Deflation at work on land prices… (Las Vegas)
December 4, 2009 by guidoammA picture of deflation
December 4, 2009 by guidoammhttp://www.briefing.com/Investor/Public/Calendars/EconomicReleases/credit.htm
In an economy that is 80% sustained by the consumer, when the consumer disappears, so does the economy.
As the economy disappears, unemployment soars thus social costs soar. BUT, as the economy disappears and social costs surge, TAX REVENUE DWINDLES.
As we bail out banks and companies, as social costs soar and as we expand our military effort, where is the money going to come from if the tax base is disappearing?
And if social expenditure is curtailed at the same time that the power elite is caught in scandal after scandal, how long till the masses revolt?
World war by 2013/2015
Imperial blues (Robert Borosage)
December 4, 2009 by guidoammhttp://www.ourfuture.org/blog-entry/2009124902/imperial-blues-0
Excerpt:
“Far worse in many ways than the money squandered on wars abroad is the attention consumed, the values distorted. This president understands that Americans are focused on the economic troubles here at home. In his speech last night, he argued “as we end the war in Iraq and transition to Afghan responsibility, we must rebuild our strength here at home. Our prosperity provides a foundation for our power. It pays for our military. It underwrites our diplomacy. It taps the potential of our people and allows investment in new industry. And it will allow us to compete in this century as successfully as we did in the last.”
Note the order of priority. Our “strength here at home” is needed because it (1) is the foundation of our power; (2) pays for our military; (3) underwrites our diplomacy. It also taps the potential of our people and allows us to compete globally. Stunningly absent in that martial list is any sense of creating a society that has eradicated hunger and poverty, that has secured the American dream for its citizens.“
And that, in a nutshell, is the inevitability of the fiat monetary logic.
Topical joke…
December 4, 2009 by guidoammToday I was reminded of a joke I heard a few years ago. It went something like this.
When Hollywood tried to get Dubai to broadcast The Flinstones nationally, the Sheikh balked. In an ironic twist, Sheikh Al Maktoum did not think the zany concept of a technologically advanced prehistoric society could be fathomed by his people. But HE Sheikh Al Maktoum did suggest that they should try to convince the neighboring Emirate to broadcast The Flinstone because even if the people in Dubai would not understand the humor, the people in … Abu Dhabi doo!
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Dubai… again…
November 30, 2009 by guidoammAnd now… for the final denouement…
What was glaringly obvious to few of us some years ago, is now slowly being grasped by not many.
Just as it is impossible to permanently shift from a productive economy to an economy that is overwhelmingly service based, it is not possible to build a country starting with a service based economy.
Economies must follow a logical progression that must undeniably start with basic skills and industries. Service based economies are necessarily dependent on credit. Credit is a characteristic of inflation.
By trying to short circuit the natural evolution of the economy, Dubai borrowed heavily in an attempt to start with a service based economy. In the process, wittingly or not, they disregarded the importance and utility of basic industries and skills that contribute intrinsic value in favor of outlandish real estate projects. That’s it.
With a stated desire to become the “Wow destination of the world”, Dubai borrowed heavily to build impressive real estate structures thinking that it would be sufficient to attract companies to set up shop in the Emirate. But Dubai was not aiming to attract just any company. Dubai was aiming high. Dubai along with cats, dogs and sundry in the Middle East-Indian Ocean region, wished to become an IT hub. That’s right. Dubai, like Jordan, Egypt, Turkey, the Seychelles and dozens other countries aimed to become an IT hub for the region… thus going head to head with India for example.
What in the mind of the ruler could have possibly made him think that a country of a few hundred thousand (very few) barely literate, negligibly competent and generally ineffective inhabitants could have allowed him to intellectually challenge India in the IT sphere we will never know.
But Dubai also aimed to become the financial center not only for the region but the entire Asian expanse. They wanted to become the oil trading hub of the world. They wanted to become the stock exchange hub of the world… they wanted to become the center of the arts of the… world… they wanted to become something that has taken London, Tokyo, New York and Singapore many centuries and many decades of endogenous intellectual and physical work to achieve… and they wanted to do Bit in 25 years by skipping the basics. All they needed, he thought, was money.
And if you don’t have money? Why! Then, borrow it.
