Armageddon? No, more like stagflation

BostonHerald.com - Business: Economic `Armageddon' predicted

The 'A' word is major hype, on reading the article it's clear Roach has a tendency to hyperbole. What he describes is more like the stagflation of the 1970s, or perhaps something similar to Japan's prolonged slump. He thinks it most likely we'll muddle throught somehow, probably with higher inflation.

The Economist has made much the same warning for a while, as has Krugman and DeLong. DeLong has frequently pointed out that current 30 year Treasury rates are insane, and only make sense for buyers who expect to lose money but figure it's worthwile to keep the US running (eg. China). Bush could have acted to make this less likely, but he chose power. I'd love to know what Warren Buffett thinks of this.

One part rings very true to me -- the debt trap. I've been surprised lately, when speaking to friends of mine with good incomes, how many are in significant debt. Many have run up large debts paying for high tuition private schools for their children -- from preschool to graduate school. Others have spent fortunes on homes, following traditional advice to "live in one's investment" and in response to the NASDAQ crash of the 00s.

If we do hit something like this, it wouldn't be restricted to the US. It would take down the world, and it could plunge China into bloody chaos. Our best hope may be a more sedate stagflation -- and hope China forges ahead and drags us along. I do note some prescient friends of mine started betting on inflation about a year ago. I admit I've been hedging my own bets.

Of course if one believes a true meltdown lies ahead, it would be better to invest in friends, medications, tools, and shelter. I don't give that kind of outcome more than a 5-10% chance in the near term.

Economic `Armageddon' predicted
By Brett Arends/ On State Street
Tuesday, November 23, 2004

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he's saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity.

His prediction: America has no better than a 10 percent chance of avoiding economic `armageddon'.

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ``it struck me how extreme he was - much more, it seemed to me, than in public.''

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that "we'll muddle through for a while and delay the eventual armageddon.''

The chance we'll get through OK: one in 10. Maybe.

In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.

The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.

Less a case of ``Armageddon,'' maybe, than of a ``Perfect Storm.''

Roach marshalled alarming facts to support his argument.

To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.

Sustainable? Hardly.

Meanwhile, he notes that household debt is at record levels.

Twenty years ago the total debt of U.S. households was equal to half the size of the economy.

Today the figure is 85 percent.

Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.

Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet.

You don't have to ask a Wall Street economist to know this, of course. Watch people wielding their credit cards this Christmas.

Roach's analysis isn't entirely new. But recent events give it extra force.

The dollar is hitting fresh lows against currencies from the yen to the euro.

Its parachute failed to open over the weekend, when a meeting of the world's top finance ministers produced no promise of concerted intervention.

It has farther to fall, especially against Asian currencies, analysts agree.

The Fed chairman was drawn to warn on the dollar, and interest rates, on Friday.

Roach could not be reached for comment yesterday. A source who heard the presentation concluded that a ``spectacular wave of bankruptcies'' is possible.

Smart people downtown agree with much of the analysis. It is undeniable that America is living in a ``debt bubble'' of record proportions.

But they argue there may be an alternative scenario to Roach's. Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms.

Inflation of 7 percent a year halves ``real'' values in a decade.

It may be the only way out of the trap.

Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates.

You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent.

Toffler: of Future Shock fame

William Gibson

'Today, the technologies of deception are developing more rapidly than the technologies of verification. Which means we can use a television camera, plus special effects, plus computers, etc. to falsify reality so perfectly that nobody can tell the difference. And the consequences of that eventually could be a society in which nobody believes, everybody knows that seeing is not believing, and nobody believes anything. With the exception of a small minority that decides to believe one thing fanatically. And that's a dangerous social/cultural situation.

One of the consequences of living through a period like this, which is in fact a revolutionary period, is that the entire structure of society and the processes of change become nonlinear. And nonlinearity I think is defined almost by the statement that 'small inputs can have large consequences.' While large inputs can sometimes have very small consequences. That also means in a political sense that very small groups can, under a given set of circumstances, achieve power. And that is a very threatening idea for anything remotely resembling what we believe to be democracy. So we're going into a period, I think, of high turbulence and considerable danger, along with enormous possibilities.'

