2013-09-29

Obamacare Will Increase Healthcare Spending and Increase the Deficit

Healthcare spending went up in Massachusetts under Romneycare because when more people pay into the healthcare system, more people demand more care. (Romneycare: More ER Crowding, Longer Doctor Wait Times)

Even if Romneycare didn't exacerbate existing problems, it did nothing to solve them. (Defending Romneycare (Because Romney Won't Do It))

If you spend more money on something, the cost goes up. Now, if you spend money on capital investments (expand the supply), you can get lower costs in the long-run. Healthcare spending by the government and the push to get more people insured does not lead to higher healthcare supply, however, it leads to increased demand. Any proposal to reduce healthcare costs would simply do one of two things: it will cut demand or increase supply.

11 Pieces of Obamacare Conventional Wisdom That Shouldn’t Be So Conventional
2. Accountable Care Organizations are certain to bring down overall health spending .

The un-obvious reason that we shouldn’t be too confident in the ACO revolution is that bundling payments this way encourages -- in fact, nearly requires -- doctors to band together in much larger practice groups. A small practitioner with a few hundred patients is extremely vulnerable to the possibility that some of those patients will end up requiring much more treatment than their health status classification would predict. A few of those, and you’ve lost money for the year. And what if those patients are also extra-expensive next year? Bankruptcy court looms. So you need a very large practice to make the financials work, so that you can be sure that the extra-expensive patients are balanced out by some extra-cheap ones. This also makes it easier to manage a patient’s entire set of health problems within a single practice.

But as the participant pointed out, consolidation is one of the things that is known to drive up prices in health care markets. When you’re an insurer negotiating with 2,500 individual doctors, you have a fair amount of leverage to keep their fees down. When you’re negotiating with four large practice groups, suddenly you’re not so powerful, because you might lose customers if your policy excludes a quarter of the doctors in town. So it’s not yet clear whether ACOs are actually going to lower costs -- or even work at all.

3. Obamacare works because it gets money from deadbeats who go to the emergency room and then stiff the rest of us for the cost. Actually, hospitals have a pretty effective mechanism for collecting money from the deadbeats: debt collectors. Uncompensated care is definitely a problem, and it will almost certainly fall under Obamacare. But in Massachusetts, which achieved much higher coverage rates than most states will see (90 percent of the state was insured when they started, and they have comparatively few illegal immigrants), such care fell by less than half between 2006 and 2010.

Moreover, this is a relatively small amount of overall health spending -- about $62 billion in 2009, on total health spending in the trillions. Obamacare mostly works by getting young and healthy people to spend more on health care than they otherwise would, thus subsidizing older and sicker people. You can argue that this is unfair, or that it’s merely a down-payment on their own future as old and sick people. But either way, this is the real mechanism for making the insurance expansion affordable to individuals, and the government.

7. Obamacare will reduce the budget deficit

You’re starting to hear noise on the left about getting rid of the employer mandate entirely; it’s proven very difficult to implement, and there’s also fear that it will result in people having their hours cut back, or losing their jobs outright. But that would be extremely expensive. Here’s my colleague Ezra Klein in 2009, describing what an early version of Obamacare looked like without the employer mandate: “It would’ve cost, in other words, 70 percent more and covered 20 percent fewer people.” The difference, he goes onto explain, is the mandate.

10. Obamacare will bend the cost curve.

One more point I heard made at Brookings last week: The consensus about Obamacare among health economists is narrower than the range of opinion among the broader community of public intellectuals, and much narrower than that in the general public. Mostly the experts think that it will be good for the individuals it covers, but that the other beneficial effects promised -- such as bending the cost curve -- aren’t particularly likely. Increasing the demand for a service does not usually drive the price of that service down, especially when supply is constrained, as the supply of doctors is in the U.S.

Fear Spike on the Weekend; Time to Invest in Chinese Stocks?

I did not and still do not expect a government shutdown. Republicans and Democrats both want to spend more money; they disagree about Obamacare. However, even if there's no shutdown, they could create enough uncertainty to rattle financial markets on Monday. If there is a shutdown, of course, things may get wild for a bit. Taking a broader view, in Greece the government said Golden Dawn is a criminal organization and arrested its leaders. In the U.S. there is the budget impasse, and in Italy, politics are also creating uncertainty.

Government Shutdown Imminent; "Obamacare-Delay" Continuing Resolution Vote
Italy in Crisis as Center-Right Ministers Resign

This is very short-term drama, although there are long-run effects. History suggests that if there is a government shut down, the long-term effect will be smaller budget deficits. Italy is more unstable because the debt crisis already began.

In contrast, turn to Asia where China is opening the Shanghai free trade zone (FTZ). The other big financial story is the opening of the IPO market; China has kept a lid on IPOs over the past few years. I still expect China will face a tough situation, probably a crisis, and the yuan will depreciate, but long-term policies are clearly moving in the right direction. This blog was named Investing In Chinese Stocks because I planned to look at non-U.S. listed Chinese stocks, but the market hasn't been terribly good and there's plenty else to write about. A look at the charts shows some Chinese shares are quite depressed relative to the rest of the globe's markets and with major reforms coming that directly impact the financial sector, the time has come to once again investigate.

I'm keeping a close eye on ADXY for a breakdown. In the short-run this could mean more pain for Chinese and emerging market shares.


To me, this chart shows euro bulls are way too optimistic. The euro has been moving higher, but the optimism visible in this chart is excessive. There is enough fuel there to take the euro back near the $1.30 level. You have to go back to spring 2011 to find this large a bullish position in the euro among speculators, back when many though the euro debt problems were being solved. Right before they exploded once again.

The same optimism appears in the gold futures market.

2013-09-28

Good Coverage of China's Financial Reforms

The following is a clip from from John Mauldin: The Renminbi: Soon to Be a Reserve Currency?. Well worth reading the whole thing.

I get the question all the time: when will the Chinese renminbi (RMB) replace the US dollar as the major world reserve currency? The assumption behind such questions is almost always that the coming crisis in US entitlement programs will force the Fed to monetize even more debt, thereby killing the dollar. Or some derivative line of that thought. Contrary to the thinking of fretful dollar skeptics, my firm belief is that the US dollar is going to become even stronger and will at some point actually deserve to be the reserve currency of choice rather than merely the prettiest girl in the ugly contest – the last currency standing, so to speak.

