revolution probably because of the tight control upon the media by the government but the demographic statistics I have cited point to some worrisome trends.

Black Swan from Outer Space

2010-09-09T11:15:00.005-06:00

The solar cycle or the sunspot cycle refers to the 11 or 22 year cycle in which the amount of sunspots counted on the surface of the sun increase and then decrease over a period of years. Whether you are in a waxing or waning phase is one of the determinants of good long range high frequency radio reception. I am a Ham and aficionado of short wave radio and we hams tend to keep up on where we are in the sunspot cycle. While googling on the sunspot cycle, I stumbled upon an reference to a perfect storm scenario of damage to our communication and navigation infrastructure and our electrical grid as a consequence of a possible future severe solar storm. Some of the links were hysterical apocalyptic reports from bloggers gone batty but the single useful link was a 132 pg paper from the National Academy of Sciences 1.5 day meeting in May of 2008 entitled
Severe Space Weather Events--Understanding Societal and Economic Impacts.http://books.nap.edu/openbook.php?record_id=12507&page=9
I have a long time interest in astronomy, astrophysics, and communications and I found the paper well written and fascinating. Severe Space weather is a very significant low probability-high consequence event that I would like to address in this blog.
The key to understanding the magnitude of this low frequency/high consequence(LF/HC) solar storm event is the foreknowledge of the way our complex society is organized. Modern industrial society is characterized by a series of complex interwoven networks, like a massive Venn diagram or spiderweb. It is a web of dependencies and inter dependencies in a complex adaptive system highly reliant upon electrical energy. I have discussed such system vulnerability in previous discussions and one particular aspect of this system vulnerability has to do with how these systems are organized. One example I offer is how information travels between computers and servers corralled and mediated by appropriate software. The engineers and managers of such systems are of course under the thumbs of bean counters who demand low cost high speed networks, ie., efficient networks. They do not emphasize robustness. A robust network would have multiple alternative nodes and pathways and back up systems which would normally go unused except in a system overload or failure. Building robustness into the system costs money and as a consequence in many systems as in the general world, bottom line considerations rule.Such efficient systems are vulnerable to failure or collapse.
The most vulnerable part of our system is the electrical part, as electrical energy drives virtually all aspects of modern communications, command and control functions, finance, navigation and transportation . Electricity is distributed in most of our societies though electrical grids and that is the rub. We tend to generate our electricity in huge ie efficient water cooled power plants and distribute this electricity boosting voltage by giant transformers to overcome the resistance in the transmission lines. Once the electricity reaches its destination, step down transformers restore the electricity to low voltage current we can use in our homes and factories. Electricity and magnetism are blood brothers and we have now come to how electromagnetic superstorms from our sun could overwhelm and collapse our electrical grid.
The sun is a dynamic hydrogen fusion reactor which occasionally erupts releasing huge amounts of energy in the form of coronal mass ejections(CME) and solar flares. The magnitude of such storms is captured in a paragraph from the NAS paper:

A major turning point in our understanding of space weather came with the discovery of coronal mass ejections (CMEs) in the 1970s and with the recognition that these, rather than eruptive flares, are the cause of non-recurrent geomagnetic storms.¹⁶ Large-scale eruptions of plasma and magnetic fields from the Sun’s corona, CMEs contain as much as 10¹⁶ grams or more of coronal material and travel at speeds as high as 3000 kilometers/second, with a kinetic energy of up to 10³² ergs.¹⁷ Eruptive flares and CMEs occur most often around solar maximum and result from the release of energy stored in the Sun’s magnetic field. CMEs and flares can occur independently of one another; however, both are generally observed at the start of a space weather event that leads to a large magnetic storm. To be maximally geoeffective, i.e., to drive a magnetic storm, a CME must (1) be launched from near the center of the Sun onto a trajectory that will cause it to impact Earth’s magnetic field; (2) be fast (≥1000 kilometers/second) and massive, thus possessing large kinetic energy; and (3) have a strong magnetic field whose orientation is opposite that of Earth’s.¹⁸

Some recent solar storms was a blackout in Quebec during the magnetic superstorm of March 1989 and the disruption of the Anik Canadian communications satellites in 1994, as well as some less well known events such as the disruption of Allied radars in 1942 by an intense solar outburst and the brief loss of communication by Air Force One on a visit to China in 1984. The real Grand daddy superstorms were the storms of 1921 and the so called Carrington Event in September 1859. Here is a description from the paper with a stunning conclusion :

The strongest geomagnetic storm on record is the Carrington Event of August-September 1859, named after British astronomer Richard Carrington who witnessed the instigating solar flare with his unaided eye while he was projecting an image of the sun on a white screen. Geomagnetic activity triggered by the explosion electrified telegraph lines, shocking technicians and setting their telegraph papers on fire; Northern Lights spread as far south as Cuba and Hawaii; auroras over the Rocky Mountains were so bright, the glow woke campers who began preparing breakfast because they thought it was morning. Best estimates rank the Carrington Event as 50% or more stronger than the superstorm of May 1921.
"A contemporary repetition of the Carrington Event would cause … extensive social and economic disruptions," the report warns. Power outages would be accompanied by radio blackouts and satellite malfunctions; telecommunications, GPS navigation, banking and finance, and transportation would all be affected. Some problems would correct themselves with the fading of the storm: radio and GPS transmissions could come back online fairly quickly. Other problems would be lasting: a burnt-out multi-ton transformer, for instance, can take weeks or months to repair. The total economic impact in the first year alone could reach $2 trillion, some 20 times greater than the costs of a Hurricane Katrina or, to use a timelier example, a few TARPs.
Later in the paper I read estimates of $1-2 Trillion a year with estimates of 4-10 years to fully repair the damage. And that is just in the US! The crucial point to realize is that the US has not had a superstorm event of note since 1921 and 1859 when the electrical and communications infrastructure was in its infancy.
Vulnerability varies across the country. Here is a map of the US with a circle of highest vulnerability as well as a map showing the percentages of transformers likely to be knocked out in a superstorm. Vermont appears at highest risk of 97 % and much of the southern states seem to be untouched.

The Midwest,NE and NW sections of the country
are at greatest peril. The barrage of accelerated particles from the sun disrupt and rearrange the earths magnetic field inducing ground currents which are amplified by the long grid transmission lines which act like giant antennas transporting dangerous current and voltages to distant regions, melting the copper windings in the huge transformers as well as aging or damaging communication satellites and even posing grave risks to gas and oil pipelines. In such a blackout there is a cascade of breakers tripping and it is here that the real cancer of dependencies begin to manifest itself. With a loss of electric power, you have a loss of for example, water power. In many facilities like hospitals and defense establishments back up generators would kick in for a time but lack of water dooms electrical production due to lack of cooling, not to mention lack of water for human and animal consumption and agriculture and industry.
Communication is lost and much of the grid is under the command and control of computerized systems. Most of the large transformers are one off structures taking months to re manufacture. It is not possible to do field repairs in most cases and backup transformers are not routinely stockpiled. An additional complication is that is is difficult or impossible to model such a cascade of failures or run drills to prepare for such exigencies without shutting down vast areas of production and distribution of electricity. The paper lists the various agencies and branches that would have to respond to such a disaster and it is obvious that NASA and NAS are working hard to develop mitigating strategies to deal with such an apocalypse of electrical failure. For example, new frequencies and computer codes have been developed to add robustness to GPS navigation but a sentence in the paper said it will be fully implemented in perhaps 15(!) years. An early warning system is obviously part of the preparation but the stunning speed which the particles can make the 93 million mile trip from the sun adds another layer of complication. It can arrive in as little as 17 hours as in the Carrington Event and predicting the magnitude of the impact is problematic. Shutting down a grid for what amounts to a false alarm would be extremely costly and disruptive.
My final comment deals with my skepticism of the level of adult behavior and competent leadership from our national government which was showcased for all to see with Katrina, a Category 3 hurricane.

It is uncommon for the government to post alarming information to the general public and the core of the ruling class generally spare no efforts concealing worrisome negative information from the 310 million sheep who are waiting for an opportunity to get milk from the Federal tits, as my former senator Al Simpson patronizingly remarked recently. Deficits are an order of magnitude higher than stated, most banks are insolvent, Social Security, Medicare and Medicaid are soft brown fetid mush looking for a fan blade,public sector pensions are killing the states and we're in a depression with no effective economic and political planning. As a final digressing aside, our dear leader spends his time going on daytime yap TV "The View",here answering the burning questions of the day concerning, Lindsay Lohan, his Blackberry and Snookie. I know he feels he has to do his bit with bread and circuses and brainless politicking but performances like that fill me with dismay. My real abiding fear is that if such a solar superstorm were to occur today, it would be clusterfuck on steroids.

No Jobs=No Future

2010-09-04T18:01:00.007-06:00

      An hour ago I was driving back from Jackson listening to a segment on NPR entitled"Barely getting by", dealing with the issues of low wage employment. The figure that caught my attention was since the 1970's, wages corrected for inflation have fallen 20%. I had previously read that real wages since the 80's have remained stagnant. Another figure given was that the 20 years since 1950 saw real wages rise over 60%. After about 1980 wage disparity between the folks at the top and the bottom widened such that the US now ranks last among the Group of 20 nations in income disparity. I notice from the latest Newsweek ranking the US #11 in a ranking of 100 countries for livability. These are disturbing trends which bode ill for the future of a country which was undeniably the dominant country after WW2 for ideas, manufacturing prowess and economic power. I will not try to debate when the US economy derailed because by some metrics like GDP and productivity, all seemed well. But about 30 years ago President Reagan began running huge fiscal budget deficits and promoting deregulation of many industries under the neoclassical economic banner of a curious theory called "trickle down" economics and getting government off the back of big business. This doctrine began under a republican administration but was expanded under the Clinton and Bush administrations, actively promoted and cheer leaded by the Delphic Chair of the Federal Reserve, Allan Greenspan, who aggressively advanced the Finance industry while ignoring and demeaning the manufacturing sector. This was to be a new economy of ideas, of information, which came to mean digital information with the advent of ever more powerful computers.
       When the depression era Glass-Steagall Act segregating investment from conventional banking activities was repealed in the late 90's, our fate as a nation was sealed, although few people in government besides CFTC Head Brooksley Born commented about the repeal at the time. The large multinational companies and the expanding banking sector began the movement to Globalization which included secretive changes to the tax system written by and beneficial to them. These changes allowed deferment of taxes on earnings overseas and in some cases like a leasing business, virtually permanent deferment. If you were the CEO of a company like GE, what was there not to like? You could close a US factory and deduct all the costs as well as the costs of setting up a foreign subsidiary. You could dump all those expensive increasingly obese US workers with their underfunded pensions and increasingly expensive health care costs. Thus began the job arbitrage warned about by Ross Perot in his famous "sucking sound" of jobs disappearing south of the border under the newly adopted NAFTA legislation. But the corporate bean counters quickly realized that there were countries with a lot cheaper workers than Mexicans . The new corporate friendly environment of Asia, primarily China seemed just the ticket. Again what was there not to like? The US tax system practically invited the move to China: a young dynamic labor force willing to work for slave wages, no environmental, safety work rules or legal oversight, no pensions or health care worries. And so so it went. Outsourcing of manufacturing exploded overseas and the share of US GDP devoted to the making of things went into a steady decline to where it is a minuscule 10% today. The government also encourages and enables companies to add robots both here and in China to perform manufacturing formerly done by human beings. For every dollar you spend on a US manufactured good, you spend almost $4.00 for one of Chinese origin, this whole pathetic process is of course worsened by the undervalued yuan which of course is in the long time interest of those corporations and the Chinese government.
     Jobs previously performed by US workers are "gone" and even VP Biden has told us "They are never coming back." This administration and previous administrations are blindingly, stupefyingly stupid making such dangerous remarks. They do not seem to understand that a formerly working public who has lost everything and has nothing left to lose might, just maybe, be a mob who might be capable of taking vengeance upon a clueless ruling class who they perceive has sold their future to a sweatshop slave culture and left them nothing left to lose.
      The solutions crafted by Obama and Biden's dream team are the same as previous administrations: tax incentives, R&D tax credits, job creation credits, tax deferments and so forth. These tired recycled ideas using yet more borrowed money have never worked because they are subsidies as a substitute for real job creation and they add yet more tangled skeins to an already hopelessly complex business tax system. I have previously said to lower the corporate taxes from 35% to something between 15 and 25% but make it a flat tax, no deductions for anything. Goldman Sachs wouldn't be able to deduct the enormous salaries to top executives and the $15.9 Billion in year end bonuses awarded last year even as they received over $16 Billion from Joe Taxpayer. Nor would GE be able to move its leasing business overseas and never pay taxes on profits. If you are an American company doing business here, you will have your headquarters here. Not in the Persian Gulf like Dick Cheney's Halliburton or to an offshore Mailbox like Stanley Tools a few years back. I would favor a large readable label stating where the product was manufactured. Let the costs speak for themselves.
       Eventually as energy costs rise, trans ocean shipping costs will doom a lot of trade, especially heavy or bulky items. But we in the US NEED JOBS NOW The government needs to tell the large corporations that they will no longer be able to arbitrage their labor force to low wage countries hop scotching to the lowest cost producer courtesy of the US tax system which subsidize their game.
      The point I would like to emphasize in this final paragraph is that this globalized wage arbitrage represents a monumental long and short term security and economic threat to the United States. It baffles me that the media and politicians have ignored the risk that off shoring of manufacturing poses to US security and defense. You simply cannot lose the skills of our machinists and skilled craft persons arbitraged to China which will certainly be the economic and military rival to the US in this century. Every dollar handed to the Chinese communist government to increase its manufacturing and engineering and technological prowess represents one more nail in the coffin representing America's economic future. We enable their success while condemning our own. The only beneficiaries of such a suicidal policy are the large multinational corporations. Changing tax policy to favor domestic manufacturing can be implemented immediately with the stoke of a pen and does not need to be phased in. It is time we build factories in this country and begin the process of rebuilding out manufacturing base by eliminating tax advantages favoring overseas production. The time is now to rebuild our skilled job base.

Hindenburg Omen

2010-09-03T12:13:00.002-06:00

         For those of you that are not familiar with the Hindenburg Omen, here it is. It is an tool used by stock market technicians from I assume the Hindenburg School to call for a stock market crash when the number of 52 Wk highs and lows exceed 2.2% of stock market volume coupled with a rising 10 wk average. I gather the omen has poked up it's ugly snout from time to time lately. I leave it to the reader to decide on its validity. I have my own set of omens and they have been piling up like cord wood lately.
      I try to be a big picture guy as the title of this blog suggests and prefer to look at trends beyond economics, politics and social change because we have a multiplicity of inputs influencing our civilization in a seemingly chaotic fashion. These inputs are subject to positive and negative feedback loops and other known and unknown variables which can render short term prediction unreliable or impossible in a particular specialized field like economics, but I contend that it is possible to develop a big picture view which can inform how we can live and plan for this uncertain future. Over in Germany, the Bundeswehr has been hard at it working on military contingency plans. Der Spiegel, an excellent German magazine obtained a leaked document with some interesting conclusions which wont surprise anyone with even a rudimentary understanding of the importance of oil to industrial economies. A link from theoildrum.com is here. I read the leaked report (not yet fully translated)and didn't learn any new facts to alter my weltanschuung(sorry, couldn't resist!), but I am pleased that there are think tanks in some governments that are in fact thinking. We have people in the US who have been sounding similar alarms to the Bundeswehr Think Tank but most have been outside the mainstream media and perhaps the Pentagon and DC think tanks just have better internal security. Similar documents may be out there and they just haven't been leaked yet. The leaked document has a few key points which I have iterated many times in the past and I will do so again. The key emphasis of this blog is the importance of the influence of petroleum to an industrial economy. I have hit this time and again and here it is one more time. Oil doesn't just influence our industrial economy. Heretofore cheap Oil energy IS OUR ECONOMY, or 95% of our economy. Oil not only drives virtually all transportation of people and goods but provides the chemical base stocks for the various polymers and products of our globalized lifestyle. With cheap oil energy already gone, it is pretty obvious that the cost to the entire world's industrial lifestyle will be going up.The wealthy industrial nations will be able to hang on longer than the poor nations as long as the oil exporters continue to accept our dollars for their oil. The entire globalized world economy runs on oil and it is obvious to this observer that barring some new cheap oil energy substitute, the industrial economy of the past 250 years will soon be drawing to a close. The leaked Bundeswehr study spends a lot of time listing mitigating strategies to this petroleum decline.
       As the cost of energy goes up, the possibility of growth in our industrial economy will go down. At some point the ever rising cost of energy will force contraction in economies, in effect negative growth.This will mean the end of the current globalized industrial model. It think it is also obvious that it means the end of our debt based industrial model. Debt is credit advanced based upon the promise of future growth. With growth you can pay back the principal of the loan and the interest. If you have growth you can also use leverage to increase your profits. Without growth a debt and credit based economy is dead. Without growth, leverage is dead as a wealth enhancing tool. Ditto fractional based lending, securitized mortgages, derivatives and all the rest of the toxic garbage proffered up by our bloated financial industry. The end of cheap energy spells the end of our debt and credit based industrial civilization. Not the end of civilization mind you. A new civilization will rise to replace the current now flawed energy profligate version. We are at such an inflection point and it behooves all of us to start thinking about the changes we will need to make to our lifestyle to adapt to this new succession.

