George Friedman is the founder and CEO of STRATFOR, a leading private intelligence and forecasting service. In this fascinating and provocative book (see book list in the sidebar for details), he lays out his predictions for the major geopolitical shifts in the next 100 years. He readily admits that predicting details is impossible, but argues that the overall sweep of history can be forecast with fair confidence from fundamental demographics, geopolitical factors, and historically stable cultural biases, prejudices, hatreds and affinities. And he proceeds to use these to lay out a probable future for the next 100 years.
Of particular interest is his assertion that America will most likely continue to be the dominant power over the next 100 years. He sees America as still an adolescent nation, unpredictable, often irrational, uncertain of itself, often overreacting, but vital and powerful. He predicts that over the next 100 years we will mature into a balanced, confident, relatively rational society, before eventually sliding into the sort of ineffective decadence that afflicts most Western European nations today. America’s continued dominance, he argues, will not come because of the wisdom and cunning of our leaders, but simply from geopolitical forces and in spite of a bumbling government and irrational populace.
He also identifies the likely power centers, driven by demographics and geopolitics, that will arise to challenge American dominance over the next century, centered around Turkey, Poland, Japan, and Mexico. And he explains why neither China nor Russia are likely to remain serous challengers to America over the coming decades.
All in all a fascinating set or arguments, well worth reading and pondering..
Sunday, March 29, 2009
Thursday, March 26, 2009
Postings will be sparse for a while
We have embarked on an 8-week trip, so postings will get pretty sparse for the next 8 weeks. Perhaps it’s just as well. My growing fury over Washington’s actions – especially the ineptitude and hypocrisy of Congress on both sides of the aisle – is getting pretty old, so I need to back off and get some perspective.
Wednesday, March 25, 2009
Afghanistan: Vietnam for slow learners
I couldn't resist the title of this article from London's The Guardian: At last we get it - this war is Vietnam for slow learners. The article is pretty good too. It is along the lines of an earlier article I recommended: Curse of the Khyber Pass
Tuesday, March 24, 2009
In all the fuss….
In all the fuss about the $164 million in AIG bonuses paid out last week, did anyone notice that Merrill Lynch paid out $3.6 billion in bonuses just days before Bank of America bought them January 1 in a distress sale, using part of the $45 billion in bailout money paid thus far to Bank of America?
Yes, I know that was a few days before bailout money saved them, so technically it was legal, but clearly the intent was to enrich the executives before Bank of America found out how much money Merrill Lynch had really lost ($15 billion in the fourth quarter).
Yes, I know that was a few days before bailout money saved them, so technically it was legal, but clearly the intent was to enrich the executives before Bank of America found out how much money Merrill Lynch had really lost ($15 billion in the fourth quarter).
Re: the last post
If you are interested in the substantive technical debate over this new plan (as opposed to the glib partisan talking points), I suggest following Paul Krugman's blog on the New York Times site at http://krugman.blogs.nytimes.com/. Here he expands his technical arguments, and engages in debate with others who are more sanguine about the plan. This will also lead you to other respected economists who are pro or con the plan.
And scan the comments following any posts of interest. The intellectual level of readers of his blog is far higher than average, and some of the comments are quite perceptive.
You might also find it informative to visit the New York Times Room for Debate site discussing this plan. This will give you the views of some other leading economists.
P.S. - for those who don't follow these things, Paul Krugman is Professor of Economics and International Affairs at the Woodrow Wilson School, Princeton University, and winner of the 2008 Nobel economics prize. That doesn't make him infallible, but it does make his views more persuasive than those of politically partisan talking heads.
And scan the comments following any posts of interest. The intellectual level of readers of his blog is far higher than average, and some of the comments are quite perceptive.
You might also find it informative to visit the New York Times Room for Debate site discussing this plan. This will give you the views of some other leading economists.
P.S. - for those who don't follow these things, Paul Krugman is Professor of Economics and International Affairs at the Woodrow Wilson School, Princeton University, and winner of the 2008 Nobel economics prize. That doesn't make him infallible, but it does make his views more persuasive than those of politically partisan talking heads.
A true test
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today" Lawrance Peter
Economists tend to hedge their predictions around with enough qualifiers that they are never proved wrong. Today we have an exception.
The government’s economists have put our taxpayer money where their mouth is – betting that this new plan (to use $100 billion of the TARP funds and government funded insurance against possible losses) will tempt private investors into buying toxic assets. They are betting (a) that they can find investors willing to buy them, and (b) that this will unfreeze the banking system.
Paul Krugman, a Nobel winning economist, thinks they are dead wrong. See his Op-ed piece Financial Policy Despair in Monday’s New York Times.
It will be an interesting and pretty clear test of the two theories. If only there weren’t so much riding on it.
Economists tend to hedge their predictions around with enough qualifiers that they are never proved wrong. Today we have an exception.
The government’s economists have put our taxpayer money where their mouth is – betting that this new plan (to use $100 billion of the TARP funds and government funded insurance against possible losses) will tempt private investors into buying toxic assets. They are betting (a) that they can find investors willing to buy them, and (b) that this will unfreeze the banking system.
Paul Krugman, a Nobel winning economist, thinks they are dead wrong. See his Op-ed piece Financial Policy Despair in Monday’s New York Times.
It will be an interesting and pretty clear test of the two theories. If only there weren’t so much riding on it.
What proportion of our government is elected?
An acquaintance of mine questioned my claim in yesterday’s post that 99.99+% of the Federal government is unelected. Here are the figures:
In the executive branch, only the president and vice-president are elected officials. That’s two. In Congress there are 100 Senators and 435 House members, for another 535 elected officials, or a grand total of 537 elected officials in the Federal government.
As of 2006, there were about 1.9 million unelected civil servants working in the Federal government, not counting the Postal workers or the Armed Forces. If one counts all the employees working for government-funded contractors and organizations that receive government grants, the total is about 14.6 million employees. But lets just stick to those 1.9 million directly employed by the Federal government.
So about 0.00028% of the Federal government is subject to voter recall.
But let’s be even more generous. There are 2000-3000 political appointees, and although they aren’t directly elected, one could argue that they are recalled when their patron is recalled. And the President and Vice-President probably each have a dozen senior staff who help shape policy, and who go when their boss goes. And members of Congress have an average of 3-4 senior staff each who help shape policy, and who go when their boss goes. So let’s include all these “indirectly elected” people, for a total of around 5500 “elected or indirectly elected” federal employees.
Even under that much more generous interpretation only about 0.0029% of the Federal government is subject to voter recall. I’m sure the framers of the Constitution would be appalled!
I rest my case.
In the executive branch, only the president and vice-president are elected officials. That’s two. In Congress there are 100 Senators and 435 House members, for another 535 elected officials, or a grand total of 537 elected officials in the Federal government.
As of 2006, there were about 1.9 million unelected civil servants working in the Federal government, not counting the Postal workers or the Armed Forces. If one counts all the employees working for government-funded contractors and organizations that receive government grants, the total is about 14.6 million employees. But lets just stick to those 1.9 million directly employed by the Federal government.
