Saturday, October 30, 2004

Memos from Wonderland pt 1,

I confess that of late the world has seemed to me somewhat surreal. Or rather the world has been in crystal clear sharp focus but the social world overlaying it of human perceptions and relationships has been particularly out-of-touch. It is operating under what one poster to BOP-news called "bizarro world rules".

This is world were four years after the media and conventional wisdom mantra was that "there wasn't that much difference" between the two major candidates, once again the media and conventional wisdom mantra is once again that there isn't that much difference between the two major candidates or what they will do. However on margins both sides have become obsessed about the deficiences of the other side's candidate.

So it's more like a story of the flanks against the middle.

Barry is pretty representative of such a middle.

The election of your lifetime.

That's what the vote on November 2nd vote has been called. It's probably a fair description in many, many policy areas. The two major party nominees for President differ on a host of issues, ranging from international affairs to economic strategy to tax policy. Even on basic issues of science – stem cell research (biology), global warming (chemistry), missile-defense (physics) – there are huge distinctions between the Republican and Democratic candidates.

When it comes to the capital markets, conventional wisdom assumes that the outcome of this election will matter a great deal.

I disagree.

Actually I would disagree with Barry. I think that the conventional wisdom is the opposite - that one candidate is only just more preferable than the other and that neither candidate is very preferable. At least if by conventional wisdom we mean mainstream opinion that swims in the "middle". As a moderate technocratic centrist Barry would fit in nicely with that category.

On the right wing side though, I hear a lot of Republicans justifying their vote by saying well "Kerry would be worse" or in the words of one friend "I can't let that ass-clown in,". Completely erased is the notion that their candidate might have any flaws or if there is an acknowledgement there is a rationalization that Kerry would do even wose. It's gotten so bad that Bush public outings now have ceremonial loyalty oaths. While not illegal this is unConstitutional. As put to me by someone in the military, one of the defining differences of our system of government is that there are no loyalty oaths of individuals but only to the Constitution as the framing document of our system of governance.

Just as have many before me, I too have sworn to protect and defend the Constitution of the United States of America against all enemies, foreign and domestic.

While not strictly illegal, the oaths that the Bush camp are trotting out are highly disturbing. Oaths such as these are not mere spectacle, but by ritualistically tying loyalty to Bush personally above and beyond the office of the Presidency and the system of governance which gives him legitimacy and by binding it to the emotional ties that form people's way of life Bush is essentially building his own private armies. That's a classic ploy in building a personal army - one of the first step is to get them to identify their way of life with loyalty to you and then swear an oath of allegiance to you personally.

Representative of the middle, Slate put out well a slate of endorsements for Kerry that were at best luke-warm. This is symbolic of the conventional and mainstream wisdom that either candidate will be constrained by reality. As Barry writes:
Why? There are simply far too many structural factors that will hamstring whoever assumes the Office of Presidency on January 20, 2005. The post-bubble environment has problems that will likely be cured only by the passage of time. Large budget deficits will continue, as will the ongoing weakness of the dollar. The economy is likely to grow, albeit at only a very modest pace, for the foreseeable future.

The point of view seems to be that any rational person would limit their activities given the restrictions ennumerated and others not mentioned regarding military resources. Of course the great flaw in rational individuals is that they generally fail to understand that irrational people will accept extreme penalties and setbacks in the pursuit of unrealistic ambitions. So the fact that reality constrains us is in fact no bar to the attempt to overextend to reach impossible goals by either the irrational extremism of right or left.

Of course we know that the ABB crowd has long been driven into shrill hysterics about how "Anyone But Bush". What hasn't been widely acknowledged by the center left however is the inner corruption and weakness of the Democratic party makes it a poor champion for reality. The far left in the forms of progressives and Greens have long accused Democrats of being no different from the Republicans. That isn't true as the past four years has shown, but the argument resonates that they are almost as bad.

This is acknowledged by the middle and mainstream center however and this is what makes the middle consider Kerry as evaluated by the luke-warm endorsements as preferable but only just to the guarenteed insanity of 'four more years'.

So given the whole mess, it's no wonder that I have a somewhat surreal perception of things since the world as people consider priorities important is extremely distorted as if seen through, well to be frank, a looking glass.

As for the weakness in the dollar, it isn't a "limitation" - it's part of their plan. As in the Estbalishment's plan embodied in the persons of the FOMC. As far as I can tell the Fed is opting to push through it's own economic program irregardless of who get's into the Oval office. Right now economic policy is being made by the Fed and not the WH, exihibit the futility of Snow Treasury Secretary.

