Rediscovery of Discount Rate

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[OFF TOPIC]

This post deals with economy and bond market pricing rather than medical heresies. I am posting it because the article is somewhat heretical and is pointing out some (probably intentionally) forgotten aspects of the bond investing that may soon become very important.


Rediscovery of Discount Rate.

Conclusions:

Some implications of bond discounting under negative interest rate policy (NIRP) are as follows:

* Banks will not be able to avoid discounting of their own held government-issued bonds (otherwise they would be risking their own insolvency)

* Collateral assets held by the banking system will be loosing value (since the discounting would have to be accounted for).

* Total market capital value of the entire bond market will probably keep growing faster in relation to monetary mass in circulation, due to discounting mechanism applied during the roll-over refinancing at maturity. (At roll-over a borrower must re-pay the principal amount by issuing a higher nominal amount of bonds to offset the discounting). .

* Bond market will have to be made working under the truly open market rules controlled by supply and demand rather than by market administrators. Under NIRP the market will probably not be able to tolerate mispricing or distorsions in the discounting mechanism, because it requires accounting for cash losses or gains upfront leaving very little scope for market losses deferrals and creative accounting. Any attempts at manipulating the discount rate back towards 0, would result in buyers (even government buyers) walking away otherwise they would have to book losses immediately.

Manufacturing of fake profits by some corporations

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(Note: I rarely post that kind of analyses but this time it is probably important to know about, and interesting to watch).  

From Wiki

Surprized by the booming US stock market in the past few years 2012-2015 in spite of rotten business fundamentals and no growth?

How to transfer cheap credit into fake profit and create an illusion of growth, simple:

• borrow a few billions of dollars at near zero interest rate
• buy your own corporate stock back, which allows the company to increases dividend per free trading share without incurring extra costs or improving anything nor adding anything of value. It also triggers a buying momentum on the stock market, which other "investors" tend to follow. 
• wait until stock price increases due to higher dividend yield and due to momentum investing.  This will also increase a value of the previously purchased corporate stock held as the asset, making it available to use as a collateral for future loans.  
• repeat the above, roll-over the old loans if necessary.

In fact, one can argue that it makes no sense whatsoever to invest in production if stock buyback brings more return on “investment” and quicker since the lag is much shorter then a new product development cycle.

What can go wrong?

• if interest rates go up too much then rolling over the old loans would drain the cash and bankrupt the companies.  This is highly unlikely since the central banks are well aware of that kind of systemic risk and will not raise the interest rates substantially, any time soon.
• if the stock prices decline in spite of buybacks due to market correction or declining fundamentals (as in case of mining & energy sectors and some banks) , then the own corporate stock held as a collateral must also decline which may trigger the calls on the existing loans and may make it more difficult to borrow  and to roll-over the old debt.  This may potentially expose the company to a liquidity crisis.  We will probably see some interesting examples of this phenomenon in 2016, beginning with the mining sector  and some oil companies and then possibly some banks exposed to bad loans. Previously, the governments fought it by issuing another QE (“quantitative easing” of credit), will it work this time?  We shall see.     It will cause US dollar exchange rate to rapidly go down as it happened during 2008-9, which may trigger an outflow of capital out of the US stock and bond market, again as in 2008-9 (this time into the currencies of countries that are not exposed to deflationary risk of mining and energy markets).   This will exacerbate the stock market rout in the US.  Note that the above mechanisms are not self-correcting, they form a positive feedback loop, that is a movement in one direction, up or down tends to amplify itself reinforcing the trend.     

Stan (Heretic)

Updated 9/02/2016:

Big companies have lost billions buying their own shares

And it's not just a few big corporate losers accounting for all the pain. The group includes 229 companies in the Standard and Poor's 500 index, nearly half of the companies in the study prepared by FactSet for The Associated Press. When a company shells out money to buy its own shares, Wall Street usually cheers. The move makes the company's profit per share look better, and many think buybacks have played a key role pushing stocks higher in the seven-year bull market.

Updated 10/02/2016:

Why Stock Buybacks Won’t Save The Market This Time

There's a reason investors have blindly trusted Wall Street's "buy the dips" mantra since 2009. In fact… there are 2.3 trillion reasons. That's because since 2009 U.S. companies spent more than $2.3 trillion buying back their own shares, according to a report by Aranca Investment Research Services. All that buying acted as a floor for stocks and launched the major indices to new heights.
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Fundamentally, spending cash on or debt-financing buybacks is touted by management as "returning cash to shareholders" by reducing share count, which reduces the number of shares the company's earnings are divided across. So, by reducing shares through buybacks, earnings per share can rise even if actual earnings are flat or falling. And that's a source of positive sentiment for those holding those stocks.

Update 14/03/2016:

There is only one buyer keeping S&P 500 bull alive

When The Prop Drops - Company Share Buybacks Accounted For 100% of New Stock Market Cash Since 2010

Banned TED talks

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You may enjoy it, well worth listening to:

Nick Hanauer "Rich people don't create jobs"

Graham Hancock - The War on Consciousness

The Science Delusion - Rupert Sheldrake 

There is no such thing as too much heresy!

Stan (Heretic)

Myth of increasing interest rates

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A recent news headline "US Fed data leak shows staff expect interest rate to increase"

Quote:

Data accidentally published on the US Federal Reserve website shows that staff economists at the central bank expect an about 25 basis point increase in interest rates in 2015.

I think they are probably lying!

1) It was not an accidental leak but an intentionally planted disinformation like many times before.

2) Interest rates will not significantly increase any time soon, under the present monetary system, because neither the government, central banks nor large corporations can afford the consequences of such a move! There is only one way the interest rates can go at the moment: down!

(see this graph)

Wiki

Many times in the last couple of years I have witnessed various banking or governmental officials, here in Canada and elsewhere, talking of some imminent interest rate increases - which never seem to materialize!

 Why are they misleading the people? My guess is that they are trying to cool off the property market and preempt the speculative bubbles. If the investors would suddenly rush to buy bonds believing the yields (and interest rates) to go down, then the yields and interest rate would come down faster than anticipated prior to the actual announcement, which would deprive the central banks and the governments of an advantage of being the prime movers.

Interest rates cannot go up, under the current monetary system, because it would probably bankrupt all government (addicted to cheap financing at low interests), most large corporations (ditto) and would instantaneously devalue almost all banking collateral (note: bonds and property go down in value if interest rates go up!).

