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October 03, 2008

Time for the US Department of the Portfolio

Department of the Portfolio

"This sucker could go down", quoth the President,

Quoth the Secretary of the Treasury, "Nevermore". 

The Vice Presidential candidate peers through her trademark glasses and exclaims: "Putin rears his head and comes into the airspace" while grown Congressmen change their votes because of the tone of a speech by the Democratic leader. Hold you Nose! Everybody kinda sorta agrees that maybe throwing a trillion unfunded dollar sponge to soak up the (toxic) waste will somehow unplug the overflowing toilet. We've got "cow patties with marshmallow centers", car wrecks galore and the greatest inflation of unfortunate metaphors in the country's history.  This truly is a national nadir commensurate with the waning days of the eight-year Bush reign. 

Heartland Wisdom

$85 billion, that's your money. I mean, it's all of our money. I don't know where they get it. It's really interesting. They just print it or something.

Mayor Richard Daley Jr.

Too Big to Fail, or Uncreative Capitalism

The Fed and the Treasury move blindfolded across the countryside followed by a gaggle of lobbyists shouting out the path from behind the trees. In their wisdom they have quickly created three large supernational banks, surely too large to fail.  So much for the creative destruction of capitalism that the fundys love to invoke. "Take a sharp left to that $25 billion carmaker bail-out then....."

This is truly a test of the power of the US Treasury's virtual printing presses. The immediate crisis will be averted if only enough money can be beamed at it fast enough.

The taxpayer response should be simple enough: Equity, interest, fees, whatever, we want our money back with interest. Give us a new agency: The Department of the Portfolio, with requirements to report back to us every three months. All profits go the Social Security Trust Fund

Bail-outs Are US

We're used to seeing the media lunging at the meme du jour like a flock of pigeons on a telephone pole. Their target line being the trail of talking points sprinkled like a string of directional clues through the semi-dark labyrinth they forage in. Each nibble, of course, leaves them more clueless as to the real way out.  But there's solace, there will always be new bread crumbs.  Lunch is assured.

Candidate in a Telephone Booth

We've been having a like spectacle among the political leaders with one party's candidate suspending all campaigning as he emerges from telephone booth and leaps into a situation he knows virtually nothing about. His hope, it seems, is that by some odd chance he will manage to get the politics right, thereby winning the favor and respect of the citizenry readying to cast their votes. It's hard for us to tell if this is a strategy or a tactic but in any case it is meant to appear decisive.... at least, up to the point he has to make a decision. Unfortunately for this gray-haired chap, whose left eye may just be sagging under the strain, he found himself, with no legs, unblinkingly leaping into the mother of all political and economic quagmires.

Sorry but folks out there have little clue how this whole mess came about but they sure don't trust what their leaders are telling them, particularly those leaders who were spoon-feeding them up to just a week ago a taste of  "the fundamentals are sound".

Beam Me Up A Virtual Depression, Hank

We know, of course, that the fundamentals are NOT sound and moreover that they have not been sound for a very long time, so long, in fact, that the most dynamic underpinning of the private sector house of cards has all but collapsed. We've reached a point in the evolution from molecules to bits, where only outliers dare dispute that what's good for Wall Street is good for America. We are a country that has gone into the Transporter Booth only to be fleeced as our money is beamed around the world in bits and bytes. The transporter is located in the south end of Manhattan Island and must be saved.  If not, of course, the whole sucker just might go down. Thus, in typical eloquence, are we rallied on by our leader.

Real Time Central Planning

By beaming those dollars to all round edges of the globe, Wall Street genius has managed, in Greenspan's words to "spread the risk" so thoroughly that there is no one left willing to take any of it, ergo the urgent plea to the Congress to crank up the printing presses. It is the ephemeral soundness, the vibrating beams of money we know is in the ether, that still makes this a virtual depression rather than the kind that sends folks into public bread lines. The next phase, the one that is being passed in Congress today is to further spread the risk out to every single taxpayer in perpetuity as an ever larger chunk of the ever more virtual budget goes not to arms or wellbeing but to debt service, the province of which is controlled by, well, Wall Street, of course. In a virtual depression; we are much more likely to see the citizenry on their way to the grocers with real time credit limits being reevaluated on their plastic between the time they enter the store and leave.  We'll be kept abreast on our iPhones.

The Wal*Marts of Treasury Bonds

Another way to look at it is to view the US economy as it manufactures fewer hard goods replacing that lost productive activity with the production of Treasury Bonds.  Quite simply, we can assume that as the world economy falters there will be a rush to US Treasury bonds. And the good news is that business is jumping, so this week, even as the US economy dangled on the breach, the smiling yellow face went up and US T Bills flew off the shelves. The oil bubbling Russian stock market, for one, simply collapsed, Asians saw German and French road-kill, sold off Euros and the Yen, setting off a rush for dollars! Rates dropped to 1/20th of 1% on short term T-Bills.

For those customers with too many dollars around the world, and derivatives they couldn't move limit-free on E-bay, there is a happy outcome to all this.  The Treasury Secretary, tired of merely spawning M&A deals in a down market, has moved to Washington where money need only be printed. He now rolls out the greatest deal of all time, an $800 billion whopper. Doors open bright and early next Monday morning, the line forms in front of the White House, forget the lead boxes, just bring the toxic waste.

We call this a virtual depression because its fundamentals are hidden in plain site: there is now a seemingly endless all too real war being fought on borrowed money, one that has coincidentally cost up to now approximately $800 billion. Another major factor, is the supply of imported petroleum costing hundreds of billions. This money is sent East to gadget maker and oil producers alike who must re-circulate it, into something other than the now proven toxic collateralized debt objects  and the Agencies issued by Fannie Mae and Freddie Mac.

We have turned the country's principal market into one vast junk money market with headquarters in Washington: Employees around the country, throw off your assembly line gear and don the uniform of the big banks.  In virtual America you'll be flipping  T-bills for minimum wages until someone here can figure out how to gin up the next bubble.

A vast moat of debt is being built around the capital for the next Administration to grapple with.  In it, Paulson is creating an ever deeper pool of US T-Bills and one can imagine, as the mechanics of the bail-out get put in place, new classes of Agency bonds backed, once again, by the full faith of the US government. Conceivably, with a little help from Congress, Paulson will have kicked the ball down the field until that ever looming day, the virtual dollar, itself, faces collapse. What has been beamed away will reappear.

Bernanke et al. know that the dollar manufacturing monopoly provides an enormous cushion,  years, at least. Monopolies don't break easily. Unfortunately, the endless War will not go away, that's the clear logic of Iraq and Afghanistan where costly troop deployments, will have to be augmented by even more costly (aid) giveaway programs. After all, spreading dollars like manure worked in Anbar Province. Obama's hands are tied before he even gets there. This is Bush's parting gift, he thinks, while all he has really done is pull the cloak off the virtual dollar machine, the great transponder.

The (Private) Debt Party is Over?

Meanwhile, back in that part of the USA outside the Beltway, where molecules still make sense, the party is temporarily suspended. The bad news folks is that, like in 1932, the bottles empty, we've bubbled out. We have, after all, been tripping the light fantastic from bubble to bubble since the 70's and given the costs piling up for real world War and the onset of shockwaves from Peak Oil,, the end of this one has had a fate, perforce, no better than Steve Fossett's.

It will take years to dig out from under a borrowing blizzard that has been going on for decades.  This is not just bad residential and commercial mortgages but leveraged buy-outs, credit card debt, auto loan debt multiplied thousandfold by layer upon layer of big bets in the shadow banking system. While the Administration was keeping the cost of the War off the books and running up steeper and steeper official budget deficits in synch, the public was doing its bit on the helium of borrowed money and spiked smoke in the stock and housing casinos. Such is leverage in every day spiked Bubble World.

Human Nature, or Leveraging Leverage

Had the borrowing frenzy been restricted to the above confines, we'd be in the process of winding down from a serious binge but there'd be only the usual casualties, the hogs, the foolhardy, and the suckers.  Over time we'd work our way out of it. But this is a different story that has been brought on by the accelerating logarithms of what's come to be called the shadow banking system. Ultimately. what goosed the lending frenzy was a financial industry where the hogs had gobbled up the pigs. These porcine magos took all manner of loans, good, bad and otherwise, and bundled them and sold them as CDO's or MBS's or Swaps or whatever device they could use to pile leverage on top of leverage. To be quaint, they labeled them "toxic waste" and like their smokes from another generation they consumed them with even more gusto.

Importantly, in a souped up low interest environment, they found they could move these "securities" that paid very little better than T-Bills at enormous margins. In a creative flurry, equal they imagined to the one that brought us the Internet, they took to bundling the bundles themselves into various classes of so-called derivatives, quantifying so-called tranches of loans into various levels of risk for anyone who wanted to make believe he understood them.  And as this market grew, they created a class of insurance policies they called credit default swaps, designed to back up the derivatives. We wrote a few months ago that the CDS market totaled  the astounding sum of $57 trillion, though lately we've heard it calculated at 62 trillion (no one really knows) or, 4 years of the total US economy! We concluded that it was little more than a Vegas kind of side bet industry since there was no open market for the swaps nor were there any requirements for set aside reserves.  It was, every hog for himself.  We also predicted it would end up in the taxpayer's lap!

Meanwhile the regulators in Washington were no where to be found.  Greenspan's Fed did not raise its rates to slow things down nor did it urge Congress to institute new rules that might curb the activities of the security issuers by requiring transparency, marketability or reserves to back up their promises.

In order to keep this market going, long after every not so eligible borrower had exceeded their ability to ever pay back their loans, the banks began eating more and more of their own toxic waste, trading more and more of the stuff among themselves to the point, today, that they no longer trust the books of any of their counterparties or peers.  Today's bailout sponge is meant to take all of this massive mess off their hands 

The reason we have seized up is that there are no markets to trade these derivatives and swaps and no way to know what they are worth given that no one knows what the underlying loans look like or how they are actually backed up. For this, and a host of other suspicions, the banks have stopped lending to each other making it hard to satisfy their legitimate customers. 

Washington Truce and Consequences

Back in the 1980's the Reagan Administration introduced what has turned out to be one of the two basic seeds of destruction for the modern Republican Party. For Reagan, who promised to "get government off the backs of the American people", the Administration would embrace a theory called supply side economics (the other seed, of course, is the creation of a Christian fundamentalist base that can get ecstatic with having the likes of a Sarah Palin as President) as a substitute for the prevalent Keynesian approach that both parties had adopted, as Richard Nixon famously said. Hitherto, conservative orthodoxy had been closely associated with a cloth coat, business-like fiscal conservatism intent on balancing the budget.

Put, perhaps too simply: for Keynes, the government had a roll in stimulating the economy in a crisis through the creation of infrastructure: money put into highways, bridges, parks, etc. directly generating jobs and economic activity while contributing to the common wealth. For supply-siders, the individual taxpayer becomes the net beneficiary since the government, in essence, finances its projects through debt rather than taxes, something that Reagan's Republican primary opponent, George HW Bush, dubbed "voodoo economics". Supply-siders argued then and still try to make the case that by leaving the taxpayer off the hook to spend and invest as he/she wishes, economic activity is stimulated and over time limited level tax revenues actually increase. This was a wondrous no-pain solution for the wealthy that better fit the mood of Americans moving from the Rustbelt to the South and West. For high bracket Americans, it was "the shining light on the hill". Unfortunately, for future generations it was debt service.

It was a novel idea that also had its roots nourished by an emerging rightward libertarian tilt of the party whose proponents also advocated truly risible nihilistic thoughts of "starving" government of its lifeblood, through choking the tax stream. Reagan would abolish government social programs --for instance, it was at one time committed to abolishing the Department of Education-- while greatly increasing the Defense Department budget. In the end, Reagan left office with the largest non-wartime deficit in history; nonetheless, his presidency was seen, particularly among his co-conservatives, as a success, and the basis of a winning coalition. Since then Republicans have never looked back on this smorgasbord  of voodoo economics and politics that would have horrified many of their Eisenhower era colleagues.

For a bookend, the hapless Bush II who never ran a profitable business, of course, does the same thing, only with no-blink attitude.  He greatly expands the Defense budget through his new endless War and Homeland Security, he puts little or no restraints on government growth or on the mega-pork-barrel spending of a Republican Congress and he cuts taxes on high earners well below the levels Reagan wrangled out of the Democrats. There is no longer any doubt he will leave office having run up more debt than all the previous presidents combined, with the exception of Franklin Roosevelt, who merely had to dig the country out of the Great Depression and finance the Second World War. Ironically, he will, as a result of the Wall Street Bail-out Bill,  also be associated with the largest government takeover of private assets in the country's history.

The End of the Bretton Woods Era?

What Reagan had inadvertently tapped into --and what makes the theory of starving the government so risible-- was the built-in advantage the US had over its trading partners, the almighty reserve currency, the now virtual dollar. Since Richard Nixon had delinked the dollar from silver, the dollar had become strictly a piece of  paper backed up only by the credit and faith of the US government. It was in old parlance a "fiat currency" that also happened to be, by international agreement, acceptable as a reserve currency for central banks around the world, with the same status as gold. The US printing press would become the engine churning out decades of debt absorbed by a willing South Asia Middle East. 

Back in 1999, as the Wikipedia puts it: "shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill, and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act."

What Gramm and the banking lobby behind him accomplished with this Act combined with a preceding Gramm-Leach-Bliley Act removing the bounds between thrifts, investment houses and insurance companies that governed the financial industry since the 1930's, provides the stage for the present meltdown on Wall Street. The Act quite specifically opened the door to a whole new classes of completely unregulated investment vehicles we're calling the shadow banking system. Gramm, of course, is the same unfettered market fundamentalist who had been John McCain's campaign head and chief economic guru until he had the misfortune to speak his mind on TV a few weeks ago.  As we all remember, he got in trouble for saying that the American economic problems were psychological and that Americans who saw it differently were whiners. Another enormous irony: should McCain be elected, Gramm may by his Secretary of Treasury and therefore in charge of spending the money that Congress has just allocated.

Revolutionizing the Debt Republic

It's pretty easy to guess why all these financial wizards could play make believe with trillions of dollars: quarterly profits on Wall Street boost investment house stock prices, enriching option holders and annual profits feed into enormous bonuses for those fortunate enough to be in the game.  So, for several years this decade, as the housing market pushed upward investment house stocks soared and paydays on Wall Street were the envy of the world. It would not be uncommon for a middle level executive to take home an 8 figure bonus.  These were heady times and the Bush tax cuts meant that less would go back to the government coffers and the more to penthouses, second and third homes and breakfasts at Tiffany's and the pockets of armies of lobbyists and political donations to the pliant. Are we whining yet, Evita?

Billions of "excess" dollars flowed into the shadow banking system as exemplified by the plethora of hedge funds that sprang up like mushrooms around the big Investment Banks. For hedge funds there were no limits on leverage, they could borrow as much as the Merrill's etc. would lend them and the Gramm Act had removed reserve restrictions on these guys as well. Mighty Bear Stearns fell partially on the weight of its lending to its own in-house hedge funds. Where restrictions did apply, the created entities called special investment vehicles, or SIVs to skirt the laxly enforced rules on public companies. After all, the SEC was now being run by industry lobbyists weaned on Enron accounting.

Off With Their Heads!

For those yearning for the public stripping of wealth, the symbolic guillotine, the place to start might be with the hedge fund managers who not only pulled billions off the top of their funds as they gamed the derivatives game but also found a highly questionable loophole that allowed them to declare their managerial fees as capital gains, rather than wages, thereby paying a lower tax rate than the guy who emptied their wastepaper basket, as Warren Buffet famously pointed out. A simple IRS ruling under the next administration might be made to apply to this billion dollar loophole  So far, we've heard no one call for this one.


Of Bubbles and Bail-outs:  The Saga Continues

$85 billion here and $400 billion there and $800 billion there and before long you are talking about real money: and so, alas, this story only gets worse. Yes, Lehman Brothers was allowed to crash on its own but even there in the background the Fed was making moves to goose up its lending capital and is now accepting not only bad paper but the collapsing stocks of the other investment houses as collateral for its back window short term loan facility that not too long ago was restricted to the thrifts it oversees and which must maintain verifiable reserves. Paulson's transparently phony line in the sand on socializing loss at Lehman didn't stay visible even for the 24 hours it took to blow off AIG.

Enron Accounting Goes to Washington

For 6 years Bush has been able to keep the annual $130 billion cost off the books as he fights his "temporary" war.  No surprise, then, when Paulson let it slip that he wasn't going to put the $29 billion he laid aside for Bear Stearns on the books, either. Our point, as this virtual depression started to unwind last year has been that when this story of unbridled lending fueled by insane greed got to the end, the taxpayer would pay and pay big.  We have no doubt that eventually the government will find it necessary to directly intervene in the national housing market to stabilize prices there too as well, after all it is at the very root. 

A real bail-out of the housing market will indeed cost real money, much more than the $1 trillion already pumped in, and on the books, or off, depending on how transparent or eventually profitable the results are --are we getting laughable?--  taxpayers will be paying for it for years to come. There are also reasons, given the takeover of Fannie Mae and Freddie Mac, to believe we may have actually already doubled the national debt by the time this crisis finally blows over.

The Deficit is not the Deficit is not the Deficit 

What we are seeing this month of September is the meltdown of the entire Wall Street elite of independent investment banks either through merger with big old style banks or through collapse as in the case of Lehman Bros, that waited too late to make a deal.

Not every one of the regulated thrifts is going to make it through this meltdown (117 were already on the regulator's watch list even before the collapse of Lehman, Wamu, Wachovia and AIG). It was also very likely, as the unwind plays through, that the FDIC, the agency that insures depositors' money, would run out of cash.  It didn't take too many IndyMacs to get to that stage.  The Senate, in its version added on this facility for the Treasury as well, in exchange for the "temporary" raising of insurance limits to $250,000 per depositor. FDIC is funded by the banks in normal times. The $250K limit will no doubt be made permanent despite the objections of the banking lobby.

It's the Mortgages, Stupid!

Well, maybe not just the mortgages and the national housing market. But continuing lower prices for houses is at the core of much that's gone on so far. But the profits brought on by the issuing of a pyramid of paper based on these loans also extended to all manner of commercial and consumer loans. Mortgages and house prices are particularly insidious because they amount to the plus and minus side of Americans' largest class of assets. If your house is worth less than you owe on it then you are probably underwater all the way around.  After all, on the minus side, most Americans have carried credit card debt, and auto loans, not savings accounts. Where mortgages look particularly bad in the coming year is not so much in the sub-primes that were so flimsy that many collapsed at the first downdraft and are being cleared off the books.  But many ordinary Americans with better that bottom of the barrel credit and looking to move up, or simply to refinance their credit card debt-- took out something called Alt-A mortgages that didn't require strict income documentation and that were characterized by very easy terms during the first couple of years. These Alt-A's or "liar loans" were more than the majority of  loans issued in 2006 and many will require refinancing in the coming months. That's bad news in a declining market because borrowers will  face significantly higher monthly payments on houses they cannot sell for anything near what they owe. How many just walk away depends very much on just how low prices on these houses go. House prices during the Great Depression fell over 30%,  Depending on how you  measure it, we may have reached about half or two thirds of that grim statistic but no one can guarantee that 30% is a magic number. The ratio of debt to savings that Americans customarily carry today was nowhere to be seen back in those more innocent days; home ownership was more limited and job mobility hardly existed.

These increased loan payments are coming due just as the job market begins to crumble. In the past decade wages had remained below growth levels but there were jobs.  Now, those jobs are starting to disappear.  This is bad news for already shaky families who may no longer have a choice about staying in homes that are underwater.  They may have to move to where the jobs seem to be, despite school and community ties.

After all, in the days of easy credit, homeowners were  bombarded with offers to refinance, in other words, use their houses as ATM ;machines every time they maxed out their credit cards or wanted that bigger SUV flashing across their TV screens  Ah for the life of off the road, clean family fun, or sex drugs and rock n' roll or great adventure.  In that world, you could, with no money down, drive all the way to the top of the most pristine mountain peak and gaze out at a pollution free world with nary another SUV in sight or drive up the swankiest night club in town in your V-8 Ram tough.

Such is the magic of the American dream, as easy as flipping your keys to the parking valet!

Or Maybe, It's the Taxpayer, Stupid!

It's hard to mark just when we morphed into our present system of jobless, bail-out capitalism, was it the Saving and Loan bubble when everybody and his brother opened a bank with a lending window marked: No Developing Country Will Be Turned Away? Since then the series of bubble and busts have followed one another like Atlantic hurricanes in September.

Like those single-eyed monsters, the intensities and trajectories can be different but damage is left in the wake for the clean-up. FEMA gets called in and taxpayers foot the bill. Hurricanes, of course, are acts of nature, while economic bubbles are acts of human nature. Still, in the end, it's the taxpayer, stupid! --we'll resist the temptation to reverse the word order, or shedding a tear for that matter.

Many people marvel at the breadth, scope, flexibility and velocity of the world economic system as it shifts trillions of dollars from Hong Kong to London to Tokyo to New York in a 24 hour cycle. And it truly is a marvel but like any very large and constantly changing system it is open to ever more sophisticated forms of manipulation.

For some it's a necessary mechanism of doing business, a streamlined way to finance and pay for their every day business transactions.  But for many more, it is an opportunity, a way to game a few basis points more out of their capital investments. And it is this very greed that is at the bottom of every bubble.  It's easy to say that if losers don't get to pay for their greedy mistakes, another bubble will be on the way even before this one is wound down. But bubbles are much easier to stimulate than hard work, productivity and inventiveness, the stuff of real growth.

Alas, Say it Ain't So!

In the end, the ultimate target is always the ordinary gamer who gets sucked into the pyramid scheme just as it begins to hit its height and who is destined to get burned as the scheme begins to collapse. But often, perhaps to prove their existence, the Gods of Fear and Greed see to it that the very perpetrators of the scam get caught up in their own webs and end up taking the biggest falls of all.  And so, welcome to Bail-out World, where they get to use the leverage of their power and wealth to drag in those who stayed completely clear of the whole process and never dreamed that it would be their money that would be used to get the big guys off the hook.

The mantra of course is "too big to fail".  It explains why those who profess the religion of maximum gain for those who invent, work hard and risk, find it necessary to "suppress"  their own core belief in moral hazard for the "good" of society. During the brief time-out, everyman will now be allowed, for the greater good, to step in and once more mop up the blood on the floor.

Last month, as the Treasury Department stepped in to bail-out Fannie Mae and Freddie Mac, we may have just witnessed the largest one-day Federal takeover in US history but certainly only the prelude to this tragicomedy. 

The Tragedy of Fannie and Freddie

Like all Atlas-like epic fiascos there is a long and complex story with many more sinners than saints for main characters across the generations. In the end there is a complete failure of the system as a cynical move was made by Greenspan's Fed to shift the bubble away from the stock market after the tech bubble blew up.

In 2002, the extensive lowering of interest rates in the wake of the tech bust and 9/11 actually priced money at a negative interest rate. Banks and investment houses were encouraged by the Fed to get into the game, mortgage rates fell to historic lows and homeowners were encouraged to refinance, take cash, trade up,  take on second homes and to take a plunge into real estate speculation. The flourish in activity had the effect of driving up housing prices the same way the stock market soared during previous bubbles. As housing prices rose much faster than people's salaries, encouragement in moving up hinged on the proposition that house prices would continue to move up for the foreseeable future. Greenspan assured Congress in public testimony that there was nothing to fear from rising home assets, no irrational exuberance, this time around in this Fed induced and abetted bubble.

Wall Street, on an unfettered lending and borrowing binge of its own, roared into the game by greatly widening the market for sub-prime and Alt-A mortgages through the issuance of all manner of derivatives based those mortgages.  But as we noted, it was just too profitable a game to voluntarily put the brakes on.  If ever there was a need for adult supervision, it was here. It is, of course, just another gambling at Ricks, moment when politicians exclaim they were caught unawares.

 Meanwhile in Washington, the GSE's, that is, those hybrid privately owned Government Sponsored Agencies, commonly known as Fannie Mae and Freddie Mac, who were the backers of most ordinary mortgages issued in the country, were basically frozen out of this new market for bundling sub-prime mortgages into securities, by their own regulators. Undaunted, they found a climate in Washington ready to open the ways for them to get around their own regulations by getting leave to buy up the Wall Street derivatives to hold as their required reserves. And they borrowed heavily, leveraging 60 to 1, to get at the "profits" in this burgeoning market. Needless to say, as hybrids that made them public or private when it suited, they had grown accustomed to paying their own executives massive bonuses as well, based on the same short-term criteria as Wall Street. As a Washington creation with roots back to the New Deal, they had become masters in the game of lobbying and thus in getting their way no matter the Administration.

The Bell Tolls for Fannie and Freddie

Of course, sooner or later, someone would have a reality moment and sell off some of the growing mountain of toxic waste.  That finally occurred with a couple of hedge funds run by one of Wall Streets most savvy and ruthless bond trading houses, Bear Stearns. When people began to pull money out of the funds back in summer 2007, the managers were forced to offer up their securities to the market and when Bear, itself, wouldn't fully step in, there were no other takers. Then, Bear Stearns, themselves were forced quite publicly to only sorta back up their own funds,  letting the more highly leveraged one slosh noisily into oblivion.. The emperor's clothes had now to be hung out to dry. With the sweep of a wand, less than 7 months  later, venerable, savvy, Bear, itself was toast and banks all around the world were nervously digging into their balance sheets to determine just how much waste product they were holding. True they had hedged up by buying things called credit default swaps to insure against losses but they now were forced to take a hard look at who it was that had issued these totally unregulated insurance policies and just how much in reserves there were to back them up. Bear's hasty demise, greased by Paulson's Treasury, told the sad story.

Credit ratings, based on the possible toxic reserves, were suddenly being reevaluated.  Reserves were based on the face value of securities with no market and the regulations required they be marked to market, or priced at what they might actually bring in a sale. Many swap and derivative agreement also had clauses in them that required issuers to firm up reserves as their credit ratings were downgraded.  This set off a spiral, as the entire financial world began to grock that there was no real market for the derivatives of the swaps. Mark to market, or give a real value to a security, had no meaning and too much meaning at the same time.  SEC regulations required this accounting.  The commercial banks would be forced to begin making real write-downs of billions in losses to meet their requirements. The operative word was "write downs' but these were losses that had to be put on the balance sheets. It was a signal to the other banks that their best customers might just be insolvent.

A Hosing in Housing

Meanwhile back at the subdivisions of California, Nevada, Florida, etc., as those houses in real America went into foreclosure, it drove the price of surrounding houses down as well. People who had been convinced that they could borrow beyond their means for houses they couldn't afford now found themselves owing more than their houses were worth.  Many of them had no choice but to pack up, leave the keys under the mat and take off. Home builders found themselves with developments full of unsellable houses worrying about the cost of plugging roof leaks and cutting down weedy front lawns. Their stocks tumbled as did the stocks of the big banks as it became clear they were holding mountains of debt based on an inflated value of the same sinking home market. For a while, there was denial then a belated effort by some of the big regulated banks to unwind their worst losses. Along the way IndyMac bank suffered the first public run since the 1930's as it shut its doors. The spectacle was taking an ugly turn.

Government Bail-Out Phase 1, a mere $29 billion

The problem was becoming national and then international.  Each quarter major banks around the world would announce the write-off of billions of dollars, $10 billion for USB, one quarter, $8 billion for Merrill Lynch, another. Foreign buyers were invited in to take big pieces of these International financial trophies. And then one winter weekend Bear Stearns fell off the cliff. The losses were mounting into the hundreds of billions and the Asian and Arab nouveau riche bowed out.

Here then was Treasury Secretary Hank Paulson, a Wall Street poobah, himself, announcing a deal in which the old, hard knuckled investment house that had assured every one that it was fully capitalized, would be sold off over a single weekend before markets in Asia opened on their Monday morning.  It was highly unseemly, not only wasn't there adequate capital, the entire $multibillion firm was actually less than worthless, an estimated $29 billion less than worthless! Paulson took $29 billion out of the Treasury, and gave it to JP Morgan to make the problem disappear.  And for a while, the markets quieted down.  The crisis was averted! But now there was the potentially politically damaging spectacle of a Republican Administration using public's money to shore up Wall Street, the paradigm of excess, while millions of Americans were facing foreclosure on their rapidly devaluing homes and collection agency calls on their lump sided plastic debt.

Are We Whining Yet?

For years the Wall Street wing  of the Republican establishment has wanted nothing more than to stick a stake in the heart of the two largest (when combined) financial institutions in the United States, Fannie Mae and Freddie Mac. And then  when the housing bill passed Congress before the summer recess, Treasury Secretary Paulson, a Wall Streeter himself, was given the green light to do the deed as part of a what then appeared probable bail-out of the two hybrid giants. Still, he hesitated, there was too much at risk to the broader economy.

And yet, it had become clear to knowledgeable folks who looked over their holdings that a collapse at Freddie and Fannie was inevitable.  There was a tactical question as to whether they could hold out until after the election, which seemed to be  why Paulson and the Administration kept holding back from doing the deed. A financial crisis as large as a Fannie and Freddie collapse, would certainly turn the public's attention back to the economy and probably spark the big run on the banks.

It's Not Just Housing, Stupid!

But in a tightrope act, the Treasury under Paulson was active in other pre-election areas as well. Towards the middle of July, the dollar suddenly jerked upward and the price of oil moved in the opposite direction. Until then, for months, the dollar had been trading in a range between 1.55 and 1.60 Euros.  As we write this, it has gone down well below 1.40.  Meanwhile, oil, which peaked near $140/barrel has fallen back to less than $95. It was as if, somewhere way behind the damask, the Administration had decided they had to bring the price of oil down before the election and had set in motion the gears that force the dollar up. By doing this, they would with the benefit of a little lag time, sacrifice gains made in exports, for what would be an immediate stop to the oil price bubble that had powered the speculation market in the early summer.

At first the strengthening of the dollar and the even bigger drop in oil prices appeared to provide a boost for the US stock market already reeling from the sub-prime mortgage crisis, but which had reached a bottom in the middle of July just as the price of oil peaked. Then the sucker started to go down!

AIG and then what?

