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Wednesday, October 31, 2012

The Other 47% ...


As was noted at the beginning of an article on the IRA ( Institutional Risk Analytics) website, entitled, "Dennis Santiago: Placement Considerations for Large Deposits in Banks for Major Counterparties":

"roughly forty-seven percent (47%) of the money major depositors placed into the banks since 2008 was in turn placed into the government."

So the same people, (since the major depositors referenced are US Corporations), that complain about Obamanomics as being bad for economic growth, fund the huge Federal deficit while simultaneously accepting sub-par returns on their capital just to make sure he's not re-elected. 

What this suggests is that the Bernanke agenda of keeping interests rates @ 0%, thereby artificially elevating asset values above their market price, makes entry into the stock market essentially a sucker's game. Why risk your capital to fund CEO golden parachutes, only to watch it disappear at the next downturn, when it's only ending up invested in Treasuries anyway? It's much safer to simply buy Treasuries.

But beyond that, the question it brings to mind concerns an article on Bloomburg called, "Who Loses When the Fed Keeps Interest Rates Low?" Well, everyone, essentially, for the short answer. But that begs the question. Because what the two articles really disclose is the sheer impossibility of citizens to save, or even consider saving, for their retirement future. Or, for that down-payment on their first house, their children's college fund, or anything at all beyond a Christmas club.

The incapacity of the largest, richest corporations in the history of the world to do anything constructive with their capital, or to fund the pension promises they've made to employees, or for insurance companies to pay the life-insurance payments promised to their insureds, because they have no hope of obtaining the kind of returns necessary to pay the amounts they contracted with their customers to furnish, makes one wonder how people can blame seniors for reaching retirement with no savings?

This has always struck me as bizarre. Major corporations with access to all the markets in the world offering superior products, using wage suppression, via trans-border labor arbitrage and reduced benefits (when I first entered the workforce, it was quite normal for employees at even supermarkets to get 12 paid holidays/year: 12!), can think of no way to get a better return on their capital than to sink it into Treasuries, that provide a hopelessly low return inconsistent with their plans for paying their retirees, even though the Corporations employ a staff of financial analysts, accountants and tax attorneys, yet Joe Schmoe, who's now not just an employee, but an Associate, which basically gives him the opportunity to constantly be bothered  by the Firm, even when not on the clock, with less compensation than a generation ago, is supposed to be able to somehow, with no access to any of the resources a major Corporation takes for granted, save and invest for an event that'll occur 20/30/40 years in the future.

Oh, and while they're attempting to do this, the Fed is blatantly manipulating the stock market, placing a high premium on entry, keeping home prices elevated beyond the reach of wage-earners, destabilizing the currency (making any foreign investments too risky to contemplate, as exchange rate fluctuation can wipe out not only all the earning but also depreciate the capital itself), and jeopardizing the value of Treasury bills by expanding its balance sheet $2Trillion with the purchase of hopelessly overvalued "private" MBS paper.

Then to make matters worse, these overworked overtaxed citizens are expected to make wise investment decision by reading the prospectuses of the companies they intend on purchasing. I saw one today. It was 56 pages long.

"Well", you may say, "That's how it works". Really? How about all the time diligent investors spent poring over the prospectuses of Bear Stearn, Lehman's, Countrywide, Enron ... I could go on, all of which were gone over and approved by Accounting Firms that then, before the FASB changed the rules and relieved accountants of the onus of being, well, accountable, affirmed the veracity of the prospectuses of said companies even though they were little more than a compilation of lies and purposely deceitful legerdemain. How else to explain the fact that on the Monday before Bear Stearn's collapse, it was worth $129/share; by Friday: $0? ... so much for EMH, or due diligence.