But whether the Chinese RMB will become a reserve currency is an entirely different question. Of course it will, over time, but the question has always been when. There are some preconditions required for reserve currency status. Quietly, apart from anything that might happen to the US dollar, China is working to meet those conditions. Rather than wallowing in concerns about China's actions, we might opt for a more thoughtful and constructive response: to welcome the RMB to the reserve currency club and hope that it gets here soon. The world will be a better place when that happens. And off the radar screen, it may be happening right now. Today we look at global trade flows and international balances and try to imagine a world in which much "common wisdom" gets stood on its head. It should make for an interesting thought experiment, to say the least. (This letter will print a little longer than usual, as there are numerous chart s and graphs.)
One of the prerequisites for a true reserve currency is that there must be a steady and ready supply of the currency to facilitate global trade. The United States has done its part in providing an ample supply of US dollars by running massive trade deficits with the rest of the world, primarily with oil-producing nations and with Asia (most notably China and Japan), for all manner of manufactured products. The US consumer has been the buyer of last resort for several decades (I say, somewhat tongue in cheek). Those dollars typically end up in the reserve balances of various producing nations and find their way back to the US, primarily invested in US government bonds. In an odd sense, the rest of the world has been providing vendor financing to the US, the richest nation in the world.
The US Trade Deficit Turns Positive
The US trade deficit (a key component of the current account deficit – see chart on next page) fell to an unprecedented percentage of GDP during the last decade, a development that normally heralds a significant drop in a currency. Fortunately, the "exorbitant privilege" of controlling the world's dominant currency in reserve holdings, international trade, and financial transactions has helped shield the US dollar from a hard correction; but that status quo is in danger. After flooding the world with US dollars for more than twenty years, the US has reduced its current account deficit by 58% since the 2007-2008 financial crisis began. Looking ahead, I and many other observers believe this measure can continue to improve, due two surprisingly positive factors:
  1. The US energy boom in shale oil and gas. The US has caught an incredibly well-timed "lucky break" made possible by the combination of new exploration, production, and processing technologies (such as horizontal drilling and fracking) and by the serendipitous discovery of massive supplies of oil and gas, often in areas that already have significant infrastructure and/or are accessible at reasonable costs. This energy renaissance is part of the reality that has made Houston, Texas, the number one port in the United States, with even more growth coming in the near future when the Panama Canal expansion is completed in 2014. US manufacturers are turning less-expensive oil and gas into value-added fossil fuel products and exporting them to the world. This trend will become ever more important. Indeed, when the first LNG export terminal is opened in a few years, the additional exports will approach $80 billion a year, I am told. From one terminal! There are four in the process of being approved and more on the planning boards. The math is there for anyone to do. Spot prices in the US natural gas-producing areas are under $4. The Japanese are paying more than $14. Even I can do that arbitrage. Just for fun, the next graph, from the Energy Information Administration, shows the rise in spot gas prices over the last six months, from a level that had been far too low. It also shows the arbitrage potential that exists right here in the US.
  1. The consequent renaissance in US manufacturing. With cheaper energy and new technologies like advanced robotics and 3D printing, the US is producing more than we ever have – we're just doing it with fewer people.
These two trends are bullish for the US in general. But that's another story for another letter.The point today is that the US current account deficit is collapsing. A positive trade balance is not an unthinkable prospect today. It is quite possible that the US will be more or less energy self-sufficient by the end of the decade and could have a positive trade balance not long after that. I should note that exporting value-added chemicals made from less expensive energy will contribute even more to the positive balance than simply selling the raw natural gas.
Should the US achieve a positive trade balance, that shift would have a BIG impact on the rest of the world. For starters, moving from a current account deficit to a current account surplus will disrupt the two most important trade relationships in the world today: (1) the exchange of US dollars for OPEC oil, and (2) the exchange of US dollars for Asian manufactured goods. And while the US will continue to import significant (one could even say huge) quantities of manufactured goods, the quantity of dollars moving permanently offshore will be significantly reduced.
As a quick aside, by definition, a shrinking US current account deficit also means falling liquidity around the world (since the USD makes up one side of the trade in 87% of global currency transactions); and, as our friends at GaveKal have argued for years, a falling US current account almost always means that we will see a crisis somewhere in the world.
This is why the very same emerging-market central banks that complained about the Federal Reserve's quantitative easing under QE3 are now openly calling upon the Fed to reconsider its tapering stance. Now that Fed has hugely inflated the emerging-market balloon, these economies are more vulnerable to popping. I recently read that the Monetary Authority of Singapore (the Republic of Singapore's central bank) suggested rather strongly that the US Federal Reserve should consider its role to be that of central banker to the world and that it should thus make sure there is a sufficient supply of dollars to facilitate global trade. (Their suggestion may be due in part to the fact that they have lost $10 billion in the last year trying to keep the value of their currency from rising.)
With the US current account deficit continuing its fall, we need to be alert for the next crisis abroad. It is very difficult to predict exactly when, where, and how markets will panic, but taking US dollars out of the trading system is akin to losing a chair in a game of musical chairs. Someone is going to be left out. It could be Europe or Japan – there are more chapters to come in the sordid European and Japanese economic sagas – but more likely it will be emerging-market countries loaded with a lot of external debt denominated in US dollars who struggle to keep a seat at the table.
Emerging markets, particularly Asian and Latin American economies, took a beating during the 1990s precisely because of boom-and-bust credit cycles caused by hot capital inflows followed by rapid capital outflows. This volatile boom/bust cycle is precisely what emerging-market policy makers were hoping to forestall by holding larger foreign exchange reserves starting in the late '90s, but trading predominantly in the US dollar left them to vulnerable to swings in market interest rates and Fed policy.
Let's review the current state of global trade imbalances. Fortunately for us, the Bank for International Settlements just released a paper that gives us the data on this very topic (BIS Working Paper No 424: "Global and Euro Imbalances: China and Germany," by Guonan Ma and Robert N McCauley).
You'll want to view following chart in color (if you printed this letter in black and white) in order to appreciate how important the US trade deficit has been to world trade in the past 15 years. Remember, by definition, if there is a surplus in one part of the world, there must be a deficit in another. World trade balances must even out. That can happen through adjustments in the value of currencies or through countries producing as much as they sell. The US is a special case, since 87% of world trade is denominated in dollars; and the demand for dollars is evidently high enough to keep the price up, despite massive quantitative easing.
China Moves to Float Its Currency
Now back to China. I did an extended interview with Louis Gave this past Monday on BNN, the national Canadian business network (part 1part 2). Let me offer a rough transcription of what he said. I had just commented on my belief that the US is on its way to a positive trade balance, which will make the dollar remarkably strong. The corollary is that there will be fewer dollars available to the world for global trade. Then Louis jumped in:
I think it [a positive US trade balance] is a very important development for the part of the world I come from. I live in Hong Kong. Asia up to now has mostly been a US dollar zone. In Asia we basically produce manufactured goods, sell them to the US, and earn the US dollars we need to trade with one another. So when China trades with Indonesia, the trade is denominated in dollars. When Japan trades with Taiwan, that trade is denominated in dollars.
The big issue is, if we move into a world where the US current account deficit disappears – both through the energy revolution that the US is going through and the consequent manufacturing renaissance – then, all of the sudden, manufacturing in the US is a lot cheaper than elsewhere because the cost of energy is so much cheaper. If the US basically imports [brings back] all of its manufacturing and no longer exports US dollars, how will Asia trade with itself? And how will emerging-market trade grow if they don't earn the dollars?
I think the answer to those very important questions will increasingly be the RMB. What you have witnessed in the past two to three years is China making a very apparent play to internationalize its currency. In just two years, China has gone from settling 0% of its exports in RMB to settling 18% of its exports in RMB. Two years ago, the RMB was a non-currency [in international trade/finance]. Nobody owned it. Nobody traded it. Today, the renminbi is already – in just two years – in the top ten traded currencies in the world…. [See the table my research staff found, below. –John]
I think this shift is taking place because China has a massive comparative advantage that most people never think of. If I asked, "What's China's comparative advantage?" 99 out of 100 people would say "cheap labor," but that's not true. Labor is not that cheap in China anymore. China's comparative advantage is that China – alone amongst emerging-market nations – has a deep and credible financial center. It takes 50 years to build a financial center – to, you know, have auditors, lawyers, accountants, judges. And China is very lucky, because in 1997 the Brits – who are quite good at building financial centers – basically built one in Hong Kong and told China, "Here it is. Try not to mess it up."
For twelve years, China did nothing with Hong Kong. It was kind of a deal of "You don't bother us, we won't bother you. We've got other fish to fry." And that worked well until all of a sudden, in the past two to three years, China has been internationalizing its currency through Hong Kong, and it is taking off like wildfire. We always talk about what you see and what you don't. Everybody talks about the China slowdown. Everybody talks about the impact this is going to have on commodities, on countries like Canada, on countries like Australia. Nobody talks about what you don't see. And what you don't see is that China is slowly but surely internationalizing its currency. It's slowly freeing capital controls. It's creating deep and liquid capital markets, and this is going to change the way that companies and individuals finance themselves among emerging markets. It's going to make for more stable emerging markets and hopef ully for higher growth.
Just as Louis predicted years ago, the Chinese RMB has continued to quickly climb the ranks from an internationally non-existent currency to number nine on the list!
This process is happening at lightning speed by historical standards, but we can still expect it to progress over the next 5-10 years. The renminbi is still only involved in 2.2% of foreign currency transactions, but this number can take a big jump when the RMB floats freely, though there is a big difference between the RMB and the true reserve currencies (USD, EUR, JPY, GBP) today. (Note that the renminbi is also called the yuan, abbreviated as CNY in the chart below.) As Louis mentioned, China stands alone among the emerging markets as having the only mature and credible financial center with deep and liquid capital markets, in Hong Kong. The building of a true global financial center typically takes about 50 years, so China is taking advantage of its lucky break to fast-track its currency to reserve status.
What may speed the process up is increasing cooperation between Chinese officials and the UK government to support RMB internationalization through London's FX markets. Gregory Clark, Financial Secretary to the UK Treasury, was in Hong Kong this past week and wrote an op-ed in the South China Morning Post. Let's look at a few telling sentences:
Over 50 percent of UK investment in Asia is in or flows through Hong Kong. That is a tremendous vote of confidence in Hong Kong by UK companies….
Bilaterial trade in goods between Hong Kong and the UK rose by 13.5% between 2009 and 2012, to a total value of £12.1 billion in 2012. This makes Hong Kong the UK's second biggest export market for goods in Asia Pacific….
According to the Society for Worldwide Interbank Financial Telecommunications (SWIFT), London now accounts for 28 per cent of offshore RMB settled transactions.
In London, the volume of Renminbi-denominated import and export financing has increased 100 per cent since 2011. This is delivering real benefits and savings for business. It is estimated that firms can reduce their transaction costs with China by up to 7 per cent by denominating their trade in Renminbi.
The Renminbi’s rise is being enabled not just in Hong Kong and London. Chinese banks have established clearing banks and accounts in more than 80 other countries in the last four years. But the story runs even deeper. It appears to me that China is getting ready to create another Hong Kong in the traditional financial center of China, Shanghai. My good friend and decades-long China expert Simon Hunt notes:
The proposed development of the Free Trade Zone (FTZ) in Shanghai, covering 28sq km, will have huge consequences for China's financial markets and that of the world. It will be a tax-free zone; the RMB will be fully convertible; the FTZ will have its own rules and regulations that cannot be trumped by central governmentit will be legally outside the Chinese Customs, in fact a separate territory inside China; it has the effect of abolishing control over capital account investment, so allowing freedom to set up all kinds of companies and moving capital in and out of the FTZ, meaning in and out of China; it will become an international settlement centre for international trade and it will allow banks within the FTZ greater flexibility in conducting business. In short, the implications of the development of the FTZ, if the pilot scheme goes smoothly, will be humungous not just for China but for the global economy.< /p>
One near-term consequence will be that interest rate arbitrage can be more effectively conducted in the zone and will take business away from Hong Kong and Singapore. Chinese companies won't have to set up offshore companies in Hong Kong or Singapore to conduct this business. Already, Chinese and foreign companies are either renting space, putting up buildings or buying office space in the FTZ, just waiting for the final details to be publicised.
This move makes sense for China, as it is a large step toward eventually floating the currency, which is yet another requirement for a true reserve currency.