A Real WYO Dog and Pony Show

2010-08-28T17:41:00.002-06:00

Well Pardner, let me give you a big wonderful Wyoming welcome to Uncle Ben's annual Economic Symposium(aka the K.C. Federal Reserve Dog and Pony Show).
I haven't been able to get a comprehensive guest list and of course no bloggers were invited. I assume my old Richmond buddy Kartik Athreya made sure of that:http://cal48koho.blogspot.com/2010/08/kartik-athreya.html.

The invitees were central bankers, university economists and other current and ex Fed folks and of course a large assortment of clueless neoclassical economic clowns who should have arrived dressed as the wizzards and sorcerers they in fact are. Ben in his keynote speech said"preconditions for growth in 2011 are in place." Like what for example Mr Bernanke? You mean 18% unemployment, 130% of GDP Federal debt to GDP if you include the GSE's Fred'sFannie,trade deficits heading to $700 Billion, collapsing housing markets, unfunded pension plans and soaring state budget deficits! Delphic obfuscator that he is, who knows what he is talking about. The obvious fact is no one really knows what to do about how to restore "growth." The possibility that growth as we have known it may be at an end has not yet occurred to them. Word has leaked out that there is dissension at Fedsville meetings as consensus seems to have collapsed. Even in the business and economic media the stimulusians slug it out with the austerians. Rabid stimulusians like Paul Krugman say the solution is more stimulus but not these trivial shovel ready sub-trillion dollar pittances. Paul wants the big bucks and he along with a lot of other great minds from Donald Regan to Dick Cheney have told us the deficits don't matter! But so far no one is paying much attention to Paul except NPR and PBS. In fact , one of the few speakers casting dissent out at Jackson Lake Lodge in his speech was European Central Bank President Jean-Claude Trichet who urged governments to cut their debt not expand it and a failure to do so would result in another "lost decade." Carmen Reinhart and her hubby Vincent did deliver a speech which might have been worth hearing. Carmen as you might know was co author of an important book "this Time is Different"http://www.amazon.com/This-Time-Different-Centuries-Financial/dp/0691142165/ref=sr_1_1?ie=UTF8&s=books&qid=1283036244&sr=8-1 which analysed financial collapses over the past few centuries. Neoclassical clowns never look through the retrospectascope of history or even consider the possibility that it might be different this time. I doubt if Ben read has it. If he had, he would be having second thoughts about more stimulus like QE(money printing), peddling and trading mortgage securities for Treasuries, changing reserve requirements, fiddling with interest rates and so forth. Ben needs to look over the edge . If he did he would see that he is looking into a veritable Black Hole which has sucked into its maw all his bright ideas and trillions dumped into Wall street banks and all the other bullets from his six shooter. Ben says he has more bright ideas like buying long dated treasuries now that our old pals like China and Japan aren't.How that will restore growth to a country and a banking system that is bankrupt is beyond me.                                   The American people are way ahead of the Federal and State governments. They piled up huge debts and are now not borrowing and not spending. They are paying down debt and saving. The national savings rate is up to 6% from negative percent a few years ago.Outstanding credit card debt is dropping. They are doing the only sensible thing. It may not be austerity but it is the next best thing. The American family has the massive advantage of far less complexity and not having economists advising them what to do. This is precisely what Mr Trichet told the Symposium but who knows if Ben and the Feddies were listening. If you always do what you've always done, if you always think how you've always thought, then you'll always get what you've always gotten. We are in a depression now and talking bobble heads never tire of asking : Is this a recession or a double dip recession? I say paraphrasing Gertrude Stein: this ain't no recession, there ain't gonna be a recession, there never has been a recession, that's your answer.

A Nation of Sloths

2010-08-25T11:45:00.001-06:00

My friend F--- just returned from a trip to visit family and he described sitting in the Minneapolis airport being stunned by the mass of people waddling by. Not masses mind you but by the mass of the individuals! Being a very rational systematic fellow with a background in statistical analysis, he decided to try to model the population. His conclusion was that more than 75% of the population he observed were overweight. some alarmingly so. I listened with some skepticism but knowing that F--- has never been prone to exaggeration, I accepted his data on face value. I rarely travel by air for a myriad of reasons which should be obvious and as a result I am spared the spectacle of fast food courts and trinket shops all enclosed within the charming ambiance of a cattle car. F---, seeing my skepticism, emailed me statistics from the CDC which validated his survey which I will present shortly. The same day face book friend James Howard Kunstler published his Monday blog entitled: “What I did on Summer Vacation" in which he recounted a motor trip around northern New England. Here is a sample from his blog:

"We stopped for lunch in a clam bar, naturally. The dining room was populated by a new race of humanoid behemoths, great lumbering brutes the size (and shape) of giant sloths, only dressed in the raiment of clowns, downing heaps of battered fried things, purportedly of-the-sea -- except I honestly don't see how there can be anything alive left to catch out there with the industrial-strength trawlers scraping the ocean floor as if they were Zamboni machines grooming the rink at the Boston Garden. I would like to tell you that we ordered cucumber sandwiches but it would be a lie. We got the clam strips -- that is, clam rolls minus the rolls. For all I know, someone in the kitchen is shredding old Michelin inner tubes for the Fry-o-later, but it's all about the cocktail sauce anyway. There were more giant sloths wading curiously in the surf (still hungry perhaps?) as we crossed the border into Maine, where you really want to weep for your nation." Jim is known for his dark sarcastic humor , but I was taken that Jim had unwittingly provided a second data point. Now Here are the shocking statistics with an abstract of the CDC data as well as the link:

Prevalence of overweight, obesity and extreme obesity among adults: United States, trends 1960-62 through 2005-2006
Results from the 2005-2006 National Health and Nutrition Examination Survey (NHANES) indicate that an estimated 32.7 percent of US adults 20 years and older are overweight, 34.3 percent are obese and 5.9 percent are extremely obese.http://www.cdc.gov/obesity/data/index.html

Some definitions are in order to enhance understanding and readability. Overweight is defined as a body mass index(BMI) 25 to 30. Obese as a BMI30-40, and morbid obesity as BMI>40. As an example a 6' male weighing over 300 lbs would be morbidly obese.

Now if you do the math: 73%!!! A nation of Giant Sloths.

Housing Stinks

2010-08-24T14:12:00.001-06:00

The news that spooked the markets today was existing home sales plunging 27% in July which of course "surprised most economists." If I read or hear another phrase that economists flubbed another easy ground ball, I'm going to pull an Elvis and shoot the TV with my .45. This graph will be familiar to anyone following the housing market and is of course Bob Schiller's famous plot of housing prices adjusted for inflation over the past 120 years.(click to sharpen and enlarge). As you see housing prices are reverting to the mean...FAST!For 110 years housing prices yielded about 1% above inflation and in one horrific decade they exploded upward about 90% and are now in freefall as the graph portrays. This rise was coincident with the repeal of the Depression era Glass-Steagall Act separating investment banks from traditional banks, the development of derivatives,securitization of mortgages, crooked lending practices and abundant credit offered to anyone with a pulse. This was the last gasp of a 60 year housebuilding and buying binge called by James Kunstler as the "greatest misallocation of resources in the history of the world."
And now it's over. Housing as an investment has been dealt a death blow, probably for a generation. This fall has put the taxpayer on the hook for over $5 trillion in obligations related to Fannie and Freddy, a bizarre hybrid of the worst features of crony capitalism and bungling government bureaucrats who now along with the FHA own over 90% of a mortgage market riding down the backside of Schiller's graph. As prices drop, losses mount at Fred's Fannie and it aint over till it's over. And it ain't over. Over 40% of homeowners are bereft of equity or underwater on their mortgages.One in 7 is facing foreclosure. Supply of existing houses is at 12 months. Nothing that our bungling politicians are doing has had any effect except propping up the unpropable, the unsustainable and the unworkable with a dreary succession of failed and foolish schemes purportedly to help the home buyer but secretly propping up the failed insolvent banks with money while spouting platitudes,
lies, and promises. Larry Summers a few months back said the economy was reaching "escape velocity." Barak a week or so said "The economy is on track." Are these guys delusional , incompetent or just pathological liars? What seems to be self evident is that this deflationary depression is deepening as the malignant web of leverage continues to unwind as debts vaporize , jobs disappear and moronic politicians posture and finger point.

CHAOS ECONOMICS

2010-08-16T11:37:00.000-06:00

CHAOS ECONOMICS

In previous blogs I have piled opprobrium upon Neoclassical economists, the high priests who whisper in the ears of our politicians and corporations. In my attempt to try to tease out the influence of these priests , I have discovered some surprising historical facts from the early days of economics. In my previous blog I provided some of this early historical background, as well as mentioning some of the concepts underpinning neoclassical economic theory, the theory governing our contemporary political and economic life. There are of course many variations upon what passes for neoclassical economics and my tacit if poorly expressed assumption is that my perception of neoclassical economics is of a linear construct. The laws and assumptions of neoclassical economic theory rest upon that assumption. George Sugihara, a biologist at Scripts Institute who has an interest in Chaos Theory writes:"A nonlinear system can exist in one configuration for a long period of time during which it is well understood, but it can switch gears suddenly, due to the interdependence of a multitude of shifting variables, and seem to become a totally different system governed by new laws. Superficially, everything has changed, but on the deepest level,nothing has." Hyman Minsky, an economist who studied the nature of financial crises had a famous expression"stability breeds instability." I have not read any of Minsky's articles in which he stated whether he thought of economics as a linear or a non linear discipline but I have concluded that his famous quote implies that economics is anything but linear.

Chaos theory was first described by Henri Poincare in the 19th century when he was grappling with what was called the “Three body Problem.” In physics, the problem refers to measuring position, mass, velocity, momentum of certain particles or masses and then trying to devise a method to calculate the position of these particles in the future thought to be governed by classical Newtonian laws and laws of gravitation. He was unable to devise a successful method.

Chaos theory as I understand it, deals with the observation that small differences in initial conditions can have widely varying outcomes in chaotic systems. In a stable, linear system which can reach equilibrium, such widely varying outcomes would not be expected to occur. The existence of chaotic outcomes appears to have begun with Henri Poincare in 1870 and references to the chaotic outcome phenomenon cropped up over the next 90 years. In 1961 a meteorologist by the name of Edward Lorenz working on an early digital computer was trying to develop a weather simulation. He inputted his data , ran his simulation over 7 days and printed out his results. He ran the simulation again and decided to run his simulation in the middle of his time period. To save time running the simulation again he used his printout data. To his surprise his results were totally different. This puzzling result made him look at his methodology. He noticed that his inputs were to 6 digits after the decimal but his printer would round off the inputs to only 3 decimal places . Why would that make any difference? In a linear system capable of reaching equilibrium, it wouldn’t have but it became apparent to Lorenz that weather was not operating under those rules..He3 dubbed it the Lorenz attractor operating under rules termed the Lorenz Oscillator which was a description of system which evolved over time spitting out data in a chaotic non repeating pattern. This was later referred to as the “Butterfly effect,”. This was a metaphor for chaos theory and referred to the title of a paper given by Lorenz at the American Association for the Advancement of Science in 1972 entitled” Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?”. It referred to the notion at the flap of a butterfly’s wings might be enough of a disturbance in the atmosphere to change distant atmospheric outcomes. Chaos Theory was initially confined to the fields of physics and mathematics but has been expanded not without controversy into widely varying fields including medicine, meteorology, evolution and even politics, economics and finance.

I have stated in previous blogs, the abject failure of most economists to predict accurately the behavior of markets despite dazzling mathematical models. In my mind, the reasons for this failure must lie with a failure of their assumptions, methodology and their models. This failure may be occurring because the system they are trying to model is not the system they think they have been dealing with. If the system is a non linear complex system, their results and predictions are doomed to failure. It is my contention after reviewing the opinions of economists writing outside the mainstream that neoclassical models and methodology need to be modified or abandoned. These new ways at looking at economics include names such as ecological economics, biophysical economics and complexity economics. I am just a humble beginning student struggling to wrap my mind around this problem but here is my current notion: The economy is an example of a complex, adapting, dynamic, non-linear system subject to both positive and negative feedback. Seemingly random changes in variables, however small can lead to widely different outcomes. The bad news from a policy making standpoint obviously is that if economics is a chaotic system, predicting its future behavior may be a fool’s errand. The good news is that if this notion becomes accepted, a lot of the high priests, fools and dimwits spouting nonsense and misinformation might eventually be discredited and disappear.

Why you cannot and MUST NOT trust Mainstream Economists

2010-08-14T16:55:00.003-06:00

Readers of this blog know that I hold most mainstream economists in contempt. Not a day goes by when you hear or read comments like "(such and such bit of economic data) was Greater(or lesser) than economists estimates." Even Milton Friedman, a mainstream economist in his own right said that economic theories should be judged by their track record in predicting events "rather than by the realism of their assumptions." Measured by Friedman's yardstick, the utility of their predictions has been minimal for decades. Few if any mainstream economists saw the last two bubbles in technology and housing including virtually all of the Federal Reserve economists, those in the Presidents cabinet and in Treasury as well as in economic think tanks. Their clumsy and self serving measures to "fix" the situation they missed has by some measures, made the situation worse and I and many more informed and intelligent observers have pointed out. Why has this been so? What is it about their predictions and measures has rendered their value to society so utterly useless? Even with Cray computers and complex econometric models and formulas, these economists advising our politicians and corporations have blown it. I have struggled to try to discern what factors have led these folks to be so consistently wrong and one of my first clues was some remarks by Niall Ferguson at the Aspen Ideas Conference this summer which I again provide a link to:http://www.aspeninstitute.org/video/aif-2010-financial-crisis-will-it-lead-americas-decline.
Niall all but accused them of faulty assumptions and models. So his remarks put me on the trail of the history of modern economics and a study of their traditional assumptions and their cherished laws and models. Adam Smith in his 18th century Wealth of Nations was of course the seminal work on economics but it was the economic thought of the mid 19th century authors who laid down the basis for what we call classical economics which has been modified and expanded by a host of economists. But one striking fact virtually leaped off the page in my research. To understand how their economic theories came about, you have to know something about Mid 19th century physics. The physicists of the time were struggling to explain using Newtonian precepts the new discoveries made in heat, and light and electricity , matter and energy and the mysterious forces governing the behavior of these magical discoveries. Physicists like Faraday and Helmnholtz were struggling to form a unified explanation of the relationships between matter and energy, a struggle that continued into the twentieth century with Planck, Bohr, Einstein and a host of others but in the mid 19th century, the field was new and the concepts raw and only partially formed. Into this maelstrom of fascinating ideas stumbled our classical economic forefathers who wondered if the same mysterious forces of energy holding matter together in equilibrium might also be a unifying energy force governing the equally mysterious forces governing wealth relationships among peoples. The absurdity of such a quaint notion given what we know about physics today seems comical, but at the time prominent economic thinkers such as William Stanley Jevons in England(pictured above), Vilfredo Pareto in Italy, and Leon Walras in France and others felt that such a unifying link united two different fields might exist, might even certainly exist. These budding economists developed the notion that something they called Utility, which they defined roughly as economic satisfaction and well being, pervaded economic intercourse in much the same way that the nebulous physical force of energy pervaded all space. Perhaps energy and utility were not just analogues. Perhaps they were virtually one and the same, just existing in different fields?!! Religion and philosophy was added to the mix as these thinkers started looking for more analogous relations in Physics with economic concepts of labor, capital,money, resources and so forth. These nascent economists recognized that mathematics was a powerful underpinning to Physics and it was just a short step to then realize that for economics to become a science, that mathematics would have to be added to the mix. Physicists at the time debated the concept of equilibrium of forces that hold matter and energy in balance and so this concept of equilibrium had to be part of economic "science." They developed the notion that markets were closed systems and non market resources outside of a market system were "externalities"to such a market system. Inputs like money and resources, outputs such as goods and services flowed in a closed circular system along with consumption and distribution. If there were general laws governing physics, would there not be general laws governing economics? Eric Beinhocker in a book published in 2006 entitled:

Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics

points out the influence of the new and controversial theory of evolution upon the evolving theories in economics. In fact ideas of evolution and natural selection posited by people such as Malthus may have influenced Charles Darwin and the idea of economics being an evolving system continues well into the 20th century. Thorstein Veblen and Alfred Marshal, Joseph Schumpter and Freidrich Hayek all explored the relationship between economics and evolutionary theory. But Mainstream economic thinkers were more comfortable with the idea that the economy was alike a rubber ball rolling around inside of a bowl, eventually coming to rest in equilibrium at the bottom of the bowl and there the economy would rest until some new externality acted upon the ball sending it to a new equilibrium. The idea that economics might be a complex system always evolving never really took hold in traditional classical economics but at long last, some of these newer notions of how the economy really functions are starting to appear and be discussed by folks like Fergusson and Beinhocker at Harvard. In a forthcoming post I will attempt to explain some of these new attempts to elucidate how economics really works and whether these new ways of thinking might help economics improve its dismal track record assessing risk and predicting future economic events.

