Rebane's Ruminations

The Congressional Kabuki's Coming Swansong (updated 21nov2011)

George Rebane

That the congressional super committee was orchestrated to fail from the moment it was commissioned was a known to anyone paying attention (or reading RR).  Now all the talk shows have come to that conclusion after interviewing various stiff-upper-lip members of that dysfunctional dozen.

This morning Chris Wallace of Fox News Sunday asked a series of the most stupid and embarrassing questions of two members of the Kabuki troupe, one Dem and one Repub.  I swear, any reader of these pages would have known the answers the two members of Congress were forced to give.  Wallace acted as if he had no idea how negotiations are conducted.  Example – he asked whether raising the start age for SS had been accepted or not by the Democrats, and a similar one of the Repub.

Both informed him, gently but firmly, that individual factors are not treated in that manner.  Everything will be on the table until the very end.  Each side will take turns presenting the other with a complete package, which then will be modified and counter presented.  All factors and issues will always be taken within a total context.  Someone should tell Chris before the week wears on.

And rather than trying to get success/failure predictions out of the participants – they were, of course, both hopeful and BSd their way through the answers – I would have asked them questions about the ongoing procedures and process.  This would have given them an opportunity to answer between the lines.

A high hard one of my questions would have been – ‘Given that no Congress can compel, commit, or coerce a succeeding Congress, you all know that any deficit reductions you expect to achieve have to be achieved in the coming year (2012), and only in the coming year.  The rest is just BS for us folks watching at home.  Some of you were members of the preceding Congress that kicked the can to the present Congress.  Now you are the kick receivers preparing to kick it to the next Congress of which many of you will also be members.  In your deliberations, do you actually bring up this factor and talk about it?  If so, how do you reconcile the endgame you’re headed for?  If not, what do you think of the guy you see in the mirror in the morning?’

Just so no one is mistaken, this Kabuki performance (stylized and bizarre dance-drama) is predestined to go nowhere, and its mandated draconian alternatives (scheduled to kick in in 2013) will almost certainly be punted by the lame duck Congress after next November.  Nuff said.

[21nov11 update] The long expected obituary and memo to the next generation reported in the WSJ -

Sen. Patty Murray (D., Wash.) and Rep. Jeb Hensarling (R., Texas), the co-chairs of the the Joint Select Committee on Deficit Reduction, said in a statement.

"Despite our inability to bridge the committee's significant differences, we end this process united in our belief that the nation's fiscal crisis must be addressed and that we cannot leave it for the next generation to solve."

Now I'm ready to start entertaining words and wagers of hope that the legislated "sequestering" of $1.5T in deficit reductions will actually take place.  Step right up!

[21nov11 more]  Did everyone notice all the charges and counter charges about which party proposed what when?  I would like to see a news organization request under FOIA the copies of the date/time stamped communications between the two sides.  That should put an end to the partisan crap flying on the airwaves as to what really went on.  If they had no written proposals, then the bastards did little beyond exchanging hot air for three months of which there remains nothing but partisan memories and self-serving recounts about an affair that was, at best, extra-legal.

Hiroshima+66, Detroit+welfare

George Rebane

In 1945 Hiroshima was devastated by the first atom bomb used in anger.  The bombings of Hiroshima and Nagasaki saved a net of at least two million lives and untold millions of casualties, plus a Japan devastated more horribly than it already was in August 1945 when the bombs were dropped.  The outcry from the know-nothings was that the bombs would leave a radiation ruin that would last into the thousands of years.  Instead, 66 years later we have the thriving metropolis of Hiroshima that is a showcase to the world.  Why?

In the United States we started with a thriving metropolis and world class industrial center that could be matched nowhere on this Earth.  It annually produced millions of the finest motor vehicles, and supported a war effort by making thousands of B-24s in the largest facility on the planet.  The city was located on the nexus of land and water transportation conduits and close to all of its major markets.  It was the gateway to a better life for untold thousands of poor blacks seeking a new life and relief from a Jim Crow south.  Then Detroit was struck by the cancer of collectivism - labor laws, welfare, .... .  As a result, it lost it all.

What has made the difference in these two cities - collectivism and/or culture?  (H/T to a correspondent for the photos)

Threshold of New Progressive Era Hailed

George Rebane

Jeffery Sachs of Columbia University is a very prominent and celebrated far Left academician who writes extensively in the national media.  For example, he is the spearhead of that august Scientific American having been politicized over the last decade or so (it is now also a much thinner magazine with articles that have definitely turned to ‘science lite’).  Dr Sachs wrote a piece in the 12nov11 NYT that has gained much attention, and is hailed by the liberal media and weblogs as a definitive statement summarizing how things were, are now, and ever shall be.