2013-09-27

Yet More Secession Talk, This Time East Coast USA

The issue is very local; it is about neighborhoods breaking away from a town over property taxes. Still, it fits the pattern. Secession is being discussed at all levels.

Whispers about neighborhood secession creep up around Scarborough property value dispute
While hearings continue, appellant Don Petrin of River Sands Drive has hinted the appeal effort will spread beyond Town Hall and the courts, to a secession movement in the waterfront neighborhoods hardest hit by the revaluations.

“I’m not leading that effort, however I will, like many, support that effort,” Petrin said. “Legal advice was solicited and received as to the steps involved, however I have not seen the required petition as yet.”

Petrin was also unimpressed with Monday’s proceedings.

“Unfortunately for the board, the town chose to essentially filibuster the hearing by strategically reiterating the same mundane points over and over again,” he said.

Also in the news today: Senator Says Politics Have Reached Civil War Levels. This type of talk is sensational with little to back it up. Today's debate will look positively calm compared to what could happen if politics reached actual Civil War levels, such as fist fights in the Senate. For now, secession remains a state and local issue, and a peaceful one at that.

Why Radicals With Crazy Ideas Win During Negative Social Mood

One of the themes I have been returning to again and again is that at peak social mood, many of the mainstream and politically popular ideas (not necessarily popular with the public, but with the ruling elite) are radical ideas. For example, short of open borders, Western immigration policies were very open over the past 30 years and in the U.S., unlike the rest of the West where the borders are closing, the elite are still pushing for further immigration. If one takes a look at the historic record on culture, politics, immigration and other matters, one can find the government's policies at peak social mood tend towards extreme end of the potential options. It doesn't matter what one thinks of the issue, if you look at it objectively, you will place it outside of the normal range for much of recent history.

At peak social mood there are a lot of extremist ideas that are mainstream because everything is positive mood to the limit. Positive social mood is generally correlated with positive feelings that lead to positive policies, while negative mood is associated with negative feelings that lead to negative policies. At peak social mood, however, the saying "too much of a good thing" takes effect. Way too much debt is taken on because optimistic growth forecasts paint a rosy future. Openness goes beyond interacting with other cultures, to denigrating one own's culture and even seeking to destroy it. Trade policy becomes very open such that global supply chains are at their greatest risk from a serious military conflict (likely during negative social mood). Governments move from alliances and voluntary associations towards dissolving the nation state or national sovereignty to higher authorities as seen in the EU, or to global governance through institutions such as the UN, IMF or World Bank. Welfare policies may be extended to unsustainable levels that lead to a guaranteed cut when hard times hit.

Other examples include: gay marriage, tax rates on the wealthy/capital, capital controls and zero tolerance towards drugs/misbehavior in schools. Now economists will say that capital should be unfettered, or conservatives will say tax rates on the wealthy are still too high, or liberals will say gay people deserve equal rights, but in each case the policy itself is at the far end of policies seen over the past 50 or 100 years. It may be that the policy represents progress, but when social mood turns we will know for sure because many policies will be reversed.

When social mood turns very negative, people opt for radical solutions. In some cases there is a generally consistent approach (such as communism) to matters, but in other cases there may simply be a strongman with a hodgepodge of populist ideas. Some policies may be good, some terrible, but with negative social mood as the backdrop, it will be very hard for leaders with failed ideas to turn the ship around.

These radicals have one thing working in the favor though: peak social mood policies. Radical policies may already be in effect such that rolling them back or reversing them has positive results.


The chart above shows the wealth gap (lower is better) above immigrants as a percentage of the population. Labor's share of national wealth peaked in the 1970s when the foreign born population hit its nadir, but things were already changing as the immigration reforms of the 1960s were taking effect. Adding to the growing number of foreigners in the labor pool were working women, who joined the labor force en masse in the 70s. Or for a much simpler explanation, many immigrants, particularly illegal immigrants, have much lower levels of education. Adding a large, poorly educated population will create a wealth gap directly by increasing the number of poor people in a country. The reverse policy, a ban on immigration, will very likely bring down the wealth gap, particularly if trade is also restricted as is likely to happen during negative social mood (since the U.S. is a importing nation, trade restrictions will mean increased domestic production).

The point isn't that the policy is a good one. Advancing robotics may mean that a ban on immigration pushes up wages and workers are replaced with robots. If this policy were implemented before a debt crisis, a slowdown in GDP growth could trigger one. Instead, the takeaway is that a ban on immigration and restriction on trade could have beneficial effects that will make up for some bad ideas, especially if most of the bad ideas are in social issues. If the mainstream of political life continues to offer the same peak social mood policies, eventually voters turn to a radical. And if peak mood policies played a major role in the ensuing negative social mood crisis (they would not have caused it, but rather the policies will fail particularly hard during negative social mood), the radicals may hit upon a few policies that are not only very popular for social mood reasons, but actually do reverse the economic depression.

Today in America, opponents of amnesty for illegal immigrants are still tarred as anti-foreign because the elite are still ruling as if peak social mood is in effect. (The opposite is true in many other nations where social mood has shifted the acceptable policy range, such as Australia, where the left has a policy that is to the right of the American right.) This opens the door to a more radical shift in policy because even a small shift is considered radical. Whereas in Australia, a ban on immigration could be countered with a restrictive policy from the other side, in America a very restrictive immigration policy will be met with the current radically open policy.

