I'm Back

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

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!!!

Should we move to a pure natural gas transport model?

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.

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:

• News
• World news
• Hosni Mubarak

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?

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

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.