For mortgage lenders and a number of banks and investment houses of all sizes, the subprime debacle has been an ongoing disaster. Two of the largest lenders in the market, had already gone belly up, and many observers believe that the nation's largest bank, Washington Mutual would soon follow suit. Morgan Stanley, one of the last of the 4 independents seemed likely to go the way of Merrill Lynch, in some shotgun deal and that might even have dragged down the last, Goldman Sachs, Paulson's own alma mater.

Credit, Credit, Everywhere and Not a Drop to Drink

This --the latest chapter-- in what has come to be our first virtual Depression-- was breathtaking in the number of ironies that got rolled up into what is still unfolding as the greatest rescue package of all time..

In retrospect, it might appear to more sanguine viewers that the consolidated goal of the Bush Administration, its Fed and the bankers became to strip Americans of their one asset, their house, and turn it into spending money. With a little luck, they might also have succeeded in diverting social security into Wall Street's maws.

There was a rather lengthy list of major players in the scheme all with their own, sometimes coinciding, sometimes antagonistic agendas:  There was the Administration that was intent upon replicating and outdoing the Reagan years by running up the national debt; there was Alan Greenspan's Federal Reserve that was equally intent upon experimenting with substantial deregulation of the financial markets and stimulating growth through low interest rates, there was Wall Street, with its bonus system of big insider payoffs, ready to pick up the Greenspan's challenge of "innovating" and new types of unregulated investment entities we'll lump under the rubric of hedge funds; there were the commercial banks that were being rolled up into giant national financial entities as banking laws were repealed; there were the building and building supply industries, obvious beneficiaries of a residence construction boom; there were foreign governments running enormous trade surpluses with the US looking for creative ways to park their dollars,  there were millions of Hispanics ready to risk all to cross illegally into the country for low wage building jobs, there were the mortgage brokers who sold the loans; there were, of course, the homeowners who could tap their equity and, sometimes, move up and eventually lots of new homeowners who were offered deals on homes that might never have dreamed to get into, the flippers, or the speculators who jumped in to fire the upward pressures on the market as house prices spiraled higher, and now, of course, the guy who thought he was staying clear of the shenanigans, who's just getting the mop up bill.

Pigs Get Fat While Hogs Get Slaughtered (Tom Delay quoting Texas wisdom)

The trouble with virtual depressions is that they always leak over into the real world. Recent government moves have proved once again that while the gains may be private, the risk must be socialized; on that both political parties are in agreement as are all the governments in the G8. All that bad paper sloshing around the world financial system will eventually be absorbed by the governments and the great international banks themselves, when it suits them, as the price they pay to soak up pesky competitors. The next couple of years will be full of sound and fury as the politicians realize they will have no choice but to pull out all the stops to stabilize the housing market as a first step. This will not be a pretty tug of war nor a shining day for moral hazard. But in financial crises as in war, the truth is always the first casualty.

The taxpayer, alas, will not get his Department of the Portfolio.




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Posted by dymaxion at 04:30 PM

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May 19, 2008

The $800 Billion Bank Shot

The Apotheosis of Deal Making

For Ben Bernanke and the Fed these have been bare knuckle flying days. Never has the dominant central bank moved so radically into a new orbit as has the US Fed this year. Conversely, for the Media this launch into monetary outer space has been greeted with the kind of yawn that might have been reserved for a weather balloon.

Never mind the Bear Stearns rescue that was done so hastily that it appears no one bothered to insist that JP Morgan Chase return future windfalls estimated to be in the billions against guarantees the Fed made to get the deal done in a weekend. The Bear deal did close to end out a very perilous week and what looked like a potential domino game of other falling investment houses --Lehman Brothers was most named as the next-- was stemmed, at least for the time being. This respite, coupled with recent moves up in the markets and the dollar, has gained Bernanke street creds and has kept the flak to a minimum, and directed mainly by capitalist purists, long used to not being listened to. Politically, it also has served as leverage for those who would rescue the millions of underwater adjustable mortgage holders.

While it's true that the Fed's rescue of an important "investment house" crossed a bright historical line, it was also widely recognized that the banking world itself has changed so radically in the last decades as deal making has replaced the sweat and toil of agriculture and manufacturing, that the commercial banks and the investment houses overlap in the kind of credit issued and the kind of paper they accept either as "insurance" or "assets" to back their financing of deals. And it wasn't just Bear and Lehman Bros. etc. who were taking enormous losses, it was also the world's largest "commercial" banks; i.e, Citi, Deutsche, UBS, HSBC, etc. who were announcing multibillion write-downs as far as the eye could see.

The lesson to be drawn is that the Fed and the key European central banks (ECB, BOS, BOE,) have made it abundantly clear that no rash of bad deal making, no matter how egregious the imbalances created are, will be allowed to fail. The Bear deal made headlines, that couldn't be helped but a much more radical plan to create a superfund for bad debt that could go to $800 billion by year's end passed unnoted!

TAF, the Fed's Superfund for Toxic Waste

Last December 17, the Fed announced that it was about to offer US Banks (This was later expanded to include the Bank of Switzerland and the European Central Bank) a deal that they couldn't (and wouldn't) refuse. In exchange for the highly discredited --we prefer the word, toxic--mortgage backed securities on their books, the Fed would offer the banks at face value highly secure US Treasury notes. This deal was called TAF, or Term Auction Facility. In exchange, the Fed charges only 2% --slightly below market, that is, for paper that would probably mark to market at an average discount of 20%-- in interest.

In essence, to get around reserve rules and allow the banks to keep lending, the Fed is taking them off the hook for the bad paper they issued and bought and for the collateral they received from hedge funds that were gambling in the real estate bubble that was fueled by these mortgage backed securities. Remember, the mojo that fueled the rush to lend anybody standing (Chicago voting rolls had better actuaries) with the dough to get into their dream house, came directly from the red hot mortgage backed security and credit swap markets that looked great on the balance sheet of the hedge funds, generated huge annual bonuses for the poo-bahs, and eventually spread as far as the coffers of small towns on the banks of the Norwegian fjords.

So, once again, now that the party is over, the bonuses banked, the private jets furbished and the summer and winter palaces built, the Fed has rushed in to sweep up Wall Street's left over garbage. However, quite significantly, since this was a very big party, even the limits of the US Federal Reserve may be stretched by the time this plays out.

The Fed had been buying up Treasuries for over a hundred years and before this latest rescue operation now in full stride, it had managed to accumulate a war chest of over $800 billion. It's more than a little notable, that by early May, they had already drawn down that pool by more than $150 billion.

In May, Bernanke and crew decided to double down on their bet when they realized that this was not just a mortgage crisis but instead a major debt crisis that includes consumer and student loans as well as automobile credit. To meet the threat that Americans might start walking away from their gas guzzlers and piles of credit card debt, they agreed to expand the definition of eligible paper beyond residential and commercial mortgage backing to anything with a rating above AAA/Aaa asset backed securities. Remember, one of the sub plots of the whole greedy asset-backed security mess, was the way the bond rating agencies decided to jump into the party by trading good ratings for expanded business. In this pool, AAA/Aaa could mean practically anything, even used cars!

Bernanke's big bet is that the failure in the real estate markets will have begun to normalize by the end of the year. And for this to happen he has managed to buy time by putting his $800 billion stake on the table where everyone can see it. For the moment, this has had a calming effect on the stock market and even has slowed the decline of the dollar.

By the end of the year, this hiatus may look more like a pause between storms and if housing prices continue to fall, job losses accelerate and consumers pull way back , it's quite possible Bernanke will have blown the entire pool of Treasurys built up over a century in just a single year. Little wonder, then, that he has given his own encouragement to Congress to move in its rescue of the little guys struggling to hold onto their houses. Too many empty houses on the market could tip the balance.

But there are headwinds that could counter the stimulus that comes from artificially low interest rates, government supported mortgages and a giant green light for bankers to continue to lend. For one thing, a majority of the houses that need rescuing are located in exurban locations. Commuters from these locations where just about everyone has a long commute, often driving the de rigeur SUV or pick-up are getting doubly clobbered as they fill up their tanks and do the weekly supermarket run. Also, a number of the most vulnerable no-money-down mortgage holders were working in the then booming construction industry. In order for prices to even bottom out, new building will remain at a standstill for a long time to come. The combination of a slowdown and the kind of inflation that hurts consumers most, also spells trouble for the commercial building market as company's shrink their staffs. The Fed and Congress's best efforts may not be enough to convince people to keep paying for homes, much less cars, they can't and never could afford.

In CreditWorld, Leverage is King

Most Americans not only do not have savings but most have accumulated large amounts of plastic debt as they attempted to live better even while struggling to keep up wages and pay for health care, fuel and food prices that have only accelerated even as jobs get harder to find.

By lowering interest rates to artificial levels for the second time in five years --to make its TAF subsidy less conspicuous?-- the Fed is also telling savers that they are losers in this new economy. There is little wonder that people who sat on the sidelines while their neighbors were tapping their houses like ATM's now see themselves as the losers. In CreditWorld, it's obvious that Aesop's Tales get flipped upside down.

We have been in bubble mode back since the Keating Five. Since then we have had a succession of bubbles all fanned by Fed policies. We can offer some ideas on what the Fed will sacrifice next to keep the party going one more time.

The Dollar Has No Clothes

Where the buck stops and starts, erosion of the world's preeminent store and measure of value, the US dollar, can serve as a metaphor for the way we grok an expanding, inter-related sphere of critical but slow boiling crises like: energy, health care, population, food, water, climate change, human rights, personal freedom, trade imbalance, wealth division; etc.

FUD and Band-Aids

The dollar is, after all, merely the material meter with which we value all our goods and labors. And yet the precipitous shrinking of this measure, of anywhere between 50 and 150% over the last decade against basic materials has all but escaped mention in the agenda-driven, zeitgeist whirlpool we call the Media. Obviously, once again, it serves no one's agenda to call attention to this inconvenient happening just as it appears to serve no one's interest to understand the consequences of peak oil in an energy driven world economy.

We can offer some "politicized" explanations for the inconvenience, like the cost of a long war to folks who want to expand it to Iran, the war's impact on the price of oil, the insistence on borrowing from foreigners holding excess dollars-- to offset government deficit spending and soak up the overhang from the trade imbalance, the fostering of easy credit needed to jack up the consumer component of the economy to over 70% even as wages stagnate and manufacturing and services are outsourced, the fudging of the CPI to grossly hide inflation and the loosening of controls on how the financial sector can create money.

Here in Dymaxia, we have no magic ways to tap into pools of truth. We are as unarmed as you, dear reader, to insist on what gets talked about on the loud megaphones that, when blared, reach everyone. So, when we try to discern agendas; we mainly revert to the "who stands to gain" approach.

In TV-land we notice there are rarely analysts who insist that borrowing a trillion dollars to fight a war has a negative affect on the value of our currency. There are rarely analysts who make plain that the war in the Persian Gulf is about the control of the flow of petroleum even as it is so completely obvious it sometimes shows up as a slip of tongue by some soon to be sorry politician. There are rarely analysts who make clear that it has been Iran, that has been the greatest beneficiary of our sorry adventure in Mesopotamia. It even took forever for anyone to note that Bush's brain was running on empty even though nobody had ever heard him successfully string three words together.

Time Outs are Ugly

The blogosphere, with all its cacophony, is the repository of an enormous pool of gray matter and hands-on knowledge. One only need think about Wikipedia, warts and all, to grasp its potential to gather information in a cooperative endeavor. But for all its vitality it is a David in the face of a massive Goliath. The whole sorry run-up to the war and the fool me twice rant on the success of the Surge has shown just how a repetitive Media acting in unison can drown out wiser voices.

China, as well as many other more or less totalitarian regimes, has gone further in managing to suppress activity on the Net. Likewise, here in this country, the major internet service providers (led by AT&T and Verizon) have been waging a legislative battle to gain control of the Internet's pipes they manage and parse them into fast lanes (for paid media stuff) and slow lanes (for everybody else). Advocates for Net Neutrality understand that the speed in which a web page, or say, a YouTube clip, is delivered to a browser can ultimately have a major impact on users' preferences for competing info sources. Lest we forget, here's a brief list of YouTube moments that have, for better or worse, had significant weight on this election: Jeremiah Wright's "God Damn America" rant, Hillary's Bosnia misinformation episode, Allan's Macaca Moment (yes, he was an insider conservative pick), McCain's confusion over Sunnis and Shiites, etc.

Ultimately, a sure sign our experiment in democracy is failing is when citizens continue to vote against their best interests. There is, it seems, one tried and true way to make this happen, through cacophony and confusion that elevates wedge issues far above their significance and neutralizes inconvenient facts and truths. Imagine pointing out to people that the price of gasoline or their basic foodstuffs hasn't really gone up so much as the dollars we use to pay for them have gone down. Imagine how that would affect the mass psychology! Instead the story line goes: India and China are now getting richer and they are buying up all our excess petrol, rice and corn. Shouldn't we be wondering how this cosmetic explanation gained such mainstream currency?

Peak Oil?, When's the Last Time You Heard About Peak Oil?

The great issue of our moment, is the nonrenewable fuel crisis. It shapes the most fundamental aspects of our government policies in enormous ways that then need to be obscured by those who would allow us down this --for them very profitable-- path towards the most momentous crash this civilization has ever known. If you look at the War as an extension of our status-quo oil policy, and the cost of maintaining that war at its present inconclusive level and the cost of borrowing to sustain that and factor that in as a direct subsidy to petroleum, the price we really pay per barrel goes ballistic. Now, add in the cost of keeping the Persian Gulf open for shipping, the naval and air power, control and command structures for the region and all the unintended consequences that grow out of our preoccupation with keeping the spigots open, then factor in the burgeoning cost of global warming, not to mention road building and maintenance and you are talking about the greatest subsidy in our history for an ultimately declining industry that will, by the definition of its finiteness, only fail us if we insist on remaining addicted to its supply.

What is worse, as long as we insist upon basing our energy mix around imported oil, we are sending more dollars out of the country into the coffers of the very same countries we feel most threatened by! This, we submit, is collective insanity of the first order and it it doesn't convince you, dear reader, that something very fundamental in the way we process information in this country is entirely broken, then, we suppose, you are reading this for laughs.

Corn to Ethanol, a Metaphor for our Time

It might take chutzpah and confusion to get here but once in Washington, the real money is in the FUD and band-aid businesses: take the current economic crisis-- the product of serial bubbles and across the board excess borrowing from the government down to the lowliest citizen. As a remedy for these excesses, the President announces, without worrying how it might be paid for, that he is sending everybody in the country a check that he promises is sure to kick-start a new recovery to the "slowdown", Congress funds a way for communities to buy up foreclosed properties, the Fed has its back window open soaking up the financial waste products on the books of the major banks and brokerages and it's printing presses running over-time to serve up cheap (when you factor in inflation, interest rates are now negative) money for the next bubble, farmers are paid to turn corn into ethanol even if the process absorbs as much energy as it produces and food shortages pop up around the world, and the Presidential candidates promise programs or further tax cuts, with no way to pay for them. "Got a Problem?, we'll lower a tax!

You might think that this money for nothing, kicks for free approach to solving what is essentially a borrowing crisis, might have raised the curiosity of those who tell the national narrative. How, they might ask, have we found ourselves in the position of facing lower salaries for workers, rapidly rising food prices, gasoline prices that might have showed up in some SUV driver's nightmares a few years ago, and a dollar that is so anemic that travelers abroad have taken to complaining they can't afford un Grand Mac not to mention a coffee and croissant. Watched or not, pots will come to a boil, and now it seems we have come to one of those moments where the steady stream of bubbles in the weak dollar kettle can't be ignored. Of course, as they ignored the rise of CO2 in the atmosphere and its effects, or the decline in ordinary peoples' earning power over the years, the pundit class continues to prate, as if they were playing pin the donkey's tail on their own asses.

Connecting the Dots

First off, there's the unavoidable price at the pump that's brought one of the least enjoyable aspects of traveling in Europe to our own pump islands. You no longer have to imagine paying over 120 bucks to fill up your tank; it's enough it seems to make some people want to give up a job that requires a 150 mile daily commute in their Tundra, if they could only find another. No wonder then, that people are tucking the keys under the Hummer's driver side mat and walking away from that 5000 sq. ft. dream house now 20 or 30% under water, with heating and cooling bills to match.

For that matter, has anyone noticed that while the price of gas was going up, the value of the US dollar was somewhat symmetrically falling when measured against food staples, raw materials, precious metals or even other trading partner currencies like the Euro or Yen?

Of course, we are not on a gold standard, that is, there is no official link between the metal and the dollar but quite curiously we can see that even though the price of oil is actually quoted in dollars, the sellers of that black liquid are getting no more today, if measured in gold, then they did five years ago.



Once upon a time, there were, in more primitive days, political positions that would argue in favor of a weaker or stronger currency. Populists, remember William Jennings Bryant and his famous Cross of Gold speech, would argue for the government to soften its golf restraint to print more money to stimulate growth, Conservatives, with notions of protecting their net worth, argued against the notion. Later it was said that a cheap currency protected both industry and worker by cheapening exports and making imports more costly. Significantly, it was Richard Nixon who broke off the last link between a precious metal --in this case, silver-- and the dollar, thereby making the American printing press, the world printing press. Today, a weak dollar benefits the balance sheets of multinationals who can shift resources in and out of markets and magnify the "growth" of foreign profits by converting them, on paper, at least, into cheaper dollars. For instance, last month, it was Ford's turn to show a profit abroad that magically out-totaled its losses in the US.

For those of us who measure our spending ability in dollars, it is hard today to make the argument that a less valuable dollar has some beneficiary impact. The old saw that currency devaluation acts as a stimulus for export trade has a very hollow ring to a society that has outsourced most of its manufacturing capability to other parts of the world. A low dollar may be helping China and India to establish markets in the "strong" Euro and Yen zones but it has done little or nothing to offset the ever growing trade deficits being run up in this country.

Curiously, outside of Ron Paul's run, none of the present candidates talks about the impact of the dollar's value on all us and so while broadly "the economy" is perhaps the major issue, the role our currency plays appears to get short shrift. Paul, though somewhat coherent, probably has done little to broaden the discussion. By putting a lot of focus on the gold standard, which only rewards gold producing countries, and combining that with an unreal role for government, Paul turns off most progressives and fiscal conservatives who might otherwise be repelled by a weak dollar policy that punishes all of us with savings and earnings in dollars while rewarding multinational corporations that can hedge their holdings abroad and further gimmick earnings.

There are many reasons why the weak dollar has been shut out of the national political discourse by both parties; it's just plain inconvenient since: it makes our assets less valuable in a global economy, it makes it advantageous for players outside the dollar zone to purchase US assets, it tilts corporate power to companies that can do a large part of their business outside the dollar zone and most importantly, it boosts the prices of staples and raw materials where there is global demand. Like the recent rise in oil prices vis à vis the dollar, the same thing is happening with the price of rice, corn and wheat, the basic food staples the world depends upon. And like petroleum, the food story has a raft of causes. Being somewhat simple in nature and style, we here in Dymaxia, will make the argument that the price of food, like the price of copper, or platinum or uranium has followed closely the ascent of the price of oil (and, of course, the symmetric decline of the dollar).

It's the Dollar, Stupid

We are left to wonder why the two Democratic candidates have not seized on the weak dollar as an argument against McCain and his supply side bromides that will lead to further deficits as far as the eye can see. One supposes they are afraid of being ridiculed the way Paul was made to suffer. Ultimately, this may be a mistake because there is a visceral component to the issue. We in this country are being beggared in order to protect global hegemony for our great global corporate entities. In fact, this is actually and certainly, a potent enough issue, if past currency crises are examples, to be successfully used as an argument for pay as you go government!

Many of the most successful investors over the last six years have bet against the dollar. They looked at the supply-side (debt-fueled) script that Bush was intent on playing out, they looked at the historically unprecedented shift of manufacturing capability out of the US to Southeast Asia that insured an ever increasing trade deficit, they looked at the ensuing shift in demand for basic commodities including food and energy, they looked at the laissez-faire postures coming out of Greenspan's Fed, and finally, once underway, they concluded that the cost of the Iraq War, particularly as it was funded off the books, would further weigh on the dollar, the world's reserve currency.

We are far from our Zimbabwe moment --the rest of the world is paying a price for the weak dollar and will ultimately intervene to support it-- where it takes a wheelbarrow of currency to buy a loaf of bread but we are beginning to see some weird distortions: the price of basic foodstuffs has climbed throughout the world. This is partially due to weather changes, they say --the rice crop in Australia-- and partially due to increasing demand, particularly in Southeast Asia, and partially to the use of corn for ethanol production but also to the decline of the value of the dollar. The US is a major grain producer, a weak dollar would indicate that grain becomes cheaper when purchased outside the dollar zone. This is not the case, of course. Instead, like oil that is also denominated in dollars, food grain prices have climbed as currencies in the raw materials exporting parts of the world have not followed the US dollar down, countries like Canada, Australia and New Zealand.

Because so much of our food is packaged, manufactured product, the raw material component price has not had such a startling impact as say, the price of corn has had on Mexican families who rely on the grain as a key part of their diet. There have been demonstrations in a number of countries beyond Mexico including most recently violence in the streets of Haiti. It is possible then to foresee troubled times around the globe because of a devaluation in the US.

As we've also often noted, paradoxically, the oil rich Arab states, the Chinese and the Japanese have a vested interest in supporting the dollar regime, even as it appears to be falling apart. This is because they are major holders of the dollar in the coffers of their banking systems. They could precipitate a world financial crisis that would make the present leveraged banking crisis feel like a warm breeze in the eye of a hurricane. To be sure, they are all working overtime trying to figure out the least destabilizing ways to lower their dollar positions. We can look for the Chinese, say, to be out seeking stakes in entities that own and control raw material assets and distribution.

Another factor driving the value down is our artificially low interest rates. Money from abroad that might normally flow into the US for safe harbor bond purchases, will instead go to places where interest rates are higher. Today, the rates set by the governing central banks in Europe, Australia, New Zealand and Europe are about where the US was before the Fed rushed in with its record setting cuts. Low interest rates make it cheap for companies to borrow and thus stimulate business activity. What's dismissed is that low rates hurt savers and retirees who have managed to be thrifty and are now living off those savings, even as much as a cheap dollar does. Together, there is a double whammy of inflation and wealth erosion.

Miraculous Recovery

There are some out there who are already heralding that we are on the brink of recovery in the US, even as we are just entering into this Recession. After all, the stock market has performed well this month and the unemployment figures don't seem so bad. Our guess is that unemployment and job loss will be revised upward in the future as they are measured by means that tend to obscure the facts at the outset and end of cycles.

What that would mean is that the financial system has managed to absorb $100's of billions in bad paper, that construction workers who have lost their jobs have some how ended up on their feet, that ordinary Americans, no longer able to borrow against their houses, are bellying up to the bar and paying more for gas and food and still yet are able to keep the 70% of our economy that depends on their consumption on track for growth, that continuing job losses in manufacturing are being replaced elsewhere, that interest sensitive savers are able to absorb the hit of low returns, that high diesel costs are not driving up retail costs and that continuing job shrinkage --we need 150,000+ new jobs per month just to keep pace with population growth-- are all being overcome by some miraculous happenings off the radar somewhere.

Posted by dymaxion at 03:23 PM

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January 27, 2007


Hieronymus Bosch, click for closer look

From One Speech to Another

It was. Katie Couric said, the most important speech of his presidency. He delivered it with all the poignancy of voice recognition software in a tone, more somber, without the trademark swagger down the long red carpet to the lectern adorned with the presidential seal, and the surrounding flags. Here, in what was to be a pensive mood, he stood before the book-lined wall of the West Wing library.  On cue, and as if he had just swallowed his cod liver oil,  he stumbled over simple phrases,  mouthing in fits and starts, the words moving across the teleprompter.

After six years of unmitigated blunders, the untouchable frat-boy scion, third in a line of a silk stocking senator, and half-baked son of a president, had finally reached that particularly Potomac moment when it becomes necessary to play the oh so passive "mistakes have been made" gambit. Attempting to evoke comparisons with the haberdashery store owner, main street everyman, Democratic machine politician who had risen to become president  and whose unpopularity stemmed from tough choices, he allowed that the buck stopped with himself!

Cocooned in the time warp of his inner circle, he seemed unaware that the viewers and the public beyond had lost faith in his veracity, that the New Orleans fiasco had reinforced their view of his detachment,  that the elections of 2006 had in fact already taken place and that through a slue of well sourced books, that public knew how he had resonated with the paper hawks, knew that he had placed the aim of an Iraq invasion on the table the day after 911, knew how he had welcomed dubious assertions of an intelligence "slam duck", how he had chosen to overlook the cautions of his own father's wisemen, had silenced the generals that opposed his strategy, recalling how, with that same elevated detachment, he had literally urged would-be Jihadists to come to Iraq to kill Americans even as the first chaos and casualties mounted, and finally, that a long string of his most important assertions, in a void of real explanations, all, without exception, had proven false.

Après Moi, Le Deluge

Now this articulately-challenged man had the unfiltered task of convincing that there was something different in this escalation*, this time.  In order to get any traction from a soured public, he would have to do more than rely on the usual half truths, wallpaper and slogans, to explain here and in carefully chosen media interviews to follow, where the previous strategy had gone wrong and how the new strategy would be different.  For a man used to delivering a simple staccato of faith-based assertions, there were unfamiliar nuances and efforts to deal with:  he needed to explain why it was that nearly 4 years into the program, with all the negative momentum that time span implied, the local army, that supposedly numbered 350,000 US-trained men, and backed by 130,000 Americans was still not able to bring order to the streets of the capital city, itself and that 20,000 more American troops would somehow not just tamp things down 'til he could get through his presidency, as some suspected, but actually tip complex local political scales that preceded this occupation, in some cases, for a millennium and in the case of tribal and ethnic rivalries, from time immemorial..

Hey, Hey, LBJ

In Vietnam`War days, the then President, Lyndon Baines Johnson had to endure the constant pressure of public demonstrations against the increasingly unpopular war.  A particularly biting cry for Johnson was the refrain:  Hey! hey! LBJ, how many kids did you kill today?

This time around, the President has succeeded in keeping the deaths out of sight and in hiding just how much treasure he is dissipating with this war for oil that was supposed to be paid for by that oil.  He has seen the numbers of American deaths, met some of the parents and some of the many who have been maimed for life, but he has been mainly shielded from the hundreds of thousands of human lives that have already been destroyed as a  result of his adventure in which he has used the US military with all the precision of a stick poking a hornet's nest; for, despite the silence in our streets, the upheaval it's set off has been enormous and will become even more so in the years to come, as the consequences play out.

 As for money, the US has directly dispensed 400 billion but a recent NY Times article estimates the real costs, already exceeding $1.3 trillion, will eventually top $3 trillion as long term cost kick in and moneys are spent on the nation building phase, the refugees who have been displaced and the pensions and care of the 10's of thousands of soldiers and families who will need our support for the rest of their lives. As after the Vietnam War, a financial day of reckoning will come when Americans wonder where the buying power of their dollars has gone and add up what they got in return.

Dynasty and Democracy

Our democracy relies of course on all of us.  It is the system we have inherited and despite its weaknesses is, as Churchill said, still better than anything else we know. But, as we've seen, it is constantly endangered by the great imbalances in wealth and power that serve to underpin and weaken the system. For the military contractors, the great petrochemical corporations and the financial services handling the cash flows, the war has been a great bonanza. As one minute barometer of the money that has been set awash, real estate values around Washington DC have soared in the last six years like few other places in the country.

In that regard, as in all wars, these have been the best of times for those in a position to profit from the great sums that are inevitably dispensed. Year-end bonuses in this miserable year of setbacks abroad were so high in some places that even first-year employees became instant millionaires.

The elites gathered around the courts of power had chosen to elevate the brash son of a President who had been one of theirs, not the one waiting in the wings.  In a compromise with an electoral base they needed, they allowed themselves to choose this man known to have a string of bad episodes behind him, an arrogant grown-up, who, having never really suffered any, liked to talk about consequences. To ensure he had a chance of getting in, his DUI's, military foibles, and coke use had to be firmly buried, just as his business failures were papered over. 

The Legacy: A Conservative Nightmare

When George 43 took over, his ascendancy coincided with what seemed in the mind's eye of many Republicans, to be the apotheosis of a new permanent conservative majority. Like a Renaissance painting, Bush 43's ascendancy rested on an allegorical pyramid of permanent national power bases.  For the emboldened, America, the sole superpower standing, with an unchallenged technological and commercial superiority, like an F15 soaring above the radar in an unclouded sky, would assertively forge a New American Century, with family values, religious zeal, unfettered trade, and Western ideals rising to meet the new day. In this historical moment, the effects of the long national trauma of Vietnam were finally put to rest,  the all volunteer, professional military would rely on superior technology and the globalist ambitions of the corporate giants would be unleashed.  For the elites. gods of the universe who mastered this unchallenged dominance,  the fruits of profits would flow back into their hands in an unprecedented way, American might abroad would be universally feared and respected; awestruck, the permanent majority at home would support a move to undo an entire century's social, intellectual and artistic liberties corrupting the body social and politic.

All that was needed to solidify that majority was an amorphous seemingly permanent enemy to replace what had disappeared with the end of the Cold War.

And Like a Godsend!

On 9/11/2001 with the new president in office for little more than half a year, Osama bin Laden delivered to the White House doorstep the perfect new permanent enemy, Radical Islam, or better, Global Terrorism. For the neocons behind the takeover, this might have been called a godsend. Conspiracy theorists would wonder, among other things, how it was that bin Laden's large family in America, were the only people to be flown out in the first few chaotic hours after the attack when the skies were closed to all but military activity. No one denied that the Bushes and bin Ladens had prior business connections and that Osama had been a CIA client during the Soviet/Afghan war.  The public, of course, even many in that majority who had voted for Al Gore, saw their President's steely eyes and thanked God he had been chosen by the Supreme Court.

Now in 2007, with the Iraq adventure gone terribly wrong, with our vital energy supply in real danger, with US prestige and respect at an all time low around the world, with a seemingly unstoppable emerging China holding over a trillion dollars of US debt, with a trade imbalance built in, soaring deficits (Bush has kept the cost of the war off of the books as if it were inconsequential), the old allies unwilling to help, even in a slipping Afghanistan, with that solid gold military now seen to be stretched beyond its capabilities, its fighting capacities and manpower depleted and a public newly skeptical of what their government tells them, new Democratic majorities were being forged in disgust from Virginia, across the Midwest to the depth of the Mountain States.  Conservatives are likely to think they have woken up to their worst nightmare.