So about 0.00028% of the Federal government is subject to voter recall.
But let’s be even more generous. There are 2000-3000 political appointees, and although they aren’t directly elected, one could argue that they are recalled when their patron is recalled. And the President and Vice-President probably each have a dozen senior staff who help shape policy, and who go when their boss goes. And members of Congress have an average of 3-4 senior staff each who help shape policy, and who go when their boss goes. So let’s include all these “indirectly elected” people, for a total of around 5500 “elected or indirectly elected” federal employees.
Even under that much more generous interpretation only about 0.0029% of the Federal government is subject to voter recall. I’m sure the framers of the Constitution would be appalled!
I rest my case.
Monday, March 23, 2009
Why I distrust big government
I was thinking about government today (well, actually stewing about how incompetent government has been, under either party, as far back as I can remember – to the Truman years). That led me to think that the reason I’m not a liberal, even though I agree with most liberal objectives, is because I lack the true liberal’s naïve faith in the power of government to solve social problems. It’s not that a wise and competent and far-seeing government probably couldn’t solve many social problems; it’s that I doubt the ability of any government to be wise and competent and far-seeing – and I would cite the evidence of all of world history to support that view.
In fact, in my experience all organizations of any significant size, government or private, are largely incompetent. There are lots of reasons for this, including but not limited to these two:
1. There really aren’t enough competent people to go around. It’s not a matter of intelligence or education. There are plenty of nuclear physicists, brain surgeons, and rocket scientists who, brilliant as they are in their own field, couldn’t run a successful grocery store, let alone an efficient and effective government agency. It takes a fairly rare mix of abilities to run an efficient organization – the ability to multi-task, the ability to keep the long-range strategic vision in mind even while dealing with the daily nitty-gritty, a deep understanding of how to handle people, the ability to balance priorities, a good understanding of risk, decisiveness tempered with caution, good political sense, good financial sense, a good base of ideals moderated by pragmatism, etc. etc. etc. My guess is that not one person in 1000, if that, has such a mix of skills.
2. People in any organization have differing agenda, and few of those agendas are wholly aligned with the supposed objective of the organization as a whole. People are maneuvering for power, for status, for higher pay and promotions, to work with or avoid working with other people in the organization, to avoid blame or garner credit, to make their own job easier, etc. etc. Promotion in organizations is often much more tied to how effective one is in office politics, rather than how competent one in is one’s job. And of course the Peter Principle applies – people get promoted up through the ranks until they reach the job they are not very good at, and then they stay there, so that over time the organization’s upper slots get filled with lots of people who have reached the level at which they don’t perform very well.
Now these apply equally to private and government organizations, but with one very significant difference. The difference is that in private organizations, if the organization is not competent enough to survive its competition in the marketplace, it goes out of business (unless an unwise government bails it out with taxpayer money!). So the really incompetent organizations get weeded out over time.
Not so with governments and government agencies. Individual elected members of the government may get turned out if they are incompetent enough (though even that is a hit and miss affair), but governments as a whole, and government agencies, tend to have an unlimited life, whether or not they are effective at achieving their supposed goals. There is no competitive market system to weed out the incompetents. Yes, power among elected officials does change hands between parties from time to time, but in fact the great mass of government, (99.99+% of our American government) is not elected, and is not subject to being turned out by voters. And the elected representatives have given themselves an enormous advantage (at taxpayer expense) over any rivals, with their large staffs, franking privileges, and free access to media. In the case of the House of Representatives, both parties have so gerrymandered their districts that few House elections these days are really seriously contested in any case. So all in all there are too few forces in play to weed out incompetence in government, which is why we see so much of it.
This is why I distrust big government, and why I can’t subscribe to the liberal’s faith in the power of government to solve difficult social problems.
In fact, in my experience all organizations of any significant size, government or private, are largely incompetent. There are lots of reasons for this, including but not limited to these two:
1. There really aren’t enough competent people to go around. It’s not a matter of intelligence or education. There are plenty of nuclear physicists, brain surgeons, and rocket scientists who, brilliant as they are in their own field, couldn’t run a successful grocery store, let alone an efficient and effective government agency. It takes a fairly rare mix of abilities to run an efficient organization – the ability to multi-task, the ability to keep the long-range strategic vision in mind even while dealing with the daily nitty-gritty, a deep understanding of how to handle people, the ability to balance priorities, a good understanding of risk, decisiveness tempered with caution, good political sense, good financial sense, a good base of ideals moderated by pragmatism, etc. etc. etc. My guess is that not one person in 1000, if that, has such a mix of skills.
2. People in any organization have differing agenda, and few of those agendas are wholly aligned with the supposed objective of the organization as a whole. People are maneuvering for power, for status, for higher pay and promotions, to work with or avoid working with other people in the organization, to avoid blame or garner credit, to make their own job easier, etc. etc. Promotion in organizations is often much more tied to how effective one is in office politics, rather than how competent one in is one’s job. And of course the Peter Principle applies – people get promoted up through the ranks until they reach the job they are not very good at, and then they stay there, so that over time the organization’s upper slots get filled with lots of people who have reached the level at which they don’t perform very well.
Now these apply equally to private and government organizations, but with one very significant difference. The difference is that in private organizations, if the organization is not competent enough to survive its competition in the marketplace, it goes out of business (unless an unwise government bails it out with taxpayer money!). So the really incompetent organizations get weeded out over time.
Not so with governments and government agencies. Individual elected members of the government may get turned out if they are incompetent enough (though even that is a hit and miss affair), but governments as a whole, and government agencies, tend to have an unlimited life, whether or not they are effective at achieving their supposed goals. There is no competitive market system to weed out the incompetents. Yes, power among elected officials does change hands between parties from time to time, but in fact the great mass of government, (99.99+% of our American government) is not elected, and is not subject to being turned out by voters. And the elected representatives have given themselves an enormous advantage (at taxpayer expense) over any rivals, with their large staffs, franking privileges, and free access to media. In the case of the House of Representatives, both parties have so gerrymandered their districts that few House elections these days are really seriously contested in any case. So all in all there are too few forces in play to weed out incompetence in government, which is why we see so much of it.
This is why I distrust big government, and why I can’t subscribe to the liberal’s faith in the power of government to solve difficult social problems.
Sunday, March 22, 2009
CBO Budget Estimates
Those who would like to read the Congressional Budget Office's full analysis of the administration's proposed budget, rather than rely on possibly-biased analysis of it by partisons on both sides, can find the whole document here.
Recommended - AIG and Our Embarrassing Congress
I recommend Steve Chapman's editorial in today's Chicago Tribune, AIG and Our Embarrassing Congress. He is right on the money - at root our present troubles with AIG stem from the gross incompetence of the Democratic Congress, who are showing themselves to be no better than the Republican majority that preceded them. Liberals won't want to hear this, and conservatives will hardly be flattered by the comparison, but there it is.
Saturday, March 21, 2009
And to think I was appalled by the Bush administration...
