Friday, January 1, 2010

January 1 2010: Fractal Adaptive Cycles in Natural and Human Systems

Detroit Publishing Co. Taxi! Taxi! 1900
Cab stand at Madison Square, New York City

Ilargi: A happy new year for all of you from us at the Automatic Earth. May you spend every minute of it in the best of health and the greatest of company. We strongly recommend you pay increased atttention to both; chances are you're going to need them more than ever this year. Worth more than pieces of gold, as the man says.

Stoneleigh opens 2010 with a reflection on patterns that emerge throughout the living world, including the way we organize our economic systems, and how they organize us in return.


Fractal Adaptive Cycles in Natural and Human Systems

Adaptive cycles are the foundation of both natural ecological and human socio-economic systems, and have been investigated independently from very different perspectives by ecologists and financial analysts who have almost certainly never heard of each others' work. It is interesting then to look at the strong correspondence of the self-similar hierarchical patterns, best described as fractals, which emerge from both fields. This form of organization seems to be a fundamental dynamic in many areas.

The bewildering, entrancing, unpredictable nature of nature and people, the richness, diversity and changeability of life come from that evolutionary dance generated by cycles of growth, collapse, reorganization, renewal and re-establishment. We call that the adaptive cycle. Holling, 2009

Figure 1: Sierpinski Triangle Fractal

Holling, Panarchy and Resilience

Arguably the most significant thinker in the field of ecological cycles has been Buzz Holling, who refers to the conceptual model he derived from the study of forest ecosystems as Panarchy. Holling observed that ecosystems developed in adaptive cycles of exploitation, conservation, release and reorganization which could be described in three dimensions - ecological 'wealth', connectedness and resilience. These cycles provide a framework for the opposing forces of growth and stability versus change and variety.

Figure 2: Adaptive Cycle in Three Dimensions

In an adaptive cycle, early growth is rapid as individuals of many species arrive in a newly opened space and seek to exploit a plethora of vacant ecological niches. Genetic diversity and biomass, both living and dead, increase quickly in this expansion phase. Ecological connections are initially simple and sparse, but over time many interconnections and mutual dependencies develop.

The system therefore increases in both 'wealth' and connectedness, as flows of energy and materials become larger and more complex. Biological 'wealth' confers the potential for novelty, allowing the system to adapt in disparate directions as circumstances warrant. Connectedness permits increasing stability, through the development of negative feedback loops, which help to regulate conditions conducive to life.

There are about three kinds of scientists - the consolidator, the technical expert, and the artist. Consolidators accumulate and solidify advances and are deeply skeptical of ill formed and initial, hesitant steps. That can have a great value at stages in a scientific cycle when rigorous efforts to establish the strength and value of an idea is central. Technical experts assess the methods of investigation. Both assume they search for the certainty of understanding.

In contrast, I love the initial hesitant steps of the "artist scientist" and like to see clusters of them. That is the kind of thing needed at the beginning of a cycle of scientific enquiry or even just before that. Such nascent, partially stumbling ideas, are the largely hidden source for the engine that eventually generates change in science. I love the nascent ideas, the sudden explosion of a new idea, the connections of the new idea with others. I love the development and testing of the idea till it gets to the point it is convincing, or is rejected. That needs persistence to the level of stubbornness and I eagerly invest in that persistence.
Holling, 2009

As time passes, rapid growth gives way to conservation. Inter-dependencies become highly specialized and self-regulation becomes fine-tuned and sophisticated. Efficiency is maximized as niches are fully occupied, and flows of energy and nutrients are tightly controlled by the existing biota. This represents the end of the growth phase.

Relatively few opportunities are left for newcomers or novel strategies, hence diversity stabilizes or declines. The system is 'rich', but becomes more rigid, and therefore less resilient in the face of potential shocks, which can propagate rapidly through a highly inter-connected system with smaller margins for error than it had in its generalist phase. An increasingly brittle ecosystem becomes, in Holling's words, "an accident waiting to happen".

When something does push the ecosystem outside of the boundaries it can tolerate, the long growth phase can morph into a rapid and chaotic release and reorganization phase, where nutrients and energy stores previously tied up can suddenly be liberated. This can be associated with a considerable loss of complexity, but also with much greater potential for generalist strategies and for novelty.

Figure 3: Adaptive Cycle Stages

  • During the growth phase the system finds an abundance of resources available. Expansion and exploration of new opportunities are key concepts within this stage. “When new ecological spaces open up – due, for instance, to forest fires, or retreating glaciers, or many other things- resources needed for other species to grow are made available. There’s more light reaching the soil surface when large trees are toppled, or burned to the ground, for example.”

  • “The "r" phase is transitory, and as the system matures, it is replaced by the K phase. Eventually slower growing, long lived species or entities enter the system. Resources become less widely available as they become “locked up”… The K phase is sometimes called the conservation phase, because energy acquired goes into maintaining or conserving existing structure, rather than building new structure. In this phase, a few dominant species or companies or countries … have acquired many of the resources and are controlling the way they can be used.”

  • “Often systems rapidly pass into a phase called omega. This is also referred to as the release (or creative destruction) phase because structure, relationships, capital or complexity accumulated during the r and K phases is released (often in a dramatic or abrupt fashion). … Plants may die … or a company may go bankrupt, releasing workers and decommissioning factories or offices.”

  • “The fourth, or alpha phase, is a period of reorganization, in which some of the entities previously released begin to re-structure but not necessarily as they were before. This phase can mark the beginning of another trip through an adaptive cycle … Many new entities may enter the system, and innovation becomes more probable.” Project Shrink

However, such adaptive cycles do not exist in isolation. Local ecosystem cycles are embedded in larger and slower-moving regional cycles operating over years and decades, which are in turn part of global climate and elemental cycles (carbon, nitrogen, phosphorus etc) that may unfold over centuries or millennia. These larger cycles can act as stabilizing factors by adding a 'memory effect', or wealth reservoir, enabling rapid regeneration following a localized setback, but only if the larger cycle is not in its own contraction and reorganization phase. In addition to being part of larger cycles, dynamic ecosystems are also composed of smaller and faster-moving cycles of growth and decay, operating on much shorter time horizons. This nested set of self-similar structures allows for both persistence and innovation.

Figure 4: Panarchy (Nested Adaptive Cycles)

Where higher and lower order cycles are very tightly coupled, they may synchronize, becoming trapped in a extended growth phase at many scales at once, thereby risking synchronous collapse. This need not be triggered at a large-scale level, but can begin anywhere in a set of nested adaptive cycles and proceed both upwards and downwards. A destabilizing event arising from below, for instance a disease outbreak leading to widespread morbidity and further adverse consequences, is called a 'revolt'.

A synchronous collapse, which can take the form of a "pancaking implosion", to use Holling's term, can lead to a poverty trap, or persistent maladaptive state characterized by low 'wealth' and connectivity, which is very much more difficult to recover from than a localized reversal would have been.

By way of illustration, the Canadian province of British Columbia is currently facing a confluence of circumstances that pose a significant large-scale ecological threat. A long-standing policy of fire-suppression, in a hitherto naturally fire-controlled ecosystem, has led to a thick understory of growth, which has in turn caused significant stress to trees forced to compete for water and nutrients in an area becoming warmer and drier. Trees under stress have much lower resistance to pine beetle infestation, with the result that a pine beetle population explosion is killing huge tracts of forest despite all efforts to contain the outbreak.