To fully gauge the impact, it's now possible to imagine, in the dynamics of Washington politics, that Bush 43 may expect the same kind of treatment from his own party that Richard Nixon got the last time the scenario ran amok.

The World War III Scenario

There is likely to be a hidden power struggle with the President and Vice President pushing for a move up to a war with Iran while the sober establishment that anointed them makes its own moves to pin all their troubles on this chronic failure who had enticed them to drink too deeply out of the cup of  reactionary religious politics.

The debacle in Iraq has proven that great military powers can exert overwhelming forces that can bring down governments. Fighting sectarians on the streets, house to house is another thing, it requires savvy, intelligence and the will to accept the consequences of sacrifice. By changing the subject to Iran, the warhawks get a new list of targets that can be attacked with pushbuttons from the air and sea.

Before Bush and Cheney manufacture a green light to go after Iran, another Tonkin Bay type episode, they should be given the task of proving that they can stroll through a part of the capital city controlled, not by the enemy Sunnis, but by our primary allies, the Shias; say, Sadr City. Having done that, they will have given us something more than their usual words, success and victory, to go by.

Of Democracy and Dynasty

Finally, perhaps in this our still evolving Democracy, we should look twice at the poor precedent that was set many years ago by the Adams family. One of the scourges of monarchy, was the elevation of highly flawed heirs. In that light, too, Democrats also should be taking a hard look at the implications of the Hillary husband/wife precedent they may be willing to set this time around.

*It should be noted that right from the beginning the image managers have worked overtime to keep Vietnamese-era resonating words out of the mouths of the media; rarely are the terms body bags, body count, hearts and minds, collateral damage used, likewise the handlers have fought terms like Sunni, Shiite, insurgency, civil war, quagmire and now escalation is the latest.  In her testimony Secretary Rice would only go so far as to call it an enlargement (she probably doesn't get the same spam we do, or she might have come up with something else). Surge had to be pulled back because it implied a short period and would have undermined support from McCain, Lieberman.etc.


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Posted by dymaxion at 01:01 PM

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November 16, 2005

Is There a Plan?

Detail: Torcello mosaic
The Last Judgement
(click to enlarge)

The Renaissance had hardly spread its way north from Italy, when a Catholic cleric educated in the Polish university city of Krakow published his revolutionary findings indicating that the planet Earth was part of a cosmic system in which it, along with some of the other most well recognized bodies in the night sky rotated in orbit around the Sun. The theory was profoundly revolutionary because the Church to which all Western Europe belonged had decreed as doctrine over a thousand years earlier an entirely different model for the way the universe functioned. In the system allowed, it was deigned by God's infallible representative on Earth, the Papacy in Rome, that the Earth, and by inference, mankind, its inhabitants, was positioned at the very center of the universe, and that the stars, or heavenly bodies, rotated around us, while down below a place was reserved for all those who sinned against God and his representative on earth, that same Holy Roman Church.

Because Poland was far enough away and Nicolas Copernicus little known outside a small circle of astronomers, the theories published in his De revolutionibus orbium coelestium in 1541 caused little stir in the chambers of power. In fact, De Revolutionibus was not officially banned by the Church for 75 years, until the year 1616. By that time the Church's authority was being attacked on a number of fronts. In Rome, itself, the monk Giordano Bruno had to be publicly burned at the stake in 1600 to silence his espousing of views that were derived from Copernicus' work but went even beyond them.

Finally, it was a much better known man, living in Florence at the intellectual center of Italy itself, and famous throughout Europe for his philosophical and scientific findings and the refinements he had made to the telescope --in Galileo Galilei's case, it was a view of the moons of Jupiter he saw through his looking glass-- that caused a festering political crisis in Rome.

As Galileo, who had been formally silenced since before 1616 specifically for his views on the solar system, found himself aging, his patience began to run out. Hoping perhaps that his personal relationship with the new Pope in Rome, Urban VIII, once his sympathetic patron in Florence, might protect him, Galileo decided to publish on some scant assurances, cloaking as a literary satire in a work he called the Dialogue, his forbidden arguments in favor of a non Earth-centric universe. Quite unsubtly, however, he names the churchman defending the accepted Ptolemaic version, Simplicio, or Simpleton.

For his pains to bridge the various sides of the argument, the aging and ill Galileo was summoned to make the journey to Rome where he was first left to cool his heals for several months and finally to be brought back to face the judges of the Inquisition for the second and final time. For publication of his Dialogue, he is sentenced to excommunication and with it, to eternal damnation, unless he publicly renounces before "his betters" his ideas. For the humiliation that terrible act of obedience brought him, he was sentenced to live out his days back in Florence under house arrest.

In an age dominated by nautical exploration that would strategically shape the world to come, the Galileo fiasco was to prove to be a great embarrassment to the Church in its battle to win the hearts and minds of people in the countries along the Catholic Protestant divide. A critical navigation problem of the day was the determination of longitude, a problem that would require a true understanding of the mechanics of solar time. The need for a scientific methodology divorced from theology became a critical element for national prosperity and power.

If Galileo and Copernicus never  felt the need to express doubts in the existence of a divine Presence, they were all too aware of the flaws of those humans who cloaked themselves in the power of divine authority. As far as we know, neither thought there was a need to bridge the gap between the philosophy of matter and the philosophy of divinity  through the use of this newly developing system of scientific methodology based on repeatable proofs. Interestingly, it was one of the greatest and most diligent scientific and mathematical geniuses we know of, Isaac Newton, who it seems, actually tried to prove the existence of God using scientific methodology.  For the pains of nearly 20 years of secret and intense alchemic experimentation, Newton, drove himself into a state of mental breakdown, bringing him close to death.

But for the Enlightenment academics who followed, Newton's studies on alchemy were better left in the closet. It wasn't until several centuries later, in most prosperous and forward Victorian England when Charles Darwin proposed his theories of the origins and species and the dynamic of evolution, that serious public and religious backlash to scientific methodology once again flared. The idea that our species had evolved as part of a long history that led from a primordial mix up through the apes, was too much for many in the public to swallow. If Copernicus had freed them from a medieval straightjacket based on obedience and absolutions doled up by a distant hierarchy, here they preferred what they found in their own mirrors, written in their Bible and painted on church walls and chapels -- that God had created man in his own image. Darwin, it was seen, was not just challenging the religious authorities and the very text of the Bible, itself but the security of mankind's position at the top of the food chain. If evolution could bring us to this point of dominance, could it not just as easily, render us irrelevant?

Like Galileo, the acceptance of Darwin has been a hard pill to swallow for large swaths of the population. Despite all this history, today, in the country that has most prospered from technical and scientific openness, there is a concerted move to confound the spheres of science and theology. The authors of the most credible attempt, challenge Darwin's theory with something they call Intelligent Design. Its proponents seize on several gaps in Darwin's theory, mainly, that DNA, being a common component of even the simplest of life forms, appears to be possibly too complex and elegant to have emerged whole cloth from purely natural phenomenon. They argue, then, that this complexity and elegance is a sure testament of the hand of God in the creation of life process. They replace the dynamic of mutation and survival of the fittest with a celestial blueprint charted by a supreme omniscient architect.

But if intelligent design implies a clockwork universe guided by an invisible hand, as seems to be the argument, there is a much older and bigger problem that then has to be dealt with (Spinoza, anyone?). It sets the stage for the appearance of God's foe, Satan. For, if an omniscient almighty God has put into motion all aspects of the long string of geological and organic changes or mutations that continue to reshape the universe, how do we then deal with the innocent human consequences of serious natural calamities like the recent earthquakes, tsunami and hurricanes that wreak so much sorrow and suffering on vastly different  populations?

At this moment we happen to be looking down the long barrel of a threat as small as a single instance of recombination or mutation. Should it happen, as most experts believe, there will be a slight shift in the tiny clump of protein that makes up the Bird Flu virus H5N1, giving that agent the power to easily pass from human to human, as the influenzas that commonly attack us so efficiently, do. Should this occur, and hundreds of millions of people around the world are stricken and die, shall we have to believe that we are being moved by the great plan or even pawns in a great cosmic struggle between good and evil? Will we be asked to also conclude, as in those medieval times when only "our betters" knew where heaven and hell were located, that we, like the good citizens of Dover Pennsylvania, are being punished for our sins?

At least in medieval times, proven information was not available, people only knew to believe what they were told. Thrown back into ignorance, with the force of a tornado in Kansas, we don't have that excuse today.

Posted by dymaxion at 02:16 PM

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August 15, 2005

The Silence of August


In the heat of the Potomac Summer, here at Dymaxia HQ, we sometimes show symptoms typical of the ague. Still, to our surprise, tiptoeing through the code orange ozone sky, a specter has appeared.

We know that in these quiet points, history can tip on single events like the defiance of a fatigued Rosa Parks on a long ago bus ride. This time the story is happening in Crawford TX outside the entrance to the Bush Ranch, where Cindy Sheehan, mother of a soldier killed in Iraq, has managed to draw attention to the mounting feeling of despair that has been stealthily creeping over the country as the toll of war deaths and injuries continues to mount relentlessly.

Why Ms. Sheehan's protest has gathered so much attention (as always, these days, first in the Blogosphere) says much about the way both the Administration and the mainstream Media have up to now danced somewhat macabrely around the entire Iraq narrative, best frozen by the daily presentation of war dead in silence on PBS's News Hour with Jim Lehrer. The must-be in silence metaphor holds not just for the Media but also for the Political Class and public. Most notably leading this silence is President Bush, who,  speech-challenged in the most ordinary sense, has also refused to provide the kind of rallying cry we expect from a leader who has put so much treasure and blood on the line for what can only be called a war of his own choice.

It is said by those who know his heart that the President is a deeply religious man who believes that he has been given his great position and the power inherent in it to serve the will of the Almighty. If this is true, and we have no reason to doubt it, we then can't help but to note that the President has never stood before the American people and shared this belief with the country. We can only imagine that this act of divine will is carried out in reflective silence.

Perhaps this is one reason for his relative quiet on the sacrifices his policy is requiring of a large number of us. On the other hand, and this can only be policy, we as a whole population are not being asked to make any direct sacrifices to ensure a successful outcome for this costly and Earth-moving venture. To date, the burden has fallen almost entirely on the shoulders of the professional military and their families; ... enter Ms. Sheehan.

To the contrary, as regards the rest of us,  it can be argued that the war is providing bounty --at least in the short run-- by fueling a flagging economy.  The 200 plus billions of dollars that is being spent is all off the budget and thus is not being accounted for, something that should be noted as the Administration announces budget deficit projections for the year.  It is a debt that is being run up in a military-industrial shopping spree, that only further speeds up the printing presses. As always, to keep things muddling along, we must rely on the favors of foreign governments to loan us the cash we need.

One of the lessons of the Vietnamese War for the postwar analysts was that a draft greatly exacerbates negative popular feeling during an unpopular war. Perhaps the greatest wall of silence today, in contrast to that turbulent period, emanates from the college campuses. Students, like their parents, run up debt as they go about their daily business unclouded by the thought that they might be called to serve and sacrifice for their country in Iraq and Afghanistan.

When Nightline's Ted Koppel last year at the milestone of  1,000 combat death in Iraq, chose to show the faces of those killed in action, (in silence, of course), he was roundly criticized by the Administration and its backers. ABC was deemed quot;political" for calling attention to this landmark.  In the same regard, one of the great under-told stories of the war has been the enormous number of serious casualties, estimated at some 25,000.

But non-silence can be dear. When Ambassador Joe Wilson spoke up calling the President's bluff on the atomic weapon scare (Niger yellow cake) that he had inserted into his State of the Union Address leading up to the war, "high ups" in \the Administration took the radical step of outing his wife, Valerie Plame, as an agent of the CIA. Factual speech, then, is squelched even as  speech that laid the false pretext of a case for Iraq's weapons of mass destruction (WMD) and links to Osama Bin Ladin (a major critic of Saddam) is left unscathed.

Ironically, silence from Iraq has been achieved through the generally negative situation .  Journalists, fearing for their lives, rely on the reports handed out by the military for their daily news feeds. This has resulted in a situation in which the deterioration has largely been gradual and utterly under reported.  For the most part, we do not know what is going on there on the ground and in the provisional government. We certainly don't know which areas are being controlled by which militias and what the constitutional process may or may not signify. Out of the silence we can surmise that there is a general breaking up of the country, that it is probably impossible to speak of standing up an Iraqi police and military given the mistrust among the Sunnis, Shiites and Kurds --we know this because the Pentagon is hinting that it will have to raise  the level of American troops during a scheduled election on the constitution that is supposed to take place around December and that coincides with the rotation in and out of American forces that allows for an overlap.  If there really was a reliable Iraqi military the extra troops shouldn't be needed. But once again we know this not by what is being spoken but by what is not being said.

The war has gone badly and thus empowered and emboldened neighboring Iran.  The Iraqi Sunnis who along with coreligionist cousins from Saudi Arabia, Syria and Jordan are fighting the Americans will come out with the short end of the stick if the oil fields to the north and south end up in quot;semi-autonomous" federal regions. This will be unacceptable to them and prove a potential danger for the bordering Saudi controlled oil fields of Arabia. It is whispered that Ahmed Chalabi, once the Pentagon's choice to replace Saddam and a leading pre-war player, has established himself near Basra in the South and with Iranian consent is leading a movement to create a semi-autonomous Shiite region that contains the major oil fields and Iraq's only port on the Persian Gulf.

It has become crystal clear there is no good outcome in Iraq.  The US' best hope is that the Shiites backed by the Iranians will somehow be able to box in the Sunnis without requiring too many permanent American troops and that we will be able to put the Iranians in the kind of box we once used against Saddam Hussein. A bad case but much more likely scenario will drive the price of oil to levels that will squeeze a shout of pain out of the silent American backbone. As for the American elites, smiling in silence all the way to the bank as their tax cuts and rising first, second and third home assets have hit the roof, we can expect the loudest calls for relief and subsidy should there be a squeeze. 

Cindy Sheehan has broken the silence, and unless the heat has made us delirious, she's but the first in a roar.

Posted by dymaxion at 04:56 PM

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May 28, 2005

Hen-nyPenny, The Bird Flu Over the Cuckoo's Nest

 plague mask

If, by nature, you are drawn towards gloom and doom, these days you may have begun to believe that you've died and gone to henny-penny heaven. On your checklist you've no doubt got at least the following scenarios: Dirty Bomb, it goes, there's little in the way of stopping someone with knowledge from gathering together from multiple available sources enough radioactive material to create a rather rudimentary "dirty bomb" that could turn any major US city into a Chernobyl like ghost town; Military Quagmire, i.e.; the war in Iraq drags on and as it more fully morphs into a "quagmire" (a winless war of long duration) US military vulnerability becomes more apparent to the rest of the world even as we face potential nuclear threats from Iran and North Korea; Economic Stagnancy, the US and world economies remain stagnant even at the point in which the housing bubble that was created to mitigate the collapse of the stock bubble enters into its own final days, having failed to stimulate jobs and a real recovery; Monetary Collapse, the twin US deficits that keep interest rates artificially low continue to grow resulting in a major sell-off of paper currencies; Jihad, anti-American sentiment spreads and magnifies throughout the Muslim world toppling governments in Saudi Arabia, Egypt and Pakistan (1/4th of the world's population) then spreads to the other 3/4's of the world; Global Climate Change, the global environment relentlessly continues down its path of accelerating climate change within a failed countervailing political system; AIDS?, Genocide in Africa? etc., take you pick!

But according to the World Health Organization, the NIH and other authorities, perhaps none of these match the imminent disaster that awaits us from what appears to be the inevitable spread of the Bird Flu or Avian Virus. In sheer terms of gloom, the facts are staggering. In 1918 right after World War I, the world suffered the worst flu epidemic in modern history. It is estimated that by the time the virus called the Spanish Flu had done its deadly work more people had died from it than had died in history's bloodiest war up to that time. In fact, it's possible to argue that more people died from the Spanish Flu in the course of less than two years than had died in all of the world's wars up to that time. Nobody knows what the mortality figures might be from the coming outbreak of the Bird Flu but it's sobering to note that so far, for known cases where the disease has passed from the poultry host to humans, there has been a death rate of nearly 50%. In contrast, the Spanish Flu killed about 30% of its victims..

In 1918 there were roughly 2 billion people living on Earth. Of those, roughly 22 million died from the great epidemic. Should the Avian Flu have only the same potency as the earlier highly virus, that would mean in today's world of over 6 billion a death toll of some 66 million people. But according to many epidemiologists the death toll this time around will go much higher. This is because of the speed in which the disease will be propelled from country to country and continent to continent via air travel. At any rate, public health resources even in the richest countries will be totally overwhelmed whereas in the poor countries where population density is often the highest, the speed of transmission will completely overrun already frayed civil societies.  In many countries we can expect total collapse as the scourge races through populations

In the looming Avian Flu outbreak scenario, which many of the most credible experts believe is not a question of if but of when (see this month's issue of Nature Magazine), the deaths and ensuing panic will only be the beginning of the suffering. A lasting result of a serious pandemic, will be the kind of economic devastation never before experienced on a worldwide scale. We have to think that in a global economy, many, if not most, of our consumer goods are manufactured in Asia, where the disease is spawning; conversely, we in North America supply many parts of the world with critical food supplies. An attempt to seal our borders from the flow of people and goods in this globally interdependent world, might provide short-term protection  but would lead to unparalleled disruptions in fuel and goods supplies. Massive segments of the US population would be thrown out of work and it's likely that civic disorders would erupt around the country, as shortages and rumors spread even faster than the disease. More than likely, the quarantine would not work for long as the pressures for contraband grew and threatened populations pushed across the border.  For the amount of economic dislocation spawned by a narrow quarantine, we only have to look as far as Toronto during the SARS outbreak there a couple of years ago, which directly affected no more than 500 patients but which brought the city to a standstill.

If you've read this far, you are more than likely to be asking yourself what flavor tobacco we have been smoking here at DW HQ. Surely, this is an overly bleak picture of what such a pandemic can do to a modern society with advanced medical, pharmaceutical and public health capabilities. You may be imagining that in the face of a certain danger, the advanced countries like the US are feverishly building up supplies of vaccines or virus killing drugs.. The picture, unfortunately, harkens back to last year's Asian Flu vaccine shortage. At the time, we all learned a little about the problems associated with vaccine production. It seems, however, that although we can try to get a jump on what we think the virus may look like,  efficient vaccines can be developed only after the precise virus configuration has been determined And that will not happen until the virus that now mainly spreads from bird to bird finds a way not only to leap over to humans and other mammals but mutates in such a way that it can spread directly from human to human. Only then will scientists know the final form. The other piece of the vaccine puzzle is the technique in which vaccines are produced. We also learned last year that flu vaccines require eggs in the production process and that the process itself is highly tricky. Normally, it takes months to get up to full production speed and even then rigorous testing is needed to ensure the vaccine doesn't become just another facet of the problem. Worldwide, there are very few licensed production facilities.

It's clear to us that this peril is as great as humanity has faced in our lifetime including MAD (Mutual Assured Destruction) and the neutron bomb. In perspective, it turns the relatively limited capabilities of the ""terrorists" --as in War on Terrorism-- into a minor diversion. Billions of dollars now being earmarked for military threats that may someday appear on the horizon should be immediately diverted from the Pentagon's budget to that of the Department of Health and Human Services. It would probably take an effort like that of  the Manhattan Project in WWII as the editorial in Nature puts it:

if the next pandemic were to arise five years from now, there would have been breathing space to stimulate our drug and vaccine industries to limit the damage it would cause. But that requires urgent action now. As matters stand, a vaccine against a pandemic flu would not be ready until at least six months after a pandemic starts. Too late: by then the worst of the pandemic would already have happened.

We here at DW, of course, wouldn't know a virus from a spore under a microscope, so we have to take the word of people like Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases but what we do know a little about are the ways of Washington and, sadly, our democracy; The chances of money for true national defense moving from DOD, or any other pocket of the Budget, to HHS or the UN's WHO in time to truly mitigate the crisis are about as big as that virus, or was it a spore?

Posted by dymaxion at 01:28 PM

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April 24, 2005

What's Good for Microsoft is Good for America?

When we saw General Motor's results for the last quarter, we couldn't help remember another America in which it was oft said, "What's Good for General Motors is good for America". A lot's changed since then but we thought it was worth considering the same metaphor in a new light; i.e.; is what's good for MSFT or GOOG or YHOO good for America? And if so, what does that mean?

But first, we'll get back to good old GM. Once upon a time there were three American car companies and then there were two as Chrysler fell first into bankruptcy and then into foreign hands. In those days GM had about a 70% share of the US market and, at least through the rose colored glasses of nostalgia, made some pretty sweet cars. Never mind that the built in clock hardly made it off the sales lot before it stopped or that in the course of three years you could expect your fuel pump, your water pump, transmission and your battery to all need replacement. Of course, if you lived in a northern state, you also had to deal with the body around the wheel wells rotting out.

Today, GM has about a 27% market share and if you want to buy a competitive sedan or convertible from them you have to do some serious research. They, like their major American competitor mainly make pick-up trucks, vans and SUV's. They have, it appears, been particularly hard hit by the recent rise in fuel costs, given the average size of the behemoths in their fleet but their problems go much deeper. Even in the large vehicle area, more and more of their potential customers are choosing autos made by their foreign headquartered foes that often beat them competitively, not on price but on design, quality, fit and finish.

Interestingly, GM hasn't made a profit on the vehicle it makes for several years so that even in years when they showed a profit, it all came from their financing operations. And, as everybody knows, GM has been selling more and more models over the past few years by inducing customers through 0 percent loans and  other incentives. You don't have to be a financial genius to understand that if you are in the finance business loans that pay no interest are bad business. So, it should come as little surprise that as they got all their customers into ever bigger gas slurpers at monthly payments that reflect zero interest and when the price of gas went up, as everybody knew it would, especially with all those guzzlers, GM was looking at customers with less and less disposable income. Money that might have gone to their finance wing, was now flowing  into the pockets of the oil companies and the producer countries.

Are we to be surprised, then, that GM just reported a quarterly loss of over 1.5 billion dollars?

We are, it appears, beginning to see the signs of the coming day of reckoning, when all of the contradictions of the last few years come to roost. What if all that deficit spending, all those tax giveaways that were supposed to spur investment just turned into the stuff of ever greater further deficits? What if Fed Reserve and government policies aimed at stimulating consumption succeeded mainly in stimulating the Chinese economy to build more capacity? What if trade deficits have put the US at the mercy of the foreign countries who hold all our debt? What if we ended up with interest rates so low and creeping inflation that would tie the hands of the Fed? What if we had invested over $300 billion dollars, the lives of 10's of thousands, and the country's prestige on a war that is coming to look more and more like a low level national cancer?

Two weeks ago, as if on prompt --which, of course, is their wont-- the sock puppets of the MSM (mainstream media) all started singing about the improvements in the situation in Iraq. This coincided with the two year anniversary of the "end of major combat". We were to believe that the three warring ethnic groups, Shiites, Sunnis and Kurds had lain down together like proverbial lambs and tigers, that the insurgents were losing interest and thinking about other targets.  What these sock puppets failed to mention is that the cost of taking a taxi the six miles from the Green Zone in Baghdad to the local airport is $35,000. Now, we may be a little old fashioned here in Dymaxia, but 35 grand for a six mile taxi ride in the capital of a pacified country seems a little stiff. Until, of course, as we read yesterday, typically four people a day, even in armored Humvees, die trying to make the trip.

GM, its manufacturer, tried selling the Humvee in civilian form to the US public as the latest in fashionable bigness. Never mind that it gets around 5 miles to the gallon. To help them in their costly marketing campaign, Congress wrote a loophole in the tax code that allows all vehicles above 5 tons to get special tax depreciation treatment.

America's real business, we all agree, is not cars but high tech. Are our leaders fighting about how to get the population educated and trained for the demands of a high tech economy, are we worrying about laying the infrastructure for a high-speed broadband that connects us and leads to the new applications that the world will need, are we encouraging more foreign trained engineers into our graduate schools, are we making connectivity a right rather than a privilege, etc.?

Of course, the answer is no, not in this US  that is still fighting over things that should have been settled when GM really was king. We are buried in arguments over whether pharmacists should be forced to fill prescriptions for people whose habits they don't like, about what equipment is being carried below the belts of people who wish to live legally as couples, whether a person's spouse has the right to make medical decisions against the will of her parents, we are discussing whether our DNA links with other species on the planet means anything in the scientific scheme of things, whether the earth is really more than 5000 years old, whether we should shut down the government in order to potentially determine a woman's right to choose what's good for her body or whether stem cell lines that promise major health benefits should be allowed to come from fetal materials we commonly dispose of.

Maybe there is a reason we are in Iraq that doesn't have to do with oil and Saddam Hussein, maybe in this fixation for the rear view mirror we are really there looking for enlightenment from a society that has deep cultural roots in beliefs little changed in 1500 years.


Posted by dymaxion at 05:57 PM

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April 02, 2005

F2C (Freedom to Connect) Post Event Thoughts

David Isenberg, the one-man force behind F2C, deserves everyone's kudos for having delivered a truly important event right here, inside the Beltway. David's, and the tremendous group of attendees and speakers, instincts are right in convening this assembly at this time and in this place. Techno-libertarians may be in denial or dismayed, but to an overwhelming degree, it's the decisions made in the chambers of Washington DC, Brussels and Beijing rather than, say, the boardrooms of Boston, Silicon Valley and Seattle that increasingly set this country's (and the world's) technology directions.

Timely, because for millions of bloggers, social bookmarkers, podcasters, wikiists and vloggers --if we left you out, we didn't mean to-- the Web has begun to live up to its promise of becoming a truly multidirectional, horizontal way to communicate and connect. It, meaning the combination of technological platforms and protocols, has succeeded in profoundly lowering both the barriers to production and distribution for Web communicators. One only has to see that on the Web the New York Times, Fox News and Yahoo have to compete for the same screen space as clever and creative sites run by a single individual or a relatively small group of collaborators. Needless to say, this "long tale" of diverse content and an economic model that can be supported by relatively compact audiences, drives the big content guys nuts. Politicians have also gotten the message: the Web's ability to quickly mobilize supporters and even demonstrators has the potential to overturn the very cozy arrangement they have forged with financial interests in what have increasingly become safe districts where the incumbent has to get caught swimming nude in the tidal basin with a stripper to worry about a potential challenger, and even then, probably a substitute from their own party.

Gut issues: On the Web, all bits and bytes look the same. These can be bits of free flowing creativity, advertisements, hate messages, bets, pornography, purchase orders, music and movies, love notes and plots to blow up buildings. On the Web, they all look alike. Because of this openness, obviously, not everything there meets our approval  Thus, there is a confluence of interests who, for better and worse motives, are tempted to want to somehow regulate, tap into and control that flow by tampering with the very guts of the Internet. In that blueprint, only permitted kinds of bits and bytes might use the channel while all others are shunted, blocked or black-lined. Vint Cert, one of the principal architects of the Internet, spoke eloquently about why we should avoid going down that path.

The delivery system: The Web is more than an integration of technology platforms built on standard protocols.  There is also a physical transport layer. And the business of providing the physical means for transporting all those bits and bytes out to the ends is enormous and consequently requires great investments in infrastructure. Where that infrastructure gets built, who gets to fund and lay it and how these choices get regulated is equally important. Terry Huval, the head of the publicly owned electric utility in Lafayette LA, spoke about his city's efforts to build their own network.

Lafayette, like Philadelphia and some other municipalities are proposing to built out their own Internet access systems and have been facing tough opposition from the telephone and cable companies.  But these cities are in the minority. Although access to the Web is vital to the social and economic wellbeing of a society it is being left mainly to the purely economic considerations of monopolistic conveyors, who in the case of Web access in the US, are the giant Telcos and Cable Operators.

Mark Cooper, one of the panelists, provided the following context by reminding the audience (the event was webcast) of how far back the principal of fair access has been embedded in the law.  Innkeepers in pre-Renaissance Europe at the very dawn of Capitalism were required, in some of the first instances of common law,  to publicly post their tariffs. In such way, for example, the pilgrims in the Canterbury Tales could all be assured the same price for equal bed and board regardless of their station in life. Cooper also pointed to rules requiring canal operators in early America and later the railroads that required them to post their tariffs and make them an equal playing field for transport or trade. It was well understood, that if these regulations were not in place, the monopoly operators of roads, canals and railroads could charge favorites one price and non-preferreds another thereby tipping the competitive balance.

As the F2C website argues in its call for the Conference:

The need to communicate is primary, like the need to breathe, eat, sleep, reproduce, socialize and learn. Better connections make for better communication. Better connections drive economic growth through better access to suppliers, customers and ideas. Better connections provide for development and testing of ideas in science and the arts. Better connections improve the quality of everyday life. Better connections build stronger democracies. Strong democracies build strong networks.

Place: By happenstance or not, on Tuesday of this week the Supreme Court heard two cases --MGM v.Grokster and Brand X (Brand X (a California ISP) vs FCC) with the potential of having enormous impacts on the future of technology. In the first case, the judges were being asked to look at whether technologies that can be used for illegal purposes can be banned even if they also have legitimate uses.  In the Brand X case, the Court will decide whether the Cable Companies, like the Telcos have to open up access to their lines into the house to other potential service providers like ISP's.   Later in the year, Congress will be working on a possible update to the Telecommunications Act, which is widely viewed as flawed.  For the last decade the role of the FCC, a group of 5 Commissioners, which once had the fairly sleepy job of regulating a stagnant network system has become a critical battlefield for a multitude of issues.  The Brand X Case, for example, is the direct result of an FCC ruling that said that the Cable Companies were not required to share their lines, a decision that was later overturned by the 9th District Federal Court of Appeals.