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added 2/07/2015 - There is a better way of putting it:
Lowering of interest rates is inflationary (short term), while increasing them is deflationary (also short term).  Governments and banks cannot afford to initiate a deflationary move (of increasing the rates) under an already deflationary and stagnating economy, given a risk of recession!
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I think that the authorities – governments, public sector institutions, large corporations and banks, cannot allow the capital market system to naturally correct towards the higher yields while at the same time obliterating the total value of their personal wealth, value of the entire banking collateral and devaluing most paper "assets"! This process (towards the higher yields) will certainly be opposed by the authorities as hard as they can, because it would render them poorer and less powerful!

The establishment have a very tight control over the system and will not allow that! Not unless they have an alternative. I don’t think they have an alternative at the moment - thus, the interest rates have only one way to go – down, asymptotically to zero!  [or become negative!]

This is the scenario similar to a classical deflationary spiral with decreasing yields (and profit margins), with diminishing velocity of money counteracted by an expansion of monetary mass. Deflationary trend caused by diminishing yields seems to be masked by an expansion of monetary mass (through credit and debt expansion i.e. "Quantitative Easing") that mitigates the deflationary effects and keeps the average prices more stable than they would have been otherwise.

The biggest drawback of this system, in my opinion, lies in the fact that the benefits of the monetary mass expansion apply to governments, large centralized institutions and large corporations, where as the recessionary hardship of the diminishing velocity of money is being felt on the lower and local market level. The current system is unbalanced and I think it will probably not improve much until an additional local multiple-currency system is introduced, that will balance that out and will reverse a recessionary pressure felt by the local markets.

I also suspect that the presence of the local currencies (at the township level, not countries!) may alter the entire dynamics of the central banks and the governments, but we won't know for sure until it is tried and tested.

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Update 28-Oct-2015
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FED KEEPS RATE AT RECORD LOW BUT WILL CONSIDER DECEMBER HIKE

Quote:

The Federal Reserve is keeping its key short-term interest rate at a record low in light of a weak global economy, slower U.S. hiring and subpar inflation. But it signaled the possibility of a rate hike in December.

Yeah, right! They can't even lie intelligently! [singing the same old tune lalalalalalala...]


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Update 22-Nov-2015
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Is this the future of service based non-manufacturing type of economy?  Isn't there something fake about t?

Swiss bank breaks negative interest rates taboo


Heretic

Destruction of economy by parasitic governments and financial institutions

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The destruction of our economy by parasitic governments and financial institutions

Present

Most countries’ financial centers and governments are currently in the process of expanding the supply of world currencies and cheap credit, in order to boost their own budgets, salaries and political power and to avoid recessions.   One of the effects of this policy is the protection of their own personal wealth consisting of paper assets such as bond and stock funds that would otherwise have collapsed.

Past

A similar expansion of the monetary supply has historically led to the de-industrialization of  entire regions or countries that followed such policies for a sustainable period of time, typically over several generations.   On the surface, the mechanism of such de-industrialization seems to work by inflating the costs of doing business faster than the price inflation of manufactured goods and services produced by affected companies, thus destroying profitability, especially when a vast supply of goods is available from peripheral provinces or from other countries.  One such example was the 5th century Roman Empire (see Fall Of Empire essay), the other one is 16th century Spain under Philip II.

“Nuts and bolts”

Industrial companies that may initially enjoy the cheap credit, use it to expand production facilities or other business assets, which then leads to excess production or excess supply of services and inevitably destroys profitability.   Decreasing profitability reduces investment yield, the Return On Investment (ROI) but it also serves to restrain the inflationary pressure fuelled by the financial expansion.   The reduced inflationary pressure due to collapsing profitability allows the central banks and governments to maintain the low inter-banking lending interest rate which in turn facilitates the issuance of even more credit, including borrowing by the governments for virtually limitless spending on themselves.

Risk management, CDS and leverage

The issuance of more and more credit to an expanding circle of corporate and other borrowers at a time of falling yields would have normally been stopped at some level by the rising risk premium preventing a further reduction of interest rates.  Rising loan risk would have acted as a negative feedback preventing the currently observed unprecedented drop in interest rates and related bond yields.  It would have ultimately prevented excessive credit generation.   The negative risk-mediated feedback has been sabotaged by the use of a special form of financial credit insurance called “Credit Default Swaps” (CDS).   CDS allowed the lending institutions to exceed the lending limits imposed by the normal risk avoidance standards (and by common sense) , by allowing them to profitably lend, giving very low and falling loan interest rates.   In this low interest rate environment, it was necessary to lower the required capital reserve for banks and financial institutions such as hedge funds in order to maintain the expected profitability.  Until recently, this required capital reserve was decreed to be 1:11 (capital-to-total loans), which was recently further reduced by the “Basel 3” agreement to 1:30 bringing the world banks to similar “standards” as hedge  funds which “enjoyed”  the 30:1 leverage even before the 2008 crash  (Leverage is the inverse of the capital requirement).

Positive feedback loop of destruction

Apart from destroying industrial profits, the excessive credit also creates bubbles in selected investment sectors such as stock, futures and bonds.  Rising bond prices are further depressing  the yields and interest rates which further accelerated the lending.  This situation is described in science and engineering by the term “positive feedback loop”. This means that even a small input stimulus is amplified by the system and fed back to an input, amplifying itself further until the system reaches some very large deviation from an equilibrium, and saturates or the system breaks down.

Eventually financial companies flee the market where interest rates and Return On Investment (ROI) has been depressed, moving most of their investment capital off-shore to countries where the ROI is still high.   The process is repeated until all manufacturing economies end up eventually running unprofitable industries, subsidized at first by the investment capital influx, later by government subsidies to maintain employment and to prevent the paper assets backed by industry from crashing.   Subsidized manufacturing in poorer countries floods the world market with underpriced industrial goods allowing prices of industrial goods to remain stagnant (deflation) in spite of the rapid expansion of the financial system and money.
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I saw the future...
   
The last stage of this economic destruction is the breakdown of the unprofitable manufacturing, resources and agricultural sectors when the subsidies run out or when the employees refuse to work under the austere conditions imposed upon them by the profit squeeze. This process, like the credit growth itself, is also governed by the positive feedback law.   Once started, it will accelerate, fuelling itself like a cancer or fire.  This will happen specifically, when food prices and the cost of living overtake the wages paid by unprofitable manufacturing companies causing industrial disruption due to strikes and closures, leading to further increases in the cost of living and so on.   

The impact of this upon the developed countries that almost totally depend upon the subsidized under-priced production from the developing countries, will be equally severe.  A decline of the subsidized imports of industrial and consumer goods will cause the supply chain to break down in the developed economies, leading to explosive inflation of all prices for manufactured goods, commodities, food and services.  The ensuing inflation will put an upward pressure on interest rates which government will no longer be able to obfuscate or manipulate using financial techniques alone.

