oftwominds

The Present Cannot Be Understood in the Present

2009-12-01T11:24:00.000-08:00

News flash: My interview with Richard Metzger at Dangerous Minds is now available for viewing. (And yes, I know I look old...give a 55-year old a break!)

Experience requires interpretation to reach understanding.

As the end of 2009 lies just ahead, it's a good time to state that the goal of this blog is to seek an interpretation of the present which provides anintegrated understanding of what we experience in "real time."

It may seem painfully obvious to say "the present cannot be understood in the present," or perhaps even counter-intuitive, but it nonetheless a profound truth.

Can the person who has just fallen in love understand all that is at work beneath his/her obsessive thoughts, mad hungers and overwhelming passions? Of course not; an integrated understanding of all that is launched by the immense complexity we tidily label "falling in love" takes years or even decades of parsing.

We are daily offered up data which has been neatly packaged and pre-digested for our consumption, with a specific intent: to convince us that the Elite-dominated status quo is in fine working order and it is working in our best interests.

We might start an integrated understanding by correctly identifying pre-digested interpretations of highly refined/massaged data "propaganda."

Thus we are reassured that a Black Friday tally of $10.7 billion is higher than last year's $10.5 B total, and thus the "green shoots" "recovery" is alive and well.

The context of just how meaningful $10 billion is in an economy of $13 trillion is left safely unstated.

Beneath the surface of direct experience and the present, various mechanisms are at work. An integrated understanding must peel away the obfuscations, ambiguities, lies, misinformation and propaganda and then properly place the present in historical and analytic contexts which elucidate the present in a longer-term and more insightful setting.

Though history may appear chaotic and random on the surface, we can discern three broad categories of mechanisms:

1. Sub rosa plans, agendas and actions which are purposefully obscured from the public. While some such agendas might be considered conspiracies, most are State/Elite policies aimed at maintaining and enlarging the powers and wealth of the status quo State and financial-rentier Power Elites.

Thus the "bail-out" of the financial sector with taxpayer funds and the entire "green shoots" stock market rally were far from random events. They track a carefully plotted plan of maintaining the status quo's power and the intellectual framework which supports it.

2. Unplanned contingencies such as the Afghan War which draw a response from an ill-prepared and divided Status Quo. As an example, we might ask: is the U.S. occupation/"mission" in Afghanistan bolstering or hindering the production of poppies and heroin there? I mean this is the broad sense, not in the narrow confines of a propaganda campaign which seeks to confuse the American public with happy stories of U.S. aid to Afghan farmers.

What are the consequences of the answer? Does anyone even know?

Exactly how does the U.S. plan to eradicate a shadow network in a vast, inhospitable country? Does such a plan (if there is indeed a plan at all other than saving face and "soldiering on") have any historical precedent of success?

Referring to the metaphor of the blind men touching various parts of an elephant and then describing the animal, we might ask what parts of the elephant the various U.S. Federal agencies are touching, and then compare their descriptions of the beast with the actual living animal.

Some three decades after the end of the Vietnam conflict in 1975, various interpretations of U.S. actions, policies and goals are still being issued and hotly debated: we could have won, we should have won (and exactly what was "winning" anyway? Sustaining the corrupt Thieu regime in perpetuity?), the war was a colossal mistake, etc.

What we know for a start is that any interpretation which ignores thousands of years of Vietnamese history, the social, political and religious threads of Vietnamese culture and the sub rosa interventions of the U.S. in Vietnam throughout the 1950s and early 60s will be fatally flawed and thus inaccurate.

The interpretations of the U.S. experience in Vietnam continue to echo and play out in the present, and thus these interpretations are far from mere historical analysis; they remain highly reflective of the present and the entire U.S. government's machinery of Empire.

3. Cyclical trends and forces which are not within the control of governments or private capital Elites. Examples include drought, global financial crises (government control of private debt repudiation is largely an illusion, as we shall soon see in 2010-2012), and various cultural/religious movements.

Though the State/Power Elites can propagate blissful accounts of endless reserves of oil, natural gas, shale oil and coal (we have 50, 100 or even 200 years of supply left beneath our own soil, if MSM accounts are to be swallowed whole), they cannot control the actual production or the cost/price of the energy in the long run. (Yes, various price control schemes can be tried but these inevitably lead to shortages and other disruptions.)

The complexities of all these contexts and mechanisms is overwhelming. Yet we cannot surrender to these fortresses of complexity without surrendering all hope of understanding the present and the future which is already constrained by forces far beyond the control of the government/Power Elites' partnership of domination.

It is tempting to slip into the comforts of ideological, simplistic "understandings" and other manufactured "truths" designed for easy consumption. But those understandings are inherently limited and thus misleading. They will not be accurate guides to the future, as they lack insight and are not based on an integrated understanding.

I hope you come along for the ride through 2010 and beyond. It promises to be an eventful voyage.

NOTE: Thank you to everyone who wrote me and/or contributed to the site in the past 12 days; I will be unable to return to my normal routine for a few more days. Your patience is much-appreciated.

Permanent link: The Present Cannot Be Understood in the Present

Get Survival+: Structuring Prosperity for Yourself and the Nation on amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

NOTE: the Kindle reader for PCs is now available for free which means you canread the Kindle version of Survival+ on your PC.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Jim L. ($100), for your stupendously generous contribution of cash (and topic ideas) to this site. I am greatly honored by your support and readership.

The Grand Failure of Government to Limit Concentration of Power

2009-11-30T11:43:00.000-08:00

News flash: My interview with Richard Metzger at Dangerous Minds is now available for viewing. (And yes, I know I look old...give a 55-year old a break!)

From Dubai to the U.S. healthcare "reform" debate, a key context is the State's Grand Failure to limit the concentrations of power which then twist all State policies to meet the demands of self-serving Elites.

While much is made of the "balance of powers" in the U.S. and other democracies--the power of the executive branch being offset by the legislative and judicial branches--this "balance" completely failed to hinder the credit/housing bubble and the structural fraud and embezzlement at its heart. No branch of the "balanced powers of the State" saw any reason to interfere with the systemic looting and debauchery of credit and currency.

We should also note that in previous periods of extreme concentrations of wealth and high inequality, the "balanced powers" of the U.S. government did not reverse or even seriously challenge these long periods of high inequality. In this sense we should be careful not to overestimate the State's control over wealth concentration and rising inequality.

Despite the supposedly "leveling influence" of income taxes, wealth has become ever more concentrated in the past 40 years, paralleling the high inequality between the Civil War and the Great Depression. Neither the "trust-busting" actions of the Federal government in the early 1900s nor the rise of industrial unions reversed or disrupted the 1860-1930 period of high wealth concentration/high inequality.

This, then, is the grand failure of government: due to the concentrations of power accumulated by those with asymmetric stakes in the game, any attempt to limit a concentration of power is thwarted by status quo. All the issues which so worried Madison in The Federalist Papers have come to full flower: the power of the State has been legally channeled into Elites which have nothing to fear from any branch of the State because they are the State.

Despite decades of attempted electoral "reform," elections in the U.S. grow ever more prohibitively expensive, and it is still legal to contribute large sums of money to politicians. The cliche has it that "money is the mothers' milk of politics" and as has been noted above, it is far cheaper to buy a legislative loophole than it is to pay taxes, build treatment plants, relinquish monopoly, etc.

These concentrations of financial and thus political power flow ontologically from the concentrations of capital and labor that were necessary to industrial production.

The model of a "factory" mass-producing goods, so successful in manufacture, has been applied, consciously or unconsciously, to fields of endeavor which are structurally quite different from manufacture--education, for instance, with the mixed results one would expect of misapplied models.

The human mind's power comes from understanding models and applying them to new situations. In the long view, it is understandable that just as Newtonian physics sparked a frenzy of misapplied models (the human being understood as a mechanical device like a clock, etc.), so too would the highly successful model of concentrated mass-production be earnestly and enthusiastically misapplied.

This concentration of materials, machinery, transport, labor and capital--the factory and the industrial corporation--naturally led to a concentration of organized labor, a model which, now that industrial production has faded, has been misapplied to the last outsized concentration of labor: government.

With no real restraints on government largesse, then public-union labor has concentrated its political power and "won" (I use quotation marks because there has never been any real negative feedback to its concentration of power) stupendous benefits and wages which have created the "upper-caste" I have described above: a protected class of technocrats/apparatchiks who are compensated at two or three times (when pension and healthcare benefits are included) the market rates earned by their lower-caste private-sector brethren.

Once financial and political power has become concentrated into monopoly-capital cartels and State fiefdoms, then those Elites hold highly asymmetric stakes in the game: they have so much more to gain and lose from the political distribution of taxes and exemptions from regulation than non-Elites that they will fiercely deploy all their power and wealth to preserve and extend their share of the national income.

In contrast, the non-Elite citizenry have vanishingly modest stakes in the regulatory and tax-distribution games; while a narrowly focused tax law will enrich an Elite for decades to come, the consequences to the broad non-Elite citizenry are so diffused as to be akin to the brush of a feather.

Immense State/Elite empires have been constructed from initially modest taxes collected from tens of millions of non-Elites--Medicare, for example--while seemingly minor tax laws have enabled vast empires of private capital to solidify. For example, energy, where fortunes have been built on depletion allowances and other tax schemes far more favorable than those awarded to manufacturers, and real estate, where depreciation hides vast rivers of income behind the perverse idea that a building rising in real value is magically declining in worth.

From its humble tax-funded beginnings, Medicare has grown into a stupendously profitable empire which will soon exceed both the military-intelligence complex (the Pentagon) and the Social Security system in budget. This vast empire is comprised of loosely allied fiefdoms (the A.M.A.,trial lawyers, pharmaceutical, insurance and hospital industries, etc.), each eager to defend its turf from non-Elite interference and the encroachment of the other fiefdoms.

The State's technocrats/apparatchiks have gained income and power along with their private-sector partners, and thus rather than provide a negative feedback counterforce to this concentration of wealth and income, the State is in effect a positive feedback, furthering the concentration of wealth and power into Elite hands.

State Monopolies: Violence, Conscription, Taxation and Inflation

The State itself of course holds monopolies on a handful of powers that are concentrated indeed: the dispensation of "legitimate" violence, the power to conscript citizens to fight wars (legally declared or otherwise), the power to tax the citizenry and lastly, the terrible power to rob the citizenry by means of inflation and/or currency devaluation, what I term theft by other means.

Economist John Maynard Keynes quipped, "By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens." This is theft by other means.

Why does the State seek to steal its citizens' wealth via inflation? The politics of inflation dictate it:

1. Politicians need to distribute swag ("free money") to the electorate every two years. Their perspective is thus necessarily short-term as no politician dares care what transpires a decade or two hence.

As a result, politicians must favor inflation, which enables them to borrow/print money and distribute it as swag to voters and Elites ("special interests") in the present and pay interest on the new debt with "cheaper" future dollars.

2. Voters possess the built-in human bias for present gain over future gain. Thus future insolvency is meaningless to those demanding State largesse in the present.

Indeed, politicians have noted that those who demand sacrifice in the present to address a long-term crisis lose elections while those who distribute swag while ignoring the gathering storm on the horizon win elections.

3. Inflation is thus "good" for politicians and the State as it enables paying off obligations assumed in the present with devalued future currency. But is it "good" for the voters who actually earn income? Is a policy which robs a third of your money every decade a worthy policy? For that is precisely what "low" inflation of 2.5-3% annually does: it reduces your dollars' values by a third every decade.

Will the swag "given" to you (is it "given" when it's your own future earnings?) now in the form of government benefits and tax cuts add up to more than a third of your future earnings over a decade? Unlikely, to say the least.

4. So politicians exploit the human bias for short-term gain even as they rob the taxpayers via inflation over the long term. Inflation is tolerable as long as you're a wage earner and your income rises at the same rate as inflation.

But income from labor (wages/salaries) have been flat since the early 70s for most Americans, and so inflation has only been "good" for those holding assets which have risen more or less in lockstep with inflation.

For those whose earnings rise nominally by 15% a decade while inflation robs 30% of their purchasing power, then "a little inflation" is a long-term disaster.

5. The usual argument in favor of inflation is debt-based. That is, inflation is wonderful because it enable us to pay off our debts with future "cheaper" dollars. But if our incomes are being robbed by inflation, then is that "benefit" of inflation really so valuable? If I lose a third of my purchasing power in a decade does being able to pay down my mortgage with depreciated dollars offset my loss of purchasing power? No--unless my mortgage payment exceeds my income by a fair margin, which is essentially impossible.

6. Deflation is excellent for those with cash and earnings and awful for kleptocracy governments and those with over-leveraged debt. The entire idea that "inflation is good" masks a perverse incentive: take on as much debt as you possibly can because interest will become "cheaper" to pay in the future (assuming your earnings keep up with inflation).

If your earnings don't keep up with inflation, well, too bad.

7. The government's "earnings" are tax revenues. As profits and incomes have fallen, so have tax revenues. So as the purchasing power of its taxpayers' wages are stolen via inflation--"theft by other means"--then the State's ability to collect ever-larger sums of money via taxes is crimped. Unless, of course, the government can create asset bubbles via loose credit and unlimited liquidity which then generate huge capital gains which can then be taxed.

8. To enable distribution of swag to voters and Elites, the State kleptocracy offloads the payments into the future. By creating inflation then the State guarantees (or so it reckons) that it will be able to pay the interest on that debt with "cheaper" money collected from taxpayers in the future.

But as taxpayers find the purchasing power of their earnings declining (theft by other means) then they respond to the incentives presented by the government: borrow to the hilt and speculate in asset bubbles as the only way left to maintain purchasing power.

This dependence by both State and citizenry on asset bubbles to maintain purchasing power leads to over-leverage and over-indebtedness which then leads inevitably to a collapse of asset values (which were based on exponential credit expansion) and the tax revenues which were dependent on asset bubbles.

Now the taxpayers find their post-bubble assets decimated and their purchasing power diminished while government finds its tax revenue base has been gutted. Paying interest on all that debt while distributing unlimited swag was predicated on rising tax revenues. That plan has now been revealed as fantasy.

Interestingly, the original Constitution did not explicitly grant powers of conscription or monetary debasement. Yet the vaunted "balance of powers" has not impeded the State from concentrating monetary powers in order to reward Elites and steal not just from its present citizens but from its future citizens.

But even the State cannot control the cycle of over-indebtedness, collapsing asset values and the impoverishment of its people via inflation. The end-state is insolvency, and as the State's monopolies fail to sustain the status quo then its various Elites will battle each other for the remaining spoils: what I term internecine conflict between protected fiefdoms.

The above was excerpted from Survival+: Structuring Prosperity for Yourself and the Nation.

NOTE: Thank you to everyone who wrote me and/or contributed to the site in the past 12 days; I will be unable to return to my normal routine for a few more days. Your patience is much-appreciated.

Permanent link: The Grand Failure of Government to Limit Concentration of Power

Get Survival+: Structuring Prosperity for Yourself and the Nation on amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

Thank you, Michael H. ($15), for your very generous contributions of cash and ideas to this site. I am greatly honored by your support and readership.

Thanksgiving

2009-11-25T21:20:00.000-08:00

Thanks to you, readers and contributors, I have much to be thankful for.

To all who took the time to give me encouragement via words and financial contributions-- thank you very much. Once I return to a broadband connection I will thank each of you individually. Until then, please accept this expression of gratitude in the spirit of Thanksgiving.

As longtime readers know, this blog is highly dependent on readers for content, topics and inspiration. It is truly "of two minds"--yours and mine, with the understanding that I merely add to/organize what readers provide.

I have to say that the many emails I have received the past week have reawakened my purpose--to present the coming Transformation/collapse of the debt-dependent, consumerist status quo as a positive rather than a negative transformation (as if opting out of debt-serfdom could be negative).

It is only negative to the Power Elites who will find their share of the national/global income and political power diminished. For the rest of us, no matter how jarring and uncomfortable the Transformation may be at first, it is fundamentally positive in being much more sustainable, much healthier and much less of a burden to our children and grandchildren--something the wildly misguided pundits like Paul Krugman never mention ("go ahead and borrow and blow another trillion dollars or even 10 trillion to keep the consumerist debt machine cranking--we don't care about anything but next quarter's GDP being 'positive' (whatever ills are masked we don't care, just as long as it's a carefully manipulated 'positive number.'")

I am honored and humbled by your encouragement, and I feel the project you are supporting-- a positive, grounded, non-propaganda view of the future--is worthy of all the effort I can devote to it.

For that I am profoundly thankful.

This Thanksgiving, I will be thinking of all the citizens serving in the U.S. Armed Forces posted in distant lands. I honor their service even as I question the politics that has placed them in harm's way far from the homeland. Each uniformed person deserves our thoughts and gratitude this Thanksgiving, and for those uniformed and retired service members who read this blog--and there are many-- thank you for your service. We need your involvement in the body politic to ground the American people in what is being done in their name and with their money.

I wish you all a safe Thanksgiving holiday.

Permanent link: Will Commercial Real Estate Trigger a Double-Dip Recession?

Get Survival+: Structuring Prosperity for Yourself and the Nation on amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

Thank you, Tom U. ($100), for your stunningly generous contribution to this site. I am greatly honored by your support and readership.

Will Commercial Real Estate Trigger a Double-Dip Recession?

2009-11-24T09:11:00.000-08:00

That commercial real estate (CRE) is careening off a cliff is already a given. The consequences of wealth/debt destruction have yet to be tallied.

Just in case you missed the dozens of recent stories describing the complete meltdown in commercial real estate in the U.S., here are several accounts of the grim realities:

Commerical Real Estate and REITs - It's About That Time, again...

