Sunday, December 26, 2010

Oh Canada

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 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.

Thursday, December 16, 2010

Time for a Haircut

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.

Monday, November 29, 2010

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

easter rising
     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.potato gunpots and pans

Wednesday, November 17, 2010

Wake up Call on China

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.

Tuesday, November 16, 2010

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

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:

IEA                                                                                                                                                                                     Click to this link if you want a enlarged look also at this graph and others : 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.

Monday, November 15, 2010

Burn the Bondholders

 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.

Saturday, November 6, 2010

Spartacus 2.0

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.

Wednesday, November 3, 2010

A Visit from a Circuit Rider

     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 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.



Monday, October 18, 2010

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

  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 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.

Wednesday, September 22, 2010


   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.

Sunday, September 19, 2010

A Saudi Collapse

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.

Thursday, September 9, 2010

Black Swan from Outer Space

    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.
       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.

Saturday, September 4, 2010

No Jobs=No Future

      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.

Friday, September 3, 2010

Hindenburg Omen

         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 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.

Saturday, August 28, 2010

A Real WYO Dog and Pony Show

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:
    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" 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.