Throughout its history, the United States has avoided extreme political leaders. Some policies have been extreme (Japanese internment during WWII), but America essentially banned immigration from the 1920s through the 1960s and policy didn't become more radical. Odds are history will repeat. In other nations though, with a history of more extremism, radicals could come to power and improve life quickly by reversing some existing policies. Golden Dawn in Greece, for example, hasn't shown signs of being a very competent political party to this point, but if they took power and happened to push through an agenda that in the short to medium term improved economic life considerably, they may be able to hang on to power much longer than one might expect. Ultimately, the lesson of social mood and peak social mood policies is that the politicians who most quickly tack towards the historic center stand the best chance of winning and of keeping their country from self-destruction. Where leaders persist in pressing extreme policies (and the EU troika policies for Greece and Italy qualify), the greater they open the door to a radical shift in politics.

2013-09-25

Scientists Turn Authoritarian and Retreat From Science: Popular Science Edition

There is a dual effect on science due to social mood. The first is that people don't want to hear opposing ideas. In science, this is destructive because it means that science is being replaced by politics. However, this feeds into the second effect on science in this period of declining social mood, which is that the corrupt politicization of science is being attacked by the public. In response, the "political scientists" are shutting the door to debate.

Why We're Shutting Off Our Comments
Comments can be bad for science. That's why, here at PopularScience.com, we're shutting them off.

It wasn't a decision we made lightly. As the news arm of a 141-year-old science and technology magazine, we are as committed to fostering lively, intellectual debate as we are to spreading the word of science far and wide. The problem is when trolls and spambots overwhelm the former, diminishing our ability to do the latter.
Trolls and spambots are a problem, but they are a bigger problem for small bloggers and website owners who can't afford filtering software. So is the issue really about trolls and spambots, or does the magazine fear something else?

A politically motivated, decades-long war on expertise has eroded the popular consensus on a wide variety of scientifically validated topics. Everything, from evolution to the origins of climate change, is mistakenly up for grabs again. Scientific certainty is just another thing for two people to "debate" on television. And because comments sections tend to be a grotesque reflection of the media culture surrounding them, the cynical work of undermining bedrock scientific doctrine is now being done beneath our own stories, within a website devoted to championing science.
Down goes science. If you told me 10 or 20 years ago that science would be a casualty of negative social mood, I would think science would suffer. Today, it is clear that science has become political itself, corrupted by government and corporate funding, and turning out junk science at a rate of about 80% in cancer research, as one example. (see: Scientists' Elusive Goal: Reproducing Study Results)

Negative social mood will be positive for science itself, but it will be very negative for those who have corrupted science and turned it into a political tool.

In the larger scale, this is the result of peak social mood. The Enlightenment began at the start of the Grand Supercycle and while it dubbed itself the Age of Reason, at the peak of this trend, the most popular idea was that there is no truth. Thus, to see science reduced to politics is not surprising. As social mood declines, science will seemingly decline as religion rises. But this is not the case. What is happening is a return to truth and a rejection of the ideas that marked the modern era. The corrective phase in philosophy, science, politics, culture and economy is underway.

Secession movement in Northern California picking up steam; the rise of the American city-states?

Modoc County joins Siskiyou in state of Jefferson bid for secession
Residents, many who live in rural setting, no longer feel as if California is their state, and they identify little with the central and southern part of the state, he said.

"When they’re that diverse, (the state) should split,” Jones said. “At this point, I don’t care how the state is split as long as they cut me off from Sacramento and beyond.”


I have highlighted the counties mentioned in the article, all of whom have either declared or are seriously considering secession. Due to its size, extremely diverse geography and diverse demographics, California is like a nation—and as goes California, so goes the nation. The secession movement will explode in coming years because there is no reason for it not to; smaller political bodies are better able to deal with local issues. Most of the big political issues that are painted as conservative/liberal, red versus blue, are in fact rural versus urban splits. Projecting the trend forward, America may see the rise of city-states, with rural areas breaking off from urban control under the current political model.

At this time there is no credible rhetorical opposition to secession. The main argument made against those wishing to leave is that they are tax eaters (if the comment section is a reflection of the debate, I've seen this argument repeated in every secession article in the U.S.). That is not a strong argument against secession, in fact it can be turned around and used by the secessionists as part of a media campaign within California to support their secession efforts.

That said, there is a strong opposition in the form of the process. New states need state and Congressional approval. The stumbling block will come there because the creation of the State of Jefferson would most likely mean the addition of two Republican Senators. If the Republicans win the House and Senate in 2014, they might approve the secession effort. Otherwise, forget it.

New States may be admitted by the Congress into this Union; but no new States shall be formed or erected within the Jurisdiction of any other State; nor any State be formed by the Junction of two or more States, or Parts of States, without the Consent of the Legislatures of the States concerned as well as of the Congress.

ARTICLE IV, SECTION 3, CLAUSE 1

This is ultimately where opposition will rest. Other parts of states have tried to secede before and met Congressional opposition; the only successful breakaway was West Virginia during the Civil War.

At the local and state level, there isn't a compelling reason not to secede from the point of view of secessionists. From the perspective of the central government, secession would be an easy way to promote domestic tranquility during a period of rising tensions. Since the central government is split between political factions, they take action based on personal motives, not the national welfare. If secession is thwarted, America is likely to see the growth of renegade areas that refuse to follow state or federal laws. It also will increase the odds that secession movements grow, rather than shrink. Allowing secessionists to form their own state will busy them with local governance. Refusing them their self-determination will make them feel political affinity for people in other parts of the nation who wish to have the same liberty. This was what brought the original 13 colonies together in the first place.

“The empire, long divided, must unite; long united, must divide. Thus it has ever been.”

2013-09-20

Taper Prediction Miss; Fed in a Box

I predicted a $15 billion reduction in Treasury purchases and a $5 billion increase in MBS purchases.

I didn't make the prediction based on a strong economy, but upon the size of the U.S. federal deficit.

The Fed made a huge mistake by not tapering because interest rates will not go down. QE3 remains a failed policy (see: Why Is The Fed Tapering? Did They Realize QE3 Is A Failure?). Now, when the Fed does announce the taper, it will create a repeat of the May spike in interest rates, this time from a higher level. The Fed had a "freebee" this week; they could have tapered by only $5 billion and seen a positive response from the market. Instead, they wasted four months of market preparation.

Furthermore, the U.S. budget deficit still isn't growing. Unless the Fed believes the economy is in recession, they are going to start running into major problems as federal deficits decline. The Fed well believe a recession is coming or already underway. Remember how concerned they are about perceptions. The GDP growth forecasts may be pure BS designed to combat bad juju.

QE3 has made no dent in interest rates. Rates were lower before QE3 was announced. The Fed's decision not to taper will not change the inevitable course of the markets, what it does is put the Fed in a more difficult position.

2013-09-18

Chinese Still Won't Spend; Gold Buying Slows As Prices Fall

Demographics are becoming a problem for China as well. The aging population would rather save than spend.

China's Consumption Problem
When former Chief Economist and Senior Vice President of the World Bank Justin Yifu Lin was recently asked how he invests his money, he said that he puts it all in a bank term deposit. “The money is still growing when I sleep at night,” he quipped. “I don’t have to worry.”

Most Chinese make the same choice. Data released by People’s Bank of China showed that as of August this year, Chinese bank savings had exceeded 43 trillion yuan for three consecutive months, with per capita savings at more than 30,000 yuan.
Consider this stat in light of the fact that China experienced a cash crunch in June. Everyone is trying to save, yet small and medium sized companies are starved for capital. A massive proportion of capital has been misallocated in the state run sector.

Why are savings up right now?
The deposit insurance system is expected to make banks more competitive, more cautious about the loans they give and more inclined to offer high interest rates in order to attract customers (if interest rate control is indeed liberalized). However, it also means poorly run banks may be allowed to fail. Considering how risky the debts of some banks are, people may no longer be able to sleep at night assured that their bank deposits are “growing.”

