Mental Meanderings

Another blog

2007-07-16T13:16:00.000-04:00

I've started a second blog, this one specifically for world of warcraft. If that's what you're trying to find, it's at
http://priestlyendeavors.wordpress.com

Change of Address

2006-11-02T12:18:00.000-05:00

I'm moving. If you want to follow me, the new address will be
http://kirkspencer.wordpress.com

I like Google, but their blog system is just about the worst one with which I've worked. I have trouble logging on, often, both to post and to read (and read comments). Haloscan is problematic at best, causing problems even when blogger itself is doing well.

I've literally given up on posting something - and consequently never written - more than once.

Enough. Goodbye.

Kirk

It's prediction update time

2006-10-30T11:59:00.000-05:00

We're fast approaching the deadline for my "95%" prediction. That is, the US getting into a shooting war (whether called such or not) with Iran before the November 7 elections.

For what it's worth, I'm a lot less confident.

Supporting the likelihood: There are sufficient assets in place - both air and sea assets - at this time. Israel's Olmert-led ruling coalition has recently put a person in charge of strategic assets (nuclear weapons) who has been heavily advocating an attack on Iran. Iran is making a LOT of noise of reaction should the UN sanctions go into place.

Against the likelihood: There's been a relative silence on the US front about Iran. The UN sanctions appear unlikely to be in effect anytime soon - and the current draft reflects the insistence of some members of the security council that it prohibits military action in the event of violations. One of the carriers in the region is nearing the end of its six month deployment (Enterprise left homeport May 2, 2006) and appears to be getting ready to sail home.

The peculiar nature of current deployments is such that after about November 12 and till sometime in mid-January any movement of assets - both air and sea - into the region will be unscheduled. In other words, they'll either be in response to or anticipation of provocation - and in turn a more obvious indicator of intent.

For the record, I hope I'm wrong. I hope we do not have hostilities in the Middle East - not soon, not ever. But I still bet on seeing shooting before the new congress is seated in January, and still think the odds favor it beginning within a week. Not 95% any more, but more than 50%.

October 17?

2006-10-12T13:02:00.000-04:00

I keep stumbling across this date in the various blogs and specialized news articles I read. There's almost a feeling of weight to the day.

It popped up on Firedoglake in a discussion about the signing of the torture bill (Military Commissions Act). Apparently the President told the leadership of congress that he wanted to have a signing ceremony on October the 17th. So despite it being approved some days ago it only got around to being delivered to the president's desk on the 11th of October. This started the ten day ticking clock for signing. (Constitution, Article 1, Section 7. It automatically becomes law if Congress is in session, it automatically becomes void if they're not in session.)

It popped up in an investment site I read - Kitco.com - in an article by Roger Weigand who says a friend he considers to be normally very conservative has said things will pop in the market on the 17th (actually, "mentioned October 17th as D-Day for some kind of markets ripping excitement.") Yes, that's headed into "someone I know says someone he knows heard somewhere..." territory. It's the date that catches the eye.

I ran into it on a military site. I ran into it on some discussions of federal grants and authorizations as an updated deadline for certain pending categories.

Now as regular readers know I believe we're going to be shooting at Iran before the elections. But I would have pegged the date as closer to the 31st. Two major reasons for this apply.

First is political bounces fade. And 3 weeks prior to the elections is - I think - too early.

Second is that my guesstimates of various logistic and forward assets deployments had them onsite no earlier than the 21st of October and more likely the 26th. Yes, they're deploying. It's bits and dribbles of information, but we've got a fair chunk of assets moving that direction. But the date... the 17th feels too early.

But it keeps popping up, and I find I'm not going to be really comfortable that Tuesday.

Mommy This

2006-10-05T17:56:00.000-04:00

The Rude Pundit's got it almost right. The Democratic party needs to pull the whole argument into one simple meme: Democrats are for the children. Just about every position they're running boils down to that - and the Foley Protection Scheme just crystalized who really cares about the children. (Talking the talk works till it's time to walk the walk.)

The thing is, I believe there's a slightly better position - and it's one the GOP has happily been backhanding at the Dems for some time now.

The Dems are the Mommy Party. Now, the GOP's been using that as 'all soft and weepy and hand-wringing and...'. But I ask you - you ever see a mother act when her child is threatened?

" But the Woman that God gave him, every fibre of her frame
Proves her launched for one sole issue, armed and engined for the same;
And to serve that single issue, lest the generations fail,
The female of the species must be deadlier than the male."

No, let's quote the whole darn thing.

The Female of the Species
WHEN the Himalayan peasant meets the he-bear in his pride,
He shouts to scare the monster, who will often turn aside.
But the she-bear thus accosted rends the peasant tooth and nail.
For the female of the species is more deadly than the male.
When Nag the basking cobra hears the careless foot of man,
He will sometimes wriggle sideways and avoid it if he can.
But his mate makes no such motion where she camps beside the trail.
For the female of the species is more deadly than the male.
When the early Jesuit fathers preached to Hurons and Choctaws,
They prayed to be delivered from the vengeance of the squaws.
'Twas the women, not the warriors, turned those stark enthusiasts pale.
For the female of the species is more deadly than the male.
Man's timid heart is bursting with the things he must not say,
For the Woman that God gave him isn't his to give away;
But when hunter meets with husbands, each confirms the other's tale—
The female of the species is more deadly than the male.
Man, a bear in most relations—worm and savage otherwise,—
Man propounds negotiations, Man accepts the compromise.
Very rarely will he squarely push the logic of a fact
To its ultimate conclusion in unmitigated act.
Fear, or foolishness, impels him, ere he lay the wicked low,
To concede some form of trial even to his fiercest foe.
Mirth obscene diverts his anger—Doubt and Pity oft perplex
Him in dealing with an issue—to the scandal of The Sex!
But the Woman that God gave him, every fibre of her frame
Proves her launched for one sole issue, armed and engined for the same;
And to serve that single issue, lest the generations fail,
The female of the species must be deadlier than the male.
She who faces Death by torture for each life beneath her breast
May not deal in doubt or pity—must not swerve for fact or jest.
These be purely male diversions—not in these her honour dwells—
She the Other Law we live by, is that Law and nothing else.
She can bring no more to living than the powers that make her great
As the Mother of the Infant and the Mistress of the Mate.
And when Babe and Man are lacking and she strides unclaimed to claim
Her right as femme (and baron), her equipment is the same.
She is wedded to convictions—in default of grosser ties;
Her contentions are her children, Heaven help him who denies!—
He will meet no suave discussion, but the instant, white-hot, wild,
Wakened female of the species warring as for spouse and child.
Unprovoked and awful charges—even so the she-bear fights,
Speech that drips, corrodes, and poisons—even so the cobra bites,
Scientific vivisection of one nerve till it is raw
And the victim writhes in anguish—like the Jesuit with the squaw!
So it comes that Man, the coward, when he gathers to confer
With his fellow-braves in council, dare not leave a place for her
Where, at war with Life and Conscience, he uplifts his erring hands
To some God of Abstract Justice—which no woman understands.
And Man knows it! Knows, moreover, that the Woman that God gave him
Must command but may not govern—shall enthral but not enslave him.
And She knows, because She warns him, and Her instincts never fail,
That the Female of Her Species is more deadly than the Male.
-- Rudyard Kipling

S.3930 65-34 passed

2006-09-29T15:49:00.000-04:00

I've finished reading it. Let's put aside the ranting and wailing and myriad details.

Our Congress has just passed a law that makes Abu Ghraib legal.

For the first time in my life I will vote a straight Democratic ticket. It's not a question of whether the Democrats have a good plan. It's a question of whether I'm going to allow the current villains to profit from their evil.

On Georgia's voter id law

2006-09-25T14:45:00.000-04:00

I actually agree in principle with the alleged intent of the law - ensuring that only those eligible vote. My problem has been that the implementation appears to be intended to deny access to otherwises eligible instead of to the ineligible. Oh, it's subtle, but there are two parallel issues that make me lean toward this opinion.

First, it's a "right now" law. A problem was identified - the difficulty of a proportion of eligible voters in getting photo ID cards. Two solutions were possible: A massive ID program so as to minimize the effect for the upcoming elections; a lesser intensive ID program that would still be functionally effective for all potential voters by the time the law took effect in XX years. The solution chosen was a less intensive program (six mobile units that went to high-density locations only, with minimal notice of their appearance) for the then-upcoming election. The appearance was for denial of certain groups.

Second, and actually more important, is that while the voter ID fraud for polling places is uncommon, voter ID fraud on absentee ballots is one of the most common such frauds. Yet the legislature not only didn't tighten those laws, they loosened them so that committing such fraud is EASIER.

I've a solution to the latter problem, one which would actually make it more likely that I accept the alleged intent is the real intent. Add a simple three requirements for absentee ballots in Georgia. Note that applications can be submitted by mail, by fax, or by direct submission at the office of the county registrar. The requirements plus some commentary are:

1 - An absentee ballot application submitted by mail or by fax must be notarized. The notary block must include a 'how identified' section (which happens to be something already required of the notaries of almost every state).
2 - Absentee ballot applications turned in at the county registrar's office require the submitter to present ID as though they are voting.
3 - Absentee voter applications that are "on behalf of" applications can only be submitted at the registrar's office. Yes, you can submit on someone else's behalf in Georgia. It's done, for example, when the actual voter is in the hospital, or college student says to Mom "Help, I need an absentee ballot", or... It's a rather generous list of people who can submit applications on behalf of others. However, this line creates a traceable line for fraudulent applications while allowing the 'on behalf of' clause to continue.

On a list to which I submitted this, another person wanted to add the requirement of the ballot going to the home of registration. That rather defeats the intent of the absentee ballot, unfortunately.

Oh - regarding item one. A requirement of the registrar office shall be to contact the notary public to verify they notarized the document. For those who haven't dealt with notary publics in depth, this is a fairly easy requirement. The state - every state in the US - maintains a record of contact for registered notaries public. And the notary is required to maintain a log of all items notarized. Two phone calls, then, complete the verification. No contact for the notary or notary cannot confirm the signing? Ballot application denied.

About the previous post

2006-09-14T23:01:00.000-04:00

Note how I seem to have two potentially conflicting predictions running. Yep. I was tired and forgot I think we're going to be at war with Iran before the turnaround.

Odds are that silver won't bump up high enough to do my "sell half" task within the next two weeks. That's my cutoff. I don't intend to sell anything that I think will jump that high if we go to war.

As to the predictions, the previous post is my general view of the path we'll take till some bombs go off. Recession gradually being recognized by everyone, with a dismal Christmas in terms of sales. Hints of deflation that are actually disinflation, and quietly some safe havens start doing well. The Fed tries to jumpstart - to overcome the doldrums - and we reach our fork. If you're a kapoom follower, the result is an inflationary blast to new highs. If you're a deflationist the belief is that the Fed will be doing too little too late.

If you're me, we're not going to get the chance. War. Inflation. And beyond that, well, my crystal ball is too dark.

yep, I don't know much

2006-09-14T17:27:00.000-04:00

Specifically, on silver I've proven to be a bit of an idiot. That is, I've been acting on ignorance. Two things...

First, a swing of 20% in silver in a few days isn't as wild as I thought. Silver is a small market with a low price per unit.

Second, there are some very good macro reasons for silver to be turning down that have little to do with manipulation - well, in a way.

See, what appears to be happening is summed up this way:
1) Some key investors (size/quantity) think we're entering a recession;
2) THE major component of a recession is that because businesses are slowing down they buy fewer raw materials;
3) Those investors see this as lower demand for commodities, which means lower prices for commodities, which means they SHORT commodities;
4) shorts push the price down in anticipation. If that seems like a self-fulfilling prophecy it mostly is, especially in as small a market as silver.

By the way, as near as I can find out only about 10% of silver is for investment. Something on the order of 45% is for industrial applications of one sort or another, and another 35% is for jewelry and other end-products. Now I've seen press that because of the ETF the investment proportion is climbing, but the highest I've seen so far is 15%. Unlike gold, most of silver is not (at this time) a safe haven for money. Most being the key...

I'm noticing a lag in silver relative to other commodities other than gold. I'm going to guess - almost wish - as to what's going on. I think it's two subtle points reinforcing one another.

First, there is that slight increase in the monetary psychology of silver. It's not large but it's there. And unlike gold, silver is the 'refuge of the middle class'. I can buy the nominal minimum - an ounce - on almost any paycheck.

Second, and possibly even more wishful, is the jewelers. See, there are indicators that the autumn Indian Gold boost isn't happening this year. That's the boost that happens as jewelers in India buy gold to make their products for the holiday sales window. Thing is, they seem to be a bit unhappy this year about the price of gold. They also may be anticipating the recession - slower sales. But it's quite possible - and there are subtle signs (or maybe seeing what I want to see) - that they're making more silver instead of gold due to that same affordability.

All that said, here's what I think we'll see.

Commodities - including gold and silver - drop some more.
Since recessions are defined by poorer business performance, we'll see stocks decline. Bonds... I'm ignorant, but my guess here is that the inflationary pressures will keep bonds from moving into higher prominence. Thus the 'safe haven' will be dollars - with a subsequent strengthening.
As it becomes much more apparent we're in a recession - that is, when it's not the discussion of investment houses and economist but rather Newsweek and Fox/CNN - then gold and silver will shift to their hedge roles, joining dollars.

Gold may touch $450, and will certainly stare at $500. Silver, well, I wouldn't be shocked at $9, though $8 would be a bit too far.

But that's short term. Again, as the recession is recognized the precious metals will climb again. Possibly by the holidays, and certainly by March, they'll be back near today's levels.

If I get a bounce (possible) between now and then I'm going to sell half my silver for short-term gains and buy it when it drops. Half, because (grin) I could be wrong.

economics talking out loud

2006-09-13T12:50:00.000-04:00

I'm puzzling through what I consider an economic conundrum. So this post is going to be a bit muddled, and the conclusion I reach (if I reach one) may not be the real answer. Bear with me - and comment if you have something to educate me, please.

I'm back on the subject of inflation/deflation, and creation of money. The specific question is how to apply credit to the thing. In general the monetarists - heck, almost all the economic schools - agree that credit is money "till it isn't". It's a money substitute. Now what I'm trying to do in this little walkthrough is play with the monetarist side of the discussion and apply credit more rigidly.

Let me do a bit of background. Monetarists define inflation as increasing the supply of money. Now in a monetarist's perfect world (as I understand it), fixed money supply leads to gradual price declines as both people and products increase (the latter due to the former's needs and capabilities). To maintain price equilibrium, then, the money supply needs to grow at a rate nominally equal to population and that population's supply and demand capacities.

I'm going to interject here a working definition. My working definition of capital is that it's a supply enhancer. That is, because of capital you are able to produce more than you could without it. It shifts the supply curve outward. This may be relevant - my mind insisted I get it down, anyway. Back to inflation and money supply, and specifically credit.

Credit frustrates the monetarist, or so it seems to be in what I've read. It always gets treated vaguely, with no real means of testing. So the conundrum I've been trying to resolve is:
When is credit money, and when does it cease being money?

Credit is money, obviously, when it is first lent. And in the end, it ceases being money when it's destroyed - that is, when it's returned to the lender. But that's the extremes, and I am still left with the question of money between those two instances. And for that matter, how and when the repayment should be applied in calculation of money supply.

Interjection, again. It appears to me I'm actually trying to decide how to calculate 'total money' - that is, either M2 or MZM PLUS the money that exists due to credit. Or restated, determining monetarist inflation/deflation modified by population demand/supply to include the effect of credit.

OK, let's take a first swing. I lend you $1000, and you agree to repay me $100 per month. (Yes, that's a steep rate, but it makes the math easy). Assuming that before the loan there was $100,000 in the money supply, then the month of my loan to you there is 101,000. This declines by 100 per month till we get a nominal money supply of 99,800. Actually, what we get is 100,000, but now I've got 200 of the 'real' money supply. So 'really', the boosted supply deflates at about 83 1/3 dollars per month. Obviously the simple answer is that I should add the credit as it exists and remove it as it's repaid. Outstanding Debt, in other words. (Note that as I was writing I was thinking I'd have to assume all the loans as repaid the next period. That's not necessary because of the tracking done. Hooray, and an example of not knowing where I'll end when I've started.)

I can do this as it's in the Fed charts. It's got a flaw that's going to niggle at me, of course. That's the fact that I have to deal with default loans that are wiped off the books - forgiven, settled for a loss, etc. Let's use the example to explain and maybe while I do that I'll see a solution (or that it's not a problem).

You stop repaying me after six months - still owing me 600 dollars, and having the money supply still inflated by $500. We fuss and fight, I send a bill collector, and we eventually settle with you paying half - $300. The loan no longer shows as outstanding and so doesn't sit in the Fed's numbers, but we have $200 still in the money supply that needs tracked.

Hmmm. No, it doesn't. It's in the M2. On the other hand, the credit is in there too once it's passed the first iteration. Which means just using 'outstanding debt' is probably a wrong answer. Nuts, but I guess not a surprise as simple answers to human issues do tend to be mistaken.

Or... maybe not. If it showed up, then outstanding debt wouldn't have been multiples of M3. (while M3 was being measured, of course.)

Digression. If you miss the M3, really, really miss it, you can recalculate it from existing reports. My preferred method if I really, really need it is to take MZM and add Small and Large denomination time deposits. Alternately, you can take M2 and add Institutional Money Funds, Large denomination time deposits, and Repurchase agreements. This latter is missing Eurodollars. Both methods can be done using the Federal Reserve's reports. The latter - missing the Eurodollars - is going to be over 99% accurate to M3 when tested historically. The MZM method is accurate as far back as I've taken it. I hesitate to claim 100% because the reports I download are rounded, but it LOOKS like it's 100%.

hmmm. I think I'm going to chart MZM plus outstanding debt - no, let's make it outstanding household debt. The other components of debt are commercial and government, and I am near certain the latter has notes that are already measured and suspect the same of commercial debt. heh - don't you like the back and forth? in my copious free time I'll do both household and household plus commercial outstanding debt as part of the 'money' measure. I'll write about it when it's done.

Silver once more

2006-09-11T15:10:00.000-04:00

I was going to start my test of theory today. Then I saw the plunge. And I went back through every article I could find to try and figure out why silver would drop just short of 10% over the weekend.

Ten percent.

The last time we saw an approximate 10% drop in a couple of days, the experts had been saying silver was in a small bubble and a correction was due. They'd been saying so for almost a week. The same goes for the time before that. And prior to that, well, it's been decades since silver dropped 10% over a fairly short time period - that is, less than a week.

The dollar didn't improve that much. There was no news to indicate a sudden glut of silver. Friday's decline was relatively steep but nothing like that - and it'd begun turning around before the weekend ended.

I am really and truly beginning to wonder if the conspiracy minded folk aren't right - that there's an active attempt to keep gold and silver prices suppressed for a while longer. If true, the response will be shocking. The least drastic kicks it up to around $15 over the next week and a half in a 'simple' correction with everyone trusting paper. A more radical explosion happens if there's a call to show the metal being shorted.

More study, but I think I'm going to buy some more metal.

A curious observation

2006-09-10T22:24:00.000-04:00

I paid $1.26 a gallon for gas today. That's the lowest I've seen it in two, maybe three years.

Now, the first thing that crossed my mind was the recognition that oil's price per barrel has fallen. But it's still not as low as it was two years ago - in fact, it's still above the average price for last year (~$50 per gallon).

I think I may go digging.

Silver Sept 8

2006-09-08T10:33:00.000-04:00

Testing yesterday's theory, the 10:00 to 10:15 arrow is UP. I'll update this later.

[UPDATE]
OK. If I'd purchased at 10:15 and sold at 11:15 per my theory, I'd have spent $12.06 and received $12.08. That's not a lot - this appears to be one of the days where the massive move stops the run. My guess (yes another update) is that it'll stay between $12.05 and $12.10 for the rest of the day, creeping slightly above that if anything. I'll update again after the market closes.

[FINAL UPDATE]
Closed the day at $12.31. So if I'd just ridden to the end of the day - the other idea I was playing with - I'd have "made" 25 cents instead of 2 cents.

I think I'll run this as a paper investment for two weeks starting Monday (with a couple of caveats). I'll assume I can do this with TD-Ameritrade's $9 per action which is $18 per day cold. And I'll trade an even 100 ounces. If the 10:15 is higher than the 10:00, I'll buy, then sell at 11:15. I'll also note what the 1:00 price was for comparison. In all of these I'm going to use bid price - I'm a neo and don't want to get tripped too far on my ignorance.

Anyway, I'll see if I'm up or down at the end of two weeks of paper trade - and by how much.

The caveat is if I buy a bunch of silver due to foreseeing a huge spike nearterm. The two conditions I'm watching are:
Silver busts $15 per ounce;
Immediate percursor to a shooting war with Iran. This latter includes but isn't exclusively such minor things as:
- Sanctions by the UN;
- Iranian attacks;
- Military (US) movements into the region.
Oh - and actual shooting (grin). At that point I'll be chasing not leading, but it'll still be worth it.

Silver again - the witching hour

2006-09-07T15:23:00.000-04:00

[UPDATED - SEE BELOW]
OK, it's gone beyond funny.

Looking at the past 90 days of data, on days when the NY exchange is open, 10 to 11 am Eastern is a witching hour. There is almost always a (relatively) large move in that hour. Most of the time it's downward though there've been a few exceptions. By large, I mean moving the spot price of silver (bid) by at least 10% of its then-current price.

It's both regular and large enough that I'm glad I don't have a connection that allows me fast trades on the metal market. Elsewise I'd look about 10:15 to see what the market's going to do and place based on where it's going to be by 11:00. That is, short sell it if it's going down, and buy it to sell it if it's going up. I'd "only" plan for 5% profit each day - more would be gravy.

I'm going to see if I can find the same detail dailies for further back. I'm curious how long this has been going on...

[UPDATE]
OK, the biggest thing I've discovered is that I really, really need to check my math. 1%, not 10%. Half a percent, not 5%. Sheesh. Oh, it still looks, well, manipulated, and relatively speaking that's a huge change, but the math error does tend to cut credibility...

blush.

More silver

2006-09-06T16:33:00.000-04:00

So yesterday I finally wrote of the 10:00 flush. And what happens today? A spike - one that almost exactly reverses yesterday's flush.

Of course it then began a steady decline...

I'm staying with silver, but it's going to be a wild ride.

I'm staying with silver because I'm pretty much convinced it's undervalued. I'm becoming convinced that there has been dumping - in some cases a LOT of dumping - to keep it relatively depressed. I've been researching monthly production vs monthly use numbers and the latter keeps exceeding the former. And since silver has a LOT of uses, this means it's probably going to keep happening.

I don't know if the goldbugs are right - if it's going to go back to the 15:1 ratio with gold. I will say, however, that I have no doubt the current 45:1 is way out of line. Which means I expect to profit even if my doomsayer predictions are wrong.

And I hope they are.

On nuclear weapons

2006-09-06T11:50:00.000-04:00

There is a loud group of folk who say Iran has, or at worst is on the brink of having, nuclear weapons. When confronted with the enriched uranium production capacity of Iran, they fall back to one of two positions - imports, and gun-type nukes. I'd like to discuss the latter here.

The general argument is that a gun-type fission bomb is still a nuke, and it's a lot easier to build than a fusion bomb, and that takes a lot lower quality uranium to be effective which, they claim, Iran has. Let's look at these briefly.

A gun-type fission bomb is still a nuke. Yes. It's approximately 15KT (using the Hiroshima bomb as an example). Which means pretty much all damage occurs at under 3 miles from the blast point - all damage meaning burns are first degree or greater, and civil (non-reinforced) buildings suffer at least moderate damage (roof and windows, no collapsed walls), and the radiation dosage is nonfatal. Basically, as long as you weren't looking at the blast you're shaken but that's about it if you are more than three miles from the blast. If you're inside a typical WalMart, you're fine if you're more than 2 miles from the blast. If you're in a concrete building, you could be as close as a mile from the blast and be 'just shaken' - though the flying glass will be dangerous. 3KT is big and nasty and a lot of people get hurt and die. It's far from devastating for ANY modern nation. If we were to make an analogy between the US capacity and this, we're seeing a set of brass knuckles facing a .50 cal machine gun supplemented by perrsonal side arms.

A lot easier to build. Yep. Easier doesn't mean easy. Look, the principle is well known. You shove two pieces of uranium, each not quite large enough to attain critical mass, together. They achieve critical mass and you have an explosion. Except that's not quite true. Let's start by looking at another explosive - black powder. If I've got a pile of black powder and I set it on fire, it burns really fast. Things get hot, and there's a flash, but ... "where's the kaboom?" To get the explosion the stuff's got to be contained - the expansion has to be trapped. The critical mass explosion is kind of similar. You can't just have a pile, you've got to have it come together so the burning caused by the critical mass is trapped. This means the stuff has to come together in a near-perfect form and REALLY fast to go "boom" instead of just fizzling. You can supposedly compensate by having more stuff, but it still matters.

One of the interesting things that's publicly known about the bomb used in Hiroshima is that the actual bomb part wasn't the majority of the "bomb". It was basically a big pipe bomb, less than a foot in diameter and only about nine feet long. All the rest, though, was either to ensure it didn't go off early or to ensure it DID go off when it WAS supposed to. Just as one example ... picture the pipe being just a little bit warped when the smaller slug is fired toward the bigger. Oops, it stuck.

Again, "easier" isn't "easy".

Final point - Iran has enough uranium of that strength to make a gun-type nuclear bomb. Maybe. Actually, assuming they ARE trying to reinforce for more effective nuclear weapons, I'll go so far as to say probably - enough for one, maybe two. But if they build a gun nuke with what they've got, well, then they ate their seed corn for more powerful weapons and it puts them WAY behind on that process.

All in all, it makes me doubtful that Iran has a home-made nuclear weapon at this time.

Inflationary Projects

2006-09-05T17:15:00.000-04:00

In the last post I mentioned monetary injection through grand projects. Let's start by admitting the problems and providing some counters. I'll use some example grand projects to demonstrate those counters.

Problem one is that it's inevitably inflationary. Government sponsored grand projects are almost a casebook example of how to inject money into the system - either directly as wages or indirectly as contract payments. Directly managed projects can - and have - interfered with civilian businesses. Contracts defeat that, but are often both MORE expensive and get less money into worker's wallets. And getting money into worker's wallets is a critical reason for such a project. It's an intentional attack on unemployment AND an attempt to counter deflation. Oh - another strength of contracts is that if/when the government quits paying the industry is still there.

Problem two is that it's probably not directly cost efficient. Grand projects that need government financing tend to have payoffs on long timelines -- and they're also sustaining goals other than the bottom line. Consequently they seem wasteful to 'annual profit' standards. If they're keeping a large number of people employed - better yet, employed in something that will be a useful skill down the road - vs just sucking at the welfare teat, well, that's a bonus on several levels, but it may not be profitable. And while we're at it, sometimes the profit's indirect. As an example, consider the Tennessee Valley Authority. There are a lot of flaws with it. But due to its existence, the Tennessee Valley is NOT "poor ignorant crackers on a backwater in the nation's trading network." Instead, it contributes. And the people who live there are surprisingly well off. Not all of them, but a lot more than it would be if the valley hadn't been improved with roads and electricity and all that sort of thing.

A major project would work. Our government as it presently exists won't do it, and we'd have some nasty resistance from folk who don't believe in anything past "me and today." And it'd be inflationary - bad or good, it'd be that. There'd be waste and fraud and all the other things. But some projects...

The first, and to me the least desirable, would be rebuilding the Katrina Devastation. The biggest flaw is that the majority of the work would benefit one state - Louisiana. That has problems for a national program.

Something that could encompass the Katrina devastation but cover more states equitably would be a Southern version of the Tennessee Valley authority. That area is POOR, largely because it's underdeveloped with no logistics networks of note, and very little power support. There are draft plans so it wouldn't be a cold start. Again, it's got a problem in that it's regional - better than national, but still somewhat constrained.

Another project - and I admit to some personal desire - is a high-speed train network. It'd be EXPENSIVE. It'd be long-term. It'd hurt the airlines, and that's actually a negative. It'd push a lot of places toward mass transit, cutting into the fuel problem, which is good.

The main point here is that the projects have, from the simple accounting principle, a lot of downsides. But from the polity view they've advantages.

Not that it matters at this time. I can't see any major project being floated for at least three more years.

Yet more economics

2006-09-05T15:56:00.000-04:00

In my predictions post I said short term deflation followed by a serious inflation spike - almost but not quite kapoom. Were it not for my predicted war with Iran I'd have pegged it a bit differently, and I'd like to get down that bit of comment as well.

I think we're getting ready to enter a deflationary cycle. Now I need to define again - deflation is when the used/usable money supply contracts. It's tied to prices declining as they compete for those scarcer dollars. As I've described before, there's a chicken-egg debate between economic schools as to whether the declining prices is cause or effect. Me, I think it can be started by either.

Now we've been in an inflationary cycle - more money into the system causing higher prices chasing the money causing more money to enter the system... But that's about to stop - heck, it might have stopped already and we're coasting over the hump. BUT... the higher prices only work if the consumer has more money to spend. For most inflationary cycles of history the money injection is from wages. For the past decade, however, we've been experiencing the injection via credit -- mostly through home loans.

Now, however, home sales are about to stop. Well, go into severe curtailment. There are a lot of reasons, but they boil down to people suddenly having a LOT of their income tied up in paying for houses that aren't selling like they were. And that, combined with some 'necessities' increasing in price are what are triggering the upcoming deflation.

Waitaminute - RISING prices triggering deflation? Yep. Remember that the prices can go up as long as income leads or keeps up. But wages are flat and credit's basically going to stop. So here's the way the trigger works.
I have a bunch of stuff on which I can spend money. As the price goes up I have to quit buying some of that stuff - and while I cut everything a bit, I cut necessities the least. Multiply me by a LOT of people no longer buying stuff and it starts hitting the companies selling things. They will try several things to try and get us back, but eventually someone will reduce prices -- and that'll succeed, which pulls more price declines, and so on and so forth. Eventually this turns around because businesses don't like making less than they did before. So every so often they test the market, and sooner or later the people have enough extra money that they succeed - and eventually enough do that to end the deflation (and maybe even reverse into inflation).