Commercial Real Estate Investors Turn More Gloomy

Southern California's vast desolation indoors Almost 51 million square feet of office space is vacant in Southland, and that number is expected to continue growing well into next year

The general context is well-presented in this WSJ.com story. stripped of the usual angst--"who could have seen this coming?" etc.-- CRE is just another bubble inflated by liquidity, leverage and la-la land cash flow projections that has finally blown up. Prices are down 40% from their peaks and vacancies are soaring.

Fears of a New Bubble as Cash Pours In Real-Estate, Stock and Currency Markets, Especially in Asia and Pacific, Are Seen at Risk

Very few analysts seem to have pondered the consequences of the CRE implosion, other than to note losses will be at least $500 billion. We should recall that consensus estimates of residential real estate losses were laughably low, as were estimates of jobs expected to be lost in this recession-- 2.3 million versus the reality of 7.3 million plus millions more full-time positions cut to part-time. That's more than three times the standard-issue financial pundits' projections.

So why would their estimates of CRE losses be any more realistic than their estimates for residential and job losses? Thus we can anticipate (just on general principle) that estimates of losses are gross underestimates of what will actually transpire.

It seems "obvious" that one likely outcome of horrific losses to owners and banks in the CRE implosion is a return to recession--the dreaded "double-dip recession." I have sketched out how the dominoes might fall in this graphic:

The Fed's balance sheet already exceeds $2 trillion, Treasury is selling nearly $2 trillion in bonds every year (to finance $1.5 trillion deficits and Treasuries which must be rolled over), the government and Fed have already spent $1.2 trillion propping up the residential mortgage market (99% Federal government guaranteed/underwritten) and countless billions bailing out Fannie, Freddie, AIG, etc. etc. etc.

Does anyone seriously believe the public and bond market will welcome another trillion-dollar bailout of banks and corporations which made visibly risky overleveraged bets on absurdly overpriced CRE properties?

If gthe bond market doesn't puke at the prospect of another $1 trillion borrowed and thrown down the black hole of "saving our financial system" (barf), then the public may well finally step up to the plate.

The prospect of more job losses is sobering, mind-numbing, and terrible. Yet as I noted earlier this week, the reality is the economy has millions of jobs which are hanging by threads due to declining income, revenues and spending. Most of these jobs are retail or white-collar positions which will directly impact CRE. As stores close, the owners are stiuck with zero cash flow and very few prospects for new tenants. As businesses downsize, they move to smaller offices and leave the owners with more inventory.

The ultimate losers of the $1 trillion will be the banks which lent $230 million for properties supposedly worth $250 million at the top which are now worth $125 million at best.

How many banks will fold as CRE implodes? the number is unknown, but what we do know is there will be increasingly shrill demands for a "new bailout of troibled banks" and that the taxpayer will be the source of the money--via another trillion dollars borrowed and blown by the Federal government and the Fed.

The current optimism is based on the idea that "the worst is over." As CRE melts down and hundreds of billions of losses are accrued, as more banks fold, as the government rushes to bail out more players who deserve to be liquidated, then the fragile psychology will reverse.

Permanent link: Will Commercial Real Estate Trigger a Double-Dip Recession?

Get Survival+: Structuring Prosperity for Yourself and the Nation on amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

Thank you, Richard M. ($20), for your much-appreciated generous contribution from the U.K. to this site. I am greatly honored by your support and readership.

The Fantasy of an Export-Led Recovery

2009-11-18T05:04:00.000-08:00

Official propaganda has shifted to promoting the notion that America's future growth will come from exports. The idea is pure fantasy.

It seems the Obama administration has just fallen in love with the same dream the rest of the world has been pursuing for decades: export your way out of recession.

But the dream runs into a number of profound problems, as outlined in this article:Can the Future Be Built in America?(BusinessWeek):

From its headquarters in a modest office park outside Sunnyvale, Calif., Bridgelux is hoping to spark a revolution in light fixtures for homes and offices across the U.S. It's ready to ramp up production of tiny light-emitting chips that blaze as bright as some incandescent bulbs but consume a fraction of the energy. To meet surging orders for its chips, it's prepared to spend $250 million over three years on gleaming cleanrooms. The question is, where should it put its plants?
For a host of strategic reasons, Bridgelux would like to keep manufacturing in the U.S., but financial realities point to Asia. Not only are taxes far lower and government incentives more generous in such nations as Malaysia, China, and Singapore, but it's easier to raise cheap funding offshore than in the U.S., where private investors frown on manufacturing and bank lending is nearly frozen. CEO Mark Swoboda calls the decision "the toughest challenge facing our company."

Take a look at this chart from the article. In a period of non-financial-based prosperity, the late 1990s, then manufacturing growth clearly powered the economy's expansion.

As unbelievable as it sounds now, 3COM modems and other gear were manufactured in the midwest in 1997.

The "prosperity" of the 2000s was clearly not led by making anything; it was all financial gaming, leverage, and speculation. This chart tells the story:

There are several fundamental reasons why an export-led recovery is unfortunately a fantasy.

1. Where does Washington think our foreign customers will get the money to buy manufactured goods from us? The major trading blocs/nations--the EU, Japan, China and Southeast Asia--are all merchantilist economies--they all depend on selling to us (consumers of last resort) to generate their national surplus income.

If we slash our purchases of their goods, their economies go into a tailspin and their residents won't have surplus income to buy anyone else's goods--or their own. This is the fundamental flaw in the endlessly repeated canard that "these exporting nations need to encourage their own domestic consumption." Yeah, and how do they do that? By firing all the people making stuff for export to the U.S.? Without exports, their national surplus vanishes and their people lose jobs and income. That is hardly the foundation for "more domestic consumption."

The only way we can hope to pursue the same model as all our global competitors is to devalue the dollar to such a degree that U.S.-made goods (priced in other currencies) will be so incredibly cheap that non-U.S. buyers will be compelled to buy U.S. goods by price alone.

But if the dollar falls in half, then our imports of all those nations' goods will also collapse, pushing their economies into deep recession. It is indeed a conundrum: if we cut imports then we deprive our potential buyers of the very funds they need to buy our goods.

Collapsing the dollar has all sorts of other pernicious side effects, too. What happens to the price of imported oil of the dollar is cut in half? It doubles. What effect will that have on the domestic U.S. economy?

Will all the nations pursuing an "export or die" strategy of national economic growth stand by idly while the dollar weakens and their own currencies are driven up to the point that Americans can no longer afford their goods?

Of course not; we are already witnessing a "race to tthe bottom" as every nation and trading bloc attempts to lower its currency to keep its flagging export machine running.

Even worse from the U.S. point of view, destroying the value of the dollar in an attempt to boost exports fails to take into account that the Chinese peg their renminbi to the dollar. So as the dollar drops, so does the renminbi (yuan). The net result is Chinese goods remain cheap to U.S. consumers regardless of how low the dollar goes.

2. Exports are around 6-7% of the U.S. economy. Even a stupendous 20% increase, as welcome as that would be, would register as a blip in the overall GDP.

3. The supply chain necessary to complex manufacturing has moved overseas. As theBusinessWeek article explains, getting a big fat tax credit for a new factory in the U.S. is only step one: you need a supply chain of components and partners. If that has migrated overseas, then you need to either outsource the overseas components (in which case why assemble anything here?) or re-invent a new supply chain here--an expensive and risky proposition.

4. Though Americans love to give lip service to manufacturing, local government and those living nearby don't like it; thay all want "clean industries" like making movies ($10 billion in a $14 trillion economy--good luck with that) or that wonderful FIRE economy (finance, insurance and real estate) which generates billions of dollars from nice clean office parks and towers.

Except when it doesn't.

5. Those touting manufacturing as a "jobs" engine must not have actually toured many factories. To compete globally, any new factory in the U.S. has to be heavily mechanized and automated. A typical factory might have a few dozen employees tending the robots and software. Even a large factory might employ fewer than 200 workers.

Pundits who talk about "manufacturing" should spend a day working in an old-fashioned assembly line (if any still exist in the U.S.), putting one part in the same place all day long. It is mind-numbing work and that aspect is always passed over in the bloodless cheerleading by those who have no idea how a semiconductor factory (for instance) actually functions.

Even in China, manufacturing is inevitably becoming more automated. That has been "the future" for decades and it remains the future.

6. The cost of doing business in the U.S. is prohibitve and getting more so with each passing day. Healthcare costs rise 6% every year, 25% every four years, regardless of whether Tweedledum or Tweedledee runs Washington or if the economy is growing or shrinking. Every level of government is a sclerotic bureaucracy which makes starting a business a costly, risk-laden challenge.

The prevailing attitude is that private enterprise's money "should" flow to government like water flows to the sea, and small business "should" soldier on, paying taxes and making payroll, regardless of how bad the economy gets or how onerous the junk fees and taxes become.

As I have long noted, small business (the engine of the economy) has a choice--it can opt out, quit, close its doors. The reasons to do so pile higher every day. Once again, Americans love to pontificate about how much they value small business, even as their governments make doing business a losing proposition.

For all these reasons, we should be wary of claims that the U.S. can "grow its way out of recession" on the back of a newly energized manufacturing/export sector and replace the failed "debt-based consumption" model of "growth" with a new one based on exports of manufacturing.

It isn't that easy.

Permanent link: The Fantasy of an Export-Led Recovery

Get Survival+: Structuring Prosperity for Yourself and the Nation on amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

Thank you, Eileen A. ($5), for your most welcome generous donation to this site. I am greatly honored by your support and readership.

The Next 7 Millions Jobs That Will Be Lost

2009-11-17T06:40:00.000-08:00

The hype is that the "recession is over." Has anyone touting this line actually walked around the real world? The next 7 million jobs to be lost are already in the pipeline.

The divergence between the reality easily observed in the real world and the heavily touted hype that "the recession is over because GDP rose 3.5%" is growing. It's obvious that another 7 million jobs which are currently hanging by threads will be slashed in the next year or two.

According to the latest Employment Situation Summary (Bureau of Labor Statistics) dated November 7, 2009:

Total nonfarm payroll employment declined by 190,000 in October. In the most recent 3 months, job losses have averaged 188,000 per month, compared with losses averaging 357,000 during the prior 3 months. In contrast, losses averaged 645,000 per month from November 2008 to April 2009. Since December 2007, payroll employment has fallen by 7.3 million.
Civilian labor force: 154 million
Employment: 138.3 million
Unemployment: 15.7 million
Sept-Oct. change in employment: -589,000
in unemployment: 558,000
Not in labor force: 82,575,000

It is staggering that 7 million jobs lost out of 145 million (the total prior to the financial meltdown) has created a 10.2% unemployment rate. The numbers here don't add up--"only" 190,000 jobs were lost in October, but then employment fell by 589,000--huh?--but the point missing is how many jobs are hanging by a thread.

I recently traveled to Los Angeles to be interviewed by my polymath friend and media maven Richard Metzger, creator of the Dangerous Minds website which has rocketed to 50,000 page views a day since he launched it a few months ago. (The topic was of course Survival+; look for the interview in about a week on Dangerous Minds.)

(Richard also manages the L.A. Time's hot blog Brand X which will have you humming Randy Neuman's I Love L.A. in short order.)

Has anyone noticed that airports are commercial dead-zones peopled by zombie clerks suffering from terminal boredom?

One desperate young man had taken the unenviable job of hawking Chase credit cards via a weak pitch for a free ticket on Southwest Air (retail value $59). Since I like to arrive early for flights (perhaps scar-tissue remaining from being on TSA's "watch list" for months on end, and almost missing flights as a result--"papers, please!") I was able to observe hundreds of travelers stream by the young man's kiosk while he gamely voiced the pitch. Not one person even paused, much less stopped.

Translation: Up yours, Chase credit cards.

How many of these dead-zone airport retail kiosks will go dark next year?

The See's Candy kiosk: bored clerk rearranging pricey boxes of candy, no customers. Ditto the sunglasses kiosk, and every retail outlet except Starbucks, which was moving plain coffee and the pizza/beer establishment which did a brisk business around 7-8 p.m. with the "heading home Sunday evening" crowd.

(Richard and I had picked up some excellent Chicken Tikka Masala from a small indian market on Pico Blvd., so I wasn't tempted.)

I rented a brand-new 4-door Ford Focus--a nice car with plenty of zip--for $24 total, including all the ripoff airport and State of California taxes, with unlimited miles. $24 for all day, including all the new junk fees added to car rentals? Deal!

The red Mustang sat in the rental lot, a rather sad icon, while the cheapest compacts were rented and driven off the lot. What does that say?

Arriving early at the studio (natch), I had time to wander down one of the premiere open-air retail malls in the nation, the Promenade in Santa Monica (town of my birth, heh, though I never lived there). Other than one or two Asian tourists, no one carried a shopping bag of any size or type. This was noon on Sunday, a busy shopping day, and nobody was buying anything. Barney's Beanery was doing a good business but most other dining establishments were crypts.

Sauntering down blocks of America's standard-issue mall outlets--J. Crew, Apple, Pottery Barn, etc. etc.--the stores were empty though the sidewalks were busy.

Victoria's Secret was promoting 7 panties for $21--how much profit can VS rake in selling 7 panties for $21?--and the store was empty. Even the Apple store was a morgue.

Bored waiters were leaning on sidewalk cafe railings, and a few employees were sitting outside talking with their friends--tip-off--no drinks, no food, the table was bare.

OK, here's the money shot. Recall for a split second I am a writer (for better or worse) and so my "job" is to observe people closely (22 years free-lancing, man, am I dumb to keep doing this!).

So a tres-chic young Caucasian woman with two adorable kids around 7 to 9 years of age pauses a few yards from me. The woman has the casually tony attire and slim figure of someone who either is a well-educated professional pulling down major dollars or someone whose spouse is pulling down major dollars in some yuppie gig (or both spouses are doing so).

The yuppie Mom pulls her wallet out of her upscale little purse as the two kids gather round and I am thinking, "She's going to give each kid a Jackson ($20) or at least a fiver just to blow on whatever strikes their fancy."

This is, after all, Santa Monica on a Sunday, and this is a yuppie Mom with the bucks to pay for high-end casual attire, hair coloring, personal trainer, gym membership, etc.

After digging around a bit, she extracts two pennies which she gives to her kids to toss into the water feature/fountain nearby.

I think this rather neatly summarizes the entire U.S. consumer and the future of the economy.

Doesn't anyone follow the threads of what is easily observable anywhere in America?

Consider for a moment one of the few businesses licensed to print money--towing companies with city contracts. What are the odds that these towing outfits are towing cars which no one ever claims? Heck, with tickets, towing and storage fees, the cost of reclaiming your vehicle can run into the hundreds of dollars in a mere day or two.

That is more than many vehicles are worth. So what's the net result? the towing companies' lots will soon be filling with junkers and their revenues will be falling as down-and-out citizens abandon their vehicles because they don't have the money to get them un-impounded.

Net-net, when the towing company's revenues fall then somebody's hours or job gets cut.

About once a month I take my Mom out to dinner in San Francisco, "the most European city in America" and a favorite city for those with disposable income. The city contains approximately three restaurants per resident (slight exaggeration) with a Michelin one-star establishment (i.e. excellent, superb, etc.) about every block in the better neighborhoods.

Yes, it is a splurge, but it's my Mom and it's our "quality time." So we chat with the waiters and waitresses, and on opera nights and the like, business is so good it seems impossible the word "recession" is even being bandied about.

But when it's slow, it's dead. It seems almost random, which nights are busy and which are slow, but the net result is far from random. A couple of places that we occasionally frequented a mere year ago are now dark.

A friend of ours has been trying to sell an investment house in a highly desirable zip code in a San Francisco Bay Area suburb. Built perhaps a decade ago, the house would have fetched $800,000 in a heartbeat in 2006, and our friend rejected an offer of $550,000 a year ago as absurdly low. This is after he spent a lot of money having the home repainted in and out, new cabinet doors installed, new carpeting, etc.

That was the only offer the property has received in over a year. Needless to say, maintaining the mortgage is killing him financially.

How many hundreds of thousands of families are in the same situation?

The Honolulu Symphony, which I enjoyed occasionally when I lived on Oahu, recently declared bankruptcy. How many other non-profit arts, theater and community groups are hanging by a thread? Hundreds, if not thousands.

Put together the anecdotal evidence and the next 7 million jobs to be lost are already in the pipeline. I could go on and on about the small businesses whose owners are preparing to close "if things don't pick up a big way soon" and all the other signs that a new wave of massive job losses is rising. But you know that already if you've walked around with your eyes open.

Permanent link: The Next 7 Millions Jobs That Will Be Lost

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Stating the Obvious: Why the Stock Market Should Crash

2009-11-16T06:22:00.000-08:00

The trillions squandered on "stabilization" is not leading to "recovery" of the real economy; it is only life support keeping a sick economy from imploding. The stock market rally rests on rapidly crumbling sand.

I'm not saying the stock market will crash, only that if it had any relation to the real U.S. economy that it should crash, and soon.

The current politics of experience (a key concept in Survival+) is so warped by misleading statistics and orchestrated propaganda that it feels strange to state the obvious and find it is "that which cannot be spoken": the credit-dependent, consumer-dependent U.S. economy is going down, and going down hard, and the trillions of dollars borrowed and spent by the U.S. government and Federal Reserve to crank up a recovery have failed completely, utterly and totally.

The basic idea of Keynesian policy is simple: when the wheels fall off the private, quasi-free enterprise economy, then the government borrows and spreads mountains of money around like fertilizer which will stimulate "green shoots" of recovery.