So what other options do we have for our money besides banks? Chinese stocks lost 43 percent of their value from 2009 to 2013 and housing purchase restrictions have made real estate a less attractive option for investment. This is why wealth has started to flow back into the banks.
Think about that paragraph. American banks aren't cautious with their lending and savers are cautious where they put their money because of FDIC. If having deposit insurance makes banks more concerned about failure, thinking the government can let them fail and protect depositors at the same time, imagine how risky their lending is today.

Although the article doesn't mention it, gold is also down nearly 30 percent off its highs. Gold replaced stocks and real estate when the government cracked down in 2011, but with gold well off its highs, investors are sticking cash in the bank. Gold prices are finally coming down though. Gold is above it's lows from June, but gold sellers are charging nearly 10 percent less today than they were in June.

2013-09-17

Malaysian Skyscraper Index

Malaysia property headed for Dubai-style crash
After years of frenetic development, which included constructing the world's tallest building, Dubai suffered a massive real-estate crash in the wake of the 2008 financial crisis, with property losing more than 50 percent of its value by 2011 as excessive speculation came home to roost. CIMB noted half-empty buildings continue to plague Dubai's skyline.

On the slate for the Kuala Lumpur area are the 118-story Warisan Merkeka Tower, targeted as the tallest building in Southeast Asia and part of a huge complex that will include two condominium blocks, a hotel tower and an underground subway station, as well as the 28-building Tun Razak Exchange project targeted as an international financial hub, CIMB noted.

The report estimates around 17 million square feet of gross office floor area will come on-stream between 2015 and 2017, adding that even if demand doubles, it won't absorb the influx.

2013-09-15

My Taper Prediction

Based on the falling annual federal deficit, I'm going to go with a prediction I've not seen anywhere else. The Fed will reduce Treasury purchases by $15 billion, but increase MBS by $5 billion for a net $10 billion reduction.

I just did a search to see if anyone else made that prediction, and while I didn't find one (I didn't do a deep search), I did come across this: Study Suggests Shift in Fed Bond-Buying
A new study finds that the Federal Reserve should keep buying mortgage-backed securities even as it stops buying Treasury securities, and even as it sells off its existing holding of Treasuries and mortgage bonds.
That study is here: The Ins and Outs of LSAPs. LSAPs being Large Scale Asset Purchases, i.e. QE. The NYTimes piece notes the paper states:
But they found little economic benefit in holding mortgage bonds or Treasuries, a basic element of the Fed’s stimulus campaign.

Chinese Cash Crunch Could Return in September; Why Not Spend ¥8 million to Avoid a ¥10 million Fine?

Banks are worried about another cash crunch this month because conditions are similar to June (and in some cases worse), when overnight rates spiked into double digits.

银行拆借市场不安分 9月流动性再迎大考 (Google Translation at bottom)

My summary: the cash crunch could be back in September. It's quarter end coming up; banks may hike interest rates to attract deposits and meet reserve requirements. In June there was a 3-day holiday, the Dragon Boat Festival. Chinese people still rely heavily on cash and SHIBOR typically spikes around holidays. This month is Mid-Autumn Festival (September 19), another three day holiday and a much bigger holiday in terms of spending. Right after that is the national week-long holiday celebrating the founding of the PRC. This may lead to a "low tide" so to speak (to borrow Buffetts analogy), with the naked banks scrambling for cash.

Bank branches also have more freedom now to set interest rates, and there is even competition between the branches of the same bank. One bank branch president explained that the penalty for inadequate reserves is a ¥10 million fine. He said, why wouldn't I spend ¥8 million to buy deposits and save ¥2 million?

Off-balance sheet loans have also pushed up the loan-to-deposit ratio. One example was Ping An Bank, which made investments in financial products. These are the trust products that offer high yields, through high interest loans to people who cannot obtain bank credit. (Some may be subprime borrowers, but because China's banking system favors the SOEs, there are also credit worthy borrowers who cannot access bank credit. However, the system is clearly starved for capital because at the supermarket down the street from me, there's now a stall set up offering trust products with a minimum return of 13% interest. If the investor nets 13%, you can guess what they're charging to borrowers.) These investments are therefore technically loans, but the bank counts it as an investment. If these are counted as loans, the bank's loan-to-deposit ratio is understated and the loan reserves are overstated. In the case of Ping An Bank, the loan-to-deposit ratio may have jumped from 67% in June to 80.4% this month.

Finally, the article states that earnings are up at some banks, but down at three of the big state owned banks. A portion of the higher earnings came from cost cutting to salary and bonuses and from skirting banking regulations.

For English coverage, see this WSJ piece out last week: Investors Wary of Another China Cash Crunch
However, amid recent turmoil in some emerging markets and in light of a major Communist Party policy-setting meeting set for November, “China’s new leadership cannot afford to be hit by another unnecessary interbank liquidity squeeze,” Bank of America Merrill Lynch said.

“We should keep in mind that China’s central bank has a deep pocket to provide enough RMB liquidity if necessary,” the U.S. bank said, referring to the renminbi, the official name of China’s currency.

Since the turmoil in June, Chinese banks have also improved their own liquidity management and are much better equipped to deal with a possible crisis, it added.
As the Chinese article says indirectly, the banks are now aware of the risk and that should change behavior. A cash crunch may be less likely because of the bankers' fear, but if more people think like BoAML and expect a central bank backstop, then behavior won't improve and another crisis will come again, albeit perhaps by some "unforeseen" shock.

Here's another WSJ piece from a week earlier listing five reasons for a cash crunch. China Cash Crunch 2: Just When You Thought It Was Safe to Go Back in the Markets

The article lists 5 reasons for a cash crunch:

1. Capital Outflows
2. Quarter End Cash Demand (no mention of the holidays, solely focused on banks padding their ratios)
3. Wealth Management Products Due (this mentions maturity mismatch, but not banks themselves investing in these products)
4. Drawdown of fiscal deposits
5. Actions of the big banks

Between the Chinese and Western sources, there are a lot of reasons to be cautious over the next two weeks.

Google Translation of Chinese article below. 银行拆借市场不安分 9月流动性再迎大考
Restless interbank market liquidity and then meet in September exams

Economic Observer newspaper reporter Shi Yao Yao is holidays, went to the bank quarter assessment point.

Shanghai interbank offered rate (shibor) in 28 days varieties rate since September 6 onwards way line, rose to 5.48 percent from 4.48 percent high.

In this regard, an ICBC trader Zhao told reporters, shibor only official online transactions, currently 28 antennas under (Bank, between the various branches of interbank deposit) trading capital prices have risen to 6.27%. He believes that the September 16 ~ 18, 2011 three days before Mid-Autumn Festival, there will be inter-bank liquidity tensions.

A senior lending those funds Qianmou that "if there is once again banking institutions drive up prices, June panic situation will be staged again at the end of September."

Since July, the central bank has been through reverse repo "locked up long short", making short-term financial market liquidity and market interest rates and central bank policy to achieve "desirable" level, the stability of the financial market expectations.

However, an interview with reporters banking practitioners no one can guarantee that the end of June liquidity crisis will not occur again.

"Restless" factor

According Qianmou, as early as mid-May Industrial Bank sensed that the subsequent market liquidity may appear tight situation. "At that time the head office related departments on the one hand they began to ask for lending out money market, on the other hand began between banks with relatively higher price at grant funds, in order to test the market response."

In this regard, an Industrial Bank as counterparty banks responsible person stressed to reporters, ample liquidity in the interbank market, just bank panic caused June liquidity crisis.

The reporter has learned, resulting bank panic situation there are deeper reasons.

According to the Economic Observer reported, at present there are about inter-bank market daily 1.2 trillion to 1.4 trillion yuan of funds for commercial banks lending stock, but far more than the number of banks involved in the dismantling of market imagination. A number of traders told reporters, when the market price is shibor public based on the increase in interest rates of 1% to 2%.