The value of a 401k is that you can take your retirement savings with you when the company lays you off (that was a definite downside to Defined Benefit pension plans: one of the benefits so defined was that if you stayed 19 years 11 mos, you had no retirement savings: 20 years. Anything less, tough luck). That is if you're vested 100%, otherwise you lose proportionately more the less time you've been at your job. But allocating the resources they'd managed to eke out of their paycheck is a job that the employees of the largest investment banks, working in the middle of the most intensely capitalistic economy on the globe, utterly failed to do. All those employees laid off from Lehman's, Bear, Merrill's etc, milled about on the sidewalk in despair, as they were penniless ... wiped out.

Of course, all this is assuming you're not a government employee whose compensation packages can include, as I saw last night on the news, $295,000 a year ... yes that's right, a year: more than most private company employees have in their 401k's after 25 years of saving that's supposed to last the rest of their lives. All the risk is on their backs, too, while the public employees take none of the risk. Oh, and that referenced compensation wasn't the Mayor's, or any highly placed politician, nor even a Police Commissioner, yet his yearly pension was approaching that of the President of the US's $450k annual compensation, while working. This is completely untenable.

So when you hear about the 47%, make sure you remember the other 47%, and contemplate the real meaning of Capitalism. The capital sitting in the Capitol in Treasuries, and the capital paid to lollygagging public employees, most of whose output is little more than a welfare recipient's. They used to personify the USSR with the adage, "We pretend to work, and they pretend to pay us", but now they pretend to work while unionization means the rest of us get to pay them far more than is ever possible to receive working in the private sector, far beyond what used to be retirement years, in order to fund unionized public employees' early retirement packages, the likes of which we have no hope of ever negotiating for ourselves.

Get the picture? The public employees =  the Greeks, 
                            The private employees = the Germans.

Prost!














Tuesday, October 30, 2012

A Float on the Current Sea in the Ship of Fools.


Robobops.

The interesting article in the NYT this weekend regarding the use, or overuse, of energy by data centers, is right at the heart of the Current Sea Wars.

Economics is about Politics, politics, politics. And therefore Power. So if power is held in the hands of an ever decreasing minority, all economics will be bent on serving their needs.

Ten years ago in Time magazine's "Green(!) Issue", they ran an article explaining how much more green it was to order a book through Amazon, than to go to your local book dealer and buy one there. Adding into the energy cost the fuel burned to get there, (as though people leave their house and rush out to buy a book, when in reality, they do so when they're out doing other errands instead), made it, I felt, an unfair comparison.

At the time I was in South Sioux City doing  network installation for Gateway Computers, and was well acquainted with the overall energy consumption of these huge date centers that gobbled up power and sucked up A/C (air conditioning). And as the NYT article suggests, it's only gotten worse ... far worse ... since then.

How could it possibly be otherwise? Each Amazon purchase is supported by an infrastructure of enormous complexity and extensively backed-up data using electro-static memory devices. Like the transistors of which they are composed, the computers have to be "biased" by constant voltage, like a baseball player, or Tennis player, stoked and ready for the next service request, the computers have to constantly "spin their wheels" to check for interrupts that the processor needs to service and then forward its packet to the next server, gateway, router or switch in the network.  And as if this weren't enough, using electric wire, not fiber, like much of the data backbone the service requests rides over to get to the switch, it is copper.  And electrons flowing over copper wire always and everywhere produce the byproduct of heat.

Which brings us to the best-known energy hog in modern existence, the air-conditioner.

Without a/c there simply would be no internet. Although on an individual basis, the components that comprise the switching equipment in remote locations are without the stringent cooling requirements of the old Mainframe-based proprietary networks, the  concentration of the devises in data centers generates so much heat that their operation would be fatal to the internal components without external cooling; and lots of it. But that doesn't mean that these data centers are built anywhere near locations that could use all the excess heat they pump out, the main concern is instead, how low the taxes are in said location.

As if those (Amazon is a good example) businesses on the internet don't get enough unfair advantages over their more terrestrial-based competitors as it is. NO SALES TAX for the same article you would pay sales tax for if it were a local purchase, plus free shipping are two boonies without which the internet would not exist in the form it does today.