Cognitive Dissonance on Steroids

2010-08-11T09:25:00.005-06:00

As promised in the last blog, I have been trying to bone up on some of the unwashed, unappreciated bastard children of conventional economics, such as Biophysical Economics and Complexity economics but I am still a ways from writing that blog. What's keeping me from my task at hand are stories that just keep blowing my mind. Yesterday I stumbled upon an article in the journal Energy Policy by Roger Stern in which he attempted to estimate the cost of maintaining aircraft carriers in the Persian Gulf for a 30 year period starting in 1976. Here is the link:http://www.princeton.edu/oeme/articles/US-miiltary-cost-of-Persian-Gulf-force-projection.pdf. By the way our 5 deferment patriot is standing in front of the newest Ford Class carrier which will set us back $9.3 Billion and that doesn't include the 60-90 aircraft normally carried which run as high as $60 million for a new F-18. For those 30 years, the cost of "Force Projection", the catchy phrase used was $7.3 TRILLION!! Obviously that figure will be going up. What did we get for our policing of the oil lanes besides 30 years of oil? Was that a rational use of our money? Can we afford another 30 years of policing? Obviously not. Truth to tell, we can't afford even one more year. We are bankrupt. The empire is kaput but like one of those mammoth 1000' carriers , once you step on the brakes, it will take many miles to stop.
Bloomberg carried an editorial by Lawrence Kotlikof, one of the few prescient economists is the business. an excerpt:

Aug. 11 (Bloomberg) -- Laurence Kotlikoff, an economics professor at Boston University, talks about the state of the U.S. economy. Kotlikoff speaks with Erik Schatzker on Bloomberg Television's InsideTrack." (Source: Bloomberg)

"Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act. " Here is the link:

http://www.bloomberg.com/news/2010-08-11/u-s-is-bankrupt-and-we-don-t-even-know-commentary-by-laurence-kotlikoff.html
Did you catch the IMF phrase that the US will need a permanent fiscal adjustment of 14% of GDP? If you're not on the floor by now, you should be. Here is the math: We have a $14 Trillion GDP. 14% of that is about $2 Trillion. Federal revenue is just a bit more so the IMF says we will in effect have to double the taxes of everyone who pays taxes!!! Is there anyone, any politician
out there talking about this impossible hole that the US finds itself in? (Deafening silence).
How are you going to double the taxes of the middle class? They don't have any freaking jobs and given the fact that the corporations have off shored all the decent jobs, their children wont have any freaking jobs. And in case you missed it, we are in a depression. So that leaves the corporations, but most of them don't pay much in taxes. Oh I know, Mitch McConnell whines that US Corporate tax rates are the highest in the world(not true) so the GOP wants to cut taxes for the fat cats. You remember, trickle down, create jobs..blah...blah...The real truth is that the US has a nominal tax rate of 35% for the biggest corporations but because those corporations wrote the corporate tax laws, US corporations enjoy an effective real tax rate of only between 14 and 18% depending upon which source you cite. Any many of the very biggest like Goldman Sachs and GE pay less than 5% in most years and it is those tax breaks that have destroyed middle class jobs for the last 30 years. Middle class income adjusted for inflation has barely budged since 1973, up only 10% in 35 years. But the richest 10% has seen their income up 90%. A CEO in 1973 earned 23 times mean income. Today he earns over 300 times mean income. So if you double what Goldman Sachs paid in corporate taxes in 2008, that only takes you to 2%! And if you double what GE paid, it doesn't even take you to 1%! To get an idea how GE managed to pay virtually no taxes, you would have to go through the estimated 24000 pages of their tax return. The is no chance under the current tax code that you will be able to double taxes on companies that hardly pay anything anyway. It would be far better to lower the nominal corporate tax rate to say 15 or 20% under a flat tax scheme with zero deductions but GE and GS would squeal like piggies and mobilize their hundreds of lobbyists to kill that idea in a NY minute. So maybe it's time to summarize this difficult spot we find ourselves in the summer of 2010: 1. The US is functionally bankrupt as are many of the states. There will be no way to pay the retirements promised or expected for state and federal workers let alone current levels of Social Security, medicare, and Medicaid entitlements. 2. The banks are bankrupt or would be if accepted accounting rules were again used. Obama and his Keynesian economic gang took 2000 pages to pass reform legislation which the banks were thrilled with. All they needed to do was reenact the Glass-Stiegal act which ran to 40 pages. We are virtually guaranteed another banking collapse. The financial markets are a rigged suckers game with traders in control. The May HFT(high frequency trading) meltdown in which it was revealed that HFT is over 70% of all trades on the NY Exchange was enough to make this sucker sell most of his stocks and mutual funds. 3. The corporations control the three branches of government but their very attempt at control has destroyed confidence in the
political system by the American public. We now have a co opted dysfunctional political system engaged in internecine polarizing debates, full of sound and fury and signifying...NOTHING.
I think we are looking at a very complex economic and political system teetering on the brink needing only a traumatic event to tip it over into collapse. What form it will take is any body's guess but it could be another misguided military misadventure such as an attack upon Iran by our over extended military or by Israel. The trigger could be another attack upon US infrastructure by middle east extremists who feel they have nothing left to lose. A coup against the House of Saud could do the trick as well as any number of natural catastrophes. The financial default of a major state such as California might provide an inflection point.
It behooves all of us to be preparing for the possibility of a collapse. In a future blog I will try to offer up some ways in which we as individuals can protect ourselves from the consequences of a political and financial delamination.

The Aspen Ideas Festival 2010

2010-08-09T11:24:00.004-06:00

Now that I am back to blogging, I have had to play catchup on what new ideas and events I have missed these past 6 months by swearing off the sheer effort involved in trying to glean clues about the political and economic and social direction of a society that had not done what Tootle the Train was compelled to do: Stay on the track no matter what. Our society was off the track and since there was little I could do to change the situation, to hell with it. My goal in my blog had not really been to change society because the likelihood of that was minimal. My chief goal was to try to tease out the factors in what appeared to me to be a collapse of our society and for me, writing has always been the way I have used to arrive at understanding. The other task has been a self education involving the study of history,anthropology, sociology and economics, all subjects I had minimal exposure to when I was in college and medical school. In a real sense I am a prisoner of my biases and the books and authors that I have studied the past several years as I have been constructing my weltanschauung. In many blogs I have laid my lash across pusillanimous politicians, incompetent and delusional economists and the greedy corporate empires who have driven our train off the track to the brink of collapse. As any reader of this blog has perhaps noted, I have said that we are in a depression, not a recession. The distinction of whether it is a "D" or an "R" is of course a matter of how deep and how long it lasts. Some authors have said a depression is a 10% drop in GDP coupled with high unemployment lasting for more than a few years. Officially, which is to say looking at official government statistics, our GDP which is said to be in the $14 Trillion range has not dropped 10% or $1.4 Trillion. But government statistics on for example, unemployment are bogus and are deliberately bogus because if true statistics were given, the true magnitude of this downturn would be obvious to all. Unemployment is normally reported as U-3 unemployment, which is anyone who is unemployed who has sought employment within the last 30 days. If you gave up looking for a job, if you are underemployed or part time worker, you are not counted as unemployed. Government statistics say 9.5% is our unemployment rate when the real number is likely nearly double that. The U-6 unemployment figure attempts to estimate these other uncounted workers and is estimated at nearly 18%. GDP figures are suspect as well. GDP includes government spending as well as private spending, services and consumption. Our current deficit is about $1.4 Trillion which is 10% of our GDP. That money was borrowed and injected into the economy. Had it not been injected, our GDP would have been smaller, perhaps 10% smaller. That would meet the criteria for a depression. Whether we are in a recession or a depression or a double dip recession is of only incidental interest to me. My concern is whether this depression leads to a societal collapse. Depressions can lead to economic hardships and collapse of economic activity but most economic depressions eventually end. The downturn becomes an upturn. The depressions of 1857, 1873 and 1929 all eventually turned. But the depression preceding the the Harappan Civilization in India in 1700 BC, the Roman collapse in 470 AD, or the Mayan collapse around 900 AD were economic depressions that became societal collapses. The details of these collapses with the exception of the Roman collapse are sketchy and records are scant. Great civilizations do have a life span. They rise and fall. Once a civilization reaches a critical inflection point, it falls. Are we in the West nearing such a point? If we are, how long would it take before it became obvious? Could it happen within a matter of months or years or would it likely take the form of a stair step decline over many years? There is of course no way to know whether this depression will or even should proceed to a full scale collapse but I was taken by the words of Harvard economic historian Niall Ferguson who appeared on a panel with David Gergen and Mort Zuckerman at the Aspen Ideas Festival this summer. I will provide a link to the hour long video. Ferguson contends that collapse can happen suddenly. He cites historical data, complexity or systems theory, chaos theory, and a newer rogue brand of economics:complexity economics to show how an economic and political system in apparent equilibrium can can change to disequilibrium in a New York minute. I will attempt to explain key features of complexity economics in a future blog when I have studied it in more detail. Here is the link to the Aspen Conference:
http://www.aspeninstitute.org/video/aif-2010-financial-crisis-will-it-lead-americas-decline.

Kartik Athreya

2010-08-03T16:16:00.003-06:00

I have been absent from the blogosphere for 6 months. After the 4 horsemen galloped up to my log cabin last winter and announced that Armageddon had finally arrived, I felt there was really no reason to continue with a life of trivial self delusion. It was game. Set. Match. What am I referring to? Well the US Supreme Court deciding that corporations had the same rights as individuals. Of course that has been the de facto law of the land for decades but when Shrub's court made it the echte law of the kingdom, I knew the war was lost. So I gave up and put my dog and pony show in the barn. Since then the economy has continued its ride down the ABS drain pipes heading for the septic tank, BP has despoiled an already despoiled Gulf Coast, and Wyoming finally got some snowpack well into spring. Why bother blogging? I only blog when something knocks me up the side of my face. Well it finally happened. I snapped out of my reverie. Kartik Athreya came into my life. I owe old Kartik a debt of gratitude. You may politely have asked "Who the he__ is Kartik Atheyra?" That guy up left is Kartik, He works as a senior economist for the Richmond Federal Reserve Bank.And lest you think Kartik is not a heavy hitter, he graduated from the University of Iowa. That should shut you up. He wrote a paper entitled "economics is hard" on June 17th in which he basically said that non economists(ie bloggers and other low unqualified yammering nabobs) have no business criticizing economic high priests in the temple. Here is a sample of his thesis:"writers who have not taken a year of PhD coursework in a decent economics department cannot meaningfully advance the discussion on economic policy." Here is a link to his paper:http://www.scribd.com/doc/33654737/Economics-is-Hard#fullscreen:on
Kartik also trashed one of my demigods, Elizabeth Warren, which really got my ruff up. And so I am trashing Kartik and all the other anosognosiacs working at the Richmond Fed, The New York Fed, the Pocatello Fed, and for that matter all the feds everywhere. Anosognosia as you may know if you went to a decent medical school is when a disabled person is unaware of his disability. It is common after strokes and with certain other psychiatric disorders such as Alzheimers Dementia.... "I'm not crazy! Whatza matter with youse guys?!" The Feral Reserve both in the US and in Central Banks everywhere is full of economists suffering from anasognosia. Greenspan had it. Summers has it. Geithner has it and Bernanke has it in spades. They simply are unaware that they are disabled, prisoners of economic dementia, practitioners of cognitive dissonance. The problem is we are the puppets and they hold the strings. They are economists of a particularly virulent variety, neo classical, Keynesian economics. These clowns are the most dangerous sort of clowns, clowns who don't know that they don't know. They are so stupid that they actually think that economics is a science! They pretend it is a science. The fact is that economics is no more a science than psychology or sociology or religion is a science. The simple fact is that unlike a true science, economics has no verifiable, replicable way to prove anything. Economists can look at money and credit flows, capital flows, labor management interactions, interest rates, trade and tariff interactions going back centuries and then show no diffidence drawing conclusions about causality. In the late 20th century the neoclassical school started to draw upon mathematical tools, a shrewd decision, because unlike economics, mathematics relies upon demonstrable, replicable theorems and models and explaining economics with mathematical concepts would validify economics. But shit is still shit even if you put it into an obfuscating equation. Since there is no way to prove conclusively a particular economic law or theorem, the field has been balkanized into many schools, each with their own particular bias. I feel confident that there are indeed economic laws which govern economic and financial interactions among us but the sad fact is with few exceptions, there is no reliable way to prove that the Austrian school is superior to the Chicago school any more than you can prove that a Presbyterians view of creation superior to an Anabaptist.
The tragedy, and make no mistake, it is a colossal tragedy that the Feral Reserve and the giant bank holding companies have colluded and conspired to trade garbage with the financial dimwits of the world with no oversight using access to Trillions of dollars issued from the public treasury at 0 % interest. And suprise surprise! The 6 biggest banks have actually made money this year even though the other 900 or so other sizable banks have not. The sad fact as anyone who attended a decent community college know that the FASFA accounting rules were secretly and suddenly changed a few years back to conceal the fact that many of these banks were insolvent. And so we lurch along, extending terms and pretending that the turbine engine driving this chimerical economy which flamed out a few years back can be reignited and we can start borrowing and consuming our way back to prosperity. The chance of that happening is zero. The large corporations have rigged the tax system to defer taxes on their overseas profits, allowed deductions on all costs to move a business overseas and continue to practice domestic job killing wage arbitrage. The US now makes almost nothing of value beyond some good heavy equipment, armaments and airplanes. Of course we have a booming service industry where we all take in each other's laundry and an utterly corrupt medical industry which contributes 2.5 Trillion to our GDP. Banks trade paper aided by accountants and lawyers. Some insurance companies even insure this paper even if they do not understand it or have the reserves to back losses . But who actually makes anything of real value in a financial and service based economy? The game is over Fido. Our economists who do not understand the pernicious danger of debt and cheap credit, confuse money with value and are blissfully unaware of the dominant role that fossil energy has played in our industrial expansion and remain unaware of the consequences to that industrial economy when that fossil energy is withdrawn in the near future.

Keynesian Economics:Fire in the Hole

2010-02-25T11:57:00.002-07:00

These days it is getting harder and harder to be bummed by the the endless torrent of bad political and economic news finding its way to my desktop. The sun is returning to Wyoming and the sparkling days and slanting sun on our snow capped peaks is a better physic to the soul than any antidepressant. As a carpenter I find myself at our local lumberyards from time to time. There are few carpenters at the order desks these days and few orders. Jackson Hole has 5 lumber yards and if the foot traffic I see in them is any indication, there will be fewer of them pretty soon. The gossip is that one or two will be gone by the summer . Tax receipts are off , for rent signs are everywhere and rumors abound of local banks and even the local ski hill possibly going under . But thank goodness our Wyoming legislators in Cheyenne are manning the fort promising no change in the country's most lenient DUI laws("You can't take away a guys license. How is he going to get to work!?") and repeal of concealed weapons permits. Now anyone may be able to pack their piece in plain view anywhere they want: "No Obama is gonna take away my gun!"
Our elected, appointed and bought and sold representatives in the District of Corruption continue to shovel manure out the front door to a waiting unquestioning media. Timmy, our Secretary of money said yesterday in his best Keynesianeese Catch 22 logic that "without growth we cannot begin the process of fiscal responsibility." I guess that means we don't get fiscal responsibility any time soon. So he called for more spending, more QE, more stimulus,more debt. The only way to fix a debt laden economy and get back to that Amurican Dream is more shovel ready projects and more money shoveling. That's how these Keynesian imbiciles think. Paul Krugman and Joe Stiglitz keep telling us that if the current level of stimulus isn't working, that we're not shoveling enough. Their solution to a fiasco caused by debt is to take on more debt, prop up more banks so we can get them loaning again and get the old American consumer consuming again gorging on cheap Chinese junk at Walmart and overpriced american cars and vinyl McMansions in distant suburbs. Thirty years of bogus neoclassical economic assumptions have destroyed what used to be a pretty nice country. But Timmy says we need to continue to borrow to get our growth back. Unless you are JP MorganChase or Gold-in-Sacks. you have to pay interest on what you borrow. To pay back the principal and the interest, you need growth. And what happens if you don't have growth? You can't pay your loan off. Therein lies a fallacy of Lord Keynes and his deluded followers. You cannot just keep assuming debt ad infinitum hoping that growth will retire the debt.Once the debt becomes too large, default will become inevitable. We have had exponential economic and population and productivity growth as a consequence of the industrial age and this growth was achieved by work which was accomplished by ever more efficient machines and technological innovations running on virtually free energy. Growth was easily achieved if for example one man could run a machine which could do the work of 100 men in one day. These machines created prodigious increases in productivity and wealth creation and spawned a generation of economic thinkers who labored to understand and explain the workings of this new economic machine inside the box of the Industrial age but now that the Industrial Age is coming to a close, they continue to use the same models and assumptions and policies that seemed to explain the functions of money and capital and labor within an industrial economy. Most economists ignore the role of fossil energy within such an economy. Without this free seemingly inexhaustible source of energy, the Industrial revolution would not have occurred in the manner that it has. The world population would not be approaching7 Billion people. The US would not be carpeted with strip malls and nail salons and suburban shitboxes linked by millions of miles of asphalt and concrete highways. Simply put, energy facilitated this transformation of society and the disappearance of free fossil energy dooms this economic model and despite the Panglossian promises of Exxon that our fuel will soon come from algae allowing this wondrous profligate dream to continue unabated, simply put, it ain't gonna happen and our something for nothing society will soon be undergoing wrenching changes. Our politicos don't get it, our citizens don't get it. This massive wealth creation has led to an entitlement mentality in which we Americans representing 5% of the population get to consume 30% of the world's resources playing our version of a zero sum wealth and power game. As Americans we are entitled to live and work and travel where we want spend and consume what we want and receive pension and health benefits at the end of our fulfilling lives. We elect leaders who promise these benefits. Again, simply put,it ain't gonna happen. We have millions of unionized state and municipal workers who have been promised unimaginably generous benefits.
Cops and firemen in California with a high school education drawing 6 figure incomes retire on 6 figure incomes in their 40's and 50's with lifetime health benefits.Both the States and the Federal Government have immense unfunded promises totalling over $50 Trillion dollars, a sum as large as the entire GDP of the world. We do not have a government that is telling us that we need to learn to find better and cheaper ways to travel and grow food and clothe and house and educate ourselves. We instead have leaders who tell us to shop and spend and drive and eat. We will consume and borrow our way back to prosperity, and most of the baying sheep just keep grazing and shitting, oblivious to the wolf of economic reality that will soon tear them to pieces.