But beyond being mesmerized by the slow motion implosion of what was clearly a wreck waiting to happen, what is happening in Dubai is important to the extent that we have to find out who is holding the credit default swaps on the debt that has been extended to them. Dubai may only be in debt to the tune of 80Billion Dollars but what matters is the extent of the pyramid of derivatives that has built upon this debt that may well be in the hundreds of billions if not a few trillion Dollars. The pressing question is who are the counter parties to the swaps and how much they are on the hook for. It is a foregone conclusion that the major global banks are involved; but which ones and for how much? This is the type of event that nobody is looking at and that may very well trigger a cascade of defaults.
So far, although Abu Dhabi is playing hard ball, it is likely they will still come to the rescue scooping up Dubai’s assets at a few cents on the Dollar. But what if Abu Dhabi genuinely has no interest in rescuing Dubai?
http://www.independent.co.uk/news/world/middle-east/dubais-debt-shakes-world-markets-1828327.html
The following is a note I wrote on Facebook circa September 2008
Here is the quick and dirty: how could it not!?
I’ve already written so much about this that I am just quickly going to sum up all the reasons I think the Gulf economies can go supernova. And when they do, it’ll be a doozie.
There are myriad reasons why the Emirates’ economic experiment is a ticking bomb. I suppose that Emirati malls are an appropriate parallel to describe the country: for all the extravagance, UAE malls leak like sieves. That’s right. During a thunder storm, the floors of most malls are dotted with buckets placed under leaks seeping in from every corner of the roof. And that, in a nutshell, is the UAE. The proverbial triumph of style over substance.
For those of you that keep pointing out that “people are making money” in the UAE as an argument for the viability of the state, you have to get it through your skulls that there are fundamental differences between the viability of a state and the success of individual entrepreneurs. Hopefully, you will see why by the time I am done with this note.
For starters. The lines between the ruling family and the state are blurred.
There are no independent civil institutions that have any power to act independently on critical matters. For example, there is an appearance of secular law complete with lawyers and courts of law that functions well enough for every day mundane matters. However, for matters perceived to be important to the state or pertaining to morals or the image of the ruler, the secular courts of law are of no use. Whatever the man says is law. If he says yes it is yes, if he says no it is no, regardless of what laws may be in force in the country. More worryingly, there isn’t a mechanism in place, for example, that would ensure continuity and transition should the main man pass away. It is generally hoped that things transition smoothly but it is not a guarantee.
Then there are the demographics. They are horrible. Emiratis are, what, half a million souls? And here they are embarking on infrastructure projects suitable for a country of 20/30M. Also, on the whole, they are marginally literate and largely idle.
Emiratis pay no or low taxes and their maintenance cost is dis-proportionally high for the state.
In light of state expenditure, they are not giving the nationality to nearly the amount of people they need to in order to ensure a steady and sufficient revenue for the state
It is unclear what sort of state revenue is generated by the economy as the state budget is not available for study and, at any rate, the vast majority of large companies who’s contribution could be of consequence at state level are already owned or part owned by the ruling family.
The UAE’s economy is what I term an “I want” economy more akin to a state planned economy than an economy that grows through the creativity, the needs and requirements of society and its external relations. The latest case in point is Abu Dhabi’s wish to establish a Louvre museum. Now think about that for a moment. Museums are exceptionally costly endeavors and even in the heart of Europe museums can barely generate enough interest to earn sufficient revenue to keep the lights on. Collections, curators, alarm systems, suitable infrastructure, custodians, researchers, publications and overhead expenses come at a fairly high price. How do you think Abu Dhabi can ever hope to generate enough traffic for this institution to be self sustaining is a mystery. But beyond any other consideration, the UAE’s economy lacks diversity, depth, texture and above all, it lacks logic.
Along the same lines, and by their own admission, the Emirates want to build a “wow” destination. This is a great idea in principle but in actuality, if your objective is to be a wow destination you are forever doomed to outdo yourself year in year out. Wow projects are such because they are economically unsound. If they weren’t, then everyone would be embarking on wow projects and they would no longer be such. Therefore, a wow project is inherently uneconomical. If one wow project is uneconomical, more of the same is… is…. well, it’s just horrendously uneconomic. Wow projects are not only costly to build but they are costly to run and maintain. But most importantly, the replacement cost of wow projects is prohibitive because wow projects often make use of gizmos and materials that are one off items specially designed and manufactured for the project. Not exactly the sort of stuff you find readily available off the shelf at the local Homebase. This being the case, wow projects are bound to run into the law of diminishing returns at a speed that is the square to the degree of wow-ness. I admit this is not a scientific statement but you get the drift.