The problem is that in our current mentality deflation is a bad thing. Actually it's not just our mentality, it's our society. We're a debtor nation. Worse, our NATION is a debtor nation. As I've discussed before, deflations are bad for the borrower and good for the lender as the effective money transferred is larger than the nominal money. Making things worse, any deflationary period is also a depression - most of GDP is due to consumers purchasing, and as already pointed out deflations are triggered by sales declining. Which means that all things being equal our government prefers inflation to deflation.

So if everything were left alone, we'd see a longish period of deflation till income (cash or credit) once more balanced expenses. I'm not good at guessing but I can't see less than a year of this - with a long side of a decade. Ugliness indeed. And it's what we're looking at if the government can't inject more money.

The deflationists don't think money can be injected. After all, more credit can't be pushed, and wages have an intermediate step of getting the companies to pass it along instead of absorbing it as profits. So how, they ask, are we going to inject more money.

There are three possibilities. The first for you readers is my prediction - war. Now it could be done with an internal major project. And believe it or not I think that in the long run this would be the ideal fix -- pick a HUGE project that requires thousands (even hundreds of thousands) of employees over several years to accomplish, and pay them with new money. The Tennessee Valley project revisited. There are several very good opportunities for this - in fact, I think I'll write another post about them. But that's because I don't see them happening. Of course, the war isn't intended to solve that problem, it's due to other issues that are far less noble. But it's got the potential to work as well -- IF (and it's a big if) enough of the United States gets involved in receiving money from the government trough. If it's another 'war on the cheap', it's no help at all.

The second possibility for injecting money is to make more credit palatable. Most of the means of doing this are variations of 'debt relief acts' - credits or waivers or forced reductions or some such which have all been used in the past with varying degrees of success.

The third method is one I dread the most, and amounts to some sort of con game with taxes. My specific example of this is the FairTax (HR25) on which I've written enough already. While terrible for everyone in the long run, the immediate effect of its implementation would be to increase the size of everyone's takehome pay by a large amount. (It just leaves by way of sales tax - it and more, but again I've ranted long enough.)

The point is, while all the reasonable pointers are for deflation, the government would prefer inflation and has the means to force inflation for a little bit longer. Thus my prediction: deflation for a few months followed by severe inflation.

silver odd datapoint

2006-09-05T13:22:00.000-04:00

So far it's just a peculiar datapoint, but it tends to support the position of certain hard currency fanatics.

I've been watching the daily numbers for silver on Kitco. An interesting pattern has developed.

Every day, between 10 and 11 am eastern (New York) time, the silver spot prices plunge appreciably - within a 30 minute time frame, and often inside ten minutes. Today, for example, it plunged from about $13.50 at 10:20 (a price it'd been orbitting for most of the morning) to about $12.99 by 10:50. Some days it climbs from the drop, some days it stays with the drop, and sometimes it drops further, but every day there's been a plunge near the 10:30 time.

Just something that's making me go "hmmm".

Nuke Proliferation Rules

2006-09-01T12:29:00.000-04:00

Over on Balloon Juice, someone gave Fester a Coin of Wisdom that he spent on a post. I'm stealing his rules - the RULES he recommends for the age of nuclear proliferation:

1) The builder is responsible for the entire life of a nuclear weapon (passing a bomb off to a 3rd party for detonation against Americans does not allow the first party to escape retaliation)

2) The US, and other major nuclear powers have the capability of conducting isotopic analysis and determining which reactor produced the weapon and thus establishing ownership of the weapon.

3) The US, UK, France, Russia and China are willing to extend their technical assistance to upgrade command and control abilities as well as other confidence building measures to the smaller nuclear powers to reduce the risk of accidental release.

Look, as I've said before the cat's out of the bag for nuclear proliferation. The question isn't who CAN build a bomb, it's who IS building one - and with Khan's little game it could be just about anyone these days. So we need to have rules based on controlling what's out there, not on preventing 'those other people' from getting them. I like these.

nuclear fears

2006-09-01T10:11:00.000-04:00

For what it's worth, I don't fear state actors aka nations and their leaders (at least for most states) getting a nuclear weapon. I fear the non-state actors getting them.

An amusing point to that is that I cannot see a state actor 'giving' these weapons to non-state actors. Not least is the danger that they'd threaten the giver at a later time with use.

See, as long as the weapons are in the hands of nations they are functionally tied to a MAD doctrine. Mutually Assured Destruction. Actually, for most of the smaller nations it's worse. Use of the weapon against most parties becomes Nuclear Suicide.

Seriously. Let's assume that Iran - to take a particular example - has five - or even ten - 1MT nuclear weapons available. It can pretty much cripple Israel, or it can hurt the US. What happens in return?

Why yes. The World's Largest Nightlight gets created just south of the Caspian Sea. Forces from around the world go in to ensure that the idiots willing to use nuclear weapons as a first strike never see the light of day, and the culture that allowed them to come to power becomes a footnote in history books.

And that is probably reason number one why North Korea hasn't used its weapons. I'm sure Kim il Jung has been tempted, but the end of the good life is a serious threat - and for Kim it's still a good life regardless of what it's like for everyone else.

Now, non-state actors aren't tied to location. Far too often they're not living the good life. The belief that they will escape the consequences has some basis for many of them. So yes, the thought of such agencies - be they corporations or political groups or terrorist groups or anything else - getting nuclear weapons can give me cold sweats. The only saving grace is that I don't see them getting it from a willing state. The surrender of THE weapon to someone out of authority requires extraordinary trust, so even those otherwise willing would be hesitant. Gas? maybe. Nukes and bio? ummm, not so much.

Leading indicators

2006-08-31T14:26:00.000-04:00

Courtesy of the Big Picture, I present the leading indicator for the economy.

Builders’ sentiment is -52.2% YOY
New-home sales are -21.6% YOY
Purchase-mortgage applications are -20.9% YOY
Building permits are -20.8% YOY
Housing starts are -13.3% YOY
Existing-home sales are -11.2% YOY
Existing-home inventories are +39.9% YOY
New-home inventories are +22.4% YOY

Are you better off?

2006-08-31T14:18:00.000-04:00

Are you making 16% more than you did six years ago? Is that after inflation - are you really making 25% more?

According to the bea, GDP has increased over 16% since 2000 (looking down at index numbers where 2000 is used as "100").

Are you spending 19% more after inflation than you did six years ago? 30% more after inflation? Has your income gone up 30% since 2000? Same chart, same modifiers.

If your spendable pay is less than a 30% increase over 2000, then someone else's is more. I'd strongly suggest taking a few minutes to think about who, and why, and maybe what you can do about it. Me, I'd suggest voting for someone who isn't in favor of making the rich richer while the poor get poorer. But you jump the way you want - you're a thinking person, you'll figure out something.

The war we're in

2006-08-31T13:00:00.000-04:00

So I've been trying since before the last post to write a better strategy of fighting terrorism. And I finally figured out why it's so hard.

Because it won't be followed, and as a consequence we're going to get further and further behind the curve. And it depresses me a lot.

Amusingly, recognizing that seems to have freed me up to write. Here's the broad outline:

First and foremost, it's a social war - a war of philosophies and principles. Most accurately it's exactly what Bin Laden recognized it as being: a war of cultures. We want our culture to supplant that which is supportive of the organizations and people opposed to us.

Second, terrorism is a tactic, not a way of life or a strategy. Letting it dominate the focus is a good way to let ourselves be led by the nose. Focusing on the "terrorists" is wasteful and encourages misdirection. It's like focusing on artillerists. Yes, I definitely like that last analogy - it's an almost perfect match, with the bonus of demonstrating the STUPIDITY of the focus.

For these reasons, we need to begin by reorienting our strategy. We need to recognize again that our foes are global insurgents. Their objective is to put all the world - or at least as much as possible - under the rule of their preferred form of government. That form is Islamic in basis - a very totalitarian (and patriarchal and 'fundamentalist') form as initially outlined by Sayyid Qutb. A significant intermediate objective is establishment of the 'Islamic Crescent' that never was - that is, re-establishing Islamic rule in every nation that was once under Islamic rule, regardless of when that was. Their model is decentralized - each nation's insurgencies are cooperative but not coordinated. There are regional and global 'franchises' that aid the cooperation and provide support through training, financing, transportation, and other functions depending on specialty.

Due to the international nature of this insurgency franchise, all nations and cultures - even those with no current active insurgent base - are part of the battlefield. In fact, as one necessary focus of the battle is hearts and minds, those nations are significant. It's necessary to demonstrate that they are irrelevant, or that they're not really different, or that they're REALLY the bad guys. And they, in this case, is in particular the United States.

We have to look like -- and BE -- the culture everyone envies. That's a key step. We have to mean it when we declaim, "ALL men are created equal" - when we speak of upholding basic human rights and rule of law, we must hold ourselves to the same standard. That's a starting point.

As for the war on the insurgents themselves, well, it's basic counter-insurgency work. Which is to say it's long and hard. In general it looks a lot more like law enforcement than it does military operations. Actually, like law enforcement working with 'humanitarian organizations'. Military operations inevitably create martyrs. They give the insurgents an anchor - an event at which they can point and declaim "THIS is what and who we oppose." Military operations cannot be completely sidestepped, however. In fact they're sometimes going to be exactly what's needed to quell a particularly sharp or significant offensive by the insurgents. But the force must be carefully focused - precise, with an absolute minimum of collateral damage. Generally this will mean bullets over bombs.

I'll write more on this - in particular, where I think we need to go in regard to Iraq and Iran (separately, mostly). But that gets the basic block out of the way.

can't stop cooking

2006-08-26T17:36:00.000-04:00

I have a serious and long post in the works, really I do. It's about Iran and terrorism and all that and what I think we should do and all that and... and I got hungry.

sigh.

Minor tips for cooks.

Hot Stuff. An amazing number of meals work better if the dishes are hot or cold. I'm going to give an example recipe near the end of this post, but this is about the dishes. Now, the most advice I've ever heard is to put your plates or other dishes into the oven (on low) for a period of time to heat them and keep them hot. The problem is, at least for me, if the oven's going I'm using it to cook. My solution is to put a small amount of water into the dish and put it in the microwave. Yes, it works with plates too - and you can stack them (though I recommend putting down a toothpick under the edge of each plate - the space will allow steam to escape more easily.)

Timing with Sauces. Sauces - gravies, glazes, and many others - have this problem with timing. They tend to fall apart or solidify while you're waiting for everything else to get done. And they need so much attention that it's hard to do anything else. So you wind up with everything else a bit cooler, or your sauce not-so-good. My favorite solution, learned from a restaurant cook way back when, is a soup thermos. You know, one of those broad-mouth 2-cup thermoses you put the kid's soup in for school. Yes, the narrow neck ones are 'better', and the steel looks and wears better. But the wide neck has two advantages. First, you can dip into it to get all the sauce out. Second, it's a heck of a lot easier to clean. Regardless, you can make your sauce first, set it in these, and plate it at the last second - the perfect instant, most of the time.

OK, I promised a recipe. It's a variation on one from Mark Bittman's "How to cook everything: Bittman takes on America's Chefs. At heart it's dirt simple:
Boil noodles.
Put pieces of ham in bowl
When noodles are done, drain and put on top of ham.
Add some butter.
Crack an egg over the noodles and stir or toss.
Top with a little grated cheese.

The heat from the noodles will cook the egg, but in the process it can really suck the heat from the noodles. I do two things to help it along. First, I heat the bowl (see, there's that tie I promised). I also drop the egg into the noodle water about 30 seconds before they're done. The water warms the egg.

Oh - Bittman's recipe uses more pans since he actually fries the egg sunny side up in butter, and adds the resulting browned butter as well as the egg. Browned butter adds yet another layer of very good taste. But it's another pan for me to clean.

Now it's worth noting that this isn't the first time I've seen the 'raw egg on hot stuff, stir to cook in the serving dish' trick. I had a scotsman do it with oatmeal, and a japanese friend drop a small egg into a bowl of hot broth-based soup (sort of miso but not really). This, however, puts a nice even coating on the noodles - enriching them slightly.

Oh - as Mark Bittman notes, if this is too dry you can add a bit of the hot water from the noodles (if you reserved any). You want a bit of a sauce - but since it's made from the ingredients in the bowl there's no need to open the thermos.

Use the Schmaltz

2006-08-25T21:05:00.000-04:00

Last post we made broth, and oh-by-the-way schmaltz. Now I know at least one commenter is repeating the palpitations brought on by my use of bacon grease, so let me pause and say it again:

It's not what you eat, it's how much of what you eat that matters.

Schmaltz, like bacon grease, is a case in point.

I have two favorite things to do with schmaltz. Hopefully mentioning them will give you ideas - ideas not only for the schmaltz but for other rendered fats as well.

First and without any doubt my favorite: roux. Now I'm the longwinded type, so I'm going to assume you're not certain what roux is, how it's use, or even why.

Roux is a thickening ingredient. It's a critical component in several dishes, not least of which are gumbos.

Starches are a common thickener. Cornstarch, arrowroot, and flour are frequent choices. Each has advantages and disadvantages, but we're going to focus on flour. Flour thickens wonderfully, but raw it's got a nasty taste. However, it browns and flavors divinely. A roux is equal parts flour and fat cooked to brown the flour. Now the darker the roux the richer the flavor. On the other hand the darker the roux the worse the thickening. Classically a roux is made from butter, which as it happens brings surprisingly little flavor to the roux. Enter schmaltz.

Ah, yes, you can see where this is going. One of those cubes, melted, and a tablespoon of flour, and you're off and running for your roux. Except it's got a powerful chicken flavor even when the roux's light in color. Mix the roux, cook it for a couple of minutes, and thicken a cup or two of broth by pouring it into the mix. You can also pour in milk - that's 'cream' gravy. If you're serving it beside a chicken dish your flavors are quite strong - heh, and I tend to get lots of raves about this gravy.

Now as it happens there's another dish we're fond of in our house. It's one that I got told after I'd been doing it a while is hard to do - bull, frankly. I speak of risotto. Let's make a batch -- a BASIC batch.

You need:
1 tablespoon of schmaltz, and another of olive oil or butter (your preference).
1 cup of rice.
4 cups of chicken broth - which probably won't all get used.
1/2 cup parmesan cheese.
A saucepan for the broth, a larger pot for the main cooking.
I also use a wooden spoon and a half-cup ladle.

Get the broth hot - I bring it to a simmer - then turn the heat down to keep it warm but not hot enough to evaporate.

Warm the large pan over medium hot heat and add the fats. When they're melted, add the rice and stir till all the grains are coated. Lightly brown a layer of rice, and turn the heat down to medium low. Add two ladle-fulls of broth to the rice (warning - steam blast), and stir thoroughly.

Now the pros will tell you to watch and stir constantly. Bah. here we go.

Shake the pan enough to cause the grains to self-stir for about 20-30 seconds. Use your spoon to push any grains that have climbed the side back into the broth. step back and do other stuff, checking the rice every couple of minutes or so. When you can't see any liquid - it's been absorbed/evaporated enough it's below the level of the rice - add another ladle, stir thoroughly, shake, push down. Continue till done.

Done? Here's the measure -- done depends on YOUR taste. I happen to like my rice soft. Some people consider it overcooked and go for al dente (so to speak). It's your rice, cook it to your taste. When it starts looking right, spoon out a small bite and try it. Oh -- you might not use all the broth. Or you might use it all. Even once you have 'your taste' the amount will vary depending on things like humidity and altitude and, well, all that sort of thing.

Anyway, pull the risotto off the stove and stir in the cheese. And serve.

OK, I said basic. Saute some onions just before you brown the rice. Add some shredded chicken with or instead of the cheese. Throw in some vegetables. One key thing, however: the schmaltz is going to make this have a strong chicken undertone. If you want to add something that doesn't sit will with chicken - say, crab meat - then don't use schmaltz. And the same goes for the broth - use an appropriate liquid. For what it's worth I have made a ~~broth~~ risotto with water. The lack of flavor was a bad thing though I can think of some additives that would have worked well, but its consistency was exactly what I'd intended.

Go eat.

A necessary tool

2006-08-25T20:35:00.000-04:00

Another cooking post. Actually, two more. I've got a longwinded one coming, but it's not gelling the way I want. Since I want to get SOMETHING down...

One of my most-used kitchen tools is my crock pot. Oh, sure, there's the six hour chicken and all that sort of thing, but I depend on it for something significantly more important: my stock and my schmaltz.

Buy - butchers quit giving them away a LONG time ago - backs and wingtips. Note that if you're willing to do the work you're better off buying whole chickens, processing them for breasts, thigh quarters, and 'buffalo wing parts', but I'm lazy and these parts aren't THAT expensive. Anyway, buy enough to fill your crockpot halfway.

Now add a tablespoon of acid - I use white vinager. (I've used rice vinegar, I've used other vinegars and citric acids and even a few other things, and in the end you just can't taste it. So this is a time when you go with the cheap stuff.) IF YOU WANT, add some rough chopped onion and celery and carrot and anything else you want flavoring your broth. Me, just the vinegar as it gives me more freedom in the end. Anyway, fill the crockpot up to an inch short of the top. Cook for, well, now it depends. You want the broth to be rich. But after a point you start adding complex flavors from the browning of it all. And if you go too long it tastes burnt. So in the end, your first time you should cook it for four hours, and then taste it every half hour or so till it's what you want. For my taste and pot, eight hours is right.

Have a large pot or bowl with a collander in or on it - it's got to be large enough to hold the contents. Have a cooler large enough to hold this pot that's filled about 2 to 4 inches deep with ice, and have some small CLEAN jars that were half-filled with water and then frozen standing by as well. Back to the collander - if you've got cheesecloth or a mesh strainer I recommend using as an additional layer of catching. Pour everything into the (lined?) collander. Lift out the collander and get more moisture out. This surprisingly soft mass can go several places including compost, but I have an animal problem if I put meat remains out so it's into the trash. For the rest, the bowl goes into the cooler, a couple of jars go into the liquid, the lid gets closed, and I go away for half an hour.

An interruption - this isn't how I used to cool my broth. I used a much more complex system to try and get through the danger zone of 140 to 40 degrees. Credit where it's due, I learned this from Alton Brown's Good Eats, the episode in which he makes stock. Back to work.

Now take a moment to look at the broth. It should be gelatin now. If it's not, you didn't cook long enough in the crockpot. Remember this for next time, put the broth into a pan to boil and reduce by a quarter or so, and cool it again. Anyway...

If it IS gelatin, you've got three layers sitting here. On the top is chicken fat aka schmaltz. Just like bacon grease, I'm going to tell you DO NOT THROW IT AWAY. Like bacon grease and GOOD olive oil, the flavor compounds in it make this pure culinary gold. I put the disk into a saucepan, melt it, and pour it into an ice cube tray - each 'cube' about half full. This gives me a bunch of chunks of about a tablespoon in size. I wrap each in foil, then they all go into a plastic bag that gets labeled "SCHMALTZ" and the date of creation. Oh - throwaway date for these is one month. I've used them at two and they're OK, but at three even with the double protection they're beginning to get odd tastes. And at the rate I go through broth, there's always plenty to throw away.

Now that the schmaltz is gone, I turn the bowl over onto a platter. And I use a somewhat sharp object - a table knife is good enough - to cut off the bottom. This part's real easy to see as it's full of the little chunks of solid that were too fine for the strainer. Now, you don't have to remove this. But if you keep it, whenever you make something with the broth it's going to have those chunks floating. It's an appearance thing, really. My wife can't stand the looks, so this becomes a bonus for the pets. The rest gets melted again (yes, possibly a third time) and poured into freezing containers of one and two cups. These containers go into the cooler WITHOUT the jars - they're small enough that the exterior ice seems to be enough for rapid cooling - then when solid again they get a layer of plastic wrap and a lid, and finally a label: chicken broth, date.

I don't think the crock pot is the FIRST cooking implement I'd send to a college student (that's actually an electric skillet), but it's high on the list. And just for the broth it's worth the price.

How to inflate

2006-08-23T18:21:00.000-04:00

As I said in predictions, I expect to see a few months (no more than six) of depression that trends deflationary (monetarist definition) followed by a couple of years of high but not hyper inflation (still monetarist). The hurdle for that scenario is how to get created money into the hands of the public. Wages are flat, and the public willingness to increase debt (refinance homes, buy more on credit, etc) is just about tapped out.

So far I've come up with two 'broad' options, both with numerous variations.

Method one continues the credit. It's via a 'debt relief act' or instrument or some such. Probably not a tax credit as that's too slow (unless retroactively applied as the previous 'tax rebates' were applied). No, something that says "if you get more credit you get money back". Think of it as an extension of the Discover 'moneyback' method.

The second method was sort of mentioned already. The government goes on a massive spending spree - well, moreso than it has already. It can be for an internal or external critical issue - recovery from Katrina exemplifying the first, and the "great war on terror" the second. Either way, the government gets LOTS of people providing goods and services it needs to "do the job". Preferably in such fashion that they encourage and feed pick and shovel businesses. Ummm, pick and shovel. In mining rush towns, a few miners got rich. But most businesses that supported miners got rich. Sell the pick and the shovel they need but don't have and let the darn fools gamble on finding gold or silver.

I can't break form, I have to use more words (grin). There is a third way - a variation of the second. Instead of contracting for the people, hire them. Increase THEIR wages. How? The fastest and easiest way I know to massively increase the number of government employees is through a draft. That there are numerous painful obstacles to that for the government to do it is a given. I'm just pointing out the technique.

Draft, 'massive rebuilding program', 'massive reaction to external threat', and some sort of debt relief act. Any of those three and it's time for the high inflation - change assets accordingly.

Pondering ACLU v NSA

2006-08-23T17:33:00.000-04:00

I chose to wait on responding to this till I'd actually taken time to read it. Oh, and read the supporting documents for it. I like to think it makes my untrained (IANAL) opinion my own more than that of the various pundits regurgitated.

Before I comment on the opinion, I'm going to note the one extraordinary facet that seems frequently ignored. That's the absence of the defendant's (the government defending the NSA) position. The reason is simple - the government failed to speak.

The ACLU representing all these folk sued. The government said the case should be dismissed due to lack of standing and the secrecy issue (not a law, a judicial precedence). Almost simultaneously, the ACLU asked for summary judgement on damages due to violation of FISA and the constitution. The judge said to both parties, "Show me." The government showed the judge some documents on the subject, but said (paraphrased) "the fact that some of the documents are secret are sufficient for the secrecy issue, and the lack of standing is self-evident." The plaintiffs meanwhile provided briefs defending the standing and countering the secret, and further supporting the summary judgements. The judge asked the government to respond. Deadline came, judge ended order (gave government a pass despite deadline missed) and issued new request for a brief. Again, government didn't respond. Judge issued intent - not ruling - and asked government to at least respond orally. Again, government passed. So the judge issued a judgement based on the facts provided.

Now, in cases involving common people like you and I, if we decline to rebut the other guy's allegations in court, the judge has no opinion but to assume we're silent because we CAN'T rebut them - they're true in all particulars as interpreted by the other guy.

With that in mind, the whole question of how ugly the writing is in the decision becomes VERY secondary. What the judge wrote, basically, was:
One element of the plaintiffs' suit is dismissed, but the secrecy issue does not apply to the remainder; the defendants have standing; the TSP (The Secret Program) causes harm, and because it violates the FISA and the first and fourth amendments of the US Constitution the remedy includes stopping the TSP.

Now, here's where we get the really big gamble by the DOJ. They've appealed, and the sixth will almost certainly accept the appeal for review. The question - the gamble - is whether they'll take it "de novo" or "on the record". The government's hoping for "de novo". Heck, an awful lot of pundits are saying "of course" the sixth will do it that way. But "de novo" is the unusual way. Normally an appeal is: given what the court we're appealing faced, the decision was wrongly decided because of misreading/ignoring/accepting... The problem - the risk - the government takes is that they didn't present a case. Now here's the thing. If it's 'de novo', I would bet on the appeal to the supreme court coming from the ACLU. If it's 'on the record' it'll be the DOJ that appeals upward.

My gut feeling is that the appeals court hears the case 'on the record'. The reason is the fact that Judge Taylor went overboard in trying to get the government to give its case. Yes, it's a significant case - if upheld it sets a defacto basis for impeachment of the president of the united states (violation of FISA is a felony). So the 'de novo' option is possible, and had the judge followed normal procedures I'd lean toward expecting that. But THREE OFFERS PLUS ORAL refused? Bah. And this completely sets aside the tone of the government attorneys. Supercilious comes to mind - We're here, but it really doesn't matter as we win regardless. Sneer. shudder. Oh - I'll also make a side bet on that internal bet, which is that regardless of the mode it's heard 'en banc' - by the whole appeals court instead of (or possibly subsequent to) the normal three-judge panel.

Now, what happens when it reaches the supreme court is another question. Frankly, I think the DOJ would rather it not get there based on the most recent 'big decisions'. The court came within a hairs breadth of accusing the current administration of war crimes, and specifically (and as bluntly as Taylor in this case) said the GC3 (Geneva Conventions common section 3) applies. Betcha they're even more adamant about the first and fourth amendments of the United States.

Ptui!

2006-08-21T11:23:00.000-04:00

The next time somebody tells me how private industry is more cost-efficient than the public sector I'm going to spit in their face. Oh, I've always called them blind, but I've had to point out in the past that the reason for APPARENT better efficiency is workload requirements we put on government services. Add these workload requirements to private industry and they get worse than government returns.

Now, though, I've got a rock-solid point of comparison. The IRS is getting ready to outsource collection of debts under $25,000. Three private businesses have won bids to do the collecting. The New York Times claims the IRS reports it costs $0.03 (yes, three cents) per dollar collected to pursue theses. The three winners - allegedly low-cost bids - are charging $0.23 per dollar collected.

So, we taxpayers are going to get less return for our dollar? Private industry is almost 8 times less efficient? Bah.

This is even before we get into the question of whether private industry tax collectors are a good idea - an issue popping around several blogs right now.

More cooking

2006-08-19T22:00:00.000-04:00

Amazing. Get to talking about food and I actually get to posting more than once in a while on this blog. Anyway... Tonight's supper was BLTs for the wife and child, and a BLT salad for me.

Oh - no, I wasn't eating healthy, I was being a pig. Still, I'll share.

First, I cook my bacon in the microwave. I've a VERY old ridged bacon rack that is microwave safe and keeps the bacon out of its grease while cooking. Lovely device and I know I"ll miss it when it's gone. Basic technique I use is to set the minutes to equal the number of slices of bacon I've got, then LISTEN. When the bacon quits popping, it's time to stop the microwave. Tadaa - crispy bacon, not yet burned. As it happens, I know my particular microwave well enough to know it's 5 minutes for 7 slices. But that's after a long time using it, and I know that other microwaves cook just a tiny bit different. Enough...

I make my salad last. Lettuce first - here's my piggish moment, I'm making a salad so I'm going to use a healthy amount of lettuce. I toast some bread - and since I normally have two sandwiches it's four slices of bread. Large cubes, toss into the salad. The tomatoes get sliced thick and then cut into bite-sized chunks. The bacon - enough for two sandwiches - gets broken up and tossed on top. Now for the artery hardening step.

I take about as much mayonaisse as I'd normally put on the sandwich, and pour in the residual bacon grease. That usually means about two tablespoons of mayo and a tablespoon of grease. Whip thoroughly, and put into the salad, then toss to get the dressing everywhere.

yum.

Solitary pleasure meal

2006-08-19T10:33:00.000-04:00

I just discovered I'm going to be home alone for a few days next week - probably. And The third thing to cross my mind was that I can finally eat my solitary pleasure meal.

I call it that because it's not something to be eaten when you expect to be near people for, oh, the next 48 hours. (guilty grin). As I said, I am fond of strong flavors...

It's a sandwich. Dark Rye, Garlic Sausage, Limburger Cheese, sourkraut, strong mustard. Assemble and grill like a Reuben. What, you've not assembled a reuben? OK, let's walk through the assembly.

Two slices of bread. A light coat of mustard on each - which among other things helps prevent the moisture of everything else coming through to the bread and dissolving it. Now I like melt on both sides, so I put cheese on each half. Limburger being a soft cheese, I spread it, but if you're assembling a reuben just put the cheese on one slice of bread for now.

Thin slice the sausages (or corned beef) and make a layer a quarter inch or so thick. Now put on WELL-DRAINED saurkraut. While I like strong flavors these are supposed to balance each other, so make this layer about half as thick as that of the sausage. Another layer of cheese goes on now if you're just making a reuben, and top it with the bread. Now it's time to grill.

Get your cast-iron skillet medium hot. Oh, you don't have cast-iron? mutter - I just realized what a post in the near future's going to be. OK, put your skillet over medium-high heat and let it set for a couple of minutes. You want it, hmmm, if you sprinkle a bit of water onto the skillet the droplets should dance, not sit and evaporate (too cold) or burst into steam (too hot). (look up sessile effect - that's what's going on. Anyway...)

Dampen a paper towel with oil, or use a butterbrush, and LIGHTLY brush the skillet with the grease. All you're doing is applying something that'll help brown and crisp the bread. Put the sandwich in the skillet. Wait between a minte and a half and two minutes, and turn the sandwich over. You'll have to wait just a bit longer to pull the sandwich out as the first pass cooled the skillet.

Actually, all you're waiting for is for the bread to sear enough that instead of bonding to the skillet it's separate. With practice you can test by nudging and recognize whether it's yielding to your nudge but still stuck or sliding and ready to pull.

Anyway, my stinky sandwich is now crispy and filled with several well-balanced strong flavors working in glorious competition. And your reuben, a much more civilized sandwich, is ready for you. Enjoy.

Tonight's meal...

2006-08-18T20:53:00.000-04:00

It dawns on me I've not written of cooking in this blog - a terrible thing given how much I enjoy it. Allow me to remedy that by introducing tonight's supper. Nothing fancy, sorry. Just some simple pasta.