The Jobs Joke

2010-02-05T11:38:00.002-07:00

This depression is starting to get me down, should I say depressed? Washington continues to disgorge lies and bogus statistics. 4th quarter economic growth up 5.7%, unemployment hitting a 5 month low of 9.7%, more green shoots everywhere. Mark Twain talked about lies, damned lies, and statistics! Obama talked about creating jobs and he has a jobs bill which is another in a long line of bad bills and bad policy going back to ronnie and the trickledowners with the usual structure of tax breaks and government guarantees. This is no way to create jobs. Last year the federal government extended and extended unemployment benefits to the tune of $140 Billion. All you have to do to get an unemployment check is to ask for it and prove you don't have a job. You get unemployment for doing nothing. FDR gave money to the long term unemployed but he made them work for it with projects like the CCC. The banks and corporations allied with their Keynesian economists in government and academia have destroyed good jobs in this country . We have been told for decades that free trade and globalization was good for America, that America would be an information and service economy. This was a fraudulent, cruel hoax. In the 1950s, manufacturing contributed 28% to our GDP. Today it is a minuscule 12%. There are far more people employed by Federal, state and local governments whacking away at keyboards and pushing paper than employed in actually making something! Public sector jobs contribute nothing to the wealth of a nation. Banking ,finance, insurance and real estate represented about 14% of our 50's economy and that is now more than doubled. We once had an economy that would extract raw materials from our mines and forests , deliver them to a factory and build things for ourselves and for export. We made things that the world needed and sold them to a world that paid us in cash and gold. In the 1920's the US had amassed a giant trade surplus equal to 5-6% of World GDP. This manufacturing and trade economy provided real jobs for a growing nation. And now what do we have? Only 12% of our economic activity involves making stuff. These same corporations moved their factories to the lowest cost producers overseas encouraged by supportive government laws and tax policy which made fortunes for our corporations at the expense of their US workers. The banks and corporations thorough their shills in government deregulated laws protecting workers and a domestic manufacturing economy. The past decade of the Bush administration's bank and business friendly encouragement finally killed off the goose that laid the golden egg. The banks and corporations now control the government. And with no one looking, these banks looted the world with leveraged bets on bogus innovative instruments and in the process destroyed the world economy. And when their bets finally went sour, they looted the public treasury to cover their losses.
So what can we do to fix this mess? We can remove the influence of these banks and corporations. We can change the laws and tax policy that allowed this debacle to happen. In short, we can remove all the bad guys and replace them with good guys, remove all the bad laws and replace them with good laws. How hard is that? We can then pay off our debts and start anew. Again,how hard is that?
The serious answer is that it would be very hard. In fact in my view, it will be impossible. I am working my way through a wonderful new book entitled "this Time is Different" by Carmen Reinhart and Kenneth Rogoff, a history of world economic crises of the past 800 years. One of the little tidbits I discovered in their analysis of financial crises was that once a country has a debt to GDP ratio exceeding about 90%, recovery became prolonged and difficult and in many cases impossible without collapse. Our current official debt as of yesterday was $12.27 Trillion, and our estimated 2009 GDP is $14.4 Trillion. That is a debt/GDP ratio of 85%. But that figure is wrong. You see in the US we have these things called GSE's whose sole purpose is to provide backing for mortgages, and they are in almost all respects government entities, every bit as much as the FAA and Homeland Security. You know them as Fannie Mae and Freddy Mac and the other debt laden entities like Ginny Mae and the FHA. These organizations have presided over the 100% federalization of home ownership in the US and the problem is, they are broke and have had to have their debt covered by the taxpayer.The total debt of these GSE's is now $6.3 Trillion. They have sold this debt to the world. It is owed to the Chinese and Japanese, pension funds, sovereign wealth funds, and others . It's called agency debt and trades like treasuries. It is real debt and yet is not counted as Federal debt, even though Barak Obama and his Budget Office had promised to include this as federal debt in any of their calculations. To date they have not. So if you include this $6.3 Trillion you have $18.5 Trillion of Federal debt. This is a debt/GDP of 128%, not 85 %, and is far above the 90% danger point of Rogoff and Reinhart. This is fixed debt, not budget deficit. Obama's proposed budget deficit for the next fiscal year is an additional $1.6 Trillion which of course will be added to the Federal debt if he can persuade someone to buy more of our debt. IF he is successful, that will be $20.1 Trillion in debt or 139% of GDP. And trillion dollar deficits loom in the future. No one in their right mind believes that this debt will ever be repaid but in order to not default on this debt the US has to continue to pay interest on this debt which of course represents loans from the Chinese and others. At some point they may stop extending us loans either because they fear US default or because they become mad at us if we say, sell arms to Taiwan, or if their economic bubble pops. If the largest government in the world can't borrow, that American dream could really unravel. These folks in the bond markets might demand much higher interest rates for their perceived risk incurred in lending to a profligate United States. In fact I am betting that this will happen and I have been investing in ETF's which short treasuries. Tim and Benny and Larry know this and someone has leaked plans of their proposal to compel Americans to own some percentage of government debt in their retirement accounts!!!
Nassim Taleb wrote a recent financial best seller called the Black Swan which dealt with the risk of unlikely but catastrophic events. When I look up now I don't see one black swan but a veritable flock of black swans. That we are entering a depression is in my view a virtual certainty, and the economic, political and employment structure of the US is such that the difficult decisions necessary to deal with this predicament are not being made. Time is running out.

Turd in a Punchbowl

2010-02-05T09:34:00.006-07:00

Well I have been on vacation from blogtown for a while and it is not because of a lack of material for blog topics. I am just still stunned by scalia and the rest of the misbegotten brethren on the court who finally clarified that corporations are people just like you and me. I'm glad they cleared that up. Does that mean that corporations can be imprisoned and executed like people, waterboarded like people,TAXED like people? Does it mean that if a corp buys another corp that it is engaging in slavery? The repubs are dancing in the aisles and the dems including our dear leader are predicting Armageddon.The fact is that the court has now codified a reality that has existed for decades. To wit the corporations own the government, lock stock and barrel.They write our laws, wage our wars and determine our destiny. The financial corporations with their lobbying arm, The Federal Reserve, control monetary and fiscal policy and to a large extent foreign economic policy by virtue of dominant representation in the IMF and the World Bank.The situation is utterly out of control. We have America's favorite bank led by Lloyd Blankfein of Goldman Sachs jamming his financial proboscis into the heart of the taxpayer sucking the life out of our children. This is the same Goldman that received $12.7 billion from Hank and Timmy and Benny in TARP last year while declaring a profit of $12 Billion and paying out exec bonuses of $16 billion paying an effective corporate income tax rate of 1%! The American people are outraged and even Barack is beginning to push back with populist rhetoric shades of Andrew Jackson. But even if you believe in the sincerity of our dear leader, I do not think that this will be change we can believe in. The recently proposed Volker Rule which would in effect reinstate aspects of the depression era Glass-Steagal Act is already meeting stiff opposition from members of the Senate Banking Committee like Richard Shelby(R) of Alabama who fully intend to take care of Goldman and the other phony casinos who pretend to be banks and who contribute heavily Senator Shelby and others. And now that there is no limit to how much money, Shelby can get from Goldman, you can be sure that Richard will do whatever it takes to keep Lloyd and the rest of his blood funnel brigade happy.
There are a few green shoots visible . NY AG Andrew Cuomo yesterday brought civil charges against former Bank of America CEO Ken Lewis for fraud. And today the Italian government also seized assets of BOA in Italy. You may recall that former Goldman CEO and Treasury Secretary Hank Paulson referred to BOA and Ken Lewis as "The Turd in the Punchbowl". You will have to ask Hank to elaborate on that one. It's my view that this is a punchbowl full of turds including Hank and Tim and Summers, Rubin,Greenspan, Jamie Dimon et al. And TARP prosecutor Neil Barofsky, one of the few heroes in this mess is promising more indictments . We can only hope.

r

Global Worries

2010-01-15T06:48:00.004-07:00

The world has a lot of things to worry about at the moment. Unless you were born without mirror neurons, you cannot help being stricken by the horrific images emanating from Haiti, a country which has been in full collapse mode for eons. The US will likely play a big and expensive role bringing aid and equipment to deal with the devastation of a 7.0 magnitude quake. Let us hope that the nation of France ponies up the largest aid package as it was France that imposed onerous reparations on the country after the successful slave rebellion which began just after the French Revolution. These reparations, initially 150 million francs were imposed on former slaves to pay back the loss of lands and slaves of the wealthy French Planters and it took the former French slave colony almost a century to pay back these huge sums, a burden not unlike what was imposed upon post WWI Germany. The US has also occupied Haiti from time to time in attempts to restore order to a country which has been pretty disordered for a long time.
Meanwhile back at the ranch Phil Angelides investigating the financial collapse had his hands full with tongue lashings from the Likes of Lloyd Blankfein of GS because Phil dared to suggest that Goldman Sachs created the type of garbage securities that brought down the world's financial system while secretly running counter bets against their own garbage. Replied god's own worker Lloyd: They were grownups. They should have known better. Lloyd wasn't worried by a little insolent twerp like Phil Angelides, lately of the Callifornia Treasurer's Office. I mean, how much money did Phil make ? He obviously was not doing god's work like Lloyd was with his blood funnel as CEO of Goldman Sachs. Goldman is AAA rated and what is Callifornia's debt rating? Just a few notches above junk bond status. I am not a bond expert but I'll bet that the big municipal bond funds are prohibited from owning munis with a junk bond rating. Speaking again of rating agencies, Fitch, an international rating agency has put out the word three days ago that the debt of the United States may lose its AAA status if Barak and Ben and the rest of the Keynesian katzenjammer kids don't start acting like adults and cutting spending or raising taxes. State and Federal debt will be hitting 94% of US GDP this year. Just 3 years ago in the glory years of the bushwacker it was a mere 57%. This is a very big deal. Why did I have to read about it in a British paper, the Telegraph? Likewise little has been made in the mainstream US media about this debt which is has an average maturity of only 4 years as compared to 7 years in Eurosville and 10 years in the insolvent sovereign island of god save the queen. Something like 40% will have to be refinanced over the next 18 months which will be a problem if China and the Saudis and Japan don't buy these new treasuries. China in fact has already cut way back on its purchases. It's just released trading surplus with the US fell about 35% in 2009 from $296 billion to $196 billion . China has been spending it's surplus building infrastructure:highways, dams,buildings, railroads,cars, ports and canals. It has also been spending 14% more on oil and purchasing a stunning 80% more iron ore last year. It seems that for some reason the Chinese think that spending these dollars now as fast as they can is a better bet than buying more Fannie Mae and Freddy Mac and Ben Bernanke toilet paper, and who can blame them. The Saudis have also cut way back and are mimicking the Chinese throwing up infrastructure and Refineries and chemical plants. As for the Japanese, well they are not doing so good either. They are starting their third lost decade running unimaginable budget deficits which have been largely funded by their own citizens who now are old and wont be buying any more Japanese bonds. They'll be selling them to buy rice cakes and sushi. Japan could be the big story this year or next. The only sizable country now running bigger budget deficits than Japan is, you guessed it: the good ole US of A. Look at the stunning graph listed above of annual budget deficits in percentage terms. You will see Japan running immense deficits, never less than 35%, and their total debt is approaching 240% of GDP. Now that Japan's export driven economy has hit the wall, it is hard to imagine any way to get cheap financing for Japan's deficits. It remains to be seen if there will be buyers for low interest long duration US debt either. The big buyer of US debt lately has been the Fed. That's right: we are conjuring money out of thin air to buy our own debt. If you can wrap your mind around this, you're a better man than me. The Fed also of course loans money at zero interest to those fine banks that we all love, so that they can buy treasuries yielding 4%. That way these banks don't have to go out and loan money to the public and take the risk that the public will not pay them back. With the money that these banks get for free they can take some of the interest earned and pay out nice fat bonuses to themselves. I'm not making this up. It seems to me that the Fed could just as well loan this money at zero interest to Joe Q Sixpak and let him buy treasuries, or to the Guvnah of Callifornia and bingo! Callifornia is saved along with the treasury auction. What could be simpler? Instead, because the banks own the Fed and the government, they get the free money while the rest of us stand in line at the unemployment office, hide our cars from the repo man and hope that the knock at the door isn't the sheriff serving papers. And now that Barak Ofaker's popularity is going down the toilet because even Joe Pickemuptruck has figured out the basics of this Ponzi casino game, the Pres is pretending to hate the bankers who own him and the legislature lock stock and barrel. The big question is how long can this goofy charade last? So to summarize, we have two countries. One is building roads, power plants. railroads and factories with money they have on hand and the other is invading oil producing countries and bombing turbans with toy planes remotely controlled in Langley Virginia using toy money. Which of these two countries has the best chance to succeed?

Vampyroteuthis Infernalis

2010-01-12T16:27:00.002-07:00

"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. "
............Matt Taibbi-Rolling Stone
in an article July 13, 2009

I was stunned by the vivid visual imagery of Matt's characterization of Goldman Sachs, the investment bank from hell that everyone loves to hate.............except of course almost everyone in Barak's economic cabinet.
It turns out that there really is a species called the Vampire Squid just as there really is an investment bank headquartered in New York which has captured the White House and the engaging black family within that house. Goldman Sachs may be the most powerful and visible financial superpower controlling the economic destiny of the United States but it is simply one of many, and it perfectly epitomizes the class of arrogant rapacious insatiably greedy money changers now running amok through the swinging doors between Washington and Wall Street. But no matter how many insults and brickbats are hurled at them, old GS and the rest of the ragtag band of financial bandits just keep partying and jamming their blood funnel into the heart of America. And a curious fact I stumbled upon the other day was that this super profitable casino bank was in the 1% income tax bracket in 2008. That is not a misprint. This is the bank that was bailed out by the US taxpayer with the hysterical importuning of it's former CEO Hank Paulson, lately of the bush administration and the US Treasury, the bank whose current CEO Lloyd Blankfein claims he is doing ""god's work," having made many king's ransoms peddling worthless securities all over the globe and then rewarding its worker class with billions and billions in bonuses earned from the destruction of the world's financial system. And they paid 1% income tax. I mean how bad does this have to get before these millionaire financial terrorists are brought to justice? Of course if you accept the premise that GS sets the agenda of the government, I guess they are the government in effect....Check...Mate.