--interview with Alvin Toffler, in Modulations: A History of Electronic Music

Eerie. I'd wondered where Toffler went after the Future Shock books I read as a child. In retrospect the shocks he described were only the merest hints of times to come. As too our shocks shall seem but minor things ...

As goes deception and verification, so goes offensive and defensive weapons.

Body and Soul: Hunger in Iraq

Body and Soul: Hunger:

A woman who'd sworn off blogging post-election is stirred to write again -- by the starvation of Iraqi children. A consequence of our discount-conquest -- an invasion without the forces to provide security, a conquest designed around GWB's electoral calendar and electoral needs.

I left a comment:

Imagine if one were to create a website composed entirely of pictures of these children. Someone in Iraq would have to provide the pictures. A gallery of hundreds or thousands of pictures. Whatever we could get.

Once a week each of us prints out one of the pictures and mails it to the only people with any power:

Tom DeLay
George Bush
Bill Frist

That's all. One picture a week. With or without a comment.

The better species

BBC NEWS | Asia-Pacific | Dolphins prevent NZ shark attack

A group of swimmers has told how a pod of dolphins protected them from a great white shark off New Zealand's coast.

The lifeguards were training at a beach near Whangarei on the North Island when they were menaced by a 3-metre shark, before the dolphins raced in to help.

The swimmers were surrounded by the dolphins for 40 minutes before they were able to make it safely back to the beach.

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Supposedly this is not terribly rare. Dolphins seem to have a soft spot for helpless creatures. In other words, they are stupidly sentimental.

Or maybe they're just better than us.

There's a brilliant Onion parody about emergent mutant dolphins with opposable thumbs. The Onion 'interviews" a terrified marine biologist cowering in a shark cage; he anticipates the inevitable and just vengeance of the unstoppable dolphins. Perhaps they'd be more merciful than we imagine.

Too bad they don't seem to be designed to take over ...

Chronic pain and brain injury

BBC NEWS | Health | Pain link to permanent brain loss

They scanned the brains of 26 patients with chronic back pain and 26 healthy people.

The patients with chronic pain caused by damage to the nervous system showed shrinks in the brain by as much as 11% - equivalent to the amount of gray matter that is lost in 10-20 years of normal aging.

The decrease in volume, in the prefrontal cortex and the thalamus of the brain, was related to the duration of pain.

Every year of pain appeared to decrease gray matter by 1.3 cubic centimetres.

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Is the loss related to inactivity, or to pain itself? Is it related to neuronal depletion in the spinal cords (mentioned in article) or to persistent high cortisol levels (known to cause neuron depletion)? Why is the brain so vulnerable to pain or stress anyway? Doesn't seem to make any evolutionary sense. Does the brain injury somehow perpetuate the inactivity/pain cycle -- making the condition untreatable? What can we do to change the dynamic of chronic pain development? Is the pain the primary cause, or have we discovered an unrecognized primary neurologic disorder that has, as one of its correlates, a predisposition to chronic pain syndromes? Does this neuronal loss affect cognition, or is it primarily related to perception, sensation and movement?

And those are just the truly obvious questions.

We know that chronic pain, especially when associated with disability, is very, very hard to treat. The burden on families is staggering. The economic cost is awesome. The suffering of afflicted seems never ending.

We're just beginning to understand what's going on.

America -- a broken democracy?

Spending Bill Held Up by Tax Provision (washingtonpost.com)

Our democracy is broken.

A $388 billion government-wide spending bill, passed by Congress on Saturday, was stranded on Capitol Hill yesterday, its trip to the White House on hold as embarrassed Republicans prepared to repeal a provision that could give the Appropriations committees the right to examine the tax returns of Americans....

... "It's simply representative of the way Congress is now operating," said Allen Schick, a professor of public policy at the University of Maryland. "It shows on the one hand how easy it is to put something in [an omnibus bill] without anybody else knowing about it." Although this may look particularly egregious, he said, the giant bill also contains hundreds of other provisions that could not be enacted into law if they were offered as single bills requiring full debate and scrutiny in both houses.