Aftermath

The  inflation-induced jump in interest rates and yields will crash the bond market (bond values are inverse to their yields).  Old bonds will drop in value destroying most of the pension funds and probably most of the financial institutions, given that it may trigger an avalanche of CDS claims (another positive feedback) which will accelerate the institutional and systemic collapse.  At the same time, the new bonds will become very expensive for borrowers to issue, thereby derailing the “gravy train” enjoyed by governments and large corporations the world over.  It may even make the refinancing or rollover of old debt impossible.

The break-down of the government bond market will cause currency exchange rates to vary wildly and may cause some currencies to crash and disappear, beginning with those countries that will default on their government bonds first and ending with probably all presently known paper currencies disappearing and being replaced by something else.  

Science, technology and ideas (including business ideas) are unlimited.   Completely new industrial companies, technologies and services will be created, filling in the present business vacuum, using new-old forms of self-financing and capital-rising that are more robust and do not depend on large financial institutions and governments.  This will happen in the countries that  provide a legal framework effective in protecting private ownership and civil order yet not stifled by any excessive legislation or taxation.

The good news is that that which worked in the past, will work in the future, and what didn’t work in the past will not work in the future either.

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Definition of money and the time-symmetry

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A few thoughts:

1) Gold Money = Past Work.

A money system that is 100% backed by tangible products such as gold or by some real consummer produce such as food, cars, seashells etc is the symbol or equivalent substitute of work done in the past. A found pot of Roman gold coins represents work done by some people 2000 years ago. To create a monetary system like that you first have to mine out and accumulate some gold, copper etc or make some products and then you can have a "money" backed by it. It is mildly deflationary (in a harmless way, probably) since the amount of goods and products generally accumulates faster than gold.

A monetary system based on the assets produced in the past is inherently stable for the same reason that the automation control systems based on the "feed-forward" principle (as opposed to "feed-back") have to be. That is because past products are inherently more solid that the promise of future products! (I was just about to write "because the Past is Immutable" but on the second thought decided not to).

It's downside (or perhaps an advantage?) is the fact that it is very difficult to generate new investment credit and lend money very quickly for large projects, other then through a slow process of accumulation of capital. In particular, it is very difficult for governments and large corporations to obtain large amounts of capital without direct taxation or outright confiscation of capital from productive business entities. Such activity cannot be easily concealed by authorities and if attempted, it would be declared illegal as well as incompatible with the democratic principles. This type of monetary system probably enforces honesty and encourages work-oriented culture (if backed by the effective legal system). This is probably the main reason why the gold backed monetary system was first subverted and finally abolished by most governments.

2) Debt Money = Future Work.

Money based exclusively on debt is the present equivalent substitute of a work promised, a work that will be done in the future. Other than this difference, the system works (initially) the same way as #1! It is typically mildly inflationary because it is always easier to borrow more and generate excessive debt. The system tends to generate more of the debt-backed money, than can be reasonably predicted to be covered by the productive work in the future. In addition to the inherently poor money issuance control, unpredictable disasters or business failures tend to undermine a balance tilting it towards inflation.

When the future comes and some debt proves to be defaulted, then the equivalent amount of debt-backed money must by law be destroyed. This 'must' NEVER happens! It's a Keynesian's fallacy, for example that a government is supposed to be counter-cyclical, restraining its spending during a boom. In theory it must be done but never gets done! At least, not when the big governments run by incompetent collectivists have their way! :)

Eventually, excessive unbacked phantom money keeps accumulating because nobody is destroying it! Nobody likes becoming the first one to burn their paper banknotes, admit that their bonds (held or issued) are worthless etc. In the event of mass defaults, business closures or just corporate downsizing, the debt-backed monetary system seems to give all players an incentive to maintain a fiction and pretend that the paper assets backed by the defunct debt still have some value. It encourages the players to cheat, and punishes honesty. This honesty disincentive is also compounded by massive leverage through banking lending multiplier (it's name is '33') and derrivatives (I think the system would probably still remain inherently unstable even without the multipliers and derrivatives).

The main advantage (or perhaps its main fault) is the fact that it is very easy to generate additional credit to finance some urgent projects or startups. It's main alure is probably the fact that the very large players such as governments and some very large corporations, may generate and use gigantic amounts of new credit/money without actually producing anything useful co-measurate with the amount of resources they are appropriating. They can do all that in plain view without breaking any law, and without breaking principles of democracy.

3) Present Time Money

Can Present Money be defined as the average of #1 and #2?  One can envisage a 50%-50% mixture (or similar ratio) of both forms of money-backing asset classes (hard assets from the past or gold,  plus debt counted as an asset), but it is not really equivalent to any product being produced in the present! The 50-50 money backing scheme has no relation to the current work being done in the present time! Such monetary systems have been used in the past and are called "fractional reserve gold backed currency". It is like standing on two boats with one foot in each.

I think, the nearest equivalent of a "money" system that reflects a work being done in the present time is barter - which in fact uses no money at all! Such a system did work in the past, but only in a very primeval economy. Could such a system have worked in an industrialized economy such as during the Industrial Revolution in the last 200 years? Absolutely not! Would such a system work in the future information based economy? Perhaps, I don't know but I would not exclude a possibility that it may work!  We have to get used to a habit of challenging the old "wisdoms" because the new ways of global information access make certain formerly impractical ideas possible, for example a direct democracy! I have a gut feeling that this could be the key point behind the future economic revival!

I think, that kind of systemic classification based on the symmetry patterns is always helpful in science, it may even have some predictive power.
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Why does Canadian gov...

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... steal less?  Less than other governments! Hope you will enjoy this refreshing point of view, and appologies for straying away from the main blog topics.  (feel free to click that box on the right, it's OK.  8-:) )

This discussion begun with Gavin Hewitt's BBC article

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Stan "Dozent" P. wrote:

You were right, the British papers are much more interesting and honest then North American, BUT...

Quote:

"That is one of the key conclusions of the paper. Since adopting the euro Greece, Ireland, Italy, Portugal and Spain have become increasingly uncompetitive. That and the slowdown in productivity is the heart of the crisis in the eurozone, rather than debt. Debt is a symptom."

No, It is not, pure and simple. Uncompetitiveness is a symptom. Debt is the result of the disease. The Euro is a facilitator, not the root cause. The cause of the cancer is rooted deeper, much deeper. It is true that without the conversion to Euro the massive theft ( or misallocation of capital  8-)  ) in Greece and Ireland would not have happened.  But a similar story has happened in USA and it is hard to blame it on adopting a dollar. Iceland is in the worse situation then Greece or Ireland yet it does NOT use the Euro! One can not blame it on the Mediterranean culture either. Iceland is a country of tough, hard working people yet it is screwed up just as well.