This adds to the combustible material on the forest floor and greatly increases the risk of widespread conflagration. The much smaller self-limiting fires typical of the province would have opened up areas for new growth, killed insect pests and released nutrients for regeneration, and in fact are required by some tree species in order to open up seed pods for reproduction. In contrast, very large and intense fires, fueled by a tremendous excess of flammable detritus, can comprehensively denude enormous tracts of land.

This can remove the biological reservoir of potential repopulating species as well as lead to enough soil erosion to inhibit regrowth of the forest ecosystem. An interlocking series of adaptive cycles has been synchronized through being locked into an extended growth phase and is therefore much more vulnerable to a catastrophic event that could become a lasting poverty trap.

When collapse occurs it can be a natural part of the pattern of adaptation and learning. That is what happens in forests when they burn or are attacked by natural enemies. Recovery typically replaces the old with a similar but new pattern that is similar because of the memory reserved in seeds and vegetation of the understory.

But when the collapse occurs as a consequence of long effort to freeze the system into one paradigm of development and management, then it might involve collapse of a level of the panarchy, which in turn threatens other levels. The collapse of ancient societies has this character- the top religious and political controls can collapse, triggering the gradual collapse of institutions till the family is left as the sole source of survival. It leads to a "poverty trap."
Holling, 2009

Much of Holling's work has focused on the crucial role of resilience in both natural and human systems, and the Resilience Alliance has been the result:

We define resilience, formally, as the capacity of a system to absorb disturbance and reorganize while undergoing change so as to still retain essentially the same function, structure and feedbacks - and therefore the same identity.

Resilience arises from a redundancy that has the appearance of inefficiency and a lack of critical structural dependency on specialized hierarchy, neither of which conditions are likely to be met at the peak of the growth phase of an adaptive cycle. For these to be achieved from this point at least a partial, or localized, collapse to a simpler level of organization would have to occur. There can potentially be a fine line between a retreat from rigidity to this level of resilience and a 'poverty trap', where a collapse has proceeded so far and so fast that the system has been stripped of the wealth (biological or otherwise) that it would need to rebuild. Where adaptive cycles have become synchronized, so that the likelihood of deep collapse is increased, striking a balance of resilience would be far more difficult.

A resilient world would promote biological, landscape, social and economic diversity. Diversity is a major source of future options and of a system's capacity to respond to change.
  • A resilient world would embrace and work with natural ecological cycles. A forest that is never allowed to burn loses its fire-resistant species and becomes very vulnerable to fire.

  • A resilient world consists of modular components. When over-connected, shocks are rapidly transmitted through the system - as a forest connected by logging roads can allow a wild fire to spread wider than it would otherwise.

  • A resilient world possesses tight feedbacks. Feedbacks allow us to detect thresholds before we cross them. Globalization is leading to delayed feedbacks that were once tighter. For example, people of the developed world receive weak feedback signals about the consequences of their consumption.

  • A resilient world promotes trust, well developed social networks and leadership. Individually, these attributes contribute to what is generally termed "social capital," but they need to act in concert to effect adaptability - the capacity to respond to change and disturbance.

  • A resilient world places an emphasis on learning, experimentation, locally developed rules, and embracing change. When rigid connections and behaviors are broken, new opportunities open up and new resources are made available for growth.

  • A resilient world has institutions that include "redundancy" in their governance structures and a mix of common and private property with overlapping access rights. Redundancy in institutions increases the diversity of responses and the flexibility of a system. Because access and property rights lie at the heart of many resource-use tragedies, overlapping rights and a mix of common and private property rights can enhance the resilience of linked social-ecological systems.

  • A resilient world would consider all nature's un-priced services – such as carbon storage, water filtration and so on - in development proposals and assessments. These services are often the ones that change in a regime shift – and are often only recognized and appreciated when they are lost. Walker, 2008

This will be a very tall order in a panarchic future.

Prechter, Elliottwaves and Socionomics

Bob Prechter has also spent decades studying the structure of nested cycles, but in his case in financial markets, carrying on the work of RN Elliott, who established the field in the 1930s. Elliott painstakingly documented motive (impulse) and corrective patterns which unfold at all degrees of trend simultaneously - from small moves completing in minutes to larger cycles playing out over months, years, decades and longer. Elliott noted that motive waves in the direction of the one larger trend occur in fives, while corrective waves counter to the one larger trend form threes or multiples thereof.

Prechter explains that this is the minimum requirement for an adaptive cycle capable of both fluctuation and progress, and therefore the most efficient form. Each move itself is composed of the same patterns, while each also forms a component part of larger structures. (Motive waves are labeled with numbers, while corrective waves are labeled with letters.)

Figure 5: Motive and Corrective Elliottwaves at Different Degrees of Trend

Figure 6: Fractal Market Structure at Different Timescales

As opposed to self-identical fractals, whose parts are precisely the same as the whole, and indefinite fractals, which are self-similar only in that they are similarly irregular at all scales, a robust fractal is one of intermediate specificity. Though variable, its component forms, within a certain defined latitude, are replicas of the larger forms. Prechter, 1999, p17

Figure 7: The Brain as a Robust Fractal

Bob Prechter's socionomics model combines Elliott's observed fractal patterns with an understanding of human herding behaviour, comprising a comprehensive challenge to prevailing notions such as the Efficient Market Hypothesis by reversing causation and recognizing the role of emotional/irrational behaviour as the prime market driver. While the real economy demonstrates negative feedback loops, finance is thoroughly grounded in positive feedback.

Figure 8: Perception Versus Reality in Socionomic Causation

Socionomics provides a model of collective mood swings which permits collective human behaviour prediction in finance, the real economy and beyond. Consensus takes time to build, so that the more extreme the sentiment, the closer one is to a trend change. Collectively optimistic people engage in one range of behaviours over different timescales - typically buy stocks, borrow funds to build businesses, employ others in the expectation of profit, vote for incumbents whom they credit with stability, engage in cheerful expressions of popular culture and behave in an increasingly inclusive manner in recognition of common humanity.

Collectively pessimistic people become increasingly risk averse and suspicious of others, in whom they look for differences rather than similarities. Both optimistic and pessimistic behaviours, particularly in their extreme forms, can create self-fulfilling prophecies for varying periods of time, until perception substantially overshoots reality and the trends it creates can no longer be sustained. The manic trend of recent years has led to an unsustainable debt burden of unprecedented scope and complexity. It also led to an unprecedented degree of global economic and financial integration dependent on hierarchical specialization, comparative advantage and just-in-time delivery that are clear examples of rigidity creating a brittle system.

Figure 9: Phase 1 of the Decline with Elliottwave Labels

Like Holling's panarchy, Prechter's nested socionomic cycles either reinforce or counter each other depending on the direction of cycles larger and smaller than the one under consideration. Where cycles at several degrees of trend are moving in the same direction, the move will be extreme - either a mania to the upside or a crash to the downside. The largest mania ever known topped in the year 2000, and we have been in bear market territory since then (more obviously in real terms).

We are now approaching a synchronized move in the opposite direction as the rally of recent months peters out in the face of the larger downtrend. The consequences of this will be considerable, but we are still quite near the beginning of the large-scale and complex downward pattern the model predicts will unfold over the next several decades. We can expect many deleveraging cascades and many intervening rallies, some larger than we have seen so far.

Figure 10: Diminishing Marginal Productivity of Debt in the US Economy

It is inevitable that the complex web of debt instruments and inter-dependencies that humanity invented to prolong its growth phase (to use Holling's terminology) by stealing from the future will be a prime focus for a sharp reversal, as we have already reached the point where additional debt provides less than no benefit. Socionomics tells us that the trust and complacency as to systemic risk that allowed this debt structure to develop will be primary casualties of a synchronized move to the downside, being both cause and effect in a powerful positive feedback loop.