Such huge bills, lawmakers acknowledge, represent a breakdown of the normal budget process. For the second time in three years, House and Senate Republicans, bitterly divided over the level of domestic spending, failed to agree on a budget blueprint, as required by law.

The impasse forced delays in drafting many of the spending bills, and when Congress returned last week from its election recess, it had yet to complete nine of the 13 annual appropriations bills. Seven of the spending bills had never been to the Senate floor for debate, one had never been to the House floor, and one funding the nation's nuclear weapons programs and Army Corps of Engineers water projects was still in a Senate subcommittee.

To overcome this problem, GOP leaders crammed all the remaining legislation into a single omnibus package that, under congressional rules, could not be amended.

It contained all the unfinished spending bills, along with three other pieces of major legislation -- the Satellite Home Viewer Extension and Reauthorization Act, the Snake River Water Rights Act, and the Federal Lands Recreation Enhancement Act.

Along with those measures, lawmakers and staffs added thousands of local projects benefiting home states and districts. Also included in the final bill was a major provision barring states from enforcing laws that require health care providers, hospitals, HMOs or insurers to pay for, provide or give referrals for abortion.

But when the measure was rushed to the floors of the two chambers Saturday, few members had read it. Lawmakers absent from the Capitol for weeks while campaigning for reelection returned for a brief lame-duck session to complete the work of the 108th Congress.

The secretive process, Schick noted, gives GOP leaders enormous power to add provisions that they or special interests might want, and to delete provisions that GOP factions or the White House find objectionable.

Frist, for example, ordered negotiators to accept the abortion provision, even though it had never gone to the Senate floor and was only in the House-passed version of the bill covering health appropriations. Senate opponents agreed not to block its consideration after Frist promised to schedule a vote soon on a bill drafted by Sen. Barbara Boxer (D-Calif.) to repeal the provision.

GOP leaders also deleted provisions on overtime regulations and the outsourcing of government jobs despite support in both houses.

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Republicans control the entire government, yet they cannot manage a budget bill.

Oddly enough, the process we now follow gives a few leaders enormous power to punish their enemies and rewards their friends -- and to do so without inconvenient publicity. Imagine that; just by accident we've evolved a budget process that facilitates oligarchic rule and perpetuation of a single party system. This is the way Japanese democracy has worked for the past 40-50 years.

Puzzles in behavior: why would anyone work for Electronic Arts?

The New York Times > Business > Your Money > Digital Domain: When a Video Game Stops Being Fun

For around $60,000 a year in an area with a high cost of living, he had been set to work on a six-day-a-week schedule. On weekdays, his team worked from 9 to 10 (that is, 9 a.m. to 10 p.m.), and on Saturdays, a half-day (that means 9 to 6). Then Sundays were added - noon to 8 or 10 p.m. The weekly total was 82 to 84 hours.

By tradition, Silicon Valley employers have always offered their bleary-eyed employees lottery tickets in the form of stock options. E.A.'s option grants, however, offer little chance of a Google-like bonanza. An employee who started today with an options package like that of the E.A. worker just described (and who stayed with the company the four years required to fully vest) would get $120,000, for example, if the share price quadrupled - and proportionally less for more modest increases. The odds of a skyrocketing stock grew much longer this month, when the company said competition had forced it to cut prices on core sports titles.

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Surgical residents work those kinds of hours, but typically only for a few years. The pay is less, but there's a clear goal in mind. Not a few of them enjoy that life, which has a certain simplicity to it.

Why do these engineers stay with these jobs? That's the real mystery.

What did Arafat die of?

The New York Times > International > Middle East > Arafat's Death Remains a Mystery, Nephew Says After Seeing Records

And so the rumor mill goes. The most convincing theory I've heard is that he drank himself to death. It's less scandalous and more prosaic than the HIV theory, but it still explains why those in the know would want to keep the cause of his death secret. Alcohol consumption is forbidden to observant muslims.

I suspect the story will leak out over the next few months. If the bottle count was high I'd increase my confidence in the alcoholism therapy with secondary liver, cardiac and marrow failure. It's killed more than a few men Arafat's age.