How Wal-Mart is Destroying America

2009-12-29T15:52:00.011-07:00

You have to admit that is a provocative blog post. I could have entitled it "How Trade with China is ........."
The reason I chose to come down on the world's largest retailer is because their business model has been the indirect cause of massive job losses in the United States and in China. Their original business motto was "Always low prices." Wal-Mart scours the world for the lowest cost goods to sell in their low cost big box stores and for the past few decades that has largely meant goods from China as any visit to your local Wal-Mart will establish. The company began as a publicly traded company in 1970 but it didn't really accelerate its expansion until the late 70's and 80's which was also not coincidentally the beginning of the Reagan Republican deregulation and Globalization movements. Therein hangs our tale.
There is a long established concept in economics called The Law of Comparative Advantage first elucidated by Robert Torrens and David Ricardo in the second decade of the 19th century. This law refers to the ability of one country to produce something at a lower cost more efficiently than might be the case in another country. This may occur because of an abundance of a particular resource or the skilset of the population. Other countries may also be able to produce the same good but at a higher cost. Countries can take advantage of these differentials to market goods in which they hold a comparative advantage by trading with countries which also hold a comparative advantage in the production of something else. Country A might produce beautiful durable pottery and stoneware while country B might make equally good metal pots and pans. Both countries can then trade to get the best quality and price for the respective goods and thus both countries benefit from the trade. Capital can move within the countries borders among the different industries to facilitate trade and industry but historically capital did not flow freely between countries. Historically the IMF, the WTO, the World Bank and others pushed free trade under the comparative advantage principle but the ascent of the globalization paradigm in the past several decades has killed that model of comparative advantage and replaced it with absolute advantage where production is shifted to the lowest cost producer in the world.Cost is the sole driver of the business. It's the bottom line. How many times have you heard that! Not quality, service, reliability, growth in the company, but cost, low cost and just low cost.That's what Wal-mart says right in the front of it's blue buildings. So what do you get for the lowest cost? JUNK ! But low cost JUNK! We now have a global zero sum game where global corporations able to move capital and companies across borders unimpeded for the purpose of making the greatest possible profit for the corporation by procuring the lowest cost of production. As a result some countries benefit and some do not. These globalized corporations do not concern themselves with the chaos and destruction of native industries that result from this business model. These corporations and especially the financial TBTF have been able to perform what is in effect gang rape of the American middle class by waving free trade slogans and policies that ridicule manufacturing and promoting the new information and financial economy. The result has been that real wages adjusted for inflation for the shrinking middle class has actually contracted over the past thirty years. This has occurred because the US manufacturing base has also been contracting and now represents only 13 % of our economy. You may not care if you are a bankster or an orthopedic surgeon or one of the few winners in this new wunderwirtshaftssystem, but if you are not one of those lucky beneficiaries, you may have noticed that you are circling the drain. My view is that this horrific decline of our middle class economy has been caused by these neoclassical and libertarian economists who came into ascendancy at about the time of the Reagan Administration but which has continued under both Republican and Democratic administrations. Now I will ask again, should you care? Damn straight you should care because this economic damage to the American economy has real true national security implications. Wal-Mart and globalized mega corporations like Wal-Mart have subcontracted our manufacturing economy over to China. Now I don't care if your plastic salad shooters now come from Shanghai instead of Skokie but really vital components like machine tools, auto and truck and plane parts, computer and electronic and communication components and even certain parts in weapons are manufactured overseas. Those overseas workers have real jobs making real things designed by American educated engineers which the world absolutely needs while Americans have jobs in a declining and even frivolous service sector. Does America really need any more human resource or marketing consultants or fast food or retail clerks? More nail salons in strip malls and more geriatric wal-mart greeters luring us into their fluorescent lit junkboxes to buy their always low cost Chinese junk?
Industrial products today are assembled from many parts and the lack of a key component can mean that the product cannot be completed until the part arrives. And if the part comes from a factory in Chongqing, then what? What if the whole product comes from Chongqing? The really annoying feature of having products arriving from China is that they may still retain their American names. In many cases the American corporations moved everything, lock, stock and drill press to China, everything but the workers. American companies using American machinery run by Chinese laborers . The corporations were ably assisted by friendly tax laws devised by their lobbyists lawyers who ensured that the cost of the decommissioning and closure of the factories, the transport of the machinery, and even the travel and entertainment and living expenses of the executives were all deductible corporate expenses. Now instead of having to pay American workers $17/hr and provide pensions and health care, these executives can now pay 70 cents/hour to poor Chinese girls from distant rural villages who are virtually slave labor. And if business falls off, well then you just send those poor girls back to their villages and shutter the factory. Nothing personal, ma'am. Its just business. Oh by the way, you have to buy your own bus ticket.This is virtually what happened when the giant Broyhill furniture factory in the Carolinas moved their furniture manufacturing to China in this last lost decade. So if you're a corporate executive, what's there not to like. Ronnie said it would be like this if we could just get guvment off our backs. What's there not to like, you ask again? Well these corporations have allowed one of history's great wealth transfers from a rich nation to what had been the worlds most populated poor nation. So much has been transferred that the USA is now in debt to China who hold more than $2 trillion of our treasury and agency securities. With all this new found wealth funneled by our corporations into the Communist government of China, they have been able to embark on a massive industrial, military, infrastructure, and energy buildup such that they are now the world's second largest economy. They are scouring the world building refineries and buying exclusive energy contracts from African and South American oil producers who formerly supplied an open world oil market. China has surpassed the US to become the world's largest producer of greenhouse gasses. China is now the world's largest car producing nation, on track this year to produce 13 million vehicles from 117 car and truck plants. It should be kept in mind that our money is being transferred to a nation that has 1.3 billion hard working, rugged and clever people who had little difficulty fighting the giant US military behemoth to a decisive standstill in Korea in the 1950's . The US had a great deal of difficulty defeating the tiny nation of Japan while suffering horrendous losses in the waning years of WW 2. The US military fights wars by dropping bombs .That advantage would be marginalized if we tried it on the Chinese.And nuclear weapons would be virtually useless in a modern great power conflict as was realized by the cold war with Russia. It would be a MAD option. Trying to fight a land war in Asia would be a fools errand. The smart money would be on the Chinese. Our last land war in Asia didn't go too well despite clouds of aircraft and high tech weapons. We were defeated by a pajama clad peasant army on bicycles. I don't think the Chinese Communist government deliberately decided to co opt our manufacturing economy to achieve military, economic and technological superiority but the fact remains that they are well on the way to just that. Our globalization free trade champions on Wall St and K street have handed our economic destiny over to the totalitarian government of China with the acquiescence and cooperation of our own government which of course is no longer a representative democracy any longer but instead an organized cadre of Wall Street Bankers and Global corporations who control the agenda, the bills and the purse strings by virtue of their minions on K Street .The noise from Washington about stimulus measures and restoring jobs and reestablishing lending is posturing and peristaltic flatus wafting across the plain and there is little to indicate that the politicians and bankers or the corporations are changing their modus vivendi as they go about god's work amassing mammon. This corporate dominated Washington political establishment with it's shock troops in the WTO, the IMF, Goldman Sachs run Federal Reserve and the World Bank have brought the citizens of this country to their knees as they live in opulence and suck on the teats of the shrinking udder that once was the milk of the American economy.

The Lost Decade

2009-12-22T14:08:00.004-07:00

There is no shortage of news items crossing my desk here in the waning days of the worst decade in our history. The shadow government nominated and elected an inarticulate third rate Texas governor and a paranoid chicken hawk vice president who then chose a coterie of like minded neo conservative ideologues who launched the last imperial war with an ill thought out invasion of Iraq and Afghanistan, The stated goal in Bush's words was to establish a stable and permanent democracy, The transparently obvious goal was to control access to the vast oil and gas fields of the region. Almost ten years on, the US remains mired in what conservatively could be described as a debacle which has no end.
This was the decade that the shadow government deregulated the banks who then ran amok through the world spreading their newly devised financial instruments which largely involved the securitization of mortgage assets and the creation of an unregulated and unseen derivatives market. The failure of this business model collapsed the banking system. The same shadow government of private bankers within the Federal Reserve and Treasury then deftly transferred these vast losses to the taxpayer. During this same decade the Chair of the Fed Alan Greenspan inflated a vast asset bubble in real estate and other assets . Credit was extended to anyone with a pulse and consumer, corporate, state,local, municipal, and Federal(including GSEs) debt levels soared such that that debt is now 557% of GDP according to Forbes Magazine.( Current GDP is around $14 Trillion.). If you add in the various entitlement programs, the number soars to 840%. There has been no attempt to address this mountain of debt either by the Bush or Obama administrations.
The US stock market turned in the worst decade in the history of the United States which has had a stock market of sorts since about the 1820's. The worst decade, even worse than all the other financial panics including the decade of the Great Depression. The S&P average yielded -.0.5% annual return for the decade. The Dow hit 10,000 in 1999, about where it is now.
I include this graph of inflation and the Dow during the decade of the Great Depression. You can see the steep cliff dive descent in 1929 followed by a surprising spike of about 60% in 1930, a so called bear market rally. My contention is that we are in a similar bear market rally and I think the next moves are down mirroring the graph shown. All the chess pieces of fiscal and political incompetence are in place and I see no way to avoid the next crash. I have begun to sell off what stocks I own in my dwindling personal retirement position and I have urged everyone I know to do the same. 2010 looks to be an interesting year.

Barak Obanker and Fed Chair Ben Banke

2009-12-16T10:49:00.003-07:00

I try to add a new post when I read about some new outrage or insult to sensibility that comes across my desk here in die blogezimmer, my chilly unheated computer room in our log cabin in Jackson Hole. But I just can't keep up any more. From one outrage to the next insult, I'm simply overwhelmed. Barak told 60 minutes he didn't get elected to bail out fat cat bankers. Whaaaat?
Translation: I got elected to bail out fat cat bankers. The next day he sat in his oval orifice with a partial collection of those fat cats he bailed out begging:" Puleeze, pretty puleeeeze, make loans to our insolvent american economy because I am standing for re election in just a few years and we're running out of time to re-inflate the world's biggest debt machine." What I found interesting was that some of the biggest and fattest cats of all stayed home or had to be put on speakerphone, like Lloyd Blankfein of Goldman Sachs who was doing god's work by staying at home. And did you see who sat at the left hand of President Obanker? Why none other than the shadow president, Bob Rubin, lately of Goldman Sachs and Citigroup. Who does President Obanker think he's kidding? This is the same guy who took home the Nobel Peace Prize which this year was given to the biggest warlord in the world. And Ben Bernanke winning TIME's Man of the Year? I mean, how much cognitive dissonance can a body take? And this morning I see Senator John McCain proposing reinstatement of the Glass- Steagal Act which Bob Rubin tore up just 10 years ago. You know things are really in the toilet when you are agreeing with McCain/Palin on anything. Barak doesn't have much more time to throw the money changers out of the temple. We Americans may be stupid obese milling baying sheep but even sheep aren't that stupid and the sheep in this country are armed sheep and if I were a Goldman or a Sachs banker returning to my chalet in the Hamptons, I think I would be sleeping with my piece under my pillow.

Depression or Recession?

2009-12-09T10:48:00.005-07:00

Readers of this blog know my opinion on whether we are in a depression. Whether you think it is a depression or recession is beside the point as there is no good definition of either. Oh I know, it used to be said that 2 negative quarters were a recession if the referee the US government employs, the NBER(National Bureau of Economic Research), decides to call it one. Other economists have opined that a recession is a 1.5% rise in unemployment. But NBER does not referee depressions because they are on the Fed payroll and if they said we were in a depression, why folks would panic, consumer confidence would drop and sales of Wallmart's salad shooters would plunge. In fact I read that the Great Depression wasn't even called that until 1937 when a journalist dubbed it the Great Depression. Most economic writers do seem to agree that a recession morphs into a depression if it lasts a long time(3-4 years), if unemployment really increases, credit availability drops or goes unused, banks fail, companies fail at a high rate, the stock market collapses, trade and commerce falls and so forth . It is a time of fiscal and financial crises and collapses. Virtually everyone I read say the recession is an unfortunate but normal component of any business cycle. I doubt that any government would ever call a recession, no matter how severe, a depression. That is left to journalists, economists and now us bloggers. The government has gone to great lengths to minimize and obfuscate and conceal any information or data that would give a true and accurate picture of our economic situation. Our government and probably most governments no matter which party is in control, or which continent they are on, have no incentive to engage in truth telling. It makes them look bad and they are afraid the citizens would take to the streets if they really knew the facts. It is rare that government officials lay out the facts in a truthful fashion. Paul Volker got away with doing it for a while 30 years ago but when his President, Jimmy Carter put on his cardigan and told Americans they should conserve energy and move to a more sustainable way of life, he was crushed by an aged republican who developed full blown Alzheimer dementia in his second term and he has been replaced by a steady stream of advisers with economic dementia. The government statistics are manipulated and modeled until they are meaningless. If a particular statistic is bad, government statisticians will make it less bad. If it's good, they will spin it better. I completely ignore government statistics and so should you. John Williams gives unvarnished statistics at his website: http://www.shadowstats.com/. On John's site you will find official government numbers and John's take usually listed as "SGS" and with what I find particularly useful, older official government statistical methodologies. Here are some examples: Official unemployment is 10% which is the U-3 government number. A broader government number is U-6 which is 17.8%, and John's number which he says approximates the methodology used 50 years ago is 22%. Similarly, official CPI inflation is -.2% and using pre-Clinton era methods, the inflation rate is 3%. I am unable to post John's graphs here and would urge the reader to just go to his website. John says that the recession started in the 4th quarter of 2007 which would make this recession 2 years old. If this downturn, as Obama calls it, lasts another year or two, then we will have met even the conservative definition of a depression. You can be sure TPTB will not allow this recession to be re characterized as a depression. Even the way government economists calculate GDP is inherently flawed. For example. Let's take a worker at Rockford Products in Illinois, where my wife worked briefly. A worker getting paid $10/hr might produce in one hour bolts or screws which could be sold for $50, thus adding $50 to the nations GDP. An MBA at Goldman Sachs making $250/hr(before taxpayer assisted bonuses of course), might craft a CDO or CDS derivative product which could be sold for $10,000,000. Let's give Goldman Sachs a net profit on that very small transaction $1 million and so that gets added to GDP. Now there is no way to make the productivity of these two disparate laborers equivalent but don't tell that to the BLS. If there were just two workers in the country then BLS would say that the average hourly salary in the US was($130/hr...250+10/2.) They would also calculate worker productivity in similar fashion. Now of course there are many workers in the country to lump together but when over 20% of your GDP is related to financial services, as it was before our recent cliff diving economy, then calculating and posting the notional value of the nation's goods and services and comparing them to to other nations becomes somewhat meaningless. I would think that our GDP should be broken out into several categories of GOODS production and SERVICES production which is the only way I can see to make comparisons to other nations economies even possible. I do not think our current severe recession meets the criteria of a depression but only because it has only gone on for 2 years. Unemployment is not yet at the 25-30% rate of the Great D, but it is close. Many other metrics of this recession match or exceed the Great D such as the debt to GDP ratio and certainly unfunded liabilities far exceed what existed in the 1930s. The main reason I think that we are in a depression is that the government is doing nothing to resolve or attenuate the mountain of debt built up and in fact is doing the exact opposite by shielding the bondholders in the big financial institutions as well as attempting to save favored industries and propping up the housing market and other asset classes while at the same time urging continued expansion of debt and credit. Christine Romer on Obama's economic nothinktank even said today that"spending our way out of recession is sensible policy." She means of course"printing our way out of recession is sensible policy." With economic advisers of this caliber, I will stick to my opinion that this recession will meet the definition of depression within the next year or two.

Viet Nam 2.0

2009-12-08T13:05:00.003-07:00

It's been an easy winter so far here in Jackson Hole other than a week of sub zero weather this past week and only minimal snowfall. Helicopter Ben has been mocked before Congress and Obama continues along his blundering way using the worst ideas of the Republican party to ensure the ruin of his presidency and his country's future. Lie follows lie on a daily basis as he tells us the recession is over with green shoots galore. Unemployment is down and his Afghan surge will certainly work so well that 18 months after our hapless soldiers arrive in country, they will be able to leave. No one including Obama has stated what this Afghan invasion is supposed to accomplish. A well armed and trained conventional military force that relies on high tech weapons and air strikes wont have a chance combating a popular Islamic insurgency armed with simple primitive weapons and a burning desire to drive invaders from their soil. The Brits and the Russians were driven out and the American Army will suffer the same fate in Afghanistan as it suffered in Viet Nam and Somalia. The American Military is in the region to ensure access to oil and the fundamental flaw is the assumption that a military occupation can dominate a disintegrating collection of failed and failing states long run by warring tribes and clans. In any war between guerrillas and a standing army,the smart money is on the guerrillas whether those guerrillas were ragtag colonists facing the world's most powerful army in 18th century America or pajama clad Viet Cong facing down a massive American Army in Indochina. The Islamic insurgents in the Persian Gulf and Central Asia regard the West with the same hatred as the American Marines felt toward the "japs" in the South Pacific. In the end it wont be defeat by a determined insurgency that drives the US out of Afghanistan and Iraq but our coming economic collapse that dooms this tragic foolish incursion into the lion's lair.