And so, against this background, on Wednesday, the F2C Conference opened in the AFI Silver Theatre outside of Washington. Expert speakers like Susan Crawford, Jim Baller, Robert Corn-Revere, John Perry Barlow, Rahul Tongia and Dan Gillmor, to name just a few, talked about First Amendment speech and press issues; alternative network build-out approaches; the need for a neutral, private, transparent, fully accessible network; societal access implications; and potential technology solutions. What couldn't have been made more eminently clear to all who attended in person or via the webcast, was`that the consequences of choices in future directions for the Web are far too important to be left to the politicians and lobbyists to sort out on their own. If they are left to do that, without the direct input and actions of all of us most directly affected, it's highly likely that this dynamic moment in communication history will become something looked back at in nostalgia or anger for what might have been.

Posted by dymaxion at 11:24 AM

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February 12, 2005

War of the Worlds

galaxy.jpg Did you ever wonder what the Internet looks like from deep inside the Beltway? And, to be perfectly reasonable, is there any reason why you should have?. This week at the State of the Net Conference sponsored by the bicameral Congressional Internet Caucus we got a chance to mix with staffers, Senators and Congressmen, industry (mostly lobbyists) and the odd media attendee. This was Washington meets K Street technology as only Washington can do it.

Luckily, having lived in the neighborhood for a while, we knew enough to doff a dark gray (or blue) suit, and select an equally conservative shirt and tie. And sure enough, among the 300 plus attendees we could spot nary a pair of chinos or a ponytail.  For a brief moment, even armed with our name card, we had the vague sense we had perhaps shown up a day too early or late.

Only coincidentally, the Conference took place on the same day that Carly Fiorina, who was once said to have national political aspirations, was ousted at Hewlett Packard.  Not too long ago, no one in Silicon Valley would have given a rat's backend for what anyone in Washington (or anywhere else except Seattle,) had to say about technology directions. Likewise, in the sea of dark suits in attendance at the Hyatt Regency Washington DC, it's safe to say that there was little more than a spittle of lip service given to the mainly libertarian, entrepreneurial, grassroots passions of the Valley.  Through Left Coast eyes, this Conference could have been held post a takeover from outer space.

Equally interesting none of the co-chairs, Senators Conrad Burns (R-MT) andPatrick Leahy (D-VT), and Congressmen Bob Goodlatte (R-VA) and Rick Boucher(D-VA) are from California. The Keynote speaker was Senator Ted Stevens (R-AK). 

More tellingly, and more than a little inconvenient for anyone hoping to do a live feed, was the lack of wireless connectivity for the event.  This Hyatt, located at the foot of Capitol Hill, does have wireless connectivity but not in the areas where the Conference was held.  For us, this meant shelling out $9.95 to have the privilege of going upstairs to the lobby between sessions.  Imagine sitting at a well funded   --the Planning Board included representatives from Microsoft, the RIAA, Verizon, Time Warner and Verisign --conference on the Internet in 2005 with no live audio or video Internet feed, no web access available and with hardly an attendee even sitting in front of an open laptop. Merge that with the dress code, and you could easily have looked up and thought the clock had been turned back to 1990.

These, of course, weren't the only oddities. The Panel on International Trends, second on the agenda, turned out to be made up entirely of UK Parliament members off on a junket.  Their talking points may not have even mentioned China, Japan and India!

So who's irrelevant, is it us and our readers interspersed in the various tech enclaves spread around the globe, who are hopefully getting a chuckle out of this description, or the black hole that Washington DC has become in 2005.  For that we have to take a closer look at the Conference's agenda and further out on the year's Congressional, Federal Agency and Supreme Court schedules. On the first day of the Year of the Rooster, panelists in the breakout sessions were discussing: Spyware, Spam, and Scams: How Are Consumers Coping?; DRM: How Will Content Be Delivered on the Internet?; Convergence and the Telecom Act; Cyber Security and Enabling the Next Round of Innovation on the Net; Intellectual Property and Innovation; Did the Internet Kill the Telecom Act?; Privacy, Trust, Security; Anticipating Grokster: A Betamax Standard for the Digital Age?; 100 mb by 2010: A Broadband Forecast or Fantasy?

Irrelevant? hardly, when it comes to influencing the flow of money and power, Washington sits like a black hole at the center of the galaxy.  Frighteningly, the five members of the (FCC) Federal Communications Commission will have more to say about how convergence plays out in the coming years than any combination of technology and communications companies.  And by the way, the Commissioner (Powell) and another member have just resigned.  Those slots will be filled by Presidential appointments with the assent of Congress. Decisions regarding the flow of information through the major pipes, the airwaves, and satellite will be made right here in Washington. For instance, do the cable companies and telcos have to share their lines into the house?  Should we be moving to IP6, how and when?  This is, of course, the year of the Grokster case; the Supreme Court will decide whether the landmark Sony-Betamax decision will stand as was affirmed by the much maligned San Francisco based 9th Circuit court of Appeals.  In case you don't recall, the Sony Betamax decision made it possible for VCR's to be sold against the wishes of the entertainment industry.  Once again, the same forces, fattened by the very profits the video industry spawned,  are trying to restrict the use of devices that only might be used to illegally  copy protected materials. Last summer the Senate narrowly pushed aside an attempt to legislate the same restrictions in something that came to be called the INDUCE Act.  INDUCE is sitting ready to be reintroduced and what the Supreme Court has to say in Grokster will greatly affect the outcome.  Washington could also have a say as to whether the states and municipalities can build out their own Wi-Fi networks.  It will be up to Washington to ultimately draw the lines on our rights to privacy on the Net, and on what can be kept out  of the public domain through extended copyright, patents or censorship.

But Washington isn't just the regulator of the spirals in the galaxy, it also molds the shapes of change through the force of its money spigots.  How fast the high speed internet gets built depends on government investment and incentives.  Investments in securing the network and users from fraudulent activities that threaten to bring it down are also mainly in the hands of Congress.

The ways of Washington are indeed strange.  At the post event reception held in the Dirksen Senate Office Building; there was a live IP video hook-up with the Marine base in Fallujah.  Two young marines, pallid and gray on the screen, patiently sat through the event.  All four of the co-chairs when they got to the mike directly addressed them;  it was clear that the war weighs heavy on the minds of the Members who have to deal with its death, displacement, human and fiscal costs on a daily basis. Equally clear, for the hundreds of staffers and guests at the reception, very few wandered over to the screen to say a few words to the two guys. Their gray,distant, slightly jerky presences were little more than a ghostly flicker in the end of the large room full of chatter, tinkling glasses and the swish of passing business cards.

Posted by dymaxion at 10:56 AM

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January 30, 2005

Roseannadanna Revisited

We seem to return often to the subject of viral mendacity; perhaps, it's because we know all too up close and personal, the temptation to use words to cover up for unpleasant deeds.  But like moths to a flame, we are once again drawn by the mischievousness of an Administration that never ceases to amaze when it comes to juking around the truth.

No one's forgotten that just a few years ago as we reeled from the attack on the Twin Towers, the just promoted and present Secretary of State provided us with the refrain that the Administration didn't want "the next smoking gun to be a mushroom cloud" over one of our major cities.  When that threat turned out to be just one of a trio of manufactured legs of the WMD argument, the Administration responded: "Never mind, we got rid of Saddam Hussein, didn't we? We stand for freedom and democracy everywhere".

Never mind, that we have put hundreds of thousands of our fellow citizens in extreme  harm's way along with millions of Iraqis. Never mind, that the US's reputation around the world has been permanently stained. Never mind, that the true cost has already surpassed $300 billion, or $10,000 per Iraqi citizen. Never mind, that we have brought our military back to a post-Vietnam low....

Now, with all of the major domestic problems facing us -- from health care to private pensions, to education, to jobs, to historically high domestic and trade deficits -- the President has decided to use up what precious political capital he and his party have gained in the last decades to tinker with the most successful social program the government has ever carried out.  With the dollar teetering on the overhang of a mountain of debt, and Medicare's financial underpinning mushy, Bush decided to call the long-term problem of funding Social Security after 2042 his single most important domestic "crisis".

When the Social Security "crisis" story began to come undone and the revelation that in order to create personal accounts, several trillion -- that's with a "t": BTW, the entire US economy last year totaled out at $10.5 trillion-- additional dollars would have to be pumped into the system in order to make up for the diverted funds the new program would swallow, the Administration began to look for cover.

Never mind, the word crisis, they said, this is a matter of social justice. Social Security is unfair to minorities and immigrants. Poor people die young so therefore the present Social Security system is, they began to argue, racist. By implication, of course, they were arguing that come 2042 poor people will still be dying of bad medical care and inferior diets. so they need personal savings accounts. Paul Krugman, writing in the NY Timess on Friday pointed out that, contrary to the benefit inequity argument, African Americans actually collect their proportional share (and Latinos do even better) through a combination of pension and Social Security disability payments as well as the progressive nature of the way payments are calculated. But Bush will also argue that SS is unfair to young people, banking on the known bias, that young people don't think too much about things that might happen to them, as the Beatle's song goes, "when [they're] 64."

But the  greatest danger of the personal-accounts-in-place-of-the-basic-SS guaranteed pension argument (and we have no problem with programs that subsidize additional private savings accounts or ones that deal realistically with funding the boomer retirement bulge) is that it's based on a market timing trap.  Might it just happen, that the mid-term prospects for the US economy --and particularly for the US stock market-- are somewhere between anemic and dire, particularly, if you compare our endemic and persistent across-the-board public and private debt levels to countries like Brazil and Argentina that collapsed during the 1990's.  By those terms, the US is a world basket case. Historically, we've seen numerous decade-long periods in which markets go sideways or down. These troughs always occur after stock markets bubbles while excesses in equity prices work their way back to traditional levels. By historical P/E levels, even after the drops that spanned mid-2000 to 2003, we have a long way down to go to get back to what has proved to be the norm. Further, there is no guarantee the drop (slow or gradual) will stop as it approaches the average.  Often, just as markets go excessively up, they keep falling to a low extreme that goes far below the mean.

All this to point out that there couldn't be a worse time to be forcing millions of new investors to get into the market.  The kinds of investments that will be proposed, will be indexes of baskets of stocks and bonds.  In a long term bear market --where good single stock or single sector bets may abound-- there is no worse strategy than putting your money into a broad index.  And we are sure that any scheme for private accounts will be pigeon-holed into broad indexes that have the dual purpose of pumping up the wider market and preventing the new and greater lumpeninvestoriat from getting taken right out of the gate.

But we suppose the answer to all this damage will be, "Never mind, we undermined the present system, never mind, we added a few trillion to the debt (off budget, of course), never mind, we made a lot of fund managers rich," the taxpayer will just have to pick up the tab.  BTW, that's what's happened in Chile and the U.K. where the private account experiment has some history.
But never mind, facts should never get in the way of greater (read, ideological), truths.


Written on a Mugwump

Posted by dymaxion at 02:27 PM

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December 14, 2004

Are We Chinese Compatible Yet?


Moore's Law, the doubling of computing power every couple of years, may give way to the greater laws of physics at some point, but for the moment it is an economic metric to be reckoned with.

If we slide the scale back a little more than 12 or so Moore's Law cycles, we find the IBM Corporation at the pinnacle of international business domination, hegemonic leaders of the world's fastest growing industry. At this point on the scale, even IBM watching is a major industry and bookstore shelves are crammed with best selling business tomes lauding the unassailability of the IBM Way. Signs hung on the walls of IBM executives smugly mock the outside world with the company motto: "Think Ahead"

One problem the company faces however is a limited market. Big Blue's big iron is so expensive to lease and maintain that only large corporations, governments and institutions can afford one of their own.

For everybody else, there is "time sharing" on somebody else's mainframe or the outsourcing of specific tasks like accounting and payroll. In the niche left under big iron, companies like Digital Equipment Corp and others supply mid-sized companies and, in some cases, corporate departments, with so called "mini-computers". Mini's and mainframes have the same characteristics: users sit at "dumb non-graphic terminals" logged into central computer servers stored behind closed doors in sterile, specially acclimatized areas tended by white-frocked technicians from the DP (or Data Processing) department.

Back then all access and processing activity on the system was controlled by a DP department regularly serviced by crisply white-shirted, blue-suited, teams of IBM reps and technicians. It was generally a relationship more cozy than strained though everybody recognized, if push came to shove, that the supplier was boss; for instance, should a department in an enterprise want to bring in a mini-system for a particular application, say engineering or word processing (Wang), IBM could usually expect the DP department head to follow IBM's marching orders.

One tactic the company brought to a fine art came to be called FUD; If IBM announced it would be launching a competing engineering application; DP would lead the fight to resist the purchase of the rival machines. Often, Departments, through their own budgets, would have to go around DP to get their own cluster of mini-based workstations. And this could sometimes leave them flying solo, without DP support. In corporate DP pop culture it was oft repeated: "no one ever got fired for buying an IBM"

But there was also emerging a tiny cottage industry in the mid to late 1970's reserved for hobbyists and other genres of nerds working in kitchens, dens and garages. They had perhaps graduated from kits bought at Radio Shack to manufactured monitor-less computers from companies --a keyboard and an attachment to cassette reader-- like Texas Instruments, Commodore, and Atari. By this time also, a start-up out of a small town on the peninsula south of San Francisco had begun shipping the Apple 1.

Around 1980, viewing even this flea speck of a market as a potential opportunity, a small team inside of Big Blue working under the code-name "Acorn" was given the go-ahead to come up with its own version of a "personal computer". The launch of such a machine, we now know, signaled the real starting line for the second computer revolution.

According to Mary Bellis writing in About.Com:

The first IBM PC ran on a 4.77 MHz Intel 8088 microprocessor. The PC came equipped with 16 kilobytes of memory, expandable to 256k. The PC came with one or two 160k floppy disk drives and an optional color monitor. The price tag started at $1,565, which would be nearly $4,000 today. What really made the IBM PC different from previous IBM computers was that it was the first one built from off the shelf parts (called open architecture) and marketed by outside distributors (Sears & Roebucks and Computerland). The Intel chip was chosen because IBM had already obtained the rights to manufacture the Intel chips

That's right, it all started in 1981 with two floppy disks, 16KB of RAM and a 4.77Mhz processor! The PC also came with the programming language BASIC, produced by the same tiny company that supplied IBM with the DOS operating system for the system. But IBM was not the only major company to want to enter into the fledgling small business oriented, desktop personal computer market: the IBM PC was very quickly followed by rivals from DEC and others. There were also ready-made application companies ready to jump into the fray with word processing, spreadsheet and DBMS's. For example, Xerox, which was at the height of its innovative powers in those days, was one of several companies that offered a dedicated word processing system. What they were to find out is that PC-DOS users could easily buy or pirate a word processor called WordStar.

But priced at the equivalent of today's $4- or $5-thousand, when you count in the printer and color ASCII monitor, it's not surprising that the first purchasers of the personal computer were hardly the same hobbyists who bought Ataris. Before not too long, IBM had come out with an upgraded PC it called the XT, with a 5MB hard drive and the real race was off and running. Now it was possible for small businesses to think about installing an accounting or merchandise-tracking package.

What quickly emerged much to the chagrin of players like DEC, HP, Xerox and other rivals with their own proprietary or rival DOS operating systems was the deadly mantra "IBM compatible". Since the IBM PC, to achieve speed-to-market, offered something truly revolutionary: an "open architecture" --a concept that no doubt brought shudders to the mainframe side of the business-- a number of "100% IBM compatible" imitators, like Compaq Computer, began to emerge. Having licensed DOS, done some significant reengineering and built on the Intel 8088 architecture, these companies could claim to be 100% IBM compatible. And so a new standard was born and even though IBM began to face serious competition in the personal computer space from a more agile and innovative Apple Computer, that borrowed heavily from work done at Xerox's expense, IBM could rest comfortably on its reputation in the business world and a growing number of equally creative suppliers in the open computing space for software and hardware products that were, of course, 100% IBM compatible.

What really got the IBM-standard going, however, was the introduction of a product called Lotus 123. Lotus 123 was supposed to combine all three of the major applications, a database or DBMS, spreadsheet and word processor, in one package. Along the way, it greatly improved on a math-driven application, the spreadsheet that was being successfully sold by a company called VisiCalc. Lotus 123 was the first of what we now know of as "killer apps", application software that spawns industries. Lotus 123 had a very primitive but original graphing capability. It could make bar charts and pie charts, for example even though a standard ASCII monitor could not display graphics. But the PC came with expansion slots with open, published, specifications. Soon companies were selling hardware that fit into one of these slots and that could convert a monitor into a graphic display. With an adaptor, PC users could now see their pie charts in color on their IBM-compatible graphic displays.

If the word processor liberated writers from the tyranny of carbon paper and the labor intensity of edits, 123 more significantly made variable but repetitive calculations a thing of the past for bean counters of all stripes. What was creating the first tectonic shockwaves was the growing recognition inside major corporations that Lotus 123, with its graphical capabilities, was far better than any software that IBM offered on its humongously expensive mainframes. Much to the displeasure of the DP department and IBM's mainframe salespeople, IBM PC's were being smuggled in droves through the backdoor into the country's leading institutions.

Around the same time, a tragic airplane accident occurred in which the top level of the Entry Systems Division founding PC team at IBM was lost. For many of the mainframers, this was probably seen as something less than a business setback, since it was already clear that the puny "toy" PC was causing disruptions in mainframe sales. Big iron budgets were being "cannibalized" by a new class of more powerful desktop workstation computers. Something IBM planners had clearly not foreseen.

The next and truly fatal blow to the IBM standard was dealt, of course, by Microsoft, when Bill Gates and company managed to sabotage IBM's plans to establish its next generation OS2 operating system software in place of Microsoft's MS-DOS. Parallel to its efforts to build OS2 for IBM, MSFT hastily built its own Windows operating system. At the same time it developed its new line of Office software for MS-Windows that could closely rival Lotus's and Word Perfect's market leading offerings. The makers of Lotus and Word Perfect, following IBM's marching orders, were busy retooling their products for an OS2 launch.

All Microsoft had to do was drag its feet with OS2 while bringing Word and Excel for Windows to market. In one mere tick of the cycle, Microsoft, of course, had emerged the winner; Word Perfect, Lotus, Ashton Tate and others would fall by the wayside and slowly the IBM-compatible mantra would pass to MSFT and Intel. In one of the greatest coups in business history, MSFT had wrested control of the IBM standard from Big Blue, though it would still take many years for the phrase IBM compatible to die out.

For IBM, the crisis was catastrophic, by this time, it was no longer even the largest seller of PC's. That mantle had been taken over by Compaq. But IBM was not yet ready to throw in the towel in the business they had invented. They still had an enormous business customer base and unrivaled technological resources. Rebounding they regenerated their PC business by way of an impressive, sleek, new line of notebook computers called the ThinkPad.

The Cycle Hits Home

With the sale this week of its PC business including the IBM brand name to the Chinese, analysts might argue that IBM has strengthened its corporate competitiveness and gained an important Chinese partner for the expansion of its integration business in the world's largest country and fastest growing economy. After all, the main business of the company had long ago been reinvented not as a manufacturing party but as a service company providing high priced consulting and integration services to other global entities.

Not insignificantly, as a major systems integrator IBM has also become an important proponent of the Linux operating system. Linux is an open source (meaning, the source code, regulated by a non-profit organization, can be licensed at no cost) product that has benefited from a truly impressive, international volunteer collaboration. Not coincidentally, Linux and the open source movement now pose the first significant threat to Microsoft's entrenched, pre-eminent position.

As for the 10,000 or so US-based employees in the IBM PC division who now work for Lenovo (IBM owns an 18,5% stake in the merged Beijing headquartered company), the message has to be pretty clear: most of your jobs are fairly safe for a while as the Chinese get their arms around the advanced technology and design aspects that have made the Notepad line of notebooks so successful among business users. But it might not be a bad time to dust off that resume or think about the early retirement program while it still exists.

What the Chinese get for their $1.8 billion, besides a going business and an incredible brand name, is access into yet another layer of leading edge technology and know-how.

It may be just a coincidence that practically on the same day that the IBM /Lenovo deal was announced, a study was released showing that US high school students ranked near the bottom in math and science skills when compared with their peers living in the other 20 or so highly industrialized countries.

For as many cycles as Moore's Law has been in effect, the braindrain has worked in the US' favor. Now, a falling dollar, a worldwide Internet communication system that reconfigures the importance of borders and time-zones and shrinking tech opportunities in the US will only exacerbate the situation as comparable pay scales rise in more stable currencies. The reaction to Bin Laden has also served to choke off the supply of thousands of eager Asians who come to study and remain to work in the country.

Nearly 3 quarters of the world's population lives in Asia. It's said that a billion Chinese (half the population) have not yet made a telephone call. But the base Asian population figures are so great that a still truly impoverished country like India with half the population of China can have more people in its middle class than the US. If the relative success of Asian-American students in the US is any indication, we can expect to see these countries turning out relatively massive numbers of high-tech trained graduates.

In Moore's Law time, changes occur rapidly. Certainly, there will be pauses and even setbacks as economic conditions contract and expand but, all told, it might be a good time to check on the real significance of being 100% Chinese compatible and, thinking ahead, always in Moore's Law time, how long even that yet unestablished standard might last.

Posted by dymaxion at 02:07 PM

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October 02, 2004

A Tale of Two Cities

Here's how the Wikipedia begins its definition of oligopoly: "An oligopoly is a market form in which a market is dominated by a small number of sellers (oligopolists). The word is derived from the Greek for few sellers. Because there are few participants in this type of market, each oligopolist is aware of the actions of the others. Oligopolistic markets are characterized by interactivity. The decisions of one firm influence, and are influenced by, the decisions of other firms. Strategic planning by oligopolists always involves taking into account the likely responses of the other market participants."

When Congress granted major league baseball(MLB) immunity from antimonopoly laws many years ago, they could hardly have dreamed of a day when a major league baseball owner would be able to blithely negotiate himself a deal that could indirectly transfer hundreds of millions of dollars of taxpayer money into his bank account. But that's what it took to get Baltimore Orioles owner Peter Angelos to agree to allow major league baseball to move a money losing franchise from isolated Montreal to the fecund clime of the nation's capital.

As a result, it now looks like Congress may have to immunize the owners from the RICO Act first put in place against organized crime and recently used in the Enron case and other massive corporate fraud cases.

The long anticipated announcement came this week that Baseball had chosen to move the hapless Expos to Washington, DC where Mayor Anthony Williams has put together an offer of at least $440 million dollars --it'll probably cost far more-- for a taxpayer financed (but not owned) stadium plus the surrounding infrastructure. Negotiations to get a new home for the Expos have been in progress for years.

Washington, of course, is a no-brain choice for a team site for a number of compelling economic and symbolic reasons. Besides being the nation's Capital, it is at the heart of a fast growing economy, spurred by a shift in government spending that has increased federal employment but also fattened the coffers of the Beltway Bandits, or corporate contracting firms that have mushroomed around the Administration's thrust towards outsourcing government jobs. In addition to the subsidy, Baseball will get entry into one of the nation's leading TV markets, a new riverside stadium with visually sexy camera angles on the Capitol and the Washington Monument and a rabid sports base that has made the pale Washington Redskins the most profitable team in the NFL.

The deal had to be rushed to completion after recent DC City Council primary elections in which three incumbents who supported the baseball package were, in effect, ousted by candidates who said they were against the $440 million taxpayer subsidies. There will be a general election on November 2nd but the outcome of that election is a mere formality. However, from a timing perspective, the new Council members won't be sworn in until January.

The Mayor has held up his plan as being citizen tax-neutral by levying a $22 million special tax on the city's 2,000 largest businesses. Another $15 million a year will come from revenues raised through tickets, hotdogs and parking taxes. Although the details of the plan have not been released to the public yet, it appears that although the City will pay for the stadium it will not own it, nor will it own any part of the team nor will it even have even a piece of the lucrative naming rights to the stadium.

In context, it has to be noted that Washington suffers from some of the worst performing public education, safety and health systems in the country. A school house located just several blocks from where BlowBack is being written, has rotting boarded over windows ; another, closer by, in violation of the City's lead paint laws, hasn't been given a facelift in living memory. City leaders who might have tapped the 2000 largest businesses in DC, among them many of the most powerful lobbying firms in the world, for more money to bring to the capital's citizens, have instead opted for the glamour of going major league, as if Washington DC wasn't in many ways already the world's capital. Ironically, one of the contributors to the Baseball tax is Fannie Mae, by far the City's largest corporate entity. We say, ironically, because Fannie Mae, presently enmeshed in a major scandal for the way it has been cooking its books to favor multimillion dollar bonuses for its top managers, is--even though it's traded publicly-- technically a federal agency, making it exempt from paying any regular taxes to the City.

A case of noblesse oblige? or rather the position of Franklin Raines, its CEO, who just happens to be a member of the group that plans to buy the Baseball team? Raines, who has banked millions since he got to Fannie Mae, is only a minor piker compared to Peter Angelos, the Orioles' owner. As our compatriot, dymaxion, wrote earlier in the "Senators and the Cosa Nostra", Angelos has been sitting in the catbird seat when it comes to this deal.

Baseball had to move out of Montreal where they were drawing an average of 8,000 fans per game. They might have chosen Portland or Las Vegas or Northern Virginia. But tax-adverse Virginia was not going to throw real public money at them the way Mayor Williams did, Vegas had its gambling problems and liberal Portland is just not Dickensonian enough . Also, Baseball has learned from Anaheim, Oakland and Arlington, Texas that suburban stadiums just don't have the same cache' as ballparks surrounded by photogenic urban backdrops.

But the path to DC had to go through Peter Angelos of the Baltimore Orioles because in the oligopoly that is MLB, the owners are all powerful. They are protected from the FTC's antimonopoly laws and nobody has proposed bringing in the Feds with RICO.

So it came as no surprise today when Thomas Heath and Lori Montgomery writing in The Washington Post (free reg req) revealed that the other owners have agreed to guarantee a price tag of almost $200 million more for his team than he paid for it 11 years ago. In addition, according to the article, "Angelos would also receive 60 percent of the revenue from a potentially lucrative regional sports network and MLB would guarantee that Orioles' revenue would never fall below an average of what they earned before the Expos moved here, sources said."

Angelos was the head of a group that bought the team for $173 million back in 1993. Through this EXPOS deal he has now bought himself an insurance policy that not only protects him from the increased competition of a rival business down the road but also from the general decline in popularity that baseball has suffered in recent years. If the deal goes down as stated in The WP article, there is nothing to keep Angelos from cutting back on player salaries, siphoning off whatever immediate revenues he can pocket from loyal fans and putting the team on the block just before the bottom falls out.

Yes, Congress has immunized Baseball from real competition and turned the national pastime into the home of the national kleptocracy but can Congress protect Baseball from itself.

Note that this was the week in which Congress voted overwhelmingly to repeal all of DC's gun laws. If the Bill got through the Senate it would be possible for DC residents to own and carry handguns and even assault rifles. That, it appears is how Congress proposes the citizens get to defend themselves from the sports/congressional complex.

Posted by Pasquino at 10:22 AM

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August 14, 2004

Stock Market Fundamentals and Religious Fundamentalism

The NASDAQ index has been going down so fast in the last few weeks that it seems like the dial on a time machine stuck in reverse. Just two weeks ago we noted that departure when it zipped by 2000 and slid to around 1900. That got us musing on the past American Century and what seems to be the coming Asian Century. Although we have been warning about the phony rally since last year and the upcoming troubles, the precipitous drop in stocks has even caught us by surprise. This week, we were going to tap this device, let's call it the NASDAQ Index /Date-Time-Continuum, as it approached 1776. Our idea was to riff on that enormous English blunder that triggered the American War of Independence and how it forever doomed the British Empire's chances of forging an unassailable economic hegemony.

In this vain, we had intended to speculate on England's "stubborn" King George III who got himself into an easily avoidable war --there was plenty of room for negotiation-- and how, had he not, we might have seen today the united economic power of Australia, Canada, the US and Great Britain all being directed, through, perhaps, a representative governing body, centered in London.

But alas, as many a craftier tactician has been forced to say: "we were overtaken by events" this case a market that just keeps retreating. And given that we can't be sure the NASDAQ index will get back over 1776 any time soon, we thought maybe we'd preemptively leap back to the 1200's, where surely we will be safe from even the worst of market moves for some time to come. This brought us to fundamentals and fundamentalism....

The 13th century was pivotal: Europe was slowly working its way out of what came to be called the Dark Ages. In Italy, it was still common to paint religious figures with sallow skins, sporting gold dishes around their heads, against a flattened world. Further north gangs of macabre St Vitus dancers were keeping people in the villages and hamlets from having a good night's sleep and the only subject you could study at the newly founded Sorbonne was taught by priests for future priests. You were either in the Church, landowner, raider or serf likely to be recruited in religious wars that were called Crusades. It would take several hundred years for Italians like Cellini and DaVinci to learn how to cast a bronze statue the size of the rediscovered equestrian of Marcus Aurelius (now residing in the Capitoline Hill Museum).

Embryonic Stem Cells and the Time Machine

Meanwhile 500 miles to the South in Palermo, (al-Madina), there was a great center of learning under the rule of the Normans but still primarily Arabic speaking. In Moorish dominated al-Andalusia in the South of Spain mathematicians and cartographers gathered around a number of important centers of learning. To the East in places like Baghdad and Damascus the great libraries of the world and attending academicians gathered to discuss the latest scientific findings. It is no coincidence that the numbering system we use today, particularly the concept of 0, algebra, the sextant, and numerous astronomical discoveries were developed and refined in this flourishing Arab cultural world.

In the late 10th century, nearly 700 years before Galileo, a huge observatory was built near Tehran, Iran by the astronomer al-Khujandi. He built a large sextant inside the observatory, and was the first astronomer to be capable of measuring to an accuracy of arcseconds. He observed a series of meridian transits of the Sun, which allowed him to calculate the obliquity of the ecliptic, also known as the tilt of the Earth's axis relative to the Sun. As we know today, the Earth's tilt is approximately 23o34', and al-Khujandi measured it as being 23o32'19". Using this information, he also compiled a list of latitudes and longitudes of major cities.

Most technical, scientific and, particularly medical information, only became available to Europe when Latin translations of Arabic texts began to appear. Up to that time, Arabic, whether or not spoken at home by the Jewish and Muslim intelligentsia of the epoch, was the scientific lingua franca.