Tainter, Complexity and Peer Polities

Joseph Tainter's work complements that of Holling and Prechter, providing a framework of diminishing marginal returns to complexity which encompasses ecosystems, individual societies and competitive peer polities. As complexity increases, it eventually becomes a liability, as we can see with Holling's description of rigidity reducing the resilience of ecosystems and Prechter's many writings on the debt complexity of manias and the systemic risk it engenders.

Figure 11: Declining Marginal Returns to Complexity

As with diminishing marginal productivity of debt, past a certain point further investments in complex solutions to increasingly complex problems has a negative return. Tainter explains, however, that where there is not a single political structure, but instead competitive peer polities, these entities become trapped in a competitive spiral where investment in organizational complexity must be maintained regardless of cost, as the alternative is domination by another member of the cluster at the same level of complexity, rather than collapse to a simpler system. The counter-productive actions of states are legitimized to the citizenry by the fact that each member of the cluster is engaging in the same behaviour. Collapse, which requires a power vacuum, is not possible unless the whole cluster collapses at once at the point of economic exhaustion.

Peer polity systems tend to evolve toward greater complexity in lockstep fashion as, driven by competition, each partner imitates new organizational, technological, and military features developed by its competitors. The marginal return on such developments declines, as each new military breakthrough is met by some counter-measure, and so brings no increased advantage or security on a lasting basis.. A society trapped in a competitive peer polity system must invest more and more for no increased return, and is thereby economically weakened. And yet the option of withdrawal or collapse does not exist.....Peer polity competition drives increased complexity and resource consumption regardless of cost, human or ecological. Tainter, 1988, p214

Tainter observes that the peer polity nature of the modern world creates a more apt comparison with the rapid collapse of the ancient Maya than with the slow decline of Rome. To use Holling's terminology, we have seen a panarchy of nested cycles synchronize, with the effect of artificially extending the growth phase for all simultaneously. The evidence for this is abundantly available in terms of the many limits to growth we are approaching or have reached, most notably the high EROEI energy required to maintain complexity. The significant risk is therefore of deep collapse over a relatively short period of time (although this would still likely be decades at least).

Collapse, if and when it comes again, will this time be global. No longer can any individual nation collapse. World civilization will disintegrate as a whole. Competitors who evolve as peers collapse in like manner. Tainter, 1988, p214

  • LH Gunderson and CS Holling (2001). Panarchy: Understanding Transformations in Human and Natural Systems.
  • RR Prechter (1999). The Wave Principle of Human Social Behaviour and the New Science of Socionomics.
  • RR Prechter (2002). Conquer the Crash.
  • RR Prechter (2003). Pioneering Studies in Socionomics.
  • JA Tainter (1988). The Collapse of Complex Societies.

Ilargi: Our New Year’s Fund is still up and running and ready for your kind donations. No need to be so shy, there's a whole new year out there in front of you.

Who Is Responsible For The Non-Stop Market Rally Since March?
by Charles Biderman, CEO, TrimTabs

Are Federal Reserve and U.S. Government Rigging Stock Market?  We Have No Evidence They Are, but They Could Be.  We Do Not Know Source of Money That Pushed Market Cap Up $6+ Trillion since Mid-March.

The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion.  The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock.
We cannot identify the source of the new money that pushed stock prices up so far so fast.  For the most part, the money did not from the traditional players that provided money in the past:
  • Companies.  Corporate America has been a huge net seller.  The float of shares has ballooned $133 billion since the start of April.
  • Retail investor funds.  Retail investors have hardly bought any U.S. equities. Bond funds, yes. U.S equity funds, no.  U.S. equity funds and ETFs have received just $17 billion since the start of April.  Over that same time frame bond mutual funds and ETFs received $351 billion.
  • Retail investor direct. We doubt retail investors were big direct purchases of equities.  Market volatility in this decade has been the highest since the 1930s, and we no evidence retail investors were piling into individual stocks.  Also, retail investor sentiment has been mostly neutral since the rally began.
  • Foreign investors.  Foreign investors have provided some buying power, purchasing $109 billion in U.S. stocks from April through October.  But we suspect foreign purchases slowed in November and December because the U.S. dollar was weakening.
  • Hedge funds.  We have no way to track in real time what hedge funds do, and they may well have shifted some assets into U.S. equities.  But we doubt their buying power was enormous because they posted an outflow of $12 billion from April through November.
  • Pension funds.  All the anecdotal evidence we have indicates that pension funds have not been making a huge asset allocation shift and have not moved more than about $100 billion from bonds and cash into U.S. equities since the rally began.

If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else.
We do not know where all the money has come from.  What we do know is that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers.  Why not support the stock market as well?
As far as we know, it is not illegal for the Federal Reserve or the U.S. Treasury to buy S&P 500 futures.  Moreover, several officials have suggested the government should support stock prices.  For example, former Fed board member Robert Heller opined in the Wall Street Journal in 1989, “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.” 

In a Financial Times article in 2002, an unidentified Fed official was quoted as acknowledging that policymakers had considered buying U.S. equities directly, not just futures.  The official mentioned that the Fed could “theoretically buy anything to pump money into the system.”  In an article in the Daily Telegraph in 2006, former Clinton administration official George Stephanopoulos mentioned the existence of “an informal agreement among the major banks to come in and start to buy stock if there appears to be a problem.”

Think back to mid-March 2009.  Nothing positive was happening, and investor sentiment was horrible.  The Fed, the Treasury, and Wall Street were all trying to figure out how to prevent the financial system from collapsing. The Fed was willing to print whatever amount of money it took to bail out the system.
What if Ben Bernanke, Timothy Geithner, and the head of one or more Wall Street firms decided that creating a stock market rally was the only way to rescue the economy?  After all, after-tax income was down more than 10% y-o-y during Q1 2009, and the trillions the government committed or spent to prop up all sorts of entities was not working.
One way to manipulate the stock market would be for the Fed or the Treasury to buy $20 billion, plus or minus, of S&P 500 stock futures each month for a year.  Depending on margin levels, $20 billion per month would translate into at least $100 billion in notional buying power.  Given the hugely oversold market early in March, not only would a new $100 billion per month of buying power have stopped stock prices from plunging, but it would have encouraged huge amounts of sideline cash to flow into equities to absorb the $300 billion in newly printed shares that have been sold since the start of April.
This type of intervention could explain some of the unusual market action in recent months, with stock prices grinding higher on low volume even as companies sold huge amounts of new shares and retail investors stayed on the sidelines. For example, Tyler Durden of ZeroHedge has pointed out that virtually all of the market’s upside since mid-September has come from after-hours S&P 500 futures activity.

If we were involved in a scheme to manipulate the stock market, we would want to keep it in place until after the “wealth effect” put a floor under the economy of, say, three quarters of positive GDP growth.  Assuming the economy were performing better, then ending the support for stock prices would be justified because a stock market decline would not be so painful.

We want to emphasize that we have no evidence that the Fed or the Treasury are throwing money into the stock market, either directly or indirectly.  But if they are not pumping up stock prices, then who else is?

Ilargi: You can vote at Mandel's site, just click the article title, but some good reasoned choices would not harm our own comment section either.