United Sachs of Amerika

2009-12-01T17:27:00.007-07:00

I really don't like to re use images but I do it to make a point. I have spent several years puzzling over why our country's economy went over a cliff like Wily Coyote. Our political and financial leaders and our media have their take on the causes of this collapse and what they think are the proper solutions to address the problem. Their advice has filled me with unease. After the twin towers fell down with the help of 15 Saudi nationals and three of their friends, our president was asked what Americans could do and he said"Shop." I knew then that America had a problem far bigger than the loss of 3000 of our citizens inside two collapsed buildings.There were two obvious questions that the media did not ask:1. Why would these Arab terrorists do such a thing and 2. Why would our president say such a thing? It was at that moment that I suffered a cognitive dissonance breakdown. This was cognitive dissonance on steroids. No one in power asked the questions. All I could think was "What in heck is going on here?" It has taken me a long time to figure out how we got to this point and it has involved a lot of reading and conversations and I have come to a general set of conclusions that I think explains why all this happened and who the responsible parties might be. I do not have definitive proof and my conclusions are more in the nature of allegations. My research has involved retrospective looks at the history of economic collapses as well as financial panics, cultural collapses, social collapses and collapses of civilizations. I assumed that I might find clues to our current economic collapse by looking at others in the near and distant past and I have addressed aspects of these in past blogs and will likely do the same in future blogs. But in this posting I think I have found the proximate causes and source of this current depression or recession if you will. Plainly stated, the causes are the policies of the Federal Reserve Central Bank and the US Treasury with the help of now massive too big to fail central banks and global banks both here and around the world. I think I can trace the beginning of this current problem as far back as the 1980's and 1990's. President Reagan got the ball rolling when he fired then Federal Reserve Chief Paul Volker and replaced him with an Ayn Rand libertarian by the name of Alan Greenspan. There is ample documentation from the 1990's laying out how this policy evolved. In the early 1990's the US was the unchallenged economic and military super power with the collapse of the Soviet Union. This allowed our military and political and corporate leaders to imagine the US as THE new Imperial Power in the world.
When you are the only imperial power, you get to tell the world to jump and all they can ask is "How high?". If you are the sole imperial power, you get to decide who is with you and who is against you. And if you cross an imperial power, you will pay a price and anyone who interferes with an imperial power's access to energy will pay the ultimate price.
Any questions?
And so it went. One of the first items on this new agenda was money, that little item that makes the world go round. It would be a whole lot simpler if the US could just deal with one global currency. Let's just make the US dollar the global reserve currency and we'll price everything important like oil in dollars. That would make trading and commerce nice and simple for everybody, like us.Any objections out there in the trading pits of the world? No? Good.
Now that we had the global reserve currency, everybody wanted it, so our merchants caught on to the Wall Mart model
of the lowest price, Always! My pappy always used to say that there were two ways to get rich: don't spend it or go out and earn it. Our leaders chose the former and the fedsters and the banksters and all their associated chums in the IMF and the World Bank went along with this idea by loaning dollars all over the world to any country that wanted to build sweatshops to sell cheap stuff to the US. Somewhere along the way the boys behind those marble and glass facades had decided that stuff made in a sweatshop in China was a better deal than at a factory in Ohio. And why not just tweak the tax law to allow our own good ole American companies to build those factories. That way they could insure that that stuff could be made for half the quality but one fourth of the price and the US tax system could allow these American companies to write off all those pesky expenses of closing factories and paying pensions and health care to those lazy middle class union workers. By now children of those middle class union workers were pouring out of colleges with MBA and law degrees and quickly finding out that the real money was not in using air tools building stuff but using the new fangled computer tools to move money at warp speed. So instead of putting on tool belts, they donned pin striped suits and headed downtown to join the new industrial revolution, the Information Economy. They handed off their tool belts to the hard working brown folks now pouring over the porous southern border. Meanwhile back inside the big banking towers there were guys with computer science degrees and MBA's living the American Dream and trying to think up new ways to use that most fundamental tenet of the American Dream:Something for Nothing! It was the computer revolution that fueled the next leg up. With the aid of computers, sharp eyed traders and economists were finding little discrepancies in the pricing of assets such as bonds in world markets and they discovered that they could use those very slight differences in prices to make money. They discovered that trading these slight differences might only net say .01 % on a trade but it worked every time. The next step was to leverage the bet, 10 times. That made the return 1 %. 100 times made it 10%. . So investment banks turned into betting casinos. New words were invented to describe what they were doing like arbitrage, pairs trading, and a myriad of other names were invented to describe these complicated bets. Initially they bet on government bonds using complex strategies of going long and short and taking options. Most of this began with a new hedge fund in Wall Street called Long Term Capital Management(LTCM). The members included traders and statisticians from most of the Wall Street Trading houses and even a few Nobel prize winners. They felt they had a can't miss strategy and no one had yet heard of Taleb's term Black Swan, to describe rare events. But the East Asia Financial crisis and the Russian bond defaults became those Black Swan events and LTCM collapsed. The Federal Reserve stepped in because the losses were enormous but the Fed managed to put together a bailout of LTCM by passing the hat around Wall Street to the big banks. I'll skip over the details but this helped to cement the Fed/Big Bank marriage even more. People took to calling these trading strategies derivative trading, and in the late 1990's many people like CFTC Chairperson Brooksley Born began to question the wisdom of allowing this unseen unregulated trading which clearly had huge risks to the economy. But these wealthy bankers like John Corzine and Hank Paulson of Goldman Sachs and Robert Rubin and Larry Summers and supportive Senators like Phil Graham and of course Al Greenspan of the Fed wanted nothing to do with any stinking regulation of their casino. How they crushed Brooksley Born and abolished the last wall to their trading strategies, the depression era Glass-Steagall Act with the help of President Clinton has been well covered in several books and documentaries. With Brooksley Born and other troublesome pests now passing under the FED/Banking steamroller and Glass-Steagall out of the way, the way was clear for the banks aided by the hands off Fed to really expand derivative trading worldwide. The banks wasted no time developing the next product that would make everyone's payday for the next decade: Securitization of Assets. They used the US mortgage market as their playground and since mortgages no longer resided at the local S&L or bank, they could buy these mortgages and "bundle" them converting a "debt" into an asset . It was magic and they could mix and match mortgages, slice and dice mortgages and covert them into something like a stock or bond that could be sold to unsuspecting buyers. To make these debts more palatable they bribed and paid the big rating agencies to put their good housekeeping seal of approval on them. And with easy Al Greenspan keeping interests rates as low as possible to get a new bubble inflating to replace the tech bubble popping, these new securities seemed to be just the ticket paying a nice rate of return to unsuspecting suckers which included not only other banks but municipalities, individuals andpension firms both here and abroad. Profits exploded at these banks as they spread these securities all over the world. But down in the dungeon levels of Goldman Sachs there was another branch of the company who were nervous enough about these securities that they crafted secret derivative shorting strategies of these securitized mortgages just in case the housing market didn't keep rising . Hank Paulson was careful to make sure that this dirty secret never saw the light of day. Things went swimmingly with the whole cast of rogues passing through the swinging doors between Government, the Fed and Wall Street and everyone making more and more money right up to the waning months of the junior bush administration. By then Hank Paulson had moved over from Goldman Sachs to the Treasury so he could have the 500 million or so he had in Goldman Sachs retirement tax free as one of the perks for going through that swinging door. When the housing market began its collapse and the securities became less secure, and when people started to refer to them as "toxic waste", the banks discovered they were holding on to a huge declining asset that no one wanted and dozens of banks became essentially insolvent when these assets became in effect liabilities. The Fed and Hank Paulson knew that this problem threatened him and a lot of his cronies with ruin so he did what any robber would have done: He held up the American People telling everyone that Armageddon would certainly happen if the banks weren't covered for their bad bets. He had to have been particularly worried about his own plummeting net worth because Goldman stock was dropping in value just like all the other banks. In a mere 3 page paper he told the Congress and the American People that they had to come up with three quarters of a Trillion dollars virtually overnight or it was Armageddon and the world financial establishment would collapse. We are now more than one year past that amazing con job by Treasury and the Fed and many trillions has been given or promised since in a series of futile gestures to prevent Armageddon. We have been served up all manner of justification for these actions which have convincingly demonstrated to discerning observers that the Federal Reserve would do whatever it took to protect and preserve its own even if it meant bypassing the Congress and the Constitution in the process. High net worth individuals, Sovereign Wealth Funds around the world, Hedge Funds and Banks were holding the bonds in these sinking banks and GSE's like Freddie Mac and Fannie along with Insurance companies like AIG. They had been the aiders and abettors of this bubble and they stood to lose big if their badbets weren't covered. The American People didn't want it, members of congress not on the bankers payroll didn't want it, but the Fed and Treasury wanted it. Thus it happened. How on earth did it happen? Where did the Fed get the money? Ben Bernanke once remarked that, “the US government has a technology, called the printing press (or today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost”. And so there you have it. That building above is the De facto White House. It is where the real power resides in this country. It is the Fourth Branch of Government and arguably, the most powerful. That Fed with Goldman Sachs and other bankers pulling the strings,has decided that no bondholders In these banks and insurance companies will get financial haircuts and Lloyd Blankfein, current CEO of Goldman, has decreed that if he wants to pay his executives $30 Billion in bonuses this Christmas, he will, even if the taxpayer has bailed him out. It should be clear to anyone that these people have no shame and no limits to their chutzpah, their greed, and their contempt of the American taxpayer . And as I write this, absolutely nothing has happened to change or limit the influence of these Wall Street banks. They can still trade derivatives to their heart's content with no oversight whatever and they can securitize anything within their reach. In effect, they are the shadow government and they know it. The only glimmer of hope is that Republican Representative Ron Paul of Texas has a bill with over 300 cosponsors to have the GAO audit the Fed and I urge anyone who is reading to write or call their congressman to support this audit. The banks and the senators who are tools of the banking lobby such as Barney Frank, Mel Watt, and Charles Schumer are fighting tooth and nail to stop this grass roots movement which is perhaps might be the only bipartisan bill to appear in the Congress this year. I will also provide a link to a petition which is perhaps worth signing. If this bill passes, there is no assurance Barak will sign it, but that is another matter. Here is the link:http://stopbailoutben.com/?source=e2-fix. I have a myriad of sources for the information contained in this posting with especial thanks to theautomaticearth.com , and Mish at http://globaleconomicanalysis.blogspot.com/ as well as a number of other economic books and fellow bloggers out there in cyberland who I do not have the time or space to thank at this time. Ron Paul's book is called End the Fed. The gigantic building early in the blog is of course, the seat of government, Goldman Sachs.

Do Buy(!) Meltdown 2.0

2009-11-30T13:06:00.003-07:00

The blog servers are really humming now that we have all given thanks to the turkeys of the world. The grist for a new blog is piling up head high. I've spent the entire morning reading amazing takes on Dubai, Obama, TARP, and world markets. Mostly it's about how hopeless this world debt situation is and how badly it will all end. I can particularly recommend Jim Kunstler's Monday morning blog which is hilarious if a bit dark. The automatic earth is well done and continues to feature Dorthea Lange photos which are darkly appropriate . I did uncover a 6 month old in depth report on Dubai which is stunning and harks back to the day when the US had good overseas journalists. It is a must read:http://www.independent.co.uk/opinion/commentators/johann-hari/the-dark-side-of-dubai-1664368.html.
While you read about it, keep in mind that this is the place where Halliburton and Darth Cheney moved to as their corporate headquarters, the slave state hell of Do BUY!
Dubai does have some features of their society that I wish we could adopt selectively here, like debtors prison. You owe money, you go to the hoosegow. In the good old US of Tarp, we pay you if you owe money. One other curiosity was that at market close on the Thanksgiving Friday bloodbath, one of the few stocks up big was Sturm Ruger, the gun and ammunition manufacturer. Could this be a portent?

Meltdown in Dubai

2009-11-28T12:36:00.004-07:00

You are looking at the world's tallest building at 2684', over one half mile high. It is the Burj Dubai and the lightning strike of the world credit implosion hit home in the improbably bizarre desert nation state of Dubai this thanksgiving when Dubai World, a giant real estate development conglomerate told the world banks that it was going to be missing payments on its $60 Billion loan for the next 6 months or so. Dubai is famous for its extravagant Mall of the Emirates with a 5 run ski area with real snow and islands in the shape of a palm trees and the world for sale to uber wealthy nutcases. The company has dredged up vast quantities of silt from the Arabian Gulf using computer modeling to make home site islands in the shape of countries and palm fronds. Sales haven't taken off as hoped and real estate prices have gone off a cliff mirroring the collapse in Las Vegas real estate, our home grown equivalent to Dubai. Dubai is the poster child of environmental unsustainability. Dubai has little in the way of oil and gas resources, at least as compared to it's wealthy neighbors in the Persian Gulf but it somehow managed to promote itself as a financial services and destination resort to the Gulf Region but that business model is obviously at risk as are a lot of misbegotten commercial real estate projects elsewhere. The sums to bail out poor Dubai are chump change compared to what Tim Geithner and Helicopter Ben and Nasty Larry have parcelled out to Goldman Sachs and AIG but it will be a wake up call to the nincompoops who run the world's investment banks. But not to worry, maybe Tim or Lord whatshisface of the Bank of England will step up again and provide taxpayer funded help to keep this Tower of Babel on schedule along with all the other nonsensical projects in the pipeline. The announcement from Dubai was scheduled to coincide with a big Islamic holiday so it will be a few days for the financial sandstorm to clear up. Speculation has it that the big money in UAE, namely Abu Dhabi with it's giant sovereign wealth fund will step up with a bridge loan but other financial bloggers think that Abu Dhabi is fed up with Dubai and may instead come in and pick up distressed assets for pennies on the dollar. Regardless of what happens, it bodes poorly for US Commercial RE which is already in deep feces. The CDS market has been humming with risk spreads widening as the smart money seeks financial protection from high risk countries like Dubai. Some of the countries where risk premiums are rising besides Dubai are Greece, Spain, Italy and the good old USA. Premiums are dropping in former financial basket cases like Russia and Brazil. It's a curious world we live in. Happy Thanksgiving.

President Obama: Wake up!

2009-11-26T20:41:00.011-07:00

President Obama is in a death spiral, a flat spin which is taking the country down with him
This will be a blog with images of important dangerous economists who have brought this country to its knees and the few economists who have tried to prevent this economic depression. I'll give you a hint:the economists who ruined this country pictured to the left have Y chromosomes. The woman economist is Brooksley Born who tried to stop the madness being hatched by the pictured economic thugs while serving as commissioner of the CFTC. She was crushed by Robert Rubin, Larry Summers and Al Greenspan in the 1990's when she had the temerity to question the emerging cancer of unregulated derivative banking. Sadly, she is gone, flattened by the Wall Street Banking steamroller . The pictured bully boys are still atop that steamroller and now they have finally aroused the ire of Main Street, and are back on their heels fighting for their survival. Tim Geithner was shredded in front of a congressional panel last week and at one point he lost all cool and had the chutzpah to blast a republican congressman from Texas for causing the current unregulated banking debacle . The preposterous irony of course was that the debacle happened on his watch when he was the head of the NY Fed, the one person who could have done something to mitigate the disaster. He engineered the enormous bailout of AIG which had the effect of funneling taxpayer money straight into the coffers of Goldman Sachs and other huge investment banks who had made bad derivative bets both here and abroad . His crime was that he allowed GS and the others to get 100 cents on the dollar, courtesy of the taxpayer. Worse, he lied about the whole process from beginning to end. The tens of billions that went to Goldman Sachs will allow them to pay out $30 billion to their greedy executives this Christmas. Fed Chairman Bernanke has an op ed in this Sunday's Washington Post angrily denouncing the congress for even thinking of oversight and regulation of the Fed, which the Congress itself created in 1913. His is a sample of some of his outrageous assertions:

“Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation,” he said.

And when it comes to monetary policy, he said, “independent does not mean unaccountable.” He said the actions of the Fed were already thoroughly reviewed and needed to be protected from Congressional influence, “which would undermine the confidence the public and the markets have in the Fed.”

This is ridiculous, absurd, self serving nonsense. The public has no confidence in an organization that is the defacto 4th branch of the government which you could easily argue is by far the most powerful and fully unaccountable branch of government. The Fed and Treasury are dominated and influenced by the Wall Street Banks and large corporations who are confident that Treasury and the Fed will take care of them to the detriment of the country. It is the Treasury and the Fed who decide how and when to raise and print money and who gets it on what terms, not the President, the congress or the courts or of course, the people. It is no accident that Treasury Secretaries, economic advisers and Fed officers are of , by, for, and from the big banks. That these men should be sacked goes without saying, but replacing them from the same pool of Wall Street Banksters changes nothing. They should be investigated and if found guilty of indictable offenses, sentenced and imprisoned. Ex Wall Street bankers have no place in a presidential cabinet. There are many qualified folks in academe and government who could be independent and non partisan. Paul Volker demonstrated vast independence which is why Reagan and Wall Street had him replaced. Brooksley Born, Elizabeth Warren, and Gretchen Morgenson are brilliant articulate women with a proven grasp of economics and finance and who appear to be tools of no one. The obvious political problem of Obama sacking an entire economic team and Fed Chairman and cabinet secretary would make it appear that he has blundered in his choice of advisers.