The forgotten key to successful Keynesian policy is a government which has not been borrowing and spending trillions of dollars even during an era of so-called "prosperity." When a government like the U.S. has been propping up "prosperity" with trillions in borrowed money for a decade, then doubling or tripling the "stimulus" in the hopes that the green shoots will be enduring is truly farcical.

If the economy needed several trillion dollars in deficit spending to eke out the meager jobless growth of 2001-2007, then why does anyone think that doubling or tripling that deficit spending will create an enduring boom?

The truth is the U.S. economy has been dependent on Federal stimulus for years, both the indirect stimulus of artificially low interest rates and unlimited liquidity, and the direct spending of hundreds of billions of borrowed dollars.

Even before the financial crisis, the Federal government was borrowing and spending $400 billion a year to prop up "prosperity." All that spending simply papered over the rot at the core of the economy:

1. The primary support of the U.S. economy is consumer spending which is ultimately based on household income and assets.

Earned income has been flat to down for most Americans for years. The median income has been skewed upwards by the top 10% whose earnings have risen significantly. According to the Bureau of Economic Analysis, real disposable personal income-- income adjusted for inflation and taxes--declined 3.4 percent in the third quarter after increasing 3.8 percent in the second quarter.

In an economy dependent on consumer spending for 70% of GDP, how can GDP rise by 3.5% while personal income plummeted by 3.4%? Assuming that boost in GDP is real and not just statistical legerdemain, then where did it come from? From borrowed money, of course-- the Federal government borrowed and spent over $1.4 trillion in fiscal 2009.

In the good old days of 2002-2007, households would have borrowed and spent hundreds of billions as well. But the consumer, beset by declining assets ($13 trillion lost in the past two years), declining income (see above), falling housing values and worrisome employment trends (17% unemployment/underemployment, broadly measured), is actually cutting back on borrowing: Revolving Consumer Credit Drops 13.1% in August.

Consumer credit decreased at an annual rate of 5-3/4 percent in August 2009. Revolving credit (credit cards) decreased at an annual rate of 13 percent, and nonrevolving credit decreased at an annual rate of 1-1/2 percent--the longest decline in consumer debt since 1991.

So while households are still burdened with almost $2.5 trillion credit card and nonrevolving debt (auto loans, etc.), they are paying debt down, not adding more.

And let's not forget that homeowners pulled out about $5 trillion in home equity in 2001-2007, and the home equity ATM is closed for good. That brings us to:

2. The primary asset in most U.S. households is a home, and home values are still dropping, foreclosures are still rising and the only force keeping the market from falling faster is the Federal government's defacto nationalization of the entire U.S. mortgage market.

Of the $1.5 trillion mortgage securities issued in 2009, a mere 1% ($15 billion) have been issued by banks; 99% are backed by the government. The government owns over half the nation's $10 trillion in mortgages via its defacto ownership of Fannie Mae and Freddie Mac, and it has guaranteed virtually all the mortgages originated in the past year via FHA or VA.

The residential mortgage market is now effectively owned lock, stock and barrel by the Federal government and its private "central bank", the Federal Reserve.

Should the Fed and Treasury reduce their subsidies (that wonderful $8,000 giveaway tax credit to new home buyers or anyone claiming to be one), guarantees and outright purchases of mortgages ($1.2 trillion this year alone), then the mortgage market would instantly freeze up or start pricing in the very real risk that housing is not "recovering" and that anyone holding a mortgage could suffer huge losses if real estate continues declining in value.

Here are a few charts to ponder:

Credit Creaks into Gear: With a big boost from the feds, investors again like securities backed by assets like car loans—but it'll take years for lending to flow freely.

Cracks in the Foundation of the Fed's Housing Fix A Wall Street power broker worries about what happens when government aid ends

Foreclosures Continue to Put a Damper on Home Prices.

3. So how have companies "surprised" with higher profits? By slashing payrolls, R&D and various accounting tricks. Actual revenue growth is missing in action. So how do you keep "surprising to the upside" after you've slashed headcount, burned R&D and turned every accounting trick in the book?

The GDP Mirage By overlooking cuts in research and development, product design, and worker training, GDP is greatly overstating the economy's strength

You don't. A stock market rising on the hopes of an actual, real, tangible recovery in household income, home equity and creditworthiness is seeing mirages and hallucinating that the lake just ahead is deep and wonderful and stretches to the horizon.

Only we never reach the "lake," do we? "Stabilization" is a chimera; the reality is the government is propping up the economy via unprecedented borrowing and spending, and there is absolutely no evidence that private capital, credit or spending are rising from the "stabilization."

We are walking through the desert, kept alive by the sugar-water drip of Federal stimulus, guarantees and subsidies. The "so near, yet so far" mirage of "recovery" has been propping up the stock market for nine months, and when a slight breeze blows away the thermal illusion, then the market will crash back to the March lows, or perhaps even lower. That crash will simply reflect the state of the real economy.

Permanent link: Stating the Obvious: Why the Stock Market Should Crash

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Guest Essay: Iron Sharpens Iron

2009-11-14T09:18:00.000-08:00

We feature a new essay by author Chris Sullins, "Iron Sharpens Iron".

Chris Sullins, who recently published his Strategic Action Thriller Operation SERF, finally found time to compose a new essay. The long drought of new Readers Journal essays has finally been broken--thank you, Chris.

Iron Sharpens Iron by Chris Sullins

I have to admit I’m one of those people who make mental notes of who is doing what as they drive through the neighborhood. It’s not that I know the people and am looking for some kind of juicy gossip to pass along in a later conversation with an interested third party. I often keep most of this seemingly superfluous data inside of my own head unless I bring it up as comment to an immediate family member.

Most people really wouldn’t care about how much wood the Smiths have stacked up, how many people the Browns have hunting on their land, or that the house the Jones family moved away from still has a for sale sign out front a year later. For the most part this activity of storing and recalling my real life observations is only a form of mental exercise. Like running and weightlifting for my physical body, this is a simple way to keep my episodic memory in shape through regular practice.

As with most data there can be consequences with the unintended release and reinterpretation of it by other people. This happened over the summer when one of my children saw one of our neighbors and commented out loud “Mow to live, live to mow.” I asked what she meant by that and she replied “That’s what you said to mommy the last time you saw that person mowing.” This reply was enough to cue my memory of a conversation I had with my wife a few weeks earlier.

I recalled I had seen this person cutting his grass at least twice a week over the summer and that even on rainy cloud-filled days the underground sprinkler system was watering his lawn twice per day. I had said to my wife that this person would only have to mow once per week “at most” if he reduced watering his lawn to no more than every other day. I also noted the summer weather had been unusually cool and rainy compared to the previous decades I remembered. In the summer of 2009 the local vegetation had done well and presented beautiful shades of green over the entire summer given only our cloud-based precipitation.

I had stated to my wife this neighbor wasn’t the only person who did the extra watering and mowing in our area. I had noticed other nearby homes had sprinklers running each day. A similar ritual followed at least twice per week as someone would ride atop a lawnmower as the sun set in the cool evening. I said something to the effect that these people spent all their leisure time on their lawn mowers and added “They mow to live, live to mow.”

I expressed my observation that the grass in the yards of the recently abandoned and defaulted-back-to-the-bank homes only grew enough to require cutting once every two weeks, were never watered and didn’t turn brown once the entire summer. I wondered out loud to my wife if the people who were watering daily and mowing twice per week would still be doing so if they paid for water by the gallon of if the price of gasoline had remained as high as it had been in the summer of 2008.

As with most of our conversations regarding my innocuous data collection, my wife nodded a few times and commented on a point she agreed with in this case: gasoline was indeed expensive last summer. Much to the benefit of our continued marital bliss that day, I had avoided bringing up anything to do with politics or religion. For the reader I’ll leave my tangential thoughts on the attraction of opposites and how to balance the extreme difference in gravity between the human male and female for a later essay.

Readers of my earlier essays are familiar with my tendency to make personal observations peppered with some historical asides before skipping over to address current global concepts which currently affect us all. Like a common law couple, war and economics are inseparable partners on the world stage and I have no problem being one of the many political paparazzi who follow them. During this pursuit I often try to illuminate some sort of unintended consequences of mankind’s artificial systems.

Read the complete essay.

Permanent link: Guest Essay: Iron Sharpens Iron

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State Over-Reach: Stripmining the Citizenry for Fun and Profit

2009-11-13T05:59:00.000-08:00

What I term State over-reach in Survival+ is becoming pervasive as the State attempts to replace declining tax revenues by stripmining the citizenry.

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Combine the over-reach of the financial Plutocracy ("our contributions to Congress are too big to fail!") with the over-reach of the State ("criminalizing poverty is our game") and you get a Plantation society of debt-serfs ruled by an Elite which holds monopolies on "authorized" violence and theft.

Our first example is from correspondent M.J.:

Yesterday was my day to realize we are now living in a fascist country.
I received no less than four calls from the local (LAUSD) district threatening me to stop homeschooling my son and to drop him off at the local illegal alien dropout school. I tried to explain to the bureaucrat that I had no choice but to pull him out of the public schools because he is two grade levels ahead and needs private tutoring (I hired a licensed former teacher and someone with a masters degree in math to tutor him), and that I would be happy to have the school district test him and put him in an accelerated or gifted program.
She had nothing to offer me, couldn't care less about his academic needs, said she didn't know of any gifted programs offered by the school district, wasn't particularly interested in testing him, and just threatened me that I'm breaking the law and I said I had to put him in my local school, which I told her was impossible because it's a low-income poorly performing school that could not possibly accommodate my boy. Over my dead body were the words I used, actually.
In case you are wondering how she found out I was homeschooling, it all started when we lotteried into a charter school in a wealthy neighborhood near Santa Monica and I ended up having to pull my son out because they use the same mediocre curriculum as every other LAUSD school.
Then I got home and got a letter from the IRS that they "segregated" (seized) 19K from my bank account because I owe 6K in alternative minimum tax. My husband did our taxes and I guess he missed the fact that we owe this on top of all the money they take out of his paycheck.
I am so fed up, I don't even recognize this country anymore.

The next example is provided by correspondent Lawrence:

Just came from another blog reading about Suzette Kelo, who lost her home in the infamous Kelo eminent domain case. After her house was torn down, the development was canceled, and all that remains is a weed and trash filled lot.
What An Astounding Waste.
But the government taking that has always stayed with me occurred here in California. Remember Donald Scott?
Boy, do they ever want Trails End Ranch
"In October of 1992, millionaire recluse Donald Scott and his bride of two months, Frances Plante Scott, lived in a storybook wooded valley in the mountains high above Malibu, Calif. Trails End Ranch is almost completely surrounded by state and Federal park land, and the neighboring government entities had made numerous attempts to buy out Scott and annex his property.
Stymied in their attempt to buy the Scott ranch, government officials hit on an alternative plan. Contending an officer had seen "marijuana plants growing under the trees" during a drug-seeking overflight, agents from various jurisdictions gathered quietly outside the locked gate to the ranch in the morning mists of Oct. 2, 1992. After greedily studying the maps of the 200 acres of prime land they were told they'd be able to grab under federal asset seizure laws should they find as few as 14 marijuana plants, they cut the chain on the gate with bolt-cutters and raced a mile up the dirt drive to the ranch, complete with police dogs.
Frances Scott was in the kitchen, brewing her morning coffee, when dozens of men in plainclothes and brandishing guns -- no badges or warrants in evidence -- came swarming in. Understandably, she screamed for her husband, still asleep upstairs.
Donald Scott, 63, came hurrying down the stairs, a handgun held over his head. The officers shouted for him to lower his weapon. He did. They shot him dead."

Your government in action. I hope you approve. The irony of tragedies like this is that when young Americans faced similar "law enforcement" tactics in the late 1960s and early 1970s via COINTELPRO and other blatant violations of constitutional rights, we were written off as radical hippies who were a threat to something (certainly not democracy, but "something." Like perhaps an illegal war and an out-of-control secret government?)

Now that average citizens are facing similar tactics, they might find it interesting to study the COINTELPRO campaign of the FBI and other "law enforcement" officials against the anti-Vietnam War movement three decades ago.

According to attorney Brian Glick in his book War at Home, the FBI used four main methods during COINTELPRO:
1. Infiltration: Agents and informers did not merely spy on political activists. Their main purpose was to discredit and disrupt. Their very presence served to undermine trust and scare off potential supporters. The FBI and police exploited this fear to smear genuine activists as agents.
2. Psychological Warfare From the Outside: The FBI and police used a myriad of other "dirty tricks" to undermine progressive movements. They planted false media stories and published bogus leaflets and other publications in the name of targeted groups. They forged correspondence, sent anonymous letters, and made anonymous telephone calls. They spread misinformation about meetings and events, set up pseudo movement groups run by government agents, and manipulated or strong-armed parents, employers, landlords, school officials and others to cause trouble for activists.
3. Harassment Through the Legal System: The FBI and police abused the legal system to harass dissidents and make them appear to be criminals. Officers of the law gave perjured testimony and presented fabricated evidence as a pretext for false arrests and wrongful imprisonment. They discriminatorily enforced tax laws and other government regulations and used conspicuous surveillance, "investigative" interviews, and grand jury subpoenas in an effort to intimidate activists and silence their supporters.
4. Extralegal Force and Violence: The FBI conspired with local police departments to threaten dissidents; to conduct illegal break-ins in order to search dissident homes; and to commit vandalism, assaults, beatings and assassinations. The object was to frighten, or eliminate, dissidents and disrupt their movements.

Same old, same old, only now the name of the game for State over-reach at the local level is all about generating cash, via traffic fines and "theft by other means."

Thank you, M.J. and Lawrence, for these reports.

Permanent link: State Over-Reach: Stripmining the Citizenry for Fun and Profit

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The Inevitable Collapse of the "Healthcare"/Sickcare System

2009-11-12T08:24:00.000-08:00

The sickcare system is itself sick on fundamental levels. Its collapse is thus certain; only the timing is uncertain.

NOTE: the Kindle reader for PCs is now available for free which means you canread the Kindle version of Survival+ on your PC.

Declaring the collapse of the U.S. "healthcare" system to be inevitable is akin to declaring the insolvency of the Federal government to be inevitable: unthinkable. Yet both statements are equally true.

The financial impossibility of increasing "healthcare" costs at 6-7% per year in an economy which grows at best 2% (assuming the GDP numbers have any accuracy at all, which is doubtful) is clear; at some point in the near future, the entire GDP of the nation would have to be devoted to "healthcare."

But the system is completely unstable on non-financial levels as well. The entire "employer pays the costs" model is hopelessly divergent from the realities of global wage/benefit arbitrage--the more costs you dump on employers, the more jobs they cut or move offshore-- and the "sickcare for profit" model is intrinsically at odds with the goal of wellness (wellness is unprofitable, managing chronic illness is highly profitable).

Lastly, both the insured and those receiving free Medicaid are totally detached from the cost of their care, and thus from responsibility and choice--the two key features of an adult understanding and response to complex issues.

We turn to correspondent C.P. for a first-hand report on the pervasive sickness of the opaque sickcare system:

I want to commend you for your excellent commentary on healthcare reform. I couldn't agree more and as a former medical scientist I used to have a front row seat, observing in nausea and disbelief the cronyism, horrific waste, ineptness, and outright corruption. The most egregious example being my supervisor's use of our facility and his credentials as the institution's vice president and dean of the medical school to test experimental drugs synthesized by a biotech company he co-owned and held an executive position at.
The vast majority of the funding for the research came from federal grants.
About 8 years ago, in order to make sense of the escalating madness around me and a deep concern that the system was teetering on collapse, I enrolled in a public health and preventive medicine graduate program hoping to participate in a debate on true reform and as a advocate for wellness and prevention rather than the current sickcare paradigm.
To my horror, the program didn't address the core problems and, instead, appeared to be operating as an indoctrination tool for the kind of "reform" recently shoved through Congress. I confronted these issues as best I could during my seminar presentations.
Unfortunately, most docs and researchers were too busy, self-absorbed, or simply brain-washed to appreciate the value of a sustainable alternative to the status quo.
I hit the ejector seat button and my budding career ended. I may be financially poorer for that decision but I'm much more content and intellectually richer in so many ways (and so grateful to have found brilliant writers/thinkers such as yourself!).
BTW, did you happen to read the recent NY Times article on Suzanne Stratton's battle with Carle Cancer Center administrators? In several ways, the errors and cover-ups described in the article are very likely the tip of the iceberg. As the system becomes increasingly opaque, our best bet will be to help educate the public how to be proactive, medically informed self-advocates.
Research Uproar at a Cancer Clinic (N.Y. Times)

Thank you, C.P., for this report. The people struggling to provide care in such a profoundly contradictory system face unresolvable double-binds. As C.P. notes, they experience an intense indoctrination akin to brainwashing that "this is the best healthcare system in the world" even as they see on a daily basis how the system fails the patients, the caregivers and thus the nation itself.