Capitalism is definitely dead and buried in his new world, socialism is the accepted form of governance, and incomes are collectively equitable.  Taxing the rich will pay the fare for the trip, and the Occupiers are the ones starting our journey to social justice and renewed prosperity.  I draw your attention to it, dear reader, because you need to understand what fills the sails of the liberals who so enthusiastically promote their world on these and similar websites across the land.  They firmly and fully believe the adornment of history that Sachs provides – it is such a straight, obvious, and simple road from here to Man’s destiny – Marx lives!  (Image pilfered from the article.)

You may proceed to read the whole piece – ‘The New Progressive Movement’ – after you have poured yourself a stiff one and fastened your seat belt.  (For those readers yet to install seat belts on their home couches and easy chairs, be forewarned.  This oversight indicates that you have not yet exposed yourself to the full force of collectivist thought.  Brace yourself!)

On flat tax Blinder is leading the blind

George Rebane

[This is the transcript of my regular KVMR commentary broadcast on 18nov11.

Princeton’s progressive economist Alan Blinder is in the national media again (14nov11 WSJ) arguing against the flat tax.  Ignoring all the benefits that flat taxes have brought to post-Soviet eastern European countries, he lambasts America’s reconsideration of the flat tax as the “bouncing back of a bad penny.”   Before taking a closer look at Professor Blinder’s arguments against the flat tax, let’s review some basics of the new tax proposals.

The Flat Tax is often mentioned together with the Fair Tax without many people knowing the difference.  A flat tax is computed as a fixed percentage of your taxable income, which according to its promoters, is easily computed with few or no deductions or exemptions.  The Fair Tax is actually a federal sales tax imposed in place of the current income tax.  Both taxes have provisions for giving some advantage to the poor wage earners and consumers.

The prime criticism against these leveling taxes is that, yes they cause more people to pay taxes on a more even basis, but they both come out being unfair in the sense that they are not as progressive as the current taxing scheme.  Progressive is taken to be good in and of itself since it makes the higher earners pay a more disproportionate share of their income in taxes.  Today this disproportion has the top 5% of earners paying almost 60% of all federal income taxes, and almost half the workers paying no federal income tax at all.

Real News and Pabulum (updated)

George Rebane

Until further notice, please pay attention to –

1.    The German/French sovereign debt spread – subtract German interest rate from French interest rate.  This summarizes the entire eurozone crisis.  Use formula/chart in 'Investors playing the odds' to find likelihood that France defaults and/or that the ECB starts massive printing of euros to bail out their banks – hyperinflation.
2.    The price of gold – ever upward, but watch for the super-exponential bubbles.
3.    Israel’s plan to attack Iran’s nuclear weapon facilities.  When there’s no news about it, the risk of attack goes up.
4.    China’s US debt holdings – decreases are bad.
 
And ignore the following as distracting noise, pabulum, or simply entertainment –

1.    Who’s ahead among the Republican presidential candidates.
2.    Promised Congressional spending cuts and tax increases.
3.    Pedophiles in athletics.
4.    Moonbeam’s plans to reduce California’s unfunded liabilities.
5.    Anything on climate change that is connected to the UN.
6.    Obama’s promises.
7.    Bernanke’s economic projections and statements on quantitative easing.

8.    Who ran their hand up whose dress.

9.    Anything concerning Occupy.

10.  Any claims that government mandated green energy will ever be affordable.

Reader edits invited.

Van Jones – he’s baaaack! (updated)

George Rebane

We know that this formerly proud communist has been busy since he had to be jettisoned by Team Obama, but all that has been relatively sub-rosa.  Now the newly-minted Marxist in mufti is on his ascent to the top of the pile located somewhere beyond the American Left.  The man again deserves a feature article – ‘The Return of the Rabble Rouser’ - in the 21nov11 Time magazine that celebrates his political rebirth.

Mr Jones has been working on his American Dream Movement to bring socialist change to America.  His message has been embraced by no less than the Center for Community Change, “one of the left’s most active institutions”, and funded by Soros’ moveon.org.  Cheered on by a slew of Democratic notables like Nancy Pelosi (“Van Jones has made it his life’s work to speak truth to power.”), Jones is looking at the occupiers of OWS as his next legion of action-ready acolytes.

Joining in with labor unions and various leftist NGOs, Jones plans to organize and focus the occupiers into a cohesive voice akin to the tea party movement, and then make an impact on the 2012 elections.  His vision for our country is more than scary, “You talk about the Arab Spring, we could be on the verge of an American Autumn.”   Now American Autumn is about as open and as stark a translation of the promised “fundamental transformation” that I have heard.  This man and his fellow ideologues do not like what they see in our land (“banksters … the worst people in the world”), and they intend to finally marshal the masses to do something about it.