And to think I was appalled by the Bush administration’s deficits…..
WASHINGTON (AP) - President Barack Obama's budget would produce $9.3 trillion in deficits over the next decade, more than four times the deficits of Republican George W. Bush's presidency, congressional auditors said Friday.
The new Congressional Budget Office figures offered a far more dire outlook for Obama's budget than the new administration predicted just last month - a deficit $2.3 trillion worse. It's a prospect even the president's own budget director called unsustainable.
In his White House run, Obama assailed the economic policies of his predecessor, but the eye-popping deficit numbers threaten to swamp his ambitious agenda of overhauling health care, exploring new energy sources and enacting scores of domestic programs.
The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his Democratic allies controlling Congress would have to consider raising taxes after the recession ends or else pare back his agenda.
By CBO's calculation, Obama's budget would generate deficits averaging almost $1 trillion a year of red ink over 2010-2019.
Worst of all, CBO says the deficit under Obama's policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.
Recommended - Too Clever By Half
I recommend David Warren's article Too Clever By Half in the Ottawa Citizen, and reprinted on today's Real Clear Politics site. He reflects my growing worry that, appealing as President Obama is personally, his increasingly-leftish (and increasingly expensive) policies are much less appealing to Americans as a whole.
This is stupid!
Allowing massive executive bonuses in a company being propped up by taxpayer money is outrageous enough, but not unexpected considering the indecent haste with which the stimulus bill was assembled, the massive campaign contributions AIG gave to Banking Committee Chairman Chris Dodd (who made the midnight changes to the wording that explicitly make such bonuses legal), and the sharp limits on debate that Nancy Pelosi imposed. There are lots of other unpleasant surprises in that stimulus package.
Now Congress is going to compound the error by ramming through a poorly-thought-out retroactive tax on those bonuses, despite the Constitution’s explicit prohibition (Article 1 - Section 9 - Limits on Congress ...No Bill of Attainder or ex post facto Law shall be passed...). I suppose all those members of Congress hope voters will just remember that they passed the bill, and forget that the courts later struck it down as unconstitutional.
Now Congress is going to compound the error by ramming through a poorly-thought-out retroactive tax on those bonuses, despite the Constitution’s explicit prohibition (Article 1 - Section 9 - Limits on Congress ...No Bill of Attainder or ex post facto Law shall be passed...). I suppose all those members of Congress hope voters will just remember that they passed the bill, and forget that the courts later struck it down as unconstitutional.
Thursday, March 19, 2009
Recommended - The United States of Ponzi
I recommend today's Forbes article The United States of Ponzi by Nouriel Roubini, the economist who earned the title "Dr Doom" before the crash by predicting a meltdown, but who turned out to be right on every count. It's a pretty severe indictment of all of us in America, but I think he is dead right.
So much for another eloquent promise
Yet another of President Obama’s great promises has gone by the wayside. Just a few weeks ago President Obama repeated his campaign pledge about science when he said again:
But now he has canceled the Yucca Mountain nuclear repository in Nevada, on which over $8 billion has already been spent, and which the best scientists agree is perfectly safe (I happen to know some of the people who have done those studies). Moreover, there is now no alternative place to store all the nuclear waste we have been accumulating from our nuclear power plants.
And why has he canceled the project? Not because scientists think it would be unsafe or unsuitable, but because Harry Reid, the powerful Democratic Senate majority leader from Nevada, opposes it (not in my back yard). So much for his promise not to let politics trump science.
I’m increasingly disappointed in this president. Apparently my hope was a little too audacious.
"To ensure that in this new administration, we base our public policies on the soundest science; that we appoint scientific advisers based on their credentials and experience, not their politics or ideology; and that we are open and honest with the American people about the science behind our decisions."
But now he has canceled the Yucca Mountain nuclear repository in Nevada, on which over $8 billion has already been spent, and which the best scientists agree is perfectly safe (I happen to know some of the people who have done those studies). Moreover, there is now no alternative place to store all the nuclear waste we have been accumulating from our nuclear power plants.
And why has he canceled the project? Not because scientists think it would be unsafe or unsuitable, but because Harry Reid, the powerful Democratic Senate majority leader from Nevada, opposes it (not in my back yard). So much for his promise not to let politics trump science.
I’m increasingly disappointed in this president. Apparently my hope was a little too audacious.
NOBODY is worth more than a million or two a year
In the midst of this outrage about overpaid Wall Street executives, let me voice my own personal prejudice: almost NOBODY is worth more than a million or two a year.
Certainly some people get paid more than that; a few CEOs and top executives in big companies and banks, a few hotshot Wall Street brokers and hedge fund managers, a few sports stars, a few blockbuster actors, a few high-level corporate lawyers, the odd lucky lottery winner. But that doesn’t mean they were WORTH that much, just that they managed to play the system to get paid that much.
In the case of CEO’s, for example, the real success of their company (if there is any success – some get paid millions even when their companies are failing) is probably due to a few very good mid-level sales people, engineers, and/or product innovators who get paid a good deal less than a million a year. The CEO’s get paid as much as they do only because they have cozy deals with their Boards of Directors, because they have contacts among other powerful figures in the ruling aristocracy, and because they know how to play the game, not because they have contributed anything profound to civilization.
In the case of Wall Street brokers and hedge fund managers, it’s true they deal in billion dollar deals, but in fact it’s all paper wealth – electrons moving around. Nothing real is produced. Nothing tangible or substantial is added to human civilization. They don’t invent, improve, or manufacture anything. They would argue that their actions facilitate businesses, and that is true. But that service, useful as it is, isn’t WORTH millions a year in pay.
Most actors and sports stars who get paid astronomical sums I put in the same category as lottery winners. A very few people are lucky and get the winning number. I don’t begrudge them their luck, but that doesn’t mean they deserve the millions; just that they had a lot more luck and maybe a little more talent.
If anyone ought to get paid a million or so a year, it would be people like
- Soldiers, sailors and airmen who risk their lives in combat
- Firemen and police who risk their lives daily
- Great scientists who make profound contributions to human knowledge
- Great teachers who impart a passion for learning to a generation of students
- Innovators who create whole new industries
- Medical researchers who find cures that save millions of lives
- Great writers and artists who enrich the lives of millions
These people contribute something real, substantial and lasting to the human race, and/or risk their very lives for others. I have yet to hear of a CEO or a hedge fund manager or Wall Street broker whose work contributed anything substantial to human civilization. I’m content to have them earn more than common office or factory workers, but not 50-100 times more!
Certainly some people get paid more than that; a few CEOs and top executives in big companies and banks, a few hotshot Wall Street brokers and hedge fund managers, a few sports stars, a few blockbuster actors, a few high-level corporate lawyers, the odd lucky lottery winner. But that doesn’t mean they were WORTH that much, just that they managed to play the system to get paid that much.