Frequent contributor Kevin M. (proprietor of the Out of Your Rut blog) questions the system's implicit assumptions made about cures, care and the process of healing:

People get lost in the minutiae of the issue, converting it to a debate that needs to be won, rather than a crisis that needs to be solved. Personally, I think most find the truth to be too disturbing to confront, and somehow find comfort in the details and debates. No matter, that approach will get us nowhere.
This is just my own take on healthcare in general, but while acknowledging that modern medicine has made great strides, we have to wonder if there isn't a large dose of snake oil being peddled too. The failure rate of various treatments have to make them suspect at the very minimum.
Is it possible that a large part of the "cure" that healthcare offers is really nothing more than the hope or belief that a given regimen is or will be successful? Various studies have shown that people of faith live longer and have greater survival rates than those who have no faith--the catch is that faith isn't restricted to one specific belief set. Could it be that many people are cured merely because they have faith that the doctor, medications, surgeries, system, etc, is saving them, and that's the driving force behind many recoveries? As long as they stay on a given therapy, or have hope that another will be offered for what ever may go wrong with them, their faith remains intact, and the power of the mind--not so much the threrapy--is what actually produces the cure.
I believe this may be true for millions of elderly, who are on multiple drug therapies and have a virtual umbilical cord to the healthcare system. Many have seen their bodies deteriorate well past the point of functionality, but something keeps them alive. That something may be their own minds and the faith they have in the healthcare system to save them, rather than the system itself.
At one level, we can see benefit to such a collective placebo affect; the problem is in it's enormous and unrestricted cost.
I'm with you that well-care will be the key to any program coming down the pike, and until it becomes the driving force of healthcare, any program we can hatch will be little more than reshuffling the deck.

Thank you, Kevin. Providing well-care is not what the present system is designed to do or incentivized to do; therefore it is incapable of doing so.

I think the model of vast Federal bureaucracies solving every citizen's problems is inherently insolvent and irredeemably broken. Well-care will have to come from a wellspring of individual responsibility and small-scale community effort, not some gigantic institutional machine which stripmines the entire economy to feed its voracious and insatiable appetite for more money to fund a crazymaking jumble of completely perverse incentives.

Wellness requires an integrated understanding of the oneness of food, diet, fitness, physical and mental health and the culture which sustains or erodes this understanding; without this full-spectrum understanding, then well-care will remain forever beyond reach.

Reaching such an understanding is the over-arching goal of Survival+.

Permanent link: The Inevitable Collapse of the "Healthcare"/Sickcare System

Get Survival+: Structuring Prosperity for Yourself and the Nation on amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Robert G. ($20), for your extremely generous donation to this site. I am greatly honored by your support and readership.

Bubbles, Inflation and Overcapacity

2009-11-11T08:06:00.000-08:00

The global central banks have flooded the world economy with hot money for years. Why has this created massive asset bubbles rather than inflation?

In the 1970s, expanding credit triggered a decade-long bout of high inflation as cheap money chased scarce goods. Why hasn't the massive expansion of credit/hot money of the past decade caused inflation? Short answer: overcapacity.

Let's look at a few charts to recall the enormity of the current credit bubble: the trillions of dollars of credit created, the trillions borrowed in mortgages and other credit to chase asset prices upward, the trillions created as assets like housing rose in bubblicious euphoria, and the trillions extracted from those skyrocketing assets:

Despite the trillions being created, borrowed and pumped into the economy, inflation remained benign:

With all that money flowing around, jobs were relatively plentiful, setting a floor under consumption and consumer credit:

Even as all this money chased goods, services and assets, interest rates fell, earning savers less and less return:

Meanwhile, the capacity to make stuff like steel exploded:

So here's the dynamic which enabled low interest rates and low inflation even as credit exploded and bubbles rose in one asset class after another.

1. Massive expansion of credit was paralleled by a massive expansion of industrial capacity in China and indeed the entire world.

2. This expansion of capacity was matched by an expansion of supply in commodities. As the industrialization of China (one of the so-called BRIC nations--China, Russia, India and Brazil) and other developing nations drove demand for commodities, the incentives to exploit new sources drove up supply of almost everything: oil, iron ore, coffee, etc.

3. While prices have fluctuated in an upward bias, at no time did the cost of commodities rise to levels which threatened global growth except for the oil spike in 2008. Adjusted for inflation, oil is well within historical boundaries even at $80/barrel.

4. To feed the giant credit-dependent machine they'd fostered, central banks kept lowering interest rates and increasing liquidity/money supply. This drove the returns on savings and bonds down to absurdly low levels, forcing money managers to chase riskier assets to make a decent return on investments.

5. This need to earn higher returns drove vast floods of money into assets, inflating one bubble after another.

6. Though consumption also skyrocketed, the vast expansion of industrial capacity and commodity supplies actually outpaced rising consumption, keeping supply and demand more or less in balance and prices relatively stable.

In essence, the hot money was forced to chase assets for higher returns while China's capacity to make goods matched and then exceeded global demand for goods.

The only way credit can drive inflation is if the supply of desired goods is limited. Many of us foresee a time when oil will be that commodity which is no longer able to match demand, but for now, the rise of production in Russia, Africa and elsewhere has kept pace with (now slackening) demand. Indeed, we might well see demand fall enough as the global recession takes hold that oil will fall to $30/barrel.

China's capacity to produce goods now exceeds global demand. Add in the rest of the world's enormous overcapacity and you get deflation, not inflation.In one industry after another, massive overcapacity is the stark reality. For example, the world can manufacture twice as many vehicles as there are customers for those vehicles.

The two key exceptions are grain and oil. If grain supply doesn't match demand, and reserves have been drawn down, then prices could rise suddenly.

At some point oil supply will fall below demand, but when that point will occur is unknown.

Until either or both grain and oil fall into scarcity, then inflation in goods and services has no foundation. As long as interest rates remain near-zero, then the pressure to borrow money and chase asset prices higher remains in force.

No trend lasts forever. At some point interest rates will rise, risky assets will fall from favor and global scarcity in key resources will arise.

How long can the central banks inflate the exponentially-expanding credit bubble? No one knows, but we can say the end-point will arrive when no one wants to borrow more money even at zero interest rates.

Permanent link: Bubbles, Inflation and Overcapacity

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Theft By Other Means II: When the State Steals Property, Is It Not Theft

2009-11-10T06:47:00.000-08:00

The Elites of the Savior State are making up their declining tax revenues via grabbing private property under the guise of "punishing criminals." Sounds good until the criminal is you and your crime was unpaid traffic fines.

One key feature of Third World Kleptocracies/Police States is illegal search and seizure. Read the story below for an example on American soil. The propaganda is that "rogue elements" are to blame (naturally) but the reality is that the State (central government) has increasingly extended its kleptocratic powers to seize private property essentially at whim.

As noted in my entries linked below, "unpaid traffic fines" can be grounds for seizure in some locales.

"Legalizing" search and seizure is a simulacrum of justice and democracy. The original justification for seizure-of-ill-gotten-assets was the Federal RICO statutes from the 1960s Racketeer Influenced and Corrupt Organizations Act (wikipedia).

Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes-- 27 federal crimes and 8 state crimes--within a 10-year period can be charged with racketeering. Those found guilty of racketeering can be fined up to $250,000 and/or sentenced to 20 years in prison per racketeering count. In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of "racketeering activity."
RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.

The entire concept was intended as a weapon against organized crime. With RICO, a criminal gang which had extorted millions of dollars and purchased property with the money would find the property seized, and those who had been extorted could file claims against the gangsters.

So far so good--the State steps in to protect "the little guy" from parasitic criminal gangs.

But that original intent has slipped the bounds of justice and democracy, and now local governments and authorities feel free to seize property for an absurd range of "crimes" which have nothing to do with large, secretive, extremely wealthy organized crime gangs.

Here is the context for the discussion:

Og my gosh, we're short of money here! Go stripmine some citizens with no power or political juice. And make it snappy!

Correspondent David C. reports on the outrageous abuse of search and seizure in Minnesota.

I read your two related articles on "debt prisons" "Upholding the Law" or Simply Theft by Other Means? (October 28, 2009) and When the Savior State Becomes the Enemy of the People (October 30, 2009) and "Criminalizing Poverty For Profit." They were an interesting way to look at driving fines.

On a related subject, here in Minnesota we've had some big problems with corrupt cops. The Metro Gang Strike Force was created to go after criminal gangs, but ironically this year we found out that they were a criminal gang! The police were taking property and cash for personal use or to fund the strikeforce after budget cuts.

Lawmakers hear how forfeiture laws work in theory, in reality:
After hearing hours of testimony Thursday about how state forfeiture laws are supposed to work, many legislators had vanished by the time two citizens spoke of their problems after police seized their property.
One of them was Terrance Frelix Sr., 34, of Minneapolis. He and a business partner owned some properties and were running behind on a mortgage in 2006, Frelix testified at a hearing. His partner borrowed $4,000 and had just given Frelix the money when a Metro Gang Strike Force officer took them in for questioning.
Police released them without charging them with a crime. The strike force later informed Frelix they were forfeiting the cash and Frelix's truck.
Frelix had been outside his vehicle when police swooped in and — unbeknownst to him, he said — a relative was smoking a marijuana joint inside. Police said the small amount of marijuana was the reason they were forfeiting the property.
Frelix went to court but hasn't gotten his property back. He said he's still out the $4,000, plus $3,500 in attorney's fees. His truck is gone, along with the property management equipment inside.
"Even to this day, I'm still frustrated," he said after Thursday's hearing.
Earlier in the hearing, legislators had been walked through flow charts and other documents explaining how the state's forfeiture laws work.
After hearing Frelix's account, Sen. Ron Latz, DFL-St. Louis Park, said the information about what was happening on the streets was"nowhere near what happens on the flow chart." Thursday marked the fourth joint legislative committee hearing held in the wake of the Metro Gang Strike Force's demise.
An independent review of the now-defunct strike force, released in August, found some officers seized money and property from people never accused of a crime, then took the property for personal use. The FBI is investigating.

David C. commentary continued:

A State law allows the police to seize property from suspects without getting a warrant and without charging them with a crime. This seems very unfair to me if not unconstitutional, what happened to the Fourth amendment?

Also, people challenging seizures in civil court waive protections against self-incrimination, exposing themselves to charges. One guy lost his house even though he wasn't charged with a crime! Gang Force seizures prompt look at law: A defense lawyer points to unfairness, potential for abuse at legislative hearing prompted by Metro Gang Strike Force actions

A state law allowing police acting on their own to seize property from suspects -- often without getting warrants -- is unfair and should be overhauled, defense attorneys told legislators Thursday.
"This creates a potential for abuse," said lawyer Howard Bass. "There's no checks and balances."
Bass said the government should have to prove the property was related to a crime and deserved to be seized. Currently, property can be forfeited in an administrative procedure unless the owner demands a court hearing within 60 days of its seizure.
And the court process is complicated. Property owners need to serve proper notice on the police agency and follow court rules of civil procedure and discovery.
Sometimes people who have not been charged with a crime don't challenge seizures because it would cost more in attorney fees than the property is worth, said Tom Plunkett, an attorney with the Minnesota Association of Criminal Defense Lawyers.
Also, people challenging seizures in civil court waive protections against self-incrimination, exposing themselves to charges.
Adrian Ramiraz testified that the Strike Force seized his house in Crystal in 2008, though he, too, wasn't charged. He said he hasn't been able to recover it.

David C. commentary continued:

Perhaps in the future you may want to write about declining tax base and how government uses seizures primarily to fund itself instead of fighting crime. It seems to me that the police shouldn't be allowed to seize things as this corrupts their mission of fighting crime to going after money. Allowing a judge to order seizures would be better, but then one could also argue that even this is unfair if there are two drug dealers and their cars are seized and one car is worth $50,000 and the other one worth $10,000, one could argue that they got unequal punishment.

Thank you, David, for bringing a critically important issue to our attention. We might ask how did seizure of property become construed as the State's right, justified under the broad justification of "punishment"? Since when did smoking a $4 marijuana cigarette become grounds for seizure of $4,000 of private property which is essential to one's livelihood (a truck)?

I have sympathy for working-class stiffs who typically bear the brunt of these "legal extortions" by Kleptocratic States Masquerading as Democracies. I have worked in everything from construction to plantations to quantitative stock market research in my 40+ years of labor, and many of the guys I hired in my building days had served time for absurd drug convictions. One very sweet-natured young man with Native American blood had served time for manslaughter because he happened to be on the premises where a buddy of his OD'ed on smack and Lord-know-what.

Unless you've been protected from streetside reality, you know how it works:the upper-middle class kid (son of an attorney, local business magnate, politico, etc.) gets busted for possession or maybe even low-level dealing. His Dad shows up with big legal firepower and springs him from jail. Charges are either dropped or downgraded to misdemeanor charges so they can be expunged from the record after a few months of probation. The rich kid's car is not seized because there would be Heck to pay.

The experience of the working-class kid is entirely different. For all intents and purposes, he resides in a Third World police state in which authorities have few limits. The non-"fortunate son" kid finds himself in jail and no one to spring for bail, and he's facing felony charges with a long prison sentence.

The D.A. smells an easy felony conviction which looks good on his/her record so a trumped-up plea bargain is presented--we'll cut your sentence to "only" X years if you rat out your pals, etc. The poor kid's cash and beater vehicle are seized, and he serves hard time for a "crime" which earned the rich kid a few uncomfortable hours in jail and court, and a wrist-slap probation.

If I sound bitter, it's because I am. I have plenty of cops in my family and circle of friends, and it's usually not the cops--it's the system. One young man who worked for me got busted on some trumped-up "dealing" charge and his response was to push his car up to 90 miles an hour on a deserted road and then drive off a cliff. He died rather than do long jail time for a trivial "crime" a rich kid would have skated past in one meeting with The Powers That Be.

Just as ominously, correspondent J.P.B. reports that private firms with State-approved authority are wielding Police State technology and tactics to pursue their "job" of repossessing vehicles.

Wanted to give you an update corollary. In today's Columbus DispatchBusiness section, page D6, is an article "Repossessions slowing down, but agents adapt." It is a wire article picked up from the Chicago Tribune, and it discusses repo men using optical character recogniton cameras to read license plates and store the info in a database. Very interesting.

Indeed. The State's strategy is clear: criminalize all sorts of behaviors like not paying traffic fines and then use that "criminality" as the phony justification for illegal search and seizure.

If you're not afraid of the State, you should be.

Permanent link: Theft By Other Means II: When the State Steals Property, Is It Not Theft?

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Healthcare "Reform": the State and Plutocracy Stripmine the Middle Class (Again)

2009-11-09T06:32:00.000-08:00

Healthcare" a.k.a. sickcare is not about health at all, it's about profit and power. The State and the sickcare cartels have partnered to transfer more of the nation's wealth to their Power Elites.

One of the primary themes of Survival+ is that the State and the Plutocracy are partners, and their joint goal is to divert an ever-greater share of the nation's income into their own pockets.

From the Survival+ point of view, all the ideological positions on "healthcare" which are being sold like commodities are laughably detached from reality. "Healthcare reform" has nothing to do with either socialism or capitalism. Socialism is the Veterans Administration system (owned lock, stock and barrel by the government and run by the government) which offers remarkably cost-effective if basic care to millions of vets, and capitalism is cash-only clinics like those offered in Mexico, India and Thailand and in some Wal-Mart walk-in clinics.

The entire "healthcare reform" enterprise is not about providing care to all--that is the sales pitch. It is about milking the entire populace so more of the national income is transferred to the "healthcare" cartels and State (central government) Elites.

Here are the three key realities which are not addressed by "healthcare reform":

1. The "healthcare" cartel (and thus its partner the State) is not interested in health because health is horribly unprofitable. People who eat well and are mentally and physically fit have no need for costly procedures, treatments, tests and pharmaceuticals, hence they cannot generate revenues or profits.

Managing diseases is what's profitable, so the system is oriented not at prevention or nurturing health but at enabling chronic disease which is very profitably managed with pharmaceutcals, surgeries, etc.

2. Once the connection between service and customer is broken and the money to pay for all products and services is printed or borrowed in essentially unlimited quantities, ontologically (inherently) there are no possible price controls. This is why an elderly gent like my friend's father can enter the hospital with a non-life threating issue (gallstone), receive treatment which didn't really resolve his health issue and then Medicare is billed $120,000 for one week of "care" regardless of the efficacy.

When the service is "free" (that is, payment is borrowed/printed in unlimited quantities), then the cost of care will necessarily push up to the ultimate limit of the system's ability to pay. Medicare and Medicaid already exceed the Pentagon's budget, and they are growing three times faster than the long-term trend rate of the U.S. economy.

3. There is no "fair" way to ration care; the U.S. simply rations it by essentially random "legal lottery" payouts/jackpots/penalties and other regulatory means. The bottom line is "healthcare for all" without limits is unaffordable everywhere--it is simply more unaffordable in the U.S. system. The wealthy in rationed-care systems simply opt out and go buy "unrationed care" elsewhere, cash on the barrelhead.

The dirty little secret of supposedly "model" State healthcare plans in Europe and Japan is that they are running up against the limits of what those economies can afford. If you disagree, go ask the State finance ministries of France, the U.K., Germany and Japan for their 10 and 20-year projections of national healthcare costs.

No nation can increase healthcare spending 6% while its underlying economy grows 2%. In a mere 8 years, healthcare costs will rise over 50% while the GDP will rise (at best) 15-20%. That is the essence of unsustainability.

Medical Care Prices Are Rising Faster Than Overall Inflation (BusinessWeek)

The U.S. spent an estimated $2.4 trillion on health care in 2008, about 16.5% of gross domestic product and a 6% increase from a year earlier. Medical care prices are rising faster than overall inflation, and the burden on consumers continues to grow.

When everything is "free to all" then technologies and medications quickly reach marginal returns: yes, this drug is only effective in 15% of the case, and yes, it costs $10,000 a month, and might actually hurt some patients; but since the State is paying for everything, why not give it to everyone who might be helped? And if it's restricted, then isn't that rationed?

The "healthcare" cartels' goal is to carve off a greater share of national income for themselves. This isn't capitalism; it's monopoly capital-crony capitalism, the very opposite of free-market capitalism. The State's political class is a willing partner in this transfer of wealth to Elites because it welcomes the hundreds of millions of dollars in donations offered up by tort attorneys, Big Pharma, and all the other players milking the "healthcare" system for billions.