In fact, that is exactly what he has done, but keeping them would be the greater blunder. These men along with dozens of others are and have been tools and leaders of Wall Street and worse, victims of their own faulty neoclassical economic philosophies and Keynesian fallacious delusions . They have perverted capitalism into a ugly mutant blend of socialism for the rich, financial fascism, arrogant imperialism all designed to achieve total economic control over the society by subverting and destroying the free market and the currency of the United States. In this they have succeeded and now that the serfs are getting restive, they are starting to fight back and crush this mini rebellion before it gets a head of steam. One little statistic I read to give a little context: the average Goldman Sachs employee earned $770,000 last year. There are over 30,000 of them. 49,000,000 Americans are hungry and 3,000,000 are homeless and over $160,000,000,000 will be paid out in bonuses to banksters this year by banks who received BILLIONS from Treasury and the FED courtesy of the taxpayer who resisted those payouts but who could do nothing about it because a tiny minority of the super wealthy corporate bankster barons now tell the people and the government representatives when to jump and how high. Change at the Congressional and Senate level to at least audit and make accountable the FED is a necessary first step. Republican Ron Paul has over 300 members of the house who have signed on to his bill to do just that. If your representative is among the 150 odd who did not, find out why.

South of the Border.....or.. BIG IRON comes home

2009-11-19T13:17:00.006-07:00

I have just returned from a trip to San Carlos,Mexico, in the Sonoran Desert on the upper East shore of the Sea of Cortez. I made the trip to retrieve our 1977 suburban, BIG IRON, I had left in a storage yard when daughter Heidi and I hopped on our Cal 48 KOHO to sail to Alaska last May. While we were en route,BIG IRON had to weather a hurricane . To return to retrieve our car I had to take a motley assortment of planes and buses and trucks to get to San Carlos. Once I arrived and saw the mess, I considered donating BIG IRON to the local recycler, but there wasn't any. I had heard there was a lot of damage to the town. There was. Houses and cars and boats washed away along with a lot of bridges and roads. And yet a lot of favorably sited structures were untouched. The local Mexicans were still hard at it ,both men and women with shovels and rakes and brooms trying to get all the gravel off the roads. The locals seemed nonplussed about it all but the resident expats were still pretty grumpy waiting to have their utilities restored. Many were still trucking in water. Anyway..back to my story. The old truck wouldn't start. She had been underwater a few feet. I was told San Carlos set a new all time rainfall record of 45+ inches of water in less than a day with normal annual rainfall only 6-8".Finding parts and help for my Suburban was a challenge with no auto parts stores nearby, no rental cars and the storage yard distant from the town. I did a lot of walking and met many nice Mexicans who all had stories to tell me. I found a used starter from a 1976 Chevy which worked. My old starter was new, which I had installed 6 months ago before the trip down but it swam with the fishes because unfortunately it is mounted low on the engine . It was corroded. I disassembled it, cleaned up the commutator, and did locate a replacement solenoid which I found on a bus trip to Guaymas, the nearest town of any size. The transmission had to refilled with new oil oil but the engine was fine. The whole job was done with a crescent wrench and vice grips and no sockets. There were lots of mosquitoes and mud and no way to jack up the car properly on supports and so working under it was a tight fit and rather messy. Other misc electrical gremlins still plague me but I managed to get it running with new gasoline. The trip north to the border had some trials and tribulations which included a Mexican tag team stealing my new CD player out of the dash while my back was turned. It was a clever trick done at a Pemex gas station with one guy distracting me while his buddy did his evil deed. I actually drove 1350 miles nonstop before I started seeing the mexican virgin of Guadelupe, the ghost of Brigham Young, and pink giraffes near Pocatello Idaho, so I had to stop to banish the demons and limp home the next morning. The old vermilion colored four wheel drive struggled up 8500' Teton Pass where it coughed and sputtered and belched and farted finally crested the summit after a few rest stops for the carburetor to gather its wits. I eventually coasted down the backside of the pass and chugged home to our log cabin in the cottonwoods. A friend asked me why I would spend $500 to bring back a car worth $400. I told him I was just doing what the government was doing.

Back to the Grind

2009-11-10T14:00:00.003-07:00

It has been 6 months since the last blog. Long difficult trip up from Mexico on Koho, our Cal48 with daughter Heidi. It is docked near Glacier Bay for the winter. I may tell the story here someday. When I left the depression had started and my retirement was toast. When I got back 4.5 months later, the depression was still starting and the S&P had staged a monster bear market rally up almost 60% so I took that as a sign from heaven that it might be time to sell. I was out of touch most of the time from the brouhaha of the industrial world and it was with dismay that I returned to the same world I left. Barak has not figured it out and remains a captive puppet to his GS Thug Advisers and the Federal Reserve and is presiding over quantitative easing pouring money into wall street banks stealing a favorable economic future from my children. In the process he is destroying the dollar(down %16 in the past 6 months against most currencies). And there was huge news from the middle east totally ignored by all the media except Reuters. Saudi Arabia is moving to have it's crude listed on the Argus US Sour Crude Index based in London. So what, you say. How is that news? It's big news pilgrim and I hope somebody notes it somewhere. KSA has been unhappy with the volatility of the crude markets which are mostly western based, and of course primarily in the NYMEX in New York. It has been the perfect playground of the speculators who play in the futures market sandbox and the Saudis think a lot of the last spike to $147 was due to the unregulated futures speculators with their contracts and derivatives. So they have had enough and they have taken their dog and pony show elsewhere. They hope to have a more stable environment for oil prices which will help their fiscal planning and we will have to see if it works for them. I did not see any reference on how crude will be priced but I would not be surprised to see if petrodollar pricing may be nearing an end. If oil becomes priced in say, the Euro or a new Gulf currency(also rumored), the US can still buy oil on the world market as long as dollars can be exchanged for the new currency. But it is another sign that the days of dollar and US hegemony are nearing an end. And the Saudis are not even the biggest producer. Russia last month produced 10.04 MBPD which may be a peak for them. The Saudi Arabia peaked 29 years ago in 1980 at 9.9 MBPD. If the Russians and Africans and Latin Producers decide to emulate the Saudis, it is checkmate for the dollar. Oil demand in the US is now down to the mid 18 MBPD which is off 4.4% from a year ago but interestingly, that is due entirely to distillate fuels. Gasoline consumption is unchanged. Back here in Jackson Hole the Depression is marching on. For the first time in memory properties are being foreclosed on the courthouse steps and with the exception of some relatively cheap condos, the foreclosures have failed to attract bids any where near the reserve prices. Hotels are turning into rooming houses and advertising weekly and monthly rates. The Point is demanding $239 a week and super 8 only %650 a month. These cheap rates for pretty nice hotels are killing the apartment and condo market especially in the commuter towns of Victor and Driggs ID and Alpine WY and vacant rental listings are flooding the want ads just as job wanted ads have almost disappeared. Naturally the residential real estate market is dead and hundreds of tradesmen and carpenters have packed their dogs and tool belts into their pickups and fled for greener pastures. Boom and bust cycles are the rule in Wyoming but a residential bust this big has never happened. Credit is drying up and a builder recently advertised in the News and Guide for a loan of $1.2 Million for which he was willing to pay %12 "guaranteed" over 48 months. All of these local tidbits have the earmarks of a deflationary depression. Ah...Life at the end of empire.

Brave New World

2009-05-04T08:54:00.002-06:00

Well I am wrapping up preparations for a long ocean voyage across and around the Pacific Ocean. The old suburban keeps swallowing more food and gear. The drive down to the port in Mexico will total 1600 miles and the ocean distance traversed may approach 7000 miles broken into two long legs. If the weather gods smile upon us and our old fiberglass cockleshell holds together we may fetch up on the coast of Alaska before Independence Day. Cousin Hal and daughter Heidi are the intrepid crew. I have started to view the trip in metaphorical terms, as perhaps grist for my novel ideas and as an opportunity to reflect upon the changes sure to come this century as our world moves from an industrial economy to a deindustrial future. I will certainly use this time to enjoy a break from the brouhaha of the clanging culture and the madding crowd as we bid adieu to television, mass culture and the internet. There are so very few people who appreciate the consequences of these wrenching changes to come and the preparations that we as individuals must make to deal with an economy on the downside of the Hubbert Oil Peak which appears to have occurred last year. From here on out the world will start to have less oil and within a decade or so less cheap energy of all types. Very few people understand that the past few centuries of exponential population growth, industrial and technological expansion was caused by free and seemingly inexhaustible fossil energy and now that cheap energy availability is ending, so will this growth. But almost no one sees this Big Picture except for a few thoughtful observers. And it is just our rotten luck to be en mired in a severe recession or depression caused by the last gasp greed of corporate financial and government figures who have destroyed a world economy based increasingly on growth and unregulated capitalism and consumption of resources of all types. The devils who caused this recent collapse are fighting to revive their failed juggernaut by seeking a transfusion from the futures of our children saddling and layering on more and more debt on to a population increasingly unemployed and poor. It is always this way. The nobles maintain their wealth by exploiting the serfs. For a while in the post war period America enjoyed an explosion of wealth and an expansion of its middle class. By working at a job making things and providing services, an American citizen could provide shelter and sustenance for himself and his family on just his income and dream of a brighter economic future for his children.This was possible in 1970 and has become less possible with each passing decade and is now only possible if you are a noble. It is no coincidence that it was about 1970 when American reached peak oil production, the Hubbert Peak. This prosperity was made possible and was in fact facilitated by this nearly free fossil energy. This same peak has now been reached on a global basis and the energy that fueled this industrial expansion is starting to run out but the consequences are still invisible to the bulk of the population. The great automobile dependent suburban expansion with its malls and industrial parks and cloverleafs much of it built in inhospitable regions is long in the tooth and starting to decay. Metatastatic sunbelt cities dependent upon cheap energy such as Phoenix have no future and will almost certainly depopulate in coming decades as the invisible economic energy umbilical is cut in a scenario laid out in exquisite elegant detail by James Michael Greer in his Theory of Catabolic Collapse. And today our politicians, our media, and our people are obsessed with a collapsing economy. They think that someday they will be able to return to an economy they experienced for the past 30 or 40 years. The investment community dreams of a return to historical returns of 11% in their stock markets. They do not see that all this growth and wealth expansion occurred because of cheap available oil and cheap energy. I think that some regions will experience true social collapse with dangerous disorder while other regions with local production of food and goods will survive and even thrive. Countries who have evolved into highly complex networked economies dependent upon cheap energy will suffer a stair step decline in their standard of living. There have been periods in this nation's history when we had a dynamic social order, when we built buildings and cities of great beauty and created enduring art. I'm thinking for example, of the Craftsman Period from 1890 to about 1920. We can return to an economy based upon local production and livable walkable communities in habitable climates but until we wake up as a nation to the futility of trying to reflate an utterly doomed model, we will not be able to approach even the possibility of building a new sustainable and nurturing society. I am reminded of the lines of Matthew Arnold's poem, Dover Beach:
"And we are here as on a darling plain
Swept with confused alarms of struggle and flight
Where ignorant armies clash by night."

mine that bird

2009-05-03T14:06:00.002-06:00

Even though I live in Wyoming I don't follow horse racing very closely as does my mother. She was screaming about this horse. You can see for yourself why:
http://www.youtube.com/watch?v=Hv8x9x5A49s&feature=featured

Sea Fever

2009-04-28T17:01:00.000-06:00

One of the best sailing poems ever:

"Sea-Fever"

I must down to the seas again, to the lonely sea and the sky,
And all I ask is a tall ship and a star to steer her by,
And the wheel's kick and the wind's song and the white sail's shaking,
And a grey mist on the sea's face, and a grey dawn breaking.

I must down to the seas again, for the call of the running tide
Is a wild call and a clear call that may not be denied;
And all I ask is a windy day with the white clouds flying,
And the flung spray and the blown spume, and the sea-gulls crying.

I must down to the seas again, to the vagrant gypsy life,
To the gull's way and the whale's way where the wind's like a whetted knife;
And all I ask is a merry yarn from a laughing fellow-rover
And quiet sleep and a sweet dream when the long trick's over.

By John Masefield (1878-1967).
(English Poet Laureate, 1930-1967.)

Sailing to Byzantium

2009-04-28T13:38:00.003-06:00

Well this is an announcement to any friends, Roamans(spelled correctly) countrymen and relations that this will be the blog for our Cal 48 sailing blog instead of the previously posted URL which for reasons unbeknownst to me I cannot edit or add to any more. Perhaps it is too old and so this will be the sailing blog, the rant and rave blog, the politically incorrect blog, etc etc. I thought this would be a good time to post one of my favorite poems by William Butler Yeats and I will have to include John Masfield soon as well just for the sake of completeness. Mexico has become a bit swinish as you may have noticed and despite the advice of Janet Napolitano, we are planning on sashaying forth into battle to load up old koho with frijoles and avocados and heading over to Hilo on the big Island. Crew will be daughter Heidi and cousin Hal who have offered to crew over. From there we will lick our wounds, restock and head up the middle of the N Pacific to Alaska and try to link up with sister Shelley. We plan to do a little work on her bush cabin and wife Karlene will fly up sometime in August for our 25th and we plan a reunion voyage into Glacier Bay. I will try to post pics and commentary as I am able in Mexico, Hawaii and Alaska. Ladies and gentlemen, I give you William Butler Yeats:

Sailing to Byzantium

That is no country for old men. The young
In one another's arms, birds in the trees
- Those dying generations - at their song,
The salmon-falls, the mackerel-crowded seas,
Fish, flesh, or fowl, commend all summer long
Whatever is begotten, born, and dies.
Caught in that sensual music all neglect
Monuments of unageing intellect.

An aged man is but a paltry thing,
A tattered coat upon a stick, unless
Soul clap its hands and sing, and louder sing
For every tatter in its mortal dress,
Nor is there singing school but studying
Monuments of its own magnificence;
And therefore I have sailed the seas and come
To the holy city of Byzantium.
O sages standing in God's holy fire
As in the gold mosaic of a wall,
Come from the holy fire, perne in a gyre,
And be the singing-masters of my soul.
Consume my heart away; sick with desire
And fastened to a dying animal
It knows not what it is; and gather me
Into the artifice of eternity.
Once out of nature I shall never take
My bodily form from any natural thing,
But such a form as Grecian goldsmiths make
Of hammered gold and gold enamelling
To keep a drowsy Emperor awake;
Or set upon a golden bough to sing
To lords and ladies of Byzantium
Of what is past, or passing, or to come.

Changes to My Blog

2009-04-20T08:41:00.003-06:00

I am using this post to announce that I am working full time for the next few weeks finalizing preparations for a trip back to our sailboat which will be "splashed" shortly for a circuitous trip around the Pacific to Alaska this summer via Hawaii in order to take advantage of favorable winds. My crew will be my daughter and my first cousin and our progress will be cataloged on my other blogsite svkoho.blogspot.com.
In one sense I will be happy to stop analyzing for a while the cultural and financial changes being wrought upon our society by the Obama administration which in the financial and business arena marks almost no change from the previous two administrations. Barak Obama and his advisers are obviously fully in the pocket of the corporate and financial power elite every bit as much as was bush#43 and any lingering hope I had for a political leader who would lead this country down a path of building a new America which respects the sovereignty of other nations and a new America which will lead the way to develop a new economy based on reorganizing our economy around rebuilding our manufacturing base to produce items of quality, building an energy base of sustainable energy and conserving scarce resources for my children......is largely gone. The power of this wall street financial power elite aided by the Treasury and The Federal Reserve with the acquiescence of this president to control the economic destiny of this nation bypassing the Congress and the people is at the moment unchallenged. If the Congress does not act soon to review or repeal the new powers of Treasury and the Fed, then our democracy, our economy, our currency and the future of our country looks bleak indeed. This president and his advisers are astoundingly stupid if they think that reigniting a debt and credit bubble will lead us back to prosperity if it was that same over expansion of debt and credit that led to this collapse. But this is apparently what they think. They do not understand that you cannot make chicken salad out of chickenshit. The Republican party operatives made no pretense of concealing their allegiance to this elite. The Democrats pretend to care about the common man and the middle class while embracing policies indistinguishable from the Republicans. Neither of these parties are seeing that this century will be the beginning of a deindustrial civilization as the virtually free fossil energy resources dwindle and eventually disappear taking down a world economy of ever expanding growth which was only made possible because of that free energy. Our clueless leaders and the sheep they are herding see the future as an extrapolation of the past and the present. They do not see that the immediate past and the present were made possible precisely because of the discovery and utilization of a magical source of energy which fueled expansive economic and population growth. Like today's generals, our leaders are fighting yesterdays wars using outdated assumptions and tactics. Some of Obama's ideas have merit of course but so many are misguided and unaffordable. An example is high speed rail which requires an entirely new rail system 5X as expensive as just simply expanding existing rail capacity. The Obama administration has had some limited success trying to patch up old alliances destroyed by his imbecile predecessor by kissyface overtures and a demonstrated willingness to listen but his failures on the economy are simply horrendous primarily because being a lawyer instead of a doctor, he has not the slightest understanding of the principle of triage: You ignore the mortally wounded and the wounded who will survive without help and you concentrate your resources on those who can only survive with aid. But this administration lacking good judgement about what sectors of our society are important and what are not is trying to save everyone with money we don't have.. Barak Obama so far is a perfect example why a smart person with bad judgement is a stupid person. Bush43 was a stupid person with bad judgement who has been replaced by a smart person with bad judgement. Either way we are screwed.
And as I mentioned in the beginning of this post, for the next several months I plan to inhale fragrant trade winds and gaze at a galactic night canopy deliciously oblivious to the collapse taking place back home. In this case, no news will be good news. Ciao.