Economic Statistic of the Decade Award:Finalists
by Mike Mandel

Economic statistics don’t get enough recognition for all of their hard work. So, I’ve decided to offer an “Economic Statistic of the Decade” Award. The three criteria are simple. First, we want to reward the economic statistic that best reflects the decade (both the good and the bad). Second, we want to recognize the economic statistic that turned in a surprising performance–that is, back in 2000, if someone had shown you a graph of the statistic over the next ten years, you would have said “no way”. Third, we want to reward economic statistics that are reliable and accurate representations of the actual economy.

In the 1990s, for example, the Economic Statistic of the Decade Award would have gone to U.S. productivity growth. The runner-ups would have been Chinese economic growth, followed by global tech spending.

What about this decade? Here are the four finalists (chosen by me):

  1.  Housing prices
  2. Global trade
  3.  Chinese growth
  4. U.S. household borrowing

Here’s a bit about each of the finalists:

1) The boom and bust in housing prices clearly epitomizes the decade. What’s more, in 2000 nobody in their right mind would have predicted that the boom lasted as long as it did.  Downside: The gyrations in the housing market  may be a symptom of deeper problems, much like a fever is a symptom rather than a disease in its own right   (The chart below is drawn from the Case-Shiller price indexes) 

2) Globalization has been one of the main themes of this decade–and nothing illustrates globalization more than the rise in exports as a share of global GDP.  In 1999, global exports were about 22.7% of global GDP, as measured by the International Monetary Fund.  By 2008, that number was 32. 3% before plummeting in 2009.  Downside:  There may be systematic double-counting, as companies break up production into smaller and smaller pieces.  

3) Chinese economic growth  would have been one of the runner-ups for the Economic Statistics of the Decade for the 1990s.  Chinese economy growth averaged an astounding  10% peryear in that decade, and looks like it’s going to get to the same level again in this decade.  Downside:  No one is really sure whether to trust the Chinese economic statistics or not. 

4) Finally, we come to U.S. household borrowing, which probably is the clearest reflection of the financial crisis.  In this decade the U.S. household sector amped up its borrowing from $500 billion in 1999 to $1.2 trillion in 2006, before dramatically cutting debt  in 2009. Downside: This number from the Federal Reserve includes domestic  hedge funds and nonprofit organizations, making it a bit tough to interpret. 

I will present the winner of the award in a few days.  If you want to vote for one of these, or propose an alternative, go for it!

Is The US Government Misrepresenting Unemployment By 32%?
by Tyler Durden

There is an old saying, "when in doubt follow the money." These days investors have lots of doubt about pretty much everything (if not so much money). And with data from the government increasingly bearing the Quality Control stamp of approval of the Beijing Communist Party, there is much doubt in store courtesy of an administration which will stop at nothing in its competition with China as to who can blow the biggest asset bubble the fastest, data integrity be damned.

Undoubtedly, of all government released data, the most important is, and continues to be, anything relating to unemployment. This is precisely where the government's propaganda armada is focused. Yet in matters of (un)employment, the ultimate authority is, luckily, the Treasury, and not the Fed. "Luckily," because when it comes to making money "difficult to follow" Tim Geithner's office still has much to learn.

Which is why when we looked at the Daily Treasury Statement data we were very surprised: because it indicates that the government could be underrepresenting employment data by up to 32%!

The suddenly very prominent topic of Unemployment Insurance, whether it pertains to Initial Claims or to Emergency Unemployment, has one very useful characteristic: it is based on "money", specifically money outflows from the US treasury which goes to fund the weekly "paychecks" of those that have not been in the workforce for well over a year. And as pointed out earlier, money can be followed. The US Treasury presents a daily in and outflow of all money sources in the Daily Treasury Statement prepared by the Financial Management Service. And in the plethora of data presented here, probably the most relevant and useful data series is the Withdrawals quantified in the form of Unemployment Insurance Benefits.

Compiling the monthly data of Treasury Disbursements for Unemployment Insurance Benefits and then superimposing it with the total number of people receiving Insurance Benefits as disclosed by the Department of Labor is a useful exercise, as the two series have historically correlated with an R2 of well over 0.90. Below is an indexed comparison of UIB outlays and Unemployment Insurance Receivers for Fiscal 2007.

Surely this is logical: the more unemployed collecting benefits from the government, the more the outlays.

Yet what struck us is the when this chart is presented from 2007 until today. Something unusual emerges. An absolute chart of the money spent by the government superimposed with the total insured unemployed is presented below:

Yet the best way to see what this chart indicates is on an indexed basis with a September 2007 baseline.

What becomes obvious is that a correlation which used to be almost 1.000 has diverged massively, and now the relative outlays surpass what the government highlights are the number of people actually collecting benefits by 32%! This implies two things: either the average unemployment monthly paycheck has surged, which is not the case, or there is some gray unemployment area which is not disclosed by the government, and which accounts for a shadow unemployed insurance economy. Because while the DOL indicates there are about 9.5 million total unemployed, for the correlation to return to its near 1.0 trendline the number of unemployed on benefits has to be 14 million.

At least this is what the actual cash outlays by the Treasury suggest: the government spent a record $14.7 billion on Unemployment Insurance Benefits as of December 30, a 24% jump sequentially from the $11.8 billion in November. Yet the DOL has disclosed a mere 1.7% increase in those to whom insurance benefits are paid: from 9.4 million to just under 9.6 million.

To put the $14.7 billion number in perspective, in December the Federal Government paid a total of $14 billion ($700 million less) in Federal Salaries! A cynic could be temped to say that effectively the number of people employed by the government is double what is disclosed. A yet bigger cynic could claim that America is now the biggest socialist state in the world. Both cynics would not necessarily be wrong. 

And some more perspective: in calendar 2009 the government has paid $140 billion in Unemployment Insurance Benefits. This is yet  another economic stimulus that nobody in the administration discusses, yet which undoubtedly has the biggest impact on the economy, as all those millions unemployed can moderate their pain courtesy of a passable weekly check from the government which should just about cover the rent and beer.

Which is why more than anything, Obama is dead set on extending insurance benefit payments in perpetuity: because if the 10 million official and 14 million unofficial people who are on benefits (not to mention the tens of millions of unemployed unlucky enough to even get their weekly allowance from Uncle Sam) start thinking about their true predicament and their real "employability", then a landslide loss by this administration at the mid-term elections will actually be an upside surprise to what it can objectively expect.

Hedge funds bet on deep trouble for Japan
Some hedge funds are starting to wager on painful times ahead for Japan, the world's second-largest economy. These investors, including some who made successful bets against risky mortgages and financial companies in recent years, anticipate trouble for Japan's financial system. Their concern: Government borrowing continues to climb while demand for the nation's debt could taper off.

A collapse of the Japanese government-bond market "is going to happen; it's a question of when," said Kyle Bass, head of Hayman Advisors LP, a Dallas hedge fund, who has placed wagers on that outcome. He and others, such as David Einhorn's Greenlight Capital Inc. and a fund run by Daniel Arbess of Perella Weinberg Partners LP, have been buying a variety of investments that could pay off if the Japanese bond market crumbles.

Betting against the debt of various nations such as Greece and Ireland has proved a popular move during the past several months as worries have mounted over deteriorating government finances in the aftermath of the financial crisis. But a selloff in Japan's bonds would be much more worrisome than woes in some other countries, because of the size of Japan's bond market, 694.3 trillion yen, or about $7.543 trillion, and the role Japan plays in the global economy.

"In Japan, the mist has subsided and you see this huge mountain of debt," said Tom Byrne, a sovereign-credit analyst for Asia for Moody's Investors Service. That has raised concerns among some that "this could blow," although Mr. Byrne doesn't believe that will happen. A spokesman for Japan's Ministry of Finance declined to comment.