So who ultimately pays for "free" "sickcare"? The productive middle class and working poor. Healthcare which doesn't actually improve health but simply profitably manages chronic illnesses is in essence a stupendous tax on the productive class of the nation. The healthcare cartels are delighted that "healthcare" has climbed from 6% of GDP to 17%, and they will be delighted to see it rise to 20%, then 25% and 30%, until at some point it bankrupts the nation, as it most certainly will for the above reasons.

Until the State collapses in insolvency, "healthcare" acts as a giant machine which diverts money from the middle class and working poor into the coffers of the sickcare cartels and their State-Elites partners.

You want a system that works? Then depoliticize and de-cartel the system entirely. Jettison the entire sickcare system and revert to cash-only for every product and service, and offer a voluntary VA-type system which people can opt into if they choose to pay the insurance and co-payments (which VA does not have) and live with the defacto rationing of long waits and basic care which is limited by the budget alloted. There is no "entitlement," only whatever care which can be distributed for a given amount of money. Thus it's not the budget which can rise but the efficiency of the system in doing the most possible with a set sum of money.

This is the only sustainable way to provide care without bankrupting the nation.

These two systems--"pure socialism" and "pure free-market capitalism"--can co-exist quite amiably as long as people get to choose from a range of imperfect choices. If health were more profitable (to providers and to consumers) than managing disease, then entirely different choices and incentives would arise.

Permanent link: Healthcare "Reform": the State and Plutocracy Stripmine the Middle Class (Again)

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When Things Fall Apart

2009-11-07T09:15:00.000-08:00

Two new books authored within the circle of oftwominds.com address the coming unraveling: one speculative fiction, the other an analysis of devolution and prosperity.

Let's start When Things Fall Apart by referencing the source:
(tip o' the tam to Nina)

THE SECOND COMING
by William Butler Yeats (1865-1939)

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Though the poem was penned in 1919, doesn't it speak presciently to our era, too? The falconer circling ever farther away from the voice of its master could be interpreted as a spiritual metaphor for a culture lost in self-absorption, self-medication, greed and resentful entitlement, or politically as a metaphor for a populace slipping away from the voices of the Founding Fathers' principles.

In a nation increasingly diverging into hackneyed, hardened ideological camps, clearly the center (common ground, common sense) is not holding.

Author Chris Sullins' book, Operation SERF, a strategic action thriller serialized here earlier this year, imagines a future U.S.A. which has split into warring factions, and a blood-dimmed tide is loosed.

Here is Chris's summary of the scenario/plot:

Operation SERF is a Strategic Action Thriller set in the Unites States of America in the year 2023. After many years of economic depression, a terrorist act fractures the country. The stage is set for another Civil War as three factions battle for control of the pieces. The story takes place in many areas across the country, but centers on one extended family caught between the struggles of the rival factions. The reader will glimpse into the minds of both the leaders of the factions as well as the common person and travel along with them. "Operation SERF" is Part 1 of a forthcoming 3 part series.

You can read the first sample chapters on the Operation SERF home page.

A few readers objected to the violence depicted in the book, and I sympathize with the general view that we as a culture are drenched in endless depictions of violence as "the answer" to whatever problem is at hand.

Yet the terrible reality is civil wars are often horrifically violent events, and we should understand that is one outcome of many should things truly fall apart.

I think Operation SERF is unique in a number of ways, all of which stem from Chris's deep knowledge of history, his unconventional skepticism of the status quo understanding of our situation and his experience in the U.S. Army on the ground in Iraq.

While on one level the book is entertaining, on another level it is a serious exploration of human nature, patterns of history and the political culture of our nation.

Chris has a deft descriptive touch, and the book reads like a multi-threaded mystery. If you start Chapter 1, I think you'll be hooked.

My own book Survival+: Structuring Prosperity for Yourself and the Nation, explains why devolution of the status quo is predictable and irreversible, and how we can create a new prosperity for ourselves and the nation.

While I am enthusiastic about the ideas presented in the book, I'll let others supply a bit of praise (ahem):

"I've been a big fan of Charles Hugh Smith's insights since the day I first stumbled across his Of Two Minds blog. InSurvival+, he sets out a thoughtful and provocative vision of our future that should not be missed." Michael J. Panzner, author of When Giants Fall and Financial Armageddon

"Charles Hugh Smith is the savviest blogger in the USA these strange days. Nobody puts out a consistently wiser, truer, better-written message, day after day, than CHS. His views on surviving the hardships we face in economy and society are of the highest value and could not be more timely or astute." James Howard Kunstler, author of The Long Emergency and World Made by Hand

"Charles Smith provides a balanced, thoughtful, and prescient view regarding the dilemmas facing our fragile economy. From the collapse in the housing market to the growing power of the banking sector, our economic landscape is changing. Mr. Smith’s credibility comes from years of work and unlike other prognosticators, he has been right. His illuminating arguments and insights provide readers a glimpse into the challenging world we will now enter." Dr. Housing Bubble

"Your book is truly a revolutionary act." Kenneth Robertson

OK, now that we got that over with--let's talk money. The exchange value of theSurvival+ book ($19.95) is approximately one meal for a family at a fast-food restaurant or two tickets to a first-run movie. The price of the ebook (downloadable) versions is $11.95 or about one standard cheese takeout pizza.

The exchange value of the Operation SERF book ($13.99) is equivalent to a single pizza with one topping, or a sandwich and drink at a downtown restaurant. The Kindle version ($7.99) is equivalent to two coffee drinks at Starbucks or a single matinee ticket to a movie.

Oddly enough, people seem to have no problem spending $10 or $20 on coffee or a fast-food meal or a 90-minute movie, but a $20 book is "too expensive." Say what? Is something that might change your understanding of our society and economy "too expensive" at a mere $20?

You don't need to wonder if the books are any good or if they're your cup of tea: you can read huge swaths of them for free right now on the Operation SERF home pageand the Survival+ home page. It doesn't get any easier than this.

Chris has a family to support; he's not rich. I am self-employed; neither of us are "fortunate son" trust-funders. We get a few bucks from the sale of each book. If you buy the books, you can pass them on to other readers when you're done with them. Heck, read them carefully (don't bend the spine) and you can wrap them up and give them as a gift come Christmas.

My buddy G.F.B. reckons my book will be perfect for swatting cockroaches in his kitchen. Talk about multi-purpose! What are you waiting for?

Permanent link: When Things Fall Apart

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We Are What We Do Every Day

2009-11-06T08:18:00.000-08:00

Thoughts on the passing of my stock market mentor, Stewart Pillette.

My stock market mentor and former boss, Stewart J. Pillette, passed away late last month at the age of 71. I worked for Stew for only a year and a half, Spring 1997 to Autumn 1998, but in that brief period I learned a lot from him about the market and quantitative analysis and about being a good boss.

I titled this entry We Are What We Do Every Day because it is a simple but profound statement. Stew was positive every day, even when things were going badly. Being positive was what he did every day. He was enthusiastic about the market, his weekly golf and his family, and lived his mission credo: "Get it early, get it right and make a difference."

We had a complex technology-dependent system to maintain, and snafus were constant. Market data came in via a satellite feed into a Linux box, and various processing steps required DOS and Linux line commands. When it all worked, Stew would exclaim, "I love technology!" And when it fizzled, he would exclaim with equal force, "I hate technology!"

His family recounted that Stew had been drawn to the priesthood as a young man, but ended up choosing to be a stockbroker. He worked at Drexel and other big houses until he struck out on his own in his 50s.

His system was based on plotting the second derivative of the rate of change in stocks' price movements rather than massaging the prices themselves. This created charts similar to MACD (moving average convergence/divergence) in appearance.

One of my jobs was to assemble the data to backtest the system, which had never been done. (It was basically a two-person office at this time.) The system identified the change in trend correctly about 80% of the time-- about the best that any system can manage over the long-term. The other 20% of the signals failed, often because of some unexpected news which sank the stock.

Stew was the sort of boss who would surprise you with a bonus check for a $170 on a Friday after a long hard week, shake your hand and thank you for your work. That is how I discovered the power of gratitude and unpredictable bonuses.

As his son Justin noted at Stew's memorial service, Stew would disagree and defend his view, but in ways which always respected others.

I think Stew could have become a millionaire many times over with his system but by his own account he was an impulsive trader who was drawn to the goal of "hitting one out of the ballpark." We learn not just from others' best traits but also from their weaknesses, and since I share these traits with Stew--perhaps that was part of our bond--then becoming a disciplined trader is what I am striving to "do every day."

Stew loved the market and golf, and though I don't play golf it is my observation that the market and golf share the characteristic of being fundamentally impossible in the sense that there is no perfect golf game and no perfect trade. A good game and a good trade are satisfying; aiming for perfection in either guarantees disappointment.

Justin told a story at Stew's memorial service which encapsulated his daily approach to life. When it was storming outside and heavy rain pelted down, Stew would bundle his young son and daughter into rain slickers and take them outside to splash around in the puddles and glory in the rain and wind.

The typical parental approach, of course, would be to prevent the kids from going outside in such foul weather. Stew was an exceptional parent and Justin observed that many of his friends were jealous of his relationship with his Dad.

That is high praise indeed, and not something accomplished by occasional effort. It was what Stew did every day.

We miss you, Stew. You were a good man.

In memoriam: Stewart J. Pillette, 1938-2009.

Permanent link: We Are What We Do Every Day

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Is Oil "Cheap" When Priced in Euros or Gold?

2009-11-05T06:06:00.000-08:00

Since fossil fuels are the essential commodity for modern civilization, reckoning their "cost" is critical.

At long last Survival+: Structuring Prosperity for Yourself and the Nation is now available on amazon.com and in ebook and Kindle formats.

Fossil fuels can be regarded as "cheap" or costly, depending on the context.How much energy does it require to extract and process the oil and gas, and then clean up the toxic mess created by the extraction, processing and transport?

Yes, hydrocarbons are toxic. Perhaps that should be the initial context of calculating the "cost" of fossil fuels.

Frequent contributor Gene M. submitted this important article from Counterpunch.com: The Inflated Promise of Natural Gas (Counterpunch.com is asking readers for donations now lest they shrivel. I kicked in a few dollars, as we need an independent media so very desperately.)

It turns out the "happy story" presented in the mainstream media/propaganda stories listed here yesterday left out all the toxic bits of the "abundant cheap natural gas" bonanza. Here's a taste of what was not covered in the MSM:

Meanwhile, major fracturing-fluid manufacturers refuse to reveal their products’ ingredients. (Industry leader Halliburton maintains that to compel it to list the chemicals in its products would be an “unconstitutional taking” of its intellectual property.) Investigators have managed to identify many of compounds used in fluids, and many are toxic. Some, including benzene, formaldehyde, 1,4-dioxane, ethylene dioxide and nickel sulfate, are confirmed carcinogens.

The "happy story" is that the wells are miles deep and thus beyond ground water. But much of the water and chemicals pumped down a mile is returned to the surface and must be dealt with as industrial waste. So much for being "cheap."

Correspondent Daniel D. checked in with this eye-opening account:

Just read your post about oil and frac technology and thought I'd chime in with my two cents. In summer 2008 I was a student working for a woman in a McMansion neighborhood in the Dallas/Ft. Worth area. Ft. Worth (and much of Texas) is under the influence of natural gas co's who have recently developed a technique for drilling beneath urban areas. (We mounted a campaign to stop them from putting a well on the neighborhood's golf course and in the course of events discovered evidence indicating that some of the Homeowners' Association board members were probably on the take... But that's another story)
Back to your post: This stuff is anything but cheap OR safe. They have to buy mineral rights from every land-owner in an urban area or pay residents royalties -- not the same as dropping a pipe in a supergiant Saudi reserve. Neighborhoods caught on and learned that if they cooperated they could jack up their prices.
And the environmental damage is severe -- Parker County's water comes out of the tap ready to burn... videos on Youtube show news stories where the anchor lights a glass of tapwater on fire. As for the fraccing chemicals, they are conveniently labeled "proprietary" and so do not need to be disclosed to authorities. This stuff is not the way for us to go in the future, just an unnecessary extension of our energy past ...

Thank you, Gene and Daniel. The entire "natural gas is abundant, cheap and clean" story which is being hyped and propagated by the MSM is the purest propaganda, as it leaves out all the practical obstacles and the punishing costs of dealing with the toxins pumped out with the gas.

Just in straight money terms,let's extend our inquiry into the cost of oil by pricing it in non-U.S. dollar contexts: euros and gold. Frequent contributor B.C. generously provided this chart of oil priced in euros, adjusted for consumer price fluctuations (year 2000=100), plotted against the GDP of the Eurozone:

click on chart for a larger version in a new browser window

Strikingly, even when priced in euros, oil is rising in cost even as the Eurozone GDP languishes at recessionary levels. Many commentators believe that spikes in the cost of oil are the defining factors which trigger recessions. If this has any merit, we might ponder what effect the sharp rise in oil prices even in euros portends for the global economy.

I asked frequent contributor Harun I. for a chart of the oil/gold ratio, and he graciously submitted this chart:

click on chart for a larger version in a new browser window

Oil priced in dollars is in black, and the gold/oil ratio is in red. Many analysts state this ratio in terms of "one ounce of gold buys X barrels of oil."

When gold was around $300 an ounce and oil was about $15/barrel in the late 1990s, then one ounce of gold bought 20 barrels of oil. When oil spiked to $147/barrel and gold was approximately $900/oz, then one ounce of gold bought a mere 6 barrels of oil.

Now that gold is $1,090/oz and oil is about $80/barrel, then one ounce of gold buys about 13.5 barrels of oil--not much more than when oil was "cheap" in the 1990s.

In other words: as all currencies depreciate against gold, then the cost of oil priced in those currencies rises even as it remains constant when priced in gold. But like all commodities, gold and oil fluctuate in relative value as well.

So are oil and natural gas "cheap" or "expensive"? That depends on what they're priced in and who's paying the hidden costs of the vast industry which extracts, processes and transports these fossil fuels.

Lastly, we might place the value of gas and oil in this context: how much will we be willing to pay if and when they become scarce?

"Just remember... the 5th of November." Have a pleasant Guy Fawkes Day.

Permanent link: Is Oil "Cheap" When Priced in Euros or Gold?

iPod and iPhone owners: Read Survival+ on your iPod or iPhone by downloading the Kindle app and then buying the book from the Kindle store. Here's how.

Buy the complete Survival+ in print, ebook or Kindle ebook formats.
Expanded free eBook now available: HTML: Survival+: Structuring Prosperity for Yourself and the Nation PDF version (85,300 words, 136 pages): Survival+)

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Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

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Oil to $20/barrel or $200/barrel?

2009-11-04T08:20:00.001-08:00

If the U.S. dollar strengthens and the global economy weakens as government stimulus runs dry, oil could plummet in a massive "head-fake" to $20/barrel.
Survival+ is now available on amazon.com.
Any discussion of the price of oil must factor in the relative value of the petro-dollar, a.k.a. the U.S. dollar. If the dollar plummets in value against other major currencies and gold, then oil could double in nominal price even as it remained constant when priced in other currencies or gold.
Setting aside speculative positions, the other major factor in pricing oil is supply and demand. Recently, a spate of mainstream media article have heralded massive increases in supply in natural gas and oil.
America's Natural Gas Revolution (WSJ.com)
Betting Big on a Boom in Natural Gas (BusinessWeek)
In summer 2008 the U.S. and much of the rest of the world were consumed by talk of peak oil and natural gas and fears that high fuel prices would persist forever. Today analysts still worry about the oil supply but far less about natural gas. U.S. gas producers, capitalizing on a technological breakthrough, have in recent years unlocked an enormous volume of natural gas in the shale rock under Colorado, Oklahoma, Pennsylvania, Texas, and other states.
According to a July report by the Colorado School of Mines, the U.S. now holds 1,800 trillion cubic feet of natural gas, one third of it in shale, the equivalent of some 320 billion barrels of oil. That's more than Saudi Arabia's 264 billion barrels.
Whew--now that we have more fossil fuel than Saudi Arabia, I guess we have nothing more to worry about. Uh, count me skeptical. The technological breakthough is calling "fraccing" for hydraulic fracturing, a technique which has been around for decades.
Basically, water is used to fracture rock or shale, enabling the gas to seep to extraction wells. Chemicals pumped down the wells can also enhance recovery.
All this sounds fabulous--except for the practicalities which are glossed over.How do you collect gas flowing into hundreds of widely spaced wells? With a network of pipes. That isn't quite as easy or cheap as dropping a pipe into a supergiant Saudi reserve. So how much will it cost to tap these giant reserves of gas and feed the gas into existing networks of transport?
Exactly what chemicals are used? How much do they cost to pump down and extract? How do you get the water to the hundreds of wellheads?
And perhaps most remarkably absent from the happy news--how much of this new natural gas production will simply be offsetting declines in other mature fields?
Similar advances in oil recovery technologies promise another 100 years of oil--or so we are told here: Another Century of Oil? Getting More from Current Reserves (Scientific American October 2009; subscription required to read entire article online; visit your local library to read it for free)
Forecasts that global oil production will soon start to decline and that most oil will be gone within a few decades may be overly pessimistic.
The author predicts that by 2030, thanks to advanced technologies, wells will be able to extract half of the oil known to be underground, up from the current average of 35 percent.
Together with new discoveries, the increased productivity could make oil last at least another century.
Once again, the article (written by a global oil company executive) is heavy on promise and glowing hype and short on costs. Is all this fancy recovery technology free? If not, then how much does it add to the extraction cost of each barrel?
All this seems to suggest something which these articles avoid mentioning: there may be more fossil fuel that is recoverable, but it will no longer be cheap. None of these articles addressed the possibility that all this "new" production will simply offset declining production elsewhere, which means global production would simply stay constant rather than increase to match rising demand.
Also left unsaid is the trivial amounts of oil and gas being recovered from aging fields by the costly new technologies. The example cited in the article is a large field in California that was expected to be depleted year ago which still produces 80,000 barrels a day. That is good news, to be sure, but the extraction only makes sense if oil is over $50 a barrel, and 80,000 barrels is a drop in the bucket of the 20 million barrels the U.S. uses each day.
It would take dozens of such vast fields to replace the sagging production from supergiant fields in Mexico, the North Sea and the Mideast.
With prices elevated to the $80/barrel level, constant supply (at high prices) has created a global glut in oil and natural gas--there are literally no storage facilities available to store more gas and oil. This suggests that if the global economy resumes its deflationary spiral down next year, then a grand imbalance between supply and dwindling demand might cause oil to crash in price--unless the U.S. dollar declined concurrently.
As readers know, I am expecting the dollar to actually rise, which would exert downward pressure on the price of oil (in dollars, of course).
Correspondent B.C. was kind enough to submit this chart and commentary.The chart displays the price of oil adjusted to the CPI (consumer price index) in which 1974=100. In other words, the price is in constant dollars, not nominal dollars; the chart removes inflation from the picture. Thus if today's dollar is worth 33 cents in 1974 dollars, then today's $3 a gallon gasoline would be $1 in 1974 dollars.