So there will be movement afoot.  One of the more significant asymmetries between the Left and Right is how they evolve in times of stress.  Leftwing movements transit through various stages of collectivism into regimes that finally dispense with their opponents through wholesale slaughter programs like the ‘Kulak liquidation’, ‘Final Solution’, ‘Re-education Camps’, ‘Great Leap Forward’, ‘Cultural Revolution’, or simply the ‘Killing Fields’.  The Rightwing efforts that promote values based on preserving the Bastiat Triangle of rights are co-opted by movements that trade individual liberty for promises of economic security, or the Right just fades away because its people are busy minding their own business.  Collectivists march, conservatives mumble.

So in the coming months we can look forward to that handsome, energetic, and loquacious Van Jones, organizing and leading those upturned faces with fuzzy minds not able to formulate the crisp thoughts and obvious conclusions with which he will provide them.  And then they will seek to be the next generation that is again dissatisfied with the pace and direction of human progress, and in the process militating for a change that they will make their own.

Yesterday they started with a nationwide series of coordinated strikes and demonstrations.  They are on their way, it would be foolish to dismiss him.

[update]  Communism (11%) is more popular than Congress (9%) in America.  These CBS poll results were highlighted this morning on NPR, not once, but from two journalists' reports in a single segment.  The fringe of communism always becomes more prominent when socialism establishes itself.  The duty of progressives high and low is to turn up the volume of denial when this happens – ‘No, no, no, don’t look behind the curtain!’.  Desperation and ignorance join to make this evil extreme of collectivism again look good.  One out of nine people believing anything is a significant faction in a society.

Investors Playing the Odds

George Rebane

At the risk of boring the bejeezus out of RR’s readership, here’s a bit of quantitative follow-up for all you investors playing the odds on the approaching collapse of socialist Europe.  Well, maybe that’s putting it on a little too strong, but looking at the way sovereign debt is being priced by the bond markets today, you gotta do more than wonder.

My last yawner on this (it got all of 4 reader comments) was ‘Greece and the 100% haircut’ where I showed how to calculate the probability that a borrower (here Greece) would default within a future interval of time, say, in the next year or two years.  The probability would be assessed by the world bond markets.  I gave the formula for computing that probability on your calculator using your own input values.

The piece also had another formula for computing what minimum interest you should demand from a borrower if you thought he’d go belly up with a certain probability within a given time.  Fun stuff if you are an investor playing that great American favorite ‘You Bet Your Ass'.

Anyway, for those who don’t want to mess with their calculator, and still want to keep track of the real shenanigans in Europe (the rest is just BS), I made a plot of default probability as a function of time and the rate difference.  The numerate reader will notice that the probability of default (Q) depends on the interest rate spread (r_B – r_RF) between the current bond rate and the so-called available ‘risk free’ rate – for the faithful, that’s what a 10-year US Treasury pays.  The formula for Q is shown in the figure below, and when you use it remember to convert percents into decimals.


Suppose you hear in the news one morning that some teetering country’s bonds are going for 23% per annum, and US Treasuries are paying 3% - that gives you r_B – r_RF = 23%  - 3% = 20%.  And you want to find out what is the probability that said country will default before two years from now (T = 2).  Then enter the horizontal T-axis at two, go straight up to the 20% curve, and then left to the vertical Q axis to read off about 33%.  The market is saying that there’s a one out of three chance that you’re going to get a haircut if you buy and plan to hold those bonds for two years - that's the real news.  Now is 23% enough of a return for you to take that risk?  If your numbers fall between the values given in the figure, you'll have to remember how to interpolate.  See, you’re having fun already.

A Ray of Hope or …

George Rebane

As an illustration of the public policy stasis that our collectivist brethren always wallow in, the National Space Society will announce today (14nov11) that space solar power (SSP) will be a viable, feasible, and limitless energy source within ten to twenty years.  SSP will beam energy from high orbit solar collectors to anywhere on earth bringing to bear the more than seven times energy efficiencies over surface solar collectors.  Talk about a green technology, and this energy source has been talked about for years.  Of course, we have to figure out how to keep such an energy beam from getting into the wrong hands and becoming a death ray.  (Image from SpaceWorks Engineering, Inc./Spaceworks)

Kurzweil reports (here) that today “on Monday Nov. 14 at a press conference (open to the public) at the National Press Club in Washington, D.C., the National Space Society will announce the findings of an impressive three-year, ten-nation study of space solar power by the International Academy of Astronautics (IAA), co-chaired by John Mankins, a 25-year NASA veteran who headed NASA’s study of space solar power in the 90s, and Prof. Nobuyuki Kaya, Vice Dean of the Graduate School of Engineering, Kobe University.”