Planet of the microbes

BBC NEWS | Science/Nature | Science taps into ocean secrets

'In that regard, I think the big discovery is that 90% of all the carbon that's taken up in life in the oceans is taken up in microbes, and a large number of those may be in the deep-ocean sediments buried beneath the sea floor,' he told BBC News.

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To a reasonable first approximation, earth is a planet of microbes. Macroscopic life is a relative aberration -- perhaps a transient aberration.

Many more details emerge on the Fallujah insurrenction

KRT Wire | 11/21/2004 | Al-Zarqawi underling emerges as force behind Fallujah insurgency

Knight-Ridder has had some of the best Iraq reporting anywhere. I wonder what drives them.

This KR article provides much more depth to the Fallujah story. Tribal relationships loom large. Omar Hadid may have been the key player, a man who made the hopefully fatal decision to stand and fight.

African american SAT scores

Universities Record Drop In Black Admissions (washingtonpost.com)

1,877 African American students nationwide scored higher than 1300 out of a possible 1600 on the SAT last year, compared with nearly 150,000 students overall who achieved that score.

Almost 80 to 1. Should be about 20 to 1 based on population. This is really bad. I'd love to know what the comparable ratio is in Canada -- a country with decent public education.

Melee in Chile: Bush 1 World 0

Spats Over Security Roil Summit in Chile (washingtonpost.com)

Then Bush either realized he was missing something, or he heard the commotion. The president, who is rarely alone, even in his own house, turned and walked back to the front door unaccompanied, facing the backs of a sea of dark suits. Bush, with his right hand, reached over the suits and pointed insistently at Trotta. At first the officials, with their backs to him and their heads in the rumble, did not realize it was the president intervening. Bush then braced himself against someone and lunged to retrieve the agent, who was still arguing with the Chileans. The shocked Chilean officials then released Trotta.

Trotta walked in behind Bush, who looked enormously pleased with himself. He was wearing the expression that some critics call a smirk, and his eyebrows shot up as if to wink at bystanders.

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You know Bush has won big when even I have to give him points. If the Chilean agents had unwittingly socked him things might have gotten even uglier, but I can't imagine him going anywhere without his security team. If he were still up to reelection I'd grumble that he'd staged the entire thing.

Political points aside, there's a substantially bad undercurrent:

...CNN's Mark Walz had his camera trained on Bush when a thundering herd of Asian reporters hit him in his blind spot. Walz, who has covered the White House since the last year of the Reagan administration, said it was the first time he had been knocked down. The cameraman landed on his feet and kept shooting, with an Asian reporter wedged under his right bicep.

Walz's colleagues commended him, both for keeping the camera on Bush and for not making a jerk of himself in front of the president. "I didn't want to embarrass myself or the American press by kicking it up a notch," he said.

In the hall afterward, a couple of pairs of journalists went at each other like a locker-room fight.

Bush has indeed united the world. Even our allies hate us now.

States Rights -- NYT Magazine

The New York Times > Magazine > The Way We Live Now: A States' Rights Left?

Marriage affords a vivid example. In some states it is evidently more imperiled than in others. The Bible Belt states, in particular, have a shockingly high divorce rate, around 50 percent above the national average. Given such marital instability, these states are anxious to defend the institution of heterosexual matrimony, which may explain their hostility to gay marriage. The state of Massachusetts, by contrast, has the lowest divorce rate in the nation. So its people -- or at least its liberal judges -- perhaps feel more comfortable allowing some progressive experimentation. It will be interesting to see how this experiment plays out, assuming the Bush administration does not succeed in choking off the right of a state to recognize same-sex marriages by getting the Federal Marriage Amendment enacted...

... One of the most striking differences among states is in their levels of wealth. Liberals tend to live in more economically productive states than conservatives. The top five states in per capita personal income (Connecticut, New Jersey, Massachusetts, Maryland and New York) all went to Kerry; the bottom five (Utah, New Mexico, West Virginia, Arkansas and Mississippi) all went to Bush. Since the blue states are generally richer than the red states, they must bear a greater portion of the federal tax burden. Most of them pay more to Washington than they receive, whereas most of the red states receive more than they pay. Some liberals in blue states must wonder exactly what they get in return for subsidizing the heartlanders, who are said to resent them.