In the case of CEO’s, for example, the real success of their company (if there is any success – some get paid millions even when their companies are failing) is probably due to a few very good mid-level sales people, engineers, and/or product innovators who get paid a good deal less than a million a year. The CEO’s get paid as much as they do only because they have cozy deals with their Boards of Directors, because they have contacts among other powerful figures in the ruling aristocracy, and because they know how to play the game, not because they have contributed anything profound to civilization.
In the case of Wall Street brokers and hedge fund managers, it’s true they deal in billion dollar deals, but in fact it’s all paper wealth – electrons moving around. Nothing real is produced. Nothing tangible or substantial is added to human civilization. They don’t invent, improve, or manufacture anything. They would argue that their actions facilitate businesses, and that is true. But that service, useful as it is, isn’t WORTH millions a year in pay.
Most actors and sports stars who get paid astronomical sums I put in the same category as lottery winners. A very few people are lucky and get the winning number. I don’t begrudge them their luck, but that doesn’t mean they deserve the millions; just that they had a lot more luck and maybe a little more talent.
If anyone ought to get paid a million or so a year, it would be people like
- Soldiers, sailors and airmen who risk their lives in combat
- Firemen and police who risk their lives daily
- Great scientists who make profound contributions to human knowledge
- Great teachers who impart a passion for learning to a generation of students
- Innovators who create whole new industries
- Medical researchers who find cures that save millions of lives
- Great writers and artists who enrich the lives of millions
These people contribute something real, substantial and lasting to the human race, and/or risk their very lives for others. I have yet to hear of a CEO or a hedge fund manager or Wall Street broker whose work contributed anything substantial to human civilization. I’m content to have them earn more than common office or factory workers, but not 50-100 times more!
Wednesday, March 18, 2009
Recommended - The AIG Outrage
I argued in a post several days ago that removing mark-to-market accounting requirements were a bad idea. Larry Kudlow's article today, The AIG Outrage, argues for the change, and is worth reading for the alternate viewpoint. He also has some pertinent things to say about how the AIG matter is being handled.
Tuesday, March 17, 2009
The party of the little guy?
President Obama announced yesterday with much fanfare that he would devote $15 billion of the stimulus package to helping small business, by having the U.S. Treasury buy up to $15 billion in small business loans. Nice words, but he needs to redo his math.
According to the Small Business Administration, over the past 25 years, small businesses have created about two-thirds of the new jobs in the U.S. The 2007 Small Business Economy (latest available – see http://www.sba.gov/advo/research/sb_econ2007.pdf) says on page 1:
Let’s see, the government so far has invested $4.6 trillion in various financial institutions like AIG, has lent $2.3 trillion to ailing companies like auto manufacturers, and has insured $2.1 trillion in assets owned by banks, Fannie Mae and Freddie Mac. So as of March 16, the government has committed a total of about $9 trillion to big businesses, and spent about $2.2 trillion of those commitments. (Go to http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html to see the current breakout – this page is kept current.)
And President Obama thinks committing $15 billion to small businesses is a big deal? He has already committed twice that much just to General Motors alone.
If this is the party that is supposed to be for the little guy rather than big business, I’m not impressed
According to the Small Business Administration, over the past 25 years, small businesses have created about two-thirds of the new jobs in the U.S. The 2007 Small Business Economy (latest available – see http://www.sba.gov/advo/research/sb_econ2007.pdf) says on page 1:
“In 2004, the most recent year for which firm size data are available, small firms with fewer than 500 employees accounted for all of the net new jobs. According to the U.S. Department of Commerce, Bureau of the Census, firms with fewer than 500 employees had a net gain of 1.86 million new jobs, while firms with 500 or more employees had a net loss of 181,000 jobs. Small firms employ just over half of the private sector work force and generated more than half of nonfarm private gross domestic product. More than 99 percent of American businesses are small,…..”So one might expect that he would devote at least half of the stimulus help for businesses to small businesses. Has he done that?
Let’s see, the government so far has invested $4.6 trillion in various financial institutions like AIG, has lent $2.3 trillion to ailing companies like auto manufacturers, and has insured $2.1 trillion in assets owned by banks, Fannie Mae and Freddie Mac. So as of March 16, the government has committed a total of about $9 trillion to big businesses, and spent about $2.2 trillion of those commitments. (Go to http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html to see the current breakout – this page is kept current.)
And President Obama thinks committing $15 billion to small businesses is a big deal? He has already committed twice that much just to General Motors alone.
If this is the party that is supposed to be for the little guy rather than big business, I’m not impressed
Credit default swaps
Among the other exotic financial derivatives swimming around in the current fiscal morass are “credit default swaps”. A credit default swap is an insurance policy on some financial instrument, say a loan (or a bond or a mortgage, or a package of mortgages, all of which are forms of loans). If that instrument defaults, I get paid. Originally this was created as a way, for a small price, to pass off (swap) to the insurer the risk of default on a mortgage or loan or bond that I owned.
But in fact I don’t even have to own the financial instrument I buy the insurance on, so speculators quickly saw an opportunity for profit. They could insure someone else’s financial instrument – one they didn’t even own. That makes it really a sort of legalized gambling. In fact speculators typically don’t own the instruments they insure. (it’s sort of like buying life insurance on a stranger you don’t even know, just to bet that he/she will die in the next year).
If I am a speculator and the financial instrument I have insured defaults I win big (the insurance pays off at the full face value of the insured instrument) and lose nothing, since I didn’t own the loan in the first place. If it doesn’t default I don’t lose anything except my insurance premium. For a while it was a nice deal for everyone, especially the insurance companies that sold these credit default swaps (like AIG). They collected the insurance premiums, and only occasionally had to pay off, so they made billions.
But then the housing market crashed, lots of mortgages and loans and bonds began to default, and suddenly the insurance companies (like AIG) didn’t have enough money to pay off on the credit default swaps they had sold – hence the gigantic government bailouts to try to keep the system afloat.
Now here is the crux of the problem. If there were just a few of these credit default swaps around, a trillion or two might pay them off. But since they are unregulated, no one really knows how many are out there. Estimates are that there might be as many as $40 trillion dollars worth of them out there. By comparison, the entire world’s annual gross product is about $60 trillion dollars. There is no way the U.S. government can print enough paper money to pay them all off, let alone borrow enough real money to do the job.
Clearly the administration’s current approach is useless in the face of the magnitude of this problem.
Here is a suggestion that has appeared here and there in blogs, but ought to be seriously considered. The government should simply arbitrarily cancel all credit default swaps held by people who don’t actually own the insured instrument. That means the pure speculators lose their premiums, but don’t lose anything else. Meanwhile, those who insured instruments they actually own are still insured. And at the stroke of a pen you have wiped out much, perhaps most, of the huge liability that is nothing but pure gambling by speculators, but is sinking the system.
But in fact I don’t even have to own the financial instrument I buy the insurance on, so speculators quickly saw an opportunity for profit. They could insure someone else’s financial instrument – one they didn’t even own. That makes it really a sort of legalized gambling. In fact speculators typically don’t own the instruments they insure. (it’s sort of like buying life insurance on a stranger you don’t even know, just to bet that he/she will die in the next year).