click on chart for a larger version in a new browser window
Adjusted for inflation, we see oil at its recent nadir in 1999 had returned to the price levels of the late 1960s. The cost spike created by the 1980 Iraq-Iran war was actually higher in real terms than the spike last year to $147/brl.
Here is B.C.'s commentary on how the dollar's rise or fall could drastically alter the price of oil.
US dollar (USD) and CPI constant, the nominal price of oil would need to fall back to the $40s to reach the CPI- and USD-adjusted level where recessions bottomed and new reflationary growth cycles commenced since the '90s.
However, were the USD to rally back to the earlier cyclical high or to par, for example, coincident with another deflationary episode, the nominal price of oil would have to fall to the low to mid-$30s, to as low as the low to mid-$20s, to reach the adjusted recession low since the '90s and before the early to mid-'70s.
That the nominal price of oil has generally tracked nominal trend GDP growth adjusted for the USD, all else equal, oil in the $20s would not surprise me over the next 1-5 years, especially if we see another deflationary scare and stock market crash and economic collapse in China-Asia.
Thank you, B.C. If the dollar strengthens substantially, as many of us expect in the short-term, then oil would drop in nominal price for U.S. residents and increase for those paying for oil in other currencies.
If deflation and global recession were to take hold--that is, if all the quantitiative easing and borrw-and-spend pump-priming fails to ignite "organic" (real) growth, then the price of oil could be hit with two deflators: the rise of the petro-dollar (USD) and a supply which greatly exceeds falling demand.
I illustrated this "head-fake" drop in prices before the final arrival of Peak Cheap Oil in 2008:
Many other observers are similarly alive to the possibility that oil could drop in nominal dollars to $20/barrel in a deflationary "head-fake" and then rise to $200/barrel once supply fell below demand and the dollar resumed its decline in purchasing power.
Frequent contributor Cheryl A. submitted an excellent interview with oil analyst Stoneleigh on the Automatic Earth blog. Stoneleigh suggested that oil could fall to $20 and then subsequently rise to $500 per barrel once demand exceeds supply.
What we need to keep in mind is the relative value in nominal dollars. If the dollar were to suddenly lose 2/3 of its value against gold and other currencies, oil would suddenly cost $200/barrel to U.S. residents even as it remained constant to those buying oil with other curencies.
Inversely, if the dollar were to strengthen, oil could fall in half when priced in U.S. dollars and skyrocket when priced in other currencies.
The main point is simple: tracking the price of oil in constant (adjusted) dollars illuminates the real cost of oil in purchasing power.

Permanent link: Oil to $20/barrel or $200/barrel?

Apple iPod and iPhone owners: There is an Amazon Kindle app for iPhone which enables you to view the Kindle ebook on your iPod or iPhone--I will try to post links to the app once I locate them.
Survival+ is now available on amazon.com.
Buy the complete Survival+ in print or ebook formats.
Expanded free eBook now available: HTML: Survival+: Structuring Prosperity for Yourself and the Nation PDF version (85,300 words, 136 pages): Survival+)
You can also find my work on AOL's Daily Finance and Seeking Alpha.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Susan M. ($5/month), for your exceedingly generous subscription to this site. I am greatly honored by your support and readership.

Oil to $20/barrel or $200/barrel?

2009-11-04T08:20:00.000-08:00

If the U.S. dollar strengthens and the global economy weakens as government stimulus runs dry, oil could plummet in a massive "head-fake" to $20/barrel.

Survival+ is now available on amazon.com.

Any discussion of the price of oil must factor in the relative value of the petro-dollar, a.k.a. the U.S. dollar. If the dollar plummets in value against other major currencies and gold, then oil could double in nominal price even as it remained constant when priced in other currencies or gold.

Setting aside speculative positions, the other major factor in pricing oil is supply and demand. Recently, a spate of mainstream media article have heralded massive increases in supply in natural gas and oil.

America's Natural Gas Revolution (WSJ.com)

Betting Big on a Boom in Natural Gas (BusinessWeek)

In summer 2008 the U.S. and much of the rest of the world were consumed by talk of peak oil and natural gas and fears that high fuel prices would persist forever. Today analysts still worry about the oil supply but far less about natural gas. U.S. gas producers, capitalizing on a technological breakthrough, have in recent years unlocked an enormous volume of natural gas in the shale rock under Colorado, Oklahoma, Pennsylvania, Texas, and other states.
According to a July report by the Colorado School of Mines, the U.S. now holds 1,800 trillion cubic feet of natural gas, one third of it in shale, the equivalent of some 320 billion barrels of oil. That's more than Saudi Arabia's 264 billion barrels.

Whew--now that we have more fossil fuel than Saudi Arabia, I guess we have nothing more to worry about. Uh, count me skeptical. The technological breakthough is calling "fraccing" for hydraulic fracturing, a technique which has been around for decades.

Basically, water is used to fracture rock or shale, enabling the gas to seep to extraction wells. Chemicals pumped down the wells can also enhance recovery.

All this sounds fabulous--except for the practicalities which are glossed over.How do you collect gas flowing into hundreds of widely spaced wells? With a network of pipes. That isn't quite as easy or cheap as dropping a pipe into a supergiant Saudi reserve. So how much will it cost to tap these giant reserves of gas and feed the gas into existing networks of transport?

Exactly what chemicals are used? How much do they cost to pump down and extract? How do you get the water to the hundreds of wellheads?

And perhaps most remarkably absent from the happy news--how much of this new natural gas production will simply be offsetting declines in other mature fields?

Similar advances in oil recovery technologies promise another 100 years of oil--or so we are told here: Another Century of Oil? Getting More from Current Reserves (Scientific American October 2009; subscription required to read entire article online; visit your local library to read it for free)

Forecasts that global oil production will soon start to decline and that most oil will be gone within a few decades may be overly pessimistic.
The author predicts that by 2030, thanks to advanced technologies, wells will be able to extract half of the oil known to be underground, up from the current average of 35 percent.
Together with new discoveries, the increased productivity could make oil last at least another century.

Once again, the article (written by a global oil company executive) is heavy on promise and glowing hype and short on costs. Is all this fancy recovery technology free? If not, then how much does it add to the extraction cost of each barrel?

All this seems to suggest something which these articles avoid mentioning: there may be more fossil fuel that is recoverable, but it will no longer be cheap. None of these articles addressed the possibility that all this "new" production will simply offset declining production elsewhere, which means global production would simply stay constant rather than increase to match rising demand.

Also left unsaid is the trivial amounts of oil and gas being recovered from aging fields by the costly new technologies. The example cited in the article is a large field in California that was expected to be depleted year ago which still produces 80,000 barrels a day. That is good news, to be sure, but the extraction only makes sense if oil is over $50 a barrel, and 80,000 barrels is a drop in the bucket of the 20 million barrels the U.S. uses each day.

It would take dozens of such vast fields to replace the sagging production from supergiant fields in Mexico, the North Sea and the Mideast.

With prices elevated to the $80/barrel level, constant supply (at high prices) has created a global glut in oil and natural gas--there are literally no storage facilities available to store more gas and oil. This suggests that if the global economy resumes its deflationary spiral down next year, then a grand imbalance between supply and dwindling demand might cause oil to crash in price--unless the U.S. dollar declined concurrently.

As readers know, I am expecting the dollar to actually rise, which would exert downward pressure on the price of oil (in dollars, of course).

Correspondent B.C. was kind enough to submit this chart and commentary.The chart displays the price of oil adjusted to the CPI (consumer price index) in which 1974=100. In other words, the price is in constant dollars, not nominal dollars; the chart removes inflation from the picture. Thus if today's dollar is worth 33 cents in 1974 dollars, then today's $3 a gallon gasoline would be $1 in 1974 dollars.

click on chart for a larger version in a new browser window

Adjusted for inflation, we see oil at its recent nadir in 1999 had returned to the price levels of the late 1960s. The cost spike created by the 1980 Iraq-Iran war was actually higher in real terms than the spike last year to $147/brl.

Here is B.C.'s commentary on how the dollar's rise or fall could drastically alter the price of oil.

US dollar (USD) and CPI constant, the nominal price of oil would need to fall back to the $40s to reach the CPI- and USD-adjusted level where recessions bottomed and new reflationary growth cycles commenced since the '90s.
However, were the USD to rally back to the earlier cyclical high or to par, for example, coincident with another deflationary episode, the nominal price of oil would have to fall to the low to mid-$30s, to as low as the low to mid-$20s, to reach the adjusted recession low since the '90s and before the early to mid-'70s.
That the nominal price of oil has generally tracked nominal trend GDP growth adjusted for the USD, all else equal, oil in the $20s would not surprise me over the next 1-5 years, especially if we see another deflationary scare and stock market crash and economic collapse in China-Asia.

Thank you, B.C. If the dollar strengthens substantially, as many of us expect in the short-term, then oil would drop in nominal price for U.S. residents and increase for those paying for oil in other currencies.

If deflation and global recession were to take hold--that is, if all the quantitiative easing and borrw-and-spend pump-priming fails to ignite "organic" (real) growth, then the price of oil could be hit with two deflators: the rise of the petro-dollar (USD) and a supply which greatly exceeds falling demand.

I illustrated this "head-fake" drop in prices before the final arrival of Peak Cheap Oil in 2008:

Many other observers are similarly alive to the possibility that oil could drop in nominal dollars to $20/barrel in a deflationary "head-fake" and then rise to $200/barrel once supply fell below demand and the dollar resumed its decline in purchasing power.

Frequent contributor Cheryl A. submitted an excellent interview with oil analyst Stoneleigh at the Automatic Earth blog: Stoneleigh interview Stoneleigh suggested that oil could fall to $20 and then subsequently rise to $500 per barrel once demand exceeds supply.

What we need to keep in mind is the relative value in nominal dollars. If the dollar were to suddenly lose 2/3 of its value against gold and other currencies, oil would suddenly cost $200/barrel to U.S. residents even as it remained constant to those buying oil with other curencies.

Inversely, if the dollar were to strengthen, oil could fall in half when priced in U.S. dollars and skyrocket when priced in other currencies.

The main point is simple: tracking the price of oil in constant (adjusted) dollars illuminates the real cost of oil in purchasing power.

Permanent link: Oil to $20/barrel or $200/barrel?

Apple iPod and iPhone owners: There is an Amazon Kindle app for iPhone which enables you to view the Kindle ebook on your iPod or iPhone--I will try to post links to the app once I locate them.

Survival+ is now available on amazon.com.
Buy the complete Survival+ in print or ebook formats.
Expanded free eBook now available: HTML: Survival+: Structuring Prosperity for Yourself and the Nation PDF version (85,300 words, 136 pages): Survival+)

You can also find my work on AOL's Daily Finance and Seeking Alpha.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Susan M. ($5/month), for your exceedingly generous subscription to this site. I am greatly honored by your support and readership.

The Complete Survival+ is Now Available

2009-11-03T09:31:00.000-08:00

After a year of work, the complete Survival+ book is finally available. The free abridged version has also been substantially expanded.

After a year of insane effort, the complete Survival+: Structuring Prosperity for Yourself and the Nation is available in print, Kindle and ebook formats.

But wait: there's more!

The greatly expanded (85,300 words, 141 pages) free eBook is also now available in HTML Survival+ or PDF version: Survival+ (PDF))

Although a respected small publisher wanted the book for Fall 2010, I could not wait an entire year to distribute the book, so I published it through amazon.com's publishing arm, createspace.com for $19.95 and have also made it available as a Kindle ebook or Mobipocket ebook for $11.95.

The book will be available through amazon.com by November 15; until then, I have arranged a $4 discount for anyone who wishes to order it through createspace.com.

Instructions to order the print edition or ebook are available on the main Survival+ page.

Writing such a comprehensive book is capitalism in the purest form: a substantial investment is risked with no guaranteed return. Over 30,000 copies of the free version have been downloaded, and I encourage everyone who glanced at the first free edition to download the new enlarged free edition, which at 85,000 words is a full book in itself. (The complete book with "solutions" is 140,000 words.)

In the HTML version I added a table of contents with links so you can navigate to each chapter, and I added a "further reading" list of over 60 referenced titles to both the HTML and PDF versions.

I would be honored if you sent a link or copy of the free version to others who might be interested in not just surviving but prospering during the next 20 years of turmoil and transition.

As I have discussed with Richard Metzger of Dangerous Minds, all media is now expected to be free. Alas, I am a self-employed creator who does not draw a paycheck from academia, a think tank, the government or a corporation, and the $6 royalty I receive from the print edition and the $4 royalty I receive from the Kindle or Mobipocket ebook editions are an important exchange of value and recognition of the time, effort and experience which was required to put such a comprehensive overview into "only" 140,000 words.

Thus I feel mixed emotions about this day that I have labored toward unceasingly for more than a year; the necessity to awaken at 5 a.m. to create the time needed, the email unanswered, the update to "What's for Dinner at Your House?" languishing undone and a hundred other tradeoffs made to complete the book.

I am honored by the 30,000 free copies which are perhaps winding their way into the collective awareness that the status quo is fundamentally doomed and we will have to come up with new understandings and new structures. Survival+ was written to further that discussion.

As I wrote in the introduction:

My goal is to provide an integrated understanding of why the devolution and insolvency of the U.S. economy is not just a possibility but an inevitability. But rather than feel the despair experienced by the status quo at this prospect, I am energized by a new understanding of prosperity and security based on the founding principles of our nation. This understanding is beyond the tired boundaries of "liberal" and "conservative" or indeed, of any ideological labels.
Much of this analysis might be familiar to you, or it might be entirely alien. In either case, I hope to change your understanding of our nation and our world's potential for sustainable prosperity.
I do not claim to provide solutions or answers per se, but I do present a framework which arises from this analysis like water from a spring. If this book furthers our collective discussion on the coming transformation, I will consider it a success

Thank you, readers, for teaching me so much that I was able to writeSurvival+. I am proud of the work and hope you find it valuable.

I have ordered my first shipment, and will send a signed copy to all subscribers and any readers who were kind enough to donate $40 or more to the site who would like a copy.

I want to write a bit about oil/fossil fuels the next few days so stay tuned....

Permanent link: The Complete Survival+ is Now Available

You can also find my work on AOL's Daily Finance and Seeking Alpha.

Expanded free eBook now available: HTML: Survival+: Structuring Prosperity for Yourself and the Nation PDF version (85,300 words, 136 pages): Survival+)

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Gene B. ($5/month), for your extremely generous subscription to this site. I am greatly honored by your support and readership.

The Empire Strikes Back

2009-11-02T06:33:00.000-08:00

On Oct. 26 I called for a decline in the stock market and a rise in the U.S. dollar. By random happenstance, both occurred. Now I expect the Empire to Strike Back for at least a week or two.

By pure coincidence my call last Monday for a rise in the U.S. Dollar and a decline in the stock market corresponded with the reality of the week's market action.

Now I expect The Empire to Strike Back and stocks to recover--at least for awhile. As correspondent J.B. recently observed in a private email, this stock market rally from the March 6 lows is about the only accomplishment the Obama Administration can claim.

(Saving 640,239.67 jobs--Mertle G. in Houston got hired back at 2/3 time--is not much of an accomplishment when you've thrown hundreds of billions of dollars into every nook and cranny of the U.S. economy--an economy which still has almost 130 million jobs.)

Thus we can anticipate the Empire will defend its "accomplishment," as will all the other central banks and governments.

One key thread in Survival+ is an understanding of feedback loops. To expect the U.S. stock market to melt down in a semi-crash is to ignore the mighty feedbacks resisting such a collapse.

Sentiment should worry Bears (those anticipating a prolonged downturn).Suddenly even the cheerleading MSM and financial media is filled with stories of anxiety and caution--the settings not for decline but for a rally.

As we see below, the "fear index" VIX has skyrocketed. It's as if "everyone" now expects the long-awaited "correction/meltdown" to commence. So with everyone lurching to the short side of the boat, will the market reward all those punters with more decline? More likely it will rise up and severely punish those who bet against the Empire.