The root cause is that western elites and governments are indolent and corrupt to the bone. Give the mouse a piece of cheese, he will ask for a glass of milk.

20 years ago Argentina and Brasil went bankrupt. Their liabilities were about 100 Billion. Their popolation 100 million Who the heck lent 120 Billion to Iceland, a country of 300,000 people? Who lent 600 billion to Ireland, the country of 3 million? Greeks did what Bernie Madoff would do if he was a state! Cheated, falsified numbers, and paid bills with new phony money. Who the heck packaged all these Alabama Ninja mortgages into "AAA" securities. Who sold this crap to Icelandic banks? Where did they got the money to pay for it? When you look at it closely, Iceland was used to launder money and they got a commission for doing it.

The establishment, the governments and their paid journalists will invent one reason after another why this crisis happened and continues.  This will change nothing Thanks God our Canadian Prime Minister took a bribe of $300,000.  He thought it is BIG MONEY.  Thanks God another Prime Minister got involved in his friend Golf Course.  It cost taxpayers 0.5 million.  Thanks to these crooks, our government was paralyzed for 20 years and missed the greatest thieving opportunity of their lives.  Thank to them, we can calmly wait until this economic bomb explodes SOMEWHERE ELSE.  Explode it will! A few hundred crooks cannot stop 6 billion people who want to live decent lives.  Someone, somewhere, sometimes will default on their "obligations" and this whole house of cards will fall apart.

Stan P.

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Money matters

I am glad to present another interesting essay written by Dozent (Stan P.), this is a continuation on the subject of Baby Boomers culture (that we fondly refer to as "Monkeys"), this time discussed in the context of economy and money.  I hope you will enjoy it.

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Stan (Heretic) wrote Re:

I found that being too "business"-obsessed in the sense of seeing monetary rewards in everything is also a sign of a "monkey".   The reverse is probably also true. Real people want to be paid real money but they (we) are not too obsessed with it. Playing games with monetary reward, that is withholding it when due and rewarding arbitrarily when it is not warranted, is _their_ signature.

Stan,


I always knew it and I have acted upon it.


What is money (I mean real-money) ? It is equivalent of work or in other terms a rechargeable work-battery   :-)


I like to work. It is normal. Why should I be obsessed with WORK.  If you can not make money then you do work nobody wants.  But the problem is: you NEVER KNOW what will sell.


A few years ago I found your "marketing research.on your sensors a little funny, but "harmless" so I said nothing.  Simply estimating the potential size of the market is a good thing.  But that as far as I would go.


I know "if the product WORKS for me then it will most likely work for others".   I veered off topic. "Monkeys" are obsessed with money because they can not do any useful work. For them money is NOT an equivalent of work. No wonder they print it - they can not not see the equivalence. They either "hustle" money or receive it for being loyal to the boss.  They can not earn it on the open work market because they have no marketable skills.  They can not make things other people need.  They are obsessed wit it because it is their constant problem.

Mind you, this definition automatically defines who is a "human" [in our sense] and who is a "monkey" [figuratively, not literally, in a cultural sense, S.B.].    The critical words are "what people need".


It means that a singer like lady Gaga is a human being because she creates something "people need" and are willing to pay for.   It means she is working for her money. It is a kind of work you and me do not understand, but we can not be Astronauts either.


The definition of "useful work" is that is has a "monetary value" on the market. Loyalty and arse kissing does not have a monetary value on the market though it does have value to the Top Monkey and is rewarded accordingly. However, nothing has been created neither by loyal followers nor the boss.  The money, being an equivalent of work must be stolen by a form of "taxation" or simple extortion.

This defines instantly the role of the government.   What government creates ?   Services ?   What services ? No, the only "product" government "creates" is SECURITY.   Mind you, it is a marketable product and people are willing to pay for it.   Providing security is a full time job.
Now what is a value of a well equipped army.  That depends.  If you are facing Hitler or Genghis Khan, nothing else matters.   The problem is a professional army could not stop Hitler.  If fact, it was wiped out and proved completely useless.   In the end a few million of regular folks had to leave their stores, their factories, their fields, they had to learn to fight and they kicked ass.


So the security it is not worth 50% of MY EARNINGS.   If it is, it is time to make weapons and go to war.

There is a reason why the "monkeys" do not understand the connection between work and money.   For them, there isn't any. No matter how hard they "work" ie talk, go to meetings, make noise and other efforts nothing happens.


There is no product, no buyer, no sale and no money.

Now we can go back and create some definitions.  

[Goods and Services]

To state the obvious: people need things.  In order to survive people need goods and services like food, shelter, clothing, tools etc...     These goods have to be made. For the sake of efficiency and quality work specialization is required so most of the goods we need is made by other people.  By definition services are provided by other people.  Primeval societies "found" things they needed. There was a very high "intrinsic" component in goods.  We hunted land animals and fish, collected nuts, dug roots, used wood, bone, native gold, obsidian and flint.  With few exceptions like fish we have exhausted the available supply of  things we could find.  Now ALL the goods have to be made by human labor.

[Trade and Economy]

The second factor is an economy of scale. It was difficult to kill an animal to catch a fish or to make a bow. It was even more difficult to produce "high tech" product like a bronze axe or a gold ear-rings. It required a skill and a know how.  Once the smith made first good axe, it was easy to make 10 or 20 more.  Then one could trade them for some beautiful sea shells    :-)      You know I am serious there. Trade is as old as humankind.   What was the first trade?   Well, the Bible is probably right: a woman exchanging sex for food though a Snake had nothing to do with it!

[Money, Value, Currency and Fake Value ]

Trade started as barter. Money was invented later to facilitate the exchange.   Money is a concept. It is a measure of "value" humans attach to goods and services.   Value is the desire of humans to "own" or "consume" goods and services.   However, money has an weakness. It needs a medium to be implement in practice.  A medium like sea shells, iron bars or gold and silver.   The medium has to be convenient to carry, indestructible, difficult and expensive to produce,  impossible to fake, easily recognizable and uniform (that is why diamonds are not money).    It has to have value to humans but it can not have any utility value so it will not be destroyed.    It has to be rare and expensive but not too rare nor too expensive.


The only medium of exchange that survived the centuries is gold and silver.   Over time, gold and silver has become money though it does not have any use and little utilitarian value.

Gold and silver money has serious flaw - the supply is limited by the availability of metal.  However, this is alleviated by increasing the velocity of money and creating credit.   Velocity of money is a fancy name for reuse.   A buys from B, B buys from C etc...  the same money facilitated multiple transactions.