The spaghetti - start a gallon of water that contains a quarter cup of salt boiling. Add spaghetti based on how much the folk around you will eat. I'm a pig - I cook a quarterpound (quarter of a 'standard package') of noodles just for me. Oh - and for a general purpose 'string' noodle I use angel hair. I also cook the noodle just past al dente - I like it a touch softer. It doesn't absorb as much topping, but it also doesn't stick to my teeth needing later scraping. Oh - and given the dish I'm making, I break the noodles up into roughly thirds.

The topping - I was tired today, so I used this simple mix. A total of a quarter cup of fat, half butter and half olive oil. Mix to a loose paste and then microwave for a minute to get it just boiling. Add a finely minced garlic clove - no, I'm fond of strong flavors so for me that's TWO finely minced garlic cloves - to the oil, stir, and put back in the microwave for 30 seconds.

When the noodles are done, drain and put back in the pot. Pour in the oil, and toss to coat thoroughly. I grate in a bit of parmesan and toss again. Plate, and finish with a few grinds of black pepper.

For a side, I've got a medium cucumber in the refrigerator. A quick peeling, and then I quartered, seeded, and sliced into ~1/2 inch bites. A sprinkle with a bit of salt and some balsamic vinegar lite (you know, the cheap stuff that claims to be balsamic but isn't really), and it nicely balances the oil and starch of the main dish.

Not much work, not much fuss, and not much mess to clean up when I was done.

computer madness

2006-08-16T17:14:00.000-04:00

The state of Georgia tried to go high-tech in an ultimately stupid way. Allow me ot pass onn the lesson.

CDL renewals now require this bit of registration and training. The training and registration are only available online. Registration requires entry of an email address.

Now, a large part and possibly the majority of CDL holders are long-haul truckers. Ponder this a moment. Email? Internet connection? Huh? Yes, some do - some post regularly, and a few even get online over wireless connnections. But for most that's not something they have or are used to having.

The libraries of Georgia - everyone's favorite place for computer access when you don't have your own - weren't warned of this little exercise. Most of them are like us - desparately short of money, and not in a position to train folk in how to use a computer, how to register email, how to follow links, and so on and so forth. Oh, we managed, but it's been a fascinating struggle and lesson in poor planning on someone's part.

Rule one: unless the position implies connectivity, computers as a sole source of processing are a mistake. Manual processing - though usually slower - should still be available.

Rule two: Don't blindside the people who have to do the work. It makes the customers mad at us - and we're smart enough to point them at the people responsible in the first place. More importantly, it meant that we weren't ready for the first handful through the door - and for most CDL drivers, the longer they're away from the vehicle the less money they make.

I suspect that the vetting process stayed within the bureaucratic circle and nobody who actually had to do the stuff got involved. But since I don't know that I can't say "pretest to destruction - intentionally choosing BAD customers instead of SAVVY ones." But I think that should be rule three anyway.

Predictions

2006-08-16T09:13:00.000-04:00

I still think we will have a military conflict with Iran before the November elections. I am almost 100% certain we'll have one before Mr. Bush leaves office, but I'm about 95% certain it'll come before the elections.

I am certain we're in the leading edges of a depression. That is, a period of two or more quarters of flat or declining GDP. This is before the effects of the first prediction are worked in. The leading cause of the depression is the increasing cost of necessities - energy and food especially - and will have strongest supplementation from the unemployment resulting from the housing bubble deflating (at best plateauing, at worst blowing up).

This depression will be characterized by a 'mild stagflation'. That is, the increasing prices of necessities will provide inflationary pressure, but flat wages and unemployment will mean the money supply doesn't grow to match. The effect will be deflationary in principle. That is, given x amount of money in the pocket of which proportion y goes to necessities and z goes to everything else (aka luxuries), as y goes up z shares a smaller pool of money. The response of sellers of z will be enhancing their products so the money comes to THEM. The easiest - and most frequent - enhancement will be reductions in price. Second most frequent will be 'toss-ins' - things added to the item purchased. These can range from intangibles (longer or more comprehensive warranties) to supplemental goods (50 pounds of laundry detergent with that new washing machine, or a dozen CDs with the new music system) to pure system enhancements (extra content or 'more' or 'bigger' or...).

During this period of time the 'winners' will be those who can maintain cash in excess of necessities and who can effectively negotiate/haggle when buying luxuries. The optimal side of the financial duology is the lender - what you lend comes back with more and at the same time the original loan has more purchasing power. The confusion to this is the rising cost of necessities. Eventually such a situation has to break. There are three general avenues. First, the necessities reverse price trend to follow the luxuries, and we enter truly deflationary period. Second, money is injected into the mix which allows/encourages more spending on luxuries - reversing their trend and pushing us into a pure inflationary period. Third, things happen to make necessities unnecessary (or at least less important), which both moves them to luxury status and frees more money for other luxuries. This last results in, well, it can go either way depending on the details.

But remember the first prediction -- War by November. War because of the Bush Ego (as I mentioned before), supported by numerous reports that the administration informed Israel that if it followed a plan to push into Syria during the recent hostilities it'd be supported. (That's pretty much confined to papers from Israel, though Reuters had the note in a couple of articles as well.) The recent Hezbollah suppression incident was supposed to lead to a region-wide war - Israel/US vs Syria/Iran, both with lesser supporting characters. But I digress, I was speaking of the effect of this on the economy.

On the one hand, it will push a necessity - energy (in the form of oil and natural gas) up toward catastrophic levels. This will be due to both fears of and actual shortages worldwide. On the other hand... on the other hand there will be a big buyer of a lot of goods - the US government. Yes, it's been buying a lot already, but this would be another significant increase. And that's where it'll inject more money into the pool for inflationary pressures. Yes, we'll still have consumer deflationary effects in a lot of places -- whereever the money from Big Customer Sam needs more than a couple of steps to get to the employee. (One problem with trickle down - if it worked - is that it's so delayed in delivery.) But this time the cost of most goods goes up because of the inflationary pressures of not only necessities but increased money supply.

This one's going to be rough. If you can borrow and get through till the money trickles into your pocketbook, do it. It's lenders that get bit by inflation. Also, if you can get attached to the government teat for direct money flow - but don't make it your sole source as I'll point out shortly. Another thing is to traffic in necessities. Note that you need to be careful here as some apparent necessities are or will be starting at costs too high to get a decent margin (if any - housing/rents). Finally, you can convert your money to hard and divestable goods that tend to track with inflation -- gold and silver being the classics, though there are other options as well.

I said don't weld yourself to the government teat. That's because of the after-effects of this engagement. I think - though I'm getting into much weaker levels of value - that the preceding inflationary period will approach hyperinflation rates. The inevitable consequence of hyperinflation is recovery - deflation if everything is perfect, and collapse being much more likely. Currency replacement - New Dollars - is a common solution. Even the essentially never-experienced disinflation to 'normal' levels will feel catastrophic. And during this time the government will be not only a lousy customer but will reverse the pumps - those industries most attached will be the ones that get to support the money contraction most strongly.

If you've lent money, try to anticipate. In just about every case calling in or selling the loans is a best option. After the downturn is fully recognized, well, nobody will want it. If you're sucking on the government teat, reduce the flow. Necessities - if you're in that business - are still a good business, though you should beware of the fact that things don't move evenly. It's a given that SOME luxuries will do extremely well in reaction - the problem being guessing the luxury. Hard goods are, well, it depends. If it's a collapse, keep them. If it's 'only' deflation, you might consider converting to a trustworthy currency - which may be the dollar or may be something else.

Summary:
- 3 to six months of 'mild stagflation'. Lend if possible, but keep it short-term.
- six months to two years of heavy inflation. Borrow with care against overstretching. Provide necessities. Hold hard stuff. Try to get close to the money stream from the government.
- A period of correction, unknown duration, intensity from disinflation (0%) to collapse, probably deflation. Close the loans, cut the ties to the money stream, continue to provide necessities. The hard stuff just flat depends on the intensity.

Hopefully I'm wrong. Hopefully I'm overstating the whole thing, and I'm misreading the march to war.

But I'm in short-term CDs and I'm buying silver right now - the latter is trying to buy low for expected increases.

"earning" freedom

2006-08-15T22:05:00.000-04:00

I've seen this pop up enough times it's gotten on my nerves. It's almost always talking about the Iraqis - though sometimes it's the Afghanistani or other middle eastern folk. And it's usually in conjunction with the phrase 'we can't give freedom'.

What? "They're earning their freedom."

Bull. The conjunction phrase is absolutely true: we cannot give freedom. We can create the conditions. We can let it be taken with no difficulty - with no strings and no hassles, as a child takes freedom from a loving family.

But "earning" freedom implies we have the right or ability to deny it -- and worse, the ability to give it once it's 'earned'.

Smell the coffee, folks. If we're using that phrase, we've seriously misapplied our priorities and energies. We can guide and help and push. We can encourage them to take their freedom. But we cannot judge them 'ready' for it.

And any attempt to do so is at best sanctimonious patronization which WILL be resented.

Paranoia and depression

2006-08-08T16:14:00.000-04:00

I fear the future. Or perhaps I should say A future, the one that looks darn likely right now.

We're headed into a recession with the possibility of it being a real nasty one. We've got a surging inflationary push from increasing costs of energy and food (the drought as well as oil needs). We've got an upcoming deflationary push as the housing market drops - reinforced by the fact that credit card use has increased in a double digit rate the past couple of months. (Be fair, Kirk. 8.5% two months ago. 11% last month. That's "only" 9.75%, not really double digit growth.) [CORRECTION. 9.8% in May. 11% in June. That's earlier than last month. And it's definitely over 10%.] The oil is going to make everything more expensive. The approaching credit wall is going to stop access to 'money'. The result's pretty plain - stagflation. But that's not the worst of it.

Overseas, it appears to me that the US intends to let Israel 'clear the decks'. They're not going to permit a ceasefire proposal that doesn't give Israel what it wants. Since France is the one putting boots on the ground, France gets a say too, but it wants an actual ceasefire in place so they're not shot up by both sides. Which means they want a recognition of Hezbollah. It ain't gonna end soon.

And the longer it goes, the more it trends toward nightmare land. That's because Iran's getting more and more open about its support of Hezbollah. And Sistani in Iraq is getting more and more public about his unhappiness. All of which boils down to the "first pan-arabic war." And since such a huge proportion of oil comes from there, everyone's going to act to preserve their interest.

I have a nasty suspicion that school-children in a couple of decades will look at the kidnapping of the Israeli soldiers much as today we look at the assassination of ArchDuke Ferdinand. That wasn't really the trigger, but it's a single incident of focus that can be blamed as the trigger for what boiled into global - or regional war with players from across the globe.

I am not prepared for a world turned upside down again. And I fear that it's coming, ready or not.

Oil Peak?

2006-08-07T09:56:00.000-04:00

As my handful of regular readers know, I think "peak oil" is a legitimate theory. Or rather, one of the 'peak oil' theories. Basically, there is a point at which the cost and difficulty of extracting oil are such that total production flatlines and declines.

I believe I'm vindicated. The following chart can be found at the Oildrum . The dataplots are from both the IEA and the EIA. The solid lines are the 13 month centered moving averages with a single recursion. Yes, it's a certainty that Katrina and the Nigerian reductions are part of this, but in counter I'll note that the peak oil scoffers claim that there's still a buffer in other nation capacities that would make up any shortfall. Nobody made up the shortfall, and they've had plenty of time.

This, by the way, is not counting this weekend's announcement of the shutdown of Prudhoe Bay - well, half of it. That's a 400,000 b/d drop, which in turn is about half a percent of global production. Which isn't a lot, really. Oh, and all these things that are causing reduced production - Katrina and Nigeria and Prudhoe and Iraq - will in turn mean that the peak will last longer. But I think it pretty apparent that we have a peak. Or at least a plateau despite demand.

I'm a cornucopiast instead of being a malthusian. I honestly believe that we have a relatively untapped or non-finite resource - human ingenuity - that CAN correct for finite resource difficulties. I believe that eventually we'll develop one of the current borderline energy sources to overcome the peak oil problem - just as we overcame the wood shortage and the difficulties of coal, as well as various food production issues. I also believe that we'll do it when we're pushed, which means the time of transition will be ugly and painful. And undoubtedly full of setbacks and confusion.

Fasten your seatbelts, it's going to be a bumpy ride.

==UPDATE==
A reader informed me that the chart was too short to be definitive - that I needed to go back 50 years to demonstrate the legitimacy. Well, I went back to 1990 - the earliest for which I could get data (the IEA wasn't even in existance in 1956) and pulled and ran the numbers. With the moving average in place there is no change. There's a brief flattening around 1996, but nothing like this.

Now it may not be peak oil - that is, the point at which we are producing as much as we can. It may be a global conspiracy by all the oil producers or oil companies or both. After all, a similar effect is going to show up in the OPEC Shutdown period. But the fact is that oil production rates have quit increasing. And given the amount of money to be had, I can't think of a reason for a conspiracy to do that -- excluding the difficulty of keeping it quiet with that many actors.

A brief look at the middle east

2006-07-30T15:52:00.000-04:00

Israel's losing. Sorry, but Billmon's got the right of it when he notes this is a political dance of 'small wars' - wars for political gain, and not the wars of extermination of which we in these United States seem enamored. The "winner" is the one who was doing best when the cease-fire is forced from above. And best is not least determined by comparing what is done against what was supposed to be done.

Israel, that vaunted powerhouse militarily, has withdrawn from the towns in which it was fighting.

For what it's worth, I don't see a ceasefire imposed soon. I think the Israelis need/want to get SOMETHING out of this - enough to get at least some of their terms, and appear to still have teeth. Because if a cease-fire is imposed tomorrow, they come out looking like, well, like everyone else in the middle east.

I expect the fighting will go on another week or so at least. And I expect Israel to try and do something to 'pull it out' - to once more make all jaws drop and have everyone acknowledge that this nation is one that is too dangerous to fully awaken its fury.

I just hope they keep it in Lebanon.

forest, trees

2006-07-26T13:37:00.000-04:00

OK, I'll say it. The question of whether we're getting ready to enter higher inflation or a depression and how severe it'll be and all that is a secondary item. Much less the question of 'what is inflation/deflation'. Oh, they're still fascinating to me and I'll be playing with them, but these are NOT THE PRIMARY FOCUS at this time.

Here's the deep skinny, boys and girls. We're going to have a recession. The questions are how soon, how deep, and how long. The inflation/deflation muttering is a feeder for the main questions.

We are entering a recession.

Housing sales (quantity) are declining. Prices are still climbing (though slower) but total dollars (price times quantity) has flatlined. (National Real Estate Association reports - and let's face it, they're cheerleaders for sales, not doomsayers.)

Foreclosures.com is one of several places noting that nationwide, active foreclosures are up almost 50% from this time last year. And to make it worse, there's a backlog in almost every state of foreclosure filings awaiting processing. They range from 10 to 500 percent of what's already filed, and I can't get enough hard data to guess what the actual nationwide backlog might be, but again foreclosure.com estimates the 'real' number is between 100 and 150% increase over this time last year.

Bankruptcy filings are on the rise. Nationwide they're up 20 to 25% (estimate based on various summation reports) from last year. Georgia reports that there's a backlog of filings THERE as well. Georgia may be an exception - it is, after all, consistently one of the leading five states in foreclosure filings - but it's still worthy of attention.

Inflation (price) numbers are climbing unchecked. Bonds aren't showing a trust that the Fed's got it under control. The last quarter's report for sales of manufactured goods shows declining production and constant or increasing inventory - a glut of stuff unpurchased.

Frankly, the question in my mind isn't how long till it hits, it's how long till the one we're entering is recognized by most people. Remember that "official recognition" is done by the NBER looking BACK, not forward.

Oil is creeping upward. I'm guessing we'll cross the $3 per gallon line and not look back by the end of August. (Yes, I know we passed it in some areas a year ago. I'm speaking nationwide now, where it's seen as a barrier touched but not yet broken.) That's assuming nothing gets 'more special' in an oil-producing region.

Food is, well, if you've been to the grocery store you know. Even if you're a Walmart shopper, the grocery bill's gone up noticeably.

And wages aren't going up to match. Without money and without a way for the majority to reasonably borrow money, businesses aren't going to sell. The 'solutions' are for prices to fall or for wages to climb.

All of these are reaching the critical point - have reached it, as it's beginning to show instead of being "if this goes on." So by my measure, we've entered a recession. And it will last till prices drop or wages climb (or both).

The only questions remaining are how deep and the how long. For what it's worth they're related but not conjoined - it's possible that it can be shallow and long (or deep and short), though that's difficult.

I think "how deep" is going to depend on the bankruptcy and unemployment numbers. My GUESS on that is that it's going to be visible and painful but not catastrophic. Oh - and I have this sneaking suspicion that while a lot of unemployed will go bankrupt, a lot of bankruptcies won't be due to unemployment.

I think we'll see a huge spike in bankruptcies from the 'upper middle/lower rich' classes. These are the folk who had incomes high enough to speculate on housing. They used some alternate mortgages to get second houses or pieces of condo developments with the plan of selling them at a profit to pay for their own houses. What they're not prepared for is the change in the bankruptcy law plus the changes in income tax law. Yep, I'm about to digress, but I'll keep it brief.

Standard mortgages are "non-resourced". That means that if you default on the debt, the only thing the creditor can seize to pay off the debt is what the debt was for - the property. However, a lot of special mortgages are "resourced". In other words, the creditor can place liens on (try to seize) OTHER assets if the primary asset is insufficient to cover the cost.

Say you have a $200,000 mortgage and you've payed zero principle. You default. The bank sells the property for $100,000. Non-resourced, the bank eats the other $100,000. Resourced, and the bank puts you into receivership (seizing just about everything you own PLUS a portion of your wages) till the other $100,000 is recovered.

Taxes - Foreclosure losses are treated as income. Let's take that example just above - the bank foreclosed, and you have $100,000 remaining. This time it's non-resourced so the bank can't touch it. The IRS considers it income - income that's ineligible for capital gains writeoffs. Add it to the wages and tips line, kids.

Here's the way the whole thing will go together for most people. Let's assume they did an 80/20 loan - 100% in two loans - on a $200,000 house. The 80 is almost certainly non-resource, the 20 is resourced. They've paid zero principle, and the bank seizes the house and sells it for $100,000. Let's assume the bank is honorable and applies the recovery at 80/20 - it might even be requiered by law, but as I understand it this is only true in some states. So there's $80,000 on the resourced and $20,000 on the non-resourced still remaining. The bank seizes $20,000 of the owners other goods and income, and the IRS taxes the owners for $80,000 of surprise income this year. The ex-owners aren't paying as MUCH as they were before (yet), but they've incurred a debt they're not getting out of short of bankruptcy. Notice that if the bank has its choice it'll put the foreclosure recovery wholly againnst the non-resource debt. That way instead of $100K + $20K, they get $100K +$40K. Sure, the owners "only" have $60K in surprise income to be taxed, but losing $40K of other property is unlikely to be a pleasant experience.

The thing is, it's the wealthier households who are able to do this. But if they're wealthy ENOUGH they're going to be able to weather the losses or hold the properties through the decline - unless they got greedy. Oh, there'll be families earning $50,000 who scraped together the gamble, but they'll be exceptions. No, you'll see a wave of upper middle/lower rich getting the shaft this time.

And that's going to play hob with businesses and with unemployment. And in the long run with politics as well. (If a conservative [R] is a liberal who got mugged, a liberal [D] is equally a conservative who lost his job in a recession.) So much for the digression.

I expect unemployment to exceed 6%. I think the nation's resilient enough that it'll not break double digits, but if it reaches 8% I'm going to get worried about complications.

I think I'll ponder more, but that's my first thoughts.

a Hello to Bayers.

2006-07-22T13:03:00.000-04:00

Austin Bay got me to join Trent Telenko of WindsofChange.net in writing an analysis of the missile that hit the Hanit. I figure I might have a visitor or two check in here, and I want to welcome you all. And for my regular readers (all two or three of you) I invite you to check the others out.

You should all realize that Trent and I are pretty close to polar opposites on the political spectrum. We've sat in a room discussing politics without killing each other - or even threatening violence - so I don't guess either of us could call the other rabid supporters. We just vehemently disagree on some core assumptions, and these in turn frequently give us different conclusions.

Which is why Austin asked us both to write it. He thought that where we agreed could be considered solid, and the dual viewpoints of our difference could be enlightening regardless of your starting point.

Anyway, to the new folk, welcome. I am a generalist. Everything interests me some. So you're going to find cabbages and kings if you go back far enough in the archives. And if you decide I'm not your cup of tea - either by my bias, or because I write too infrequently, or because of how I write - it was a pleasure having you visit.

Republican Georgia?

2006-07-21T15:16:00.000-04:00

Just food for thought.

If Tuesday had been November's election and all the splits were counted for a sole candidate of 'that' party, Georgia's statewide elected officials would be Democrats. See the numbers here.

Voters in Democratic primaries outnumbered Republicans in the statewide primary counts by about 6:5. Yep, this isn't just in the Governor race (where 13% of the Republican voters voted against Perdue) but in the "Big Deal in the Media" Lt Governor race. Reed and Cagle between them didn't pull as many votes as the four candidates for Democratic Lt Governor Nominee pulled.

I think it's worth a lifted eyebrow. It does cause a bit of disconnect with the 55-60% approval rating the present governor has in the polls.

back to "inflation"

2006-07-20T22:03:00.000-04:00

I think it fair to note that the austrian school of economists don't ignore credit in their money definition. They just call it a money substitute. Overuse of credit is supposed to be part of the normal cycle.

My problem with the monetarists - the austrians - is that they pick and choose data that supports them, and for the most part ignore things that don't sustain their positions instead of modifying the theories. For what it's worth I've seen this of Keynesians as well, but I'm picking on the austrians right now.

The best example I can think of right now is to start with this article from the Capital Speculator, which could get one all excited. It shows that during the 1970s, when there was a surge in CPI, it was preceded by a surge in the 12-month growth rate of M2 - money supply. An almost classic example of the Money supply is Inflation and CPI a consequence argument. Unfortunately, this (PDF FILE) is a page from the St. Louis Fed that shows the same data since 1989. There have been surges in the M2 at least as great - without a match in CPI. In fact, the most extraordinary change in M2 comes near the END of the 2001 recession. Cause and effect go which way?

I'll keep poking at it, of course, but it's pretty obvious that the followers of Mises aren't 100% right. Unfortunately neither are the Keynesians...

surrounded by idiots

2006-07-20T16:01:00.000-04:00

I begin to realize PT Barnum was the master of understatement. "There's a sucker born every minute" indeed.

Three of Georgia's counties held a referendum on FairTax. That's HR25 - you'll have to search at http://thomas.loc.gov to get it, I can't direct link a cgi-search result.

Anyway, Cobb, Gwinnett and Fayette counties held referendums on FairTax, and over 85% said, "Yes". Suckers.

FairTax. Everybody increases their takehome pay by about 25%. Everything they buy goes up by about 10% - food, clothes, EVERYTHING. In addition, some things jump by 30% - things like rent and cars and gasoline and doctor visits.

Here's the core of the con. The following are exempt from paying the sales tax:
a) Any "legitimate" business expense;
b) investments;
c) anything purchased to be resold;
d) fees (expense based), dues, and gifts/contributions collected by non-profits and charitable organizations.
AND
Everybody gets a check from the government equal to 23% of the national poverty level. At the present ~20,000 that's about $385 per person every month.

BUT
The government is expected to collect as much as it did before all the income taxes (including corporate) and estate taxes and all of that were eliminated.

Now to really catch the con you have to remember that somewhere over $200,000 you quit spending as much of your paycheck on "stuff to use" and more of it on "investments". As a result, this is FairTax in a nutshell:

Corporations quit paying taxes.
The Rich quit paying most taxes.
The Poor still don't pay taxes.
Who is left to make up the difference?

well, given the median household income of those three Georgian counties, 85% of the people will say, "Me, Me."

idiots.

Another inflation number

2006-07-20T11:00:00.000-04:00

Recall from the last post that the Austrian school of economists says that inflation isn't the change in price, it's the change in money supply. Now I'm a bit confused as to what is considered money in their school, so I looked at it in two fashions.

First, I looked at the M3 rate - which is no longer reported as of March of this year. However, for as long as it lasted the number's been pretty clear. 9 to 10 percent inflation annually - a 9 to 10% increase in M3 every year - for the past 20 years.

But it's my opinion that some things not measured are also money. For example, loans and derivatives of loans outstanding. Off to the treasury - office of the comptroller (occ.treas.gov) for information.

During the Clinton reign, the total Austrian inflation was 6-7% except for 1998 (almost 10%) and 1999 (just under 9%), with 2000 going back to 6.7%. Under president Bush the rate's been 8 to 9%.

Let me be upfront - I could be double-pulling numbers. In other words, numbers in M3 may show up in the other values as well. And for that matter, I know the austrian argument would be that outstanding debt may be related to velocity (frequency a dollar is used) instead of supply. However, it's my opinion that such a loan is a creation of money instead of a recycling of it - it's the paying off of the debt that starts the recycle chain.

Regardless, it's pretty obvious that by Austrian definitions, inflation has been just under 10% for quite some time - a lot less than the official government rate of ~3%. (Of course, that's massaged too, but that's another post.)

Now, IMO there can be good reasons for money supply to increase. Let's start with 1000 people producing 1 good apiece and a money supply of 10,000. Nominally, everything costs 10 units. Now if the population increases to 2,000, each still producing 1 good apiece, we have two choices. We can deflate the prices to 5 units each by keeping money supply constant, or we can inflate the money supply to 20,000 and keep prices constant. Each has benefits depending on circumstances not considered. All else being equal I prefer a constant in prices, so I consider it a 'good reason' to inflate the money supply.

But our population isn't increasing at 10% per year, so the increase in money supply is... wrong.

economic theorizing

2006-07-19T20:58:00.000-04:00

Yep, back to economics. I feel as though I'm getting a bit of understanding, but I'm not there yet. Hence, a return. This time, though, I'm not playing the predictive game. I'm noodling about with a monetary theory. Actually it might be a broader theory than that, but let's leave the label alone for now.

I need to start with a definition and a formula.

definition. Money is anything that is used as a representation of barter between parties displaced in time, space, and intervening trades.

formula. QxV=M, where Q is the aggregate Quantity of goods and services, V is the value of the nominal median of the aggregate of goods and services, and M is the aggregate money supply.

Now, the Austrians say that inflation is an increase in M, and whether the equilibrium is maintained by an increase in Q, V or both is immaterial. The Keynesians say that an increase in V is inflation, and again whether the balance comes from Q or M is immaterial. I personally am getting real tired of the word inflation (and its antonym deflation) given the homonymic situation and the arguments over the "one true definition" it engenders. So I'm not going to call anything inflation or deflation yet. Instead, I want to examine some apparent truisms of the model.

Truism. No agency controls the entirety of any aggregate.
Consequence: A change by an agency of the portion of an aggregate within its control can be balanced by a change in either of the other two aggregates AND/OR by a change of another component of the same aggregate. To use an example, if a nation cranks up its printing presses (M), it could result in a corresponding increase in V, and/or in Q, and/or in a decrease of another M such as credit.

Truism. All aggregates are worlds within worlds. The Q, V, and M of a nation are a subset of the global QVM. It is possible for an equilibrium change at a smaller level to be contrary in both composition and direction to one of which it's a set. Thus, the US could be experience a severe increase in V and M while the world sees things as not changing or balancing in a different fashion - for example, decreasing the portion of Q that is the US and so keeping global M stable.

Stumbling issues - what, exactly, is Q and V (and M for that matter). I keep discovering that some things can fall into both categories. For example, are loans M or V (or, for those exchanged as goods, Q)? No, that's silly. They're almost always M, and usually contribute to V. I suspect that an outgrowth of this will be an indicator of the aggregates likely to be affected by a given component. Again, if loans are reduced (thus cutting M), there's likely to be a sympathetic effect in some aspect of V.

Employment is mostly Q while wages are mostly V. Actually, I begin to think that wages are almost entirely V. They're implicity tied to one another in an odd way that is contrary to the normal method maintaining equilibrium. Normally I would expect the any changes in Q due to V to be reciprocal. However, increasing wages (increase of V) tends to have a corresponding increase in employment (increase of Q), which necessarily forces an increase in M. Equally, changes in wages tends to have a disproportionate affect on the aggregate as a whole - that is, eventually an increase in wages causes an increase in V. In other words, the worry of the fed that increased wages will cause inflation (keynesian OR austrian) is confirmed. It's just a question as to whether it's direct (increasing wages causes increase of V independently, and M moves to keep up) or indirect (increasing wages increases Q which increases M which pulls V up as M overcompensates.)

Oh - over-compensation. I think all the aggregates have what is simply described as a sort of inertia. They don't really want to change. And while they prefer to remain steady, they don't stop on a dime once moving. I think (look at all the guesses in this) that for the most part the likelihood of a component affecting the aggregate depends on the size of the component relative to the whole and the severity (both speed and distance) of the change.

Ok, that's the outline. We'll see how it works over time. Specifically, I want to ponder what it says about the confluence of oil (a very large V with lesser increase in Q) and housing (Q, V and M?) But that's prediction and I'll get to it later.

A digression

2006-07-14T13:39:00.000-04:00

Valerie [Plame] Wilson's back in the news, and in the midst of a discussion I realized there's a question that's never been asked (AFAIK) which could shed immense light on the whole issue of her 'exposure'.

When did Valerie Plame resign from Brewster and Jennings?

From the "I don't know she's a NOC" point of view:

We know she worked for the company as an energy consultant from its inception in 1994 to AT LEAST 1997. We know she'd been pulled back to the United States in 1996, but she was still working for B&J when she first met Wilson at a dance held at the Venezuelan Ambassador's embassy in DC. So she didn't "leave the company and come home". Which means the neighbors and cocktail circuit knew her for at least a while as Valerie Plame of Brewster and Jennings. The reason THAT is critical is the still-ongoing claim that "really", the people in the know knew she worked in some way for the CIA because she drove to Langley every day for work and all of that stuff.