I continue to see last Monday's reversal as a harbinger of a trend change. I do suspect a bearish market is taking shape, and the VIX chart does suggest a slow trend change is taking place (rising indicators).

But short-term, the breach of the upper Bollinger band usually means the market reached a panic peak--a buy signal.

This suggests market players are skittish and ready to sell at the slightest whiff of a downturn--just the sort of market which sets up a massive short-covering rally once the panic subsides.

A trending Bear market reveals itself not in panic but in complacency, and a sharp spike in the VIX is anything but complacency. Hence my skepticism that Bears will be rewarded here with a crash, as many Bearish commentators are predicting. Maybe--but it's rarely that easy: just jump on the bandwagon and makes millions.

This rally continues to be the most hated rally in history, and thus we might ask what would thwart the greatest number of expectations: a widely expected drop or a sharp reversal to previous highs or even new highs?

I am also skeptical of a sudden plummet because markets rarely head up or down in straight lines. Thus probabilities favor a re-test of recent highs, a marginal new high or some approximation of a double top.

Just about every analyst typing out commentary has noted the strong technical pull of 10,300 for the Dow Jones Industrials (DJIA) and 1121 for the S&P 500. A good case can be made that the Dow should rise up to 10,700, as that is the 50% retrace of the entire Bull market from the 2002 lows.

In other words, it would be "normal" from a purely technical view for the Dow to climb another 1,000 points here and at least touch 10,700 before turning down. The fact that the number of voices calling this likely has fallen to near-zero is all the more reason to expect one more thrust higher to decimate the itchy-trigger finger Bears and sustain the illusion that the Empire has succeeded in restarting global growth.

Let's take a look at the Dow Jones Industrials:

Even as an amateur observer who sensed a trend change last Monday, I have to confess there is only one element of weakness in this chart: the declining MACD is divergent from the rising price trend. Eventually, this divergence will be resolved, but such resolutions can be leisurely indeed.

The rest of the chart remains bullish. For the chart to turn Bearish, price would have to close repeatedly under the 50-day MA, attempt to regain a bullish position above the line and fail conclusively. Until that occurs, punters should be wary of the Empire(s) defending their beloved global rally. For they have precious little else to feed the view that the global economy is actually on the mend rather than weakening beneath the phony facade created by unprecendented governmental borrow-and-spend stimulus.

THIS IS NOT INVESTMENT ADVICE, OR ADVICE ON ANYTHING. Please read the HUGE GIANT BIG FAT DISCLAIMER below. These are the freeely offered mumblings of a rank amateur, period. By way of disclosure, I sold my short positions and went long via DIA calls on Friday. My timing wasn't perfect but I don't aim for perfection, just an account that is in the green rather than in the red.

Permanent link: The Empire Strikes Back

You can also find my work on AOL's Daily Finance and Seeking Alpha.

If you want more troubling/revolutionary/annoying analysis, please read Free eBook now available: HTML version: Survival+: Structuring Prosperity for Yourself and the Nation (PDF version (111 pages): Survival+)

"Your book is truly a revolutionary act." Kenneth R.

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Thank you, Robert R. ($25), for your exceedingly generous donation to this site. I am greatly honored by your support and readership.

When the Savior State Becomes the Enemy of the People

2009-10-30T09:17:00.000-07:00

People want the Savior State to pay for their healthcare, retirement, education, housing, etc., even as they fear the unlimited power and funding they have granted their government. You can't have it both ways.

Correspondent Mark A. sent in this report on the over-reach of government and the potential for abuse of power.

Caught your stories recently about extortionate fines and so on. Last night I ran into this story Police crush sex offender's car; warn of moreabout a Denver ordinance that permits the city to sue and confiscate property used in the commission of various crimes (modelled after heinous drug laws affirmed by the Supreme Court).
It struck me as outrageous on multiple levels, not least the entrapment aspect and sex-crime hysteria (others may disagree). Yourself and Jim Kunstler have pondered the devolution of society as money becomes scarcer, foreseeing a breakdown of enforcement ability.
Me, I think we underestimate the potential for the development of an increasingly rigid authoritarian (if nominally "democratic") regime as the government increases its relative share of resources and aims to preserve "order" as well as income as people become more stressed. Certainly all the instruments are in place - legal, technological, etc. Usurping revenue is one aspect of this progression, but arrogating authority is another more frightening one. Never trust the State (isn't that what the Founders advised?) Just a thought.

Here is an excerpt from the story:

The unit was created by an ordinance in 1994 and targets things described as: "Any parcel of real property, personal property, or motor vehicle on or in which any of the following illegal activity occurs, or which is used to commit, conduct, promote, facilitate, or aid the commission of or flight from any of the following activities."
Those activities include 22 offenses, which range from drug or weapons possession, to repeat traffic offenders and sex offenders. (CHS: you guys with mutilple traffic tickets: you are dangerous beyond belief! We're targeting you for complete destruction of your assets!)
Anyone charged with those crimes could have their cars crushed or property seized, as part of the law.
Sometimes the seized property is a building or a business.

The danger of political activities being lumped in with criminal activity is higher than most complacent Americans believe. Nobody will defend a sex offender's rights, of course--but how about when tax resistance becomes a "crime"? (It already is, of course.) It's also a "crime" to resist an illegal war, too.

It's easy to be naive about the essentially unlimited powers of the State. Most people believe that only "bad people" get caught by the government trawler, but it isn't quite that simple. If you or those who agree with you threaten the State's Imperial ambitions, tax collection or Power-Elite supported agenda, then you may be targeted. I can say that it "can happen here" because it's already happened here.

I was with a friend when the FBI swooped in to arrest him for political crimes against the State, i.e. refusing to support an illegal (undeclared) war. At the time, the FBI has some 10,000 agents tasked with suppressing or disrupting the antiwar movement by whatever means were deemed necessary. Meanwhile, the agency's anti-Mob (organized crime) unit was reduced to minimal staffing. When the State feels its Imperial agenda threatened, then run-of-the-mill criminality gets ignored and the full resources of the State are turned on political threats to the status quo.

Having been called into the FBI office myself for grilling (after being threatened along the "we know where you live" line), I can say from experience that the boundaries which are supposed to protect our rights only exist if you can afford high-powered legal representation and if you are powerful enough to raise a stink in the "right circles."

Citizens with nothing to lose and no stake in maintaining the status quo are dangerous to the State (and thus to the Power Elite which has captured the State's lawmaking and enforcement arms), and so the State's first line of defense is to become a Savior State which showers entitlements as a way of providing voters with a stake in the system.

The second line of defense is to become a repressive Police State with an active secret intelligence program against domestic protest (as occurred in the late 1960s-early 1970s with domestic C.I.A. spying and COINTELPRO, the FBI's secret campaign to infiltrate, undermine, marginalize and/or subvert the antiwar movement).

These programs employed illegal entry ("black bag jobs") and surveillance, extralegal force and violence (creating and funding extremist front groups to commit the violence at arms distance from the Federal government), and psychological warfare ("dirty tricks," harassment, misinformation, setting up pseudo-movements run by government agents, threaten activists' parents landlords, employers, etc.)

The 1976 Church Committee formed to investigate the domestic intelligence campaigns concluded:

"Many of the techniques used would be intolerable in a democratic society even if all of the targets had been involved in violent activity, but COINTELPRO went far beyond that...the Bureau conducted a sophisticated vigilante operation aimed squarely at preventing the exercise of First Amendment rights of speech and association."

Anyone who doesn't believe their government is capable of Police State repression and subversion of First Amendment rights should research COINTELPRO more fully. While you might have disagreed with the groups subverted in 1969, the line between "those hippie radicals" in 1969 and "us Tea Party tax protesters" in 2009 is thin to vanishing.

Nothing will be more threatening to the State and status quo than tax resistance/rebellion and former insiders (those whose belief in the system has faded) turning into whistleblowers on the web.

Here is one source text: War at Home: Covert action against U.S. activists and what we can do about it.

Put simply: the State holds all the hammers, and you know what happens to raised nails.

Few seem to grasp the connection between an all-powerful Savior State and an all-powerful repressive State. In granting the power to become a Savior State then you also grant it the power to be a repressive regime or corrupt kleptocracy which openly serves an Elite and is accessible only via bribes/political donations (take your pick).

Correspondent Doug K. drew the line connecting the Savior State and control very succinctly:

It has become glaringly evident that local "law enforcement" targets those forced to endure visible embarrassment of hardship. Our repeated "contributions to the public good", made to atone for such grievous offenses as economic misfortune, only serves to perpetuate this relationship.
Yet, even more outrageous (to me) than such abuses of authority, is the quiet public acceptance. The pervasive public attitude being; "As long as they hassle you they'll leave me alone", or " As long as you have to pay I get to keep my money". If such self absorption isn't proof of successful public psychological manipulation through propaganda (did you watch "Century of the Self"?), then what is? Deeply entrenched disregard, occasionally including open displays of contempt, for those forced to endure hardship, sure seems far more manufactured than natural.
Beyond the "social proof" type of encouragement to disregard the less fortunate, the propaganda pushes happy pills. No less than a third of the people in this area have been willingly chemically lobotomized, in part because that has become a de-facto prerequisite for acceptance into the "social safety net". An overlapping fourth of the neighbors frequently "advertise" they're well equipped with high powered automatic weapons.
Both groups "get a pass" from local law enforcement on any misdemeanor, unless it's related to "prosecutorial money making" (war on drugs), or something that excites the prosecutor's prurient interests (seriously!). Having endured multiple instances of vandalism and animal mutilation for the amusement of the happy pill crowd, this is quite dispiriting.
Speaking of the social safety net: What a sham! I've seen plenty of people who admittedly(!) cause most of their own problems showered with assistance while those who recognize the causeof their hardship is no fault of their own don't ever qualify for anywhere near the same level of help, if any at all.
I don't know how the social safety net truly operates in other places (each county is this state has their own semi autonomous office), but most of the rural areas in this state function/ practice the same way as the local office. Anybody in this area not stressed out enough to demand a prescription for chemical lobotomy isn't stressed enough to need assistance. Money (need) has nothing to do with it.
The people I know who have "given in" to the demands of "safety net" inclusion appear to be doing better than they were when gainfully employed. A significant fraction seem to have more time and more money to burn now that their obligations are being taken care of. One person I know has leveraged their officially sanctioned "misfortune" into what appeared to be a legalized fraud, then bought an RV and is now out touring the country!
Taken together, all this (4 preceding paragraphs) appears to be evidence of a deliberate intentional effort to make sure that if (when?) the villagers ever do pick up torches and pitchforks they'll turn on each other instead of marching toward the castle.
Local PTB aren't just extracting funds from the peons. It was recently revealed that the bread and butter of one local "economic success story" (as reported in a number of local and regional publications) was profits from illegal drugs (pot growing operation). I've heard from several members of law enforcement --after they turn off their pocket recorders-- that several other well-to-do "pillars of the community" are involved in worse (meth).
The only difference being that the pot grower didn't share his good fortune with the right people, while the other names always show up on published lists of contributors to the local elected officials. If you're doing well in this community, and you're not making some sort of "contributions to the public good", local authorities will be scrutinizing your every move.
What is required to qualify as "economic success" appears to be entirely dependant on at least one of two things, either dumb luck (opportunity) or some sort of "crookedness". I clearly don't have the former and the "right people" aren't in any way obligated to permit the latter. Money really is like rain, and for a lot of people this is a severe drought. Doesn't matter what kind of rain dance you do, let alone how hard or long you keep dancing. All you can really do is keep your buckets handy. Unfortunately there hasn't been a cloud in the sky for several years.

Correspondent J.P.B. submitted this comment on the use of surveillance for, um, "upholding the law"--or is it just another violation of our rights for the purposes of extortion? Welcome to a State kleptocracy armed with high-tech gadgetry:

RE: "Upholding the Law" or Simply Theft by Other Means?:
I have been warning folks to be on the lookout for this for the past two years. Now I find out that the Franklin county Sheriffs have been testing, for 2 years, cameras that read license plates as they drive by. They then run a search on the plate to see if there are any outstanding warrants, etc. Funny how they rolled this out and did not really publicize it. I find it creepy.
I wondered how I got pulled over for an expired registration (I had the new one on my seat as I was heading to the store to get new screws for the license plate. I received no ticket) It puzzled me for the past two years how an officer parked on the side of the road was able to see my plate sticker as I drove past at 45 - 50 mph. Now I know how! Sneaky. They are desperate and will stop at nothing. Nothing! Rules, rule of law, pfffft. I have been saying that for the past few years also. They keep changing the rules as they go along to suit themsleves and their oligarchs.

You can't grant the Central State powers to be a Savior State without also granting it the power to become a repressive regime that is nominally "democratic" even as the levers of actual power are operated by various Power Elites.

I would rather jettison the Savior State and be poor rather than live in a kleptocracy run for the benefit of the State and Power Elites partnership.

Since the Savior State is doomed to insolvency, other arrangements will have to be made in any event.

Thank you, Mark A., Doug K. and J.P.B. for your commentaries.

Notes: Yesterday's entry Crazymaker: Journal of American Media and Lifestyle(October 29, 2009) was a spoof--sorry I did not make that clear.

As I type the stock market is down handsomely for the week, but I see the potential for a retrace back to the highs (and lows in the dollar) so it behooves us to be careful and book profits whenever possible.

Permanent link: When the Savior State Becomes the Enemy of the People

You can also find my work on AOL's Daily Finance and Seeking Alpha.

If you want more troubling/revolutionary/annoying analysis, please read Free eBook now available: HTML version: Survival+: Structuring Prosperity for Yourself and the Nation (PDF version (111 pages): Survival+)

"Your book is truly a revolutionary act." Kenneth R.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Gregg F. ($25), for your most generous donation to this site. I am greatly honored by your support and readership.

Crazymaker: Journal of American Media and Lifestyle

2009-10-29T09:12:00.000-07:00

If you wonder why our society is so schizophrenic--look no further than Crazymaker Journal.

I happened upon a fascinating new online publication: Crazymaker, the Journal of American Media and Lifestyle. I have to say the content set me back on my heels; rarely do I see such an honest portrayal of the carefully mixed messages dished out as "news" and "entertainment".

Gregory Bateson addressed how a cognitive "double bind" could create a schizophrenic state of anxiety and dysfunction.

Their findings indicated that the tangles in communication often diagnosed as schizophrenia are not necessarily result of an organic brain dysfunction. Instead, they found that destructive double binds were a frequent pattern of communication among families of patients, and they proposed that growing up amidst perpetual double binds could lead to learned patterns of confusion in thinking and communication.
Human communication is complex; 90% of it is nonverbal (see also Albert Mehrabian) and context is an essential part of it. Communication consists of the words said, tone of voice, and body language. It also includes how these relate to what has been said in the past; what is not said, but is implied; how these are modified by other nonverbal cues, such as the environment in which it is said, and so forth.
For example, if someone says "I love you", one takes into account who is saying it, their tone of voice and body language, and the context in which it is said. It may be a declaration of passion or a serene reaffirmation, insincere and/or manipulative, an implied demand for a response, a joke, its public or private context may affect its meaning, and so forth.

This is an apt description of the craziness created by media/marketing messages every minute of every hour of every day in the USA. Bake a super-rich cake, and oh my, why are you so fat? Now you have to torture yourself with diets which don't work.

Girls: want to look hot and sexy? if you don't, you're a loathesome loser.

Guys: not ripped with bulging muscles? Too bad--you're a loathesome loser, too. Image and exteriors are everything!

The media profits from selling marketing/adverts. Marketing causes people to become schizophrenic. Adverts' meta-messages often contain mplicit sexual content or domination/submission themes, or the promise of "cures" for everyday living--or for the results of the very behaviors being prompted and encouraged.

Some of the conflicting messages are so painfully obvious, yet consumers are seemingly blind tot he paradox of a magazine thick of with adverts for more products being titled Real Simple:

Sadly, as a result we all have quatro-polar disease. Fortunately, there's a medication cure: zombiestra.

Yes, I am alive to the irony that this site runs adverts selected to match the content of the topic being addressed. Sometimes the "contextualization" is delayed or mismatched, and the irony is heightened.

So I cannot claim some blameless role; I too am part of the machine, accepting money to fund the operation of this site. Should advertising be banned? That might be an ideal for some, but the more realistic solution might be to work on teaching a healthy skepticism based on cui bono--to whose benefit is this advert running? Once that has been established, then the "consumer" is at least grounded in this reality: we are the target/mark of the con.

The other solution is to minimize exposure to the mostpowerful adverts, which are on TV. Thus minimizing exposure to commercial and cable TV is an excellent start to minimizing the impact of media/marketing crazymaking.

Permanent link: Crazymaker: Journal of American Media and Lifestyle

You can also find my work on AOL's Daily Finance and Seeking Alpha.

If you want more troubling/revolutionary/annoying analysis, please read Free eBook now available: HTML version: Survival+: Structuring Prosperity for Yourself and the Nation (PDF version (111 pages): Survival+)

"Your book is truly a revolutionary act." Kenneth R.

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"Upholding the Law" or Simply Theft by Other Means?

2009-10-28T07:38:00.000-07:00

Terrified of openly asking the citizenry to pay higher taxes for their services, local government has sought to boost revenue by raising junk fees and what amounts to "theft by other means"--absurdly costly traffic fines.

Correspondent J.D.G. provides us a detailed window into the tawdry world of local government's abuse of authority and unspoken collusion of law enforcement and judiciary to raise revenues without actually presenting the citizens a choice in the matter.