Credit is a legal note created by a creditor, and backed by his tangible assets.   It is an obligation to buy back the note after the prescribed time for the principal plus interest.  This obligation must be enforced by law.   Money is an equivalent of labor.   It works like a rechargeable battery.   It "stores" human labor in a convenient form for later consumption.   However, people rarely need a pure human labor like the "professional" services of a doctor or lawyer.   In most cases we need "goods" ie. things which have been made by labor. The labor itself is hidden from consumer  in the "value" of these goods.   The value of the "product" is a measure of a desire of people to consume it.   Thus, "money" is an equivalent of goods and labor and a store of value ie. desire to consume.  


Credit is equivalent of work to be done in the future by the debtor in exchange for money borrowed from the creditor.   To account for the risk to the creditor the borrower has to pay interest.


Currency is a credit note issued by the government as a legal means of exchange.   In theory, the government promises to buy it back at any time for money.  The government is a debtor, the saver is the creditor.  It is a cheap credit as the government does not pay interest [or very little of it].   Money can not be easily created.   It has to be saved and pooled to create capital.  

Money is an asset and will hold value for as long as people desire gold and other rare objects.


Currency is a piece of paper. It has value as long as the government says it does. This "value" can be wiped out with one stroke of a pen. Currency is someone's liability. It holds value only as long as the issuer is credit-worthy and can pay back its debt..


Gold Rubles and gold Krugerrands are money . The Reichsmarks were currency. It lost all real value on 9-May-1945.


In the mid 20 century something curious had happened - currency had become "money".   The liability has become an asset.  The piece of paper acquired value backed by the creditworthiness of entire nations.  It is not the first time it has been tried.  The kings of France tried this.  The kings of England tried this.  The results were rather sorry - the kings lost their heads.  The current massive experiment lasted 70 years for over 3 generations.  One could think it was successful, but the fraud was just so big it took a very long time for the results to first appear.  Now the cows are coming home.  The currency will go to zero again, but that is a subject for another essay.

This simple definition of  "money" and  "currency"  has a very far reaching consequences.  First, it provides a clear distinction between human producers and parasitic consumers.  Second, it provides a clear distinction between money and currency.  Third, it clearly defines the role of the "government".

There are many people who have no skills or no desire to produce anything. Yet they need the manufactured goods and services in order to survive.   I call them "Monkeys" because just like the monkeys they tend to congregate into troupes and many are actually destructive.  The critical statement is this: since Monkeys do not make anything they can not "earn" money.  They have to steal it or extort it.  They congregate in groups of alike individuals and use agression to hustle a living.
The Currency is NOT money. It is a piece of paper. It obfuscates the role and the very nature of money as a deferred labor.  It enables the incompetent, destructive "monkeys" to pretend they also create "value".


However, currency is designed and promoted as the equivalent of money thus the equivalent of labor but unlike labor,  it can be printed at will.   It makes "credit" cheap.   After all, all it takes is to print a piece of paper.   It makes savings an oxymoron.   The banks do not need savings to issue credit.   Sooner or later credit printing gets out of control and the whole fraud unwinds.  We are witnessing it now.

The only products government can manufacture and sell is law and security.   Personal security.  It is a legitimate role and a legitimate products.   In fact, it is priceless.  Laws permit economies to function.  It enables property ownership and civility.   Personal security is the first step to political freedom which has been proven to promote wealth creation.

This has become a book. The real point can be made starting here with the "Monkeys" taking over the government in the times of prosperity and the replacement of  money with currency.  The system starts rotting from the top and the disaster is unavoidable.


I have no desire to write this book.  I know you know the end.  We both know the resulting cycle is very long.  In fact, this may well be the explanation of the Kondratiev's super-wave.  There has to be a longer cycle - about 3-4 generations.  In short, the cycle starts with competent people and real money and it ends with "Monkeys" in charge and worthless paper currency.

See you tomorrow.
Stan P.

(Text in brackets [] and quotes added by Heretic)
--------------------------------
Update 24-April-2010.
More comments posted on this subject, see under the previous article.

Human regression, anthropology

.

"Grok" the Neanderthal (drawn by Cecylia Bleszynski)

This is a continuation of the previous post on the subject of present day human regression, problem with "Baby Boomers" generation etc.

I have been thinking of expanding it into an essay but I am not quite sure how to attack it.   As far as I know it has never been postulated this way.  It has probably never been said that certain traits and attributes of the modern human culture such as social uniformity and an obedience towards authority in power and regulations, may in fact be the symptoms of regression into our distant evolutionary past. It is important to recognize it since it may harm our long term survival.

On the first sight that may sound like a pure anarchic heresy.  I need to explain.   During our relentless discussions and rants (me with Dozent), we realized that there is a behavioral pattern, namely people who tend to be the most willing followers of hierarchy of power, who like obeying all regulations spread by governments, corporations and churches, are the same who have unusually well developed group social skills, and at the same time tend to lack the skills that defined our humanity in the past. The same type of people also lack certain human skills that used to ensure our survival, that is:  innate creativity, ingenuity, ability to manipulate or adapt to changing environment, high mobility  and tendency to build strong bonds within the small teams of equals based on skill and usefullness rather than on some hierarchy of authority and power.      

I will describe some basic differences between the characteristic of nomadic humans the way I see it, in contrast to the opposite traits of the so-called "Baby Boomers". Please keep in mind that use the last term in a simplistic generalized way, to described a certain subculture.

"Nomadic" (Homo Sapiens)	"Boomers" (Simian Sapiens)
outwardly - individualists, inwardly - co-operative	outwardly - collectivists, inwardly - aggressive and competitive
introvert	extrovert
disobedient	followers
adaptive, flexible	static, rigid
racially blind	intolerant of strangers
value creativity	afraid of new
dislike static order	value stability
rely on individual work	work unconnected to wealth
authorities = problems	authorities = source of wealth
strong team bonds	strong social group bonds
manipulate environment	manipulate people
technical and science skills	lack of technical abilities
logic and math	verbal reasoning and rhetorics
observe what works	observe what others say
individual survival priority	group has priority
idealizes religions	uses religions
support commerce	consider it unfair profiteering
nomadic mentality	settled mentality
highly focused on 1 task	multitasker
"What I produce belongs to me"	"What you produce belongs to us"

-----------------
Update 24-April-2010
More comments by Dozent posted on this subject, see the comments section.
-----------------
Update 8-Feb-2011
Added last row in the table.
-------------------
Update 4-March-2012
Added introver/extrovert attribute.  Note - read this article about Susan Cain's book.
--------------------
Updated table 16-Jan-2014
---------------

External debt of Ireland falls to €1.61 trillion

According to todays' Irish Times article.  Population of the Republic of Ireland is 4.5M.