If Valerie Wilson nee Plame took maternity leave from B&J in 2000, it pretty well kills that line of thought, because is strongly supports the allegation that she (and the CIA) was still maintaining the NOC status for future use.

Let me add a separate point. Because of a pet theory I'll not say the reverse is true - that if she left B&J shortly after marrying it means she was giving up the NOC. No, to chase that I'll want to know what the issuer name was for the paychecks that went to her bank every month. If it was US government, then yes. If it was from yet another company, or more in support of my theory she didn't GET a paycheck, the NOC is sustained.

What, didn't get a paycheck? Yep. Way back in the archives (if it's still there) is my pet theory. Wilson's consulting company was a new NOC base. Plame's paycheck could be a 'monthly retainer fee'. Trips overseas for her are done by having Wilson see a client, and she coming along to continue enjoying the international jet-set life to which she'd become accustomed. Who pays attention to the businessman's wife who's playing tourist or seeing old friends?

Now the full breadth of my suspicion is that the paycheck will read from Wilson's consulting company. Remember, the husband gave up his secure wage and retirement benefits just a few years short of being eligible for them to start his own company. When that happens, already employed wives typically do one of two things: Keep their own paycheck and benefits as a safety net; join their husband as a partner/employee to help make it work. Valerie Wilson was an energy consultant with several years of experience. Putting that niche skill and her personal contacts (old friends and acquaintances) to use helping the husband's business succeed just makes sense. But I can't prove it, and I'm not sure I want to do so. It just works, simply and cleanly.

All that said, I've started looking for the answer to one simple question.

When did Valerie Plame/Wilson resign from Brewster and Jennings?

Healthcare changes

2006-07-13T12:49:00.000-04:00

Billmon writes of the event that may actually bring about changes in our healthcare structure, but with cynicism rampant predicts what the change will actually be. To summarize - healthcare industries are losing money when 'normal' predictions are they should be gaining. And the changes will be cut the loss points - specifically, either close the emergency rooms or (more likely) change the laws that require service to all that arriveand prevent gaming those requirements. (The payment of ambulance services to take the patient an extra 45 minutes away, or just rolling the bums out into the parking lot for 'later'.) And in his cynicism (and not so hidden hope he's wrong) he speaks of watching for the newest 'grassroots' program - say, "Consumers For Affordable Health Care" - to start up.

He missed. He missed the avenue, and he missed the fact that the assault is already underway. Why take the front door when the back door's standing open?

In this case the back door is the rage against illegal immigrants. Medicaid recipients are supposed to be asked point-blank if they are illegal immigrants, and required to provide proof they're not. The rules have been getting tighter and tighter since that 2003 addition, and there are discussions in several states of making such a requirement an across-the-board one. Come to the hospital and in addition to your proof of insurance or ability to pay and your proof of self you get a requirement for proof of citizenship or legal residency. That makes it more difficult to USE the emergency room - and there's plenty of evidence this works to reduce the load already. If further cuts are needed, increase the consequences. Failure to provide will result in an additional fee for investigation. Or multiple proofs, of which at least one must be photo ID.

Nothing so blatant as revoking the laws that Billmon saw passed. Nope, just taking advantage of fear and anger.

Privacy conflicts

2006-06-26T12:38:00.000-04:00

I think we're about to enter a time of accelerated privacy concerns. No, not accentuated, accelerated. Challenges appearing at greater and greater frequency. It's a conundrum, really.

See, there are a lot of really neat and nifty things that can be done if we know who you are. By the same token, Heinlein said it best: "Freedom begins when you tell Mrs. Grundy to go fly a kite."

Let's take the public library as an example.

A perfect library (in many ways) would know every patron. We'd get books in your fields of interest, and call you when they've arrived. When you stopped by the desk we'd let you know of new books in which you might also be interested - and perhaps some old favorites. We'd know you were in high school (for example) and the classes you're taking, so we'd reserve the various copies of Tom Sawyer for your reading assignment - no need to scramble, here it is thank you very much. We'd pay attention to how often you came and how many books you borrowed (or videos or audiotapes) and try to ensure that your limits met your typical uses.

But what my staff knows, others can find out. There are laws that protect all the above - your reading habits, your phone numbers, etc. But it's accessible to law enforcement if they bring a subpoena or a warrant. It's open to hacking. It's open to all the staff, who are human and prone to human errors and failings. It is, in other words, potentially available for abuse. And now Mrs. Grundy knows that you like reading "trash", or perhaps it's "just" books on something other than Christianity even though you live in the heart of the bible belt.

Now for a lot of people, the thought of this for libraries brings a yawn and wondering "why bother". But it turns out these issues are cutting edge.

There's a supermarket out west getting ready to allow purchases with fingerprint and pin. No need to carry cash and card that might be stolen. No real chance of someone else using your card before you get it reported. And joy of joys, they're supposed to begin tailoring advertising to you based on what you bought. There are some clothing stores (among others) that have made quite a business of this "personal awareness." But the followon question is with whom is it being shared? And how easily is it shared?

Remember the "do not call" lists? If you've done business with a company, it and its affiliates are exempt from the restrictions. If they're sharing phone numbers, bet they're sharing everything else?

And yet... getting stuff that fits you - physically and psychologically - is so darn convenient and makes life SO much easier. It's so nice when my credit card company sees I've purchased a sailboat and knows I've NEVER bought such (or related) before, so puts on a hold and calls to confirm the purchase.

We're going to have a lot of fun and frustration with the privacy puzzle, and in the meantime the conflicts are going to be more frequent and more severe. It's probably going to be one of the big issues of the upcoming decade. It and water.

on carry loads

2006-06-23T10:07:00.000-04:00

Way back when, I was enlisted infantry. Airborne, no less. I remember the loads under which I staggered, and look on the constantly resurfacing discussion of combat loads with amusement. Here's the reality.

A grunt will carry no less than he can, and no more than he has to.

"Has to" deals with what individual items he carries, as ordered (and can't get out of) and beyond that as he's discovered to be useful or important.

"Can" is just that - to his physical limit.

If you reduce the weight of what he's carrying - changing the weight of the weapon, combining several tools into one multitool that weighs less - you'll discover on a subsequent visit that the weight has returned. That's because there are hundreds of things the grunt and his sergeants and officers wish were coming along but are left behind due to sheer physical limits. And since you so obligingly reduced the weight already there, you created space for some of the other stuff. Make a hard limit on how much can be forced on the grunt, and the grunt himself will fill the gap.

It may be bullets or weapons. It may be food or water. It may be gadgets found useful in limited circumstances. But the grunt will always carry as much as he can.

And complain about the weight every step of the distance.

Scooby Doo quotes

2006-06-19T10:27:00.000-04:00

I'm seeing a lot of quotes out of context lately. Oh, it's been bad for a few years now, but the last few months have been almost insane. The problem is that if you simply say, "they're out of context" people respond with, "but they said it, didn't they?"

Yes, but...

I'm tired of explaining the but. Look, people, it was displayed in clear and simple terms what the problem with this sort of thing can be in a KID'S MOVIE. It's a critical plot point in the Scooby Doo sequel - the reporter snips and plays only Fred's sarcastic responses, and not the rest. If it's that simple and obvious, it's that simple and obvious.

From here, at least on these pages, I'll start calling these "Scooby Doo Quotes", or SDQs. Just so you know what I'm saying.

An economic insight?

2006-06-14T12:20:00.000-04:00

One of the great laments and causes of consternation I see among economists is in regard to the savings rate. Basically, the US resident is saving less and less of their income - to the point that they've actually spent more than they've earned in a couple of recent quarters .

I had an insight recently as to why this may be happening. Basically, i'ts a slow-motion version of what happens in a hyperinflationary period. That is, why bother to save when what you save will be worth less (or even worthless) when you need it?

For all currently employed US citizens, inflation in the United States has been a constant, with a nominal rate slightly over 3%.

This means that if I save $100,000, in 20 years it'll buy the equivalent of $50,000 in goods. If I get 3% interest from the bank, it'll buy as much tomorrow as it buys today - which means I lost the use of my money for no real gain. Why, then, should I save instead of buying?

You can see this writ more broadly in hyperinflations. People get their money and spend it immediately. Ideally they get something for a promise of payment later, because the promised money will be an effective savings. Yes, this also explains the increasing debt load of the nation - sure, it's staggering, but due to inflation the 'practical' cost of it is less. All you have to do is make it through the growth window while your income catches up.

I'll be pondering this for a while. I think it's got major implications for the next decade, but want to get this down so the basic key isn't forgotten - even if I later have to change my mind due to being wrong.

Another walkabout on money futures

2006-05-22T15:21:00.000-04:00

Gentle readers (all six of you), this isn't really going to be new. I still feel as though I've not quite got a grasp on something critical, and this is an rolling meander to see if I can find that "aha" point. Basically, I think we're going to have economic difficulties in the near future, and I'd like to not only get through it but gain (relatively speaking) against it. In other words, if the man knows there's a flood coming he can ensure he has adequate insurance and he can put everything up out of reach - but if he really wants to profit he buys a boat for during the flood and prepares a "post-flood cleanup equipment business" for afterward - with the equipment put somewhere to get through the flood itself. I'd like to get the boat and the business if I can, but I also want to put my stuff in the right shelter. (Pushing the analogy almost too far - the man putting his stuff in the attic is well-protected against most floods, but it's in the wrong place if the actual disaster is a tornado.)

Let's start with cusp issues - issues that look scary and may have a nasty impact. I'm going to take each in isolation to see what its primary 'economic difficulty' would be.

Housing. There are a houses out there that people are willing/able to purchase at the current prices. There always have been, but there appear to be significantly more than normal, and it's pretty much across the country. I can see two breakdowns in housing. First is a sales decline, second is a foreclosure surge. They're not necessarily unrelated, but I'm going to try to take each one separately.

As prices climb, fewer and fewer people are willing to buy. That's a pretty simple supply and demand chart. Now, if people are convinced they can buy now and sell later for a profit they'll chase the price higher than normal S&D curves would anticipate, but even so there is a point where the next buyer - REGARDLESS OF FINANCIAL SHELL GAMES - cannot raise the asking price. At that point the price stops till incomes/financial tools/whatever can catch up to continue the surge. However, this pause breaks the self-fulfilling prophecy curve. People see that there was a pause, and are more likely to hesitate. The pain here is twofold. First, builders have to do their jobs in anticipation, and they're as likely to get caught in the feeding frenzy as anyone else. Second, a lot of people rode the edge of the financial shell games, either gambling on swift turnover so they'd get a big payoff before the money ran out or that there'd be no surprising expenses to knock the legs out of their financial balancing act. Let's pick on builders first.

The 'pause' will cause builders to stop making new houses. No (or a slowdown) in construction means construction workers laid off. Also, many builders work on a cyclical pay system - start house B even though you can't afford to finish it because you'll more than be able to do so once house A is sold. If A doesn't sell in the expected time frame, the builder has to carry A and eat into savings (or loans) to finish B. If the builder has to carry A for too long, he goes out of business. It's worse if he can't finish B during that time, because there was always a chance B would cover A (more or less). And at worst case, B complete is a much more transferable asset than incomplete if/when it's time to make a deal with creditors and existing assets (aka bankruptcy). So the effect on the builder is an increase in unemployment and bankruptcies. Oh, and more houses hit the market (A, maybe B) as 'fire-sale' inventory.

This last problem is what happens to the riders of the edge - flippers and other investors. Again, it's bankruptcy if carried too far. For what it's worth, I expect to see a lot of people just walk away - punt, take their beating, and quit bleeding green on a monthly basis. Even with the much harder bankruptcy laws, even with the staggering costs and penalties, they'll bail. heh - it's worth looking at the two 'modes' of bankruptcy. See, regardless of whether it's chapter 7 or chapter 13, the house can be exempt *IF* the creditor (the person trying to declare bankruptcy) agrees to maintain payments. However, due to the nature of real property the creditor can clear that particular debt by turning the property over to the mortgage holder. Errmmm, that's a simplification, there are potential complications, see a qualified attorney, yada yada. Bottom line, though, is that the person that wants to abandon the mortgage can do so and there's not a lot the mortgage companies can do about it. Result: A bunch of people ineligible for new credit by way of bankruptcies, a significant increase of houses on the market. And since held property isn't bringing in ANY money, banks are trying to sell at any price that'll work.

OK, there's the start of a cycle. *IF* the housing sales slump it invokes a positive feedback cycle (that is, the slump has effects which increase the slump). It's not a forever thing as eventually the prices fall to a point where those left out can afford them and want them regardless of whether they're falling or not. Just a matter of what point this new reversal occurs. We also get an increase in unemployment. Secondary unemployment comes from financial industries geared to home sales - though there's a possible shift into foreclosure and bankruptcy related actions. [Ha - I see a boat, I just don't think I've the expertise to operate it.]

Broad economic effect is recession. The ability of consumers to purchase dries up which has businesses battening down the hatches till they're ready to buy again. At the federal level the normal response is to encourage spending again by dropping interest rates.

But there are other problems on the horizon.

The second big stormcloud is the incipient 'push' inflation. A moment, while I clarify the adjective. From "my" point of view, inflation is the price of everything going up. That includes, fortuitously, the price of my labor. Normally. [More formally, there is an increase in the amount of 'free' money. Money is a commodity and attempts to reside in equilibrium with other commodities. More money available in relation to other commodities means each other commodity takes a greater quantity of actual money even though the proportion of total available remains nominally balanced. Nominally, because you've got multiple relationships all in tension, and because money today is a faith-based instrument, and because everything moves at its own pace, and a host of other complicating factors I'll leave unsaid. But basically, dump more money in the system and everything takes a bigger share - but the APPEARANCE is that the price of something goes up and all other prices and/or wages increase to try and keep up.] However, all that's a 'pulled' inflation - the money supply (usually appearing early on in wages) 'pulls' everything up to the new equilibrium. A push is when something goes up for a reason unrelated to money supply, and it forces a significant proportion of other commodities to increase as well. This is bad in a couple of ways.

First, it's bad because wages are often the tail end of the inflation cycle in this pattern. People cut back what they're buying (which impacts businesses trying to sell things) as far as they can, but at a certain point the only solution besides throwing in the towel is start a new income source. Second jobs - part time or full time - become the norm. Except a lot of families today are already double-income, and a sadly large proportion are double-income-double-employer. There are no more opportunities for income. At a certain point there's a revolt. Unfortunately it's delayed because nobody's hiring - remember that many businesses weren't selling as much which means less income which means expenses need cut to stay in operation which means... goodbye, recent hires. (Or maybe most expensive hires, or maybe...)

I said it's bad in a couple of ways, however. See, normally the way you curb inflation is to tighten the money supply - to reduce how much new money is being introduced. But in this case the problem is that in relation to the other commodities money isn't keeping pace. Tightening the money supply - which can be done by increasing rates at a pace slower than the other commodities are increasing - won't make any difference. Money supply is the caboose, not the engine. The inflation's going to run regardless, what you're trying to do is try to keep employment up - because if unemployment gets too high, people can't buy goods, no goods means businesses failing, and you're back to a recession. Except it's a recession with an unstoppable inflation, which earned the label stagflation back in the 1970s. Push it too far and it's got another label. Depression.

I see I didn't mention what's driving this train in this post, but the handful of readers know where it is. Oil is the driver. Easy oil (sweet light crude) is past the 'peak' hump. Production/demand margin is within a percentage point - most producers are running pretty close to full out, and any hiccups will cause a short-term (at least) shortage with a price spike resulting. And almost everything in the US runs on oil. Now we can reduce some of our expenses - drive less, consolidate more - but there's a limit. And according to the EIA and its use statistics we've been cutting our consumption. I think we have some left, but the range isn't infinite. (and again, as we cut we don't buy other things and that cycle's already discussed).

But wait, there's more.

Sitting in the wings is a huge trade deficit. And it's paid for by foreign agencies - mostly governments - owning lots and lots of US IOUs. OK, time for an old lecture just to see if I've changed any subparts - what is money?

Money is a medium of exchange. It's a token that's used as a substitute for direct barter. I can trade the apples I grow for the fish you catch. But sometimes I don't have apples while you don't have fish, or we're separated by several days of travel. (I know - fish, travel, bleah. Bear with me here.) So we make IOUs - I trade you apples for a token that I can redeem tomorrow (or next year or whatever) for the fish. Now if a community agrees upon a common token, then I don't have to use it for your fish. I can exchange it for shoes or wheat or... all at more-or-less what most folk (or my trading skills) decide my apples were worth. All we have to do is TRUST that the number of tokens I got for my apples today will be worth about that many apples when I exchange them later - they're representative of them even though when I exchange them for ice cream I don't even mention the apples. Just "this many tokens" for "that much ice cream".

Now, I'm not going to digress into how counterfeiters shake the trust, except to note a similar situation occurs when the body responsible for ensuring that the tokens I got for my bushel of apples last year can still be spent on about what I could trade that bushel for today. (see above about inflation.) Instead I'm going to note a different angle of trust, bringing us back to that issue of trade.

Sticking with the tokens, let's say I make a deal with that community over there. I'll borrow some of their tokens - they use bling, but they'll change it into tokens - with a promise to give them that many tokens plus some extra inn a while. All is well unless they get the impression that I'm counterfeiting, er, making more tokens. So they loaned 100 bling turned into 100 tokens, I promised 110 tokens back, but I've made so many that the 110 tokens will only buy 90 bling - I win ... in the short term. So long as I don't have to borrow again, or if next time I can do better, then there's no problem. But I've ruined the other community's trust in my tokens, so if there IS a next time they're going to do something not good - like demand that I return the loan in bling, and ohbytheway it's 120 bling for the 100 borrowed, not 110. In the end, money is trust.

Oh, and a brief digression. The above is why some people like gold or silver backed money. The harder it is to create money out of thin air, the better. Now there are problems with gold and silver, but I'll leave them as relatively immaterial to the current portion of this post. No, the US dollar isn't backed by anything but trust.

But there are other ways besides printing extra money to cause problems. Another way is to borrow and borrow and borrow till suddenly we have borrowed so much we can't repay. It's kind of funny, but you don't (or didn't, anyway) usually see poor people going into bankruptcy. They don't get to borrow much. No, it's the people who look like good risks, who just get a little overextended - buying that investment house, sure the money's coming in tomorrow, not expecting the trip to the emergency room or the fire or the new kid - those are the ones that lose it all. And the answer is some sort of bankruptcy - pay the creditors what you can, let them seize what assets they want (except for what the court says "no"), and live within drastically reduced means rebuilding your reputation because NOBODY will loan you what they used to give... even when you're "back", you're never where you were.

We the United States have borrowed $8.3 Trillion from various places. Of that, at least a quarter - $2.1 Trillion officially - is owed to foreign banks. Our government collects approximately $2.3 Trillion of a total GDP of $13 Trillion. We are almost at the point where the entire government budget is insufficient to pay off our foreign loans. Worse, the dollar's been sliding against other currencies - that "110 yesterday is 90 today" thing mentioned above. Now we're the biggest customers the world's got right now - we're the consumer for the businesses everywhere else. But we're reaching the point where the lenders are worrying about getting their loans back. It's not unlikely they'll start hedging their bets - trading our IOUs for tokens for yet another country's moolah notes. And maybe buying in moolahs and bling because a bling today isn't 90% of a bling tomorrow. And... and each person that does it encourages the next to do it before it's too late, and suddenly nobody's willing to loan us money and we owe a LOT right now that we just can't pay off - except since we're a nation we can pay it off. We just print a bunch more money. Which - back to the beginning - is inflationary. But people don't buy our stuff because we're consumers not manufacturers, and nobody uses our services because we screwed up, and... Two ugly solutions. One is pay a hard coin now and be better off tomorrow, the other is get what you can now and hope tomorrow never comes. I'm a cynic, I say the 'cure' to be used will be inflation through increased money supplies.

OK, that's the big three in more-or-less isolation.
1) Housing, with threat of depression and high unemployment with some deflationary tendencies. sorta-cure - print more money. Tightened money increases the risk of the housing problem happening, and makes it worse if it's in progress.

2) Push inflation due to oil. Depression and unemployment risk along with the inflation aka stagflation. Because it's a push it's a 'damned if you do, damned if you don't." Increase money supply balances the depression and unemployment at the cost of higher inflation. Tighter money controls the inflation but increases the severity of depression and unemployment. There are no good answers, there's just trying to find a balance point that minimizes the worst.

3) Overextended international loans. The risk is devaluing and even defaulting on our international loans. A tightened money supply is the better cure. See "housing" for why this will hurt. Inflation is the alternate short-term cure with long-term major penalties - it just requires massive runs of the printing press (figuratively speaking).

OK, it's time to think about the objectives of the FED. Nominally it's got two - and actually three - objectives. Those are minimize inflation, maximize employment, and minimize the occurrences of, duration of, and severity of recessions (avoid depressions). Though the majority of talk is about controlling inflation, I suspect that the recession point is Objective One - when in a recession unemployment is high and inflation's ills are relatively immaterial. Inflation's number two - at heart the Fed's a financial institution, and it's biased to think saving financial institutions will in the end save everyone else. Unemployment happens if Bidness is fine, or so the basic thinking goes.

I am 100% sure we'll face a recession. Integrated in this and quite possibly instigating it will be a decline in housing sales. I think we'll see some loosening of credit to balance it. As a bonus, wages will catch up (some) with the push inflation. I think that the fed would continue to tighten in the face of continued push inflation - failing to differentiate (all inflation is inflation) till it's too late if it weren't for the housing effect. Unfortunately, I think the combination of recession and it's counter-inflation (pull) plus the push-inflation will cause a number of nations to begin hedging their loans. I don't know how severe it'll be, but it will skirt the edge of being a perfect storm.

If it's not a perfect storm, we'll end with... 10-15% inflation, I think, after a year. We'll have spiked to almost 10% OFFICIAL unemployment. And the dollar will be a little weaker but still the international currency of choice. Perfect storm? edge toward if not into hyperinflation, definite double-digit unemployment, and the dollar is the new peso - a currency of last resort. Oh, and the majority of the world suffers major economic difficulties as well - just like the US businesses can't sell when the customers can't buy, other nations can't sell as much when customer number one can't buy. That last, by the way, is part of why we're still getting the credit we're getting - dropping the big boy means you lose that money. Of course, if you've decided you're NEVER getting your money from the big boy, it's called cutting your losses. Is some better than none? Depends on how much "some" is.

OK, I've meandered. I have a general prediction. One of the three triggers the rest, and the "cure" is (eventually) an increased money supply which results in pull inflation. Yes, even against push inflation - they just try to outrun it. Kind of like establishing a fire break, and you just hope that you can make the break small enough it's not a new conflagration that makes your problems worse, but big enough to stop the first problem.

recap of recap - or, is it flood or tornado? Looks like it'll be flood, but there might be some high winds so don't forget to watch the skies. (sorry, it's late and I'm stretching analogies too far. Oh well.) Unemployment and inflation with a recessional window. I'll stop here tonight and ponder this to see if I can plan both the boat and the 'flood cleanup business'. All with some orientation on me and my situation - no sense getting a boat if I don't know how to use it

two cents on the New NSA scandal

2006-05-11T22:41:00.000-04:00

So, the NSA is recording what number is calling what number, and (apparently) how long the call lasts, without warrant. This one's simple, folks. It's illegal.

Recording what number is calling what number is called a pen register. To establish a pen warrant requires a warrant. The standards for getting the warrant are NOT the normal fourth amendment protection, but rather that the phone might be connected to an ongoing crime.

A number of defenders will focus on the last sentence - it's connected to terrorism, a crime. The key fact, however, is that no warrant was requested even on these grounds.

No warrant, no legal basis for the pen register.

Still, I think the ACLU suit is brilliant. They're not attacking the NSA or the administration. Nope, those sort of attacks have been successfully delayed and frustrated far too long by claims of national security. This one bypasses those completely. They're attacking the telephone companies for violations of a 1937 communications act. And they're doing it as a class action suit. Money talks, and this one's going to SHOUT. And they don't have to expose a darn thing about 'national security'. So no quelling by the administration.

Brilliant.

Not good for me, yet good for me

2006-05-11T21:50:00.000-04:00

I like to cook. And I like to eat what I cook. Sometimes, though, I find fine dining too much. I hit these depressions, and the urges hit in response.

A cheap can of cashew halves and pieces. A big one - 16 ounces - from Walmart does me.
A bag of chocolate chips. This is not going to be a fine meal, it's stuffing the beast - cheap chips from Walmart are again fine.
Half a bag of cheap, small marshmallows. See the above.

Toss. Gorge.

When I get told of someone needing a carton of ice cream, I do not smirk. We each have that which fills the urge, and the shame is not ours but belongs to those who lack the humanity to have them (or more likely, the honesty to admit them).

Broken Record

2006-05-04T23:05:00.000-04:00

As in I keep sounding like one. Thing is, I'm treating this blog as a sounding board, and I know I've not really figured this one out. This one being - what's coming, and how am I going to thrive (or maybe it's survive).

Here's the thing. The Nattering Naybob brought to his reader's attention an ugly fact. Ameriquest announced it's closing ALL it's branch offices. Cutting over a third of its employees. Actually that's not quite accurate. ACC Capital, Ameriquest's parent company, made the announcement. It's closing Ameriquest except for regional consolidated offices. It's doing the same for Town and Country. And just so we know it's not an isolated incident, Washington Mutual's doing just about the same thing.

These are two really big players in the Real Estate Loans business. They're terribly profitable - or at least they were as of their last fiscal reports. So the question that has to be asked is: Why are they cutting a third of their employees? Related - why are they closing offices?

My guess is that business isn't as good as it was - or maybe they suspect it's about to be a lot slower. Either way, it's quite the canary in the coalmine. Fewer mortgages means fewer houses sold means a) fewer new houses need built AND b) more houses sitting empty for longer.

A measurable proportion of the growth of GDP last year was due to the growth of housing related industries - construction and sales mostly, but lots of ancillary support as well. I've not seen a lot of hope that other industries are prepared to take up the slack. Offhand, this means GDP growth isn't as strong - and quite possibly declines. That's called a depression.

A depression this summer - starting now, but "everyone knows" by July - seems inevitable. Add in the anticipated increases inn gas prices (they "always" go up for vacation travel) and things aren't looking so hot.

Polish your resumes. Make sure your other-hire skills are up to snuff in case you can't stay in your industry. Clear your debt load. And hope it is 'just' a recession.

A simple question

2006-04-29T13:59:00.000-04:00

I hear all these voices condemning illegal immigration, and many of them I recognize from years past on other subjects. And so I have to ask...

If you're so opposed to illegal immigration, why were you so angry when Elian Gonzalez was sent home?

Sex Sells

2006-04-29T11:37:00.000-04:00

Posted originally as a comment at Balloon Juice.

I suspect that of all the scandals out there, this is the one that’ll do the worst damage to the Republicans this cycle. For what it’s worth, I think it’s not the most threatening to the nation. I am angry at officials taking bribes, and I’m concerned about the potential blackmail
issue in national security positions, but other than that it’s not as dangerous as the NSA or the outing of the CIA agent who appears to have been responsible for intel about middle eastern (to include Iran) nuclear capabilities or the decision that torture’s ok or the ability to ignore habeus corpus or all the other things that can be wrapped up in “the unitary executive” position.

All that said, again I think it’s the most devastating. And the reason is that sex sells. Ask most people in the US what the main point of Clinton’s impeachment was about and they’ll talk about the illicit sex – it was about Monica. (Oh, yes, it was about lying – lying about Monica and the illicit sex.)

Every congresscritter who has been in that hospitality suite over the last 15 years – of both parties – is going be tarred with this brush. So too will any administration official or appointee who’s been through those doors. “I was only there for the poker, then I left early,” will be true of some but heard from many. And legally many will get away with it. Politically, however, it’s going to make the case for the Democrats. “Republicans, the party of corruption” is the battle cry. And corruption can be accepted if the party’s competent, but we’ve got Iraq and Katrina and the slow recovery and a host of other things that say things just aren’t doing so well.

No, this is the one that’s going to make the public take notice – it’ll be the seed crystal that makes the whole batch come together against the GOP this year. Yes, some Democrats are going to be in the mix, but the Dems aren’t in power and the Dems aren’t the ones who’ve displayed (or at least appeared to display) arrogance and incompetence. The GOP defenders will name a name – a Mollohan – desparately trying to claim that one balances a host of others – a Ney and a Cunningham and a Delay and …

Last week I thought the Dems still could fail to take either much less both houses of Congress. Now, I think the GOP will have their work cut out to keep either house. And it’s all because this lesser scandal includes sex.

And sex sells.

outline of conflict

2006-04-26T22:22:00.000-04:00

I am 95% confident that the United States under President Bush will attack Iran. I am 90% confident this will happen prior to the national elections in November. This attack will be air dominated (aircraft and missiles) , and will strike key infrastructure and communications assets. There will also be strikes against every site involved in Iran's nuclear program regardless of significance.

I am about 50% confident that the attacks will also include ground forces. Their intent will be to attack the coastal plains from the Iranian border to Jask so as to seize and secure both the primary oil production sites of Iran and to secure the Straits of Hormuz against Iranian action. I expect the US Army to move south once crossing the Shatt al Arab (mouth of the Tigris/Euphrates), while the straits are seized by marines. Defined this way there is a region from Bandar e Kagan to Bandar e Lengeh which will be seized solely to conjoin the two and provide an avenue of mutual support. There are islands in the straits and northward into the Persian Gulf that will be attacked and probably seized by ground forces as they contain military facilities and forces.

I am, I regret to say, about 15% confident that the United States will include the use of nuclear weapons in the attack for two critical portions of the attack. First and most effective is the production of an EMP near high-density urban areas. Second and less effective is their use to destroy deeply buried and reinforced nuclear assets (facilities, not weapons).

While there are a number of consequences of high probability of the attack even excluding the ground forces and nuclear attacks, there are three consequences that are inevitable.

1) Iran will declare war upon the United States and any who ally themselves with that nation against Iran. A formal declaration of war creates numerous opportunities in the global political arena, though any in particular being seized or effective is subject to debate. That said, this fact drives both of the subsequent two consequences.