ICBC head office Zhao told reporters, the official bank of Shibor group currently consists of 18 commercial banks to form, but the inter-bank trading rates far higher than their offer.

"This is because as long as the Commercial Bank agrees and authorizes its affiliates can independently participate in the interbank deposit (buy deposits) transactions which only 18 banks but all authorized commercial bank branches to the market at the same time to borrow money. "he told reporters.

This means that as long as there is a bank branch at a high price to borrow money, it will lead to another branch of the same money a higher price. But this two bank branches is available at all branches of the "crowd" competing for capital under the end, the scale of growth in other branches from their own point of view, the behavior will inevitably competing for funds.

Many an interview with reporters that the bank practitioners before commercial banks in deposit and lending rates in unison under the control of the business situation of the times no longer exists.

Qianmou told reporters, according to his understanding of the bank earlier event of default occurs, the majority appear in transactions between branches.

In this regard, there are state-owned lines branch president rather reluctantly told reporters, facing head office assets, deposit appraisal, under pressure from high interest lending or deposit it directly in the market to buy it is quite upset.

"The scale of the end of June, loan ratio assessment is not up to the branch where I want to be fined 10 million yuan or more, if you can spend eight million yuan to buy deposits, which in turn, we are not also save $ 2 million?" He told reporter explained.

There banking analyst told reporters, according to their understanding of the situation from the market and 2013 semi-annual report reactions situation, China and Bank of Communications mobility compared to other state-owned big firms are more tense.

"On one hand, compared to other interbank liabilities Interest rate (banks and other financial institutions Deposits and borrowing funds) interbank deposit rates below (Deposits and Placements) level, which two banks are upside down; the other hand, Chinese banks loan to deposit ratio was 75%, while it reached 81% of the Bank. "banking analysts believe that the two banks at the end of June to the market needs to borrow money to meet regulatory targets.

Rising Head Office

Since entering in September, although the inter-bank money market and short-term liquidity remains stable, and seven overnight repo rates have remained slight fluctuations; still ample supply of short-term funds, but the cross-quarter demand for funds is still weakened, indicating that institutions have begun advance preparations quarter liquidity position. "The end of September, the loan to deposit ratio assessment not affect market liquidity culprit. Because even bank deposits in the central bank strict credit control, the commercial banks can not significantly increase lending, we are taboo individual banks expensive absorb liquidity mobility of our own influence. "one joint-stock Bank department official said.

The lending of funds by senior Qianmou believe that the current market liquidity, size piece of "cake" will not become large, the banks management should not be thinking about how to grab the cake.

Zhao think that compared to the previous state accusing him of capital adequacy, joint-stock banks in the deposit base is weak but still have to make more profitable business dominant ideology, the use of funds mismatch model to make money on the liquidity demand is very strong.

"June's liquidity crisis on the other hand is a joint-stock banks from non-standard credit (short-term funds for long-term use of credit) under a liquidity drying up, desperate to seek matching funds resulting from market volatility." Zhao said.

According to analyst estimates Goldman Sachs Gao Hua, Ping An Bank to invest in other financial institutions, financial products in the first half year and the chain surged 335 percent, 76 percent, to 159 billion yuan, and its size is about 20% of total loans if these assets and credit-related may cause the loan to deposit ratio is underestimated and the amount of loan than to be overestimated. If these investments are regarded as a loan, then the first half of Ping An Bank in 2013 after adjusting for the amount of loan ratio will decline 30 basis points to 1.48 percent, after adjustment loan to deposit ratio will be increased by 13.5 percentage points to 80.4%. Ping An Bank semi-annual report shows that the end of June the bank loan to deposit ratio of only 67%.

A joint-stock bank trader told reporters, compared to the state accusing him of branches involved in financial transactions, is a joint-stock commercial Head Office in more involved in the transaction.

This can range from bank-reported data to be confirmed.

Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank Head Office revenues compared to the same period the proportion of total revenue has fallen sharply. CITIC Bank in this regard income rose from 17% to 22%, Ping An Bank rose from 33% to 38%, Industrial Bank rose from 9.2% to 19.6%. "Compared to the same scale and allow branches to complete the deposit growth, Head Office to do so, on the one hand save a lot of branches of artificial salary and bonus expenses; other banks to circumvent the strict central bank deposit ratio control, By increasing the size of a way to increase revenue, but for hundreds of one hundred billion yuan deal size, the need for adequate liquidity to match. "he explained.

And this is before the joint-stock Bank who head for the end of September fluidity view the reason is not optimistic.

Chinese Capital Destruction

The Hidden Losses of SOEs
But there’s another way that state-owned assets are stripped away that causes much bigger losses, but receives much less attention. Scholars call this "systematic loss" (体制性流失), referring to assets being poorly managed because of the overall system. This includes reasons like poor accountability, perverse incentives and a lack of competition.

Systematic loss isn’t new. During the massive restructuring of state-owned enterprises more than a decade ago, there was much discussion about how to balance the two kinds of loss. Transactional loss could be addressed through better supervision mechanisms, but it’s difficult to avoid systematic loss if the entire system isn’t changed.
I've written before about the end of the reform process in 2005. There were plans to allow foreigners into the A-share market, with the main goal that a foreign presence would force market discipline on the state-run sector. The insiders did not want to have their power restricted and when they saw their opening, they put the kibosh on the reforms.

But systematic loss can’t simply be accounted for by macroeconomic factors. The assets of COEs together total over 30 trillion yuan. According to a conservative estimate by a source from SASAC, the inefficiently used assetsheld by these COEs account for about 1 percent of that, or at least 300 billion yuan.

These funds have gone to waste for years, yielding less than the interest on a bank deposit. Production equipment that some COEs have spent big on has been sitting idle and generating no economic output whatsoever. But these kinds of losses are difficult to discover and quantify. And unlike corruption and other transactional losses, it’s hard to figure out who’s to blame.
300 billion yuan is a very low ball figure. The number is probably a few times that today, although that is still a relatively small number against the entire Chinese economy. However, capital goods seemingly productive today will become unproductive if the economy slows or sinks into a full blown recession. A stress test of those assets would likely come back with a much higher figure.

2013-09-14

Rebirth of the City State

In recent posts on secession, I posted a map highlighting potential areas for secession. One of the areas was around the Washington, D.C. area. A little to the north, the same situation is at work, and now Western Maryland is talking about secession. The same pattern is playing out all over America: rural areas want to break their political ties to the urban centers. On a whole range of issues, the urban/rural split is the dividing line politically. Since cities are politically dominant they aren't choosing secession for themselves, rather it's the surrounding areas that wish to jettison the cities. Either way, the result will be the same. The return of the city-state.

The group pushing for secession is small and only recently formed, in the news clip below they note the Facebook page has received 3600 likes, which is to say, they don't have much support yet.

Conservative group wants liberation for western Maryland
Still, it's a free country, a constitutional democracy. If the people behind the Western Maryland Initiative want to spend their time pressing for secession — instead of, say, trying to bring the Republican Party into the 21st Century, recruiting new candidates, registering new voters — have at it, fellas.

But I think it's easier just to move to the Idaho panhandle, or southern Pennsylvania.
The author says the people should just move to southern Pennsylvania, the next state to the north. Just as plausible is that southern Pennsylvania, tired of being dominated by Philadelphia, will also secede, or that Western Maryland would simply merge into Pennsylvania.

A Chart Worth Watching: Asian Dollar Index ADXY

The Asian Dollar Index is right near a major support line.

2013-09-13

The One Chart Needed To Understand QE3 and the Taper; Why Bigger Deficits Are the Key to Stability

In Why Is The Fed Tapering? Did They Realize QE3 Is A Failure?, I looked at the change in annual federal deficits and the coming taper. As the chart below shows, federal deficit spending has delivered 150% of credit growth since 2008 (through Q1 2013). Federal deficits are shrinking now, so there's less debt to purchase by the Federal Reserve.