Quote:

Ireland’s external debt continued to fall, standing at €1.61 trillion at the end of December 2009, a decrease of €26 billion compared with the end of September. The figures from the Central Statistics Office (CSO) include general government, the monetary authority, financial and non-financial corporations and households.    ... Credit institutions and money market funds had debt of €661 billion at the end of last year, a fall of close to €30 billion compared to three months earlier, and a decline of €107 billion compared to a year earlier.  However, general Government foreign borrowing rose €2 billion to €75 billion between the end of September and December 31st 2009 as new long-term debt securities were issued, off-setting redemptions in short-term securities. Compared to a year earlier, it was €17 billion higher.  Intra-group borrowing and fluctuating exchange rates accounted for a rise in direct investment debt liabilities of €10 billion to €210 billion.

My comments:

It will take 31 years to pay back 1.6Teu at that rate providing that Irish institutions and households find enough assets to pay all that.   There are many questions,  I am curious as to who the creditors are?  British? Germans?    Why did they lent so much to a country with no assets other than property they were lending for?    If most of that was backed up by property, that is clearly under water now, since the 50% property price drop in 2007-2009.  How could an island nation of 4.5M people own 1.6Teu worth of properties to back that all up?   How long (maturity) are those liabilities?  Does Ireland really own that much in backup assets or is most of that 1.6Teu really unsupported by anything other than a promise to pay it back?  That would be roughly 1Meu per family/household!     Iceland's case springs to my mind.

overvalued currency is government's fault

Dozent wrote:

Please note the fact that when currency is overvalued everything is expensive, is totally counter-intuitive. When the currency is very strong the imports should be cheap. Like the $30 microwaves. But it applies to so few products it is not even funny.

Exactly! That's what misled me too. It is very counter-intuitive! A simple minded false logic would dictate that a country with overvalued, too strong currency like Ireland in the 1980-ties and 90-ties, should have been flooded with cheap food and cheap industrial good from abroad.

The truth is that it does not work like that at all! The primary factor missing from the logic which in fact CAUSES the currency to REMAIN overvalued is the government! I did not understand it but it is the most important: - Irish government made possible for the Punt to REMAIN overvalued for so long, indefinitely because they simply blocked the cheap import through import and excise duties and siphoned off the excessive cash through punitive income tax!. Had Irish gov not done that everybody would have simply bought computers, would ate only imported food and the currency would have collapsed within 3 months!

Food was too expensive in Ireland because imports were heavily taxed and farmers had to recoup their overvalued labor costs with appropriate pricing, where as the consumers had no choice.

There is one manipulation necessary to drive a currency high above par value (for example pushing bond yields up) and there are other necessary conditions that must be manipulated by centralized government in order for the currency to remain overvalued rather than correcting immediately through trade imbalance. Actually Americans accomplished the second part (preventing overvalued dollar from collapsing) not by taxation and customs like the Irish gov (they couldn't tax outside of the US borders!) , but by managing to sustain the permanent trade imbalance - by balancing the real trade of goods and service with fake printed papers that the other countries like China treated as if these were real goods with value! (*)

Under normal free market system a poorer less developed and less industrialized country like Ireland (or Portugal - another prime victim of Dr. Salazar's monetary manipulation theory) could not have possibly maintained an overvalued currency at al! Irish Punt would have been worth not 2$ in the 80-ties, but 1$ and living expenses in Ireland would have been LOWER , not higher than in W.Germany! As it should have been, as it is in Poland right now. That's why Polish economy is not doing worse but better than German, French or Swedish in spite of the different levels of development.

Stan

-------------------------------------------

*) We know that the US$ will probably collapse only when the trade imbalance balance will rectify itself using real goods and services that real people really need in real life, that have real value priced on the real market! As long as China, Japan and EU buy US Bills and Bonds, the US$ will have to remain overvalued!

Baby boomers' monkey business

What do the following terms have in common: Ardipithecus, monkeys’ social habits, high sugar + cereal diet, Lipitor™, vegetarianism, environmentalism, political collectivism, herd mentality, break-down of family values, excessive focus on entertainment, business-destroying corporate management based on consensus not competence, de-industrialization, engineering decline and medical science failure?

I am going to expand upon that. Existence of some connection in the above listed items was originally postulated by Stan Piotrowski (aka "Dozent") in response to my theory explaining the strikingly (to me) consistent social habits and culture of the generation of people born just after WWII (1940-ties to 1950-ties), in Europe (West + East) and N.America. My theory postulated reincarnation of some ancient technologically-inept collectivist-minded differently-logical people into the midst of our modern technology-based individualistic civilization. On the other hand, Dozent's theory replaced my metaphysics with pure biology, evolution, genetic programming, and atavistic fallback to the social behavior from our very distant evolutionary past.

Here is Dozent’s theory in a nutshell, in his own words:

Recently you have told me that the looters are cavemen. You are wrong. Totally, utterly wrong. If anything, WE are cavemen. We eat meat. We hunt. We build fires and spears. [....]

To explain my thesis I have to go back to the first time I have seen a TV program on "Ardi" - the earliest known humanoid. Ardi walked upright and had small teeth. Just like us. He wasn't aggressive. He was a hunter and gatherer. Males brought food home and shared life with a female. Females choose good providers and husbands, not an aggressive unattached types. The teeth are a proof of it.

Chimps and Gorillas went the other way. We don’t descent from monkeys, Ayn Rand didn’t know that. Apes are a different evolutionary line which rewarded strength and aggression. The big gangster type. Large gun and no respect for his woman. Ardi was not a chimp-like creature. Neither was "Lucy" the Australopithecus. They did not look like an ape and they did not behave like an ape. We can see it from the results. From the size of our bodies, our teeth, our testicles and our penises. They all point to one-to-one stable relationship. Not based on aggression and sex.

If we were like apes, women would have a red protruding behinds and the men would be twice as big with very large teeth and very aggressive sexually driven behavior.

This observation has eluded me for years.

Back to my thesis. The looters are not cavemen. They are Chimps. Mini-skirts and large half-naked breasts are an equivalent of big red arses. Big guns and motorcycles are equivalent of large canines. Aggression and submission are dominant behavior. Everyone tries to be an Alpha dominant male, a "silverback". They can't work. They don't think. They drink beer (carbs) and eat cereals (carbs). They behave like Chimps not like Cavemen. They look like Chimps, they talk like Chimps and behave like Chimps. They are Chimps.

This is a discovery which eluded me. You do not try to befriend a chimp. You stay away and so does he. You do not try to appease an aggressive chimp. […]

This is not arrogance. This is not "I am better then them" etc... I may not be better I am different. I am a Human. They are Chimps.