2) Iraq will be forced to declare a) alliance with the US; b) alliance with Iran; or c) Neutrality. Both the latter put the US in the position of attacking Iraq to keep forces uninterred and active while operating from Iraq. The first, however, allows Iran to conduct significant (though probably "low intensity") actions against the US in accordance with international law. Which in large part means they do not have to operate through cutouts.

3) For one to two weeks, there will be no oil shipped through the Straits of Hormuz. And for the subsequent several months the shipments will be through a declared war zone. This means insurers will require a premium for transit of goods through a war zone. Some shippers will accept and pass on this cost. Others will decide to use their tankers in other locations. Both actions will result in crude oil - if it re-attains the same rates of shipment that existed pre-invasion - costing significantly more.

Basically the plan intends to shatter and suppress the current regime, and create the opportunity for rebellions to rise and flourish. Followon actions will be to replicate the Afghanistan war's period of success with our aerial and specialized support of local leaders opposed to the enemy. The belief is that most of the people of Iran will abandon their leaders when they're shown to be powerless, and that they'll - if not rise up and support the rebellion, at least avoid interfering with it's success.

I expect a successful shutdown of communications and infrastructure. I expect some of the tribes on the borders of Iran (both physically and philosophically) to rebel. I expect the plan to fail in its objective as the majority of the nation rises up not in rebellion but in support and anger at the United States - the Persians are an ancient race who have long exemplified the principle of "Brother may fight Brother but an outsider faces both."

If the US uses ground forces to seize the coasts, I expect a massive callup of all (remaining) reserves and guards to assist in holding the ground. Given this administration's past record, I expect this callup to begin some time after the attacks are launched, both to maintain secrecy and because of an underestimation of enemy capabilities and the need for boots on the ground. I do not expect a draft, not within the first six months, though it has a high probability in many of the possible longer-term consequences.

If the US uses nuclear weapons, I expect the majority of the world to call for the President and all commanders responsible for the actual deployment to face trial for war crimes. Depending on the subsequent acts (or failures to act) of the people and congress, the nation could become a pariah equal to that held by North Korea and (once upon a time) by South Africa. Nuclear weapons carry an emotional value that outweighs their actual battlefield effect, and all the negative values are directed at the user of the weapons.

It is April 27th, 2006. I expect this attack to happen before November 1, 2006.

I hope I am wrong. It will not destroy the United States, but it will change it drastically. And I would rather not go through international and local consequences.

Peaks, Nukes, and Iran

2006-04-26T10:11:00.000-04:00

Let's take a meander.

Let's put aside for a moment the question of whether Iran wants nuclear weapons. Instead, let's return to the fact they've built a nuclear reactor - or rather, more nuclear reactors - and their original stated purpose. That is, to provide power.

Now first I see the need for a digression. The Bushehr reactors are PWRs (Pressurized Water Reactors) - thermal reactors. Avoiding all the technicalities, a critical point to make is what these reactors are NOT. They are not so-called breeder reactors. A broad breakdown of reactors is whether they're fast-spectrum or thermal-spectrum reactors. The former CAN but do not have to be breeders. The latter cannot. Which means that the Iranians did not make the Bushehr reactors for the purpose of making nuclear weapons.

umm, a digression from the digression. Iran has a breeder in Esfahan - the IR-40. That's tiny and would take (as I understand) a long time to make enough plutonium for a bomb -- and again allegedly is inspected frequently and still isn't making it. And Iran is building another breeder, this one at Arak, which could make plutonium a lot faster. But Bushehr isn't a breeder even though it's the one that's got all the noise and focus, and so I return to the main path.

A question that came up frequently was, "Why would Iran - an oil-heavy nation - want a nuclear power plant?" That was usually the reasoning behind claiming it was weapon related, but I've alread chased that digression. Instead I'd like to examine two reasons in a bit of depth.

The first reason is simply economic. There are four big powerplant systems in the world: Natural gas, Coal, Hydro-electric, and Nuclear. (Yes, there's diesel as well, but it's not as efficient.) As a rule, Natural gas is last choice - its clean, but it's far less efficient. Which probably isn't that big a deal for a nation that is one of the world's largest exporters of natural gas, except every cubic foot used at home is a unit not sold abroad. And more significantly, Iran has a LOT of coal powerplants.

Why is that significant? Iran imports coal, mostly to power the plants. Oh, it produces its own, but it produces about half of what it uses. A nuclear powerplant in operation means a coal plant can be shut down - or at worst another coal plant doesn't need built - which reduces (or doesn't increase) the coal import requirement. So building a nuclear plant means Iran saves money - big money. And it reduces need to rely on external providers for its energy requirements. (Ironic, isn't it?)

I think it extremely likely that Iran was being 100% truthful when they said they needed the power the plant would be providing. I'm not certain that was ALL the reason for building it, but the statement itself wasn't false.

But I wonder, while I'm at it, if there isn't another reason besides replacing coal and gaining practical experience in nuclear technology. I wonder about peak oil - yes, that bugaboo again. It's time for speculation, really, though I think it worthy of thought.

Consider that about two years ago sweet light crude production appeared to peak. Consider how vague the OPEC nations - especially the middle eastern members - were about what was available. Consider the possibility (speculation) that the owners of the fields knew that the downturn of production was a lot closer than they were telling anyone.

Now let's assume you are one of these nations - Iran most likely, but there are others. You know -- KNOW -- that within the next decade the supply of petroleum is going to decline. Not go away, just quit being as cheap and plentiful as it is now. What do you do for your nation's benefit? There are a couple of things for which "build a nuclear powerplant" is an answer. As already mentioned, reducing the need to import energy sources is a good thing. Equally important is at least maintaining money from exports - and the less you're using at home the more you can export. If the grand total production is declining, this extends how long exports can be maintained. Please remember that I said natural gas was not a good choice for powerplants. But it's frequently used for other things - things like household heat and cooking - that electricity from a powerplant can replace.

I wonder, then, if Iran was thinking that peak oil is closer than we know, and that's why it's building (built) a nuclear powerplant - preparing for crisis/opportunity?

By the way... Saudi Arabia has spent BIG bucks for offshore drilling capabilities just in the last year. And Kuwait has been discovered to be investigating both offshore platforms and alternative powerplants (though nuclear doesn't seem to be one of those alternatives). I wonder...

Peaked?

2006-04-25T21:56:00.000-04:00

I stumbled across this blog-post recently and thought it worth reporting. I want to verify and validate more completely, but the preliminary review of its original sources and some other comments in other places since it came out support the position.

Simply stated, it appears OPEC peaked in production of sweet light crude in 2004. And nobody is picking up the slack.

As L-, er, Hydrajax reminded me in comments to another post, the casual assumption that it just means more difficult extractions are made economically viable is a potentially false path -- dollars is one thing, but energy spent getting the stuff from source to market better be less than the energy brought to the market or it's a loser's game. I know that processing of sour heavy crude is more difficult (read, more energy intensive per output) than processing of sweet light is, but I don't know where the break point might be. Oh - except I stumbled across a report from the EIA (sorry, no link) that among other things differentiated between refineries for sweet/light and sour/heavy -- the desulfering (among other things) requires additional equipment and a modified process that's a waste at the plant for the good stuff. And not all our refineries (which barely exceed our demand - when operating at full) are set up for the sour heavy stuff. Again, more details are needed, and I'll be checking it out over the next few days.

But the initial thought is that we're on the downside, just don't know it yet.

Oh - the source plus a couple of other places tend to agree that the clear demarcation point is going to be 2007-2008. That is, that's when it's going to be obvious just like the US peak in 1970 was obvious in 1971. Again, some of the Peak Oil stuff feels overly apocalyptic, so I'm automatically inclined to take it with a grain of salt. But not toss it out the window.

debunking FairTax, III

2006-04-21T12:03:00.000-04:00

Ah, that shadowy underground economy. Stealthy criminals slipping through the cracks, carefully making fortunes while our tax engine goes on oblivious. Those neighbor kids with their lawn-mowers...

Neighbor kids? Lawnmowers? Yep. I think the most intellectually dishonest section of Boortz and Linder's book is this part. They cite a study that says the amount of money not going into the tax coffers is about 10%, then jump into a discussion of criminals who like to carry $100 bills and drug dealers and all that. Of course, what the study points out is that MOST of the crime is people not reporting every dime they made. If you mow the neighbor's lawn in the summer and he uses the big snowblower on the walks in the winter, neither of you probably paid any taxes. Yet the IRS says you're both supposed to hand the recipient of your labor (and the government) a 1099-B that includes the fair market value of the labor done, which the recipient then counts as income. It goes on a lot, and is usually not reported. It's the lion's share of the underground economy - unreported labor and 'In-Kind' exchanges. Fortunately, FairTax has a solution. You no longer have to fill out the form and give it to your neighbor for them to pay income tax. Instead you calculate fair market value and pay the government 23% of that - you pay, not your neighbor.

done laughing yet? ok, let's go on...

I assume you can see the two FairTax claims this destroys. First, that FairTax will eliminate the underground economy. Because right, the kids are going to raise money for a car-wash and then send 23% of their earnings to the government. (Yes, that counts as well.) No, the underground will keep right on ticking.

The second claim destroyed is that it'll eliminate the IRS. Actually, perhaps we'll remove the IRS. But we still have to send the taxes to some agency, and the government is going to want to ensure we send all 23% which means investigators, and they'll need a support network. And don't forget the folk who have to make decisions of Solomon - remember the working from home bit? How much of your electrical bill should contain an embedded tax, and what proportion should be free of such?

But in the last post I said I'd mention not only the underground economy, I'd also discuss scams. Note that scams mean more rules and investigators to counter. If you think it's going to be easy...

Some scams are going to be subtle and narrow. You use 10% of your house as office but claim 11%, and variations on that theme. More blatantly, you make up a business that absorbs most of your expenses. hmmm, I'll be a professional blogger, selling adspace and my collected works. OK, now my computer and my internet connection are at the reduced rate. Given the nature of blogging, which means a lot of things that happen to me can be listed as part of the job, well, most of the things I do are tax-exempt. They're research. Sure, it can be countered. I can get audited - oops, IRS again. By the way, substitute freelance journalist for blogger. The rules are already in place for them for income taxes, and they're rather complex as you might imagine. Doing it as sales tax isn't going to make it less complex.

Or here's a nifty one. There is no tax on used goods, only new. So I buy used junk and refurbish it and sell it. Is that a scam? maybe. But it means I completely bypass having to pay the tax. So how do I make it a scam? I buy office equipment for my office - a business expense. I "use" (keep) the equipment for a week. I sell the stuff as used goods - no tax, essentially new. A variation? OK, how about those wonderful dealer plates on cars you see running around. The dealer buys the cars as they currently do (They're usually franchises, not subsidiaries). Every member of the staff, however, is required to drive lot cars, and to do so for a period of at least a week. Now I count the car as "used", and put it on the used car lot. I can sell it for what I paid plus up to 30% more and STILL sell it for less than the schmuck selling "new" cars. Oh, wait, that's too blatant? OK, let's lease cars instead. A monthly lease is probably good enough. Since I'm going to make 30%, I can afford to lose money on the leases and their tax (rents - especially of new goods - are 'end-user retail'.)

OK, one more thing and I'll be done. Off the scams, back to the underground, and specifically to criminals. We're going to catch those criminals. They buy something and the people/company from whom they buy pays the tax. Right? Wrong. Ask yourself a silly question - why do these criminals use cash instead of checks and electronic transfers? Why, because cash can't be traced and doesn't raise flags about unreported income. So, you're a car dealer. And Joe Smith offers you a slice above your normal profit but will pay cash, all you have to do is fudge the sale. So Joe Smith pays 85 instead of 100, and you get an additional 8. Hide it? Call it leased for a while (heck, do the paperwork), then move it through returned, used-car inventory, and sold used goods. use 3 of that extra 8 to 'legitimize' the lease because you only pay 23% of the money recieved (lease agreement) not the total value of the car. That way your books are clean in addition to the profit you made.

Other criminals who still won't pay taxes? Burglars (selling used goods).

So let's recap. Fairtax won't eliminate the need for an IRS - heck, it won't make the rules any simpler. It won't give everyone all their money. It won't cause the tax-shirkers to pay their fair share. It's not simple (once you look into it). It's not workable. It's not fair.

Don't fall for the scam. Repeat after me:

"If it sounds too good to be true, it probably is."

debunking FairTax, II

2006-04-21T00:48:00.000-04:00

I should have pointed out that according to the FairTax authors, the workers get to keep all their pay. This means that the cost of workers to the employer doesn't decrease - he can pay the government the withholding, or he can pay the worker.

This is important because of the rebuttal I sense coming. Basically, if you chain the full 23% reduction in costs, everyone comes out ahead - or so the argument goes. And they're right.

If our example wholesaler can cut ALL the costs by 23% and cuts his gross income by 23%, his profits increase by about $200 per month (from about $7500 to $7700). Which means our retailer can sell his goods at the original price and get $7700.

As I just demonstrated, however, what FairTax giveth it taketh away. Either the employee gets to keep what he's paying in income taxes OR the employer can reduce the total cost by 23%. Let's return to our wholesaler. Of the $90,000, 1/3 or $30,000 is employee pay and - according to FairTax - irreducible. So for him to reduce his gross by 23% - to $77000 - and make even the $7500 after-tax profit he had before he has to reduce the remaining $60,000 of costs to $39,500. That's a deduction of over 34%. 23% allegedly comes from the cut costs further up the chain, and another percent or two comes from no longer having to pay FICA matching - let's be generous and call it 2 percent. That's 25% savings from FAIRTAX, which leaves our employer having to find someplace to cut another 9%. Or he can just leave the sales price high enough to earn the same profit - which means the next link up the chain doesn't get a full 23% reduction in that cost as well as not getting 23% from employee expenses.

There's one more place where costs won't reduce - I want to get this here so I can move to other subjects. That's real estate - EXISTING real estate sales - and more specifically ongoing charges for current mortgages and rents.

If a landlord is running on a (allegedly typical) 5% margin, he simply cannot cut his rent by 23%. But with FairTax, rent's an end-user good. Which means the landlord has to pay 23% of what he brings in to the government. He's got to either get the mortgage payments he is making to the banks reduced, or he's got to increase rent. I think we can picture the fun of increasing rent by 30% (to get the embedded 23% taken care of). And the banks aren't going to reduce the mortgages. Oh, let's be fair - in most cases the bank can indeed reduce the mortgage payment by 23% and still get back more than they loaned. But the monthly dollars in runs into our wholesale/retail problem above -- reduce the money we bring in but not a big chunk of our costs means we start losing money.

And what about the fun of the bank determining if the building to which the mortgage is applying is a retail (taxed) or wholesale (untaxed) property? I'll get into this scamworthy opportunity in a bit, but at this point the bank is tasked with determining the government's authority to take. And to continue review in case part of all of the building changes status (home-based businesses being the basic example here). That means the bank needs MORE people to do the investigation and paperwork - more costs against less income.

It's an irreducible flaw. Businesses lose profits. If your income is from owning a business, you don't get the money you used to get, and in fact go broke. OR -and more likely - you maintain your profit margin which causes everything to jump in price. Most people get to take home more money, but at the same time the price of everything jumps. I believe that's called inflation, though I admit it's driven a bit differently than classic economics patterns it.

I think the next debunk will be the underground economy and other scams. Bear with me, though, as I'm beginning to get some anger and frustration on other topics I want to discuss.

debunking FairTax

2006-04-19T20:34:00.000-04:00

I recently got into an argument about FairTax - the proposal for a national sales tax to replace "all" other federal taxes, written by Boortz and Linder. I remembered I have my own barrel of ink, so I'll spill a bit here.

As folk may recall, the authors make several claims about their proposal. What I thought I'd do is take most of them on, but only one per post. No, sometimes I have to take on a couple as they're intertwined. Today's writing is such as case, but I think it is the one most damning to their proposal. You get to keep all your pay, and it does a better job of making EVERYONE pay their fair share.

Let us begin by setting up a sample company. Most details don't matter, but the ones that do are:
The company grosses $100,000 per month;
The company nets $10,000 per month pretax;
The company has ten employees, each of which have a gross paycheck of $3,000 per month. They're claiming four dependents on the withholding form, which has a total of $337.83 withheld each month. (OASDI $186.00; Medicare $43.50; Federal Tax 108.33.)
The company has to match the FICA (OASDI and Medicare), that's $229.50 more per employee in expenses.
Finally, our $120,000 per year profit puts us in the worst tax bracket (if we tripled our gross our tax rate goes down - another post). We'll pay $22,250 plus 39% of 20,000 or another $7,800 or a total of $30,050, giving us an annual profit of $89,950 after taxes. Our monthly profit after taxes is $7,495.83 (rounded), with the monthly tax bill being $2,504.17.

Now let's apply the FairTax proposal. The first thing that happens is that the company quits paying everyone's federal taxes. That's $337.83 + 229.50 for each of our ten employees, plus another $2,504.17. We gain $5,675.80 per month. And we have our first conundrum - do we keep it as more profit, or do we give it to the employees, or do we pass along the savings to the next level. Offhand, I believe that what would normally happen is a combination of all three - the company gets a bit more, the employees get a 'raise' in their takehome, and the overall cost goes down. But there's this fly in the ointment, and it's our new fact to add. Specifically, are we retail or wholesale?

Let's assume for the first example that we're wholesale. Since we're not selling to the end user, we don't charge sales tax. In this case the preceding options are as already stated - we can split everything three ways. Again for easy math let's share equally, which means the company's gross sales are $98,108 and change, but our employees take home an extra $184 apiece and the company (meaning me, the owner) keeps an extra $1891. And everyone is happy, right?

Wrong. What if we're retail.

Remember that we no longer pay $5675.80, so we start with a profit margin of $15,675.80. But the FairTax says that 23% of our profit - our "embedded" tax - goes to the federal government. That's a bill of $23,000, giving us a NET LOSS of $7324.80 - neither the customer nor our employees nor we get to keep ANY of the money. Oh, wait - our costs of goods reduced, so maybe we made it up there. Oops, we already decided that everything was so good that the total reduction was 1.891% (1,891 out of the original $100,000). Since our payroll related costs are (now) $26,621.70, our other costs before this began were $63,378.30. The reduction is a whopping $1,198.48, meaning we're STILL short over 6,000.

But, says the FairTax, Everyone should pass along their reduction. Sorry, folk, that only works if EVERYONE passes it all along, and even then it's suspect. Go back up this post, and notice the total savings of our wholesale company. $5,675.80. That doesn't make up for the $7324.80 increased loss.

Our company goes broke. But the wholesale company - at least while we're still selling to the retail company - gets to give everybody more money. Bottom line, the FairTax puts companies out of business unless everybody earns less money.

And that's just a bit different from "you get to take home all your money." Unless, of course, they're being disingenuous -- after all, you get it all, it's just less than it was when the Feds took a Federal Income Tax withdrawal.

What are your plans for next year?

2006-04-13T15:23:00.000-04:00

Or more scarily - what do you expect to do after we attack Iran?

hmmm. Let me get that one out of the way. I expect the US will attack Iran within a year. Mainly, I expect it to happen before the 2006 elections, but I can see it being delayed till March of 2007. While I could stop with "that's my opinion and if you don't like it quit reading," I feel you're adult enough to deserve an explanation. Besides, it's simple:

Bush is not a nuance kind of guy.

Every defense I've seen about the discussions require the president to be operating with finesse and nuance. If the president were Clinton or Gore or Kerry or McCain it might be possible, but not Bush. Bush has stated quite plainly that he wants Iran to do two things: dismantle their nuke development (power and weapon both); change the way their regime works. Neither is going to be done willingly by the Iranian leadership. And compromise isn't likely - compromise is a form of nuance and Bush doesn't do nuance. Furthehr, Bush has made plain that either you win or you lose -and partly winning is losing.

So, we're going to attack Iran. The question is when. For that I'm not being real subtle either. Bottom line, every time the President has beat the drums of war his popularity has gone up. The GOP's election coordinators have made it clear that the plan is to ride Bush's coattails (or else, in some cases). It helps if the wearer of the coattails is flying high, and that brings us back to the bounce from the drums. And after that... In addition to Bush not being nuanced, he's not real patient. Suggestions that he delay some of his failed initiatives - social security for example - were completely ignored.

So much for the digression, back to what I really wanted to discuss. Economic wobbles.

When the US attacks Iran we can count on the price of oil spiking. How much and how long depends on whether oil gets stopped but the spike's inevitable, and at this point I think $100 per barrel is the minimum. The ripple effects are: Gasoline and natural gas prices climb. That's going to have some impact on everything manufactured with petroleum products (fertilizer and plastics) and on everything transported from plant to store (everything, pretty much). Also, I expect to see... call it inflation panic. Regardless how bad it looks, everyone's going to start by assuming the worst. The immediate and obvious things will be the attempts to hoard gasoline and other stocks. Not quite so swift and obvious will be the people who go into hunker-down mode. The ones who are on the edge credit-wise, who will decide its time to bail. Foreclose or abandon some things, perhaps a general bankruptcy, either way they'll tighten their belts and close their wallets.

I think the first result, overall, will be inflationary. But it gets wild from there. See the tightened belts above, and consider the housing situation. Pretty much most economists and market watchers think the housing market is, at best, saturated if not in a full-blown bubble. A tightening of belts makes housing collapse in on itself, which is deflationary overall. Want to start riding the headache I've been chasing? What do you get when you have major inflationary and deflationary drivers in motion? What are the results if they're left in balance (cost of gas driven items goes up, money available goes down)? My answer? Stagflation.

My guess is that the fed declines to ride the balance and instead decides denying one or the other problem - stagnant economy (especially the suddenly growing unemployment rate) or inflation. Based on comments and discussions when reviewing the late 197os, I'm guessing they decide stagnation is worse, and push to print more money. Note that word "push". One glaring weakness of the fed is that it has one tool - interest rates. They're not really that high, yet. If they're not high enough - if they can't be cut enough - then the fed loses control. I suspect they'll ask the treasury department to just flat-out print more money.

So to some -and yes I've been superficial - competing inflationary and deflationary pressures whipsaw us for a couple of months till they stabilize in a stagflation. At that point if not before the fed starts slashing rates again, accepting high inflation so as to spur economic growth. Inflation isn't as ugly as deflation in its effects on businesses and employees. It's not good or pretty, just less ugly. caveat - all else being equal. Hyperinflation's something else again and requires serious re-examination.

Again, I don't know how deep it'll go. For what it's worth, despite all the economic bad news and poor fundamentals of our nation, I think we're still pretty strong. At worst we hurt a lot. I don't see total collapse in any way or fashion, though. Just some rough riding for a couple of years.

So what do we do about it in preparation? I'll be doing the following things.

I've set up so that the day we actually invade I buy gold and silver. Actually, I'm buying some gold and silver now (yes, at ~$600 per ounce). The day this happens I expect I'll be lucky to catch it at double the previous day's price, and I'll still consider that a bargain. I'll buy literally as much as I can while still keeping my cash accounts (bank, investment organ, that sort of thing) open. And it's distinctly possible that I'll buy gold with every earned dollar that isn't going directly to paying a debt within a couple of days. I figure for at least a few months I'll be better off buying it, then selling it a couple of weeks later for the (relative) net profit. When things look stable I'll stop that plan.

I'm also reviewing my job and its likelihood of continuing. That for me is very high. Oh, I've little doubt my duties will change - we'll probably have to cut some people and everyone pick up the slack. But it'll probably stick. Even better, it's not likely to see an attempt to cut wages during the brief deflation/stagflation period. Now it'll lag on the inflation side which sucks, but I can still get a jump on it all.

And my debt load is low. Literally less than a third of my takehome pay is tied up in paying off debts. While things might get tight for a while waiting for wages to catch up with cost of living jumps, I'll come out the winner on the loans. An important point here is that my loans are in fixed rates - they can't jump with changes in the prime. Credit cards? Clear and paid off every month. If you're carrying cards and can't get them cleared that way, consider a debt consolidation loan with a fixed rate. And then burn your cards. [As an alternative, lock them in a safe deposit vault. If you have to have them you can get them, but they're not available for 'ooh that looks good how much sold' events.]

I've been building my capabilities at some production and labor skills (I'm a service person). It's not a major moneymaker, but it's stuff that folk are willing to purchase even in hard times. I'll be making and selling in the rough times.

I've also prestocked some household goods. A "storm pantry" of food and basic goods to buffer any rough rides is, I think, mandatory. I recommend groceries for a month minimum if you're in my situation. It doesn't have to be an intensely varied selection, just something to get you through the rough. I will point out that some people recommend even more, but most of them are also planning for near-apocalyptic situations. If you think you could be out of work for six months then six months of standby food is probably a good idea even with unemployment benefits - because that's another wage that'll seriously lag inflation.

Back to investments, I expect most of the companies in which I hold stock to have a serious decline in earnings and stock price. However, I'm also confident they'll all ride the storm. I've some money in bonds as well. I'll point out here that it's the US that's going to take the brunt of this storm, but it's going to splash on every country in the world since we're the number one customer. Pick a foreign stock or bond by all means, but try to be aware of that company and nation's US burden. I just don't expect anyone to come out smelling like a rose, only that some will hurt less than others. For the record, I like Canada and I like Switzerland with almost no reservations. Others have problems OR I've not done enough research to be comfortable.

Getting a handle on inflation and deflation

2006-04-13T11:38:00.000-04:00

This isn't the "upcoming post" of last post's mention. Instead it's an attempt to educate - myself as well as any readers. Inflation and deflation are confusing, and a lot of people mix cause with effect with, well, an inability to grasp what's happening. I'm going to start with analogy, but I'll try not to stretch it too far.

Instead of money, we're going to consider shares in a company. There are 100 shareholders, each with 100 shares for a total of 10,000 shares. Each shareholder's worth is 1% of the total

If we inflate the number of shares available - say, we add another 10,000 shares - the practical value of each share is less. It used to take 5001 shares to win a vote. Now it takes 10,001. Now it's possible that things will balance - that each shareholder will get 100 additional shares for a total of 200 shares. It still takes 51 voters to win the vote, but they need to use 10,200. That's inflation - still the same share, but more actual pieces.

Let's say that we cut the shares in half - deflating the total. Now the win needs just over half of 5,000 shares, which if everyone has equal shares means it needs 'only' 2,550 shares. The price of a victory is now 2550 instead of 5100 - we've had a 50% deflation.

Now that doesn't look to bad, does it? Unfortunately it's not that simple. The first complexity - and in my opinion the greatest one - is that we have more than one thing, and these things change at different speeds. I won't bother stretching the above analogy. Instead we're going to jump to the 'hard' one to understand - deflation - and how it hurts.

We own a business. It makes widgets, and we have a 10% net income margin. That 90% is (for ease of this exercise) broken into nine elements each costing 10% - 1 set of wages (production staff and sales staff), 1 for each of 5 parts, 1 for building and 1 for equipment, and 1 for utilities (power, water, gasoline for transporters, etc.) My wages are an annual contract, three of my parts are ordered and billed quarterly with the other two are monthly, the building and the equipment are long-term payments (greater than five years), and the utilities are can adjust with 30 days notice. For simplicity, we've started the clock for all these at the same instant. And each adjustment is going to be for full deflation - that is, each of the above parts of 10% become 9% at the appropriate time.

Deflation of 10% strikes - people are only willing to spend 90% of what they were spending per widget.
The first month I make 0 - I'm still spending 90 but only getting 90. Month 2 (perfect world) all the monthly expenses adjust. That's two of the parts and the utilities. Expenses of 87 means I make 3. Months 2 and 3 are each another 3 profit. Starting month 4 I get to adjust the other three parts - 84% expenses make profit up to 6. I have no more increase till next year when I get to try to persuade my employees to take a cut. It's a perfect world, they agree, and I'm making 7. That's 7 on a gross of 90. If I was rolling half back into the company and living on the other half, I've gone from 5 to 3.5 - still more than my employees make, but a 30% cut in pay for a 10% deflationary period.

And that's a simple example with everyone agreeing to adjust in timely fashion.

Now, a key thing to point out above is that eventually everything adjusts. Reality is that the adjustments are going to vary in time and degree. Conventional wisdom is that those to whom money is owed (and yes, this includes employees owed wages) benefit from a deflation. Reality is that this is true only until the adjustment occurs AND so long as the person owed is able to retain the difference. In other words, let us assume George makes $2000 per month (after taxes). If George is paying $1000 in rent and $200 in utilities and $250 for a car plus $50 for gas and $400 in groceries and (finally) $100 in entertainment, he's spending it all. It's likely the purchasing power of his income toward entertainment will increase more, which means he can buy more for the same $100, the same for a bit less, or save for rough times. Rough times? What if his income is adjusted before the rent and car are adjusted? Using the easy 10% math, he got a whopping $1 from utilities, then his wage went and dropped to $1800, and even if he buys NO entertainment he's looking at $1900 in out-flow. Yes, cut the groceries - hopefully they'll adjust soon so he can get $330 worth for his $300, but that may not be soon.

Do you begin to see the pain? It hits the business, and it hits the wage-earner. And some folk have such a narrow margin, or they've too much in costs that can't or won't be adjusted for the change, that they lose money. Something has to give, whether it's George just selling the car or giving up and declaring bankruptcy.

Know what? I'm not going to do this exercise for inflation. We've been living with that for, well, since before WWII. It's been with us so long we take it for granted - cost of living just goes up a bit, and our wages keep pace, and so we spend about the same proportion of our wage on the same stuff more or less, and gripe at the lag from cost of living increases to wage increases.

There are more complexities and issue, but I think I'll stop there. That's deflation and its ills. And, subtly, the good - if you're holding or owed a non-adjustable amount more than you owe then your relative wealth (purchase power) increases. Big if there.

Guessing the housing revaluation

2006-04-13T10:52:00.000-04:00

Yes, I think there's a housing bubble. Or to be a bit more accurate, there are a lot of bubbles in the US of varying size, most of which are at least somewhat connected. That's a bit different than the stock bubble which was basically over one area. But I digress.