So, putting it all together, it is clear to me that the UAE is an economy that is on life support. In this case, the UAE exists due to an exogenous revenue stream that is not dependent on their own talent, creativity or productivity. For as long as the revenue stream persists and for as long as the credit cycle is on an expansionary cycle, the UAE can sustain the “economy”. The question is whether what they have built can be self sustainable in the event that the exogenous revenue stream should diminish or disappear and/or that the credit cycle and inherent leverage should reverse its upward trend.
Finally, as the theory of Peak Oil gains momentum and as empirical evidence so far buttresses the theory, it is likely that the UAE’s exogenous revenue stream may indeed be waning… of course, once again, scientific studies are lacking and what there is is not for public scrutiny. There is therefore a large degree of conjecture in assessing the state of oil reserves in the UAE as in the entire region especially Saudi Arabia.
Nonetheless, a credit cycle that is on a downward trajectory will, in and of itself, have a significant impact on continued development in the UAE.
The UAE could alleviate the likely bust if, for example, they started expanding their population base by handing out the nationality to large swathes of people in an attempt to both widen the tax base and give depth and diversity to the economy.
All my 2c worth of course…
I am on the road…
November 29, 2009 by guidoamm
Have not had access to internet for the past few days… only online temporarily today and for the next three days.
Here are some press articles of interest:
Examples of industrial overcapacity
Legitimacy of governments under fire from within
Deflation’s inexorable march… we’re nowhere near being out of the woods…
http://www.guardian.co.uk/world/2009/nov/12/united-nations-us-property-fallout
A self sustaining economy must produce intrinsic value. When development is brought about by financial engineering, then crisis will devastate what little intrinsic wealth there may be
http://www.guardian.co.uk/world/2009/nov/29/dubai-world-desert-gulf-investors
Sex and the little man
November 23, 2009 by guidoammThe world as we know it is crumbling around us. Our governments, our leaders and the power elite have been caught red handed whilst they lie, pillage, plunder and ransack our countries and the countries of others and some people still find time to have their nose bent out of shape by sex.
The sex trade is only tawdry because it is illegal. Make it legal, tax it, clean it up and in one fell swoop take a chunk out of the illegal trade in people operated by criminal gangs.
Consensual sex is good. Consensual sex expands your horizons. Consensual sex is relaxing and exciting. Consensual sex is refreshing.
But for vestiges of archaic beliefs in perceptions of morality perpetuated by social power structures and grounded in nothing more than ignorance, sex is what all humans do. Very often they do it alone too by the way.
Climategate
November 23, 2009 by guidoammGovernments are so far ahead in preparations for the implementation of rules and regulations on this matter that we will likely never know if the data that was hacked and published for all to see is true.
Regardless of whether the data is true or not, what I find dismaying is how most people seem to implicitly trust governments to be doing something on their own volition that is ostensibly good for society and the environment . Since when has that been a characteristic of government? This fact alone taken in isolation, requires attentive scrutiny.
Karl Denninger analyzes the IT data
http://market-ticker.org/archives/1651-Global-Warming-SCAM-A-Further-Look.html
As to why a democracy can lead but to an inflationary trajectory… (Yes Minister)
November 21, 2009 by guidoammI always thought Yes Minister is by far one of the most entertaining and edifying comedies ever produced. As it turns out, though unwittingly, the authors of the series also stumbled upon the reason why democracy can lead only to an accelerating inflationary trajectory.
http://www.telegraph.co.uk/culture/tvandradio/6617356/Why-Yes-Minister-is-as-true-as-ever.html
Significant excerpts:
“We [the authors] had to get down to basics, to the classic actors’ studio question: “What’s my motivation?” There are two answers: the expressed, publicly acceptable motivation, and the real motivation. The minister’s declared motivation is to serve the voters, to satisfy their hopes and aspirations, at whatever personal sacrifice. His real motivation is to get promoted, to get re-elected, to burnish his own and the government’s image.