And using cheap power at that - subsidized by your tax dollars, as every form of carbon-based energy is, via depletion allowancees, land-rights, and a thousand other nods to the energy-wasting industry. So just as we built bigger and bigger trucks and cars during the nineties, even as fossil fuel became more and more scarce and the sources we bought it from more and more inimical to our interests, so today, even as the supply of electricity becomes more and more problematic, and the delivery system creakier and leakier, we turn a larger and larger part of our everyday vital functions into computerized hostages, completely unable to do the simplest task without electronic intervention.

There is absolutely nothing "green" about this state of affairs, nor anything "secure". A product of the Defense Department grown from its initial RLG (Research Libraries Group) network, that I was involved with at its initial installation at Stanford University in Palo Alto, Ca, it was devised and implemented by Darpanet, where the "D" stands for defense (originally it was Advanced Research Projects Agency Network (ARPANET)). Then it was an X.25 network riding over a backbone of Telematix switches, and was inaccessible to anyone outside RLG.

Then the fight was raging over OS, not operating system, but Open System, such that a subsystem curiously resembling IBM's SNA architecture would be more-or-less laid over the public network. Thus non-IBM Sperry-Univac, or Burroughs computers could send data to the then-dominant IBM world. What was eventually apparent as a growing problem, to anyone from the IBM world, was the very openness, and therefore insecurity, of the standard being proposed.

In other words, the very structure that was built by our own defense department for our "security" was the very tool that the perpetrators of that other perfect storm to hit Manhattan, the attacks of 9/11, were brought to us by. It was not the military's presence in Saudi Arabia, against all Muslim laws of that land, that enabled that assault - that was only the incentive. To spring the attack on us required something they never could have developed or used if the Pentagon's and the other best minds of the US, had not all been bent on the destruction of Labor's power by enabling the complete off-shoring of it's most polluting and high-margin manufacturing. A process which was used, quite consciously, to remove any voice of resistance from the people and to complete the build-up of the total Security Surveillance State: the gentler kinder SS.

People may scoff at you if you suggest the WTC pancaking collapse or building 7's subsequent implosion as being effected by having explosives in themto bring them down, but the technology and the infrastructure that Bin Laden and AL Qaeda used to plan and carry out their atrocity were all supplied to them, albeit indirectly, via the American Military: that is not conspiracy theory or fanciful thinking, that is simply fact.

And now, they want us to believe that the forces that are burning ever and ever greater amounts of fossil fuels and therefore pouring enormous, and ever-increasing, volumes of CO2 into the troposphere, just to GET the resource, are "Green".

 We are fools. Me, for sitting at this marvel of the modern age and spewing forth invective about the very system that gives me the tools needed to do so: the internet and this PC I spend hours sitting at researching and typing, and the rest of you for really, actually believing the tripe they spoon out, making me feel it's necessary to enlighten you (but who the fuck am I? Why should/would anyone listen to me?!). We're all fools. This isn't the Titanic, the "Economic Collapse" blog would have us liken the sinking ship of state to, it is more like Katherine Ann Porter's "The Ship of Fools".


















Monday, October 29, 2012

Erace with Debt.





In an article in the NYT last week, Annie Lowrey decided that  American households taking on more debt than they are shedding is an epochal shift that might augur a more resilient recovery.

This one sentence alone has so many things wrong with it I dreaded the rest of the article, and was proven, upon its subsequent perusal, completely right.

Let's look at another headline,   "Three years ago, Greece could borrow for two years at about 2.0%.  The marketplace recognized that Greece had buried itself in debt, although players were as well confident that Europe would never allow a Greek default.  By May of 2010, Greek two-year yields surpassed 18% and the nation was hopelessly insolvent. "

So a sovereign nation with the full backing of the ECB had its interest rate soar from a mere, better-than-inflation rate, (so the more they borrow, the better off they are, right?) 2% to 18%. Why? Because it had buried itself in debt. Albeit cheap debt. Cheap because the Euro was the currency it was based in and Players (yes, those with the prospects of hundreds of millions of people under their control are mere "players", always poised to take their stake off the table at a moments notice) were confident. As though confidence, no matter that it's based on lies, distortion, fraud, financial manipulation and outright chicanery, is always and everywhere a good thing.