Larry

2009-04-09T15:26:00.004-06:00

Our dear leader Larry being interupted by some protestors recently.
http://www.bloomberg.com/avp/avp.htm?N=av&T=Lawrence%20Summers%27s%20Remarks%20Interrupted%20by%20Demonstrators&clipSRC=mms://media2.bloomberg.com/cache/vWUwDBmvyTxo.asf

2009-04-09T15:25:00.003-06:00

Iceland and the Law of Fraudulent Conveyance

2009-04-09T12:34:00.002-06:00

As readers of this site may know, I am an keen observer of the ongoing drama in Iceland. What is going on in Iceland mirrors the drama in a good deal of Eastern Europe as well. There are people who would lead you to believe that the recently concluded G20 meeting in London achieved positive results for the world economy. If you believe what Dr Michael Hudson wrote in a recent article on the G20 and the IMF,nothing could be further from the truth. G20 nations offered to contribute about one Trillion in funds to the IMF to loan to these strapped emerging nations who are already loaned out and cash strapped. Dr Hudson, if I understand his conclusions, has said that these loans if they are accepted will just prolong the debt agony of these countries and have the true surreptitious purpose of returning these loans to the European banks that foolishly and perhaps fraudulently loaned them money in the first place, in effect a giveback to the banks by imposing onerous conditions on the workers and economies of these struggling nations. This is a serious charge but the most interesting part of his article was his explanation of a law in the state of NY called the Law of Fraudulent Conveyance. This was a law passed before the American Revolution to deal with a predatory practice of British speculators at the time. These brit speculators would loan money to upstate farmers and then demand payment before the crops came in and obviously before the farmers could get paid for their harvest. These creditors could then foreclose on these farms. And so this law was passed establishing the legal precedent " that if a creditor makes a loan without having a clear and reasonable understanding of how the debtor can repay the money in the normal course of doing business, the loan is deemed to be predatory and therefore null and void." Whoa partner! If this principle were to applied to many of the Iceland or Eastern European loans, the lending banks could find themselves out of luck. But I'm not holding my breath. The IMF has the same stranglehold on emerging market countries that the US finance and Insurance executives have over the American people. The IMF must know that there is almost no way for these countries to pay off these loans in much the same way that money loaned to emerging African countries decades ago was paid off. I think one can make the case that these loans were predatory and deceptive and therefore null and void and should be defaulted upon. I would think that the strategy should be for these countries to approach the IMF as a group rather than letting the IMF pick them off individually with sanctions. Dr Hudson makes the statement that no country has ever paid off its national debt and the IMF is demanding repayment of these loans on the backs of the labor of its citizens and by trading sovereignty and valuable national resources for this debt. If Dr Hudson is correct, these countries should either demand terms that are fair to their citizens or walk away and say "Enough!"

Terminal Keynesian Psychosis

2009-04-09T11:49:00.003-06:00

I was listening to NPR on my way back from my morning workout when I heard that Ben Bernanke and Larry Summers had said that they saw evidence of "green sprouts" starting to appear in the economy. This is the same deluded Bernanke who recently said the recession would bottom by mid year with recovery late this year and into 2010.This is the same guy who professes to be an expert on the great depression. In medicine we call people who who create their own reality "psychotic" when their reality does not conform to the generally accepted perception of the bulk of humanity. And Larry Summers said much the same thing. Now people, keep in mind, these our your national economic leaders. It is possible that Larry and Ben believe what they say.. It is even possible they might be correct.But I think it is also possible they are suffering from TKP syndrome, or Terminal Keynesian Psychosis and folks who suffer from this terrible disease for which there is no known treatment must be treated with compassion and bundled up and led away to the Potomac State Home for the Economically Confused. Ilargi on the excellent site Automaticearth a few days back ran some graphs comparing the Great Depression looking at today's recession or depression from a world wide perspective. I will not reproduce the graphs here. They are stunning. The graphs compare world industrial production, world trade and world equity markets. The drops we are experiencing today are steeper and more severe than the period starting in 1929. I am willing to believe that there is a possibility that Larry and Tim and Ben and Alan and Neil and all the other economic keystone cops in DC are correct but looking at the data I have dredged up, I certainly cannot see any green shoots pushing up through the rubble.

Pitchforks and Torches

2009-04-08T08:13:00.003-06:00

This post image reflects a recent comment by President Obama addressing bankers in which he used the phrase of "pitchforks" being wielded by unhappy citizens.It's a surprising image harking back perhaps to the 1931 film Frankenstein when the villagers came at Dr Frankenstein's villa looking for the monster. It gives me a glimmer of hope that the president is at least tuned in to America's increasing rage at the financial establishment who has destroyed their world. Of course torches and pitchforks are just a metaphor. How many Americans own pitchforks and how do you make a torch? I took part in massed demonstrations in Washington DC against the Vietnam War years ago and despite the hundreds of thousands outside the white house expressing displeasure at our pursuit of a futile war, I never felt any real rage was apparent then, but I think the first stirrings of rage against the financial establishment in and out of government could be gathering strength. I personally do not think mob action is the way to run a democracy because mobs can get out of hand in a hurry but democracy in America is more of an illusion than a reality. We have a financial corporate power base which has hijacked the American democracy. Finance has become so powerful that it can bypass the congress and the will of the people. Has there been a referendum put before the people asking them if they want to mortgage their financial future and pay for the mistakes of these financial plutocrats? No. Of course not. Treasury and the Federal Reserve don't need to ask permission to loot the taxpayer's wallets. They just do it and will keep doing it until the taxpayer says "ENOUGH!
I hope that we will see a popular uprising against the Influence of what has been called the FIRE economy(Finance, Insurance, Real Estate). In fact today the Insurance industry has come hat in hand for more federal bailout money. It is past time for Americans of all persuasions to write congress and the president demanding change we can believe in. This president has been blundering forward using advisers tied to finance. In the meanwhile we have lost our manufacturing capability to these looters. The president fired a manufacturing CEO at GM but the criminal incompetent CEOs at AIG,Citi, JPM and GS live on with still huge pay packages plundering the people who are fast on their way to serfdom. I think that finance is now analogous to 19th century robber barons and thank god that America had a fair minded conservative president Teddy Roosevelt who engineered anti trust legislation which reduced their power. The same thing needs to happen now. I hope it can happen peacefully but Barak has shown no willingness to even consider or discuss the seriousness of this issue.Many Americans have weapons at home far more lethal than pitchforks and once enough of them have nothing left to lose, watching corrupt corporate bankers receive another bailout could be the straw that finally breaks their back.

Woman Power

2009-04-06T13:16:00.007-06:00

If you don't know these women by now, you should! That is Professor and author Elizabeth Warren of Harvard to the left who is overseeing the TARP program and who has been increasingly vocal demanding accountability from the wall street bankers who have probably caused the next great depression. The woman above is Brooksley Born who ran the CFTC in the late 90's and who is now famous for questioning the morons to her left about the risk of the then new financial derivatives. Now we know that she was right and they were stupid. Old Larry Summers even questioned the female brain's limited ability to understand math and science. He was fired from Harvard for those remarks but thinks worked out for him as he went over to the $33 Billion Wall Street hedge firm DE Shaw on for a much better salary(millions). As for Brooksley, well let's just say that they did not appreciate her remarks and they proceeded to shun her and run her out of the beltway on a rail. The reason I mention these fine women is that I had a friend ask me recently who I would replace the current unindicted economic co conspirators in Barak's economic cabinet if not with more corrupt minions from GS, JPM and Citi. The problems we have were caused by these Wall Street financial miscreants and the problems will not be fixed by them. These two women, BB and EW popped immediately into my head as women who were knowledgeable in economics, law and government and uncorrupted by same. And so it got me to thinking about why is it that all these greedy financial weapons of mass depression have been men? And as Michael Lewis in the April Vanity Fair article"Wall Street on the Tundra" pointed out, the main political party in Iceland was virtually 100% male as were all the perps in that poor country's financial meltdown.So my modest proposal is that as a country we should make sure that women are involved in decision making at the highest levels in government and finance. It is possible they could make the same stupid mistakes as old misogynist Larry but I think women have a perspective that has been ignored and in the case of Brooksley Born ridiculed. I have no doubt that if Brooksley's warnings were heeded at the time, we would not be in this mess to the depth that we are today. Every new pronouncement from Tiny Tim and slinking Larry just makes me want to rend more of my garments in despair.And Barak Obama shows no sign of getting it. His latest appointee Gary Gensler to head Brooksley's old job at the CFTC is insult upon injury. This guy was a protege of Senator Phill Gramm, Bob Rubin and Greenspan in the 90's and is himself another Goldman Sachs partner. He is another horrible nominee from the same fraternity who destroyed the world. These people should be pilloried, ridiculed and in some cases indicted for the damage they have done and instead the have been offered positions as foxes in charge of the hen house.

April Fools

2009-04-01T10:40:00.003-06:00

These two fellas pictured to the left are the most prominent members of my Rogues Gallery of Perps who destroyed the world's economy and as you may have noticed, they are nowhere near done. Oh by the way, That is Tim Geithner nibbling the ear of Larry Summers. Why am I being so harsh to old Larry and Timmy? Well, because they are the most visible and incompetent rogues currently in vogue. They both are nibbling on the ear of the president and have the potential to fatally derail his presidency. The list of rogues is long and in one of my future blogs I hope to try to compile a list for induction into my Great Depression Hall of Fame or perhaps my Great Depression Hall of Shame. I have been studying the history and causes of this Great Depression for 8 or 9 months trying to tease out the villains and their responsibility or culpability in this mess here in the land of Absurdistan and Larry Summers and his protege Tim Geithner play a prominent role. Larry was an economics professor at Harvard and a former chief economist at the world bank. He took over from Robert Rubin who was a Co Chairman at Goldman Sachs. As you may know Bob went through the swinging door between banking and government to Citigroup Vice Chairman. Larry Summers before assuming the Treasury Post had been working behind the scenes with Republican banking interests led by Senator Phill Gramm which led to sweeping changes in banking deregulation and the passage of laws that have led to this Depression today. Rubin and Summers worked hard with the Goldman Sachs bankers and others to repeal the Glass-Steagall depression era act which had separated banking from investment banking, insurance and brokerage.Now a bank like Goldman Sachs could move everything under one roof and Bill Clinton in a foolish action far worse than Monica, signed it into law. It would turn into a disaster. The next act by Larry Summers in terms of its ultimate impact on this depression is probably far worse. He and his boy in the office Tim Geithner, were instrumental in passing the Commodity Futures Modernization Act of 2000 which abrogated any oversight from Federal Agencies such as the CFTC on financial derivatives such as Credit Default Swaps(CDS), interest rate, currency swaps and other financial "vehicles" which Warren Buffet has called Weapons of mass financial destruction. The exposure of US banks to the downside risk of exposure to CDS was recently released by the Comptroller of the Currency in its quarterly Report:
http://www.occ.treas.gov/ftp/release/2008-152a.pdf.
It is a 33 pg pdf and amazingly readable but take a look at which banks have the greatest exposure and make sure you are sitting down. These CDS are why Paulson and Summers and Co. forced the US taxpayer into owning AIG by the way. Turn to pg 13 and look at the numbers: JP Morgan Chase holds $88 Trillion, BOA $38 Trillion, Citibank $32 Trillion, Goldman Sachs $30 Trillion and Wells Fargo $5 Trillion. Just 5 of the biggest US banks hold $193 TRILLION in derivative exposure! It was these banks who received a large share of the $170 Billion sent to AIG. These CDS are indeed toxic assets dwarfing sub prime CDOs. Is it any wonder that the banks and the Obama economic team want to hide horrific numbers like this from the taxpayers and the rest of the world? If I am reading this report correctly there is no way in hell to remotely pay off these bad unbacked bets.
I'm sure Larry Summers and Tim Geithner had no idea that their actions had the potential to bring down the world economy when they pushed through this disastrous deregulation 10 years ago. They were foolish, stupid and clueless then. So please explain to me why Barak Obama chose these rogues to head his economic brain trust?
As I point out time and again, the Financial interests have hijacked our government and are furiously lobbying the Fed , the Treasury and the Congress to bail them out by tapping the taxpayer with their immoral and unfair privatization of profits and socialization of risk. They must be stopped and our only faint hope is the education of the taxpayer and our representatives. Simon Johnson who was the chief economist of the IMF in 2007-08 has an article in the latest Atlantic which lays out in great detail the magnitude of the current unfolding disaster. A must read:
http://www.theatlantic.com/doc/200905/imf-advice.
And finally I have a humble proposal. One of the history's great bubbles was the South Sea Bubble in the 18th century in which bankers conned the British government into buying bonds which eventually were defaulted upon. A resolution was introduced in Parliament asking that the British bankers should be stuffed into a sack with a hundred angry snakes and tossed into the Thames. I think it is a resolution we should reactivate in our congress.

Psst! Timmy.I think we have a problem

2009-03-27T10:48:00.008-06:00

This monster on the left is supposed to be a hydra headed monster, a metaphor for the dangerous silliness going on in DC. You thought the banks were insolvent because the real estate market tanked because immigrant strawberry pickers were falling behind on their San Joaquin Valley mcmansions after their ARMs reset. Well actually it's a little more complicated than that. George Soros the other day dropped a bomb predicting a big drop in commercial real estate in the US but actually ComRE has been imploding elsewhere. One of the German Government's early bailouts was a real estate firm. So I decided to try to find out the percentages of loan composition on these banks balance sheets and this is what I found:
Residential mortgages account for only about one quarter off their loan portfolio(26%).
Commercial,Industrial, non farm nonresidential and construction loans amount to 40%. Public anger is growing to more bank bailouts and a drop in the value of banks commercial loan portfolios could trigger the next grand mal seizure in the banks not to mention in any derivatives or SIVs tied to commercial real estate. Hello AIG! Don't Ask! Meanwhile over in Europe ahead of the G20 meeting in London, the President of the EU, Mirek Topolanek yesterday said the Obama economic policies are putting it on "The Road to Hell." My sentiment exactly.

The Summers/Geithner Burka

2009-03-24T10:55:00.004-06:00

I have spent the past 2 days looking at Trashy Tim's latest regurgitation of Horrible Henry's failed TARP program and the long blog I wrote examining the pros(none) and the cons(many) so depressed me that I sent it to my digital landfill and I will now try again. If you were hoping that that ill stared Obama Economic team might finally come up with a credible and fair plan to address the financial crisis, you had better think again. Henry Paulson's plan was bad but it was 3 pages and it was pretty clear. This plan of Geithner and summers is anything but clear. It is vastly complicated and I think a disingenuous obfuscation designed from the outset to confuse and obscure what it is: a gussied up cash for trash program which is yet another attempt to bail out the banks and foist the losses on the taxpayer . We are early in the economic depression of this country and you have to keep in mind that we have a real hydra headed monster on our hands. This particular stupid plan is more than a pig with lipstick, It is a pig with lipstick under a burka. It is a way to avoid bank nationalization and prop up insolvent banks. It involves setting up yet another government entity to buy up nearly worthless toxic debt held by banks. In yet another end run around congress and the American people, it involves dragging in a a heretofore solvent FDIC to be its pimp.It would create a "public/private partnership" using very little private(3-7% it seems) and the rest taxpayer money loaned at low interest to private equity firms and hedge funds in a hokus pokus scheme to try to talk up the prices of this trash by a mysterious auction process . You see the banks are insolvent if you pay 30 cents on the dollar for this trash and some are probably insolvent even if you pay 60 cents on the dollar,which is what the banks think a lot of them are worth. So there is a spread between what the market thinks and what the banks think they are worth and Geithner wants this "partnership" to pay what the banks want rather than what the market wants. To attract the hedgies he has structured it so they get most of the upside and the taxpayer gets most of the the downside. The loans to the hedge funds are non recourse loans as well which is what the hedgehogs wanted, meaning that the loans are secured by the asset(ie., the trash). It looks like it was written by the hedgehogs for the hedgehogs. This plan has Larry Summers fingerprints all over it. You may recall he was fired from the Presidency of Harvard for degrading and derisive comments about women. Where did he go for his next job? To DE Shaw, a big NY hedge fund.
People of the United States! Wake up! Your government has been and is still being run by and for the moneyed and financial interests of Wall Street and the Banking and financial fat cats who care not at all for the economic future of your children. These people , the Treasury and the Fed ARE the government. Even the Congress is powerless and of course the congressmen in the important Banking and Finance committees get the bulk of their campaign contributions from banks,insurance and real estate interests. And the really really sad thing that hit me is that Barak Obama in this financial debacle is George Bush in blackface, just like Al Jolson. His whole election is starting to look like a fraud. Virtually nothing has changed at the Fed and at treasury. Geithner's plans and Summer's plans are Paulson's plans. Bernanke's plans are Greenspan's plans. If Obama goes along with these Wall Street insiders in his economic cabinet, his presidency is doomed.
I was delighted to see a picture of Barak's pretty wife with a rake or hoe turning over sod for the white house garden. As I looked at that picture, it occurred to me that the country voted for the wrong Obama.