The civil servant’s declared motivation is to carry out the wishes of the government efficiently, economically and impartially, working conscientiously and tirelessly to turn ministers’ policies into just, beneficial and workable laws. Their real motivation is to raise their personal status, to enhance the importance of their department, to avoid blame, to gain credit, to minimise work, to resist change, and to retire with an index-linked pension, a knighthood and the chairmanship of a couple of quangos and a seat on the board of a blue-chip company.
It seems that this wider divergence between appearance and reality is not just a British – or even Western-democratic – phenomenon. Gogol wrote The Government Inspector in the 1830s and it exploits this joke – in local rather than national government – in exactly the same way, to the delight of modern audiences.
Secrecy is the key: secrecy, which required concealment, deception and dissimulation. It is not helpful to take a moral view about this, because it is in the nature of all institutions.“
[...]
“There is a permanent conflict between public institutions and democracy. Democracy requires information and control; institutions require secrecy and independence. Jefferson wrote in 1788: “The natural progress of things is for liberty to yield and government to gain ground” and that, in an increasingly institutionalised and globalised world, is happening in just about every country.
The attempts of government to pretend that its only purpose is to carry out the will of the people it serves create a treasure trove of comic opportunities.“
The authors probably have not fathomed the immoral truth they have stumbled upon wishing only to see the humorous side of the tragedy that is the political process.
Regrettably, once government becomes the largest actor in the economy, it takes on a life of its own and like all life forms, self preservation becomes the priority regardless of any presumed obligations and duties it may claim to hold as self evident.
Deflation and the state
November 21, 2009 by guidoammSome excerpts:
“Janet Yellen, the head of the San Francisco Fed, said emergency measures had prevented the US economy from sliding into a “black hole of deflation”, insisting that it is still far too early to talk of tightening policy.“
“While the Fed appears split over its exit strategy, even arch-hawk Richard Fisher of the Dallas Fed said the sheer scale of excess plant will curb prices and wages for a long time. Capacity use in manufacturing is near a post-war low of 67.6pc.“
Deflation is not the demon here. Deflation is actually the normal state of the world; or at least, it would be if it were not for politics. We should embrace deflation for the beneficial dynamic it is especially after 90 years of unrelenting and artificial pumping of inflation by government. Deflation will bring respite to those of us that for the past 30 years though living within our means, have witnessed our wealth and our savings pillaged and ransacked by self serving politicians and bankers.
Inflation punishes those people that make the effort to pull themselves up by their own bootstraps and attempt to provide for themselves in old age without putting undue strain on public finances. Inflation punishes the prudent and the saver. Inflation encourages reckless behavior and devastates the wealth of those that are taken in by the siren song of debt that promises to allow you to consume today what you could only consume over a longer period of time if you relied on savings.
Deflation is the demon only if you are in debt; and nobody is in deeper debt than the state. And nobody is deeper in debt than the state issuer of the reserve currency.
I readily admit that in the interest of socio/economic development, a degree of deliberate inflation is necessary. But inflation should be monitored, moderated and modulated. I also readily admit that in a democratic society as administrations follow one another in the seat of power, it is impossible to expect any one administration to willingly moderate inflation.
So, yes, I admit that an accelerating inflationary dynamic is inevitable in an environment of competing nation states.
So, why do I bother?
At this point I don’t really know anymore. Somewhere I hope to be able to awaken a sufficient number of people so that we may avoid what usually happens at the end of secular inflationary cycles. I hope we can avert a world war; a world war this one, that will come complete with civilians being packed off to the front and rationing of food and energy.
The key to do that is to force our “leaders” to admit that we’ve made a good go of it for 30 years but that we are now bankrupt. We must admit that the inflationary policies that have helped us postpone the day of reckoning till now, no longer have any traction. We now need to hunker down, tighten our belts and restore a modicum of balance in our finances before we can return to something resembling the life style of the majority in the recent past.
For those of us that are not in debt, a bout of deflation will give us some breathing room and allow us to live a more comfortable style of life. We’ve been under siege for 30 years; we deserve a break. But a break won’t do us any good if our politicians will resort to the age old trick to engineer a war when state finances are about to blow up.
Accumulate gold bullion and embrace deflation. Gold is a sensible investment for at the very least 10% of your entire wealth. Gold is a good investment now till it will no longer be. I don’t have a crystal ball, but I suspect gold will serve us well certainly for the next five years but possibly as long as ten years. Because we cannot count on politicians to do the sensible thing and we can count even less on Western politicians to do so.