But like leverage itself, it depends on the underlying collateral and how many claims are supposed to be satisfied with it.   Is their confidence based on subprime facts or real data? If interest rates are not really a cost of borrowing, but are, more accurately, a measure of risk how does a sovereign state's risk profile change so dramatically, and if theirs does, how much easier for an individual's to.

For let there be no mistake about it, what Annie Lowrey is really saying, is that the US consumer is once again taking on even more risk when they have no capacity to mitigate the disastrous consequences of that risk they took on years ago. And in fact, when Ms Lowrey states that it may augur a more resilient economy, is she mad? Does she not hear herself echoing the words of GW in 2008, as the economy was clearly imploding, as he assured Americans (no one else was stupid enough to still be listening to the King of Krony Kaputilsim) that the "resilience" of the US economy would enable it to weather the subprime debacle he'd created, when in fact, it had become increasingly brittle and unstable from confidence in debt instruments that were based on eroding foundations.

Debt based on real assets with the prospects that those assets will engender return on the Capital invested, such that interest payments can then be provided for by the ensuing profits, can result in a robust economy. And returning to THAT paradigm, might now be considered epochal. However just because:
"consumer confidence has soared to a five-year high, according to a survey by Thomson Reuters and the University of Michigan. And economic growth numbers for the third quarter showed household spending picking up pace as well", doesn't necessarily mean future prospects are as sanguine as she pretends. For she mentions nothing of household INcomes, just household Spending. And in fact, per the BEA:  "While Personal Income rose at the expected pace of 0.4%, (an increase completely cancelled by inflation) Spending in the last month came well above expectations of 0.6%, printing at 0.8%", making the creaking sound of this resiliency make me go running for the WD40.

Meanwhile, Doug Noland in his latest Credit Bubble Bulletin on Prudentbear.com, entitled, "The Perils of Bubbles and Speculative Finance", writes: "we live in a highly over-indebted world that becomes only more so each year.  Moreover, the global system is today in an exceptionally high-risk phase of rapid non-productive debt growth in concert with historic financial and economic imbalances.  Global policymakers are desperate to reflate debt and economic structures, in what I believe is both ill-advised and inevitably destined for failure."

He stated a similar reservation of the future of the financial mania infecting the globe in 2008, while the Fed's beige book published 6/28/2008 stated it foresaw no true economic contraction, clearing the way for Fed to concentrate on inflation, thereby intensifying the severity of the downturn, as the economy had been in recession since Q4, 2007.

This makes Taleb's "Black Swan" comment that "almost all bankers, and most economists, are subhuman and very, very dangerous", quite germane.

As if to prove as much, Ms. Lowrey ends her article with the observation that: "The Great Depression scarred an entire generation,  affecting how households borrowed and spent for decades.   We don’t yet know whether consumer behavior has been fundamentally changed by this crisis or not.”

Annie apparently has no concept of the US economy pre-Great Depression: most households simply had no access to credit, so the GD had practically no affect on how the vast majority of households borrowed: they didn't. 

Watching hurricane Sandy pummel the East coast, while hearing Climate-change deniers from the same vicinity, one wonders how many times the US has to be hit over the head to realize the center of the problem is, for once, receiving the brunt of the consequences of its actions. How much longer before the same will be true for the monetary madness it's currently, once again, inflicting on its citizens, and, more ominously, the world?






Friday, October 26, 2012

Ka-ching in Beijing: You essay, we betray..


Limbotomy: Leaves you with the heart of a chicken and the soul of a pig.





Today on ATOL's website, an article by Henry CK Liu, entitled "Beijing requires retail revolution", called for the Chinese to form a GSE to encourage retail outlets for Chinese consumers as a counterpoint to Walmart et.al's market power and stranglehold on their economy.