For the decades prior to about 1996, median new house prices tended to increase in line with inflation, adjusting for size of the house. (A 2000 square foot is worth more than 1500 square feet regardless of inflation, and median house sizes have been creeping up as well. But I'm going to ignore that for a now.) In 1996, median new house prices increased at levels well above the rates of inflation - nationwide at about double the rate, and some places at rates... right.

Anyway, I have an idea as to where we'll see housing prices go when the bubble(s) pop. Find the price of comparable property in 1996 and add 34%. 34% is 3 percent inflation per year for 10 years compounded, and gives us a decent ballpark. Add1 percent per year the house was built after 1996. So if a house was 100,000 then it's probably "worth" 134,000 now. If a house which in 1996 would have been 100,000 was new in 2001, it's got a nominal base of 139,000 - 34% plus 5%. Is this perfect? no. Is it a workable guess? I'm going to run with it.

Nationwide, new house prices have increased some 55-60% since 1996. That means nationwide we're looking at about a 20% drop - or stagnation in growth till the "natural" price catches up. If, that is, the bubble pops. And in a 'perfect' world.

Personally, I think the actual adjustment will depend on the severity of the pp. If it's a pinhole leak - in most ways the ideal solution - what'll happen is that house prices will increase at rates less than inflation. And - I think - they'd not bottom at the 'natural' price but rather a bit above it. On the other hand, if the prices deflate - go negative - it'll definitely reach the natural rate and probably go a bit past it, only to climb again. Again the extreme is a severe plunge - say, 50% of total cost in a quarter - in which case the climb back will stabilize below the 'natural value'.

How severe is the pop going to be? That's the big question, really. In my opinion it depends on how many distractors are going on at the same time. The more balls in the air, the more likely this one gets dropped when something else gets priority. I've more on that in an upcoming post.

The next world giant

2006-03-30T14:22:00.000-05:00

I'd keep an eye on Brazil if I were folk wanting to plan for the next generation's giant of the world. Yes, I mean economic powerhouse. Yes, I know they're presently 93d in GDP per capita (world factbook, 2005 est.) Of course, China's number 118 on that chart. By the same token I know they're already pretty big in the gross numbers area, being ranked 17th if GDP's considered by Official Exchange Rate, and 11th by GDP-PPP. But all that's secondary.

Money - investment - tends to go where the cost is low as it make potential profit higher. And Brazil this year will be reducing a major cost. Effective the end of this year, Brazil will not be using petroleum to fuel the cars and truck on the road. It'll be using ethanol produced from sugar cane. It's been working toward this for a long time and is literally facing the end.

A few interesting notes. First, the process is break-even against petroleum based fuel when the price of oil is about $45 per barrel. Second, ethanol isn't quite as energy efficient as petroleum - slightly fewer miles per gallon available. On the other hand ethanol burns with a lot less complex waste - less pollution per period of operation. And for those wanting to jump, corn ethanol is more expensive to produce than sugar-cane ethanol. Still, in the United States approximately half the crude oil we bring in goes to producing finished motor gasoline (per the IEA).

Back to the original point. I fully expect - based on what the experts in the industry are saying - that oil is going to continue to get more and more expensive (call it peak oil or something else). Brazil's gotten off that risk line, and the higher it goes the more tempting its local costs are going to be for outside investors. Them that have, get, and Brazil's got.

Peak oil is/is not

2006-03-29T13:31:00.000-05:00

I want to take a short bit of your time to mention Peak Oil, again.

Peak oil is going to happen. At a certain point we'll discover we're unable to produce as much oil as cheaply.

Peak oil is not, however, reaching a point where we suddenly discover we have no oil. The apocalyptic doomsayers need to get a grip.

Frankly, we're going to know about the peaking of oil production about six months to a year after it actually happens. We're going to notice that the rate at which production increases has come to a crawl, and even flatlined. It'll cost more and more to get each barrel out of the ground as more exotic measures are required - most of which also happen to reduce the quality. But we'll have a year to a decade of more-or-less the same production just costing more and more.

And at a certain point, other methods of petroleum production get feasible. That is, the cost of selling oil is high enough that it gets a profit when 'this technique' is used. This will mean that the flatline will not turn into a decline, and might even turn into a resurgance of climbing production overall. Of course if we are careful we'll see that more and more comes from shale and sand and coal and such. Oh, and alternatives such as biofuels and nukes and sun and wind will gain larger segments as well.

Bottom line - it's not going to be the end of the world, and it's not going to happen overnight. But with the price of oil and oil products tripling (yes, that's my guess) over the space of a handful of years, a lot of things are going to get changed. What's going to replace it? dunno yet, though I've got some things I'm watching.

Life is change. Deal with it.

My mind's not big enough

2006-03-23T07:18:00.000-05:00

I just can't quite accept the idea the Bible is 100% accurate and infallible. And it's the internal contradictions that do it to me. Yesterday I ran into the one that first caused me to stumble, and I thought I'd post it here. Both of the following are from the King James version - it's the one most folk think of as definitive. It's the tale of the end of Judas Iscariot.

First, Matthew 27: 5-8

⁵And he cast down the pieces of silver in the temple, and departed, and went and hanged himself. ⁶And the chief priests took the silver pieces, and said, It is not lawful for to put them into the treasury, because it is the price of blood. ⁷And they took counsel, and bought with them the potter's field, to bury strangers in. ⁸Wherefore that field was called, The field of blood, unto this day.

Then Acts 1: 18-19

¹⁸Now this man purchased a field with the reward of iniquity; and falling headlong, he burst asunder in the midst, and all his bowels gushed out. ¹⁹And it was known unto all the dwellers at Jerusalem; insomuch as that field is called in their proper tongue, Aceldama, that is to say, The field of blood.

Yes, you doubters, the "he" in both is identified in preceding verses as Judas Iscariot. It's "concerning Judas, which was guide to them that took Jesus." (Acts 1:16, part)

He threw back the silver - no, he bought a field - no, the priests took the money he threw back and bought a field. He hung himself - no, he fell headlong with such force he burst apart. The only agreement in the two is that the field was thereafter known as the field of blood.

Sorry, I cannot accept the Bible as literal with such a glaring internal contradiction. Doesn't mean I don't have faith, but it means I accept the Bible was written and edited by men - imperfectly trying to reflect perfection.

Strategy

2006-03-20T15:37:00.000-05:00

In an email to a list I'm on, Austin Bay was asked (by me): "What was our STRATEGIC objective in going to Iraq?"

He responded:

BLUNT FORMULATION: Pull the gun away from the head of Arab moderates.

POLI-SCI FORMULATION: Foster modern political alternatives to terror and tyranny in the politically dysfunctional Arab Muslim Middle East. From that comes states that police terrorists and don't empower them. And yes, that means evolving Saudi Arabia and the other autocrats. Also means breaking the Hell formula -- terrorists, rogue/failed states, and WMD. We can't get WMD back in the bottle, but we can go after tyrants and failed states.

I like the strategy - it's clear and at least nominally attainable. What I don't like is that I don't think we're succeeding.

See, an implied (at least to me) element of this strategy is that the gun stays away from the moderate Arab heads even when we're out of the picture. That's because for all intents and purposes if we're standing right there then we're the ones holding the guns. Now, I don't think we're really doing so. It's just that when you've been bullied for a long time and a bigger person comes along and kicks the previous bully to the curb, the initial perception is that you've just had a change of bullies. The only way for you to know they're not really a bully is by the test - do they leave you alone, or do they force you to go along?

So far, we haven't left them alone. We're right there, supervising and criticizing. Frankly, we have to. We have to for many reasons, not least because the gun's still at the head. (I say so because of the recent news of an Afghani citizen condemned to death because he converted to Christianity some years ago. That's a major bullet in the original gun, and one we are supposed to be striving to pull away.)

Of course, the reality is that we're never really going to leave them alone. We're going to be back every time it looks like they're accedinng to the wishes of those who attack and vilify us, who hold cultural norms opposite our own, who are or appear to be our enemy. Which means in the end that we're going to be perceived as the bigger bully for a long, long time.

Beginning of the fall

2006-03-16T14:26:00.000-05:00

ARG has just done the first poll about making Bush accountable for his missteps. The majority of the poll is about whether he should be censured via Feingold's bill, and there is a question about impeachment in there as well. While it's a pretty big deal that a plurality of respondents think he should be censured, and the "no" vs "yes" for impeachment is only a 7-point margin, that's not the big deal.

The big deal is that a polling agency normally accepted as 'one of the big ones' has asked the question. The ice is broken. Many polling agencies will ask the question as well, either to show they matter too, or to show the ARG numbers are wrong (one way or the other). And they'll keep asking to demonstrate a trend.

And that means it's now officially part of the public consciousness. People will be able to talk about it without sounding like they're coming out of nowhere. It's not going away.

Bush - and the GOP - have a surprisingly short list of options. They can defuse, distract, or diminish. Oh, they could accept it - but I don't see that happening. IMO the smart action is defusing. Basically, cause the explosion to go off prematurely. Bring the censure to the floor. Debate it. Vote on it. Note I didn't say bury it or translate it or anything else. What this is, is the standard recommended way of dealing with scandal. Get it in the open, take the lumps and go on. "OK, we got censured. Which means we can stop the impeachment actions with an argument that it's double jeopardy."

However, that requires an ability to say, "we were wrong." I don't think the current admin's capable of that. This means they can distract or diminish. I'm betting they try diminishing first and distracting second. Not least because it's already going on - a host of rants of how the proposal was from nowhere and not even the rest of the senators think it's a good idea. Ridicule and dismissal. However, see point one. It's officially in the public consciousness, and it's not an insignificant minority opinion - not when almost a third of YOUR PARTY thinks the censure should be approved.

Which means distraction. "Look over there." I expect to hear the drums of war beat louder and faster, actually, as that's the area where historically President Bush has had his largest margins.

more about the shooting

2006-02-16T13:07:00.000-05:00

First referencing the previous post - the NRA doesn't get money from me. Not till I see them condemn the poor gun safety of Cheney. No noise, no money. I say this because I just got one of their fliers. On to the meat of this post.

Let me begin by saying I believe the incident was an accident. That is, the shooting of Whittington was not intended. It was the result of some stupid act on the part of the VP. However, just as with every shooting accident, the shooter should not get a free pass. I believe the VP should be required to take a gun safety class. And that he should not be allowed to hunt without a minder for at least a year - the minder having full authority without repercussion to take the gun away if he/she thinks the VP is on the verge of doing something stupid (again).

What I really find stupid, but no longer a matter of gun safety, is the 22 hour delay and the story used to explain it. Allegedly, everyone was so concerned about Whittington's condition that nobody though about the press. That'd be great, except Karl Rove got called within the first two hours. So, how many people honestly believe Rove was called because of concern over Whittington's condition? Uh-huh. Suddenly the smell of lying is in the air - and lying about a politician's actions (even in a non-political event) smells like coverup. Anyway, 20 hours after calling Karl, Ms. Armstrong becomes the spokesperson - raising the second thing bad odor. Ms. Armstrong reported everything as though she was an eyewitness. Bad thing, however, is that she wasn't there. Remember, she was in the car. The first she knew of a problem was that Secret Service and medical personnel were rushing toward the hunting party. Every part of her story between "they got out of the car" and "I saw people rushing to the party" is what she was told happened, except she passes it off as "what happened".

Two stories with equal proof at this point.
Cheney shoots Whittington, and is in shock. They all get back to the house and he mixes a cocktail in desparate hopes of soothing his nerves. He can't see anything but doom about it all, and goes into dithering indecisiveness due to it. Indecisive, that is, except an adamant statement that nobody does anything. It happens to a lot of people - a hope that it's all a bad dream and if everyone pretends hard enough it'll all go away. And it took almost a day before enough people could get the man in charge out of the loop enough to do what needed done.

Cheney drank a sixpack of beers at lunch, and brings a six to the car for the hunt. He sips them as he gets thirsty - about one an hour. About 5:30 he's halfway through the fourth when someone spots the covey, and they get out to pop them. Being a bit inebriated he loses a bit of control and gets stupid - he shoots the lawyer. Everyone's a bit flustered, but Cheney knows that if he's interviewed and tested for the next eight hours that the alcohol will show up - boom, his political career is completely gone is the best thing, and possible criminal charges are reasonable expectations. He clamps down hard to try and let the BAC drop to zero. Just in case - because Whittington might say something to the hospital staff - he drinks a cocktail for the classic "the BAC is from after, not before, the accident" defense. And everyone starts plotting stories - one if Whittington dies, one if he lives. A day later Whittington's apparently going to live and the BAC is clear, so off to the presses.

Both stories stand.

For what it's worth, this will be Cheney's albatross. It's Carter's rabbit and Ford's stumble and Clinton's stained blue dress. No matter that in relation to the position held and issues of much greater significance done both well and poorly, this will always sit in the room when Cheney is present. How heavy it weighs will depend on what Cheney does from here on, but he's made a very poor start if he wants it to be a feather instead of a stone.

NRA's turn

2006-02-13T12:06:00.000-05:00

I donate to several political lobbying organizations as I support their stated objectives. When people see the list they get a little confused - I mean, who supports both the NRA and the ACLU - besides me, that is.

Not so long ago I told NARAL to not bother asking me for money. They hit a major crunch and folded. They failed to support their convictions.

It's the NRA's turn in the barrel. Will they condemn Vice President Cheney for poor gun and hunter safety? Or will they say, "accidents happen" and go on pleading for money to support gun safety (except for the powerful)? The answer determines where some of my money goes this year.

Rambling

2006-02-01T22:19:00.000-05:00

wow, three in one day after so long away. Ah well, off we go.

Way back in the earlier posts I discussed planning for disaster - that is, I believed we're coming to some economic (among other things) hard times. Practical paranoia was the series, and looking I've discovered much has disappeared. That's both good and bad. Good because I said some dumb stuff earlier. Bad because I said some good stuff earlier, and this is supposed to stick around - that's a big reason I'm writing in blogs. Obviously, I'll need to do this again somewhere else. Anyway, wrenching back to the topic at hand...

My prognostications turn out to be decent - not great, but pretty good. (conservative if anything). I'm going to do it again - practical paranoia part six, sorta.

See, in PP5 I couldn't decide if our economic problems were going to be inflationary or deflationary. I think I've got a better handle, but will ramble to see if some other things make sense to me.

I anticipate the US to experience a set of economic doldrums, probably recessionary, within six months. Actually, I expect people looking back to say they began sometime in the next three months (if you can set aside the mixed tenses), but everyone will KNOW it's going on within six months. The process will be deflationary.

Some caveats. I don't know how severe or how long. It'll last at least three months, but could go on for a couple of years if people in positions to influence it act in the most stupid fashion possible. It could only deflate the value of our currency by half a percent. Again worst case it could deflate by half. My guess for the two is about six months duration with an effect in the vicinity of 2-3 percent, with the wild card being just what happens when credit clamps down.

OK, a bit of why. First (again) a "what is deflation". I find the easiest way to keep it straight is to remember who of a creditor/borrower relationship comes out advantaged if it's unexpected.

I borrow 100 dollars from the lender, and to keep it simple I owe him 100 dollars in one year. If it's inflationary, I win. That means that while I pay the 100 dollars, it won't buy as much as it does now. OTOH if it's deflationary the lender wins. That 100 dollars will buy MORE than it would a while ago.

Let's not get sidetracked - both inflation and deflation hit people close to the edge with their borrowing. Inflation hits them because there's a window in which they're paying new prices with old wages. In other words if they can ride out the early part they're fine, but that ride's going to be interesting. Deflation hits on the other side. For a while the borrower is doing better because he's still got old dollars and they're buying MORE short-term goods. Unfortunately (just as with the inflationary side) wages shift to be in line with value. Suddenly there's less cash coming in, and while it's buying as MUCH as it was for short-term goods (groceries and monthly goods) the long-term stuff's still on old values.

So, what should I be doing since I expect a deflationary cycle? Well, I need to decide if the house I bought LESS THAN SIX MONTHS AGO is worth the effective increase in payments. I'm pretty well ok right now - I can stand it if it only adjusts a percent or two. But if the deflation looks like it's going to move my monthly house bill to, say, 50% of takehome, then it's time to reconsider.

By the way, that's going to be chicken and egg with this cycle. I know that a lot of real estate is going to apparently deflate. Heck, it's already started with the Centrex ads (100,000 off a 500,000 house? riiiiight.) Some is just overvalued, but still... if people find they're paying a loan for $500,000 when the house is now valued at $400,000, they're not going to feel good about it. And as the house prices decline they're likely to trigger other deflations which will in turn deflate the house prices till... Yes, it's not perpetual, but for a while it'll feel that way.

I think the problem is that there's an excess of money right now. Deflation is what happens when the money supply tightens. Historically that's a fed control job. But the fed can't control a virtual money - credit. With looser lending restrictions the defacto money supply has gone nuts - with the caveat that eventually it has to be realized. As the realization fails to occur and people start to go bankrupt instead... there's the collapse.

I still think it won't exceed 5% - and actually will be less. I have two loans right now - the house, and a car that's half paid off. Assuming everything balances for a while I THINK I can withstand a 10% drop. More than that and I look at following others into bankruptcy. There's the negatives, now to the opportunities.

Opportunity one is a window mentioned already. For a while prices will deflate but wages will stay at the higher level. During that period the opportunity exists to leverage that margin. There are two basic methods. First, loan it out. Remember that basically the lender wins in deflationary windows. The risk is that the borrower defaults. Still, lending is a GOOD thing in that window. High grade bonds is the safest. Short term bank counterloans is another option. This needs thought.

The second thing is to buy something that will defacto appreciate in value, but which won't break me to hold or to sell. Classically this is gold, though I admit to having trouble seeing how it gets me past a deflation. See, if I buy $1000 of gold at ~500 per ounce today, and in six months everything has balanced, then it SEEMS to me that my two ounces will have the same nominal purchase power -- be worth $800. hmmm, nope. still don't see it.

OK, so practical paranoia says:
In the window where I'm still getting pre-drop wages but what I'm buying is dropping (I'm getting better prices on food and clothing and such) I take the slack and put it into bonds - how risky depends on my tolerance, but I'd be well advised to keep confidence the borrower WILL be able to pay on expiration. Anyway, after the drop I sell the bonds -- or if I can last it I keep them till things start turning around so I can maximize my practical profit.

Enough for now.

Tax cuts increase revenues? redux

2006-02-01T14:20:00.000-05:00

One of the problems with those who make this argument is that they don't think it through - they take it almost as an article of faith. Some even misapply a step. Let's take a real solid look at how it works, and debunk a couple of arguments along the way.

Let's start with our sample company. It sells widgets. It has $100million in assets. Due to the odd nature of our business we can assume it makes gross sales exactly equal to its assets, which means it sells $100 million gross. We'll give it a healthy 10% profit margin, which gives it $10 million net profits. Unrealistically, we'll assume it pays 25% taxes on the profit, or $2.5 million in taxes, leaving $7.5 million to divide between saving for future operations and passing to the shareholders. Future operations is increase the business - for our model, it's overcoming the effects of depreciation so we stay at that magic 100 million. There's the background, now for the exercise.

We reduce the tax burden by 1%. This time they pay 24%, and keep $7.6 million. At bottom there are two extremes with the probable result being a compromise. Let's examine the effects of the extremes.

Extreme 1 - add it to "future operations". Since previously we just barely balanced, this means we increase our assets to $100,100,000. Our annual gross (due to the rules) goes up the same, and our profit margin goes up the same proportion. Thus the subsequent year after we sacrificed $100,000 of tax revenue we collect 24% of $10,010,000 or $2,402,400. Which is STILL LESS than the $2.5 million we were previously receiving. In other words, not only does our production not gain enough to overwhelm the initial loss, it keeps losing. Our slight increase has to significantly increase our gross (and net) income for it to have the claimed effect.

Extreme 2 - give it to our shareholders. Congratulations, we recover 15% of the $100,000 we gave up. And the money goes into other corporations' assets (investments) in the best case, or gets spent on various stuff in the worst case. If the latter, we get (depending on sales taxes) up to 10% of the remaining $85,000 that year, and the rest becomes part of the regular gross profits of other companies - a slight surge, which is either unsustainable or (at best) a repeat of extreme 1 but for a different company and with worse increases. If the former, skip the sales taxes and the rest is the same.

It takes some different assumptions for cuts in taxes to net increase tax revenues. The core is the one mentioned in the previous post: You must be to the right of the Laffer peak, at such point where the dollars not taken for taxes increase net revenues so much that there is a positive gain overall.

By the way, let me dismiss a parallel argument while I'm at it. It goes something like, "if the tax burden is too high people aren't willing to put in extra effort for no more than they get out of it." The statement is true. The use of the argument, however, is to allege that the present burden is already too high. In real-world terms, however, this isn't so for us at this time. The defense is simple: are workers unwilling to accept overtime as the net pay increase is too marginal? For the first 8 hours or so for most workers the answer is "nope, gimme my overtime." Equally valid argument: are stores unwilling to increase sales as the tax increase cuts too much? Again, let us laugh.

Theoretically the rate can get too high. It's been so in some nations - when it exceeded 90% income tax rate in the UK for some people is an example. The US isn't at or near that point.

Laughing at Laffer

2006-02-01T13:25:00.000-05:00

Man it's been a long time. shrug - busy life. Anyway...

Recently I've been listening to people use the laffer curve to justify tax cuts. They're guilty of misunderstanding what the curve is saying, and it's such a pervasive misunderstanding that I'd like to make a general response.

Yes, the Laffer curve says that if you cut taxes you increase revenue. If you stop there, however, you're wrong. See, it is equally true to say that if you raise taxes you increase revenue.

Go look at the curve. As it goes right, it goes up, rounds out at the top, and goes down. The "going right" axis is the tax rate. The going up axis is revenues. What's not labelled is where the magic number is. What anyone trying to use the Laffer curve to justify cutting taxes to increase revenues must defend is the position that we are presently to the right of the peak.

Because if we're to the left, we decrease revenue.

Note, please, that this is government revenue. That gives us the ability to pay for things, which includes the ability to pay off our national debt.

So the next time someone uses the Laffer curve to justify cutting taxes, ask them to demonstrate we're to the right of the peak. And when they go "huh," laugh at Laffer. Then take a moment to teach them.

Libby et al

2005-10-29T13:32:00.000-04:00

OK, what are the facts about all this?

1) Libby was indicted for charges of perjury, lying to investigators, and obstruction of justice in the pursuit of determing if a crime was committed (and who may have committed it) in outing Valerie Plame.
2) Fitzgerald says the investigation is not yet done.

That's it. Everything else is allegation and innuendo and interpretation of the same.

There's a real temptation to take the statements of fact of the indictments (the first 30 paragraphs) as given and uncontested fact. Yet the truth is they're allegations which will be challenged in court by the defendant. They're probably true, but they're not yet worthy of identification as fact.

There's a real temptation to say that since all Libby was charged with was interfering in the investigation that there was no real (meaning original) crime underlying it all. Yet the truth is that the PURPOSE of perjury and other acts to obstruct justice is to ensure the commissioners of the real/original/more serious crime is allowed to escape justice. I'll interject here to note that some people fear their spouses more than the law - thus some of Clinton's testimony was not to obstruct justice of the law but rather to evade his wife's just ire. But it was still lying, saved from being perjury solely by careful parsing of definitions and gray areas of the law.

I hope the underlying crime can be brought into sufficient clarity that any who participated face justice. I hope it can be brought into sufficient focus as to identify exactly what it was.

Oh, and I believe (part of that interpretation of innuendo and allegation jazz) that there was an underlying crime committed, though it may not be the crime that formed basis of this investigation. Again, people commit perjury and obstruct justice to hide something. Libby did not want something to come to light. I hope we find out what it is and excise it.

The future's so bright ...

2005-09-29T14:43:00.000-04:00

I really intend to continue from the previous post (fast sum - I was right, but wasn't depressed enough. And it looks like it's going to get a bit worse before it gets better.) But I ran across something that is...

phenomenal. I think that's understating it. I honestly believe it could turn out to be the next Nobel prize in medicine, and it's going to cause a HUGE political battle in an already charged arena.

Link first. The Wistar Institute at the University of Pennsylvania, and in particular the work of Dr. Ellen Heber-Katz, has made a little discovery. Actually she (and her co-workers) made it in 1998. She noticed that the ears of mice which had holes punched in them were healing. The holes were punched, by the way, to identify the set (for control group work) to which these mice belonged. Now those of you with pierced ears are probably going "so what?" - and it wouldn't have surprised most folk to have missed them. But here's the thing. Larger holes, and they not only closed the holes, they formed clean skin which then regrew fur. No scars. No dimples. Healed.

Dr. Heber-Katz then did the thing that distinguishes true genius. She went, "Hmm, that's interesting? I wonder..." She and her staff did a bit more testing. They snipped something - a bit of tail or a toe, I can't quite figure out which was first. And the mice regrew them. Now it's time for a bit of excitement. Wonder what else re-grows? Well, as it happens, the "what else" includes hearts (the whole thing if something can keep pumping while it's growing), spinal cords, legs, eyes, livers... Pretty much everything except a brain. This is pretty darn exciting. I mean, we know lizards and fish and simpler forms can do some of that (though regrowing an eye is pretty spectacular, and growing a spinal column broken mid-back is even more so), but we hadn't found mammals that could do that. But then we get closer to the level that's causing my excitement.

They extracted some cells and injected them into mice that didn't regrow things - let's label them normal. And lo and behold the normal mice have regenerative capabilities as well. [An insertion here - I cannot tell for certain whether they grew what was removed prior to the injection though the implication is the answer is "yes".]

They're doing three general studies right now. First, they're seeing if this regenerative capability leads to longer lives. They're also watching to see if these mice suffer from a greater-than-normal (or even normal) rate of 'growth-failure' diseases. That is, Cancer and other ways in which the cells change and grow uncontrollably. And there's the third study - isolating the molecule (or other particle) that causes this growth. At this time it appears (hence my excitement, but with some caution) that the molecule may be in or applicable to other mammals.

In other words, it is likely - not just possible - that we're on the cusp of a treatment that will make loss of limb and organ be as permanent as getting a cold. Hmmm - liver's gone bad due to overdrinking? Cut it out, stay on dialisys for a couple of months. Congenital heart failure? Artificial heart and bed for a couple of months. Lost a limb in an accident or war? Parapalegic? Muscular Distrophy? Multiple Sclerosis? Gah - the mind boggles. And if it extends lifespan - or even if it just keeps folk "younger" till they die - you'll have people going nuts trying to get the molecule

But there are downsides - potential and actual. Potential is that we don't know what else will grow without bounds - is this a new cancer? Also, it apparently won't do much if anything for brain damage. Potential is that it will work for other mammals but not for us. Potential is cross-species vulnerabilities. Most of these are small, but they need checked. For this reason we won't see it in humans for at least a decade - probably. Thing is it's a BIG thing, and that may cause acceleration toward use. And that takes us to the actual downside. Oh - and we don't know what it'll do to pregnancies.

Politics.

Let's set aside the arguments of who does and does not get it. It's genetic engineering - anathema to very vocal activists on the right and the left. Not only would they refuse it for themselves, they'd try wholeheartedly to deny it to everyone. Whether it's "messing with nature" or "supplanting God" the fear of the change will cause much disruption.

Then there's the longevity politics. Science fiction has handled this discussion a lot so I'll leave it alone for the most part. I'll just point out that if your 'normal' lifespan is 150 years, at what point do you consider someone an "adult", and at what age can or should you retire? And the question of more people being born while the deaths don't happen massively increases population. And socially - if a generation is nominally 25 years, how are folk going to deal with six generations alive at the same time?

I have trouble picturing a transition to a world in which people just regenerate as part of their healing. I can almost picture the world, but lessons and trials during the transition will have much influence. These are interesting times, and I don't think people realize just how interesting they might be.

Katrina

2005-09-07T16:49:00.000-04:00

Like a lot of folk on blogs, I think it's time to throw my two cents into the arena in regard to the Katrina mess. Let me begin that for the most part it's too early to assign "blame". Heck, for a lot of things what is currently seen as blame may turn out to be outstanding success.

Case in point - the tens or hundreds of thousands stuck in New Orleans during the hurricane. That is, the alleged "failed" evacuation. They had an evacuation of at least 80%, some estimates as high as 90%. That on a short-notice evacuation. You don't think that's impressive? OK, try this. Go to an apartment building and pull the fire alarm. Now find out how many residents didn't get out. Unless the place has special supervision, you're likely to discover a lot more stay-behinds than you'd expect. Some will be folk who couldn't get out - sick, bedridden, elderly, that sort of thing - and some will be people who thought "it's just a drill, if it were real I'd smell smoke". Now remember that New Orleans had a voluntary evacutation last year for a hurricane and Nothing Happened. (Actually, there was some damage, but relatively speaking it was insignificant.) The normally planned time to evacuate the city was 72 hours, and the order didn't go in till 48 hours. So with that in mind, the evacuation was FANTASTIC.

But. But there have been some things that deserve blame. Not many, but some that stand out as errors.

The Mayor of New Orleans dawdled. It's quite apparent he was one of those who felt it wasn't really going to be bad, regardless of what the weathermen said. It required the combined insistence of the governor and the president to get him to declare an emergency and order an evacutation. And because it was so short notice he didn't follow the plan but played catch-as-catch can.

A funny thing, but I've not yet found a true "error" in the governor's actions. There are some questionable items, but at the same time there are mitigating circumstances. What's most amusing at this level is the blame redirection program from the current administration that's trying to point all sorts of blame (that may or may not be deserved by anyone) at her. My favorite is the repeated claim that she never issued a "state of emergency", when it's in black and white documentation and specifically referenced by the White House statements on the 27th of August.

At the federal level, I'm really only seeing three "blame" events. Two are from the DHS - one in planning and preparation, one in the response.

The planning and preparation failure is quite simple - in 2002 there was a mandate that all the responders would have common communications, and it was DHS's responsibility to see it was done. Frankly, an amazing number of tragic events in the Katrina episode can be traced to this lack.