The plan of the Fed is to try to make us an exporter to Europe the same way that Japan and Asia were curency pegged exporters to us. The plan of the Fed is to force a revaluation of the currency pegs from Japan and China to the USA and so renegotiate our debt. The plan of the Fed might have worked if we had in fact brought more oil supply to the market so that the Fed Funds rate would stay linked to the inflation adjusted bbl oil price.

As it is the Fed's plan will almost work and then result in the loss of America's reserve and petro-commodity currency status - within possibly as soon as two years. Right now the Fed is forcing money into the stock market and the real estate market to reinflate them by it's policy of letting the dollar drop against the euro, since from the spread on corporate bonds and the drop in the ten year note we can see that the bond market is super-saturated and simply cannot absorb any more money supply meaningfully.

That means we will experience a bubble which will give us pseudo-prosperity for about a year and then it will all start coming apart. Look for a strong january effect rally (beginning in December of course) and then a turbulent sidewise trading market in summer '05 and then a potential bear market in late fall '05.

But unless more oil comes on the market it will all start coming apart. The Fed has just bet "the farm" on the proposition that availble world oil supplies will grow faster than demand (adjusted by economic slow-down) by this time next year. This is a very interesting proposition to bet everything on, seeing as Iraq continues to deteriorate and the tighter oil supplies are the more incentive individuals in the producer chain have to destabilize it as political or economic leverage.

However the industrialization of China will not slow-down. People have forgotten what happens when an industrializing country is starved of commodities or has a growth slowdown. Energy consumption doesn't decline, what declines is everything else as the economy is cannibalized in order to feed the driving energy consumption of industrialization. This is why the neo-cons in their idiocy can't understand why North Korea hasn't fallen apart yet even though history shows how long it took for the Soviet economic machine to wind down - and even then at the end it was a political failure of will rather than an outright economic failure. If it had been pure economics driving the situation the Soviets could have kept on cannibnalizing their own economy until they too were reduced to North Korean levels of austerity.

No the oil consumption from China will not moderate. If their economy is slowed by the central bank, it will get taken out of the hide of small commodity producers like farmers and labor wage improvements - not the best thing for stability. The Machine as always will roll on, because it will go last because everything else will be sacrificed to keep it going.

Why should we expect it to be any different for them then history has shown it for others or in fact ourselves? Has American made any politically inconvenient initiatives to lessen oil use or increase efficiency? Or has America simply diverted resources and cannibalized other parts of its economy to continue its pattern of oil consumption? It is ridiculous to presume the Chinese will act any different.

If anyone believes that China's growth in oil demand will substantially decrease contact me personally because I have some swampland in Florida that I want to offer you at a very reasonable price.

So what we have is an unrealistic plan by the Federal Reserve to shift the export base of our economy to Europe in order to renogitate our debt and balance the current accounts deficit betting everything on oil-supply outpacing demand growth, a completely schizophrenic political system not of right against left but of the wings against the middle, what we can call euphemistically deteriorating standards of democracy worldwide, and in the meantime our world is about to get cooked by global warming and experience drastic commodity shortages.

Oh and if you include food, energy, substitute in real housing costs into the CPI and then subtract real inflation from GDP and then subtract the hedonically enhaned components then we're "growing" at about negative three percent yearly.

That's a headline you won't see soon: Real GDP "growing" at -2% to -3% yearly.

If you're a big rich country, and the USA was a big rich country, then you can endure 2% deterioration for a long time. Things just keep on getting tighter and tighter ever more gradually. The reason why it's not readily apparent of course is that we have borrowed to maintain consumption. That is why consumer buying this past quarter was a robust 4.6%. All of it essentially borrowed against tomorrow in the form of personal debt, national debt, deteriorating asset values, or reduced future growth prospects ... but it was 4.6% so we enjoy the illusion now that we are not just not deteriorating but are growing...

I've already voted for Kerry in the form of absentee ballot because I believe that the chances for a better future are better under him and further more I believe that the responsibility for such a better future lies not on Kerry's shoulders but on ours.

I am not voting for Kerry because I think he will do a better job, but because I know that under Bush my every attempt to do something positive has been frustrated.