The most popular movies right now are all about vampires. Vampires are creatures who live among humans look like humans but behave like..., yes you have guessed it, Chimps. You can call them Chimps or you can call them vampires. You do not call them Cavemen. That is offensive to my noble ancestors who lived in natural caves before they learned to build artificial "caves". They did it so as to protect their children and family from the environment.

They also dressed up in animal skins to be warm not undressed up to show their canines and biceps or their red arses. That was before they have learned how to make an artificial skin called fabric. Yes, caves were rare and they had to be shared. They had names, individuality and respect for the skills. They cared for their families, their children, their parents and their friends.

Stan, Cavemen were US, not THEM.

Stanislaw P., a human.

What did really cause the crash?

Just a speculative thought:

- could the drop in the Asian stock markets in 2008 preceding the banking crisis of September 2008, have been the real main cause of the crash rather than the American property decline?

US property is only about ~30% down from the peak where as many Chinese companies and the stocks are down way more than that!
Since the US financial oligarchy decided to pump virtually all of the new investment into Asia, since mid 1990-ties and especially after the dot com crash in 2000, the US industry has been totally starved of investment. Yet the US dollar is strong since the banking hub is in the US thus the system works exactly as in the past, generating enough profit to compensate. The manufacturing industries that backs the financial sector and the dollar, are still there owned by the financial elite the same way as before, except that the new factories have been now relocated outside of the US borders.

This situation seems very similar to the British Empire days when before the WWI Britain was investing ~100Bstg a year abroad, while the paper assets were held in London. Around early 1900-eds British pound was the world universal currency and London was the world financial hub generating enough profit to keep the pound strong, and they did not have to produce anything since they could buy everything cheaply abroad. During that time British manufacturing industry experienced its deepest decline in history, and British investors experienced some difficulties in repatriating Indian Railways and Suez Canal back to London, after 1945. They didn't have any "greenshoots" until 1980.

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09/09/2009

I should have titled it "What will really cause the crash?"

Any major natural disaster in China may now push the Chinese stock into a crash and consequently the US financial system over the edge. One (my) prediction of an upcoming gigantic wind damage and flooding in the Pearl River Delta, Hong Kong - Shenzhen - Guangzhou area springs to mind.

-------
What was the primary cause?

I have a theory: - US government was giving huge quantity of TBonds in return for foreign currency loans that they then used to sell off on the Forex market, to weaken other currencies and thus strengthen the US $. I think it is very plausible! It explains for example why does European Central bank and BOE hold huge TBonds reserves in spite of a relatively small size of their trade with the US!

I believe that this currency manipulation was the PRIMARY cause and the trade imbalance with China and Japan was just a SECONDARY consequence of the weakened currencies.

Most experts postulate that the trade imbalances happened first and the TBonds were exchanged as the result of those imbalances. I think it was the other way around! Trade imbalances do not appear by themselves, rather international trade of goods and services tends to balance itself out automatically, if left free.

Are Saudis evacuating their money? Is a new war imminent?

I will make exception and post this comment on the recent news:

Suitcase With $134 Billion Puts Dollar on Edge: William Pesek (Bloomberg)

I consider it to be too bizarre to be false. I totally do not buy the "mafia forgery" theory. I also doubt that it has anything to do with Japan but of course have absolutely no proof whatsoever.
I think its time to buy some more oil...

Letter to Mr. Anti-Nuclear Environmentalist

Dear Mr. "Anti-Nuclear Environmentalist",

Your article in the Peterborough Examiner of 6-May-2009 ("Darlington Nuclear Plan...") seems highly biased. You seemed to have picked up and quoted only the anti-nuclear voices while totally missing other views.

People who state opinions such as quote: "I'm against nuclear. I'm trying to think ahead seven generations,..." are misled, mistaken and most often incompetent on the subject they speak about! Not only they may be jeopardizing their own future "seven" generations through their misguided anti-nuclear energy politics, but they may be closer to a personal disaster even within their own life time due to the imminent shortage of oil and natural gas and their inevitable skyrocketing prices, the example of which we have just witnessed last year! This will happen sooner than Ms Langley or you may think. I can picture people like her sitting in unheated houses unable to travel except on foot and unable to find work due to business failures.

If you advocate turning the society back into 18-th century life style, you may have to face some tough choices. If the rampant anti-technology anti-science environmentalism takes an even bigger hold on people's mind driving our politics to the dead end, then the same enthusiasts of wildlife protection at any cost may eventually have to resort to hunt those animal for food and furs just to survive!

Sincerely,
Stan (Heretic)
 
URANIUM POWER - POWER TO THE PEOPLE!
 

New accounting-"What would you like it to be, sir?"

Banks Won Concessions on Tests, Fed Cut Billions Off Some Initial Capital-Shortfall Estimates

I used to think that accounting were just some boring arithmetics. Not anymore, I am really impressed by the approach taken by Mr. US President.

On his other notable achievement in just his first 100 days in the office, I would like to congratulate him on the first in US history successful transfer of wealth from the poor population (see examples like this or that ) who most likely voted him, to the wealthy financial elite who most likely did not!

US TBonds crashing?

What makes me think of that possibility?

Fekete's article:

... U.S. debt [1T$ in TBonds] in Chinese hands has no definable value: any time the Chinese want to sell a sizeable amount, all bids are withdrawn. The Chinese are stuck with it. They have to wait for their money until maturity. But who knows what the purchasing power of the dollar will then be? The best the Chinese can do is to “grin and bear it.” They can’t even say “ouch”, because this would further hasten the deterioration of marketability of their paper. The periodic warnings from China that the U.S. government should display greater fiscal responsibility and it should follow a stricter monetary regimen sound like whistling in the dark. ...

And this:

Fed to buy up to $300B long-term Treasury bonds

WASHINGTON (AP) -- The Federal Reserve announced Wednesday it will spend up to $300 billion over the next six months to buy long-term government bonds, a new step aimed at lifting the country out of recession by lowering rates on mortgages and other consumer debt. ...

Let me review some of the relevant events of the last months, chronologically:

1) Chinese gov is declaring a 600B$ stimulus for Chinese infrastructure

2) Chinese central bank is (probably) trying to sell some of their US TBonds discovering (probably) that they either cannot sell or that they have to discount them.

3) Chinese government officials complain to the US government and criticize US in public on the subject of the integrity of the foreign held paper assets issued by the US Treasury.

4) For the first time since the financial crisis begun, Federal Reserve is printing very large amount of cash (300B$) to buy TBonds on the market.