In response, the only blameworthy action is that DHS was slow off the mark. One of the most critical declarations in the process of responding to an emergency at the federal level is the sole responsibility of the Secretary of the DHS, and that's to declare an event as an "Incident of National Significance." Once that's declared a huge number of federal and NGO assets move without further need of notification. It's like pulling that rock holding up the avalanche, frankly. All the prerequisites for an INS declaration were in place the 27th of August - the governors of the states involved had declared an emergency beyond their ability to cope, the president had responded with an order of Federal Emergency Assistance, the governors had put their respective National Guards on standby... That was the 27th of August. On the 29th of August, Katrina made landfall. By that afternoon the levees had been breached and New Orleans was flooding, and Biloxi and Gulfport were reporting estimates of 90% of their structures being irreparably damaged. And here's where that condemnation occurs. Michael Chertoff, Secretary of the Department of Homeland Security, did not issue the INS till the late afternoon of August 30, approximatey 24 hours after the levees broke, and almost 36 hours after Katrina made landfall. "Ask of me anything but time," said Napoleon (paraphrased), and the SecDHS wasted at least a day and a half - given the prerequisites in place, perhaps as much as three full days.

And yes, I'm going to tag President Bush with some blame. Not, however, for setting up the disaster with the cuts or with delays or anything like that. In the cuts, he was doing what most of the folk who voted for him said they wanted. And in administrative terms he did everything in a timely fashion - he was, for example, critical in helping convince the Mayor of New Orleans to issue a mandatory evacuation notice. No, where he failed was in being a leader.

See, in times of emergency leaders lead. Sure, it's important they not merely be posturing figureheads but actually ensure that Things Get Done. But a good part of leadership is, indeed, "posturing". And that's where the president failed in his duty. This was such a major emergency coming on that he issued several Federal Emergency statements. He pleaded with at least one mayor to begin a mandatory evacutation. He did all that right, but at the same time it was all behind the scenes. And in leadership and politics, what isn't seen didn't happen.

What the public at large saw was a man who thought his vacation was more important that preparing for the emergency. He stayed on his ranch as the storm reached Cat 5. He played guitar and cut cake at a birthday party as the storm turned and raced for New Orleans. The day after it hit he finally said, "I'm cutting my vacation short and returning to Washington," then ruined his recovery by adding one more word, "tomorrow."

Appearances, all, matter. And if it's able to be handled tomorrow, it's not an emergency. If I think it's an emergency and you say you'll be there tomorrow, then to me you've said you do NOT think it's an emergency. Now let's be completely honest here. The President couldn't actually DO anything more in DC than he did at his ranch. And he did a lot. But he sent a terrible message - a message that in his eyes and therefore inevitably in the eyes of his subordinates this was not an emergency, it was just a rough period to be dealt with later.

Frankly, I cannot help but wonder if the DHS error was caused by Chertoff's impressions of the importance President Bush was giving the matter. After all, he held regular electronic meetings with the president, but that's just once a day and he was in DC, not Texas. So if you really wanted to push it you could assign Chertoff's blame to Bush. Me, I don't want to go that far - it's not the first time Chertoff's been a little slow off the mark, and those times didn't involve the president's behavior. However, Bush appeared to minimize the importance, and DHS dawdled the "go" order.

The folk doing rescue are doing heroic things. But I can't help thinking how much better they might have been if they'd been able to start a day earlier.

Prognostication Test

2005-08-27T10:36:00.000-04:00

OK, the first opportunity to test my paranoia is coming into play.

Hurricane Katrina sits in the Gulf. (Source National Hurricane Center) It is at this time a category 3 hurricane. Its forecast path is one that encourages it to get stronger, and it's expected to make landfall near the mouth of the Mississippi river - actually crossing the spur of Louisiana to get there but crossing the mouth nonetheless.

So first point of test is that we're going to see an interruption in gasoline production for, oh, at least a couple of days while the refineries in the strike zone batten the hatches. They'll have to not only because of the storm but because for at least 24 and up to 48 hours no ship is going to run through the storm to deliver oil in the Delta Ports.

Second part of the test is that gasoline stocks are at the bottom of historical averages. (Source Department of Energy) For whatever reason, the margin available isn't near as large as it's been in the past.

What this means is that next week we're going to see gasoline stocks drop below historical averages (new low). The closing alone is worth ten cents, maybe 15. Add in the crunch and..l

I am predicting national gasoline prices crossing the $2.70 line by Friday, September 2, 2005. It'll "just" be a spike - it'll start down. Except it'll run against at least one more major hurricane (the NHC says at least two and maybe four more before the season ends.) Plus all the "lesser" hurricanes that are expected over the next four to six weeks. But this is a test of the pressures, only. If I'm more or less on target, a week from today I'll see $2.70-$2.75 per gallon at the pump. (Where I am, we tend to be real close to the national average at the pump, give or take a nickel or so.)

Our mission in Iraq

2005-08-23T11:04:00.000-04:00

I'm seeing a lot of revisionism from both sides on Iraq. I thought I'd reference the two statements President Bush made at the beginning that specified the mission and highlight certain elements. The two statements are his declaration of war (actually the statement to the US people that he was attacking Iraq) and the more detailed statement of three days later.

First to the revisionists on the left. There were, perhaps, various indicators from subordinates that this would be a short war. But the specific statement of the president in both messages was, "As long as it takes."

To the right, the president had four missions, total between the two messages, for the attack on Iraq.
1) To Disarm Iraq of its Weapons of Mass Destruction. (both)
2) To end Saddam Hussein's support for Terror. (second)
3) To Free the Iraqi people. (both)
4) To defend the world from grave danger. (first)
The third mission is explained in both the above messages. In the first, it's "To restore control of that country to its own people." In the second, it's "To help Iraq achieve a united, stable and free country." These appear to be equivalent statements, the second more fully expanding the first. "To restore control to its own people" also implies a democratic government.

I address the above to the rightist revisionists who claim WMD were but a tiny part of the mission. It is, however, one of two missions repeated in both statements. It is implicit in the fourth mission as well - unfree Iraqis are not in themselves a grave threat to the world. They were, at core, the primary reason given for going into Iraq. Arguments otherwise should explain why we have not and are not invading other nations for which missions 2 and 3 (substituting the appropriate names of leader and nation) but not 1 would be applicable.

By default we accomplished mission one. While we have removed Saddam Hussein from power, there is strong local support for terrorists. I suspect whether we truly complete mission two (and in the context of global terrorism, mission four) will be reliant upon successful completion of mission three.

The remaining missions can be restated, then as:
"We will establish in Iraq a democratically governed nation that is united, stable and free, to eliminate it as a danger to the world."

Testing

2005-08-19T09:45:00.000-04:00

This is a test, it is only a test... Yeah, right. This is a test of whether oil (in particular gasoline) ise as tightly strung as I think, or if there's still some slack on which to draw.

Recall that what I'm reading says supply and demand are matched. If someone has to stop for a bit, nobody else can take up the slack. If so, since gasoline demand is fairly inelastic in the short term (we need a certain amount regardless of price, though over time we can change that demand), the result of such an unexpected shortage would be a severe jump in prices. Not just the roughly 25% we here in the US have experienced over the past year. I'm saying at least 10-15% (locally, 25 to 37 cents per gallon) in the space of a week or two. OK, that's background.

This is an update press release from the National Weather Forecast system. Let me quote three important sentence fragments:

NOAA is calling for a 95% to 100% chance of an above-normal 2005 Atlantic hurricane season [.]

...

The updated outlook calls for an extremely active season, with an expected seasonal total of 18-21 tropical storms (mean is 10), with 9-11 becoming hurricanes (mean is 6), and 5-7 of these becoming major hurricanes (mean is 2-3).

...

Therefore, for the remainder of the season, we expect an additional 11-14 tropical storms, with 7-9 becoming hurricanes, and 3-5 of these becoming major hurricanes.

In other words, last summer redux. Now everyone remembers the triple run through Florida, but that hid something more relevant and significant. The hurricanes forced the Gulf oil platforms to shut down for almost a month altogether. And each of them caused about a 4-day delay in oil deliveries to the gulf refineries. We had a bit of a surge from those two little items, remember?

95 to 100% chance of at least three major hurricanes over the next 6 weeks. I'm betting we see gas prices to the aforementioned jump. That's a national average of ~2.80 to $2.97 per gallon. (West Coasters will bust the $3.00 mark cleanly.) Oh, it'll drop after -- the hurricane is a short-term effect -- but it's going to have some interesting aftershocks.

It's those aftershocks that are the test. Just how well buffered are we, economically speaking? Got some slack? Facing a little stagflation? Or on the precipice's edge of a major collapse? We'll have a pretty good idea by mid-October, I think, if not before.

revisiting PP part 5

2005-08-12T12:11:00.000-04:00

[Edits to correct in red.] I don't think I was paranoid enough. I ran across some hard numbers for gasoline prices and for housing sales.

The EIA says the price of gasoline has gone up about 27% (49.1 cents) since this time last year - most of it (42 cents approximate) in the last six months. This has driven a CPI-W (consumer price index for urban wage earners) of 3.5% for the January to June values, with the rest of the values not yet available. The EIA says prices will remain high but gradually declining - just as they've said (and been wrong) for the past year. Most 'big name pundits' think the prices won't decline particularly till this time next year, but aren't projecting significant increases. Unless, of course, the winter's bad or there's any kind of event that rubs against the fact that the supply/demand margin is so slim.

Unfortunately, the National Weather Service is predicting another year of lots and lots of hurricanes - even more than last year. That will inevitably cause spikes in the price of gasoline at the pump. And a bad reality of "seller's markets" is that prices are easily increased but decreased only with difficulty.

Even if it doesn't happen, we're on track to break 4% inflation this year as PP5 projected. (Yeah, I know, three days ago. Big deal.) But I'm now betting we break 5%. And since it's not due to an overheated economy but 'merely' the cost of raw materials, I suspect the Fed will be facing an ugly decision after the holidays - controlling inflation or allow the only-just-recovered economy to recover. (Oh - some bad news on another front. Inventory on hand is increasing, and it's too early for the holiday pre-stock. Either sales pick up or production will start to decline.)

Second point. Some of the really hot housing markets are kicking out warning signs. Virginia, uber-DC (includes VA), and California realty organizations are reporting that resale times (time from putting on market to closing) have increased by multiples from three months ago. Virginia says it's increased by a factor of -f-o-u-r- 36%. California as a whole reports a factor of three. DC just says "more than double". Remember PP5's prediction - slowdown of sales causes stressing of those who've stretched, which in combination with increased interest (due to inflationary reaction) forces those on the edge to foreclose, which creates MORE slowdown due to even more houses on the market AND banks dumping (time equals money).

The next 12 months are not going to be pleasant for an awful lot of people, starting pretty close to the holiday season. Me?

Me, I'm:
- making sure I've restored savings to cover at least 6 months of current expenses;
- buying a used motorcycle for its fuel efficiency (I don't really like riding motorcycles as I had some bad experiences when I was younger, but quartering to halving my gas bill seems worth the discomfort);
- clearing as much of my debt load as possible (within a month I'll have returned to only carrying two loads: the house in which I live, and the "new" car. To the good, the anticipated effect of the inflation will be a defacto improvement in my cost of living - eventually);
- preparing a work-plan suggestion (actually, a few options for an anticipated meeting) for my place of employment that'll help my coworkers (and myself) get our hours while minimizing expenses. I'd like to swing four ten-hour days, but as we do 7 days a week and are stretched like a piano string it's not so easy;
- making sure my various tools and assets for "second income jobs" are ready.

Practical Paranoia, part 5

2005-08-09T10:04:00.000-04:00

I find I'm disappointed in what I've written in earlier sections, particularly part 4. Looking at it after another brief hiatus, I realized I've jumped to vague handwaves. Darnit, that isn't going to do the one certain reader of this blog - ME - any good. [heh- yes, I write this for myself more than anyone else. In some respects it's thinking out loud.]

Actually, one flaw of part 4 is that I fail to make clear preparing for inflationary economic doldrums is different from preparing for deflationary ones. Well, no, not really. Some of the basics for surviving both are the same. But it's been noted by many that if you successfully prepare for disaster you can actually gain from it -- almost all disasters include opportunities.

So with that, let's quit being general and try to generally forecast what I think is going to happen. After all, I kicked this off with the fact that I'm actually one of the folk thinking the bad stuff is coming - money, it's mouth time.

I think the earliest problem we're facing is a housing slump - a collapse of the housing bubble. Basically, we're going to see two things occur roughly simultaneously. We're going to see folk unable to purchase a house "a bit higher", with the result that the houses remain on the market for longer windows. We're also going to see the current gradual increase in interest rates continue - probably about 2% higher - over the next 6-9 months. This is going to be compounded by oil prices climbing some more - no, not peak, not yet, though I'll revisit that in a bit. No, it's just the fact that demand is so tight against supply that there's no slack, and there will be inevitable events that make supply slip for short periods. Basically, a repeat of last year's increases. All this - the interest rates, the fact that other things (especially oil) take bigger chunks out of the wallet - mean we're going to start seeing people unable to manage the mortgages they've already obtained. Bottom line here is an increase in foreclosures.

The result is a glut of housing, of which some (the foreclosures) start selling at what is presently below market value - as a commenter noted elsewhere, banks don't want to hold, they want to minimize their losses, so selling now for half beats selling in 3 months for full. [Yes, I exaggerate, but not so much as it appears at first glance.] With a glut of houses, new construction slows down. It has to - contractors can't build the next few houses till the last ones are sold (allowing for some overlap, but the overlap only goes so far). If they're not building, builders aren't working. Which means the construction industry - one of two industries that have made up the largest proportion of the recent employment gains - reverses its growth. How bad will this be? Well, that's tricky.

First, the bulk of this expectation overlaps the winter holidays. And that same window is the slow period for such workers. A large number of them expect to be out of work for a couple-three months anyway. Call it as much as 20% that fall into this boat - the rest take inside jobs and alternate employment during this window and ride out the storm. What I'm expecting, however, is a 25-30% decline. And it'll be obvious after the holidays when the workers can't find anything after what they think is a normal dropoff.

Of course there are other businesses associated with real estate that'll take hits as well - obviously real estate agents, but more subtly many of the mortgage specialty industries that have sprung up over the past few years. Sigh - I'm getting large view again.

The result of the housing slump - pop, hiss, hold, or whatever - will be a hit to the economy. Allegedly there are a lot of folk over-leveraging their houses. So they'll find themselves hurting for money - hurting hard, I suspect. My guess as to what is going to happen out of this is an economic doldrum that hits us in Spring of 2006.

I think the S&L collapse and the subsequent recession of 1990-1991 provide the best model of anticipation. A major financial industry is going to be left holding a bag and not carrying sufficiently deep pockets. Covering that industry's bets will require in turn deep and painful digging in taxpayer's pockets. One variant from that is that while the S&L "caused" the 1990-91 real estate slump, this time the cause and effect are reversed. Yet I think the end result will be sufficiently similar for my purposes. Subsequent, I think we have to use the current administration's history in regard to the 2001 slump for anticipating the recovery. Thus my anticipation is:

About 2% decline in real GDP over three quarters. A sluggish (12 month) recovery just to recover the 2%. Employment takes double that - almost two years - to recover.

In more detail, let's examine states. If your state was one of the majority that suffered from the declining revenues of 2001-3, expect a repeat. Except, if your state is one of those with the greatest gains in real estate, expect it to be worse. California is obvious. Colorado (the "monument gap" development from Denver toward Colorado Springs primarily), Washington State (Seattle), much of the northeastern seaboard (aka the NYNY to Newport Urban Corridor aka BosWash plus), Georgia (Atlanta) and Florida (Miami), Arizona (Phoenix) - that, I think, is the list of the big targets.

Crap. I'm in government - here, sorta state, sorta local - a librarian. We saw many, many cuts in our jobs over the past half-decade, cuts which have not been recovered. One of my plans, therefore, has to be preparing for alternative employment. To the good, I'm senior. To the bad, I'm "only" a librarian, and there's a tendency to consider a library a frill. (Given that in EVERY depression library attendence rates spike hugely, this implies otherwise. But reality is that libraries are early on the cuts list.) Yep, time to take a good hard look at what else I can do around here.

That's two - housing bubble fizzle which precipitates a recession/depression. But as I said, there's the oil situation.

Remember last year? The hurricanes that ripped through the gulf? Remember what oil did for about a month after that - or rather, what gasoline did after that? Yep, it surged. Guess what - we're already busier in that region than we were last year. Current forecasts say we're going to have almost 50% more activity than last year. 50%. Ouch. Add to this a recent report by the DOE that notes gasoline stocks have declined. (The report's weekly. The decline's been consistent, however, for the past month. The DOE thinks that barring extraordinary events (such as the hurricanes) we won't see August spikes, but the agency does think prices are going to be nasty come winter.

hmmm. Which means the price of oil/gas is going to cut into the wallet BEFORE the housing bubble. Two possible reactions I see to that: people start bunkering, or people further leverage. Since I think we're in a bubble, I expect more leveraging - more stretching of credit. Which in turn means that the housing slump will have a greater impact than I originally expected.

Bleah. We're on the edge of a perfect storm - the 1-2 of oil-housing is going to push the economic doldrums hard. If it's hard enough it could cause distrust of US moneys - all those overseas holders of US trust funds exchanging them for other currencies. FWIW I don't think it's going to be that bad, but it'll not be pleasant.

OK, final swag.

4-5% inflation. 3.5% decline in real GDP over 9 months, 3 months lingering in the trough, 18 month sluggish recovery. Nasty, nasty unemployment levels - for the US these days, that is - exceeding 6 or 7% at the peak. Indicators appearing in about 2 months, much of it hidden in the normal holiday turbulence, the GDP decline in February/March of next year.

OK, the normal way to handle this is two apparently contradictory actions. First, make sure that you can pay for things when the prices rise while waiting for your wages to catch up. Second, as limited by the first, grab low interest non-adjustable loans before they go up. Be cautious buying anything that's "hot" as the prices will suffer in the near term, but don't hesitate to take a loan for a major item that you need or really want subject to that. In other words, a vehicle purchase is probably going to break your way. Buying real estate is a bad idea. A FIXED rent/lease agreement for the next year or two is probably a real good idea if you don't own your house, but avoid variables rates. Clearing credit cards with adjustable rates is GOOD, but don't get rid of them. (That is, unless you've more than two that you use. Heck, if you can keep it at one that's even better, and only use it in lieu of an ATM card - payoff that month before the climbing interest grabs you.) For the record, I have one active card. I have three more cards that were used for things that I want, good price, taking advantage of "12 months same as cash" offers. Funny, that. They pay the lenders because apparently over half the people using them run past the 12 months and owe the huge back-calculated interest load. My wife's a fanatic about paying them off - we've never paid the interest.

huh. Thinking out loud is fun. I've got my "probable future" set. It works well if things don't crash - which would be good. It copes well if things go the way I think, and to some extent past that. If things go beserk, well...

If we attack Iran, things go way out of hand. If the Peak is reached, things go nuts fiscally. If our financial difficulties cause a devaluation due to international loss of trust in our fisc, things get absurd. These fall into the "unlikely" range, I think - yes, even Iran.

I'll probably visit this again. I'd like to be set to not only get through the anticipated difficulties, but to successfully take advantage such that I come out ahead. But for now, I've gotten VERY longwinded. Enough.

Lazarus and us

2005-08-04T14:25:00.000-04:00

I'm rather fond of many (not all) the writings of Robert A. Heinlein. Even so, some things tend to stick in my memory. Over the past few years, a fewof the short, pithy sayings from the Notebooks of Lazarus Long have repeatedly come to mind. I'd like to share the three that have become engraved upon my consciousness, then go off on a rant.

Freedom begins when you tell Mrs. Grundy to go fly a kite.

Secrecy is the beginning of tyranny.

Anything free is worth what you pay for it. (This one is more evocatively echoed in The Moon is a Harsh Mistress: TANSTAAFL, or There Ain't No Such Thing As A Free Lunch.)

I have made few bones about being annoyed with the current administration. And the three aphorisms above form the majority of my complaint.

The government, especially under the current administration, has striven to make what we do its business. To know what we do, when we do it, and often to then tell us how (or if) we can do it. To be fair as government has to do so to some extent. After all, we won't tolerate murderers, and so we want to catch and punish them. Obviously this sets up a tension. But I've noticed in reading history that the balance point of that tension has moved further and further away from privacy - toward Mrs. Grundy getting to put her nose in our business. I find it more and more tempting to fight this trend in ways large and small - and succumb to the temptation at least in ways small.

It's the second where this administration has truly concerned me. Even before the attack on the Towers it was obvious they had a fetish over secrecy. They blocked release of Reagan documents. They made secret a number of meetings, and when the meetings themselves were discovered worked to make everything about them - not only the minutes but the agendas and even who attended - secret. Now, there's a war on. And I agree some things should be secret - if you tell the bad guy you're going to put your supplies at the X with so many guards from such and such forces, the bad guy knows where to bring forces and how many such forces he needs. But still I believe the administration has gone too far. WAAAAYYY too far. I think we'll spend decades finding out things that shouldn't have happened, but due to the extraordinary strength of secrecy presently existing won't be corrected till too late.

Finally, no such thing as a free lunch. You cannot cut income and increase spending. The end result of that is disaster - it's worse than increasing spending and keeping income the same. Eventually somebody has to pay, and the worse the deficit the more painful the correction. It is so for individuals, it is so for businesses and other organizations, nations and their governments are not exempt. I dread the correction, but have become certain it will happen.

Teaching, the easy life (snort)

2005-08-04T09:13:00.000-04:00

Ever stop to think about rewards for work in the context of teachers? I mean, stop and think about it rather. Most peoples' intuition is that a teacher gets to the school a few minutes before the student, goes home on the students' heels, and gets nine months off plus all those huge breaks in the middle of the year. And they want HOW MUCH MONEY? hmmph, we wish we had it so easy.

Wrong.

8 to 9 hours per day at school every day for class with one 30 minute break for lunch and such which can be overridden by needs of the business. (Yes, that means no 15 minute breaks or bathroom breaks.) One to two additional hours at school for staff meetings, and another couple for parents who have questions, one to two additional hours at school for supervision of an extracurricular activity, another two to four hours at the school for "school spirit" (sports and other events), all mandatory, make the at-school workweek in the vicinity of 50 hours. Add in the two to four hours per evening at home to grade assignments and prepare for the next day, and you've got a job sucking 80 hours a week.

And as for that long summer, three things kill it pretty solidly. First is summer school - and most schools require teachers to do at least one session. Second is continuing education - a couple of college classes a year, crammed into the "free" summer - take a month to six weeks pretty close to full time. Finally the tendency toward year-round school. Down here in these parts (North Georgia) school is starting near the beginning of August (my daughter started today - August 4 - and she's envied by friends in a neighboring county who started earlier). As school ended the last day of May, that makes a whole two months available for the teachers. Less, actually, as they had to stay an extra week at the end of school and had to start last week - a week before school.

So two months, minus a month for continuing education, minus another three weeks for summer school, leaves... 1 week. And the end of the year break - about two weeks. And Spring Break, and (around here) Fall Break, except part of those have teacher meetings and they overlap holidays that most folk get, so... Four weeks of vacation a year spread over the entire year is pretty good. But it's not three months.

Around here a beginning teacher gets about $26,000 a year to have 40 weeks of 80 hour workweeks, another three to four of "only" 40 per week, and have to pay for a semester of classes crammed into yet another four weeks.

The next time somebody tells you teacers are overpaid, stop and think how much YOU would want to be paid for doing those kind of hours.

strategizing

2005-07-28T13:49:00.000-04:00

I'm going to expand on that last post to discuss segments in more detail. Before I do that, however, I want to point out something I think very important.

It's a common aphorism that everyone tends to fight the last war. Hidden in that is another truth - there's a nasty tendency to focus so hard on the current war that we're not prepared for the next one.

Now, you have to focus on the current war. If you don't win the current one, the next one is immaterial. The thing to avoid, however, is winning by optimizing for the current war AT THE EXPENSE OF the next war.

Our current war would be ideally served by a hard-hitting force -- a war force -- of about what our active duty forces are now, plus two other elements: a targetting force; and a VERY large nationbuilding force. I intend to get into all that in the next few posts, but the point is that we have another couple of potential wars for which we must be prepared.

Like it or not, we may have to fight China - either in China or in some proxy battlefields - and we cannot sacrifice our ability to do so just to better fight the current war. Instead we should balance our forces so they can (with minor adjustments) fight both wars. Oh, not at the same time, but heel-to-toe is a distinct possibility.

China isn't the only possibility, just the "conventional large" scenario. There are other possibilities against which we need to be prepared. That is, to ensure our existing force has at least the core requirement necessary to hold while we assemble and reorganize as necessary to continue. And I use China because the current anti-global-insurgency is very close to being the opposite end of the spectrum of military conflict from it.

So any plans which require abandoning our ability to at least delay China (or a new Russian empire, or one of South America's big nations deciding to unify that continent by conquest, or... well, any plans that abandon our ability to deal with that beyond "stop or we'll nuke" should be viewed with extreme skepticism.

On the other hand

2005-07-28T10:09:00.000-04:00

Now that I've sneered at the fact we're trying to mulligan, I have to point out that I think we NEED to do it. Of course, I've been saying for a long time (as a couple of early posts I brought along to this blog indicate) that while I thought the described strategy for conducting the war on terrorism was good, the execution was terrible. It was flawed in two significant ways, giving us wholly unnecessary handicaps. While I'll specify both flaws in a moment, I can summarize it by saying it appeared the administration expected both Afghanistan and Iraq to be replays of Grenada and Panama with a healthy dash of Desert Storm.

The first, and to me most important, flaw is the failure to engage the public will. We were told NOT to expect to sacrifice. "Just do what you normally do, spend money, we'll take care of this little problem." There were occasional notes that the whole war would be a long undertaking, but each phase - Afghanistan, Iraq, [fill in the blank] - would be swift and relatively painless.

On September 12, 2001, President Bush could have announced an expectation of huge deficits, longterm economic stagnation to only be offset by extra effort from everyone, and a need for increasing the military tenfold (by draft if necessary), and over 80% of the nation would have said, "OK." That's what the polls said. Everyone - EVERY US CITIZEN - knew we were at war with someone who'd just "covered" Pearl Harbor. Cinch the belt, put aside the leisure things, and get it done so we can go back to being the nation everyone envies - that's a big reason we ARE the nation everyone envies. er, WERE the nation... I'm not sure it's completely true anymore. Instead, "oh, it's no bother. We've got what we need, we'll just keep you informed as we go along. Just stay on with your normal lives."

Thus the first step (IMO) of this mulligan should be a very difficult thing: "We were wrong., we're going to have to call on the citizenry to sacrifice after all." The difficult thing for this administration appears to be saying, "we were wrong," not calling for others to do and give. Passing that, though, the rest becomes a gain. Contraintuitively, sacrificing will actually strengthen us. It will engage the national will. Oh, it means things will get tighter scrutiny - especially as its coming out that not only weren't there WMD but that a number of folk in charge saying there were knew otherwise. But that scrutiny's coming anyway. No, the major gain is engaging the national will. Or in corporate speak, getting the public to "buy in to the process."

As I said, though, I think there was a second flaw to be overcome. As it happens, the preliminary information about the new strategic plan indicates the leadership may indeed be in agreement. Basically, there's this failure to recognize that what we're fighting is a global insurgency. It's not a nationstate (or set of nationstates) using this criminal organization as a cutout. Instead, it's this criminal organization that has safe-harbors of one sort or another in a number of nations. Note that I'm using the adjective criminal to mentally separate it from the concept of being a government sponsored organization. It's an NGO with the goal of supplanting governments worldwide. For the Bond fans, it's more SPECTRE than SMERSH. Except that you don't have a in Blofield in charge of it all. In that respect it's more similar to, well, the French Restistance or Russian Partisans of WWII. Many smaller organizations of various sizes, all with an identical macro-objective, but each with its own agenda of subordinate goals.

To counter this will take a great deal of effort. Effort in terms of manpower, brainpower, and money to begin. The various pieces must be identified, isolated, and eradicated. Where they've supplanted all (or most) of the government - such as the Southern Alliance of Afghanistan (aka the Taliban) in 2001/2002 - "simple" and direct military action can be taken to begin with. Where the nation is fairly strong we have to help it (or let it help us) find the cells buried deep within while avoiding turning the nation against us. This is, basically, anti-insurgency. It's just on a larger scale.

One last thing before I go - the reason it's REALLY going to cost a lot in time and effort and money. That's because the nature of the beast is such that we can't just cut it out and walk away. I'm going to compare the situation to a garden. If you want a good garden, you can't just turn the soil and walk away. Heck, you can't even stop after you plant the seeds (and you can't just throw the seeds anywhere, either, not for best results). You need to tend it - to water it, to weed it, to mulch it, to watch for bugs and other problems. Yes, the garden analogy can be carried too far because in the end we DO want to have it stand on its own. But the basic concept still works.

It's going to be work. And we're going to have to quit looking at nations as the villains, and we're going to have to invest our money, our time, and our lives in winning. And if the leaders of this nation fail to tell us we need to do so - indeed, to act as though it's just a setback in another Panama or Grenada or Desert Storm - then we won't invest ourselves. We will not have bought in with the national will. And we'll pay the price.

So on the other hand, the pseudo-mulligan gives us another chance. I find I've no strong confidence that the current administration will use that chance successfully. But I hope....

Mulligan Army

2005-07-27T13:20:00.000-04:00

Three items about the future of the army (well, to be fair one's the military in general) have hit the lines today, and together I think they presage some interesting times.

First, there's the report from the New York Times that the Army is going to rebase most of the overseas based units (50,000 soldiers, from Germany and Korea mostly) in the US.

Second, there is this quick one - two punch of articles that combined indicate the US plans to and Iraq's willing and eager to see a significant reduction of forces in Iraq by next year.

Finally, there's this announcement that is allegedly going to be soon followed with a declassified version of a significantly new strategy in fighting the war on terrorism.