To find out how the Arabic civilization got from there to here, at this critical turning point, we would have to take a lot of things into account but there is no doubt that the rise and later dominance of religious fundamentalism played a decisive role. As the suppression of Copernicus, the burning of Bruno and the excommunication of Galileo played out in a Europe that was moving inexorably toward Newton and Einstein, the Arab world was being engulfed into a religious dominated torpor.

This is perhaps why, here in Dymaxia, we have set our eyes on the ongoing political fight for embryonic stem cell research. Stem cell research, combined with our recently obtained knowledge of genetics and the genome seems extremely promising, perhaps, magnitudes more promising than the last century's developments in drug research and development. And yet it is being stymied by the same kind of religious forces that worked to shut down the Muslim world, but were slowly defeated in Europe. Could these forces be making their last stand in the mountains of Pakistan as we like to think or perhaps here in the US of A?

Posted by dymaxion at 01:19 PM

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July 02, 2004

Sliding Head First and Finding Out You Are Only on Second Base

This was the week that the Federal Reserve slid headfirst into second base. As we have been predicting, it sometimes seems forever, the Fed waited as long as it could before finally letting up on what was the most stimulated economy since the Weimar Republic. We say second base, because as the papers noted today this was far from a grand slam for the easy money guys. Maybe they were hoping that nobody was looking at anything but the price of hotdogs, hamburger patties and cases of cold ones on this holiday weekend but the news was just not good on the jobs front. First, we found out that the more robust employment numbers that came out earlier in the year were revised downward. Then for June the figures were a plain anemic 112,000 new jobs. Even worse, according to the New York Times, wages had once again failed to keep up with inflation over the last year. Did anyone say "burger flipper"?

This should come as no surprise to DW readers as we've often noted that the US economy needs to churn out an average of 150,000 new jobs per month just to keep pace with new people entering the workforce. A few months of growth after years of stimulus and job losses does not a robust recovery make.

The Feds problem, however, is more acute; having accommodated the Administration's wish for growth at all cost during this election year (deficits, trade imbalances be damned) by leaving interest rates at a 40 year low even while inflation crept up. Since we know that there is a lag of nearly six month between rate changes and their impact, the Fed finally felt it was safe to step in and get a hold on the only tested tool in their box, the interest rate lever. With the benchmark rate now at 1.25% the Fed has nowhere to go but up and has said so-- and that in the face of what might be the more serious leg of the downturn that occurred four years ago. After all, deficit spending --in other words, spending money you don't have-- is easy until the piper wants to get paid. Eventually, even the US government, with the happiest printing presses in the world, has to borrow back that money and becomes a major competitor for investor money. This demand results in higher interest rates. And this time around the Fed will not have the ability to counter by lowering its overnight rate, the amount it charges banks, in order to dampen the upward pressure. This would result in bad news both for the bond market and the stock market... and particularly worrisome news for the many Americans holding variable rate mortgages and credit card debt.

Further, Congress will find it too risky politically to further lower taxes in the face of growing deficits. So, it is possible that the Fed has waited too long to get rates up to the point where they will have some room back down to counter a slowdown. We may, as a result, be entering into uncharted territory in the US. In Japan, faced with a similar problem, the government started running the concrete factories full time. In other words, if you want to stimulate job growth start building highways, bridges, airports, jersey barriers, whatever, as long as it consumes concrete and steel and can't be done abroad.

Posted by dymaxion at 03:57 PM

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June 11, 2004

The Holy Teflon Emperor

The BS meters were flying off the charts all week long here in Washington and across Mediaworld. For those of us, with low tolerance levels for mind manipulation, it was a tough time. But there were a number of lessons to be learned and, if you turn off the tube and close your eyes, it is easy to also imagine the founders of this great republic rolling in their graves as Washington, the concept, put on one of its most imperial spectacles ever.

The lies were flying around so fast and furious --all in the name of feel-good, they say-- that it's hard to know where to start. But let's begin with the event itself: it was said that we haven't had a presidential funeral since Lyndon Johnson's 18 years ago and that the big deal we made over Reagan was somehow just another turn of a long wheel. They knew that few around could remember that far back and that, in fact, there were marked differences. Importantly, the caisson march down Pennsylvania Avenue was evocative of Abraham Lincoln and John F. Kennedy, both of whom were assassinated while in office. For those deaths the nation was in trauma and the healing power of great mourning and procession had a truly profound state function.

The Reagan funeral was orchestrated for wholly different purposes. It was meant to erase memories and to bolster what had been the rising tide of conservatism in America, of which Reagan played an important role, and which most recently has been brought to decline by his ideological successors. The script for the funeral was meticulously developed by people in concert with Nancy Reagan, who has been determined to do her best to redeem herself and burnish the reputation of her late husband, a man who has virtually been off the public stage for over 10 years as he suffered from a progressive mental and physical affliction that held no way back.

As to the major myths: It is absurd to insist that Ronald Reagan single-handedly won the Cold War. As Mikhail Gorbachev said in an interview to the Washington Post this week, we all lost the Cold War for its great material costs and for the apocalyptical destruction it almost brought down on all our heads. In many ways, Gorbachev's policy changes from within and without as the Stalinist model collapsed, forced Reagan's hand and in that light, we can be thankful that Reagan was wise enough not to snatch defeat from the hands of victory as might have been had he been a more stubborn and insensitive man insistent on waging war at all costs.

For those who wish to give Reagan and all former presidents for that matter, their due respect in passing, it is perfectly reasonable to provide the trappings of state mourning, from lying in state in the Capitol Rotunda to a funeral in the National Cathedral. But the enormity of the expense that has been lavished on the Reagan affair is obscene. Will anybody add up just how much has been spent on military and police honor guards, the shutting down of the federal government for a day, the cost of flying Air Force 1 back and forth the country, etc... all for this amazing display of imperial power?

Here are the myths: Reagan was a simple man of the people who wished to bring back the virtues of the Republic in a time of seeming decline by lowering taxes and diminishing the power of the federal government. His simple but clear vision would bring us forth from the quagmire of Vietnam to a straightforward policy based on traditional American ideals of strength and freedom.

Most media-raised Americans today would be amazed by a visit to the Congressional Cemetery on Capitol Hill, a nearly forgotten place that is mainly used today by intrepid Capitol Hill inhabitants to exercise their dogs. Outside of J. Edgar Hoover and his longtime live-in companion, Clyde Tolson, very few dignitaries choose to be buried in the cemetery anymore. What's interesting about the place for the purposes of this discussion are the cenotaphs that were used as burial markers. This most democratic of concepts was that no one should have a more grandiose burial marker than anyone else; so a standard gravestone, designed by the same man, Benjamin Latrobe, who architected the Capitol, the
was dedicated to each of the dignitaries and even bore a standard inscription for senator and congressman alike.

We throw around the terms man of the people and frugality today the way the ancient Romans pined for the simpler days of their Republic. It's not hard on this funeral day to be reminded of the emperor Augustus whose burial was also manipulated by his wife Livia and those closest to the seat of power. Augustus, who brought a degree of calm to a government that had been rocked by assassination (Julius Caesar) and civil wars, always spoke of returning the government back to the senate and people. He was, he said, a kind of benign emperor in a temporary situation. Augustus was known to laugh at the inhabitants of his Eastern empire who had worshipped their kings as gods on earth. He also liked to play the role of simple farmer tending his own fruit trees up on that glittering hill above Rome, the Palatine, where his palace nestled.

But by the time he had died, he had lost all contact with the outside world and his second wife Livia had managed to get her son Tiberius, a man detested by Augustus, named successor. In gratitude, Livia had an immense temple built in the Forum below dedicated to a new god, the recently passed Augustus. And so the wheel turned and there would never be a republic in Rome again. After Tiberius came Caligula, who showed his disdain by naming a horse high priest and Senator. Caligula also waged a war in which he marched his army north towards the Germans and when he found the going rough --too much rain-- returned home in declared triumph bringing with him trunks filled with seashells; booty, he told his subjects won by his resolute victory over the sea god, Neptune. No longer would Romans have to wait for their emperors to die before they became gods. In this way the wheel turned.

Reagan, the anti tax and spender, the man who took government off the backs of the people, has two major federal buildings named after him in Washington, the international trade center and the airport. Both edifices are the most ornate and expensive in the city's history. Reagan didn't control the budgets but he saw no problem allowing his name to be placed upon them.

Reagan, a straight shooter, of course, took ultimate blame for the illegal trading of arms for hostages and the transfer of funds from that deal over the head of Congress to the hands of fighters battling leftist governments in Central America. It was a tawdry story that might have led to the impeachment of a lesser Teflon man. He said: "A few months ago, I told the American people I did not trade arms for hostages".... "my heart and my best intentions still tell me that’s true, but the facts and the evidence tell me it is not." He went on to say "mistakes have been made."

There is now a move afoot among those propagating the Reagan myth that his portrait should be put on a piece of money. The 40th President, as we have said, was the leader of a movement that would shrink government. He brought down tax levels for wealthy Americans while agreeing to allow payroll taxes --that are supposed to cover Social Security and Medicare-- to rise. Payroll taxes, on a percentage basis, unfortunately, take a much greater toll on lower and middle income Americans. As the instigator of a great military build-up, he tripled the budget during his two terms of office and left with the largest budget deficit in American history, a deficit that was erased by Clinton and then surpassed by George W. Bush in his first four years.

Vice President Cheney was able to say recently that Ronald Reagan proved that deficits don't count. Our advice to the camp that advocates this kind of claptrap in the name of Ronald Reagan: Put his picture on the $1,000 bill, it may not get much circulation now but there was also a time when 1,000 lire seemed like a lot of denaro in Italy.

Reagan was a charming, genial man who served this country in some ways well and in others, not so well at all. He deserves our respect for his service but watch out for the myth makers. It's not Reagan's real legacy they have in mind but their own.

Posted by dymaxion at 05:04 PM

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May 19, 2004

Black, Yellow and Green

No, we are not talking about the colors of a new flag for Iraq. But here's a hint: black is way up, green, after a long dip has turned up and yellow has taken a nosedive. Do you need more clues?

Readers of this Blowback column of the Dymaxion Web are familiar with our fascination with the color of money. Last year we began to voice our concern over a number of trends that seemed to indicate nothing less than trouble ahead for the mighty greenback. For one thing, we noted with more than a small degree of repetition, the US trade deficit was growing to historically record levels. What concerned us most was what we perceived, and still view to be something that is structural in nature, or irreversible. US manufacturers have been closing up shop and moving their technology and assembly lines to the Far East and, more particularly, to China. And so, we reasoned, those generally good paying factory jobs would be lost, probably forever. It became ever harder to imagine that Wal-Marts and the other national retail chains would somehow shake their addiction to this now well trodden supply chain of cheap goods.

The other major problem for the US was its huge domestic government debt. Government deficits are, after all, purchases made on borrowed dough. To cover these debts, the government issues treasury bonds that compete with other financial instruments for the attention of investors. In recent years, a system has developed in which the US buys more from abroad than it sells (the trade deficit) and the exporting countries that benefit from the trade imbalance recirculate the dollars they receive back into the US through the purchase of T-bills. This "good deal" allows Americans to live above their means simply by being able to print new money to cover their bottomless appetite for tchotchkes.

What, we wondered, would happen if things started to spin our of control, as they are wont to do. To stimulate the economy, the administration would begin to pull out all the stops. They would, with the help of Mr. Greenspan, force down interest rates and keep them low as long as possible. Greenspan's six year term runs out in the summer of 2004, and although most men at the Chairman's age of 78, might be thinking of calling it a day, it was pretty clear that Mr. Greenspan wanted to keep going. Administration leverage, it seemed, was clearly there, which meant that we were in for a run of inflation, at all costs.

As the dollar fell in the Autumn, the price of gold moved up. At the dollar's nadir, near 1.29 per Euro, gold rose to $420 per ounce. The cheap dollar was supposed to be a tonic that would perk up a lagging world economy and perhaps, as the Americans hoped, would spur the Chinese into raising the value of their own currency, the RMB, spurring minor price rises in the US. A cheap dollar was sure to cause US imports to slow down as exports began to pick up. But, unfortunately, there was more than one fly in the ointment.

First off, there was the little matter of Iraq. Wars, at their best, are costly affairs. In a no-tax political climate, they serve to pile up on top of already high deficits. But its no secret that people get rich in wars since they also serve to stimulate the domestic economy. The military doesn't (yet) shop at Wal-Mart. Goods they order will be made in the US: Guns, tanks, ammunition, flak jackets, armored Humvees, cargo planes, caskets, you name it, all get built in America by Americans. Which leads us first to last month's employment numbers. For the second month in a row the US created nearly 300,000 jobs and for the first time since Bush took office, there was actually an increase in manufacturing jobs, some 11,000. Chalk it up to Iraq, or to an overheating economy, but the US was finally producing more than the minimum 150,000 new jobs needed every month just to meet normal population growth.

Which brings us to the color black. Petroleum is priced in dollars. One side effect of a cheap dollar was a cheap barrel of oil for those countries, representing three quarters of the world's economy, whose currencies grew in value against the dollar. The question arose: would the oil producers hold still and swallow their lost revenues or move the price of oil up against the dollar? We imagined, wrongly, that with the US next door in Iraq getting rid of their greatest state threat and for free, the Saudis might have good reason to ease off a bit.

For the gold bugs, this has been a disastrous turn of events. They were counting on a rush of inflationary pressures in the US to further push up the yellow metal. They were right in one respect, these are very fragile times, economically speaking. The slightest hint of a rise in US interest rates, like the whisper of martini over a glass of pure gin and olive, has been enough to kick the legs out from under both stock and gold markets. The prospect of a costly war without end in Iraq certainly hasn't been a psychological boost but the real downer has been a rise in prices all around.

Sure, you say, official inflation figures are still within control. But take a step outside. Housing and education prices have shot up out of control. People are paying twice as much to fill up that SUV as on the day they bought it. Prices in the supermarket are shooting up. But look, unless we can successfully absorb higher interest rates, we will have squandered all the major tools sure to stimulate: interest rate drops over time to what is now a real number close to zero, currency devaluation and a costly war; all for several months of growth and a total so far of 11,000 new manufacturing jobs after a loss of nearly 3 million.

Interest rates will go up, for sure. And you can expect that expensive oil is here for the duration even if the Saudis give Bush a break right before the election. There is just too much worldwide demand and too few new discoveries. The markets sense this, why else at this early stage in a recovery would they be so gun-shy to what would in effect be a return to more normal interest rate levels. Low interest rates are an aberration that adversely affect savings and yet the Japanese have had to live with them for years. Remember that just a few years after the Japanese crash in 1988 their stock market recovered about half of its losses before entering into a 10 year slide punctuated by ever weaker bear rallies. Everybody said then that Japan and the US are just too different to parallel.

The bulls, it seems have lost their nerve. Let's hope we're wrong and this is all just a temporary "psychological"reaction to a poorly conceived and executed war for black gold.

And now:

Dymaxion Web! A progress report

For months now, we have been talking about expanding the DymaxionWeb project by dedicating a site:, naturally-- that will better tap into the wealth of firsthand information available around the web. The goal is to bring into focus the voices of writers and video reporters associated directly with and in the trenches at some of the critical frontline areas of economic development. Eventually, it is hoped that we can create a 360 degree alternative view of these developments. So far, we've made pretty good progress on the infrastructure needed to launch such a site and will keep you posted as we get closer to live day. At the same time, we plan to continue publishing Blowback at Radio Userland. One of you suggested that we build a kind of impenetrable area on the site where truly anonymous discussions can take place. We think this is necessary and are looking into the feasibility and technology needed. Once we get the newsfeed sides of the project (Reblog and Deep Throat) up and running we will look into putting up the Safe House. Other suggestions are welcome.

Posted by dymaxion at 05:39 PM

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May 06, 2004

The Lesson of Rashoman

There was a spirited group discussion led by Jay Rosen at BloggerCON a couple of weeks ago. The topic "What is Journalism" was meant by the organizers to generate both light and heat. In that sense it more than succeeded. For one thing, more than half of the audience of several hundred defined themselves as "professional" journalists, former or present. Given the wide swath, it would have been hard for anyone to argue that there is some sort of clean line of debarkation between bloggers and journalists that might separate purists in either tribe.

One of the problems that has always seemed to plague the US brand of journalism is the notion that a reporters job is to somehow take a neutral and balanced approach to the events being recorded. The convention, according to the rules of this game, is to tag an article, as does the Washington Post, with a tagline like, "Analysis" , to let us know when we are getting the reporter's personal opinion rather than the "fair and balanced" reporting the paper is dedicated to dishing out.

And, goes the same line of reasoning, if a human being can only achieve a "professional" degree of detachment, surely that is not a problem that carries over to machines. This kind of chatter once had a greater currency in a more parceled world. Competing newspapers or electronic channels might bring a certain point of view to events but there was always an agreed upon wavelength spectrum in which they operated. Most information consumers could relax in the knowledge that in a "free" environment they were getting a pretty good picture of what was really going on. Of course, they were merely being lulled into complacency. This supposedly nonexistent distorting media lens only became a problem when it focused its point of view on you or something you knew about personally.

Then along came hand held video cams, satellite telephones equipped with video and audio recorders, mini-recording devices on the gathering side and phenomena like satellite broadcast and broadband internet on the broadcast side.
Suddenly, the reporting from pivotal events like the current siege of Falluja was not strictly controllable. Sure, there was the embedded reporter getting the point of view of the marines on the outside but there were also cameras inside the city recording a very different picture and mainly from an equally differing point of view.

This is not insignificant. It is hard to imagine the US marines and their military and political bosses settling for a standoff in a part of the world that is known to measure and respect force and to understand the importance of exacting revenge. It is most likely within the context of the crucible of revenge that burns within the Sunni triangle that the military commanders on the ground decided they had to go into Falluja after the four American contractors were so publicly desecrated. But in the face of a situation in which enormous civilian casualties would be a necessary byproduct, the marines were forced to hold back on the enormous fire power they could have mustered. Given, the cultural and political reality of the moment, it is difficult to imagine they would have held back if the cameras and satellite phones weren't in place.

The battle of Falluja will be studied in the future by every military that will be forced to intervene in the role of occupiers. There will be many conclusions but, of course, by that time, we will be fighting the next war and technology will once again have shifted the equation. Still, one conclusion can be drawn immediately: when it comes to issues as important as life and death there can be no neutral eyes.

It is probably useful for most of us in our every day and thus not vital, parts of our lives, to continue with the myth even as it falls apart on its own weight. Note, Vice President Cheney yesterday telling a television audience of party faithful that Fox news is the only "fair and balanced" reporting he knows of. Better, because you would rather get your news from ABC than from Disney (its owner) or General Electric or Viacom in the case of the other major channels.

The point, and yes there is a point to this, within the context of the Dymaxion Web, is that the most valuable new and, yes again, to use a hackneyed phrase, revolutionary, reporting is from the trenches, or cubicles, or backrooms (you name it). The "professional" reporter has her role in turning out a product as seen from the outside and often produced through the collaboration of interested parties carefully feeding attributed and non-attributed morsels to be run through the editorial and competitive media process. Their contribution, so to speak, brings with it all that filtering baggage.

We are growing an electronic world teeming with eye witnesses, spinners, malcontents, principles and various breeds of flies on the wall we don't yet have names for. They have their keyboards, their cell phone cams, and video recorders and fewer and fewer technical and financial constraints in getting what they need to say out there. This is what keeps us going at the Dymaxion Web (soon to launch in a much enhanced forum).


Posted by dymaxion at 03:27 PM

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April 02, 2004

April Showers

The weather has been rainy, raw, and, some would say, dreary, all week long here in the mid-Atlantic. Still, blossoms push optimistically out of even the most unlikely patches of ground and thousands of trees have brightened into white, pinks, fuchsias and golden yellows.  We are, of course, at that cusp when the cold stored over a long winter is swept back from the ocean on a swirl of Eastern breezes and time, itself, seems to stand still. 

Every particular season has its own personality: in some years in early Spring there is a deep frost a night or two after the magnolias put out their silken petals and within the day they go brown and float off.  To these ancient rhythms we are passing bystanders.  What we do know is that the days grow longer as the sun climbs higher into the sky and that cold, or warm, they will be followed by warmer ones.  These are the fundamentals.  Whether it will be a warm April or a bleak, cold one, we cannot know.  But we do know that before long we will be longing for a well shaded outdoor table and a chilled glass of white wine.

A couple of days ago, the employees of the two largest supermarket chains in the Washington, DC area voted overwhelmingly (95%) to allow management to lower their level of medical benefits and raise the amount of out of pocket costs they would have to bear.  Against this and other losses that would cut the pay of newly hired workers, they would get an hourly pay raise of $1.25 split over 4 years.  New employees would no longer get coverage for their spouses for the first six years of employment, would shoulder higher medical costs and higher out-of-pockets, and would sacrifice weekend time and a half.  Giant and Safeway, the two big guys in question, argued that they needed the cost cuts to compete with our old bogeyman, Wal*Mart.

On the surface, their argument rang pretty hollow since Wal*Mart's and Costco's footprint in this prosperous area is still relatively quite small.  But everyone in management and labor, took a lesson from the real tale of agony that played out in Los Angeles earlier this year and before.

As this Pyrrhic battle took place, we couldn't help thinking about some of the points made in Elizabeth Warren's and her daughter Amelia's book, "The Two-Income Trap"; i.e., that jobs that once were sufficient to support a family of four are now hardly able to do half that.  Chances are that the guy in charge of the grocery counter busily sorting the collard greens at the neighborhood Safeway, like most of his neighbors, is maxed out on his credit card and, along with his mate, faces a mortgage and payments on two cars.  A 60 week strike, as in LA, would have just about ruined them.

We're reminded that one of the great breakthroughs in the growth of the US economy came when workers on Ford's assembly lines were able to earn enough to buy a car, themselves.  By the time World War II had faded into the Eisenhower era, America could look a lot like "The Flintstones" minus the running stone-age shtick.

Unlike the headlines today, surely, the supermarket employees were making a very clear statement on how they view the present employment situation here in the nation's capital, a place that is booming relative to the rest of the country as more and more government functions get privatized and there are no longer any constraints on how much the government spends.  The horrible happenings in Fallujah during the week point to a strange aspect of this phenomenon:  the second largest army in Iraq, it turns out, is made up of mercenaries paid for, not out of the military budget, but out of some other pocket.  The soldiers in this army, run by subsidiaries of the usual suspects, get $1,000 a day while their uniformed brethren are earning around 10 bucks.

So much for sleight of hand.  Our point is that there are fundamental trends and there are bumps up and down.  It's hard not to get distracted by the day to day news cycle. The OPEC gang may or may not pump less oil in the next quarter and that will make some impact on the price of gas at the pump but it has little to do with what's really driving the price of petroleum:  more consumers in China and India, bigger cars and houses in the US and longer commutes as housing prices drive ordinary working folk further out into sprawl-land, and ultimately a dwindling supply of black gold.  Did anyone bat an eyelid when Shell admitted that their estimates of "proven" reserves were inflated by nearly 20%, or 5 billion barrels of oil.

Worldwide consumption of basic resources like copper, gold, petroleum, platinum will increase over time even if the US and European economies falter.  World demand will continue to grow.  China will be able to hold down the price of manufacturing labor for years to come but it will not be able to supply the basic elements needed for its production.  Ironically, one of the US's largest exports to China these days is scrap iron.  All going into the maw of this growth engine where, like the employees churning out Model T's, pre-"Flintstones", in this country, Chinese workers will be demanding washing machines, TV's and ultimately the family wheels.

Where this is all going to end, dear readers, we could hardly offer a glimmer.  But be sure that, rainy or sunny, damp or balmy, the season is what it is and the next will happen because the sun is higher or lower in the sky, not because of what anyone says.


Copyright 2004 Richard Mendel-Black All Rights Reserved

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February 27, 2004

The Passion of Alan

There's a lot of speculation around Washington as to what exactly it was that caused Alan Greenspan's epiphany.  The whisper campaign has it that the rapture occurred over a cup of morning coffee when Alan's wife, who was leafing through the movie page, suddenly sprung on the 78 year old Alan, the tricky question of  retirement.  You can't, she said, go on forever; it's about time you started thinking about your legacy.  After all, up until the collapse of the dotcom bubble Alan was frequently equated in omniscence at least to the status of a pre-Galillean pope.  No doubt that's heady stuff even for someone who is perhaps the world's second most powerful man.

Alan --we call him that not out of personal familiarity-- is, of course, often in the habit of speaking in tongues when he is not in his more normal guise of the oracle of Constitution Avenue. Those around him have to bend forward and listen very carefully.  Thus, when Alan, the great mover of markets, decides to be loud and clear, you had better be warned that something really, really big is up.

Alan testified twice before various House and Senate banking committees this week and what he had to say each day has upset a great number of apple carts.  Over at the White House, Karl Rove thought he had a problem when Halliburton started running TV ads claiming it wasn't who they knew but who they are.

But first, a little contextually important Alan-history:  in his younger days the oracle of Constitution Avenue was a disciple of the famous libertarian writer Ayn Rand.  Rand is most famous for her novels depicting strong individuals (Gary Cooper played an architect in the movie made from one) who in lonely heroism battle the machinations of a bureaucratic and corrupt system.  In recent years, if he is to be judged by his actions, Alan had done a complete 180 degree flip-flop.  Most recently, in order to soften the pain of the dotcom bust, he has pursued the most vigorous  central bank manipulation of the economy in history.  In sum, laissez fare might have been something he found on the menu of a French restaurant for all he knew. 

Most of us, over the years, have come to accept the idea that our central bankers are there to smooth the economy from the cyclical bumps and dips that typify economic activity.  That's usually managed by raising and lowering interest rates at key points to discourage overly aggressive markets and to give a little heart therapy to moribund ones. 

In the world of Alan Greenspan we are no longer supposed to suffer the consequences of what the master once typified as "irrational exuberance".  So this time around the so-called recession after the great boom and bust of the 90's was so short lived --at least, officially-- that economists, who seem to travel in packs when it comes to announcing that a strong recovery is just around the corner, can't even agree when it began or when it ended, even according to the official government numbers.  (Of course, we know those numbers do indeed lie and that will be the subject of one or more of these future columns)   

And so on the eve of a massive meltdown, without any need for prompting and with Alan cheering it on, the administration decided to pump huge amounts of money into the economy by cutting taxes while boosting spending both domestically and, more tellingly, internationally, as the military was unleashed on Iraq to create an $80 billion a year wad of government contracts .  But why would average Joe taxpayer worry about that?  He was promised lower taxes as far as the eye can see.

In the meantime our Alan was doing his bit at the Fed.  He cut interest rates to the lowest they had been in half a century and encouraged the banks to lend, lend, lend.  The American megaconsumer, who never needs any encouragement, was also urged to get out and buy their way out of the downturn.  Not only did auto manufacturers offer no down payment, 0 percent financing but mortgage bankers were allowed to drop even minimum requirements on balloon home mortgage loans whose rates will skyrocket as interest rates start to go up, as they inevitably must. Instead of cutting back and saving a little money, as is their normal instinct in a downturn, consumers went out, refinanced their houses increasing their debt, bought newer bigger, more energy guzzling cars and houses, paid off their plastic debt and went right out and maxed out their cards again.

And so, indeed, there wasn't much of a recession and for a while it looked like all this activity would bear its fruits.  Companies, which did cut back mightily in hiring, started to make profits and the stock market, after 3 losing years, started to take off.  And might say, so far so good.  The only trouble was (is), the normal things that happen as you get into the second or third year of a recovery just didn't seem to happen.  First, the job market, which requires 150,000 new jobs per month just to match the newcomers in the economy, continued to be downright anemic, at best losing better paying jobs and creating more Wal-Mart greeters and burger flippers

Equally ominous, there was no "pent-up demand".  That's an economist's buzz word that is used to describe what happens when people hunker down and put off replacing their old appliances for a year or two.  And so our friend Alan, in this parable, finds himself suddenly pushing on a string. Yes, he has lowered interest rates as far as they can go without the banks paying customers to take their money, and yes, he has pushed up home prices so people could bump up their mortgages and yes, he pulled the rug out from under the dollar, and yes, the government sent tax rebates back to everybody on a very unprogressive scale but still, here we are in an election year and things are starting to slide backwards.

Alan, it seems, may be riding the little train that couldn't.  So what does he do short of self flagellation; why he carries his brief all the way up onto that Golgotha called  Capitol Hill and lets go a little truth.  On Tuesday, he startled everyone who was listening --they do a lot of sleeping up there so it was probably a pretty tight number-- with a dire warning that the two government agencies, Fannie Mae and Freddie Mac, that back home mortgages may be in serious financial trouble.  Some of you, who aren't sleeping, may remember that not too long ago there was a little flap with one of these Agencies, Fannie Mae, when they were found to have cooked their books to the tune of $5billion last year.  They actually had hid some of their earnings.  Now why, you might ask, would a publicly traded but semi-governmental agency want to hide earnings of that magnitude.  You needn't wait for an answer, we'll give you our opinion:  Because they want to have some cushion against all those lousy loans they've got out there, houses with flimsy mortgages that won't be able to be paid when rates go up as the housing bubble too, comes to its dire end and kaplunk.....

So Alan was covering his reputed ass for posterity, a posteriori, it seems when he suddenly warned that these agencies that were merely following his lead turn out to hold the mortgages to millions of houses that can't be paid off by maxed out unemployed ex-consumers.

But Alan wasn't finished there.  The next day he went in front of another august Capitol Hill body and washed his hands of the deficit.  Yep, you heard it first here.  Alan does not take any responsibility for the growing deficits.  As he told the Senators, tax cuts are great, they stimulate the economy, the only trouble is that they drive up the deficit.  And, he went on to say, there's nothing to do but cut spending and cut it fast.... Because, the baby boomers are going to retire starting five years from now and they are going to want to collect their social security checks every month and get their promised medical care, something they have just been contributing to since they started working back in the Sixties.

Okay, says Alan, maybe they paid in but deep down inside they never thought they'd get it back.  They should have put more money aside for a rainy day like me.  It's the fault of modern medicine, people live too long.  They were supposed to contribute to the account but die before they could collect.

Yes, our friends, the second most powerful man in the world is telling you to save your money.  Of course, he hasn't told you how much and how fast he, or his successor, is going to depreciate the dollars you do save, when recession phase 2 sets in, has he?