The Fed will taper because it is not printing money. The Fed is monetizing debt in order to encourage credit creation. If there is no credit creation, there is nothing to monetize and no need for QE because the Fed cannot print borrowers, it can only purchase existing debt. If the real economy does not grow and does not generate credit growth, the falling U.S. federal deficit could tip the economy into recession. A very weak president Obama would then need to convince Congress to increase deficits to offset this decline.

America is officially in bizarro world (and has been for some time). Larger deficits are required to generate the level of credit growth needed to support the economy. Without real economic growth, the economy must have a source of credit growth. Without that credit growth, the deflationary crisis will return, this time with deficit hawks in control of Congress and bipartisan opposition to bailouts.


Try this stat on for size. The total credit growth from 2008 through Q1 2013 was $3.7 trillion. The Fed's balance sheet grew by more than $3 trillion over this period, or 80% of the total. If the Fed continued QE at a rate of about $62.5 billion per month and the Federal deficit were to fall below $500 billion annually, assuming credit growth for the rest of the economy continues at the same pace, the Fed will be buying 100% of net new credit in the economy.

The Decline of Science and Technology

As social mood declines, science is losing its stature in the public eye. Now it is being recognized as an existential threat. Consider the (refuted) line that religion is the cause of most wars. Even if it were true, scientists themselves admit that science is the greater existential threat.

If the end of the world were nigh, you’d want the world’s biggest brains trying to stop it. And that’s exactly what's happening
“Many scientists are concerned that developments in human technology may soon pose new, extinction-level risks to our species as a whole,” says a statement on the group’s website.
The key takeaway here is that technological progress is the problem.

Also, from a pure social mood perspective, why are they deciding to think about this problem now? At peak social mood, we plan for Mars colonies. At trough social mood, we will ban various technologies.

The Daily Mail has the more colorful look at the story: Killer robots and crippling cyber attacks: How the world is going to end - according to super brains such as Stephen Hawking

2013-09-12

Hundreds of Thousands of Catalonians Join Hands For Independence

Catalans join hands in huge human chain for independence from Spain
Hundreds of thousands of Catalonians joined hands to form a human chain 250 miles (400km) long, running from the border with neighbouring France to the region of Valencia in a call for Madrid to recognise Catalan independence.

Wednesday, was la Diada, or Catalan National Day, when the region commemorates the defeat of its troops in the Spanish war of succession in 1714. And at 5.14pm the human chain – or Via Catalana – linked arms.

"I'm joining the Via Catalana because I think we should be consulted on our future. I think the rise of the independence movement comes from the people while the politicians prefer stagnation to change," said Maria Solé Bundó, who works on the family farm in Baix Penedès.

Núria Ruiz Soto, a hospital worker from Tarragona, said: "I've joined the Via because I think it's a good way of drawing attention to our desire to be an independent state and if they're not willing to listen to us, at least they can see us."

Independence has been a long-running battle between Catalonia and Madrid, but as the recession continues to hit the country harder, demands for a referendum on secession have grown, and the National Assembly of Catalonia called on its supporters to take to the streets to show their strength. Polls suggest as many as 50% of Catalans want independence, and up to 81% support the right to hold a referendum.
There are about 7.5 million people in Catalonia, so there was likely a high single-digit percentage of Catalonians at this event.

Wilson.cat and the movement for independence for Catalonia
Personally, I am still waiting to hear why Catalonian independence would not bring the fiscal death knell of current Spain, and thus also the collapse of current eurozone arrangements and perhaps also a eurozone-wide depression. Otherwise I would gladly entertain Catalonia as an independent nation, or perhaps after the crisis has passed a referendum can be held. When referenda are held during tough times, it is often too easy to get a “no” vote against anything connected with the status quo.

Is the view simply that “now is the time to strike” and “it is worth it”? Obviously, an independence movement will not wish to speak too loudly about transition costs, but I would wish for more transparency. Or is the view that Spain could fiscally survive the shock of losing about twenty percent of its economy, with all the uncertainties and transition costs along the way? That could be argued, but frankly I doubt it, OMT or not, furthermore other regions would claim more autonomy too. An alternative, more moralizing view is that the fiscal problems are “Spain’s fault in the first place” and need not be discussed too much by the pro-independence side, but I am more consequentialist and marginal product-oriented than that.
And if social mood, and the economy, turn for the worse? Secession is coming.

Decline in Social Mood Drives Desire for Order; NYC Mayor's Race

One of the social policy topics for debate is the falling murder rates. There are various explanations for the causes, but one counter argument is that the hospitals have become better at saving potential murder victims. Or the police are using creative paperwork, see Assault Statistics of Hospitals and City Police Seem to Differ.

What we do know for sure is that outside of New York City, where stop and frisk is an aggressive policy targeted at mainly minority neighborhoods, aggressive police strategy (as opposed to the militarized tactics of SWAT teams) and social control have been on the decline. In one city in Europe, this is changing.

Roma family is banished to Amsterdam's 'scum' village
A ROMA family has become the first to be forcibly evicted by Dutch authorities and moved to a "scum village" constructed out of shipping containers on the outskirts of Amsterdam.

...Eberhard van der Laan, Amsterdam's mayor, admitted that the removal of the family was a draconian measure but insisted that bullying and violent behaviour had left him with no choice.

"The family has been causing problems for years and has a history of vandalism, noise nuisance and threatening behaviour," he said.

The eight members of the gypsy family have compared their container homes, numbers 48a and 48b, to a concentration camp and accused Amsterdam council of "pure racism".

...The housing camps have been nicknamed "scum villages" because their establishment follows a 2011 proposal from Geert Wilders, the leader of a populist Dutch right-wing party, for special units to deal with persistent troublemakers.

"Repeat offenders should be forcibly removed from their neighbourhood and sent to a village for scum," he argued at the time.
In America, the scum take over a neighborhood and then years later, it is "gentrified." As social mood declines, you may see more proactive policies to keep neighborhoods safe. Based on crime statistics, the charge of racism will be far greater in the United States, but perhaps you missed Mayor Bloomberg's explanation of why stop and frisk mainly targets minorities:
“One newspaper and one news service, they just keep saying, ‘Oh, it’s a disproportionate percentage of a particular ethnic group.’ That may be. But it’s not a disproportionate percentage of those who witnesses and victims describe as committing the murders,” Bloomberg said.

“In that case, incidentally, I think, we disproportionately stop whites too much and minorities too little,” the mayor said. “It’s exactly the reverse of what they’re saying. I don’t know where they went to school, but they certainly didn’t take a math course, or a logic course.”

...To buttress the mayor’s remarks, his office released a set of statistics. The numbers showed that 87% of the people stopped under stop-and-frisk in 2012 were black or Latino, and that 9% were white. That same year, more than 90% of those identified as murder suspects were blacks or Latino; just 7% were white.
Critics of stop-and-frisk charge that such numbers are irrelevant. They charge that cops indiscriminately go after young black and Hispanic men on bogus grounds, and that nearly nine out of ten people who are stopped are innocent.
See Mayor Bloomberg on stop-and-frisk: It can be argued ‘We disproportionately stop whites too much. And minorities too little’ . The policy is not designed to catch criminals. It is designed to make criminals scared, to keep them from carrying guns or other weapons, and in the process prevent murders. It is the same as the broken windows policy under Giuliani, where cops started cracking down on subway turnstile jumpers and other small offenders to send a message that there would be law and order in the city.

Ironically, a Guardian article indicates the policy works. Whether the policy is good or not is another issue, but it does appear to be meeting a demand for law and order. Mike Bloomberg's fact-free defence of stop-and-frisk
So, what about the claim that forcible stops will get guns off the streets? The fact is that only 0.2% of stops yield guns. Further, guns are more likely to be found on white suspects who are stopped, yet about 90% of the stops are of minorities. The NYPD has done much better with other operations, such as gun buy-back programs and focusing on illegal gun trafficking. Stop-and-frisk is fundamentally ineffective when it comes to getting guns off the streets.

Nearly 700,000 forcible stops of mostly minority youth – many without reasonable suspicion (the legal standard necessary for police to conduct such stops) – damage the NYPD's ability to fight crime and violence. Rather than reducing crime and violence, the practice likely alienates minority youth and prevents the people we want to communicate with police from even approaching them.