Putting them together it looks to me like the folk in charge are trying to have a mulligan - a do-over. Oh, don't get me wrong. There's been a constant tension in foreign affairs philosophies in our nation between isolationism and interventionism - and getting everyone home has been a longterm goal of the former. But in the midst of a war - an attack on US - pulling folk home isn't just to get them away from there, but rather a preparatory move for something else.

I see three not-mutually-contradictory threads in all this. First there's the obvious - we're trying to win a war, and we're in trouble because our assets aren't flexible. We've no reserve. And the stated goals for both Afghanistan and Iraq haven't been accomplished and indeed seem further away than ever. Back up, reorganize, and focus on the real fight is a good idea, I think. But that's not the only reason.

The second reason is local politics. Iraq is rapidly becoming a burden to those who supported it. By ending it, those in charge can claim to be following the public will - reducing their "wrong way" numbers right before an election. It allows (and intends) to assuage deep pain and frustration among the families of those called, and attempts to restore the appearance of leaders keeping focus on the ultimate objective, in turn restoring the "right way" numbers.

The third reason is less obvious. It's the fact that recruitment is DOWN - way down, looking like less than 3/4 of already reduced recruitment objective down. And retention in the 'decision point' is not looking all that hot either. [Decision point. The majority of recruits - officer and enlisted - are single. Somewhere between 4 and 8 years, however, they get married. And right near that point most of them realize that they can still get a "full" civilian career if they leave now, but if they extend their service their civilian careers will be shortened, with resultant cuts in retirement benefits. As a specific example, military service does NOT apply to Social Security benefits.] Re-examine the preceding plans and you'll see that there's an attempt to reduce the big pains that are hurting both recruitment and retention.

There are several problems I foresee of which two stand out. The first is that people don't forget. It's not a game, we don't have a rewind button. It's not a rebound, it's an attempt go grow from the current status. The second problem is money. Oboy, is it money.

We're moving 5,000 soldiers to Fort Carson (for example). The housing for the soldiers and their families isn't there, neither onpost nor in Colorado Springs. In the longish term it means more housing has to be built - both on and off post - with dollars being spent. In the short term it means housing shortages which means higher prices for existing residences which means either families and soldiers get shortchanged OR we spend more supplemental money.

Another cost of moving is that we're looking at moving ALL instead of SOME. Presently we move about a third of the assigned personnel in Germany every year, and pay rent for the land on which our bases sit. We're going to triple that cost (moving), AND we're going to have to pay for the land, and we're probably going to have to pay clean-up costs.

And that's just for the peace-time (relative) part of bringing most of our overseas forces home. Add in the cost of moving those units' equipment and it begins to stagger the budget.

But there's something that's not in the above that's going to be more fun. I recall (and do not have available) that the Army is intending to develop "lily pad" bases in several less-developed nations. They'll be short-term deployments for soldiers - battalions at a time, swapping out with other battalions in turn, providing a core around which brigades (sorry - units of action) can form on need. Each base will cost money. Stocking the bases will cost, as will supplying them. Add in the need to transport a battalion every six month or so and it gets downright scary.

No, there's no such thing as a mulligan in real life. And attempts to do so are painful and expensive whether they succeed or not. I hope the folk making these decisions put the costs in front of us - no more "100 billion is preposterously high for an invasion of Iraq" remarks. Otherwise, it won't be a mulligan.

It'll be a catastrophe.

Practical Paranoia, part 4

2005-07-23T11:58:00.000-04:00

Wow, a month and a half late. Can you say, "not at the top of my priority list?" For those of you reading regularly, my apologies, and then off to the show.

As it's been a while let's make a quick summary. I think there are three "chicken little" scenarios that are in the realms of possibility for the US within the next year or so. These are peak oil, the popping of the housing bubble, and economic doldrums. This series was a brief discussion, then each was to have a bit of a general "so if I think it's coming, what should I do" topic. Because it's one thing to see the train coming, and it's another to get out of the way. (And yet a third if you figure out how to successfully sell tickets, but I'm going to try to do that in a later post.) This, number four, is "economic doldrums". I've made it a bit of a catchall - recession, depression, with overly strong inflation or deflation contributing. It's the fact I'm trying to cover both these last that's given me my delays. On with the show.

The major thing about an economic doldurm is that money needs to stretch further than what it used to need. So the major planning is to do one of two things: planning for more available money; planning for stretching what you've got.

So, how to we plan to have more available money? Two ways, actually. One is to set aside savings NOW for spending LATER. This is very hard for most of us - we want our toys, and we want our nights out and we want our clothes and... It's a given that most of us in the US spend everything we get up front. I'll return to this because I've some suggested solutions, but I want to mention the other way. The other way is to plan a second source of income. er - not only monetary income, but sources of goods and services. For almost everyone this will feel like (and for all intents and purposes will BE) another job. For those already working two or three jobs this isn't going to help - not directly, anyway. For the rest of us, think of what you've got. For example, I'm a librarian, and I do computer work at the library for the library. I can use those skills for bonuses: I can fix and modify computers; I can teach people to use computers (both the basics, and how to do what we call 'information literacy'); I can teach people how to effectively use the library (though this may require going to the library and may slide right back into the risk of conflict of interest). Additionally, I can: tutor (English and Math obviously, US history, US government/civics); grow and trade herbs and veggies; prepare food (cook it, make pre-cooked meals for eating during the week, etc); drive passengers; and several other things. Worth noting is that some of these require licenses. Others are borderline about needing licenses. And the etc shows that I've other skills as well. I'm a good teacher, too, so many of the skills can be taught instead of doing - something that can be worth a fair amount of barter as well, but which can eventually lead to being 'out of work due to competition'. Perhaps it's obvious that I'm prepared to earn more money. I'll lose free time, but I won't go broke.

I want to return to how to save money - it's a failing I've observed a lot. The problem appears to be pretty simple for most of us: it's just too easy to access and spend our money. This includes credit cards - even though we may have locked away part of the money, we can surrogate spend with the credit card and then pay out of our locked funds. Still, locked funds are a start, so let's go there first.

You need the assistance of your financial institution - bank or savings and loan. Basically, you will have them AUTOMATICALLY draw a portion of your payroll check into a savings account of some sort - an account which you've made just a bit more difficult to withdraw. At the least, no checks and no ATM/debit card on that account. For a higher level of difficulty, require a bank officer co-signature on the withdrawal slip. To push it a step higher yet, set it in some sort of fund that requires AT LEAST a day to move into your hands. No, not a CD as those have a fixed duration and you can't get it if you need it - though using this autodraw for CDs is another good option for investment that I recommend, it should be second to establishing savings.

Now either way you've got a bit more money available - either stuff set aside, or the ability to get more, or both. It's there if things go south. But as I said there's another option: doing without.

I really recommend taking time now to figure out what you can do without, and how you're going to keep from going mad while doing so. Eating out is enjoyable on many levels. Internet access, cable TV, DVD purchase and rental - all are things that may have to leave your budget. Be careful, of course, to identify what you'll need. For example, at least part of my 'moneymakers' are connected to my computer, which includes my internet access. Cutting that access would remove that source of income, so it's got to remain (but with the intent of the cost being recouped in other income). Don't be unrealistic - for example, while I like to read books you may not, and saying you'll start reading (or taking classes or anything else you've not done before) even though you don't really like it much means you'll be, well, you're going to have a hard time getting through it all. So in your things to do include just how you're going to have human contact. Not just work (or second job) but people with whom you can socialize just because you enjoy their company.

So the basics of coping are to determine what you can do to cover the shortages - more income, less expense. Boring, really.

Next session, though, I want to play a bit of mix and match and a touch of speculation. Because I suspect that not only can you get by, but if you're imaginative and can spot the subtle cues you can actually get ahead.

On evidence

2005-07-15T18:13:00.000-04:00

There's this new article out that claims Rove was told by Novak. And what amazes me is the number of people treating it as the REAL gospel.

Let's ignore for a moment that folk speaking on Rove's behalf have had several contradictory statements (ranging from he never said anything through he only started after the article was out and he never said her name and never heard anything about here before Novak asked him...).

This article alleges to be reporting on what Rove told the Grand Jury. Let's apply a reality check - not definitive I admit but certainly strongly indicative.

There are four bodies of people who might have known Rove's testimony - three directly, one tightly. The first is the staff of the prosecutor. Prior to this, how many times have they discussed details of what was said or done in the Grand Jury? (I believe that would be none - to include the President and Vice President's testimony.) There is the Jury itself - same question, same answer. There is the court staff - the stenographer(s) and bailiff(s) and all that sort of folk - and again the same question generates the same response. And then there is Rove's attorney and support. Same question gets the answer, "several."

So we have one group in which leaking is historical MO and three where this is a severe aberration. It doesn't prove the so-called leak is just another attempt to soothe Rove's image in the public eye. It does make it likely, however.

Again and again - we do not know what testimony and evidence has been presented to the Grand Jury, that Fitzgerald has found relevant and reliable. We know some of the subpoenas presented. We know what some of the witnesses SAY they have said. And that is it.

It may come up "no charges are justified". It may be "everybody in the government not protected by Constitutional articles is facing charges." I suspect it's somewhere in between.

Rove's (not yet) culpability

2005-07-14T13:12:00.000-04:00

I'd like to walk down the chain of facts for this current "outing" fiasco - at least one chain - to point out why I'm not yet willing to say Rove needs fired/jailed.

Plame worked for the CIA - fact. At least, I've not yet seen anyone disagree with that.

Plame's CIA employment was classified information - fact. Now while I've written elsewhere on this I need to repeat it for readers here. "Common knowledge" (and it's equivalents of "everyone knows" or "everyone in the know knows") does not remove a classification status. Changing the status of classification is a documentable (read, there's a paper trail) event. You and I can speak all we want of (for example) 'that missile silo outside nowhere, Wyoming' that we drive by almost every day with no consequences. But if an airman joins us and says, "Yep, I was there and it's a missile silo outside Nowhere, Wyoming." then he revealed classified information. The fact it was common knowledge did not remove the silo's classification status.

Rove told people that Plame worked for the CIA - fact. At least, his attorney as well as Cooper's notes say he did.

Rove revealed classified information - maybe. This is the crunch, and it requires a subtle point: did Rove know that Plame's relationship with the CIA was classified? If he didn't know - if he was repeating "common knowledge" - then he skates. Let's set aside "he should have known" as "should have" isn't "did" - ask most any parent. If Karl Rove knew that employment with the CIA was classified information then he revealed classified information. If he knew that Valerie Wilson's employment by the CIA was classified, then he revealed it. If he did not know these items, then as despicable as I might find the revelation, Karl Rove isn't guilty of revealing classified information.

That last paragraph is key. It has to be met before the rest of the relevant criminal statutes can be tested - both the "outing a covert agent" and the various "releasing classified information" statues (Espionage, mostly, but there are a few others).

And until we know, Karl Rove isn't culpable.

Who was outed?

2005-07-13T13:00:00.000-04:00

I'm beginning to believe that almost everyone's falling for the magician's favorite trick - misdirection. It's even more amazing as it's unintentional. Let's take a quick look at what I think is the critical section of 50 USC 421, common to paragraphs (a) and (b):

Whoever, having or having had authorized access to classified information that identifies a covert agent, intentionally discloses any information identifying such covert agent to any individual not authorized to receive classified information,...

Now everyone (including me) has been focused on "identifying a covert agent" as saying: This person, Valerie (Plame) Wilson, is a covert agent. And there's lots of talk of the splash effect on other connections, for example that Brewster, Jennings and Associates was exposed as a CIA front and that all her contacts are going to be reexamined by foreign agencies to see if one or more might also be intel specialists, and ... SCREECH. Slam on the brakes, we had a critical insight.

"Brewster, Jennings and Associates is a CIA front." Meaning everyone - EVERYONE - who introduced themselves as employeed by BJ&A in the past few years might have been CIA. More importantly, ALL senior officers were either CIA or connected to the intelligence structure. They'd have to be at least partially so in order to not get extreme reactions when agent X is plugged into the finance or sales office at the senior staff level.

(Hey, who is this Valerie Plame person who says she's part of my office? Why didn't I get to interview her, read her resume, see her references, or any of that. And why the heck if she's part of my office is she getting assignments I didn't give?)

Now the loophole is not the bit about covert agent, but about "knowing that the information disclosed so identifies such covert agent." At this point it's legal parsing - is confirming Valerie Plame was such an agent and so her cover was false by definition knowing the cover was false and that you disclosed that fact? (whew, that's tangled, but I think it gives the gist). The more I look at this the more likely it seems.

I don't think we're looking at a single count of violation of this statute. I think we're looking at multiple counts. Each count carrying up to either 5 or 10 years depending on level of knowledge, and each count mandatorily served consecutively per paragraph (d) of this same section:

(d) Imposition of consecutive sentences A term of imprisonment imposed under this section shall be consecutive to any other sentence of imprisonment.

The Plame Game

2005-07-11T14:21:00.000-04:00

I've mused off this blog in various emails about what this, that and the rest mean. But I'm trying to avoid wild-eyed speculation except as lesson points for here. So instead, a touch of reality - a message to both sides of this particular divide.

There is one relevant fact: The appointed investigator is still investigating, and he has not spoken in regard to the investigation's course. Everything - EVERY SINGLE WORD - out there at this time about who done what and what it means is speculation. There is not something, and there is not nothing. We're in a holding pattern and will continue to be doing so until Mr. Fitzgerald completes and reports.

I will bend slightly and state that based on what the appeals court justices wrote in their decisions regarding Cooper and Miller that there is something there - something that implies Mr. Fitzgerald will be bringing indictments against someone. But against whom and what the charges might be is, well, I've seen decently supported speculation from both sides. Note that the Justices' decisions indicate that the speculators saying there's nothing there are mistaken - I'm saying that the ones suspecting it's moved to (say) Wilson have provided as well-supported a case as those suspecting Libby.

But again - it's all gas. We'll get meat when Mr. Fitzgerald (who appears to take seriously the rules which include not leaking to the world at large) concludes his investigation.

Practical paranoia, part 3

2005-06-06T21:41:00.000-04:00

The topic of this one is the housing bubble. Now it's possible that this is a false alarm. I don't think so, though.

This one's fairly easy, however. First, figure out if you're in a large or small bubble. (heh - easy. right). I've got a couple of rules of thumb for the size. First, what're the median prices in relation to the median incomes of the area. 20 years ago the ratio was 3 to 4. Heck, even a decade ago the ratio wasn't that far off. Now... in the
Atlanta Metroplex the margin is about 8.5. In Miami it's about 12. You get the idea. If your ratio is over 4 you're on the edge of a bubble. If it's double you're in a bubble. If it's triple or more start watching for the pop. I said a couple of rules of thumb, though, because that one might not be enough.

The second test is rent:price ratio. In a nominally perfect world price (monthly cost of the house) to rent is about 1:1. If it climbs over 1.1 you might have a bubble, though a lot of other factors might also apply. If it exceeds 1.25, you better have some really strange applicable factors to not have a bubble.

OK, but what happens when the bubble bursts? Here's where it gets different from other speculative bubbles. Basically you can expect two big results.

First, for the most part house prices will stagnate, not drop. That is, the price people sell a house for will be in the vicinity of what they paid for it. (Big ugly here is realtor fees. The effect will usually be a net loss. It's my opinion that realtor fees have been a big driver in house appreciation in the past decade as people want to at least 'break even' to include that cost - which is anywhere from 6 to 10 percent increase all by itself.) Oh, the top of the heap will decline, but the median will pretty much stay about where it is - at least till sales perk up again. Which takes us to the second and more significant effect.

There'll be a lot more houses on the market due to foreclosures. People won't drop their primary residence (for the most part, barring other effects). But that second house - the one for which they're paying principle and interest and taxes (especially taxes) and insurance plus utilities and maintenance - that one's going to go bye-bye. And if it can't be sold in what they consider a reasonable time, they'll foreclose. Sure, it'll hit their credit. But it'll free 20 to 30% of their regular income in exchange. Rent it? HAH - remember that price:rent ratio? They lose money with rentals at that level. And a landlord has a lot more costs and risks - more than just a homeowner even if it's a second residence.

The best indicator that the bubble is or has popped will be a large number of "stagnant homes" - 120, 180 or more days on the market for average, with some homes easily exceeding a year. Second best is a large spike in foreclosures, though this might also come in the third chicken little - something to beware, and I'll touch on it again then.

So what's the solution? The ideal solution is to rent till the bubble pops, and buy a foreclosure. The second ideal is to rent till the bursting is over (harder to detect) and buy at the bottom of the market. These ideals assume you can rent. Me, I can't.

See, I have pets - dogs AND cats. Landlords don't usually like these unless you've a special relationship, and even then there are problems. So I'm committed to buying. What's my answer? Don't buy speculatively. Instead buy on the old-fashioned spectrum of purchase solely for my residence. And do so with an eye toward staying in the house for AT LEAST five years and preferably a decade for a minimum. I'm buying for the decade and quite possibly for my retirement as it happens. The house is on the edge of being too big for the current family, and stands a decent chance of being definitely too big when the kid leaves - but it's not that much too big. I'm looking at retirement in about 22 years. I figure to pay off the house in 20-25 years. (A simple technique - I have a bit more taken out on each payment due, and that part's paid a bit early. This pays against principle which forces a recalculation of interest owed every few periods. Total result is that the house is paid off before the nominal due date 30 years from now.) Anyway, that means that if the house does turn out to be too much, the sale is unencumbered and totally equity and I can use the result to purchase something more appropriate - including assisted living if necessary.

I've hinted at this point of a critical point about all these chicken littles, and I'm going to make the point clear right now. Every one of these is a temporary problem. Peak oil - I don't know how, but we'll manage. Either we'll develop much greater efficiencies of use or we'll develop useful alternatives or both - they're there, we just don't have the incentive yet. We're lazy, but not suicidal. Same goes for housing - it may depress for a few years, even a decade, but not for a lifetime. And when I get to the next part - even if we use Japan as our example, we'll manage. The doom is not forever - it's not armageddon. I firmly believe and will plan on the assumption that the best plan gets you through the rough positioned to take advantage of the recovery. As I think the most likely chicken little is the next one, that's where you'll see me doing more positioning.

Later, all.

Practical Paranoia, part 2

2005-06-06T17:54:00.000-04:00

As part one said, there are lots of chicken little warnings running around and I'm rather in agreement with some of them. However, I think it's right to not only run around warning of problems but to consider fixes as well. In this part I'm dealing solely with the Peak Oil problem.

As I said, we're not going to magically create new oil. Oh, biofuels will help reduce the pain, as will waste conversion projects of one sort and the other. In fact they may eventually make a difference. But to put it in perspective, if we covered all of our current wheatfields in biomass we'd increase our annual US production by (depending on the reference you read) 5 to 15% - and we import a lot more than that. And biomass is both seasonal and subject to all the other weaknesses of farm crops - a drought or other bad weather can wreak havoc. Waste conversion? Sure, eventually, if and after we put trillions into it we can probably meet almost half our current need. In short, we can slow the decline of supply if we're so inclined, eventually, but we're really unlikely to stop it.

Since we can't stop the decline in supply, we have two other avenues. Avenue one is to decrease demand. Avenue two is to prepare for and compensate for the failure to succeed in either other plan.

The problem with avenue one is that most folk aren't willing to take it. For that matter it might be a little too late. Consider for example the US transportation system. Sure, in dense urban areas mass transit is a possibility. But if you check the numbers you discover that mass transit in many if not most of those areas runs at well over 3/4 of capacity, and at the same time represents far less than half the total transitting population. In other words, the urban areas will have to at least double and more likely triple transit capacity. And that's of absolutely no help in moderately urban/suburban areas where there is little or no mass transit, nor does it give a reliable solution to the tranportation of goods. In most cases it's a last mile problem. That is, getting the trunk line is fine, but dealing with the four to five blocks from trunk line to house is really, really expensive.

Actually, let's be fairly honest about this. The reason avenue one suffers the most is what I'll call the "I want mine" syndrome. I sit here seeing what others had, and I want it. I'll have a sneaking suspicion that if I do the right thing you'll not - and so my sacrifice means you get to live high on the hog a little bit longer. Frankly, it's the prisoner's dilemna writ large. And the bad thing of the prisoner's dilemna is that if one party is purely self-interested then it matters not how enlightened the other might be - the best of the remaining bad choices is to be self-interested yourself. In other words, it takes us all to make a difference, and unless we're MADE to do it there're enough that'll ruin it for everyone that I might as well not act myself. Cynical, isn't it.

For this reason, I think the best option is to act under the assumption that peak oil is going to happen. I think it'll start hitting in the next year, though as noted it could be as long as a decade away. The consequence of peak oil is that everything will start costing more - either intrinsically if it's petroleum based, or due to the cost of transport.

1) Start working to be less petroleum reliant. Now on the surface this appears to be contradicting my cynicism of the preceding few paragraphs, and to some extent it is. But by focusing on greed instead of altruism I'm more likely to succeed - yay, cynicism strikes again. Anyway, less petroleumk reliant includes:

more fuel-efficient transportation. Use, or lobby for, or whatever, mass transit. Get more fuel-efficient vehicles.

local gets precedence. Go to local areas for vacations. Purchase local goods by preference. Grow or make if possible, but be wise enough to recognize the penalty cost of trying to do everything means nothing is done its best. Start working on local exchanges - what you do well in exchange for what others do well.

Work to localize your own transportation needs. Shorten the distance you need to travel overall - whether this is by carpooling or by moving closer or by working smarter shifts or whatever. In this, recognize that if you can pass the cost of the necessary transportation on to others, you should really consider doing so.

Boy, I'm cynical. OK, let's look at me, specifically.

I just bought a house that's 25 miles from the main office and am selling one that is 2 miles from the same. There are a lot of really good reasons for this but it's going to cost me in gas. Now I've got two supplemental options going on. First, I've got a co-worker that will be going to work almost right past my door almost every day. If I'm smart (and I intend to be) I'll make arrangements to split the cost of gas for that distance - she comes to my house and either we jump into my car or I jump into hers, and on we go. Second, there's a branch all of 6 miles from where I'll live. 6 miles is a lot closer than 25, so I'll be doing my best to get my normal duty site moved to that branch.

I'll be starting a small vegetable plot. I'm not a good farmer, but I think I'd better get better. Foodstuff not produced locally is going to get real expensive. Heck, local foodstuff that has to be farmed by tractors or irrigation systems which all burn fuel are going to get more expensive.

Housing efficiency. Here, I'm ahead of the game. First, the normal air conditioner temperatures are too cold for my comfort. Now 92 degrees is a bit high (that's what it hit locally today), but I can make do with fans and open windows - and those are a lot more fuel efficient. I've got a good hvac system in the new house - much more efficient - so those time when I HAVE to break down and use it (for heat and for cold) I'll be a lot better off than most. Yes, it's electric. Yes, I know electric will go up. But it'll go up less than heating oil and propane and natural gas - the savings are inherent in bulk.

Now there are a few more things I can think of for me, but they start falling into the other chicken little calls so I'll save them for then.

Later, y'all.

Practical paranoia, part 1

2005-06-06T17:12:00.000-04:00

I'm beginning to see more and more "chicken little" exclamations on the blogosphere - heck, I've got one myself. It dawns upon me that I'm violating one of my personal rules of behavior, and it would be a good idea to straighten out.

The rule is fairly simple. Don't just complain, start coming up with solutions. Solutions can be in the form of "how can I prevent the problem" and "how to recover from the problem", as appropriate.

As near as I can tell there are three chicken littles going on out there for us US kind of folk, though they're all rather related. These are: 1) Peak Oil; 2) Housing Bubble; 3) Extended Recession (Depression), possibly in its Stagflation form. I think in the interest of controlling length I'll post a quick summary of each and save the "what should I do" remarks for followon posts.

Peak Oil is, I'm sorry to say, a reality. It's not if, it's when. I don't think its eventual effect will be end-of-the-world, but for a while there's going to be a modicum of pain and suffering as things rebalance. In a nutshell, our demand for oil is bumping against our ability to supply oil, and every indication is that it's going to be harder and harder to sustain current demand much less the anticipated growth in demand. The consequence is rather simple: oil will be more expensive. We can't stop it, we can possibly delay it, but we had better (if we're smart) start planning what we're going to do to cope with it.

Housing Bubble. This one might not be a when. And there's every indication that even if it is a when instead of an if that it won't be (directly) a national problem - that to sorta reiterate what Greenspan and Krugman have said, it'll be a bunch of little bubbles popping, and some of those will pop others in cascade while some will remain a long time. Basically, the concern is that folk are buying houses as speculative investments instead of as property, paying a lot more than their intrinsic worth. As the number of people riding the edge get large enough they'll be unable to sustain that ride and 'dump' their properties. As those properties begin to saturate the market they'll in turn decrease the speculative worth of other properties not so close to the edge, and so on. I noted that the three scenarios can be connected. One way in which this is possible is if something drives up the interest rates. Those properties bought on the hopes/'expectations of interest remaining low enough long enough are the ones that fall when the edge moves from under their investors' feet.

Economic Doldrums. Again, an if instead of a when. Worse, there are two contradictory conditions in play. First, we need to recognize a recession, as both these problems are expanded versions of that. A recession by official measure is two or more quarters of falling GNP. That, unfortunately, tells most of us nothing. So let's break it apart a tiny bit. GNP is a consolidated measure of wealth production, measuring both individual and corporate gain. A recession is when some component is running negative. Consequently, any or all of the following can be significant contributing signals of an ongoing recession:

Increased Unemployment - folk are put out of work and so can't pay their bills or buy new stuff - including food and shelter.;

Restriction of Credit - getting loans is harder, and those who get loans face higher interest rates;

Price Deflation - the reverse of inflation, goods and services cost less as businesses try to sell something instead of nothing to those folk out of work (fulltime or part-time). Unfortunately, the wages of those still employed tend to follow, eventually. [A benefit to the worker is, if they recognize the upcoming drop and are able to take advantage of it is that they can make preparations for the upcoming problems - they've a short-term surplus.];

Increased bankruptcies - kind of obvious, of course, due to unemployment, credit, and deflation combined;

Reduced trade and commerce (sales of resources and finished goods and services) - intertwined above, but basically if people don't have the ability to buy, they don't buy. Of course, since the business can't keep everyone employed they let more people go which potentially reinforces this vicious circle.

Now there are lots of candidates for differentiating a depression from a recession, and none are officially recognized, so I'll take a swing at a working definition. A depression is a recession that goes on for more than a year. Most of the protections we've got in place these days will tide folk over a recession, but as it reaches a depression the resources and such just flat run out.

I also threw in another economic doldrum, one which until the 1960s was thought to be impossible - stagflation. Basically it's a recession/depression with one change - price inflation replaces price deflation. Again wages follow suit eventually, though the lag this time works against the folk still employed - for a while they're desparately playing catchup.

Now as it happens, I think all three problems have a high probability of occurring within the upcoming year. So it behooves me to say what I think folk can do to prepare and cope - and it wouldn't hurt if I followed my own advice. One small point up front, no "stack supplies in a cabin and wait out the armageddon." See, the silver lining is that I don't think any of these are the end of the world. They're just some rough upcoming years. So to my thinking any plan needs to be one that allows me to stay in the midst of civilization, maybe even making things a little better. An ideal fix is one that helps me even if my predictions are wrong - kind of like tucking away savings over a period of time.

more on entry job numbers

2005-06-02T22:51:00.000-04:00

The more I dig into this peculiar dataset, the more I'm sure I found something significant - but I'm not sure what and so I'm not sure it's significant. Tentatively, a hypothesis:

Economic "job health" has a strong indicator in the employment numbers of the initial entry people - mainly the 16-19 age group, and less blatant but still showing the same patterns in the 20-24 age group.

Some numbers based on the past decade. 16-19 year olds form about 5-6% of the total civilian labor force - the 'better' the economy, the higher the number. Yet 16-19 year olds form 15-20% of the unemployment force - the better the economy the lower the number. Surprisingly, about half this group is full-time (or unemployed looking for fulltime), but the worse the economy the lower this proportion goes. And then the kicker - in rough economic times the proportion of workforce (working or unemployed) to total age group population drops A LOT - ten percent in comparison to a 2-3 % drop in most other age groups. (And the other peculiarity but maybe not so peculiar - a 2-3% INCREASE in labor force participation in the oldest age group of 54+.)

As I said, the 20-24 numbers while not as large follow the same trends.

GUESS. In rough times, there are just flat fewer opportunities for the people just entering the workforce. Fewer new openings exist, and there is more competition from people with more experience for those same fewer openings. That explains it, and I think I can justify it.

The hard part is "so what"? What good is recognizing and watching these numbers? Tentatively, I suggest that it's a tool for watching the "job market" - one which is more discriminating and so giving a more qualitive answer instead of merely quantitive. Is it churn and stopgap, or is it career type jobs? Although the supportive question is which number or numbers is/are most relevant for this. hmmmm.

employment insight

2005-05-31T21:41:00.000-04:00

While cruising through the econ blogs, I had a curiosity bug bite me and did a little looking - and found something to make me go hmmm. As I posted on Max Samwick's Vox Baby comments, the interesting thing is the ratio of workers to total population. Now everyone's noted that it declined under Bush's tenure, and there've been many points made and argued over the cause. That's background.

As I note there, the interesting thing happens when you subsort that info by age. For all groups the numbers are fairly constant from 1995 through 2000. In 2001 a decline begins with a new norm established by 2003. For most age groups the decline is in the 2-3% range. For the 16-19 year olds, however, the decline in that period is about 10%.

As an aside, the relevant series IDs are LNS12300012Q - ages 16-19; LNS12300036Q - ages 20-24; LNS12300089Q - ages 25-34; LNS12300091Q - ages 35-44; LNS12300093Q - ages 45-54 .) You need to go to http://data.bls.gov/cgi-bin/srgate , choose "all years", paste those codes into the box, and 'retrieve data.'

Now an interesting secondary effect of this is that these people wouldn't show up in the unemployment rates. Almost all are looking for their first job, and unemployment numbers begin after that.

Me, I think it raises the question of why the drop. Is it a case of them looking but not finding, or is it that they're not looking? I think I'll drop an email to the BLS and see if they've got an answer among their statistical references.