As I take up posting again, I want to concentrate on what I perceive are the real issues of this country and the world. I think I am finally ready, psychologically speaking, to discuss the full extent of the fraudulent GDP numbers. Combining that with the real adjusted CPI calculation and we can discuss the real rate of deterioration in American finances. We can also discuss the necessity of switching to a more economically profitable energy infrastructure (alternative energy). My argument is that if you look at the baseline costs of alternative energy against fossil fuels yes currently and for the near future fossil fuels are cheaper. However fossil fuels will become more expensive, as we invest capital into research and economies of scale alternative energy costs will drop, and if the fundamental argument is that alternative fuels are more expensive nominally then that has to be matched that the fossil fuel economy is nationally net unprofitable.

Even a small positive profit margin is better than a negative one. It is more economically rational to switch to alternative fuels now (and not in the future) not because the per unit cost is cheaper (it will be soon) but because the overall economic model of one is profitable and the other is not.


At October 30, 2004 at 3:33 PM, Anonymous Anonymous said...

Very much looking forward to those posts. My own research these days has been moving in other directions - towards trying to build models which can explain the beliefs and actions of large numbers and small and explain what has happened in the US to throw people so out of whack.


At October 30, 2004 at 3:34 PM, Anonymous Anonymous said...

I love your thinking oldman, but wish you'd get an editor at times. You are expert in fields I am not, and so I tend to read you very carefully, but unfortunately get tripped up sometimes by omissions of signpost words like "of", "the", etc.

This happens to me too, when I'm writing while tired or rushed. When I read my own prose that's less than syntactically correct, I wince, because I know the points I'm trying to make aren't as sharp as they could be, and they fall short of their mark.

If an editor is too much to ask for, do run your work through spellcheck - it will really help.

I hope you can handle what I'm saying - I really respect your thinking, and wish I could comment intelligently on the content.

At October 30, 2004 at 6:46 PM, Anonymous Anonymous said...

Is Snow truly frustrated, or is he in on the plan? He put CSX into way too much debt to buy Contrail, and then when he leaves, he sucks up all of the available cash for his platinum parachute. Everybody working there is worried about their job as they go through series after series of job cuts. Then you find yourself going in for emergency surgery, and the day before you go in, you get transferred to a totally different department (for no appearant reason), and they tell you, "Don't worry, you'll have a job left when you come back". And the day you come back from the surgery is the day that you find you've been laid off because your new boss couldn't find a spot for you in the new organizational chart. Like he really knew what I was about.

I like your posts Oldman, they give me something to think about.

At October 30, 2004 at 8:03 PM, Blogger Oldman said...

I think Snow is the "face". He's not running the policy but he is running cover for it. Make sense? That's why they got rid of O'Neill. He just wouldn't shut up about how it was a shell game. That's the real reason why the markets roiled when he spoke. He was making the classical Washington gaffe - blurting out truths that chipped away at the illusion of prosperity and so undermined market confidence.

As for my writing, yes I need an editor. Badly. The better the writer the more badly they need an editor. Because the writer is thinking about content. The editor needs to be there to think about presentation. The editor needs to point out to the writer, where their words have gaps - gaps because the writer sees it all in their heads and so doesn't see just what the words show.

Thanks for your suggestion. I'll try running it through a spell checker.

At October 30, 2004 at 9:36 PM, Anonymous Anonymous said...

Good article Oldman.

Though far from understanding economics I do agree with your opinion of a shrinking GDP. As to why most have not seen it, its because they are not looking for it or understand that a economy as rich as ours has padding which can absorb the negative GDP numbers for a while.
One old phrase I've heard sums it up "the bigger the beast the longer it takes to die".

And all those other problems lurking in the background like global warming, the end of low cost oil, a radicalized political party that verges on the cult of the personality ala Sung Yun Moon(of the Moonies fame).

My only hope out of a Kerry administration is that he'll push for strong energy conservation programs and fund some serious alternative energy systems that look promising.


At November 3, 2004 at 5:01 PM, Anonymous Anonymous said...

For the actions of an individual, this Blog site is the secound best thing that could be done to point out some/alot of the major problems in America. The first, best thing that could be done by an individual is to write a book and get it published.

The best point you made in this posting is about how DEBT is the main problem. You need to hammer this DEBT point over and over for it to sink into peoples minds.

In regards to Ian's comment, -IT IS THE MEDIA- that has been hammering in that debt is good and is backed up by the interest tax deduction.

So, you have your work cut out, it's going to be an uphill battle.

Keep up the good work.

Jim Coomes

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