Why do I have a nagging suspicion that the events 2 and 4 may be somehow related? Is the Federal Reserve buying up the US TBonds that the Chinese bank was trying to sell on the market but couldn't? Note that buying TBond by Fed is equivalent of printing cash! 300B$ is probably 20-30% of the existing money (M1) in circulation.

Conclusions:

- this is highly inflationary, and is likely to counteract the current bank-bailout engineered deflationary credit squeeze.

- the old rule that the pre-mature resale value of the long bonds (but not short term bills) is supposed to be inversely proportional to the yield, no longer seems to apply or requires a large correction factor in the zero yield limit.

I suspect that the long term fixed income assets become illiquid or may even lose value once the yield goes below about 3% or so (at present). It's a case of a theory stretched and extrapolated beyond it's proven domain. Everyone assumed that since lowering the yields from 12% to 6% increased the money velocity in the past and increased credit supply, then lowering it from 3% down to 1.5% or from 0.5% to 0.25% is going to have a similar effect. I think what the present events have demonstrated is that the system is non-linear and that the money supply versus yield curve reverses below a certain yield threshold such as 6% (not sure of the exact figure, read also this - scroll down to the entry on Wed 2 July 2003 titled "What exactly is the relation between interest rates and inflation?" ). The result seems to be the opposite to the expected: forcing the Treasury yields below 3% seemed to have REDUCED the credit supply on the market and led to deflation!

Since everybody loves predictions, I have to finish on this note:

- if China could not easely sell their TBonds so will the US gov not be able to do so either, in the nearest future, forcing the US gov to print even more money than today's 300B$, counteracting deflation and eventually (probably) causing inflation.

- falling TBond resale prices on the open market will increase inflationary expectations and will force all the other new bonds to carry higher yields - despite the government's central banks declarations.

- large players, such as sovereign funds are likely to question the role of the dollar as the universal currency, to renumerate their assets in. The death of the US TBonds (if that happens) means also a death of the dollar!

P.S. (21/03)

I wrote it in the morning, later it was announced that the total sum is 1.2T$: 300B$ of new cash to buy US TBonds on the market and the rest to buy some other dodgy paper assets. That move is effectively doubling the money supply. I have seen that kind of economics in the People's Republic of Poland in the 1970-ties. I have seen the "future" and it did not work! Ask any Pole who lived through this period what a "virtual coal" was. 8-)

Market moves in such a way as to render the assets of the biggest players worth less!

Some of my thoughts, opinions and beliefs on where we are heading to.

Last 200 years of Western economy were split into stages in the following order:

- Land owners' oligarchy.

- Industrial oligarchy based on manufacturing and natural resources.

- Service based economy.

The current cycle that has just ended, was characterized by:

- Explosion of credit and debt backed by property and service sector stock used as backing assets (mostly the non-manufacturing and non-resource sectors).

Next stage that has just begun is characterized by:

- Implosion of credit and debt.

Similar as in the previous cycles, this unwinding will have to result in the wipeout of the assets of the most privileged class - the banking and financial elite! They have resisted it and will resist by various measures, most likely by:

- Propping up the collateral by supporting property values thought mortgage insurance corporation bailouts and by supporting the service sector stock, probably through various covert "plunge protection" schemes.

- Enacting mutual guarantees and support schemes for the financial assets; see for example the recent US government guaranteeing liabilities of various corporations.

- Direct recapitalization of financial institutions by government. This requires maintaining (an illusion of) low bonds yields to facilitate the debt issue. Note that this process does not eliminate the financial "nuclear bomb in the basement"! It only moves it from one "basement" to another. Obama's bailout for Wall Street bankers belongs in this category.

- Maintaining the currency value to protect the real assets' value. Note that this requires a disciplined approach that permits issuing of bonds to cover new debt but prohibits expanding the monetary supply (i.e. it precludes government or central bank from buying back their own bonds or bills for cash).

The above measures are characterized by the desire to protect the assets of the Elite but they do not address the real cause - debt! The problem is that although the value of the assets declined and was often marked-down, the nominal contractual value of debt was not declining and generally cannot be easily marked-down to market. If - when the above measures fail and the assets continue to fall, the next steps will probably be an attempt at neutralizing the debt to stave off the mass corporate bankruptcies. It may happen in the following order:

- Shifting of remaining liquidity (by elites) into hard assets such precious metals, land, natural resources, some save heaven countries and others that I cannot yet think of.

- Devaluation of Western currencies.

- Controlled inflation implemented by governments and central banks through buying back bonds with newly printed cash.

- Uncontrolled inflation by governments having to print cash to cover their operating costs, pay for the inevitable gigantic emergency social welfare and debt servicing expenses.

I am concerned that the above depicted scenario may be aggravated by certain common corporate-cultural issues, such as:

- Rewarding top executives for accomplishing some short term accounting goals to the detriment of the long term strategic planning.

- Over-reliance on dumbed-down hierarchy of hired management with only business degrees.

- Lack of accomplishment-based rewarding practices and too much tolerance towards an inactivity among the management ("job for life" disease).

- Tendency to expel skilled people from the workplaces through the top-down negative selection ("fish rotting from the head" syndrome).

Recommended relevant readings:
1) "Atlas Shrugged", Ayn Rand
2) "Social Collapse Best Practices", Dmitry Orlov

oh and a must watch:

3) "Clark Winter's interview, Bloomberg 10/03/2009" (scroll to minute 4 and after)

- one might also consider this (watch the last scene):

4) "Fight Club"
(before you watch the film, make sure you have a good anti-virus and pest patrol, do not click anything else) Update - I disabled the link (unsafe!), instead it is better to get a torrent from mininova.org (search for "Fight Club" title) and then download the full movie with a BitTorrent. Good luck.

A crash has just begun in Ireland!

Fasten your belts and brace for a crash landing!

Today's Irish Independent article :

The publication of the two reports coincide with the news that at least €10bn has been withdrawn from Ireland in the past week as the impact on Ireland's financial reputation emerges.

If the outflow of funds has begun as I wrote in my blog 3 months ago, if that is 10Beu/week then it is a matter of a few weeks before all Irish banks will run out of cash and the gov will have to either fork out that cash (if it has got any left), renege on the promise or let them all fail! In my back of the envelope estimate there is only 20-40Beu of cash reserves left with the Irish banks, perhaps even less!

Updated 19/04/2009

I was off by 2 weeks. The banks ran out of cash after 6 weeks instead of 4 as I thought. Irish government managed to save their bacon, for the time being by injecting 90B eu of fresh money into their system, in the first week of April. Irish banks ONE : Irish taxpayers ZERO, everybody happy, all love! This should last them about 3 more months assuming that the cash bleed rate stays the same. We should expect some more interesting news in the middle of the summer. So far so good, go to a pub, drink beer...