Copyright 2004 Richard Mendel-Black All Rights Reserved

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February 20, 2004

Take Two RFIDs and ..........

We wrote a couple of weeks ago about the coming age of micro tracking devices, the size of a grain of rice, small enough to.... well, small enough to swallow without knowing. <a href="" RFID's: Get Ready for Your Own Personal Jammer</a> .  But no, not even in our own radical proposal for the need for your own personal jamming system did we predict that someone would seriously propose embedding a micro radio transmitter on a chip into every pharmaceutical product.

That was until yesterday, when, over a leisurely cup of breakfast coffee, there was the Washington Post quoting Federal Drug Administration Commissioner Mark McClennan: 

"The makers of tracking devices have been experimenting with radio frequency computer chips, smaller than a grain of rice, that would be attached to drug labels or drug boxes, or even embedded in the medication itself. McClellan said tests are underway to determine the effect of the chips on the drugs' effectiveness and quality." <a href="">FDA Looks to Chips to Thwart Drug Counterfeiters (</a>

And so even before the first supply chain instantiation using RFIDs gets onto a pallet rolling into a Wal-Mart near you, the government has already moved this to a whole new application area. RFID's will be used, according to the FDA proposal to protect against pharmaceutical piracy.  The Washington Post quote came as the result of a press conference where the FDA released an important report entitled "Combating Counterfeit Drugs"

People who have been wrestling over the implications of digital rights management (DRM) and piracy in the music and movie industry will chuckle as they read the report.  The FDA is now grapling with the intricacies of the spy vs. spy syndrome; i.e.. will potential counterfeiters smart enough to make copies of $6 pills not be smart enough to get their hands on the very RFID technology that the industry will use?  And so the FDA proposal starts to move even further down the slope of steganography and encoded messages whose very transmission must be kept hidden in order to be effective.  Imagine the implications!

In the meantime, as we predicted there is a bright future for the RFID industry.  By 2007 the database and tracking applications will be in place and we can expect integration with existing supply chain applications.  This should promise to become a multibillion industry for system integrators like Accenture (the FDA partner in this study) and IBM with a tsunami of database application upgrades worldwide.  In this light, it is easy to see Oracle's Larry Ellison's interest in buying Peoplesoft.

RFID's have hardly caught the public's attention but as we said in our previous article, the tiny chips with antennas are destined to get ever closer to getting under our own skins.  But if the industry has anything to learn, it should be the lessons of the same FDA and genetic food labeling.  Imagine, when someone with a slightly bigger megaphone than ours, gets wind of this latest proposal.  Either it's a wonder how these guys even manage to find their way to work or it's a greater wonder how tone-deaf the standard media is to the intricacies of introducing radical new technologies into the mainstream (no pun intended).


Copyright 2004 Richard Mendel-Black All Rights Reserved

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Posted by dymaxion at 05:15 PM

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February 18, 2004

Blowback, or Passage to India

Blowback, or Passage to India

In the last few weeks we've been taking notice of mainstream focus on the amazing drain of IT jobs to India.  "Wired Magazine" is the latest to take a shot at it with a series headed by Daniel H. Pink et al. Bottom Line from everyone concerned:  The number of jobs flowing to India will increase exponentially as companies face the daunting fact that their competitors can buy 5 programmers or medical lab technician for the price of one US cube.  All three authors at Wired agree that painful as it is, we will just have to get used to the old saw "that the only thing constant is change" and the even older one: "This country has an endless supply of initiative and drive."

As usual, our take is a little more nuanced.  First off, we do agree that undoubtedly, we will move on --nothing stops time.... but the question to be begged, is how? The extended Silicon Valley boom occurred nearly on the heels of the rusting of the American Midwest --and not uncoincidentally, many of the pioneer cadre in the Valley had grown up and were the best and brightest of that very heartland. But we have to also bear in mind that thanks to that very Silicon Valley innovation the world has moved on.  The three major differences between now and the early 1990's are the advent of truly globalized corporations, the abundance of fiber cable and the speedy spread of cheap-CPU powered network technology.

That leads us, with the intensity of a Holmes on a case, to the hard question:  Do American's have an innate advantage in the realms of "imagination, concept and empathy", the qualities it is suggested in "Wired" that will keep our future and present white collar employees one step ahead of the foreign competition?  Clearly, we all certainly hope so.

Not too long ago, dweeb friends of ours would refer, without forethought to $20 bills as "techie foodstamps".  Not too much longer ago companies were offering $10,000 sign-up bonuses and bounties. Nobody was hiring programmers with job qualifications of "imaginative, conceptual and empathetic", though admittedly  "flexibility" might have been listed as a plus.

So what is it about our system, or water supply, for that matter, that provides us with a dominance in inventiveness, imagination, fantasy and conceptual skills?  Is this something we teach in our schools?  If so, things must have changed radically since we went to grammar school.  And from what we hear, the public education system back then was a marvel compared to what's served up most places these days.

Communication links and Moore's law are certainly speeding up economic evolution.  Are we closer to where we were mid-century or where Great Britain was at the turn of last century?  Yes, we are undoubtedly the world's great military power with no rivals in sight and so we spend on building up our military capabilities at a rate that is greater than the next 17 countries combined.  It can be said that the sun never sets on our globalized corporations.  GE, for example, has nearly 18,000 employees in India, no doubt more than they had in Schenectady (company HQ, then) right after World War II.

When you look carefully over the lists of achievers:  the innovators, inventors, media builders and industrialists of America's last half century, it is quite amazing how many were foreign born.  So the real question is not whether we have some great corner on innovation and drive but whether we still offer the lure of an open playing field where dreamers from all over the world are drawn?

And how is that equation driven by the add-ons of high bandwidth, cultural hegemony, English language speaking skills and speedy CPU's?  When the Japanese bubble burst --and, to keep the record straight,  it did reinflate briefly several times since-- it caused a certain re-evaluation.  The shining image of Japanese toughness, work ethic and just-in-time invincibility faded quickly into that of the Japanese hill of ants.

Investors, instead of keeping a short-term peeping eye on the Wall St. show, should be looking at what's really happening: in Iraq, in Washington at the Fed's printing presses and in the high tech sectors where the future picture will emerge.  No matter what the short-term brings, perhaps right up until the election, there will be a patch ahead where real adjustments occur and are made.  They're bound to catch a lot of people by surprise.  


Copyright 2004 Richard Mendel-Black All Rights Reserved

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February 12, 2004

And Now it's Big Media in Defense of Marriage


We were wondering how the administration's defense of marriage amendment was going to fly until we also caught yesterday morning's news that Comcast is looking to take over --oops, did they say merge with?-- Disney.  According to the Washington Post, a major New York brokerage firm issued an analyst's report calling the proposed deal one of "perfect merger 'partners'", while Dan Rather on the CBS Nightly News --a rival of Disney's ABC-- called it a "marriage".

It hadn't struck us before that the defense of marriage amendment had something to do with key economic infrastructure.  And so we thought about the metaphor and, with the Universal/Vivendi deal in mind, that nearly half of all marriages in this country result in divorce...and those are just the heterosexual ones.  And then right there on CSPAN (which I was getting through Comcast) the body politic was passionately nattering about Janet again. 

So here we have the government messing with marriage, the media and obscenity:  One of the first rulers to start messing with marriage --to put it mildly-- was Henry VIII, who, coincidentally, is said to be a distant Bush relative.  Upon taking the throne he was hooked up with his deceased brother's wife, Catharine of Aragon, who was 8 years his senior.  When he couldn't get a son with his Kate, Henry decided to go for an annulment.  Unfortunately for him, the Pope was one of Catherine's relatives and the rest is history.

Marriage, if the proposal goes through, is to be defined in the Constituion as the union of a male and female.  Presumably incest and bigamy will still be outlawed and you'll still be able to get a divorce.  The amendment will not affect Britney Spears or JLO, or any big media program where they get the pick of hundreds of women (and men) to line up in their skivvies and endure other humiliations just to marry some guy or girl for their money. Where's the shock value? After all, marriage in the past has mostly been a business affair, sometimes at the business end of a shotgun or pitchfork and often the merging of two adjacent farms, fields or kingdoms

So, according to the new Constitutional criteria, let's see how the deal between Disney and Comcast will hold up.  First off, we note that this is not a marriage in which both sides agree; Comcast, the suitor,  is actually forcing itself on Disney.  Perhaps, then, before going too far down this path, we ought to try to determine if this is a true marriage between a male and a female and thus whether the government in the form of the FCC and SEC should support it.  If so, we might have to assume that Comcast is the male and Disney ......  But then again, the Merrill Lynch analyst carefully chose the word "partners", a term often used by gay couples while Dan Rather went for "marriage".

From a program ratings standpoint, we know that Disney is unhappy.  S/he hasn't been doing as well lately as s/he ought to and just recently it leaked out that s/he had given a call to Microsoft to help her in downloading movies on the Internet.  Now, everybody who's watching this show in Hollywood knows what kind of lousy reputation Microsoft has when it comes to crawling in bed.  Many have gone down that path and few have lived to tell the tale.  In urbane business legend, MS is known as a modern day Caligula.  There's even a story that as a child MS climbed into bed with the great giant of the day, IBM, who rolled over but MS, little more than a sprightly young'un, dodged and IBM ended up splashing onto the floor.

Disney just isn't the lighthearted kid s/he once was and with all the movie studios, a major network (ABC), theme parks and sporty cable channels, s/he seems to be coming apart at the seams.  Along comes a kid who wants to be just the right fit.  Namely, the biggest cable company(21 million customers) in the country with more broadband customers (7 million)  than anybody else not to mention a few cable channels to boot.

And if we remember, it was the promise of broadband access (false, as it turned out to be) that got AOL over the top with Time Warner.  Once again, we see the promise of content getting rolled by the promise of a big pipe and connections.

The naked truth is: together, this couple could squeeze a lot of players right where it hurts most but as we said, it isn't that easy.  First off, Disney is going to have to do an extreme makeover, that may mean chopping off that schizophrenic head.  Then there's Mickey Mouse and Donald Duck with their secret of eternal trademark life.  Would they be happy answering to somebody in Philadelphia?  Wasn't that why W.C. Field's left the East Coast to give Hollywood its big boost?

So, even before the government passes that Defense of Marriage Act, there's going to be a drag out tug of war.  According to yesterday's NY Times: "The bid is likely to ignite a bitter takeover fight.... The unsolicited offer also has the potential to make Disney takeover bait for other media giants that may now be inspired to make their own bids."

To make things even messier, if they can ever get their heads off of Janet's silicone, the government will do its own snooping around the "partnership".  First it will be the FCC.  Now, everyone knows that Chairman Powell has never seen a big fat media wedding he didn't like but lately he has been getting a lot of heat even from some of those same conservatives in Congress who back the Marriage Amendment.  There's even a Federal Court looking into his latest proposals on forced and unforced marriages.

Further, there's the SEC.  Their job is to check to see if a marriage like this doesn't constitute a monopoly.  Now, we also know that John Ashcroft, the head over at DOJ, which prosecutes these cases, is also a big fan of marriage, though not of "Marry a Millionaire" type programming.

Our guess: this is one marriage the administration will smile upon without getting under the covers to decide who's up and who's down.  Obscenity, it seems once again, is in the eye of the beholder.  That the guy who controls the pipe going into the house, the set-top box, the future delivery system for music and video, also gets to own a major studio and one of the big four networks, wow, that's beautiful, man!  At least that's the view on Wall Street.

And who said reality TV is dead?


Copyright 2003 Richard Mendel-Black All Rights Reserved

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February 06, 2004

RFID's: Get Ready for Your Own Personal Jammer


Since we tend to be "big picture" kind of observers here at the Dymaxion Web, we couldn't help but be intrigued all week with the list of "supertrends" that John Mauldin presented in his most recent weekly newsletter.  The problem, we noted, at least to ourselves, is that there are more blind spots in any crystal ball we've seen than in my father's torpedo-back 1962 Mustang.  Trends, we tried to note, are a lot like covert attempts to change the world, they inherently hide reactions or blowback, as it has come to be called.  We are, it seems, students of blowback.

So, in that spirit, we mused in the DM last Monday, entitled "Antidote to Disinformation", that perhaps the aging of populations in the developed world, especially insular Japan where immigration is culturally difficult, might result in a major push towards robotic systems.  The Japanese have certainly proved their ability to miniaturize electronic and mechanical systems, which after all is what robotics is all about.

Another problem with any list of "supertrends" is, of course, the prismatic effect; i.e., we reflect what we are looking at  based on pre-engineered edges and surfaces. So, Mauldin, one of the more astute observers, talked little about the disruptive impact that ever-enhanced micro-information gathering will have on business, science and society.

In order for a disruptive technology to reach its time, a whole bunch of base technologies have to be firmly in place.  In the case of micro-information, first you must have a high capacity, low cost network (the Internet), fast central processors (64-bit chips), low cost storage, ubiquitous wireless capacity and finally cheap intelligent chip manufacturing processes.

Welcome to 2004, the year of the RFID. or Radio Frequency IDentification. Whether you know it or not, you may already have a RFID in your life.  Certainly, if you drive often up and down the East Coast you have probably installed an EZ-Pass on your windshield.  If you are driving a Ford car or truck you may now have RFID's imbedded in your tires.

RFID's are tiny chips that can store information and transmit that data through built-in wireless transmission capability.  Their enormous potential to be a disruptive force lies in their tiny size (small enough to tag onto, say, a shirt label) their low cost to produce (less than a penny apiece) their data storage capacity (a magnitude greater than those striped bar codes they are replacing) and their intrinsic design that allows them to receive power from the receivers they talk to (no batteries required and so no half-lives to contend with). Like sleeper cells they only come to life when they receive an order from a master device.

Of course, if a technology doesn't have a market it might impress the Slashdot crowd but have little impact on everybody else's lives.  But this is not the case with RFID's in 2004.  Perhaps the two largest market forces in the country, the government and the consumer space are both taking giant steps into RFID's.  First, Wal-Marts has told its 100 largest suppliers that they must start attaching RFID's to items, boxes, crates, pallet-loads and containers.  The Department of Defense, has also announced that it too will start converting its supply chain to a RFID based system.

The business implications cannot be exaggerated.  With the backing of Wal-Mart and the DOD, it is only a matter of time before most car, appliance, furnishing and consumer goods will all have been tagged down to the component level.  For chip makers this will be a massive new  business. System integrators already in the supply chain management business will reap a windfall of new business as the information for these chips gets integrated into institutional logistics systems.  The crush of so much new data will reverberate back into computer and network sales that will benefit traditional IT companies like Intel, Microsoft and Cisco.

But there are even larger societal implications.  There has probably never been a greater threat to personal privacy than the influx of these devices into every corner of our lives.  When Benetton announced a couple of years ago that they were going to start using RFID's in the labels of their clothing, there was a pubic uproar aa people were made aware that somebody would be able to know, as went the old public service ad, it's 10 PM, where their socks, sweaters and underwear are.  So Benetton pulled back.  And so we can expect to hear assurances from other retailers that RFID's will be disabled, like those antitheft devices, at the point of sale.  At face value.... end of case.

But does that mean, however, that while you are in the store they won't be tracking, say, what aisles you walk up, what items you finger to check price, ingredients, what signs you stop to read, etc?  You get the picture!  After all, you probably are carrying one of their discount cards on you and its likely those cards will get their own RFID's as will your credit cards.  And the marketeers are just dying to know a little more about what you're interested in so that perhaps even by the time you get to the cash register they will have a few special offers tailored just for you. Of course, they might just invite you to opt in to that program with the promise of personally tailored specials.

But as implied by what went before.  The retail experience is only the tip of the iceberg.  Retailers can make all the assurances you want about your privacy but that will hardly be more than a proverbial finger in the dike of the information leaks that will spring from a world populated with layer upon layer of RFID's.  As we said before, RFID's may already be part of your life, little sleeper spies that can be awakened by anybody with a receiver and an understanding of their codes.  Nobody is going to want to turn off all these indicators as they come delivered in their appliances.  After all, they will have their functions, they'll tell you when a part needs to be replaced, when there is an update in firmware for your dishwater, when your coffee's cold, when you need to stop on the way home for milk, when there's a flaw in your heating and cooling system, what programs you may want to copy, etc.

RFID's are coming in both above and under the radar.  There will be huge profits and thus huge industry interests in fostering a smooth take off and flight pattern.  As we said above, predicting is a tricky business for those of us not possessing our own crystal balls but we have little doubt that, among all those things we can't imagine, they will also cause a whole new consumer technology to be born:  your own personal jammer.  Expect to see it on the "Coming Soon" menu of a wireless PDA near you.


Copyright 2003 Richard Mendel-Black All Rights Reserved

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February 03, 2004

Antidote to Disinformation


What makes this project interesting for us here at the Dymaxion Web is the simple truth that where the stakes are highest the disinformation is greatest. Although this thought is never very far from our minds --being perhaps the raison d'etre of this publication-- we were forcefully reminded of this while reading the most recent posting of  John Mauldin's weekly newsletter, "Thoughts from the Frontline" (  John talks about the "Super Trend Puzzle":

"I am a big fan of puzzles of all kind, especially picture puzzles.  I love to figure out how the pieces fit together and what picture emerges, ....

Perhaps that explains my fascination with economics and investing, as there is no greater puzzle (except possible the great theological puzzles or the mind of a woman, for which I have only a few clues."

John lists as his secular super trends:
        The Aging of the Developing World
        The Balancing of Globalization
        A Secular Bear Market
        The Muddle Through Economy  
It gives us some pause to wonder why so little serious ink is being given in the mediasphere to the great tectonic movements like the ones above that will eventually reshape all of our lives.  Certainly, as investors of hard-earned capital, we could do well to try to understand their implications on future markets and politics.

The Dymaxion Web has been founded --we've been cyberpublishing for all of two and a half months-- to create an antidote to misinformation, not through the brainpower of any single or group of individuals but through a dynamic network of information, knowledge and intuition:::: as is so hinted in our kick-line.

We can't, of course, be satisfied with merely reactively picking through the daily disinformation or fog of war. Much of what we see also comes  from informative pieces like Paul Krugman's column today in the New York Times entitled "Another Bogus Budget" where the Princeton economist puts into context yesterday's attempt by the administration to hide the effects of its phony revenue and spending projections.

But it's also important to be constantly aware that disinformation is only part of the problem, even if it is perhaps the most pernicious.  After all, disinformation is the kind of thing that got us into Iraq and disinformation is likely to keep a veil over that particular tinderbox until it blows up in our faces.  Policy makers get us into these fixes but in the end, we all know who pays the piper.

We have to get at what's really going on as best we can in this vast forest first by establishing direct and indirect links (blogrolls seem to be catching on).  Our belief is that interactive communications within the context of something similar to a semantic web, albeit something more conducive to extended machine intelligence than the one described by Tim Berniers-Lee, can greatly enhance the knowledge snapshot at any given time.

We need eyewitnesses to report from the ground but even more importantly we need the perspective of human intelligence.  For instance, we need to analyze various lists of supertrends like those offered us by Mauldin and others until we have clearer views of the contradictions and permutations.  One example, --and this is just one of thousands--  how does technology development get changed by and change these supertrends?  Will the combination of biotechnology, computer intelligence and communications, or even robotics have a profound impact on the aging of the developing world curve?  Can we, for instance, expect to see the Boomers leading far more productive lives in their seventies and eighties than their parents or grandparents?

One of the gaps that struck us in the Mauldin analysis on "balancing globalization" and one  that may be critical, is the importance of  the US education infrastructure.  Anyone familiar with the absolute failure of our public schools has to wonder just how the US intends to maintain its leadership at the technological vanguard in the coming decades, particularly if the premise is correct that we will not be able to compete on labor costs or manufacturing know-how.  In the 90's we were able to easily import Indians and eastern Asians to fill the cubes of Silicon Valley.  But, of course, there was blowback, as there always is.  Today many of these engineers and entrepreneurs have returned to their own countries where they have set up shop.  No longer  can Silicon Valley or Alley rely on a cultural and communications gap that served as a buffer to outsiders looking for technology niches to exploit.  Can we be sure that the next Cisco will be a US-based company?

And so, we'll ask the question: Can the US, where, by the way, xDSL adoption trails much of the 1st World, assume that it will have a natural technological lead strong enough to propel it forward even in the face of growing global competition?  Looking into our schools, we can't say that's something we'd put our money on.

r m-b  Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 19, 2004

Asset Bubbles: Crystal Balls and Rear-View Mirrors


The following article was taken from the January issue of The Hill Rag, a monthly magazine that covers the Capitol Hill area of Washington, DC.  From our perspective, it might just give pause to anyone thinking of investing in any company or entity that has a measurable footprint in the home mortgage market. It also clearly says to us that when considering the average amount of debt per family (at hyper record highs no matter how you count it) in the US, it is no longer valid to leave mortgage debt entirely out of the equation. As willing lenders (see below) encourage families to tap the maximum value out of their homes at hot market valuations and agree to interest-only and adjustable rate mortgages to stretch their ability to make monthly payments on other items, like plastic debt and automobile or real estate investment payments, both parties are betting on three variables:

1. Family incomes will rise in the future

2. The price of real estate will continue to climb, or at least, not fall significantly

3. Interest rates will stay at or near historic lows

From our perspective none of the above are good bets for many people and the odds on all three? ...rather long for everyone.

If Alan Greenspan can only see a bubble in his rear view mirror, these may indeed by halcyon days for those who bet that the US/First World economy is so dynamic and robust that it has built in anti-fail levers known only to central bankers and the IMF.



By Marianne Segura

Homeowners and buyers are taking advantage of the incredible growth in value of real estate in the greater DC area. And, they are profiting from mortgage loan programs that require low payments and free up capital for other investments. Instead of the one-size-fits all 30 year fixed program which, over its first ten years, builds very little equity, borrowers now seize the opportunity to lower payments with interest only loans where they pay only the cost of borrowing and have cash available for other investments or to pay principal when they choose. They may opt for 100% financing with a combination of loans. Such loans include: mortgages with rates fixed for three, five, seven, or ten year periods; home equity lines of credit where the borrower uses and pays only what is needed. Equity lines allow for home improvement, debt consolidation, college tuition payments, and large consumer purchases. The housing renaissance in DC, funded by flexible programs, allows home owners to live well for less and use their homes as a powerful investment tool.

One young couple refinanced their home and used the cash to expand their retail shop on Capitol Hill. On their $500,000 property, they selected to finance 80% of their home with a 10 year interest only loan at 4.65%.Thus, they took $150,000 in cash away from the transaction to use for their business. Their actual payment on this larger loan was just about the same as for their previous traditional thirty year fixed rate. “Since home prices in our neighborhood continue to soar, we expect the housing market to build equity in our home. Meanwhile, sales have really jumped with the improvements to our retail store and merchandise line,” they told me.

Another investor took a commercial mortgage on his gallery, and used the cash from that loan to finance restoration on a property that he purchased in one of DC’s rapidly improving neighborhoods. The house will be his primary residence, but once the work is complete, his home will be worth twice the amount he has in it. He plans then to refinance the home at the newly appraised rate, and use the cash he takes out for purchase of a residential apartment building. And, so continues the spiral. He particularly likes the low payments on his one year adjustable rate mortgage for the primary residence since he does not plan to hold the mortgage for more than a year.

All this may be fine for those customers who come to the table with property that they can borrow against, but what of the customer who has no way of securing cash for a down payment. They can now finance 100% of the purchase price for a new home plus up to 3% more to cover closing costs. Such an option has proved extremely attractive for first time home buyers with limited assets.

Marianne Segura is a Senior Loan
Officer with NovaStar Home Mortgage,

January edition of The Hill Rag

Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 14, 2004

Of Robots and Happy Marriages


Silicon Valley Part 3

Is the Average American Worker 10 Times More Productive than his Indian Counterpart?

Silly question, you might say.

Do Americans have a corner on high tech and innovation?

I'm reminded that back in the early 1960's when John F. Kennedy proposed the space race with Russia, we were in a fight for the high ground in space as well as in the hearts and minds of the world's population.  Kennedy was also looking at a big spending program that would generate jobs, business and new technologies. There was probably no little hint of nostalgia in President Bush's proposal today to build a manned space base on the moon around 2020.

To jumpstart the program, Bush would add several hundred million dollars a year to NASA's budget over the next 5 years.  To put the proposal in perspective, the administration also announced today that it wants Congress to put roughly three times as much, $1.5 billion, into a program to support marriage --right here on earth.  People will be taught "happy marriage skills"; something we'll have to take the 5th on.

Bush's space program, estimated to ultimately cost hundreds of billions of dollars --in the next guy's budget, of course-- will not really kick in until around the same time that the first baby boomers reach retirement age and start collecting their Social Security and Medicare payments.

For the President, the payback from the space program will come in new technology and savings in future space flights, perhaps in inverse proportion to the ratio of moon to earth gravity.

The proposal coincides somewhat ironically with the unmanned probe on Mars that seems to us to be proving, quite handily, the advantage of having non-manned missions in terms of cost and scientific payback.

Whether there might be a big payback in generating fuels and oxygen from under the moon's surface or not, is hard for anyone to say for sure, so we won't hazard more than a passing sneer.

More sure, however, is the role that robotics will play in the earth's economy over the same period that Bush is planning to build a manned space program.  In order for the advanced economies of Europe, Japan and the US to support all those retirees at the same time their populations diminish to an average 1.8 children per couple, worker productivity will have to increase at the fastest pace in history.  the burden will not only be on governments but also on the pension funds of unions and corporations like General Motors, which is expected to owe about a fourth of the price of every car it produces in pension benefits to its aging work force.

Back when JFK was announcing his space program vision, it could be argued that the American automobile was the best in the world.  My 1965 Impala SS, for example, had a V8 engine that cranked more than 366 HP.  The car had an automatic transmission, power windows, steering and brakes and even included leather bucket seats up front. If I remember correctly, though a bit extravagant, it also cost less than $3,000, or roughly the equivalent of $30 grand today. Comparing that car to the equivalent German, French, British or Japanese car of the day is a little like comparing Arnold Schwarzenegger with DC's Anthony Williams. 

At the time, the US carmakers owned over 98% of the North American market. The union guys who made the cars earned more, say, than the average journalist or high school teacher of the day and got equivalent or better pension, medical and vacation benefits.

There were cracks, of course, in this picture window world that came back to haunt the industry.  For one thing, in order to insure a regular turnover in car sales, the automakers had built in obsolescence.  You could be pretty sure that within three years, that Impala would have already lost its original water and fuel pump, was rotting around the wheel wells and there was a good chance the engine had lost half its punch and was burning oil as the rings and valves lost their efficacy.

Still, though you might have thought so at the time, it wasn't Detroit that ended up dominating the world automobile markets.  Today, of course, Toyota is among the top three US auto producers and Chrysler is owned by a German company.

Miniaturization, automation, remote controls, chip and software based smart functionality are already entering into every phase of modern life from medicine to manufacturing processes.  Japan Inc appears to have taken the lead in a number of these areas.

It seems to us that if the vision thing was based on anything more than short-term political gain, it would have relied on a real assessment of where future productivity gains are going to come from.

The Pollyanna's claim we don't need the same kind of efficiency here in this country as do, say, more homogeneous societies like Japan and Western Europe where language and other societal barriers serve to keep immigrants out. The US will subsidize, so to speak, its declining birth rates with immigrants from Latin America.

Perhaps, that's what Bush really had in mind today, when he put aside all that dough to promote domestic bliss.... more people, fewer robots!     




Do American's have a natural born right to defy the economic law that says at party's end the piper must be paid?

Perhaps, also a silly question.  We're told that spending causes economic activity that leads to higher incomes that leads to greater taxes and......yes, we all live happily ever after on this planet and beyond.

The American dollar, after all, is accepted as a Reserve Currency held by central banks across the planet as the basis for the economic viability for their own currencies. Since the Second World War, dollars have supplanted gold as the reserve currency of choice.  Since the US government does not back those dollars in any way, there is no cost to printing as many dollars as the world is willing to accept.

Should major countries around the world decide to balance their reserves with something that appears equally or more stable, say the Euro, then the US will have lost its very profitable, favored status franchise.

Watch the price of oil. Producers will not sit around forever seeing the real price fall in Europe, Japan and England while the US tries to jump start its economy by revving up the printing press.  You might see $3 a gallon prices by the summer.  And that would be the same as a de facto revaluation.  Needless to say, it would not make Karl Rove very happy.


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 12, 2004

Bad Times at Microsoft High


Silicon Valley Part 2

Carly Fiorina made news twice last week.  First, while announcing at a press conference that she and Craig Barrett of Intel were heading a delegation of Silicon Valley executives to Washington DC to lobby Congress for $30 billion in subsidies and --quite surprisingly and to the chagrin of a lot of their struggling Silicon Valley neighbors-- to urge Congress not to move to put barriers up against the export of decent-wage IT and R&D jobs to India and the rest of Asia.

At almost the same time, HP, Carly's company, was announcing a deal with Apple in which HP would private label the Apple Ipod, the popular digital music hard disc storage and player device. This was a departure from HP's usual way of doing business in two significant ways: first, it broke a company taboo around OEMing products manufactured by other companies and more significantly, it signaled a break from Microsoft unquestioned domination at a major MS computer manufacturer. As part of the deal, HP will also bundle software on new computers that will allow PC purchasers to easily sign up for the complementary Apple iTunes service.

There was a time not too long ago when no MS partner, major or minor, would have dared take a step away from the Redmond giant. At the same Consumer Electronics show in Las Vegas, where the Apple HP announcement was made, to underline the importance to MS of the digital music delivery industry, Bill Gates had earlier given the keynote address in which he expounded on MS's vision for the PC as central for the "intelligent home". Key to that vision, not without coincidence, is the wireless home entertainment center, which Microsoft has tried to claim outright , in part, through the forced use of its own proprietary digital music format, WMA.  The music industry generally supports the competing and technically superior AAC format, which just happens to be the format for songs sold on Apple's iTunes Service. Microsoft provides a free software based media player with Windows and that player plays WMA and not AAC. 

iTunes is the first successful bid to sell songs through a download service and comes years after a number of companies tried and failed. It was the coupling of the iPod and iTunes service that sealed the deal for Apple with its customer base, so to speak, but it was also a matter of timing.  The music industry has taken major heat from its own best consumers for its heavy handed approach to digital music sharing services that offered no copyright protection and in its eyes the outlook for negative revenue streams if something didn't happen quick.