What person will trust the police officer who just forcibly stopped them? If they "see something" they are now less likely to "say something", to borrow the NYPD's public appeal.

Importantly, forcible stops may lead to minor violations such as summonses for possession of open containers of alcohol, or marijuana possession. These types of violations occur more regularly in white neighborhoods. Yet, black New Yorkers are more likely to get summonses because police are stopping them more often, resulting in criminal records which make it more difficult for them to get jobs. In this information age, such a record can be devastating to career opportunities.
If stops of whites, who are less targeted by stop-and-frisk, results in more minor violations, then it would seem stop and frisk is achieving the goal of keeping weapons off the streets. White's are less concerned about being stopped and therefore end up caught in more violations.

Judging by social mood, a win by anti-stop-and-frisk Blasio in the NYC mayoral race will be a short-lived victory as his crime policies are out of step with social mood.
de Blasio was born Warren Wilhelm in the Boston-area city of Cambridge, which is home to Harvard University. He eventually moved to New York City where he pursued the career of a bureaucrat, first at the local level, and ultimately in the U.S. Department of Housing and Urban Development.

He changed his name to “de Blasio” and married former lesbian Chirlane McCray, an activist in the black feminist community. They have two children and reside in Brooklyn’s Park Slope neighborhood; once a violent ghetto, it has since been gentrified and boasts a famously cosmopolitan atmosphere.
Bill de Blasio: Pro-class war, anti-stop-question-frisk, and much more

2013-09-11

Political Will For Bailouts Continues to Shrink

FDIC says deposits in foreign branches of US banks won't be insured
The Federal Deposit Insurance Corp. on a 5-0 vote rejected the request from the banking industry seeking to extend the insurance of up to $250,000 to U.S. banks' deposits overseas. The FDIC estimates those deposits are worth about $1 trillion.
In 2008, the Fed bailed out foreign banks, let alone foreign branches of American banks. This decision shows that there is neither the funds nor the will to bail out foreigners. In the U.S., bailouts may not last long either in a major crisis, as one major bank may be enough to bankrupt the FDIC.

The U.S. dollar is the world's biggest short position. Nearly everyone is short the dollar today. When the position reverses, all hell will break loose again.

2013-09-10

The U.S. Exits The World Stage, Russia Is The Leader

A change in president could result in a correction, but the general trend is for America to exit the global stage and leave the world to its own devices. In the clip linked below, O'Reilly discusses America being too weak to act. At the moment, it is not a weakness of means, but a weakness of will. In the coming years, it will also be a weakness of means and even if America has the will to fight, it will not intervene.

O'Reilly: The U.S. Is Too Weak To Even Take Care Of A Cheap Thug Like Assad

I came across one blogger paints the stark shift that is underway: Syria, Russia, and a Championship Belt
Everything was going exactly as planned until Putin shoved a whole pack of Big League Chew into Obama's face and told him to go to his room while the grown ups talked.

Then a funny thing happened. Obama did what he was told. America is backing down.

Russia accomplished this in two ways. First they called for calm... Then they sent their most advanced anti-ship missile systems to Syria. Note... not anti-aircraft. Anti-ship. That's a big difference. They aren't talking about shooting down some planes. They're talking about doing real damage to the US's ability to project power. Walked softly... carry a big stick. This should look familiar. Its the kind of thing America used to do.

After sending those missiles to Syria Russia then rounded up the G20 and effectively made sure they were all in its pocket. Russia called for more information. It asserted that the matter had to go before the UN Security Council and that the US threats were unacceptable.

See the US likes to use the UN for cover when it wants to invade a given country... but the US also likes to ignore the UN when the UN doesn't want to play along. Russia has asserted that the US has no authority to play that game anymore. Russia is calling the US bluff... and the US so far... appears to be folding.

Remember this people.

September of 2013 was the end of the United State's World Super Power Championship Reign.

Russia took the belt.

Russia is the calm cool adult in the room. Russia is calling the shots and the world is listening. For decades the context of every world crisis was "How will the United States respond to this?" Russia has changed that now.

It is now a very different world.
If you watch the O'Reilly clip, you will hear him list all the nations that refused to sign a statement condemning the gas attack in Syria. Among them were Germany and the EU.

Golden Dawn Marks the Battle of Thermoplyae

Golden Dawn continues to gain popularity in Greece.

Closing Ceremony of Thermopylae 2013

Huge Growth In Arctic Ice Sheet Traps Sailors

One of the ideas in socionomics is that magical thinking rises during periods of negative social mood. I always thought that was a negative, as in people rejecting science for superstition. But increasingly I believe this is actually a positive because it is a reaction to over reliance on science, corruption of science, and the failure of science. In Antifragile, Nassim Taleb makes some strong anti-scientific arguments, while being pro-religion pro-philosophy. He makes the case that religion can save patients from iatrogenic illness, that is harm caused by doctors. It is also the case with climate science, where grand claims were made by scientists and now those claims are being shown to be false, or at least far less strong than originally argued.

At the grand supercycle top, many of the traits that fall under positive social mood have become negatives to the point where negative social mood will lead to greater progress. This is why the script flips during the bearish/negative mood phase. The corrective waves of positive social mood will pull society back towards the extremist policies of peak social mood, while negative social mood waves will see society progress culturally. In science, the political corruption of the field will be wiped out as money is drained from the sector, leaving the science to the scientists as the politicians and money chasers leave. The whole climate change episode will become a great stain upon science which will be referenced in future to teach young scientists how to conduct science in an ethical manner.

And now for the latest sign that global cooling, not warming, is on the way:
And now it's global COOLING! Record return of Arctic ice cap as it grows by 60% in a year


My favorite part of the article:
The rebound from 2012’s record low comes six years after the BBC reported that global warming would leave the Arctic ice-free in summer by 2013.

....The Northwest Passage from the Atlantic to the Pacific has remained blocked by pack-ice all year. More than 20 yachts that had planned to sail it have been left ice-bound and a cruise ship attempting the route was forced to turn back.
The article goes on to discuss the growing scientific evidence for a period of cooling, rather than warming, with some scientists arguing climate models have too much weight on the effects of carbon dioxide.

2013-09-09

Norway Swings Right

This is a confirmation of socionomics against the common wisdom. After Anders Breivik massacred the children of left-wing politicians in an attempt to stop mass immigration from Muslim countries, the common wisdom looked for the right-wing to be punished. It helped, in this line of thinking, that Breivik was a member when he was young. Also, the party did slip a bit in 2011 following the massacre, but since then it has rebounded. Despite securing higher vote totals in prior elections, the center-right consistently refused to parter with anti-immgiration Progress, but that's all water under the bridge now.

Norway’s centre-right claims victory
It wants to stick to a rule that only 4 per cent of the oil fund’s value is allowed to be spent each year by the government. But the Progress party, which came third with 16.3 per cent, wants to spend more, particularly on infrastructure. The two centrist parties have also said they would refuse to be in government with Progress, known for its fierce anti-immigration views and for having Anders Behring Breivik, who killed 77 people in 2011, as a former member.

Two years after Breivik's massacre Norway's anti-immigration party verges on election success
Dozens of survivors of Breivik's massacre on Utøya island on July 22, 2011, mostly members of the Labor Party youth wing, are seeking office in the national election.

But the wave of sympathy for the Labor Party in the wake of the shooting spree seems to have evaporated and the Norwegian public seems ready for a new government after eight years.

...This swing to the right is illustrated by the policies of the Progress Party, rejected by the political consensus a decade ago, being widely accepted now, according to Professor Knut Heidar, of Oslo University’s Department of Political Science.

“The policies which [Progress] were proposing 10 years ago are now being accepted by all the parties, including Labor, in terms of integration, that immigrants should learn Norwegian and so on," said Heidar.
Events don't generate social mood. Social mood generates events. Breivik or no Breivik, Norway is moving to the right along with the rest of Europe, Asia and the Americas.