Archive for bailout

The Kleptocratic States of America

Posted in Democracy, Money, Politics with tags , , , on January 12, 2009 by njmalhq

From many years ago I recall a certain article in Newsweek that labeled Nigeria as Kleptocracy Central. Nigerians the world over were embarrassed, annoyed and up in arms about it. There was some truth to their indignation, although I think what many of them sought was total absolution. The truth is that the country was and is a kleptocracy. Nothing else can explain the gap between where it came from, and where it ended up. But calling it the capital of corruption was a little far fetched, which is what my Nigerian friends should have had issues with.

A few years later I came to the United States, and have since been getting some additional education on the subject. An American friend of mine who travels a lot to the remnants of the USSR recalls a moment of self deprecation when he found himself sharing some vodka with a Ukrainian. The drunk and morose man kept ranting about how corrupt his country was, and how everything was going to hell in a hand basket etc. My American friend ultimately responded by saying that the Ukrainian should consider himself lucky. Here the corruption is only retail. In his country, America, it is wholesale. The last 8 years have taught me the full meaning of this truism. Here is a nice article that sketches a map of contemporary corruption in this once (maybe in distant past, let us not forget Clinton’s Pardongate) great nation of ours:

http://tinyurl.com/9c4xj4

This is the beacon of democracy, freedom, justice, achievement, wealth and other civic goodies? There is a chasm of herculean proportions between where this country came from, and where it is ending up now. Much larger than anything that can be seen in any other country. So, to be fair to Nigeria, in Newsweek style, I propose that we rename USA to KSA, the Kleptocratic States of America (which ironically also stands for Kingdom of Saudi Arabia. Connections, connections, connections. James Burke, eat your heart out!), and Washington DC as Washington KC. The one and only legitimate claimant to the title of Kleptocracy Central.

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Re-evaluating Value

Posted in Money, Politics with tags , , , , , , , , , , on October 9, 2008 by njmalhq

The mystery of these times : massive monetary evaporation. Where did all that cash elope to? No one is ready to tell the tale. We can’t tell where it went, maybe we can tell where it came from. That might give us a clue. Paul Grignon made a documentary on that subject, a video titled Money As Debt. The video has been around for a while, but I thought it might be pertinent to revisit it here.

Additional related material on the subject is available in wikipedia under the topics Money Creation, and Fractional-reserve Banking.

To me, the most disturbing aspect of all this is the degree to which popular conception differs from what is stated in the sources above. Except for graduates of Economics, who by-the-way often confessed only fuzzy understanding of the Multiplier Effect and Fractional-reserve Banking, everyone I shared this video with expressed complete and utter surprise at its contents. This is the way the guts of our world works, and we barely know it.

Subsequently I find my mind reeling at the idea that the primary repository of value in the gargantuan global financial system is debt. Debt backed by debt, backed by debt backed by nothing much. Extending a loan is ultimately a statement of faith, in the debtor’s future ability to fulfill obligations. Using this faith as the foundation of the entire monetary system rests upon the belief that an interest bearing debt is more valuable than the money used to create it. But what happens when that faith is misplaced? What happens when money is lent for ends of dubious economic value? Like gambling with random variables (see Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb, 2005). Or waging wars which — even if they had a point or were necessary — are destroyers not creators of value. What happens when good loans go bad?

Supposedly the Central Bank (in the case of the USA, it is the Federal Reserve System) would step in, and save the day. But the reserve rate is usually much smaller than 100%. For example, in the case of the USA, the reserve rate is 10%. Which means that every dollar lent out is backed by a mere dime. So, if enough debts go bad, the reserve can’t cover it. District of Columbia, we have a problem.

Someone sent me a very thought provoking 1875 print by Currier & Ives, pictured below. Apparently the current state of affairs is a near century old dejavu. There is hope in this picture. Maybe the so-called crisis will teach this generation a lesson in age-old basics of true economic values.

Unconventional Conception of Wealth

Unconventional Conception of Wealth

The Big Picture

Posted in Politics with tags , , , , , on October 2, 2008 by njmalhq

My last post, titled Quadrillions and Quadrillions, grapled with the magnitudes of the extremely large amounts of money that is dominating the pre-election buz.  Continuing my attempt to put humongous quantities of cash in proper perspective, I have created a couple of to-scale google earth images.  The first one shows a gigantic green bubble against the Portland, Oregon skyline, representing a pile of half a quadrillion 1 dollar bills.  This, readers will recall, is the reported amount of the dangerous and unstable money bubble at risk in the global financial scam that is the derivatives market.   The second image shows a red dome of 1 trillion dollars, the amount of the so called bailout, contrasted against the half quadrillion.  For the full glory of the images, click on them to enlarge to a higher resolution.  And, please, feel free to freak out.