If we actually lived in a nation with "taxation with representation" rather than a multilayered kleptocracy (the Power Elite and State partnership), the local government would come hat in hand to the taxpayers and lay it all out: here is why we need X millions of dollars to provide the services you want, and all costs are presented in detail.

In the real world, newspapers have to sue to obtain the pension records of public employees. Now some pensioners object to the release of the information as a violation of privacy, and I agree: but the size of the pension and their position should be in the public record (their name need not be listed). To deny the taxpayers access to records of where their taxes have gone based on privacy is a red herring.

Access to pension payments on trial:

In other court papers, Olson pointed out that a public safety employee who retires at 50 could draw as much as $3 million in pension payments during the next 35 years.
In Contra Costa County, Moraga-Orinda Fire Chief Peter Nowicki, draws an annual pension of $241,000 yearly although his top salary was roughly $185,000. The fire district hired Nowicki back as interim chief with a $174,000 contract while drawing the pension.

Let's also dispense with the illusion that a furlough is an actual pay cut. Working 20% less and receiving 20% less pay is not a reduction in pay per hour--it is a reduction in hours worked.

A reduction in pay is working the same number of hours for 20% less salary.

As for pensions--well, the battle has yet to be joined: generational battle brews over gilded-baby boom pensions.

The "raising revenue via the back door" of skyrocketing traffic fines and junk fees is widespread: Speeding, Parking Tickets on Rise as Government Revenue Source.

Let me be clear: this is not a critique of government employees but of the systemic abuse of authority and underhanded methods being used to raise local government revenues without having to seek the approval of the taxpayers. If you read this account, you will see how the charge of "theft by other means" is justified.

On 2-15-2008, as I was traveling north on Lincoln Ave in San Rafael I came to an intersection that was controlled by a traffic light. My speed of travel was between 15-18MPH, I had the green light and three cars including me proceeded to cross the intersection of Lincoln Ave & Paloma Ave.
Important is to note that Lincoln Ave. on the southern side of Paloma Ave. is a four lane road, albeit cars are parked alongside the curb at certain hours of the day.
As I was traversing said junction, a school bus traveling south pulled close to the curb at Paloma & Lincoln and as it came to a stop, flipped on his red flashing lights. Just a few moments after I had crossed the intersection, one Motorcycle Police Officer passed me, at great speed, his red & blue lights lit, and pulled over the car and driver who drove through the intersection five yards ahead of me.
Within moments, I noticed another Motorcycle Police Officer right behind me, blue & red lights flashing, waving me to the side of the street. Having gone without a traffic ticket or any kind of incident for more than ten years, I was surprised.
After the Motorcycle Officer pointed out the school bus with his flashing red lights and a minimum of exchanged words, he gave me a traffic ticket. The officer was very polite and businesslike, little did I know then… this same officer gives tickets for that very offense almost on a daily basis. Passing a school bus with his flashing lights on, according to CA Vehicle Code 22454A, is highly illegal and carries a penalty of $561.00.
Things dragged out, it took about 9 weeks before the motorcycle officer finally entered the violation into the County Clerk’s computer, and shortly after I received my ‘Courtesy Notice’, (Copy enclosed). The Police Officer assured me initially that I would hear from him within 14 days!
After thinking about this ordeal at length, I decided I will contest this infraction. To my great surprise and dismay, I found out, that before receiving a court date I had to stand in long lines at the Court House on two different days, a period of time that not many people can afford to be away from their jobs! Most people resign to the fact that they are wrong; they must pay the fine, and let the county get away with it. Easy money for the County!! My court date was set for 27 August 2008.
As I was waiting at the Civic Center for the court date, I was approached by a woman who apparently overheard my getting a ticket for passing a school bus. After a brief exchange of words, we realized that we suffered the same fate, but on different days. Her infraction occurred after my date, yet her court date was set for 14 July 2008. Her name was Diana, residing in San Rafael, studying to become a court reporter.
The facts:
Both infractions occurred at the intersection of Lincoln & Paloma Ave., Vehicle Code VC 22454A, and both times the citations were given by Motorcycle Officer P., passing a school-bus with flashing signals!
On both occasions, we had a ‘green’ traffic light driving on Lincoln Ave, which definitely is a four-lane road, when you enter Lincoln Ave. at Mission Ave.
On both occasions, Diana and I stood before Judge H. in Dept. #N, my trial was at 10:30 AM, and Diana’s trial I believe started at 2 PM.
On both occasions, traffic was flowing and the school bus driver should not turn on his flashing red lights as long as the traffic signal shows the green light.
Even though the circumstances were identical, and the trials took place just 43 days apart, the outcomes were opposite!
Also note, neither Police Office was visible to me before I crossed the intersection. By law, the Officer needs to be visible!
I have enclosed copies of both ‘Courtesy Notices’ as well as Diana’s trial brief. In it, she explains in great detail why the traffic ticket was given in error! Diana, so she told me, argued in front of Judge H. the reasons why a car may pass by a school bus if the intersection in question is controlled by either a ‘traffic signal’ or a ‘police officer’! Both supersede the authority over any flashing red school bus lights, which should not have been turned on in the first place, at least not as long as traffic was flowing through the intersection while a green traffic light was signaling to do so!
During Diana’s argument Judge H. waved his copy of the vehicle code and stated that he realized Diana had done a lot of research, she knew her stuff and consequently declared her “Not Guilty”! To everybody’s surprise, 43 days later, in front of the same Judge, flanked by Police Officer P., under the exact same circumstances, naming the identical vehicle code, I was found “guilty”!
I have copies of the trials from Judge H.’s court in CD form.
My anger is not about the fact I received a traffic citation, but it bothers me tremendously that a ‘Government Agency’ fleeces its constituents under color of law and color of authority without shame. Most persons in that situation do not have time to return to Marin County Court over several days' time in order to contest the citation; they rather pay the fee and forget about it. That is exactly what Marin County is counting on, thereby extracting and extorting thousands of dollars from unsuspecting and innocent citizens.
I have surveyed and watched the intersection in question over time and on several occasions and have come to learn, that the San Rafael Police Department, with the help of a ‘friendly Judge’, purloin monies from citizens on a regular basis. It would not surprise me, if the amount pocketed by Marin County, using this very technique, surpassed several hundred thousand, if not in excess of a million dollars.
I strongly feel that this Marin County Caper should be investigated, exposed and the County be held accountable!
As I was meeting with Diana before her court date in July, we ran into another woman who had gotten an identical ticket from officer P., went to court and was found guilty by Judge H. She paid the $561 fine.
That is exactly, Ladies & Gentlemen, which proves what Charles writes in his Blog!
Under the flag of Law, under the flag of authority, we are all being fleeced, sometimes very simply, other times more sneaky scams are being used.
I have watched the intersection in question, again and again and have come to the conclusion that the citizens of San Rafael must have paid tremendous amounts to the fine Marin County workers in order to keep their pensions funded.

Thank you, J.D.G., for providing us with a detailed account of how "justice" has been undermined by a rapacious search for higher revenues.

We can conclude that if you have the skills and knowledge of an attorney, you might--might-- escape the collusion of the Judiciary. Or maybe not.

This is by no means the sole story I have received about this perversion of law enforcment and "justice." Please read Criminalizing Poverty For Profit: Local Government's New Debtors Prisons (October 20, 2009) and Readers Comment on "Driving While Poor" (October 23, 2009).

I will end with a story recounted by a friend who was nailed in a speed trap a few years ago while driving across the open spaces of the West (Montana, Wyoming, South Dakota). It was on the weekend, and thus the front office of local law enforcement was closed; no credit card payments for the $400 fine could be accepted. It was cash or jail.

Nowadays, that fine is probably $600--revenue enhancement, heh.

Why do I feel like we're living in a Third World kleptocracy where bribes have to be paid in cash?

My friend happened to be the sort who actually carries a large amount of cash and he barely raised the fine by emptying his pockets.

Now put a person driving an old car who does not carry $400 because they're living on unemployment and they don't even have $400. Now add a couple hundred bucks fine for the defective tailight and another couple hundred dollars for driving without insurance (either keep the electricity on or keep the auto insurance, which would you pay?), and you get a $1,000 total the poor person cannot possibly pay. Indeed, that sum is larger than the value of the vehicle and the cost of a year's insurance combined.

So the fine goes unpaid (adding another $500 fine) and the citizen will get arrested next time an officer notes the broken tailight, and said citizen will effectively be hauled off to debtors' prison by the local government.

If this version of "law enforcement" qualifies as "justice" then we truly have slipped into a Orwellian nightmare of abuse of authority, extortion and theft by other means.

Permanent link: "Upholding the Law" or Simply Theft by Other Means?

You can also find my work on AOL's Daily Finance and Seeking Alpha.

If you want more troubling/revolutionary/annoying analysis, please read Free eBook now available: HTML version: Survival+: Structuring Prosperity for Yourself and the Nation (PDF version (111 pages): Survival+)

"Your book is truly a revolutionary act." Kenneth R.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Linda L. ($20.44), for your kind words and warmly generous donation to this site. I am greatly honored by your support and readership.

Housing: Round Trip to Pre-Bubble Prices Underway

2009-10-27T09:06:00.000-07:00

Popped speculative bubbles tend to retrace to their pre-bubble prices. Housing has already retraced 75% of the bubble--only 25% still to go.

When it comes to post-bubble retraces, the fundamental reasons may not matter as much as the technical case for a full reversion to pre-bubble prices.We all know the fundamental reasons why housing shot up--a credit bubble of epic proportions plus securitization, fraud and low interest rates, to name but a few factors--and why housing has plummeted: foreclosures and inventory are rising, tightening of credit standards by private lenders, etc.

But the ultimate predictor of price is technical: speculative bubbles retrace to their pre-bubble prices, or in many cases even crash below those levels.

Those arguing the fundamentals are always grasping at various straws to support the case that prices won't drop all the way back to pre-bubble levels, and they're always wrong.

Thus when the NASDAQ dot-com bubble topped above 5,000 in 2000 and then sank to 3,000, the fundamental analysts piled on reasons why 3,000 was "the bottom." Indeed, the market did recover the 4,000 level briefly--at which point it reversed and drifted all the way down to 1,100, it's pre-bubble level.

In other words, regardless of the fundamental reasons offered (they're not making any more land, inventory is drying up, foreclosure rates are dropping, etc.), markets tend to fully revert to pre-bubble prices.

Here is a chart of the national median prices which have already reverted to 2002 levels. The future full retrace has been added as a projection:

While there is no absolute way to project the final bottom, many bubbles exhibit a symmetry in their rise and fall. Thus if a bubble took eight years to reach its apex, there is some history to suggest that it will bottom out in roughly the same time span.

That would put the final bottom in the 2013-2014 time frame.

The truly bubblicious markets have already reverted fully 75% of the bubble.Take a look at this chart of median prices in California. Median rices have already dropped to 2001 levels--a staggering 55% decline and a 76% retrace of the entire bubble rise from $180,000 to $600,000.

"Only" $100,000 more to drop for a full reversion to the starting point of $180,000.

There is no law which states that prices have to stop at 1998 levels. Given that this is median price, then high-priced homes tend to keep the median price above the average price. If high-priced homes fall precipitously in value then that would drop the median price substantially.

What is not visible in purely nominal median home prices is the catastrophic retrace of homeowners' equity to levels not seen since the 1970s. What is noteworthy in this chart is that homeowners' equity has already fallen below pre-bubble levels. In other words, the average American homeowner has less equity than before the bubble tripled prices in "hot" areas.

We can surmise that equity extraction via HELOCs (home equity lines of credit) and re-financing might be the cause of this horrific loss of equity: when values shot up, American extracted some $5 trillion in equity. Now that values have dropped, equity for about one-third of homeowners has essentially vanished, along with the ability to borrow money against their homes.

The consequences of a further retrace in valuations to 1998 levels are clearly dire for household wealth. If the median price of housing nationally falls another $40 -$50,000, as will occur in a full reversion, then all that decline will come straight out of remaining equity. In California, the same can be said of the expected $100,000 decline in median valuations.

Some analysts have already gone on record that they expect fully 50% of all homeowners with mortgages to be underwater by 2011--that is, owing more than their equity. Half Of All U.S. Mortgages 'Underwater' By 2011: Deutsche Bank.

As household equity (wealth) declines, the "reverse wealth effect" kicks in with a vengeance. Once we feel poorer, we start acting poorer--even if we don't count on our equity for living expenses.

What does the reverse wealth effect mean in an economy of which 70% is private consumption/consumer spending? It means people do not feel wealthy enough to spend money they don't have, and it means people will not be able or willing to tap whatever equity does remain in their homes.

If we ponder these charts, it's difficult to conclude the consumer can recover his/her free-spending ways and thus difficult to expect the economy to grow on the backs of renewed consumer spending.

Permanent link: Housing: Round Trip to Pre-Bubble Prices Underway

You can also find my work on AOL's Daily Finance and Seeking Alpha.

If you want more troubling/revolutionary/annoying analysis, please read Free eBook now available: HTML version: Survival+: Structuring Prosperity for Yourself and the Nation (PDF version (111 pages): Survival+)

"Your book is truly a revolutionary act." Kenneth R.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Edmund D. ($35), for your extremely generous donation to this site. I am greatly honored by your support and readership.

A Trader's Intuition (with Charts)

2009-10-26T06:40:00.000-07:00

My trader's intuition is flashing warnings that the stock market might drop off a waterfall starting this week.

Let's start by stipulating if I was actually smart then I'd be rich, and I'm not.Second, let's re-read the HUGE GIANT BIG FAT DISCLAIMER below to refresh our awareness that these are the rantings of an amateur observer, nothing more, posted here for free (Yes, you get what you pay for).

A trader's intuition, eh? Fa, fa, fa. That and $2 will get you a cup of coffee.True. So let's run through some charts.

The MSM is pounding us 24/7 with the "fact" that the GDP will print a rise in the third quarter and hence "the recession is over." Uh, do these charts reflect a growing economy?

Here's the good news: this is the sharpest stock market rally on record:

Nice--but how about jobs?

(Both charts courtesy of The Big Picture blog)

How about the household balance sheet?

How about homeowners' equity?

Gee, is negative equity rising? (homeowners "underwater" on their mortgages)

How about credit card delinquencies?

Don't tax receipts reflect the real economy?

But the American consumer never stops spending, right?

And home prices are rising, right? (Use a magnifying glass as necessary to locate rise)

But all those subprimers are out of the system, right? Their houses have been foreclosed and sold to investors euphoric over "catching the bottom in real estate," right?

Well, sort of, except that the "upper crust" market of prime and jumbo loans is deteriorating faster than an ice cube in the Arabian Sea. (See chart.) Foreclosures in the top tier of homes--those in the highest price range--have almost tripled since 2005 as a percentage of all foreclosures.

And which households were the big spenders? Most likely the ones with the biggest, priciest houses.

This chart alone blows the crowded "recession is over" boat right out of the water. If the households with the biggest mortgages and priciest houses are slipping into foreclosure at a rising clip, then precisely who will be spending at a high enough rate to trigger a sustainable rise in private consumption? (Recall that private consumption is 70% of the U.S. economy.)

So what are households doing with whatever cash comes their way? Paying down debt and saving cold, hard cash (See chart.)

Add these charts up and do you get a solid exit from recession based on growth in employment, household assets, household equity and household spending? No, you do not.

Let's face reality: the Federal government borrowed $1.4 trillion in the 2009 fiscal year (fully 10% of the U.S. GDP) and basically blew it supporting the economy in various ways. The Federal Reserve also funneled hundreds of billions of dollars into the banks and financial sector, creating unprecedented liquidity at near-zero rates.

That hasn't done much for lending (which is falling) or Main Street American business but it sure has handed investment banks plenty of free money for various speculations. (See chart 1.)

So where does this leave us? With a stupendous disconnect between the real economy and the high-flying, euphoric stock market. My intuition is the disconnect is about to resolved in favor of reality.

Take a look at a chart of the VIX--the so-called Fear Index. It is reflecting confidence and complacency--the perfect set-up for a market about to fall screaming off a waterfall. Recall that the VIX moves inverse to the market: if the market is rising, then the VIX is low, and if the market is falling, the VIX is rising.

This is a chart of supreme complacency--except for the indecision of those tall candles of the past few days. The VIX has shot up and fallen back in wild gyrations-- just the sort of action which typically marks tops.

How can we square this swaggering confidence in the stock market's relative safety with the rapidly crumbling real economy?

We can't.

When I worked in the back office of a small quant shop our clients were mutual fund managers--smart guys and gals. Does anyone actually think the smart players believe the Fox news-CNBC shills that the economy is fine now, so buy buy buy? Of course not. They're watching for any weakness to dump. The really smart ones have already hedged or fanned out of their longs. But many are waiting until the party ends, confident that there will be some warning bell that only they will hear.

But it might not work out that way. Perhaps the crowded room which will rise in unison and rush for the exit when the alarm sounds. This feels like the week the crowd rises and suddenly realizes there are thousands of traders and managers all heading for the same little exit. This is intuition, not analysis.

So by way of disclosure: I own calls on inverse ETFs which rise if the market falls, and I advised my sister to sell Monday morning--sell hard, sell fast, and go to cash. Sell the gold funds, the stock funds, sell it all. That is not advice for you, of course, it is only a disclosure. As I write this at 10 p.m. Sunday evening, the Nikkei index is up and the global markets seem poised to continue their giddy eight-month long party.

Time will tell if that long, deep gash left by reality below the waterline has doomed the ship or not. I'm sensing that it's time to grab a lifeboat and leave the milling crowd of party-goers with the unenviable risk of sinking.

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