If I am a speculator and the financial instrument I have insured defaults I win big (the insurance pays off at the full face value of the insured instrument) and lose nothing, since I didn’t own the loan in the first place. If it doesn’t default I don’t lose anything except my insurance premium. For a while it was a nice deal for everyone, especially the insurance companies that sold these credit default swaps (like AIG). They collected the insurance premiums, and only occasionally had to pay off, so they made billions.
But then the housing market crashed, lots of mortgages and loans and bonds began to default, and suddenly the insurance companies (like AIG) didn’t have enough money to pay off on the credit default swaps they had sold – hence the gigantic government bailouts to try to keep the system afloat.
Now here is the crux of the problem. If there were just a few of these credit default swaps around, a trillion or two might pay them off. But since they are unregulated, no one really knows how many are out there. Estimates are that there might be as many as $40 trillion dollars worth of them out there. By comparison, the entire world’s annual gross product is about $60 trillion dollars. There is no way the U.S. government can print enough paper money to pay them all off, let alone borrow enough real money to do the job.
Clearly the administration’s current approach is useless in the face of the magnitude of this problem.
Here is a suggestion that has appeared here and there in blogs, but ought to be seriously considered. The government should simply arbitrarily cancel all credit default swaps held by people who don’t actually own the insured instrument. That means the pure speculators lose their premiums, but don’t lose anything else. Meanwhile, those who insured instruments they actually own are still insured. And at the stroke of a pen you have wiped out much, perhaps most, of the huge liability that is nothing but pure gambling by speculators, but is sinking the system.
Monday, March 16, 2009
So now we get a shell game
WASHINGTON, March 16 (Reuters) - The U.S. Treasury will modify a planned $30 billion capital infusion for American International Group to try to recoup hundreds of millions of dollars in controversial bonuses paid by the insurer, a Treasury official said on Monday.So the U.S. Treasury will give AIG another $30 billion, and then from that $30 billion AIG will hand back to the Treasury the $164 million it paid in bonuses …. and we the American taxpayers are supposed to be stupid enough to believe that means we “got our money back” and none of our taxpayer money went into those bonuses? Unbelievable!
The Treasury is finalizing the terms of its latest rescue package for AIG, announced on March 2, and will attach new provisions to it, the official said. The company was due to pay $165 million in employee retention bonuses by Sunday to employees of AIG Financial Products, the unit that made bad bets on toxic mortgages and credit default swaps.
The official, who spoke on condition of anonymity, said the Treasury was considering several repayment arrangements aimed at giving the money back to taxpayers.
Is there no end to this?
Is there no end to this Wall Street outrage?
NEW YORK, March 16, 2009 (Reuters) – Citigroup Inc (C.N) awarded Chief Executive Vikram Pandit $10.82 million of compensation in 2008, a year in which the bank required two government rescues totaling more than $45 billion.........Compensation for the 52-year-old Pandit was slightly higher than the $9.96 million that Bank of America Corp (BAC.N), which has also received $45 billion of TARP money, awarded its CEO, Kenneth Lewis.
All hat and no cattle
There is a Texas saying about someone being “All hat and no cattle” – a big talker but that’s all. Despite my hopes and support for President Obama, I’m beginning to worry that this administration is “All hat and no cattle”, or perhaps “All speech and no spine”.
Despite his wonderful campaign promises to make the legislative process more open and transparent, and to post all bills online for five days before they are voted on, he did absolutely nothing when Nancy Pelosi and Harry Reid shoved through the stimulus bill, giving even members of Congress only 12 hours to review the final bill before the vote, let alone publish it online for five days beforehand.
Despite his repeated, earnest and eloquent campaign promises to end earmarks, when presented with a bill loaded with earmarks (including at least one of his own), he couldn’t find it in himself to veto it and tell Congress to send it back without the earmarks.
Despite his eloquent promise that not a penny of bailout money would go to bonuses for Wall Street executives, when AIG, recipient of over $170 billion in bailout money, gives out $164 million in bonuses to the same incompetents who got the company into trouble in the first place, the best he can do is a lame excuse that “there is nothing the government can do about it”.
I’m beginning to fear that this president and this administration is “All hat and no cattle”.
Despite his wonderful campaign promises to make the legislative process more open and transparent, and to post all bills online for five days before they are voted on, he did absolutely nothing when Nancy Pelosi and Harry Reid shoved through the stimulus bill, giving even members of Congress only 12 hours to review the final bill before the vote, let alone publish it online for five days beforehand.
Despite his repeated, earnest and eloquent campaign promises to end earmarks, when presented with a bill loaded with earmarks (including at least one of his own), he couldn’t find it in himself to veto it and tell Congress to send it back without the earmarks.
Despite his eloquent promise that not a penny of bailout money would go to bonuses for Wall Street executives, when AIG, recipient of over $170 billion in bailout money, gives out $164 million in bonuses to the same incompetents who got the company into trouble in the first place, the best he can do is a lame excuse that “there is nothing the government can do about it”.
I’m beginning to fear that this president and this administration is “All hat and no cattle”.
Sunday, March 15, 2009
So much for eloquent promises
From President Obama's Feb 24, 2009 address to a Joint session of Congress:
"Our job is to govern with a sense of responsibility. I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can't pay its workers or the family that has saved and still can't get a mortgage."From The New York Times, March 14, 2009
WASHINGTON — The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.So much for eloquent promises.
Saturday, March 14, 2009
Mark to market
Here is a scenario – I go to a bank to get a loan and the bank asks, quite reasonably, how much I am worth. I tell them I am worth $1 millon, because I think my home is worth $1 millon. My home, of course, wouldn’t sell for more than, say, $300,000 today, but I think it is WORTH $1 million, and I think if I hold on to it for enough years perhaps I’ll get $1 millon for it. If you were the bank, would you buy that? I don’t think so.
Now let’s talk about the banks. They have a lot of questionable mortgages and credit default swaps and derivatives and the like on their books, and the Federal Government accounting rules require that they value them at the current market price – what they could sell them for right now. That’s called “mark to market”. Of course, they don’t want to do that because that would reveal that some banks are in fact insolvent.
So of course the banks are working their Congressional representatives to overturn the requirement to value their assets at what they are worth in today’s market. And being banks, with money and influence, they have gotten a bunch of House members to buy this argument, and hope eventually to have Congress overrule the accounting standards and let them value their risky assets at some inflated value so that they don’t look insolvent even if they are.
So, in the midst of a crisis originally created by unrealistically inflated values, Congress is thinking about legislating accounting rules precisely so banks can report unrealistically inflated assets, and hide from the public their real financial state.
Isn’t democracy wonderful?
Now let’s talk about the banks. They have a lot of questionable mortgages and credit default swaps and derivatives and the like on their books, and the Federal Government accounting rules require that they value them at the current market price – what they could sell them for right now. That’s called “mark to market”. Of course, they don’t want to do that because that would reveal that some banks are in fact insolvent.