(The report’s) findings include:

•    Space solar power appears to be technically feasible within 10–20 years using technologies existing now in the laboratory;
•    It appears to be economically viable in the next 1–3 decades under several different scenarios for future energy markets, including potential government actions to mediate environment/climate change issues;
•    Low-cost Earth-to-orbit transportation systems appear to be technically feasible during the coming 20–30 years using technologies existing in the laboratory now;
•    Flight experiments are needed, and policy-related and regulatory issues must be resolved.

Today we consume about 110T KWh of energy annually (good number to remember).  This will double in about 20 years, and then keep shooting upwards as the Asian countries really come online.  That will be a tough challenge for fossil fuels.  But it sure looks like if SSP turns out a feasible promise to deliver all that clean energy, then surely it’s a’comin’.

The Liberal Mind – Ridiculous Rules of Engagement (updated 14nov2011)

George Rebane

The political season is in full swing again; actually I don’t think that it has taken a breather since 2008.  The Great Recession and all the government programs designed to bring us back into a fine and fundamentally transformed fettle has highlighted an ideological rift in America of proportions to rival its Grand Canyon.  And the result has been a debate that is now changing into a shouting match in the streets.

That would be all well and good if it laid the groundwork for greater understanding between the sides.  Not a chance.  And one of the main reasons is the fact that, starting with the politicians in Washington, we don’t argue our respective cases very well.  The Left and Right, having long ago given up on each other, are both trying to convince the supposedly undecided Middle.  They do this by putting on a show of attempting to persuade the other through various arguments relying on a supposedly shared sense of justice, equality, fairness, with even an occasional nod to reason and logic.

I don’t think the Middle is all that impressed with the rhetorical fireworks.  Some of that may be due to limited interest or background in things political, historical, international, or even economical.  Although the last part is beginning to get people’s attention, especially those looking for a job.

Admittedly, this is not the most favorable view of those ideologically innocent millions, so let’s assume that enough undecideds out there are interested in the country’s direction and fate, and that they have been keeping up with what’s going on.  So let’s assume that what and how we argue matters.

If so, then the ‘where was X when Y first happened?’ sounds silly right off the starting blocks.  You know the ones I mean; as when Congress or the Administration is about to do the next questionable (aka dumb) big thing.  The often brilliant retort by the defenders of the proposal is an indignant, ‘Well, where was (Bush/Clinton/…) when all this first began?’  And that repartee, accompanied by a well-delivered smirk, is supposed to defend the issue?  Most certainly not to anyone paying attention.

You see, it really doesn’t matter where anyone was when it first happened or was first opposed or first ignored or whatever.  That was then, this is now.  Logically, the puffed up defender responds instead by asserting to all within earshot that the current proposal is justified, as a what? – a belated tit-for-tat, a retribution? Against whom? For what?  Almost never is there anyone to demand that he answers the criticism by citing the merits of the present case, and not by some dubious dredging of politicized history.

The (inter)national cancer of public service unions

George Rebane

[This is the submitted form of my regular column in The Union which appears in its 12nov11 print and online editions (here) under its less harsh title 'Public service unions will be our demise', no doubt edited for a more sensitive readership than frequent these pages.]

Today socialist Europe is unraveling after years of ‘robbing Peter to pay Paul’ has finally hit a brick wall.  With riots in the streets, the Peters have run out of money and patience with a system of governance that simply does not work.  And what has caused the rot now toppling governments of countries that have essentially gone broke and live on borrowed money?  You need look no further than the trans-national common denominator – public service unions.

These unions have bloated governments to hire and retire workers in prodigious numbers.  In Greece, the current paragon of socialist corruption, more than one in four of the country’s workers are government employees being paid benefits that are out of reach in the private sector.  Well, the music has stopped and everyone there is scrambling for a safe seat.  Why? Because the lenders are refusing to throw more money into a fiscal cesspool from which there is little chance of payback.  Eurozone lenders say that there is less than one chance in ten that Greece will NOT go fiscally belly-up in the next twelve months.

But Greece is chump change when compared to Italy, Europe’s third largest economy on a headlong charge off the inevitable socialist cliff.  Maybe Greece can be bailed for a year – anything longer is not feasible.  There is no will left in Europe’s more fiscally prudent countries to rescue Greece.  It will simply have to quit the euro, and print itself into oblivion with drachmas.  But Italy is too big to bail and, for the sake of international stability, too big to fail.  The country’s sovereign debt is over $2,500,000,000,000 (that’s trillions), and they can’t print euros.