It sounds good on paper, perhaps, but as evidenced by US consumers, it takes an environment of excess to foster the kind of mindless consumerism that underpins the US economy. 

The cigarette economy is one in which considerations for the future:  your retirement, children's education, rainy-day fund, are all sacrificed to the desire of the moment for stimulus and the pleasure derived from satisfying the immediate, completely artificial, needs of that moment.

Opening up K-marts all over China isn't going to change that, because Chinese peasants aren't going to spend their children's future on Revlon Foundation, high heels, pantyhose, perfume, bottled water and soft drinks, cigarettes (well, maybe cigarettes), and the panoply of other money-sucking habits that on any particular day seem inconsequential but that over a year, and subsequently over a generation, means the difference between reaching old-age with resources and getting there with nothing to show  but a huge, sagging gut-&-butt, splotchy, besmeared complexion and high, tinted hairdos with manicured nails to match, the better to scratch the eyes out of your fellow Walmart shoppers as you rush to get fleeced. 

The example that appears the most illustrative of the kind of disconnect of modern society from the very accoutrements that make it so, is refrigeration. A boon to mankind and to storing food without spoilage when it was invented, the presence of one in every kitchen in the USA and Great Britain, has had the effect of sucking more electricity than any other appliance in the household, even while INcreasing the amount of food thrown on to the rubbish heap every year to the tune of more than $2200/year/household in discarded nutrition. This is Sustenance: it's worked for, payed for, transported, and often times prepared, all of which are additional energy inputs, all so it can simply be discarded. Food for rats and other vermin. It would be much more rational to burn the paper money, using it as cooking fuel, than to treat food, that we worked hard to earn the money to pay for, as garbage.

Instead, writers like Henry CK Liu, (whose got a very good website, BTW, if you want the history of Capitalism, Dollar hegemony and how it works, etc., I simply disagree with him on this particular point) pretend that the road to prosperity is via the same route that the West took, a route that included in its beginning, and now in its dieing days, slavery, beatings, employer debauchery of its employees (including hiring thugs to mow them down), and mostly, inextricably, luxuriantly, orgiastic-ally, War. 

War is the main ingredient at the heart of Capitalism. Without constant war mongering and continual arms buildupconcomitant with infinite stoking of Nationalistic pride and patriotic fervor, Capitalism would soon show the ugly face it hides behind its veil of propaganda and disguises with altruistic phrases and paeans to the liberating effects of capitulating to the siren song of everlasting, ego-driven, untrammeled Greed. Only Greed can set you free: You deserve everything your heart desires, no matter how many times you've achieved it only to see its attainment turn to dust in your hands, its promises of happiness, proven empty.

There's always some one thing more that's needed to reach that goal of satiety so cravenly desired. Is this really the best mankind can do? Is this that American Dream that's supposed to be the be-all and end-all of our earthly existence? Well, it just might be. But before destroying another continent in its mindless pursuit, shouldn't some little consideration be given to other ideas? Can't some objective besides TV's for all be allowed to be expressed and worked for?

Because if nothing else has been demonstrated to the world as they watched the latest in the Superpower's "debate" debacle, it's that the West has given up on everything: Democracy, egalitarianism, pensions, healthcare, education, decent wages, a place to live, even Justice: no criminal prosecution for those highly-placed individuals and avatars of inherited wealth who use their unmerited, privileged positions to create fraudulent schemes to steal every bit of savings of those considered their inferiors, and therefore deserving of nothing
 
 "Bushonomics is the continuous consolidation of money and power into higher, tighter and righter hands."

George Bush Sr, November 1992


Lenin has been proven right: give Capitalism enough rope ...

As they say on the streets of Moscow, "Everything the Communists told us about communism was a lie. Unfortunately, everything they told us about Capitalism was true."













 

Monday, October 1, 2012

The Good Angel of Death.