Half Quadrillion Dollar Bubble

Half Quadrillion Dollar Bubble

Half Quarillion and Trillion

Half Quadrillion (in green) vs One Trillion (in red)

Quadrillions and Quadrillions

Posted in Politics with tags , , , , , , , , on October 2, 2008 by njmalhq

This blog post is dedicated to the memory of Carl Sagan.  It appears that the last month before the next election will be dominated by talks of some very large numbers.  Within weeks numerical magnitudes in public discourse have grown from billions, to trillions to quadrillions.  I was reminded of Sagan’s last book,  Billions & Billions: Thoughts on Life and Death at the Brink of the Millennium, which opened with contemplations on very large numbers, and the big questions that come with them.  I am sure if he was still around and saw the enormous digits being plastered across the news channels, he would have had something intelligent to say about them.

He might have criticized the lack of any attempt to clarify the magnitude of these numbers.  The biggest number that has been thrown around so far is half a quadrillion ($513 trillion to be precise).  Apparently it is the size of the speculative-economy hole dug by the private financial system, which the administration and congress are trying to fill with another very large but much smaller number, the so called $700 billion bailout (or is it $1.2 trillion?).  But how big are these numbers really?  By the way they are written, with their zeroes stripped off, one could mistake them for something much smaller.  Like the monthly wages of an under-the-table immigrant worker in some unknown currency.

What does half a quadrillion really look like?  Let us write it in its un-abbreviated form, the way the numbers we usually deal with in our daily lives are written down:

500,000,000,000,000

Looks bigger than half quadrillion, or even 500 trillion.  But the gut response is still a little weak. Is that a soul sapping number, or merely a foot flattening one?  Sure enough the zeroes have made it appear larger, but by only a little.  Visually it seems only about 5 times bigger than 500 trillion.  There is an illusion here that results from exponential increase rendered linearly.  Adding a zero to a number makes its visual appearance grow by a unit, while its magnitude grows by a factor of 10.

To better appreciate the enormity of this number, it will have to be unfolded further.  Maybe into something more concrete, so we can visualize it.  I am writing this on a computer screen, so what better rendition than the smallest elements that make up the screen?  The tiny point of light that is called the pixel.  How big would a screen with half a quadrillion pixels be?

Without the bezel, my screen is 13.5 inches wide.  There are 1024 pixels across.  I’ll keep the calculations simple, and assume the pixels are square.  Dividing 13.5 by 1024 gives 0.013 inches.  So each pixel is about 0.013 pixels high and wide, or 0.00017 square inches, or 0.0000012 square feet.  So the screen would have an area of 500,000,000,000,000 * 0.0000012 , which is 600,000,000 square feet.

That is one huge screen.  How huge?  About 24,495 feet wide by 24,495 feet tall.  I went up Kilimanjaro, took me 6 days to get up there, and that gigantic mountain is just over 19,000 feet high.  The tallest building in Portland, one that is ironically named after a financial institution, is only 546 feet tall.  And remember, these are pixels, not dollars.

Dollars are thinner than the height of our pixel, but are much bigger on the sides.  I’ll avoid writing down the calculations.  Assuming the sources on the physical size of the dollar bill are accurate, the side of a cube of half a quadrillion dollars would be about 3000 feet.  That would be 6 times taller than the Wells Fargo Center, Portland’s tallest building, and little over half a mile wide and deep.  Laid out in a single row, it would circumscribe the entire planet to a height of about 10,000 feet. Now that is a veritable mountain of cash!

500 trillion dollars.  Enough to line the pockets of every living human being with about 100,000 dollars each.  The end of poverty as we know it.  There are after all only 5 billion of us.  Or, how about establishing human settlement on mars?  My guess is an entire martian nation can be erected with ease with that much money.  I won’t do the calculations on that.  Interstellar space travel is a little easier to estimate.  In his TV series Cosmos, Sagan mentioned  Project Orion and Project Daedalus.  I haven’t been able to find cost estimate numbers on the latter, but the former has a an upper estimate of $24 billion somewhere.  That would be a fleet of 21,000 Orion spaceships dispatched in every direction.

So who’s got them, all those quadrillions and quadrillions of dollars?  I am sure there is a thing or two we can do with them.

Democracy for Dummies

Posted in Democracy with tags , , , , on October 1, 2008 by njmalhq

Yet another thread originates from a Portland bus ride.  Yesterday I had to suffer a rather loud and obnoxious, semi-literate, twang-belching redneck with a giant cross around his neck attempting to publicly broadcast his opinion about the so called bailout.  At some point, very predictably, he held up his cross and Mr. Jesus barged into the soliloquy.  Come November this bus rider is going to vote, one can count on it.  Well, I thought to myself, thank you democracy for giving every moron a voice.

For the last half decade I have been struggling with the rise of Platonic sentiments in my political inclinations.  As my respect for democracy has dwindled and disappeared, I have often found myself espousing bits and pieces of the old philosopher’s position on the subject.   When I got home last night I tried to find some quick refresher material.  I immediately ran into an excerpt from  Jorn K. Bramann’s book Educating Rita and Other Philosophical Movies.  It is an excellent introduction to Plato’s criticism of democracy as the lowly form of government that it is. A position that I am firmly committing to henceforth.