Not everyone is worried. For starters, the wager against the country's debt has a long and unprofitable history, saddling investors with big losses. And even those with deep convictions about Japan's troubles are hedging themselves. Mr. Bass has placed only a small portion of his $650 million fund in bearish Japanese bond investments. Despite an increasing debt burden and long-standing predictions that demand for government bonds would flag, the market has held up. The biggest buyers remain domestic investors that hold almost all of the nation's debt, such as Japanese banks, pension funds and insurance companies.

That has kept yields, which move in the opposite direction of prices, low. The yield on Japan's 10-year government bond hasn't gone above 2% in more than a decade. The presence of domestic, rather than foreign, investors also reduces the possibility of a mass exit from the market. Moreover, Japan has been plagued by bouts of deflation-falling consumer prices since the late 1990s. In November, consumer prices fell for the ninth month in a row. If that persists, bonds may continue to have allure, because even slender yields can look good amid deflation.

Even some who believe yields will rise don't expect the big increase envisioned by the hedge-fund pessimists. "I just don't think it's the blowout trade some funds think it is," said George Papamarkakis of North Asset Management LLP, a London hedge fund.

But bears maintain there are reasons to bet against Japan. They note that government debt as a percentage of gross domestic product is expected to hit 219% in 2009, up from 120% in 1998, according to the International Monetary Fund. By way of comparison, debt will total 85% of the U.S.'s GDP, and 69% of the U.K.'s, the IMF said. Even net government debt, which subtracts government assets, is high in Japan; the IMF puts it at 105% of GDP in 2009, compared with 58% for the U.S.

Some predict that as Japan ages, more people retire and savings rates dip, some purchasers will start pulling back on buying or even turn into sellers. Japan's public pension fund, the world's largest, has said it could become a net seller of holdings in 2010. About three-quarters of the fund's holdings have been in Japanese bonds. "The biggest buyer is now a seller. That's the biggest difference today," said Mr. Bass of Hayman Advisors. To attract buyers, particularly from overseas, yields will have to rise significantly, the bears assert, making it painful for Japan to service its debt.

The election of new government leadership in August also has ramped up anxieties of investors, who fear less-experienced officials will spend too freely in an effort to put money in the hands of ordinary Japanese. On Wednesday, the government unveiled a plan to try to spur the economy and cut unemployment. Japan's government recently stopped short of setting a firm limit on new debt sales in the next fiscal year, a sign for bears that the country isn't committed to fiscal discipline.

Some investors burned in the past now find the trade hard to ignore. Back in 1995, David Roche, head of investment consultancy Independent Strategy, predicted that Japanese yields would rocket higher. He went so far as to call the country's debt "junk bonds in drag." That turned out to be "dead wrong," he acknowledged this year, because Japanese investors kept on depositing their savings in banks. The banks funneled the savings, together with cheap money from the central bank, back into government bonds, keeping prices buoyant and yields low.

But that arithmetic can't be repeated now, Mr. Roche wrote in a recent report. Although Japan's stock of savings remains large, the savings rate has dropped below 3%, from more than 10% in the 1990s. Traders are betting against Japan's debt in myriad ways. Some bearish traders are entering into option contracts betting on "forward rates," or the direction of Japanese yields. These options are among the most heavily traded of the commonly used bearish tools, so some beginners to the game are embracing them. The downside is investors can find themselves exposed to big losses if yields fall further.

Others buy credit-default swaps, derivative contracts that serve as insurance to protect against a default of Japan's debt. The cost to insure $10 million of Japanese bonds is about $70,000 a year for five years. That price has climbed from less than $50,000 since October. Still others are buying more exotic instruments, such as "CMS caps," also called constant-maturity-swap caps, and "swaptions." These interest-rate options reward a buyer if Japanese rates climb over the next few years, but limit downside because there is only a one-time upfront payment.

Mr. Bass has purchased protection on about $12 billion of Japanese bonds, according to a person close to his firm, a move that is costing him about $6 million, a skimpy price because most investors still doubt the trade will succeed. If 10-year yields, currently at 1.3%, rise to 3% or so, Mr. Bass won't make that much; but if they hit 4%, he would make about $125 million on his $6 million investment. He will make at least $125 million for each subsequent percentage-point rise, according to people close to the firm.

Still, such bets are on the rise. Traders said they can see increased interest in derivatives that would pay handsomely in extreme outcomes, such as if interest rates on Japanese government bonds multiplied several times, or if the yen lost a quarter or more of its value.

Harsh lessons we may need to learn again
by Joseph Stiglitz

The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in late 2008, and that 2010 will almost surely be better for most countries around the world. The world has also learned some valuable lessons, though at great cost both to current and future prosperity - costs that were unnecessarily high given that we should already have learned them.

The first lesson is that markets are not self-correcting. Indeed, without adequate regulation, they are prone to excess. In 2009, we again saw why Adam Smith's invisible hand often appeared invisible: it is not there. The bankers' pursuit of self-interest (greed) did not lead to the well-being of society; it did not even serve their shareholders and bondholders well. It certainly did not serve homeowners who are losing their homes, workers who have lost their jobs, retirees who have seen their retirement funds vanish, or taxpayers who paid hundreds of billions of dollars to bail out the banks.

Under the threat of a collapse of the entire system, the safety net - intended to help unfortunate individuals meet the exigencies of life - was generously extended to commercial banks, then to investment banks, insurance firms, auto companies, even car-loan companies. Never has so much money been transferred from so many to so few.

We are accustomed to thinking of government transferring money from the well off to the poor. Here it was the poor and average transferring money to the rich. Already heavily burdened taxpayers saw their money - intended to help banks lend so that the economy could be revived - go to pay outsized bonuses and dividends. Dividends are supposed to be a share of profits; here it was simply a share of government largesse.

The justification was that bailing out the banks, however messily, would enable a resumption of lending. That has not happened. All that happened was that average taxpayers gave money to the very institutions that had been gouging them for years - through predatory lending, usurious credit-card interest rates, and non-transparent fees.

The bailout exposed deep hypocrisy all around. Those who had preached fiscal restraint when it came to small welfare programs for the poor now clamored for the world's largest welfare program. Those who had argued for free market's virtue of "transparency" ended up creating financial systems so opaque that banks could not make sense of their own balance sheets. And then the government, too, was induced to engage in decreasingly transparent forms of bailout to cover up its largesse to the banks. Those who had argued for "accountability" and "responsibility" now sought debt forgiveness for the financial sector.

The second important lesson involves understanding why markets often do not work the way they are meant to. There are many reasons for market failures. In this case, too-big-to-fail financial institutions had perverse incentives: if they gambled and succeeded, they walked off with the profits; if they lost, the taxpayer would pay. Moreover, when information is imperfect, markets often do not work well - and information imperfections are central in finance. Externalities are pervasive: the failure of one bank imposed costs on others, and failures in the financial system imposed costs on taxpayers and workers all over the world.

The third lesson is that Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit - raise taxes or cut expenditures - to "restore confidence." But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence - most recently when the International Monetary Fund insisted on them in East Asia in the 1990's.

The fourth lesson is that there is more to monetary policy than just fighting inflation. Excessive focus on inflation meant that some central banks ignored what was happening to their financial markets. The costs of mild inflation are miniscule compared to the costs imposed on economies when central banks allow asset bubbles to grow unchecked.