Microsoft, through its .Net strategy and its DRM (digital rights management) capabilities that are integrated into the WMA format has been quietly positioning itself to become the sole intermediary between the entertainment (music and movie) industry and its customers thereby isolating the music companies from their customers much like it had done with computer applications companies like Netscape and Lotus.

Having seen how Microsoft had consistently crushed or at minimum subjugated nearly every industry it worked closely with, the major entertainment companies have resisted crawling into bed with Redmond.

A further bit of bad news for MS on the same front also came last week as IBM announced it was partnering with Real Networks, Microsoft's major desktop music player competitor.

Microsoft, of course, totally dominates the worldwide desktop application and operating system market for home and office PC's and has made a credible entry into the server marketplace.  This business should continue to grow incrementally as larger and larger portions of the second and third world adopt the PC as a fundamental business and home tool. 

But Microsoft's voracious appetite for revenues and business domination needs more than simple incremental growth and the prospect the entertainment industry offered with the promise of MS getting a piece of each transaction processed through its operating system and back end tools became the overweening goal that Redmond set for itself over three years ago when it laid out plans for .Net.

Of course, Microsoft's other great battle lies against Linux, an open source (freely licensed) competing Unix-based operating service that depends on the worldwide collaboration of programmers seeking to end Microsoft's domination.  In this area MS also suffered a further blow last week.  IBM, which has for a time now lent its full and highly credible support to Linux, first as an Intel-based Unix server solution competing directly with MS for domination in that area, announced that it would begin to convert its own internal corporate-wide desktop services and applications over to Linux as well, with a goal of being fully Linux-based on the desktop within two years.  The company later backed off of that quite unrealistic goal. Nonetheless, the significance for MS is enormous.

As we noted, MS's major growth --particularly if they can't make it in show business-- must happen in countries like China and India where significant portions of their enormous populations are rather rapidly moving into an electronic reality that includes PC's and vast wireless networks. Should those countries decide to standardize on a feasible Linux desktop (something that doesn't exist today) the cost to future MS profit growth would be catastrophic. The stakes are great and Microsoft sits on an enormous cash war chest that dwarfs any other company's in the world.  The question is whether that money being spread around by a company fighting for its life will overcome what could make enormous economic sense not only to developing countries building new businesses but to the major global interests that would like to see MS's ham handed strangle hold brought to bay.

We don't pretend to know that much about the future but we do have to think that investors betting that Microsoft will own home entertainment or even increase its dividend by distributing some of its cash reserves had better get another strategy.


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 09, 2004

The Mysteriously Shrinking Silicon Valley or Whatever Happened to the Real Growth Engine?


  • The Never-Ending Dollar Dip Creeps on like Chinese Torture

  • Gold Prices Keep Moving Up

No surprises from these quarters regarding the above two headlines.  But the raft of headlines coming out of Washington and Silicon Valley yesterday and today got our attention: We hear from the San Jose Mercury News that a group of Silicon Valley luminaries plans to visit Washington in the coming months hat in hand.  What do they want: More money in subsidies and tax breaks for tech R&D and, get this, carte blanche when it comes to exporting tech jobs abroad. With extreme chutzpah, Craig Barrett, Intel's CEO said the request would amount to about a $30 billion dollar subsidy for the high tech industry.  He compared it to the amount of money Congress doles out to agriculture, in his words "a Nineteenth Century industry".

Is this the same decidedly libertarian Silicon Valley that we knew oh so few years ago? Tramping back and forth from DC every couple of weeks, we found it hard to make people even want to know what their representatives were cooking up over here.  So now, how can we help but wonder what happened to this once proud (to a fault) industry.  Back in those days, we used to hear that when it came to the real things that made America grow, the East Coast was irrelevant.  The twin engines of American growth, high technology and the media industry were solidly settled in the West.  And with their Convergence, --you'll remember this word-- the synergy would be earth shattering.

We remember hearing the story repeated by a colleague about a co-executive, in the supreme hubris of the moment, arguing before a group of executives a the country's leading bricks and mortar publisher, that the reason the relatively insignificant company --a couple of hundred employees--  they were both working for was valued in the market at a higher price than the publisher and a number of the nation's other greatest companies with hundreds of thousands of employees, was because "the market got it!"  In other words, a stock market valuation of $6 billion for a company with no paying customers, was the true measure of its economic value. 

Ever since then, you might note, he, and I should say, we, have become more and more convinced that much to our chagrin the market doesn't get it at all.  He goes on to recall actually shuttering one day when a working-stiff friend of his told him over a couple of drinks that he had just made a big bet on the stock of this company when it was selling for nearly $100 a share.

The market does get something. It does indeed!  And hopefully, if you're reading here, it won't be yours!

But we are talking about Silicon Valley today and the high tech engine that drives this country's growth: And so we also remember hearing from these same Valley wags that the Japanese, once everybody's bugaboos, were now toast. You remember that expression, too. In Part 2, we will take a look at what's going on with Silicon (and Silicone) Valley and those cooked Japanese.

We have, of course, spent much energy in previous blogs expounding why we think the present bubble is a bubble, and an "echo bubble", at that. Besides the symptomatic collapsing dollar, the widening trade and government deficits, the lack of (real and not too real) job generation, all of which we have belabored with the obsession of a little kid crying, "see, mama, he's not wearing any clothes", what's really got us is the most important question of all:  "Where's the growth engine?"

No, we don't believe we can stick our fingers in the job leak dike and stop companies from farming back office, programming and R&D jobs to India where they can do the same stuff for a fifth of the price --and have it ready by the time business opens over here.  Anybody who understands the power of that much maligned Internet and infrastructure of the global economy, knows that there's nothing that can stop this kind of activity.

But the spectacle of Carly Fiorina and Craig Barrett et al. coming to Washington DC to plead for Congressional blessing for this unfortunate blowback of the Internet revolution, well, that makes me think that, perhaps, Silicon Valley looks a lot more like the Rust Belt than the promised land.

According to the economists who know, the the early 21st Century world, it seems, will continue to rely on the American consumer to power its growth.  Now, can anybody out there figure out where that valiant consumer is going to get his next good paying job?  Surely not at Wal-Marts.

To be continued:  Steve Jobs and Bill Gates, hold onto your hats!


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 06, 2004

The Kindness of Strangers, Revisited

We were happy to have the image of Alan Greenspan patting himself on the back pass before our mindseye over the weekend.  Alan, it appears, gave himself an A+ for the recent performance of the Fed that first let the Tech Bubble grow and burst of its own karma and then deadened the aftershock by dropping interest rates down to their lowest point in more than 50 years.  And, of course, when that didn't quite work, let the dollar slide to lows not seen since the Nixon days against the European currencies.  "See." we imagined Alan saying, "we did it all with smoke and mirrors and so far everything's hunky dory.

There is, of course, a great deal of irony in all this since the same Alan --the world's most powerful puller of levers and strings-- was once the darling acolyte of none other than Ayn Rand, the libertarian author of such books as the Fountainhead and Atlas Shrugged.  Of course, back in those days Alan was also a vocal critic of fiat currencies; that is, paper money backed by nothing but the good faith and credit of the government that prints them.

But Alan, it seems, figured out an angle that nobody else noticed.  Or so we hear today from the usually more sanguine David Ignatius of the Washington Post, who, we imagine, is tired of being beaten up on by the hear-no-evil/see-no-evil crowd in Washington whose dinner parties Alan is more likely to attend these days than the those of the coterie of a popular conservative literary icon from another, dare we say, more naive day.  According to Ignatius the buzz in Washington is around a report co-authored and presented by Deutsche Bank economist Peter Farber to a gathering at the IMF. 

"The fundamental global imbalance is not in the exchange rate,"  Garber told the IMF forum in November.  "The fundamental global imbalance is in the enormous excess supply of labor in Asia now waiting to enter the modern global economy."

Garber estimates that there are 200 million underemployed Chinese who must be integrated into the global economy over the next 20 years.  "This is an entire continent worth of people, a new labor force equivalent to the labor force of the EU and North America," he explains."  

For this reason, the article goes on to say, the Chinese are willing to eat their daily dollar losses (1.5 billion x the % drop) no matter how low the currency gets.  Garber (and his colleagues) parallels this time in history to the postwar period in Europe when the Bretton Woods agreement guaranteed monetary stability by (my words) freezing the price of the dollar and gold at $35 an ounce, locking other participating currencies in a narrow band around the dollar and keeping the dollar window at the Fed open to foreign central banks should they want to trade surplus dollars in for gold.  (It was, of course, just that dollar/gold window that was slammed by Nixon in the early 1970's).

Now, let's take a closer look at this:  Okay, so it doesn't contradict what we've been thinking; i.e., that the Chinese and Japanese are so addicted to making tchotchkes for the American consumer and the reserve dollars they hold in their vaults that they will not be the first to rock the boat. 

However, cold comfort, we say.

Garber has presented us with this truly amazing spectacle of these 200 million Chinese peasants, not to mention all the Asians already holding sustenance wage jobs in the usual sweatshops, all depending on the spending capacity of the American consumer who is already so riddled in debt --nearly $8,000 per family in plastic (non-mortgage) debt-- that even with persistently low mortgage rates the refi market has all but dried up and fixed rate mortgages now only make up 30% of issued mortgages.  In other words, through the magic of Alan A+ Greenspan and company, we have not only expanded debt to record limits but have encouraged home owning consumers to mortgage themselves to the teeth on loans that just might spin out of control. And now we are going to encourage that indefatigable consumer to support the growth of 200 million new jobs in Asia.  Doesn't that kind of give you the fleeting thought that every job in the country is somehow going to be lost in the process?

Perhaps the Asians will  keep taking our dollars even when half the country is on welfare?  In other words, they will pay us to do what we love best!  "Shop until you drop", they will sing as they take more and more ads on television.  In the age of interactive TV's we will be able to order something at all hours and have it delivered within 60 minutes or your money back.  It will be like the pizza delivery business:  "Take your chances, and if we don't get it to you in time, it's yours free!"

It appears that we have nothing to worry about for the next 20 years while all those Chinese finally get jobs off the farm.  We, of course, will continue to lead the world in (besides shopping) developing intellectual property.  All those newly prosperous Chinese consumers will finally be able to sit home and watch a good ol' American action movie.... and get to buy the action figure at the American owned drive-in chop-suey house!

Meanwhile, all the Europeans will be taking those extended vacations they are so famous for, busily spending those now grossly overvalued Euro's on whatever new vice they can create for themselves.  They too, of course, will have lost their jobs but will still have good healthcare thanks to their socialist mentalities.

We have no doubt that Mr. Greenspan and company will find another way to keep the wealth effect going long after falling real wages became the norm and, going forward, interest rates cross below -5%.  Yes, Virginia, the government will pay you 5% to borrow money and, thanks to Garber et al., we now know how it will be financed.



Copyright 2003 Richard Mendel-Black All Rights Reserved


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December 24, 2003

The Cooing and Purring of Hypesters


At the Dymaxionweb we take the cooing and purring of the hypesters (David Brooks recently in the NY Times is one egregious example) with more than a grain of salt. In keeping with the spirit of the season we reward them with a stocking full of coal. For those who would see the "best of times", we look at the steady drain of decent paying jobs and wonder from what miraculous new ranks, the heroically indebted consumer will be recruited. In a year in which the dollar has lost some 30% of its value vs. the euro and pound, we wonder just how low it will sink and, what exactly, might be the consequences of a very weak reserve currency.

We look out at a consumer driven economy, "the world's economic engine", and wonder just how long the rest of the world will make up for the $1.5 billion dollars a day it takes in devalued chits. Will China and the US be the only economies still standing at the end of the year? Will the dollar sink to $1.40 to a euro? No, at DW we do not see "the best of all possible worlds". In the coming year, we will talk about what we do see and, more importantly, what you see from your unique vantage point.

Happy holidays,


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December 10, 2003

No Time for Naysayers



  • This is the Best of all Possible Moments for the Economy


  • Everything is Poised for the Next Great Bull Market


  • Stock Prices Still Relatively Low say the Experts


I know, I am supposed to drop my suspicions, sell all my gold stocks, get out of commodities and jump into the great bull market of the new millennium.  How can I possibly imagine that the Fed hasn’t been turning all the right knobs and that easy money combined with innate (and superior to the entire world) American ingenuity will do the rest?


Buy the momentum, they say, and then just sit back and forget about it!  We live in the best of times!  Or better yet, they show me the long-term charts that prove that you can’t go wrong buying stocks if you hold them long enough.


Forget about a lousy war gone bad, they tell me.  It only stimulates the economy.  I am reminded by some of the good old days in the Johnson administration when guns and butter drove one of the great rallies of the 60’s.  The American consumer and Alan Greenspan are the heroes of the moment.  Between 13 interest rate drops, a rising housing market and a plastic spending rush like nothing ever seen in history, we have pulled out of the dip from the Tech Bust and moved to a new plateau.  For some reason –it has nothing to do with the trade deficit, which now means we spend $1.78Billion  a day more than we take in—Face it, I just haven’t got it!


Perhaps, spending a few weeks here in Old Europe has turned me into the kind of eurosnob who wants to see his capital evaporate in value (it’s in dollars) like one of those masochists who marched through the Middle Ages with a chain slamming himself on his bloody back every few minutes!


But no, I will try to salvage what little of my reputation still remains:  I do have rational reasons for my skepticism and, believe it or not, that have more to do with what I don’t see happening in Silicon Valley and the other tech hotspots than what I do see in New York restaurants where the help wanted signs are starting to be posted in the windows.  Not that I’m implying that ex tech wizards are filling the waiter jobs in Manhattan (I bet there are a few exceptions, though) but I could not help but wonder when I saw the following in today’s New York Times:


Restaurant Hiring May Lead the Way to Wider Job Gains
Restaurants have gone on a hiring spree the last four months, suggesting that broader gains in the job market could be on the way.


The tech bust as everyone knows, and especially we who lived through it, was inevitable.  Never, in so short a time had so much excess been gathered in one place.  When someone presents a business plan to a bunch of seasoned pro’s suggesting that the world needs a 16th web site where they sell pet food on line but get their strategic advantage by selling ads on their delivery trucks and then walk out with a check for several $million in their hand, there’s got to something wrong.  BUT, and this is such a big but that I put it in caps, BUT this kind of exuberance came on top of what was the astounding emergence of a whole new industry that clearly had implications for all the world.  While the rest of the world was busily doing its thing (mainly doing what they already knew how to do) we in Silicon Valley and then in Austin and Reston and even lower New York, were inventing a new world that would take advantage of the greatest interactive communications system ever known.


If you are among those skeptics who doubt this, just ask Howard Dean how he has come to the point of nearly sewing up the Democratic nomination even before the first primary vote is cast.  Howard has raised so much money in small donations through use of that mere communications device, the Net that he has, in a swoop, wiped out the Republicans’ advantage in individual donors –the kind who can write $2,000 checks without thinking twice.  Howard –and a whole bunch of stuff I won’t get into-- has vindicated those of us who saw this great shift to what Andy Grove called an epoch-making “disruptive’ moment.


The reason I bring this up is not to bore you with stuff many of you already know but to use it as a handle in presenting my deep-seated skepticism on where we are right now in the economic cycle.  Money, talent and brains flowed into Silicon Valley and the rest of the country during the Tech Bubble.  Money was made and taxes collected. Remember that in the last Clinton years we had gone from an enormous deficit –the legacy of the supply-siders whose progeny the present bunch of monkeys claim to be—to running a surplus.


Okay, so here’s my point.  America found its way out of the rust-belt downer of the Carter years to the country that everyone in the world wanted to emulate by taking advantage of Moore’s Law.  Don’t kid yourself, the Internet would still be mainly the realm of academia on a bunch of dumb terminals if it weren’t for the dispersion of cheap and powerful PC’s.  The critics are correct in saying that the Internet is just a communication network.  But, it is communication that first got us past the dark days of successive cosmic disasters and it was communication that allowed us to spread across the planet in small, determined groups.


My point --yes, I have to interrupt myself to get to that point—is that the US economy lives and dies on the dynamics of its technology-based economy.  And beat me with a stick but I just don’t see any real recovery here.  Sure, there’s consolidation; EBay, Yahoo and Amazon, to name a few, but where are the new companies, the ones that are supposed to be leading the way to the next round of real growth? 


Rather, we see Europeans and others pulling their capital out of the US in droves, we see Indian entrepreneurs packing their bags and newly earned riches and heading back to India where there is a natural economic advantage through the large pool of cheap well trained labor that used to head to the US.  The business of the US is intellectual property (I will write about the entertainment industry, the other leg in this picture in another blog).  Even at the height of the last boom, we were already transferring much of the fab and build side of the industry overseas.  But anybody who lived through the gold rush days knows that intellectual property and the power behind it had nothing uniquely to do with a bunch of smart American-born and trained techno-entrepreneurs.  In fact, the cubes and the front offices were full of people from all corners of the world who came to the Valley because people there knew what it took to get a business launched and had the capital to back it.


An economy built on spending what you don’t have on things you don’t need: NAHH, you can’t convince me.  


Rome  December 10, 2003




Copyright 2003 Richard Mendel-Black All Rights Reserved


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December 09, 2003

The New Roman Empire: Bread and Circus

  • If You Are Buying Stocks at these Prices, You Shouldn’t Be Reading This


  • Dollar Continues to Flop as Gold Rises


  • Have You Checked the Price of Beef Lately?  Maybe You Should Start Thinking Commodities


  • US Spends a $Billion a Day More than it Takes In.  Does the Bush administration have the guts to put on the breaks before it is too late?  Read below for this writer’s opinion.


  • The Fed will Get its Inflation Even if it Kills Us


Someone I read today posited that the only way US consumers can get out of their overwhelming debt ($600 billion in new mortgages this year not to mention car payments, credit cards, etc.) is to start receiving rapidly rising wages in a cheaper currency.  So the dollar continues to fall like a coin in a fountain against the Euro and Pound and sooner or later either the Chinese will bail out of the Faustian bargain that keeps them buying our ever depreciating T-Bills (at interest rates that don’t even come close to cover the depreciating value) or the OPECkers will stop pricing petroleum in dollars which they may not soon be accepted even by a street merchant hawking ripped off Gucci handbags.


  • Italy’s La Repubblica headlines: “The Super-euro flies above $1.22: Never has it been so strong


  • Just try giving a Roman taxi driver a dollar and see if he takes it!  Two for a euro, he says. 




The New Roman Empire:  Bread and Circus


Italian television ran an Italian produced show starring Peter O’Toole and Charlotte Rampling on the first Roman Emperor, Augustus and his wife, Livia.  The emperors, of course, didn’t need to please the voters directly, since from Augustus on out the dream of returning to a republic faded into the mists of history.  But the emperors did know that in order to keep their hold on power they did have to control the streets of Rome.  The people, after all, could vote en masse by turning over the city in an uprising.  And so they came up with a very particular political strategy that came to be called “bread and circus”.


If you saw the movie, “Gladiator”, you might remember that Marcus Aurelius’ son Commodus declared 123 days of games in honor of his assuming his father’s throne.  What this meant is that not only would nobody have to go to work for the next third of a year but they would be entertained by some gory spectacle being held in the Coliseum every day.  Quite a good deal, you might say, so no wonder the plot to get rid of the despotic son went nowhere with the people.  They liked the spectacle!


I say this as I hear the first word of US jobs report for the month of November.  After all the spectacle that has been going on for the last month is that the heavily sugared bread of the last 3 years diet was finally having the stimulus it was supposed to have.  First we heard that the economy grew at the fastest pace in 20 years and that was quickly followed by the productivity report, which came in at an unbelievable 9.2%


So?  Well, of course, the paid shills all started the pump noise going.  Up with the price of everything, they shouted!  Amazon at 93 times earnings! Just watch it really grow as sales begin to take off.  In the White House the corks were popping.  They didn’t care that the price of champagne had gone up against the weak dollar.  Why should they, it looked like 4 more years were in the bag!


The whole thing is so easy.  Give them the spectacle of the president standing in front of a huge American flag a la George Scott in Patton –too bad Bush couldn’t have a pearl handled revolver tucked in his belt—then go out and print some more money.  It’s great to be king!  And even greater to control the world’s only “Reserve Currency”.  We print it and they take it.  It reminds me almost of that sign over the bridge in Trenton, NJ.  “Trenton makes and the Whole World Takes.”  Only, what is it that we make in Trenton these days that can’t be made cheaper some where in Asia?


It’s good to print money.  It stimulates the economy like sugar does to the appetite.  Low interest rates make it easy to borrow more to buy more.  Nothing to worry about, we can practically order the Chinese and Japanese to buy our bonds at low interest rates denominated in a currency that loses value now on a daily basis.


So how come, no job growth?  All the stimulus in the world didn’t help Japan.  Of course they couldn’t just print their money and they still sell more goods to the world than they buy from abroad.  Not quite the same, one would say.  Both the US and Japan depend upon their technical mastery, their advanced electronic communications systems and their headstart as centers for the global economy to have a natural advantage over the rest of the world.


But no amount of stimulus could jumpstart the Japanese economy and pretty soon prices (and the Yen) just started to fall, and fall, and fall.


Can the fall of the dollar be stopped or are we in for a long decline?  As an investor, when you see a true imbalance between what is evident and what is being portrayed on the electronic circus, therein lies true opportunity.
















Copyright 2003 Richard Mendel-Black All Rights Reserved


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December 04, 2003

What Makes Europe Tick or not Tick?



One way to try to determine what’s going on in Europe, particularly “Old Europe” as our Secretary of Defense so diplomatically put it, is to watch what the Eurocrats are doing.  And so the New York Times today dedicates an article to the many stumbling blocks that keep this band of old countries from realizing the dream of a Federal Republic of Europe.  With Sweden and England staying our of the Euro –the Swedish vote was just a few months ago and may even have cost the life of the Swedish Finance Minister who was a supporter of joining-- and less and less talk from London on joining up, it might have come as no surprise last week when France and Germany, the two mega-powers of the currency block selfishly decided to break the rules they themselves imposed on the other member countries by continuing to run deficits of more than 3% of GDP.


To make matters worse, delegates meeting in Naples this week to come up with a constitution for the broader political entity failed miserably in making any real progress.  The countries disagreed on even whether the EU should have its own Foreign Minister and thus a joint foreign policy.  Nearly all of the countries balked at this idea even while the military aspirations of certain Europeans (mainly France) to create a third force were subjected to continued NATO dominance, or, one might say the near status quo.


All this and more you can read in the newspaper. My perspective is a little different. So by way of hoping you continue reading, let me ask rhetorically; why should you be interested? 


I’ll hit the second point first:  you might be interested in European investing as a hedge against a sinking dollar while getting a double bang for your buck.  Pick a good stock trading say in Germany, buy it in Euros today and when it goes up as, say, the dollar continues its fall, and you gain on both ends.


  But, of course, the dollar could firm and the Europeans are even hinting today that they may intervene to not let their currencies grow so strong they can’t compete with the US in certain key markets, like airplanes.  That makes sense but as traders like George Soros have taught us in the past, central banks can intervene and use their good money to try to soak up the fast growing pool of dollars floating around out there (the US trade deficit runs at $1.5 billion a day) but the US in an election year can print more dollars than anybody might want to buy.  After all, even countries can get sick of losing money through massive interventions.  It’s like paddling upstream with your hands if, say, US Xmas sales aren’t that hot and, say, businesses continue to improve their productivity by getting more out of fewer workers by issuing pink slips and moving service jobs to India.


You may want to consider buying euro-denominated stocks or making pure currency plays.


But, what I wanted to point out from my nest high above one of the best open air food markets in Rome located at Campo dei Fiori, is what you see in the stores, on the shelves, in the market stalls and even on the road.


Italians, at least in the city here, tend to buy their goods from small stores not from big-box operators.  It’s amazing how little things have changed in this regard.  And even though it is possible to see so-called foreign goods such as Heineken beer and Quaker Oats, most Italians are still mainly consume Italian goods.  You also get the feeling that a lot of the clothes are made here as well.  Certainly, there’s no doubt about the shoes.


In other words, integration is more of a slogan than a fact on the ground.  Each Old European country has its own language, customs, uses, etc. that change slowly.  Italian stores are full of the same cakes, cookies and other goodies for Xmas with little penetration for new habits. The number of large retail stores like Upim and Standa have not increased in central Rome in the last 30 years.


What has changed is the mix of automobiles.   Back in the 70’s you basically only saw Italian cars on the roads.  Fiat, had practically a monopoly.  In France Renault and Citroen had the same total dominance.  That’s changed a bit with Japanese manufacturers and French and German cars taking much greater market share.  In France, I rented a Czech made Skoda from AVIS.


And so what this says to me about this huge community with a combined GDP larger than that of the US is that the advantage goes to the very big multinationals that can eventually consolidate markets.  It’s pretty clear that some of the European automakers, like the airlines, will fall to multinational ownership.


The reason the Euro is strong is more one of lack of flexibility than anything else.  Even if the French and Germans push their debt limits a bit above the 3 percent mark, that’s still half of what we’re running in the states, not to mention Japan’s 7% plus deficit.


Also, and most importantly, the Europeans are not running a current account deficit –which means that they, in total, sell more goods outside Europe than they import.  At Wal-mart back in the US, the story isn’t quite the same, as we know.  US consumers buy goods made mainly by Asians though German-made cars, for one, don’t do too badly.


If you are betting against the dollar, you are mainly saying that American’s won’t stop buying a whole lot more than they sell abroad.  You are also betting that the country will continue to run high deficits.  Nobody is guessing that George Bush is going to raise taxes in an election year, are they?


So, of course, no one is feeling sorry for me being in Rome, even if my latest run to the ATM had my bank taking $244 for a 200 Euro withdrawal.  Germany has been in a long decline as it absorbed all those East Germans.  Maybe the muscle guy in Europe is ready for a recovery.  Not that they’ll get rich trying sell their noodles to Italy.








Copyright 2003 Richard Mendel-Black All Rights Reserved


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Posted by dymaxion at 04:55 PM

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What Makes Europe Tick or not Tick?


One way to try to determine what’s going on in Europe, particularly “Old Europe” as our Secretary of Defense so diplomatically put it, is to watch what the Eurocrats are doing.  And so the New York Times today dedicates an article to the many stumbling blocks that keep this band of old countries from realizing the dream of a Federal Republic of Europe.  With Sweden and England staying our of the Euro –the Swedish vote was just a few months ago and may even have cost the life of the Swedish Finance Minister who was a supporter of joining-- and less and less talk from London on joining up, it might have come as no surprise last week when France and Germany, the two mega-powers of the currency block selfishly decided to break the rules they themselves imposed on the other member countries by continuing to run deficits of more than 3% of GDP.


To make matters worse, delegates meeting in Naples this week to come up with a constitution for the broader political entity failed miserably in making any real progress.  The countries disagreed on even whether the EU should have its own Foreign Minister and thus a joint foreign policy.  Nearly all of the countries balked at this idea even while the military aspirations of certain Europeans (mainly France) to create a third force were subjected to continued NATO dominance, or, one might say the near status quo.


All this and more you can read in the newspaper. My perspective is a little different. So by way of hoping you continue reading, let me ask rhetorically; why should you be interested? 


I’ll hit the second point first:  you might be interested in European investing as a hedge against a sinking dollar while getting a double bang for your buck.  Pick a good stock trading say in Germany, buy it in Euros today and when it goes up as, say, the dollar continues its fall, and you gain on both ends.


  But, of course, the dollar could firm and the Europeans are even hinting today that they may intervene to not let their currencies grow so strong they can’t compete with the US in certain key markets, like airplanes.  That makes sense but as traders like George Soros have taught us in the past, central banks can intervene and use their good money to try to soak up the fast growing pool of dollars floating around out there (the US trade deficit runs at $1.5 billion a day) but the US in an election year can print more dollars than anybody might want to buy.  After all, even countries can get sick of losing money through massive interventions.  It’s like paddling upstream with your hands if, say, US Xmas sales aren’t that hot and, say, businesses continue to improve their productivity by getting more out of fewer workers by issuing pink slips and moving service jobs to India.


You may want to consider buying euro-denominated stocks or making pure currency plays.


But, what I wanted to point out from my nest high above one of the best open air food markets in Rome located at Campo dei Fiori, is what you see in the stores, on the shelves, in the market stalls and even on the road.


Italians, at least in the city here, tend to buy their goods from small stores not from big-box operators.  It’s amazing how little things have changed in this regard.  And even though it is possible to see so-called foreign goods such as Heineken beer and Quaker Oats, most Italians are still mainly consume Italian goods.  You also get the feeling that a lot of the clothes are made here as well.  Certainly, there’s no doubt about the shoes.


In other words, integration is more of a slogan than a fact on the ground.  Each Old European country has its own language, customs, uses, etc. that change slowly.  Italian stores are full of the same cakes, cookies and other goodies for Xmas with little penetration for new habits. The number of large retail stores like Upim and Standa have not increased in central Rome in the last 30 years.


What has changed is the mix of automobiles.   Back in the 70’s you basically only saw Italian cars on the roads.  Fiat, had practically a monopoly.  In France Renault and Citroen had the same total dominance.  That’s changed a bit with Japanese manufacturers and French and German cars taking much greater market share.  In France, I rented a Czech made Skoda from AVIS.


And so what this says to me about this huge community with a combined GDP larger than that of the US is that the advantage goes to the very big multinationals that can eventually consolidate markets.  It’s pretty clear that some of the European automakers, like the airlines, will fall to multinational ownership.


The reason the Euro is strong is more one of lack of flexibility than anything else.  Even if the French and Germans push their debt limits a bit above the 3 percent mark, that’s still half of what we’re running in the states, not to mention Japan’s 7% plus deficit.


Also, and most importantly, the Europeans are not running a current account deficit –which means that they, in total, sell more goods outside Europe than they import.  At Wal-mart back in the US, the story isn’t quite the same, as we know.  US consumers buy goods made mainly by Asians though German-made cars, for one, don’t do too badly.


If you are betting against the dollar, you are mainly saying that American’s won’t stop buying a whole lot more than they sell abroad.  You are also betting that the country will continue to run high deficits.  Nobody is guessing that George Bush is going to raise taxes in an election year, are they?