So of course the banks are working their Congressional representatives to overturn the requirement to value their assets at what they are worth in today’s market. And being banks, with money and influence, they have gotten a bunch of House members to buy this argument, and hope eventually to have Congress overrule the accounting standards and let them value their risky assets at some inflated value so that they don’t look insolvent even if they are.
So, in the midst of a crisis originally created by unrealistically inflated values, Congress is thinking about legislating accounting rules precisely so banks can report unrealistically inflated assets, and hide from the public their real financial state.
Isn’t democracy wonderful?
Friday, March 13, 2009
Recommended - Curse of the Khyber Pass
I recommend the insightful article Curse of the Khyber Pass by Milton Bearden in the March/April 2009 issue of The National Interest. As he points out, since the time of Alexander the Great foreigners have tried to conquer and manage Afghanistan, with uniform failure. If only we would pay attention to history, we would not try to repeat the same mistakes foreigners have made for many centuries now in that region of the world.
Aphorisms that seem to fit our global situation
“If it sounds to good to be true, it probably is”, unknown
“The short memories of American voters is what keeps our politicians in office”, Will Rogers
“The natural progress of things is for liberty to yield and government to gain ground”, Thomas Jefferson
"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand", Milton Friedman
"No one can earn a million dollars honestly", William Jennings Bryan
"An economic forecaster is like a cross-eyed javelin thrower: they don't win many accuracy contests, but they keep the crowd's attention", unknown
“The point to remember is that what the Government gives it must first take away” John Caldwell
"If all economists were laid end to end, they would not reach a conclusion", George Bernard Shaw.
“A good scare is worth more to a man than good advice”, Edgar Howe
“Politicians are the same all over. They promise to build a bridge even where there is no river”, Nikita Krushchev.
“Financial sense is knowing that certain men will promise to do certain things, and fail”, Ed Howe.
"Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it", Richard Lamm
“A politician thinks of the next election; a statesman, of the next generation”, J.F. Clarke
“We have always known that heedless self-interest was bad morals; we now know that it is bad economics”, Franklin Roosevelt
"Democracy is a device that ensures we shall be governed no better than we deserve", George Bernard Shaw
"The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries", Winston Churchill
"A government with the policy to rob Peter to pay Paul can be assured of the support of Paul", George Bernard Shaw
“Everything is changing. People are taking their comedians seriously and the politicians as a joke”, Will Rogers
"A democracy ... can only exist until the voters discover that they can vote themselves largess of the public treasury. From that time on the majority always votes for the candidates promising the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship", Sir Alex Fraser Tytler
"A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain", Mark Twain
“There's a sucker born every minute”, David Hannum
“A politician needs the ability to foretell what is going to happen tomorrow, next week, next month, and next year. And to have the ability afterwards to explain why it didn't happen”, Winston Churchill
"As people do better, they start voting like Republicans - unless they have too much education and vote Democratic, which proves there can be too much of a good thing", Karl Rove
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today", Lawrance Peter
“Be thankful we're not getting all the government we're paying for”, Will Rogers
"When buying and selling are controlled by legislation, the first things to be bought and sold are legislators", P. J. O'Rourke
“When a lot of remedies are suggested for a disease, that means it cannot be cured”, Anton Chekhov
"Lift the curtain and 'the State' reveals itself as a little group of fallible men in Whitehall, making guesses about the future, influenced by political prejudices and partisan prejudices, and working on projections drawn from the past by a staff of economists", Enoch Powell
“What this country needs are more unemployed politicians”, Edward Langley
“The whole aim of practical politics is to keep the populace alarmed [and hence clamorous to be led to safety] by menacing it with an endless series of hobgoblins, all of them imaginary”, H. L. Mencken.
"I can spend your money better than you can", Bill Clinton
“History is a vast early warning system”, Norman Cousins
"No man's life, liberty, or property are safe while the congress is in session", Mark Twain
"The attractiveness of financing spending by debt issue to the elected politicians should be obvious. Borrowing allows spending to be made that will yield immediate political payoffs without the incurring of any immediate political cost", James Buchanan
"Under democracy one party always devotes its chief energies to trying to prove that the other party is unfit to rule - and both commonly succeed, and are right", H. L. Mencken
"Do not be fooled into believing that because a man is rich he is necessarily smart. There is ample proof to the contrary", Julius Rosenwald
"A government that is big enough to give you all you want is big enough to take it all away”, Barry Goldwater
"You don't make the poor richer by making the rich poorer", Winston Churchill
"There are 10**11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers", Richard Feynman
"Vote for the man who promises least; he'll be the least disappointing", Bernard Baruch
“We have the best Congress money can buy”, Will Rogers
“Governments last as long as the undertaxed can defend themselves against the overtaxed”, Bernhard Berenson.
“Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it”, Ronald Reagan
"If God had wanted us to vote, he would have given us candidates", Jay Leno
“I have come to the conclusions that politics are too serious a matter to be left to the politicians”, Charles de Gaulle
“A holding company is a thing where you hand an accomplice the goods while the policeman searches you”, Will Rogers.
"A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it", Alexis de Tocqueville
"Only in American banks can you find the pens chained to the counter and the doors wide open", Branden Kerr
"In all recorded history there has not been one economist who has had to worry about where the next meal would come from", Peter Drucker
“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics”, Thomas Sowell
“A lot has been said about politicians; some of it complimentary, but most of it accurate”, Eric Idle
“An economy hampered by restrictive tax rates will never produce enough revenue to balance our budget, just as it will never produce enough jobs or enough profits”, John F. Kennedy
“High finance isn't burglary or obtaining money by false pretenses, but rather a judicious selection from the best features of those fine arts”, Finley Peter Dunne.
“The short memories of American voters is what keeps our politicians in office”, Will Rogers
“The natural progress of things is for liberty to yield and government to gain ground”, Thomas Jefferson
"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand", Milton Friedman
"No one can earn a million dollars honestly", William Jennings Bryan
"An economic forecaster is like a cross-eyed javelin thrower: they don't win many accuracy contests, but they keep the crowd's attention", unknown
“The point to remember is that what the Government gives it must first take away” John Caldwell
"If all economists were laid end to end, they would not reach a conclusion", George Bernard Shaw.
“A good scare is worth more to a man than good advice”, Edgar Howe
“Politicians are the same all over. They promise to build a bridge even where there is no river”, Nikita Krushchev.
“Financial sense is knowing that certain men will promise to do certain things, and fail”, Ed Howe.
"Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it", Richard Lamm
“A politician thinks of the next election; a statesman, of the next generation”, J.F. Clarke
“We have always known that heedless self-interest was bad morals; we now know that it is bad economics”, Franklin Roosevelt
"Democracy is a device that ensures we shall be governed no better than we deserve", George Bernard Shaw
"The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries", Winston Churchill
"A government with the policy to rob Peter to pay Paul can be assured of the support of Paul", George Bernard Shaw
“Everything is changing. People are taking their comedians seriously and the politicians as a joke”, Will Rogers
"A democracy ... can only exist until the voters discover that they can vote themselves largess of the public treasury. From that time on the majority always votes for the candidates promising the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship", Sir Alex Fraser Tytler
"A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain", Mark Twain
“There's a sucker born every minute”, David Hannum
“A politician needs the ability to foretell what is going to happen tomorrow, next week, next month, and next year. And to have the ability afterwards to explain why it didn't happen”, Winston Churchill
"As people do better, they start voting like Republicans - unless they have too much education and vote Democratic, which proves there can be too much of a good thing", Karl Rove
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today", Lawrance Peter
“Be thankful we're not getting all the government we're paying for”, Will Rogers
"When buying and selling are controlled by legislation, the first things to be bought and sold are legislators", P. J. O'Rourke
“When a lot of remedies are suggested for a disease, that means it cannot be cured”, Anton Chekhov
"Lift the curtain and 'the State' reveals itself as a little group of fallible men in Whitehall, making guesses about the future, influenced by political prejudices and partisan prejudices, and working on projections drawn from the past by a staff of economists", Enoch Powell
“What this country needs are more unemployed politicians”, Edward Langley
“The whole aim of practical politics is to keep the populace alarmed [and hence clamorous to be led to safety] by menacing it with an endless series of hobgoblins, all of them imaginary”, H. L. Mencken.
"I can spend your money better than you can", Bill Clinton
“History is a vast early warning system”, Norman Cousins
"No man's life, liberty, or property are safe while the congress is in session", Mark Twain
"The attractiveness of financing spending by debt issue to the elected politicians should be obvious. Borrowing allows spending to be made that will yield immediate political payoffs without the incurring of any immediate political cost", James Buchanan
"Under democracy one party always devotes its chief energies to trying to prove that the other party is unfit to rule - and both commonly succeed, and are right", H. L. Mencken
"Do not be fooled into believing that because a man is rich he is necessarily smart. There is ample proof to the contrary", Julius Rosenwald
"A government that is big enough to give you all you want is big enough to take it all away”, Barry Goldwater
"You don't make the poor richer by making the rich poorer", Winston Churchill
"There are 10**11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers", Richard Feynman
"Vote for the man who promises least; he'll be the least disappointing", Bernard Baruch
“We have the best Congress money can buy”, Will Rogers
“Governments last as long as the undertaxed can defend themselves against the overtaxed”, Bernhard Berenson.
“Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it”, Ronald Reagan
"If God had wanted us to vote, he would have given us candidates", Jay Leno
“I have come to the conclusions that politics are too serious a matter to be left to the politicians”, Charles de Gaulle
“A holding company is a thing where you hand an accomplice the goods while the policeman searches you”, Will Rogers.
"A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it", Alexis de Tocqueville
"Only in American banks can you find the pens chained to the counter and the doors wide open", Branden Kerr
"In all recorded history there has not been one economist who has had to worry about where the next meal would come from", Peter Drucker
“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics”, Thomas Sowell
“A lot has been said about politicians; some of it complimentary, but most of it accurate”, Eric Idle
“An economy hampered by restrictive tax rates will never produce enough revenue to balance our budget, just as it will never produce enough jobs or enough profits”, John F. Kennedy
“High finance isn't burglary or obtaining money by false pretenses, but rather a judicious selection from the best features of those fine arts”, Finley Peter Dunne.
Yes, this was bound to come....
The New York Times, March 13, BEIJING — The Chinese premier Wen Jiabao expressed concern on Friday about the safety of China’s $1 trillion investment in American government debt, the world’s largest such holding, and urged the Obama administration to provide assurances that its investment would keep its value in the face of a global financial crisis.
It has been obvious for some time that this new Congress's unbridled spending spree would sooner or later begin to get international investors worried about the safety of U.S. Treasury notes. Apparently that time has arrived.....
Thursday, March 12, 2009
Needs no comment......
"WASHINGTON, by Laurie Kellman, Associated Press Writer – Congress' automatic pay raises are in little immediate danger of being scrapped for good, even with the economy slumping and millions of Americans unemployed. House Speaker Nancy Pelosi on Thursday would not commit to holding a vote on a bill to do away with the annual cost-of-living increases. She pointed out that Congress recognized the economic crisis by voting this week to skip next year's raise.
In so doing, though, lawmakers defeated a Senate measure to abolish the automatic pay hikes and force them into the deep discomfort of casting actual votes to give themselves raises."
Recommended - Tim Geithner's Black Hole
Also recommended is the March 10 Washington Post article "Tim Geithner's Black Hole" by economist David Smick mentioned in the body of the previous recommendation.
Recommended - Despite Crisis, It's Still Politics As Usual
I recommend the article by David Ignatius in today's Washington Post entitled "Despite Crisis, It's Politics As Usual". I think he has hit the nail on the head - despite wonderful campaign promises to change the way Washington works, in fact nothing (yet) is much different. I think Ignatius's parallel with the 1939-40 "phony war" is right on. Sometime soon the Washington politicians need to wake up and behave like there is a real crisis, instead of just giving it lip service.
Sunday, March 8, 2009
Why aren’t earth-crossing asteroids a priority?
Risk management processes generally rank risks in priority order according to the product of their probability and their impact. High probability risks that would have very high impact if they occurred go to the top of the list – perfectly reasonable. But relatively low probability risks which would have truly catastrophic consequences if they occurred usually rank fairly high as well, which is why so many redundant systems are built into spacecraft and airplanes.
Now given the various crises which the world faces these days, from economic meltdowns to terrorism to wars to pandemics, I can understand why politicians put asteroid tracking well down the list.
However, we may be deluding ourselves as to how low the risk of an asteroid impact really is. A few days ago (Monday, March 2) asteroid 2009 DD45 missed the earth by just about 50,000 miles. It was about 100 feet in diameter, and at the speed it was travelling would have completely leveled 500-1000 square miles if it had hit. And we spotted it coming only about a week before it passed.
We already know that asteroid 99942 Apophis will (we hope – 99.7% probability) miss earth by only about 20,000 miles in April of 2029, and if it passes just right, earth’s gravity might deflect its orbit so that it may return and impact earth in 2036 (current estimate, about 1 chance in 5000). An impact from this 25 million ton asteroid, travelling at about 28,000 mph, would really cause a stir, though it wouldn’t be quite enough to cause another mass extinction. Those of you who studied physics may recall that the kinetic energy KE = 1/2 (mv**2) – the effect of velocity v is squared, so even a small object going 28,000 mph has enormous kinetic energy. A 25 million ton object going that fast has a gargantuan amount of kinetic energy.
As of March 1, 2009, we have found 1031 potentially hazardous earth-crossing asteroids, and the evidence suggests we have only found a small fraction of them. One estimate is that the entire population of Earth-crossing asteroids includes some 1500 larger than one kilometer (mass extinction size) and 135,000 larger than 100 meters in diameter (enough to devastate an entire state or small country).
Now it is well within our technical capacity to nudge most of these asteroids enough to shift their orbits so they miss the earth, if we can find them far enough ahead of time. For example, the orbit of 99942 Apophis discussed above could be shifted enough by hitting it with a 1-ton object at 5000 miles per hour – well within the capabilities of our current interplanetary spacecraft – so long as we did it some years before its impact.