The fifth lesson is that not all innovation leads to a more efficient and productive economy - let alone a better society. Private incentives matter, and if they are not well aligned with social returns, the result can be excessive risk taking, excessively shortsighted behavior, and distorted innovation. For example, while the benefits of many of the financial-engineering innovations of recent years are hard to prove, let alone quantify, the costs associated with them - both economic and social - are apparent and enormous.

Indeed, financial engineering did not create products that would help ordinary citizens manage the simple risk of home ownership - with the consequence that millions have lost their homes, and millions more are likely to do so. Instead, innovation was directed at perfecting the exploitation of those who are less educated, and at circumventing the regulations and accounting standards that were designed to make markets more efficient and stable. As a result, financial markets, which are supposed to manage risk and allocate capital efficiently, created risk and misallocated wildly.

We will soon find out whether we have learned the lessons of this crisis any better than we should have learned the same lessons from previous crises. Regrettably, unless the United States and other advanced industrial countries make much greater progress on financial-sector reforms in 2010 we may find ourselves faced with another opportunity to learn them.


Jerry McManus said...

Excellent article, thanks for posting on the holiday!

Re: figure #3, bright yellow text is almost impossible to read against a white background, might I suggest changing all of the colors in that image to ones that are darker and/or less saturated?


Jim R said...

I love your large brain.

I'll be spending the rest of my time off (this weekend) digesting that article. Thanks.

bosuncookie said...

Gonna take awhile to digest all this...

jal said...

“Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion. 

One way to manipulate the stock market would be for the Fed or the Treasury to buy $20 billion, plus or minus, of S&P 500 stock futures each month for a year. 

But if they are not pumping up stock prices, then who else is?”

Profits are only realized after cashing out.
Someone/country with mega bucks is positioned to make even more mega bucks.
(It would offset other losses.)
Surely, the traders who have been reading the blogs would be able to explain how this could be done without frightening everyone.

snuffy said...

Once again we are blessed with a bit of "Continuing adult education"by my favorite "bio"instructor,and Educator.
Stoneleight,This was good for the head.I had more than a few Ah/Ha! moments where the lite bulb over the head went on for a bit.I don't have them often anymore as most of my study time is spent with ultrasonics theory which is a bit drier than fractal behavior of biological and other systems.

The concepts of Holling/Tainters are a good way to view our current "reality"

I will chew on these for a bit.They provide a good framework to hang a lot of the expectations and suppositions of where we,as a society/world are headed.They also provide a excellent,logical reasoning why,when collapse comes,it will be more "The Road" than "Ecotopia"

Happy and safe new year to all


Tristram said...

I love a conspiracy theory as much as the next guy, if not more, but I don't think one is necessary to explain the stock market being up. Market prices reflect the balance of buyers and sellers, and it's not true that $X must come into the market to drive prices up $Y. A given price move can be caused by an infinite number of different scenarios of buying and selling interest.

The plunge of the market last year was caused by selling panic, not a rational re-valuation of the market by those who make the decisions. Eventually everyone who had to sell or panicked had sold, and the only ones left were indifferent or had steel nerves. There were no sellers left. So only moderate buying interest was needed to push the market back up to the sky. Amateur technical analysts usually say both tops and bottoms are marked by high volume. So far in the stock markets, volume has stayed low so no top quite yet. Where is the surprise?

It's not hard to find the source of the moderate buying pressure that (in the absence of sellers) has moved the market steadily up. Most institutional money is run on very simple principles, for two reasons:

1) it's run by frat boys who majored in econ and minored in keggers. They aren't capable of triple reverse psychology with one and a half twists. With simple discounted cash flow models, you don't even need to build the spreadsheet; you got it from your predecessor; just plug in the numbers.

2) applying simple, tried and proven, industry standard methods to value stocks has a great CYA aspect. No one can blame you for doing the standard thing.

Current stock prices are actually justified by current corporate earnings projections. Ask Cramer. Of course TAE and ZH don't believe the projections, but the frat boys do, or pretend to.

Aside from discounted cash flow valuation, the institutions rely on business cycle analysis a.k.a. leading indicators. Which were screaming upward all summer, and only recently wobbled. Leading indicators give you six months of room to maneuver, so if they have turned back down, even if pretend extends a few more months, you can expect institutions will start to exit during the Q1 earnings season.

Unknown said...
This comment has been removed by the author.
Anonymous said...

It's worse than that, jal. There never was $6 trillion to track down.

Stock prices are set at the margin. The last price quoted is the price set for that stock. But even if Goldman Sachs is listed at, say, $180 per share, there is no way they could dump the entire set of GS shares at that price instantly.

So the entire notion of market cap is an illusion. And further, it only takes a small amount of money to drive a stock way up, giving the illusion of a high market cap, which then collapses when many sellers try to sell.

This happens very frequently with penny stocks which the SEC fails to regulate adequately. A stock gets pumped, many suckers buy in, then turn around and try to sell, collapsing the price. Then the original pumpers do it again. This cycle is repeated until the stock is no longer trusted then the pumpers move to a new stock and repeat the scam.

Essentially this is what has happened in the market today with the large volume of funny money pumped into the banks by the Fed, which they used to bid up the price of stocks on extremely low volume. That's one sign of why the current bear rally isn't real, aside from the horrid conditions out there on Main Street anyway.

Problem Is said...

Tainter's book is fascinating. It is still a text book so I paid an overpriced sum for it, as is the case with texts. But it was worth every penny.

As far as Elliot waves, I have only read analysis in passing and not in depth. I get the impression they are along the lines of Nikolai Kondratiev waves, which are population biology theories a la the brilliant Robert Malthus... of permanently kicked out of Economics fame close to 200 years ago now.

With the latest collapse and discrediting of modern neo-liberal and the dogmatic fanatical "free market" (read: Fixed Market Oligarchy) capitalism, the population biology aspects of influence on economics is now magically appealing to those with broken models. Demographics have an effect on growth and economic output... ask the Japanese.

A little off subject but I was reading a very interesting analysis of the uncapping of Freddie and Fannie debt limits as a de facto bailout of the TBTF banks. A move by the tax payer (involuntarily of course...) to payout 100% on every bad mortgage in America. The idea being to clear those TBTF balance sheets of their MBS frauds in time for the CRE implosion.

Barny Frank cleared the other end with his personal legislation authorizing the Fed to front Wall Street $4 trillion in tax payer cash anytime anywhere there is a crisis without tax payers or Congress ever being notified. Nice. Who voted for that duplicitous, bribed Wall Street banking shill and are you going to vote for him again?

So I was hoping Ilargi could devote some column space to an analysis of this issue. Here is the post link: Fannie Debt Merger Monetization

By the way, excellent job posting the ZH "Is The Government Misrepresenting Unemployment By 32%?" which is an excellent piece of research work.

Stoneleigh said...


You could try Benoit Mandelbrot's The Misbehaviour of Markets. Mandelbrot is the father of fractal geometry. Although a bit of a johnny-come-lately to their application in this field, he would certainly be academically citable.

For fractal geometry in general (from a high-level pure maths perspective) you could try Dr Ken Falconer's work. You would need to be very comfortable with complex math for that though.

I would check out Prechter's work though before you decide it isn't citable. He's been the authority in this field for decades and I recommend his books as an important piece of the puzzle. While I think his big picture isn't big enough, particularly in relation to understanding energy as the master resource (don't look to Prechter for a discussion of peak oil for instance), that doesn't devalue his work for me. I simply integrate it with the broader aspects that I think are missing.

Ilargi said...