By the end of Andrey Kurkov's "Good Angel of Death", a tale that took the reader through the Ukraine, over the Caspian Sea on-board a floating fish-processing plant, to the deserts of the Mangyshlak peninsula in Kazakhstan, and back, a real affection for the Russian temperament, as personified by  Kolya Sotnikov, the much-beleaguered main character, develops.  

We're not even finished page one before there's a literary reference; to Tolstoy's "War and Peace", no less. I have found this to be an endearing characteristic of much of Russian fiction, and, in fact, it is via their reference in other writers' work that I discovered many of my favorite Russian authors, including Gogol and the much-beloved Pushkin.

And like Andrei Makine's, "Dreams of My Russian Summers", Kurkov's work is pervaded by a mystical sweetness that, although neither as comic nor explicit as Bulgakov's panoply of netherworld denizens who accompany "The Master and Margarita" on their berserk romp with the outrageous cigar-chomping cat, Behemoth, through a magically-imbued Moscow, Kurkov takes the reader on a gentle slide down sand dunes and over railroad through some of the lands of the defunct Soviet Empire. (For Westerners, a map on the inside with the preface or foreword would be helpful).

But although it ensnares the protagonist in a skein of drug-dealers, arms smuggling and chemically-induced psychosis, it is remarkable for its lack of the testosterone-drenched machismo that makes the popular novels of the West so puerile and ultimately tiresome - more like junk food for the mind.

More like Ivan Goncharov's "Oblomov", Kolya Sotnikov doesn't drive events so much as they drive him, although to use the word "drive" in the same sentence as that epitome of laziness, Oblomov, is perhaps straining the point a bit. However,  the passivity and acceptance with which Kolya leaves his apartment in Kiev to pursue a lost and buried artifact in the desert of Kazakhstan's Mangyshlak peninsula, demonstrates a passive aceptance of life's vicissitudes that would be unacceptable to most US readers.

For whereas Vassily Aksyonov's character in "The Burn" exudes a begrudging affection for the West, while  Roman Senchin's  in "Minus", reflects a nostalgia for exactly what Aksyonov rejected about the Soviet Union, Kurkov's Kolya floats like a feather on the winds of change, constantly wetting his finger to see exactly which way they might be likely to take him next.

But as we follow him on his travels, and experience his travails, some of the rubes he hooks up with aren't so benign. Their attitudes sometimes frighten one with the  somber notes they play. As thought to illustrate what, in "The Future as History",   Robert Heilbroner refers to as   "... the conscious direction of aspirations away from material ends, toward glory, and faith ... that is,  the employment of a fierce and often bellicose nationalism as compensation for the inevitable disappointments of the early stages of economic growth."

But, as Leopold Kohr's " Breakup of Nations" expostulates, the dangers of Nationalism are reduced with the size of the Entity encouraging it. No matter  how fervid a Liechtenstein's Nationalism, their power is so constrained by their complete dependence on neighbors, and its geographical footprint so diminutive, that its madness is contained and its self-love balanced by the need to attract foreign exchange.

In much the same way, the Soviet monolith would have been much more dangerous had it had the rabid Patriotism and stony assurance of their exceptionalism that the US citizens cling to even as the West flagellates itself once more into an anguished ecstasy in preparation for yet another paroxysm of cataclysmic destruction.

Contrariwise, the easy way in which Kolya slides across one national border after another, smuggling (albeit unbeknownst to him) drugs, arms, and even a dead body for awhile, leaves one optimistic about the future in a way that tales of the Wild Child West simply do not. They more often leave one trembling for how The Requiem of a Dream will affect the US masses once they awaken from their torpor and denial.

Kurkov, like many of his countrymen, can still love his country, even while realizing that they are surrounded by fellow human beings who love theirs as well, with as true and good reasons as he does, without being made to feel terribly insecure by that fact. Such that, more than anything I've read for some time, it has left undisturbed my Kohr belief that Small is, indeed, more Beautiful. What a sweet book.