We also know from fossil evidence that mass extinction-sized objects (typically assumed to be 1 kilometer or larger in diameter) hit the earth on average about once every 65 million years, but of course these are random events, so the next one could hit tomorrow or in 100 million years. Smaller ones, say 30 meters or so in diameter (city-killing size) hit about once every 100 years.
Given all this, one might assume the government might want to budget a reasonable amount of money to fund search telescopes on earth and in orbit to find as many of these dangerous asteroids as possible as soon as possible. In fact, the government has provided minuscule amount of funding for this activity. At a time when we are dumping trillions of dollars into bad banks and bankrupt auto companies, we are budgeting only a few tens of millions of dollars on surveys of near-earth orbiting asteroids – far less money than American’s spend on chewing gum or the government spends on paper clips and staples.
Maybe we have our priorities wrong!
Now given the various crises which the world faces these days, from economic meltdowns to terrorism to wars to pandemics, I can understand why politicians put asteroid tracking well down the list.
However, we may be deluding ourselves as to how low the risk of an asteroid impact really is. A few days ago (Monday, March 2) asteroid 2009 DD45 missed the earth by just about 50,000 miles. It was about 100 feet in diameter, and at the speed it was travelling would have completely leveled 500-1000 square miles if it had hit. And we spotted it coming only about a week before it passed.
We already know that asteroid 99942 Apophis will (we hope – 99.7% probability) miss earth by only about 20,000 miles in April of 2029, and if it passes just right, earth’s gravity might deflect its orbit so that it may return and impact earth in 2036 (current estimate, about 1 chance in 5000). An impact from this 25 million ton asteroid, travelling at about 28,000 mph, would really cause a stir, though it wouldn’t be quite enough to cause another mass extinction. Those of you who studied physics may recall that the kinetic energy KE = 1/2 (mv**2) – the effect of velocity v is squared, so even a small object going 28,000 mph has enormous kinetic energy. A 25 million ton object going that fast has a gargantuan amount of kinetic energy.
As of March 1, 2009, we have found 1031 potentially hazardous earth-crossing asteroids, and the evidence suggests we have only found a small fraction of them. One estimate is that the entire population of Earth-crossing asteroids includes some 1500 larger than one kilometer (mass extinction size) and 135,000 larger than 100 meters in diameter (enough to devastate an entire state or small country).
Now it is well within our technical capacity to nudge most of these asteroids enough to shift their orbits so they miss the earth, if we can find them far enough ahead of time. For example, the orbit of 99942 Apophis discussed above could be shifted enough by hitting it with a 1-ton object at 5000 miles per hour – well within the capabilities of our current interplanetary spacecraft – so long as we did it some years before its impact.
We also know from fossil evidence that mass extinction-sized objects (typically assumed to be 1 kilometer or larger in diameter) hit the earth on average about once every 65 million years, but of course these are random events, so the next one could hit tomorrow or in 100 million years. Smaller ones, say 30 meters or so in diameter (city-killing size) hit about once every 100 years.
Given all this, one might assume the government might want to budget a reasonable amount of money to fund search telescopes on earth and in orbit to find as many of these dangerous asteroids as possible as soon as possible. In fact, the government has provided minuscule amount of funding for this activity. At a time when we are dumping trillions of dollars into bad banks and bankrupt auto companies, we are budgeting only a few tens of millions of dollars on surveys of near-earth orbiting asteroids – far less money than American’s spend on chewing gum or the government spends on paper clips and staples.
Maybe we have our priorities wrong!
Friday, March 6, 2009
The Problem with Keynes
The economist John Maynard Keynes argued that in a recession, when consumers and businesses stop spending, the government has to step in and spend to take up the slack, even if it is just hiring people to dig holes and fill them in again. At its core, that is the logic behind the administration’s stimulus spending, though to their credit they have found some things to do a bit more useful than digging holes and filling them in again..
But there is a problem with this approach that Keynes didn’t really address very well. If the government increases spending at the very time when tax revenues are falling, the additional money has to come from somewhere. The government has only three ways to get that extra money to spend:
1. It can raise taxes, which leaves people and businesses with even less money to spend, and so makes the recession worse.
2. It can borrow the money, which increases the debt load and the interest payments. But this only works if someone else in the world is in a position to lend the money, which may not be the case if other nations are also having a recession.
3. It can print money, which leads to rapid inflation, making businesses and individuals even poorer and less able to spend (though it does in effect reduce the debt load).
Thus far, the administration has followed option 2. That will work so long as there is a reasonable market for US Treasury notes. If that market collapses, options 1 and 3 are all that is left, and the government would probably pick option 3. And then we will be in real trouble……!
But there is a problem with this approach that Keynes didn’t really address very well. If the government increases spending at the very time when tax revenues are falling, the additional money has to come from somewhere. The government has only three ways to get that extra money to spend:
1. It can raise taxes, which leaves people and businesses with even less money to spend, and so makes the recession worse.
2. It can borrow the money, which increases the debt load and the interest payments. But this only works if someone else in the world is in a position to lend the money, which may not be the case if other nations are also having a recession.
3. It can print money, which leads to rapid inflation, making businesses and individuals even poorer and less able to spend (though it does in effect reduce the debt load).
Thus far, the administration has followed option 2. That will work so long as there is a reasonable market for US Treasury notes. If that market collapses, options 1 and 3 are all that is left, and the government would probably pick option 3. And then we will be in real trouble……!
Sunday, March 1, 2009
Recommended - In Geithner We Trust Eludes Treasury as Market Fails to Recover
I recommend the article In Geithner We Trust Eludes Treasury as Market Fails to Recover at Bloomberg.com. It seems clear that the Treasury has been too timid, and too Wall-Street-oriented, to take the drastic steps needed to clean up the bank problems. As many leading economists and financial experts have pointed out, we are just repeating Japan's mistakes by keeping zombi banks on life support with massive infusions of taxpayer money instead of cleaning them up, or just letting them go into bankruptcy and meanwhile standing up new banks with enough capital to go back to lending.
Someone has to take this in hand, fire the incompetent management, sell off the bad assets for whatever they can bring, probably wipe out the shareholders equity, and get the banks to start over healthy. If we don't do this, the credit crunch will just drag on, with disastrous results for the nation, the world, and President Obama's presidency.
Someone has to take this in hand, fire the incompetent management, sell off the bad assets for whatever they can bring, probably wipe out the shareholders equity, and get the banks to start over healthy. If we don't do this, the credit crunch will just drag on, with disastrous results for the nation, the world, and President Obama's presidency.
Recommended - Why Obama’s new Tarp will fail to rescue the banks
I recommend Martin Wolf's Feb 10 Financial Times article Why Obama’s new Tarp will fail to rescue the banks. Martin Wolf is the associate editor and chief economics commentator at the Financial Times in Britain, and one of the most astute financial observers around.
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