The Jim Willie piece was discussed briefly on the thread before this one, and what I said there is that I don't read him. I'm allergic to the perpetual and exasperating "gold is my savior" calls.

The piece itself is OK, but there is little I haven't seen before. The uncapping of the F&F limit is a major feat, but it's also just another step in a long process.

I have ranted against the position (even the continued existence) of Fannie and Freddie so often on these pages that I'm a bit shy to do so again.

There is no larger and more serious fraud against the American people than Fannie and Freddie. They are used the way they are, and that might indeed get much worse soon, because without Fannie and Freddie there no longer is a US real estate market or mortgage market. Which in turn would mean bankruptcy for the largest banks, who are the biggest loan originators.

The official line is that they make housing affordable. The reality is that they do the opposite: they keep prices at artificially elevated levels, a situation that doesn't benefit the buyers they claim to help, but the banks that issue the mortgages.

It's not even necessary for prices to come down all the way to the trend, the 32% they've fallen already would be enough to damn BofA, Citi, Wells for eternity. That is, except for F&F who buy 95% of all new loans, and God knows how many older ones, with your money, forcing you to pay for the home your neighbor lives in but can't afford.

Prices have risen a lot throughout the bubble, and we now find that letting them deflate would destroy the entire banking system. Can't have that...

What I still miss in the articles on the Christmas night stealth GSE "bail-out" are two things:

1) The role the FHA and Ginnie Mae can be expected to play going forward. They bought more than F&F did in 2009, Ginnie has a $1 trillion+ portfolio (worth probably less than 10% of that)

2) I'll say it again: the securities issued, bought, on the books, off the books. anywhere near F&F. Their books have $5-6 trillion in loans. What's the leverage on the derivatives?

Audit the Fed is a nice hobby that will never lead to anything. Audit F&F alone would be enough to bring down Washington.

Unknown said...
This comment has been removed by the author.
jal said...

Commercial loan solution

What is good for Peter is good for Paul

Pot calling the Kettle black

The following solution is being applied universally, read it with an open mind. It is also buried in a much larger article.

“... my friend Jack Rodman, in which among other things, he warns that the true exposure the banking system has to real estate may be underreported, and may be as high as 40% if correctly recorded. He says:

Most of this lending is policy-directed with an implicit government guarantee. Despite thousands of closed factories ...

resulting from the global financial crisis, and hundreds of empty office buildings, retail centres and hotels that are not meeting their debt service payments, banks are still not foreclosing on these properties nor calling the loans due.
The banks prefer to rollover or extend the loans to avoid having to report an increase in non-performing loans. It is not uncommon for ...

banks to extend a loan for as much as one year without interest payments if the lender “believes” the ultimate recovery value of the assets will be greater than the outstanding principal and interest. However, it is nearly impossible for a bank to value an empty office building, in a market with a reported vacancy rate nearing 40 per cent (30 to 40 million square feet) and declining rents.

Edward Lowe said...

Hi Stoneleigh

Thanks for your piece. I have followed Buzz's work myself over the last few years and have always found dynamic-cyclical rather than static-additive models of growth and decline more reflective of what we empirically observe in all domains of evolutionary/historical processes.

Some minor bones of contention: resource pools are never static, but in constant flux themselves. This is something scientists are only now beginning to realize and observe...and take into account (though Darwin clearly recognized it in Origins).

Second, sometimes artists confuse their art with reality...leading them to advocate their art as reality in their political projects. If Buzz's recognition that systems are dynamic is true, then one cannot "intervene" and force a system to remain "resilient" -- that is a Utopian project and, as such, it is trying to hunt the image of the Mammoth on the cave wall, not the actual mammoth that will place meat in your belly. Then again, Mammoth populations change (along with other megafauna, forcing individual hunters and their kin to change their subsistence strategies over time.

Finally, evolution does not happen at a systemic level, but at the individual level ... the attempt to force evolutionary change into the level of population is based on a fundamental error in reasoning as it is built on a false premise. Individual trees do not act in concert with the forest, what matters is how that individual tree does in terms of its own struggles for survival and reproduction ... which are in turn based on highly local factors. Resilience, such as it is, ALWAYS matters at this individual level -- as does evolutionary change. Trying to see "resilience" at the level of the "system" it is a chimera -- merely the artists painting on the cave wall -- fascinating to watch in the flickering firelight -- but not worthy of our attention when the pressing matters of living and passing things forward are concerned.

It is at this point, the attempt by human societies (such as they are imagined) to force the world ecosystem "system" to remain "resilient" that Buzz Hollings and his ilk are nothing more than the latest contenders for priests of the temple of Utopian fantasies, not scientists (though he claims to be an artists and not a scientist).

Wyote said...

Of thugs and their minions: From Thom Hartmann's 12-31 blog entry:

Bend Over...
According to the upcoming New York Times Magazine, during the time of the tough negotiations over executive compensation headed by pay czar Kenneth Feinberg, Wall Street had an ally - in both the Treasury Department and the New York Federal Reserve. No one fought harder, though, than CFO David Herzog, who threatened to leave the firm if he didn't get to keep his $1.5 million bonus. Time wrote, "No one at A.I.G. seemed to be embarrassed to argue that the chief financial officer of Wall Street's Titanic was irreplaceable."

One interesting note - AIG's spent $3 million from taxpayers - on two compensation consultants and two Wall Street firms to file their compensation proposal to Feinberg. These guys really are terrorists - they strap metaphorical explosives on themselves and threaten to blow up the economy if we don't give them what they want. They're terrorist bombers! And how they're saying "bend over and take it" to the Obama administration and Obama is asking them "How far?" And when your tax bill comes in April - about $700 for every man, woman, and child in America going to the banksters, they'll be asking us to bend over and smile.


Top Hat Cat said...

So in 2009, what keep the zombie market zooked?

The institutional Frat Boys are bench warmers, Potemkin props of abnormal normalcy. They decide nothing that hasn't already been 'decided' for them. The Frat Boys are buttplugins in the pageant, placeholders for the real Players. (@Mugabe, loved the "...they aren't capable of triple reverse psychology with one and a half twists..." quip :> amen!)

When Max K worked on Wall St, he said institutional 'investors' were referred to in the bucket-shops as Dumb Money. Figures. Institutional Investors are exceptionally easy to mislead and manipulate by virtue of their drudge like predictability. Hedge funds are generally on the other end of the intelligence scale from Dumb Money. They are hustlers and Cons and grifters, very hard to bs master bsers.

In any case, the source of the funds for manipulation of the NYSE is pretty clear: taxpayer bailouts channeled through TBTF's to their off shore Pirate Coves in the Caribbean.

As to F&F, well, they have become the defacto Bad Banks®.

Any speculative prattling by the mediawhores about trial balloon plans for 'bad bank' ideas is like the magician's technique of misdirection. We already have a working 'bad bank' with F&F and now that the caps are off it's To Infinite and Beyond!

Fannie and Freddie have become the Cave of Death where the nation's wealth goes to die. Just keep shoveling it in kids, as Jim Kunstler likes to say, "It's All Good".

Semper Augustus Gloop said...

Mugabe, you have it exactly right. This post from Mish explains it in different words.

Sentiment, Not Sideline Cash, Is The Driving Force

Craig Morris said...


I was struck by how similar Hollings' Cycles are to Strauss and Howe's Turnings:

Exploitation=High, a period of confident expansion

Conservation=Awakening, a time of rebellion against the now-established order

Release=Unraveling, an increasingly troubled era

Reorganization=Crisis, redefinition of society’s very nature and purpose

They seem like very similar progressions with the same forces at work. Even the term cycles and turnings are synonyms.

snuffy said...