So, of course, no one is feeling sorry for me being in Rome, even if my latest run to the ATM had my bank taking $244 for a 200 Euro withdrawal.  Germany has been in a long decline as it absorbed all those East Germans.  Maybe the muscle guy in Europe is ready for a recovery.  Not that they’ll get rich trying sell their noodles to Italy.








Copyright 2003 Richard Mendel-Black All Rights Reserved


If you would like to receive the DymaxionWeb musings directly to your e-mail box, please write to with the word Subscribe in the Subject field.  We will be happy to put you on our list.



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Posted by dymaxion at 04:51 PM

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December 03, 2003

Larry Kudlow Sets the Record Straight


Wondering why they seem to pull all of the stops out of the dollar value?


I sit here in Europe watching the “early’ market in the dollar and see it freefalling to nearly $1.22 per Euro on Bloomberg’s European satellite channel and can’t help but wonder what the problem is.  But to sooth my battered instincts, I was helped to the real scoop by a quote from Lawrence Kudlow, thanks to the help of J. Christoph Amberger of the 247profits-e-dispatch.  Kudlow, surprise of surprises, has stuck his finger in the wind and felt nothing but warm, tropical breezes from here on in:


"The cheapest currency in the world right now is the US dollar.

Watch the greenback strengthen significantly in the years ahead.

High after-tax investment returns, breathtaking productivity

gains, totally awesome profitability, virtually no inflation and

historically low interest rates tell this tale. So do falling

unemployment claims and rebounding manufacturing indexes. A

University of Michigan think tank just predicted a 5.4 percent

unemployment rate for 2004, a 4.8 percent rate for 2005 and 5.2

million new jobs over the next two years.


"Of course, inflation worriers point to today's high gold price

(gold is a proven inflation metric). But gold, now near US$400

an ounce, is US$50 too high. Money is not all that loose: The

Federal Reserve is in a mild excess-reserve position, exactly

where it should be as we turn from deflationary recession to

reflationary recovery."


I am grateful to dear old Larry for these pearls, first for his confidence in a quick dollar turnaround and second, for having set me straight on what the real price of gold is –or better, should be, since the last I looked it was trading at $3 over the magic $400 mark.  Of course, I don’t know what a mild excess-reserve position is but I trust it has something to do with the money supply.


Being the paranoid gold investor that I am and being fully aware that there is always a chance we will see Greenspan wave his magic pinky thereby setting off a major seller of the yellow stuff (it wouldn’t be the first time, according to some very knowledgeable players).  And maybe Kudlow is in on the info.  After all, he is a loyal soldier who has profited mightily in the past from his connections inside the Beltway.


As I’ve said before, investing in gold is a little like pissing into a virtual wind.  Most economists will tell you it is just another commodity and an anachronistic one at that since the amount of demand for industrial gold is quite small and even much of that gets recycled when the gadget its non-corrosive characteristics protect, gets thrown into the ashcan.


But somehow Ludlow worries about the price of gold, and even goes so far as to say it is a proven inflation metric.  If it was, BTW, it would not have gone into its 20 year swoon in the 89’s and 90’s unless, and you can correct me, that was an inflation free period.  No, gold is something else.  It’s money!  Bring any gold gee-gaw into a jewelry shop that buys old gold and the jeweler will weigh it and base his price on the purity and weight of the object.  Gold stores value, as they used to say.


So when the dollar goes down gold goes up.  Even Kudlow contradicts himself by noting that we are experiencing “virtually no inflation” (his words, not mine).  Yep, maybe gold demand will rise in the coming years as China and India step up their economies and new consumers are born.  India is by far the highest gold consuming country in the world and with all those back-office IT jobs moving there some of that wealth is bound to turn into gold bangles and bauds. 


My guess is that we are still in the early stages of a secular gold bull market but I do believe that the powers that be in Washington are whispering more than sweet nothings in Kudlow’s well-scrubbed ears.  We might have to get ready for an attack on the price of gold as it approaches its last historical high point of $416.  That was the high water mark back then and it may turn out to be where the line in the sand has been drawn by the invisible hand of the Fed.


You can be sure we will be watching closely and looking for signs of manipulation.  On the bullish side, the chairman of one of the largest gold mine holding companies in the world, Peter Munk of Barrick Gold, has announced that henceforth he will stop forward hedging –something that has protected his holdings over the long dips.  In the past the large hedge books, as they are called, of the major gold miners like Barrick, have been seen as a damper on the market.


Watch out for fun and games ahead.


Still reporting from Rome, where the US markets don’t open until 3:30 PM my time and bemoaning the falling dollar every time I look at my Amex statement,






Copyright 2003 Richard Mendel-Black All Rights Reserved


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Posted by dymaxion at 04:51 PM

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December 01, 2003

Working Too Hard?


Stephen Roach, in an op-ed piece in the NY Times yesterday, talks about the difference between productivity gains and just plain working more hours.  Roach cites a number of statistics regarding employment and productivity to call into question the so-called productivity gains that are supposedly fueling the new round of growth in US activity.  If you remember, for the last bubble of just a few years ago, the explanation of why it was no longer useful to measure a company’s worth in old fashioned terms like assets, earnings, cash flow, etc. –take your choice—was that the new age of computers and, of course, that monstrous champion, the Internet, was making it possible for workers to be much more efficient, thereby creating a new kind of measurement of productivity that included a new magic multiplier: “information”.


We were, after all, now part of the “information age”, a time when information becomes currency and assets could be measured in “eyeballs”.  Some of you sitting in your cubes might have wondered if all those hours of computer down time spent on the telephone with tech support were really adding to your productivity.  Others, might have thought about the amount of web surfing done on company time as being just another of the miracles brought by the information age.  It seemed, even if you wasted half the day tracking stocks, ordering your Christmas gifts, or running a business on EBay, you somehow were getting more productive.


The information age has brought many miracles, including the ability of yours truly, to sing his song of doom and destruction for the American (should I say, World?) economy, in a forum where interactive communications (Google Search, RSS, Radio Userland Cloud, List server, etc.) make possible an interactive readership.  But, you can bet your bottom dollar that it hasn’t made many of us more productive.  Measure the time you spend working and compare it to a time when people came and went at regular hours and left work with the comfort that they weren’t even vaguely expected to put in another workaday thought until they arrived bright-eyed and fresh the next morning at 9 AM.  Are there many of us left, at the least in the US, who don’t check our emails –not just the personal ones—many times over during the evening?  How people don’t have mobile phones that keep them in business conversations, morning, night and weekend?  Who among us, can say, “I get out of work and if someone sends me a text message on my phone, I won’t answer until I am back on company time tomorrow”?


Roach obviously has it right:  We aren’t getting any more productive, just putting in more hours at work.  I had a boss who kept quite strange hours and who would call me every night at around 11 to go over the day’s critical business issues.  Now many of you would say, if you’ve got that kind of a boss and you keep on working there, you deserve to be awakened at any hour of the night by such a maniac!


But part of the work ethic is the entrepreneurial zest for start up and ownership.  The stock option, a concept that has been so clearly corrupted by those who inherited the system and brought us the last bubble, is now about to get accounted out of business.  In Silicon Valley there is consternation over shareholders demanding reform.  “How,” the VC’s and entrepreneurs of tomorrow ask, “are we going to get all those zealous (fools, my word) cube-dwellers to give up family life, sane hours, decent meals, sex lives (some would say I’ve gone too far), communication with the outside world?”  After all, it was about reaching the promised land called bonanza, when after all the struggling, the golden spade called IPO was finally viewed by Sir Moses cum CEO, riding, of course, his trusty red Porsche.


The plebs worked day and night, burning out in their cubes while the stock options mounted.  Meanwhile, crafty CFO’s and the top investors made sure they held real equity, uninhibited by reserve clauses, that could be flipped should the magic day arrive.


The actual purchasers of shares after the IPO, why they were just some turkeys who happened to play in the after market.  They wouldn’t even know how many stock options were granted and how their holdings might be diluted if the plebs in their cubes ever made it to the big payoff.  By the way, if you are new to this game, ask an older friend about the AMT—clue, it’s not a cash machine but a reverse one owned by the government.  The ANT is an income tax the government put in to tax stock option holders on vested shares they purchase, even if those shares can’t be sold for at least a year because of some restriction clause or other.


I know of a guy who ended up owing the US tax man $6million, that’s right, 6million bananas! on a stock that tanked before he could sell any.  Poor guy, I wonder what happened to him.


So yeah, hard work does make a difference.  But whenever you hear that somehow it is the boost in productivity that is keeping down job growth, think again.  We are borrowing more; credit card debt in the US is up to a per capita $6,000.  That means that, on average, every man, woman in child in the US owes that much in high interest debt.  You might also note that the federal government is spending this year roughly a $half trillion (over $500billion) more than it is taking in and that we, as a nation, are buying about the same amount, $500billion worth, of goods more than we are selling to the rest of the world.


Is there anyone out there that thinks that George Bush and buddies will put the breaks on all this before the election?  Not, I believe, if the only cost we have to pay is a very weak dollar that makes all of us dollar holders that much poorer vs. the rest of the world, at least all that part of the world with currencies that can rise against the dollar.  That, of course, leaves our major supplier of manufactured goods, China, out.  They will continue to sell their goods to us and take dollars no matter how little they are worth.  That, somehow, is the bet our leaders are making.  Because if China does feel compelled to raise the value of their currency, the Rmb, against the dollar, then the price of everything will jump and the Fed will have finally got their wish, real inflation again.


Hold onto your dollars and find out or, maybe, spend until you are maxed out –not my recommendation, though-- because one thing is sure, you will be paying off those happy holiday debts in cheaper dollars in the future.


BTW, too bad the cheaper dollar didn’t help Boeing with the Aussies.  For some reason, even though in theory we have been cheapening the dollar to help bring jobs to Seattle and other big manufacturing cities for that matter, it didn’t work in this case.  Maybe, they will get a few more defense related contracts to make up for it.  Fair and square this time, of course.        


Still in Rome (where they don’t work so hard) and suffering every time I hit the ATM (cash-machine),








Copyright 2003 Richard Mendel-Black All Rights Reserved


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November 28, 2003

Information Vs. Knowledge


The facts roll across the bottom of your screen, the newspaper summaries roll into your e-mailbox, the custom search pages fill with articles of all types.  You can easily spend your entire day watching prices and volume and trend lines flash across another screen while talking heads pump up and pump down in a corner reserved for gab. Do you really think any of this will make you a smarter investor or one whit wealthier? Maybe.


My goal is quite the opposite.  What I am seeking are not the momentary byte grabbers who seem to fly along with every trend but instead those of us who have been on the inside, who know how easy it is to manipulate and who have a general distrust for anything that is being presented on a platter to the lumpen consumer.


Yes, the US economy is on a roll.  We have all heard the good news.  Yes, all the indicators are pointing to a repeat of the boom we saw in the 90’s.  So why am I so skeptical?  In the 90’s there was something going on; hyped, hyperhyped, superhyped? Yeah, but still there was a fervor that captured the whole world’s imagination.  Japan, the champion had hit the skids and the new guy standing tall was the US, no longer weighed down his fat girth and rust belt but newly robust in his information age, Silicon Valley superhero robes.


We had reached a new age and all the world was jealous.  We got it, they didn’t.  We were in our cubes from 8 in the morning to past midnight building the virtual world of the future while they were fighting for shorter workweeks and subsidized villas on the Cote D’Azur.


Information and Eyeballs were the new currencies.  Still, the old one, the dollar grew stronger and stronger as smart money from all over the world flowed into our financial markets—the cleanest, best managed, best run companies in the cleanest best-managed markets in the world.  It was quite a moment and the Euro, the symbol or a new Europe fell from its original 1 Euro= $1.18 to I Euro = $.80.  People from all over the world quit their jobs and came to Silicon Valley for the great gold rush.  An IPO a day, then two or three a day.  How could you not remember? 


And guys like Warren Buffett?  Well, they just didn’t get it.  And guys like me, crowing “bubble”.  Chicken Littles we were.  Why wouldn’t you want to price some start-up that was losing money by the buckets-full at three times the value of General Motors?  Information was money. Remember!  How could you forget?


But really, something was happening. New businesses were being born and some of them would stay around and change a lot of people’s lives.  Imagine, say, collecting just about anything without EBay to set the real price and availability.


The Internet is a communications environment like nothing to go before it and most of us cannot imagine living without it always on in the background and foreground.


So what, I ask rhetorically, is it that is fueling this present boom and if things are so great this week, Thanksgiving week, why is the dollar going down like a one-eyed prostitute in Bangkok?  Okay, you’re right. Unkind language.  But still, why if everything is so hunky dory are interest rates staying down, the dollar crashing and the markets shrugging?


Could it have to do with the fact that we have an election year coming up and some of the least principled political leaders in our much-besmirched history?


Short the dollar, friends.  I, who’d like to see my assets rise vs. the rest of the world, instead of drop like soaked bread in a goldfish bowl, just can’t see things turning around anytime soon.


I think that is based on knowledge, not just information, folks.  But maybe you know different.  Maybe Alan Greenspan is going to push gold down as a symbolic way to weigh down the Euro.  I don’t see it but I hear some of you saying it.


Remember, among certain folks, gimmickry beats discipline every time.







Copyright 2003 Richard Mendel-Black All Rights Reserved


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November 26, 2003

Faustian Bargain or Virtuous Circle



Being in Europe gives you a strange perspective on markets.  After all, by the time the US markets open it is already 3:30 in the PM over here.  The English, French, Germans, not to mention to the Chinese and Japanese have all pretty much spoken.  Markets are up or they are down.  They tend to move in synchronization.  I wonder how many American investors even bother to check what the rest of the world has said before they get ready to make their own market moves in the US.  Should the fact that the Nikkei was up or down have any impact?  How about the FTSE or DAX or CAC for that matter?  Are all these foreign investors merely making bets on where they think American investors will go that day?


In Europe the big financial news yesterday was that the two largest economies in the Eurozone, Germany and France were about to cheat on the guidelines that they so painstakingly laid out for themselves and everybody else in the single currency.  Needless to say, the Spanish, Dutch and Finns, who were keeping their spending down below the limits, got a little miffed at the move by the big guys.  What Germany and France said, basically, was that with stagnating economies they were going to go into a 4th year of deficit spending representing more than 3% of their respective GDP’s.  The net result should have been a rush out the door for Euro’s and a stop in the dollar/Euro slide.  No such luck for punters like me paying a 20% premium on everything I buy these days.  For the umpteenth time in a row, the Euro gained slightly against the dollar.  This on the heels of news that the US economy has sprinted ahead at its highest rate in more than two decades, news that should have sent interest rates upwards in the States and sent a signal that growth inspired inflation would soon be back on its normal levels, whatever those are supposed to be.  Of course, the word here in Europe as they buy and sell Treasury futures is that US interest rates are on their way further down.


The US deficit at around 6%, of course, makes these Old Europe powers look like frugal poodles and shepherd dogs


What a perfect world we live in:  The two largest economies other than the US, Europe and Japan lie at the feet of the US market like lap dogs waiting for their hormone-driven cousins to continue on their consumer driven buying binge.  In financial-hormone zone, Cars get bigger –in comparison, you should see the little cute things their driving here in Rome called Smart Cars—Machouses get bigger and built at an even faster pace, durable goods sales are up and the markets move back to heights last seen in early 2001.


It all looks great!  Americans print dollars and spend them on items made abroad.  The foreigners –mainly Asians—build more factories, hire more people and make more things for the shelves of Wal-Marts or the virtual market on Amazon or Ebay.  They take the dollars no questions asked and use them to buy more American Treasuries to finance even bigger American debts.  It sounds like we have reached economic Nirvana.  It is Thanksgiving Day eve and we certainly have much to be thankful for.  We may be a little skeptical that it is all going to last but let’s hope.


In the dance of the perfect circle the Chinese RMB (not me) and the US$ dance in perfect harmony, like Fred and Ginger frozen on the shining screen, always brightly swirling, never a misstep, the ball will last forever, or so we hope.






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November 24, 2003

Dollar Vs. the World. What Me Worry?

Dollar Vs. the World. What Me Worry?


If anyone came up to you and asked the question:  Right now, you and your doppelganger in, say, Fredonia, both have equal net worth, without you or she doing anything different, with less than 2 years your savings will total 40% less, how would you feel?  Would you want to change places, maybe? Of course, if that question had been posed about 3 years ago, and Fredonia switched for, say France, the above result would have been pretty much what has happened.  This means that our European friends, without working any harder (in fact, they probably had more than twice as many paid vacation and holidays) and without doing anything wiser than participating in the right currency zone, in this case that of the Euro, have achieved these amazing results.  Beats smart investing, doesn’t it?


Of course, if you live in the States and haven’t thought to travel to the Old World, you probably wouldn’t have noticed.  Of course, being here in Rome, I’m faced with the situation on a regular basis, every time I open my wallet or go on line to check my credit card account, I’m looking squarely at the fact that it costs me about $1.20 for every Euro I spend. No big deal, I suppose, when you’re talking espresso or even a pizza but something a lot more meaningful as you bring up your hotel bills on the in house TV screen.  I’d rather be bored by the BBC than face that music.


The reason stateside you hardly notice the exchange rate changes has something to do with the fact that most of the goods you buy are manufactured in countries that tie their currencies to the dollar, like China, and in the desire of my companies not to lose market share in highly competitive markets.  So Toshiba or Sony aren’t likely to raise the cost of their gadgets because they are taking in less Yen on every sale.  Instead, they too have shifted manufacturing facilities into the “dollar zone” countries while their central bank, the BOJ, actively tries to push down the Yen by buying up dollars on the open market flooding it with Yen, instead.


In Wal-Mart, prices stay the same and even as the Bush government tries to push up the price of underwear by slapping tariffs on the Chinese and has pushed up steel by protecting that industry from the rest of the world, despite a ruling to the contrary by the World Trade Organization.  For Bush votes in the keystone state, you’ll just have to pay higher steel prices, at least until after the election or if a trade war breaks out, as the Europeans are threatening.


Japan and China are the major props keeping the dollar from falling even farther.  But again, I ask the rhetorical question, why should any American worry about the value of the dollar?  Wine?  Cheese? Italian shoes?  I don’t think so.  Pride?  Interest rates that may be forced to rise?


A cheap dollar, we are told, if ever anyone brings up the subject, is a way to stimulate the economy.  It makes American goods cheaper when sold in places like Europe and Australia.  So, can we expect major gains in exports in the coming year?  Again, I don’t think so.  Will Boeing beat out Airbus on a major contract?  I don’t think so.  Will Telstra go Motorola over Nokia?  I don’t think so.  Some American tourists may stay away from the Continent; some more Europeans may visit Niagara Falls.  And up there at the Falls, maybe, a few more Canadians will stick their noses across the border.  Prices do matter to them.  They can compare head to head.


But a weak currency is first and foremost a symptom of something larger.  A loss in the greater wealth of the country as we squander it on ever-greater quantities of Asian made tchotckes, is like a long-term disease that strikes the immune system.  At first, you don’t really feel it, you may even look better as you lose a little weight, not, of course, until, there is finally a crisis.  The problem is that we are living on the kindness of strangers.  As long as the Chinese and Japanese continue to buy treasury bonds denominated in an ever less valuable currency to prop up their own internal economies (what a deal, low interest rates on a bond denominated in a falling currency), we have nothing to worry about.  We can continue to run up more and more foreign debt, encourage our own plastic-bound consumer class to give it the old college try by going deeper and deeper into personal debt, and the government can merrily print more money than it takes in through taxes.  What a deal! 


As the man with the uncanny resemblance to Alfred E.Newman, might be heard to murmur: “What Me Worry?”   




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November 18, 2003

Information....Coin of the Realm? A Pizza for Your Thoughts!

One of the enduring themes of the late great internet bubble was the value of information.  Information, it was claimed, was to become the new money.  Now, with a little distance, thinking  about it comes off a little tinny to the ear.  Imagine me walking into the pizza-by-the-slice emporium over at Piazza Trilussa (I am in Rome, Italy that is) and ordering a big slice of pizza bianca.  Two euros, the man says as he hands me the piping hot cut he’s just pulled from the shiny oven, and I turn back to him and say, “the odds are 8 to 5 that Roanoke is going to win in the 4th at Santa Anita”, it’s a good bet.  Goodbye and we’re even”  I don’t think I’d make it out the store, even if I rang the bell over the entrance he’s hung there for his customers to express their appreciation.


I mean information, what is it? It’s just data, right.  What the guy might appreciate would be something like “listen, take my word and buy all the shares of MJBO you can afford and then go into hock, a friend of mine works in a law firm and he’s says they’re about to be bought by his client, TUVX at double the price they’re trading at.  Well probably I would still have to give him the 2 euros but at least the next time he might listen to what I have to say, if the deal does go down and he is paying attention to things other, that is, than to the Shela’s sitting at the corner table, which he definitely is.


What we’re looking here in the Dymaxion Web obviously is not information.  Every day our email box stretches across the screen with hundreds of free publications from all over the world, some of the best and worst money can buy.  We have more information than we can possible handle.  Does it make us even a wit more flush?  I don’t think so.  We are, if we were crazy enough to actually dig through half of it, that many hours poorer.  What we don’t have enough of is the combination of information and knowledge and insight. 


We tend to be very suspicious of the paid hacks, the yeasayers and neasayers who generally act like a bunch of blackbirds on a telephone wire.  Not that all these guys are a bunch of hacks by any means, there are plenty of serious people out there.  But still……we wonder. Why is it that nobody seems to get worried about persistently high unemployment numbers, good jobs that get financed here and sent abroad permanently, a trade deficit that has no equal in history and government deficit spending, not to mention personal indebtedness that is also at historical highs?  To mention a few of the structural problems all this easy mony is creating.


Well, my experience tells me; if this were an issue that the powers that be was stressing, we’d hear nothing but how precarious a point we have reached.  They’d be calling for a change of government and the head of head of the Central Bank.  Sure, the US is in the special position of having a license to print all the dough the rest of the world is willing to take without any constraints –like backing it with gold, for example--  but can we not imagine a day when somebody says enough, I think I’ll price my oil in say, Yuan.


Well my guess is that is not going to happen soon.  After all, we are financing all those jobs in China and Japan and India, aren’t we?  They are like the banker who can’t call in overdue loans on his biggest customer for fear of causing a cascade of failures that would fall back on her.  I think, by the way, that pretty much describes the ongoing and never ending saga in Japan, though I can’t claim to know too much about Japan.


What I do know is that the pressure is on those who do this thing professionally to come up on the bright side of things.  I’ve been there.  Most of the time nobody has to hold a gun to your head.  Self censorship has a way of taking care of a lot of truth.  Pumping has its rewards.  After all, the suckers will aways come back for more.  Just get the momentum rolling and in they will come.


As I’ve said, we here in Dymaxionwebville are looking for something else.  The glimpses of knowledge of the knowledgeable, a web of intelligence across bounds.  We’d like to know, for instance, what those numbers just released by a General Motors, say, really come down to.  Are they selling more cars or is it money coming from the financing operations?  And, if so, is that sustainable.  And even more importantly, is this kind of safe bet where you can collect your dividends without worrying about your capital.


We know there is a lot of good well analyzed information out there.  We subscribe to a number of ones already and are always looking for people who seem to cast a highly skeptical eye on things.  I mean, after all, if it was so easy to make money legitimately, how come, all these guys were cheating their mutual fund customers a few pennies a day, here and there.  I mean, hedge funds that charge their customers 5% and up to manage their money based on their sophisticated capabilities, reaching into the pockets of the average joe schlemiels, or lumpeninvesterat  as the guys at the Daily Reckoning like to call them (us).


Does that make your blood boil?  Does the flaccid reaction of the SEC make you want to barf in your spaghetti?  That, dear readers, is how we feel today though, barf we won’t, in the excellent spaghetti alla matriciana at the local trattoria down the road in Piazza della Quercia.




Copyright 2003 Richard Mendel-Black. All Rights Reserved


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November 17, 2003

Old Economy (Roman Style) Versus New Economy: Part 1

Old Economy (Roman Style) Versus New Economy:  Part 1


Being comfortably installed back in Rome for a little more than a week --after an absence of more than 30 years punctuated by a few tourist stays of no more than a couple of days every few years-- I can’t help but marvel at the entrepreneurial vigor of the Romans.  The “old” city was always a cacophony of open air markets, shops, stalls and human sounds of grinding, scraping, sawing emanating from artisans fixing, repairing and even cleverly faking the antique pieces decorating grand apartments, ponderous museum and flea market stall.  Of course, many of these skilled craftsmen have died out but taking their places are shopkeepers, café owners and restauranteurs, especially restauranteurs.  Streets that were dark and mysterious once the workshops closed down are now lighted and full of life.


Impressively, the Roman authorities have gotten a real hold on the inner city traffic problem that once made navigation limb-threatening by practically limiting car movement to people who live in the quarters or who have specific business there.  This has opened the way to buzzing scooters, like mosquitoes on athletic supplements, that can zip through everyplace but the special areas that are completely closed off to traffic like Piazza Navona and Piazza Santa Maria in Trastevere.  Bikes and foot traffic now move freely through the old, winding cobblestone streets.


Rome, of course, is something utterly unique.  There is no place on earth like it, no place with so many layers of history still visible (or invisibly hidden in the structures of medieval buildings sometimes built right on Roman temples), no place where so many centuries of vanity and vainglory have combined to allow for the ornate construction of palaces and churches representing the riches that the headquarters of the first great global enterprise, the Church of Rome, has spread around the city.  Every Roman cardinal great or small for the last 600 years, every Pope, has left some mark, be it a church or two or a family palace and some of the mightier ones, flush with cash from their exclusive indulgence franchise and ready to monumentalize their worldly fame, transformed the entire city from a medieval village to the great Baroque wonder that it is today.


So yes, the city is full of tourist rightly attracted to this open-air museum and movable feast that is modern Rome.  The steady supply of Euros these tourists bring with them acts like manure to a field of entrepreneurial mushrooms, and so in a myriad of shapes and hues, businesses sprout overnight in every nook and cranny of the city.


But beyond that there is a pattern.  After all, the cafés are for the most part individually owned, not a bunch of Starbucks and Cosi’s, nor are the restaurants and snack bars Olive Gardens or TGIF’s.  Something strange is (not) going here (take your pick); there are small grocery stores, small hardware stores, small household supply shops, small video stores, small whatever.  What a wonder to see from the perspective of the big box world of Wal-Marts, Targets, Home Depots, Best Buys, etc.


Yes, there are giants here, most with not so glorious pasts as state-owned, or state-run monopolies: autos, big oil, big banks, telephone, TV.   There are government jobs, of course, and a large public sector but still you have to marvel at how many small businesses have carved out enduring niches.  I even found a little shop that specialized in casting and carving decorative plaster.  It hadn’t moved from its spot in the back streets of Trastevere where it probably was founded long before I first got here and judging from the various white objects leaning in against every supporting surface, it hadn’t lost any of its market share.


What I’m getting at is a fundamental difference in our societies and perhaps between much of Europe today and that of the US.  As Americans we pride ourselves on our self reliance, our individualism, our value of individual effort and personal competitiveness but the question then springs up like some kind of a dagger hidden beneath my cloak:  where do we get to express this individuality in a society that is so clearly dominated economically and socially –think big media—by huge entities that have so heartily gobbled every market and are thus the only promising career choice for most of us.  If most jobs are traditionally created by small businesses (this has been a truism of the US economy) and the playing field for small businesses shrinks from day to day –think manufacturing and think China, think retail and think Wal-Mart—we have to wonder and worry where new jobs might come from.  Large corporations must think bottom line and globally.  They are, after all, at the service of the shareholders, as they like to say.  And if it is possible to move a backroom computer operation to India and run it for half the price with little or no loss in efficiency then who is to tell the CEO or board that this isn’t the way to go.  When Wal-Mart places one of its mega orders for some doodad or other, it thinks price. It’s cheaper to set up a factory in China, along the way transferring technology and make it there. The American consumer wants those price cuts.  Supposedly he or she doesn’t give a damn where the stuff gets made and how many jobs get lost in the Faustian bargain.


One problem, maybe: Can these consumers, tempted by the lowest borrowing rates in 50 years, and inundated with encouragement from media and government, run out their plastic forever?  Okay, homeowners, got to double or triple dip but extending the amount they owe on their houses, presumably paying off their credit card balances and extending their limits to once more enter into the field of American battle, not Iraq but the big box down the road.


Maybe the Fed can keep printing the money forever without affecting much more than the price of the dollar if you happen to be abroad, like me, or the price of gold, if you happen to be long on the yellow stuff, also like me.


Then again, maybe not.







Posted by dymaxion at 04:01 PM

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October 28, 2003

The Heart of the Dymaxion Web Gets Ready to Go Off of Broadband for a While.

Is the Dymaxion Web is a single field theory?  After all, intutition brings us beyond physics into the area of metaphysics.  Even as web theory, the nolion that hypercommunication leads to better understanding, I am preparing to cut myself off the connection links and get out into the world.  Essentialy, the dymaxion web depends upon knowledge and intution as well as our ability to communicate neuron-like across the newly frictionless web. And so I will travel for a couple of months, see things a little differently and, hopefully, overcome the absence of high speed connectivity.  I plan to continue to report my thoughts several times a week, though through a dial-up connection here and there.

The fundamental forces won't change.  For better or worse, we all live in an economic world calibrated, it seems, to the Amercian way of plastic:  debt spending, hocked houses, consumerism, the dollar standard represented by an uninhibited printing press in Washington, the export of jobs from the US to Asia, etc; all that is part of a secular trend that appears destined to hold if only to be detoured by a major (tetonic) shift.

Making preparations for the trip have held up my piece on Andy Grove's thinking as rrelated to the group in Washington but I promise to get that report done, though probably not after my Halloween in the south of France not too far from the Spanish border.





Posted by dymaxion at 10:16 PM

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October 24, 2003

As promised, I'm presently working

As promised, I'm presently working on "Skunk at the3 Garden Party ---Andy Grove’s Warning" A look at the backward flowing braindrain.  I'm hoping to hear from Valley and Intel watchers.



Posted by dymaxion at 04:25 PM

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