Here is where President Bush is their friend. According to a recent Brookings Institution analysis, as much as two-thirds of the benefits from the income tax cuts he pushed through in his first term go to taxpayers making more than $100,000 a year. These well-off Americans tend to be concentrated around New York City, Boston, Seattle, San Francisco and other liberal enclaves. By contrast, relatively few of the benefits from the Bush tax cuts go to the Southern and Prairie states, where low-income working families with children are more the norm. At present, the Bush tax cuts are scheduled to expire by 2010. If the president succeeds in making them permanent, as he has vowed to do, it will mean lasting relief for the blue states. The money they had been sending to the red states could then be spent locally, according to their own liberal values -- say, on public schools (where they already spend more per pupil than the red states) or stem-cell research.

The more conservatives succeed in reducing the size and scope of the federal government, the more fiscal freedom the blue states will have to pursue their own idea of a just society....

/// Meanwhile, blue-state liberals should stop despairing and start thinking locally. Instead of saying, ''The United States is. . . . '' try saying, ''The United States are. . . . '' See? You feel better already.

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This is a sly article, slashing at the hypocrisies of the red states while nobly asking for the rights of states to differ.

I, of course, am a huge fan of states rights.

Note that Bush's plan to remove the deduction for state income tax will make the blue states even bigger donors to the red states than we already are.

The fact that will not speak its name

The New York Times > Opinion > Op-Ed Contributor: A Doctrine Left Behind

They might have said that it is a deeply uncontroversial fact that the United States has from the beginning had too few troops in Iraq: too few to secure the capital or effectively monitor the borders or even police the handful of miles of the Baghdad airport road; too few to secure the arms dumps that litter the country; and too few to mount an offensive in one city without leaving others vulnerable.

They might have said that it is a deeply uncontroversial fact that the insurgency is spreading: when I arrived in Iraq 13 months ago, the insurgents were mounting 17 attacks a day; last week there were 150 a day. If the old rule of thumb about counterinsurgency warfare holds true - that the guerrilla wins by not losing and the government loses by not winning - then America is losing the Iraq war. The Iraqi insurgents have shown 'outstanding resilience,' as a Marine intelligence report compiled after Falluja put it, and 'will continue to find refuge among sympathetic tribes and former regime members.'

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In every discussion that goes nowhere, there's an elephant in the room who's name cannot be spoken. The elephant in this room is the draft.

Yes, we don't have enough soldiers to conquer Iraq. Half-conquering Iraq has inflicted vast sorrow upon that nation; the humane choice would have been either to give up on the sanctions and focus on assassinating Saadam, or to invade with 350,000 troops.

So where would we get 350,000 troops for a 2-5 year period? It's not clear we have them -- not given other commitments, even if we did redeploy.

We're not a very youthful nation any more. Qualifications for troops have risen. Commitments have increased -- even outside of Iraq and Afghanistan. Even if we increased compensation by 50%, could we really fill a volunteer army large enough to meet demands?

I've read the arguments against the draft. They don't persuade me. It's true that the draft is a lousy way to create a modern fighting force -- but the draft could be used to fill a lot of non-critical non-fighting spots. This is particularly true in supporting services -- from packaging gear to sewing up abdomens.

So those of us who say Bush/Rumsfeld/Cheney are probably war criminals, are also saying that the decision to conquer Iraq implied a draft. That's not a popular thing to say -- either on the right or the left. That's why no-one names the elephant in the room -- and the sterile argument continues.

Power corrupts - Republicans want access to tax returns

MSNBC - Republicans red-faced over tax-disclosure gaffe

Congress debated legislation Saturday giving two committee chairman and their assistants access to income tax returns without regard to privacy protections, but not before red-faced Republicans said it was all a mistake and would be swiftly repealed.

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A mistake? Only in its presumption.

What would they do with those returns? Decide who to reward -- or who to punish?

Don't worry. This will happen in a less public way. Or, since there won't be much reaction to this, it will happen in a quite public way.