That is a interesting comparison.When you put their ideas side by side,there is a interesting symmetry,that has a lot of subtle inferences...there is a good chunk of concepts,when blended would make close to a basis for a more complete understanding of what we laughingly call reality...

Greenpa said...

Edward Lowe: "Finally, evolution does not happen at a systemic level, but at the individual level ... "

I know this is the dogma taught in most college classes on evolution- however-

In the back rooms, where no one can hear us, evolutionists are really not so sure about that.

To some extent this is a dated dogma; in the 70's it was controversial; in the 90's it was bricked in and tuck pointed into place as "The Truth" - but since then the mortar has been crumbling.

A quick thought experiment: on the protozoan level, individual algae are- individuals, and subject to selection as such.

Then there's Volvox. A single organism- but visibly assembled from individual algal cells that are almost capable of living independently.

And lichens; many of which can actually be disassembled into free living alga and fungus- and generations later reassembled into lichens. And the Portugese Man-of-War; etc.

The line between "individual" and "group" is not actually totally distinct. At the cellular/ multicellular level of organization this is observable.

At the multicellular/ superorganism interface, it's more difficult to draw lines. Possibly in part because we, as individuals, may have great difficulty in perceiving the higher level of organization; just as your individual brain cells are almost certainly unaware of your existence; and unable to be so.

As we investigate herds/flocks/social groups more deeply, the most common headline is "Scientists Astonished: Baboons Organized Like Feudal Guilds!" Or something. Findings on tool use in chimps normally finds Band A uses tool x; but neighboring bands don't- (like the very recent finding that chimps make and use "choppers") - with very large implications for band survival.

Human "bands" of various kinds also survive- or don't. Increasingly, evolutionists are willing to consider seriously the possibility that selection is going on at the band level- simultaneously; of course with individual selection. "Kin selection" is mostly considered to be demonstrated; this would be beyond that discussion.

Just as individual cells in our bodies are subject to selection for their own function and survival; but their survival also depends on the total multi-cellular survival.

el gallinazo said...


Referring to your question about the economic definition of "viscosity," economists, as do electricians, like to model their theories on hydraulics. (As a former plumber, I would go along with Steve Keene, and figure that the plumbing analogy for economics should be restricted to the sewage category). An example of this is the term liquidity. So I would imagine that viscosity would be the opposite of liquidity, whatever that really is, and that increasing viscosity results in decreasing liquidity.

Jim R said...

Stoneleigh, it didn't take as long as I thought to understand that keypost. Perhaps because I've played with Mandelbrot and Julia fractals and Lotka-Volterra integrations in the past. I'll have to read more of Dr. Holling's work.

And Tero, your comment was all over the place. A person doesn't need energy but does need food and air and water? Please.

What we mean when we say "energy" (and for the last couple centuries, our most abundant source has been combustion of geologically-sourced hydrocarbons) is a key resource is: if you have enough energy, you can for example extract gold from seawater, but if you have unlimited gold, it does not enable you to extract energy from anything. Indeed, energy is all around us, but what we roughtly mean is "Gibbs free energy" from physical chemistry -- the kind that can be converted into food, shelter, transportation, etc. With less energy we shall have less of an economy, though economists usually ignore that fact and simply clump hydrocarbons with other minerals in the commodity sector.

That ignorance is now costing us one civilization.

ric2 said...

Building on the ZH article, I went through some older US Treasury Daily Treasury Statements for the last work day of December for previous years. Here are some numbers from previous years' DTS for Unemployment Benefits Insurance withdrawals:

Dec. 29, 2006:
MTD - 2,541,000,000 FYTD - 6,978,000,000

Dec. 31, 2007:
MTD - 3,059,000,000 FYTD - 8,047,000,000

Dec. 31, 2008:
MTD - 7,243,000,000 FYTD - 16,386,000,000

Dec. 30, 2009:
MTD - 14,651,000,000 FYTD - 38,112,000,000

Monthly UI Benefits withdrawals more than doubled from Dec. 2007 to Dec. 2008, and then more than doubled again from Dec. 2008 to Dec. 2009, when looking at either the monthly total withdrawn or the amount withdrawn fiscal year-to-date.

Greenpa said...

DIYer: "What we mean when we say "energy" (and for the last couple centuries, our most abundant source has been combustion of geologically-sourced hydrocarbons)"

True. I'm astonished how nearly entirely it is forgotten that before that- the energy for human enterprises came from- animals.

Dogs, goats, sheep, cattle, chickens, swine, horses, etc. Once domesticated, these creatures became our symbionts, in the full sense of that word. For many thousands of years- our cities were built with ox power. (Notice I've avoided using the word "civilization." :-)

Just as we have remnants of behavior stemming from our millennia as hunter-gatherers; I think it's well worth remembering, and keeping in our calculations, the millennia just before fossil fuels, where we were animal husbandfolk.

Frankly- I'm not at all sure what it means. But I have a serious itch between my shoulder blades that it's important.

EconomicDisconnect said...

I love fractals!

We just have to work superstring theory in here and we are all going to be rich!

Ric said...

When I consider a die-off of five billion human beings I don't think of it as a release phase. Yes a great many resources are released, but what is adapting? What's the context?

Our biosphere does not operate independently--it's part of an incomprehensible whole of existence of infinite expanse--existence comprised of "elements" that neurons can signal in response to and "elements" that don't affect neurons at all. What I miss in the ideas of fractal adaptive ecological and economic cycles are a comphrehensive expression of scale and a dimension of value. Perhaps there is a valuative intrinsic difference between life and non-life. Perhaps we are only beginning to apprehend this thing called life and existence.

The idea of panarchy assumes a context that is not complete. Gunderson and Holling say in Panarchy: Understanding Transformations in Systems of Humans and Nature that:

"The term [panarchy] was coined as an antithesis to the word hierarchy (literally, sacred rules). Our view is that panarchy is a framework of nature's rules, hinted at by the name of the Greek god of nature, Pan." p.21

There seems to be an assumption here that nature's rules can be entirely known--ie, the dichotomy between sacred and nature. But this is a false dichotomy and a red herring. Human neurons only signal what they signal--signals received from nerves or signals from other neural signals. If we assume nature's rules can all be known, then we're making the human neuron more grand than it actually is and being misled by hubris.

I bring this up because it seems to me a weakness of economic models is a lack of insight into the value of life. Financial capital cannot exist without living capital.

Top Hat Cat said...

"...I think it's well worth remembering, and keeping in our calculations, the millennium just before fossil fuels, where we were animal husband-folk..."

An anecdote I remember from a bio on Henry Ford is that he passionately hated horses growing up. Hated everything about them and dreamt as a young man of replacing them with a machine.

Funny how that turned out.

Had a history teacher who emphasized that Napoleon's army swept through Europe at about the same speed per day as the Roman Legions did two millennium earlier.

Transport speeds tends to plateau over time. I guess this would fall into the Fractal Adaptive Cycles corral. As a child I saw the first jet airliner to land at Boston's airport. Everyone seemed very pumped up at the increase in speed it brought over the turboprops of the day.

The Boeing 707 had a cruising speed of about 650 mph in the late 50's.

Today, fifty years later and tons of so called technological innovations later, the average jet airliner has a cruising speed of, ta da, about 650 mph.

Today's jets get better mileage and are quieter but when factoring in the astonishing inefficiency of Fatherland Security into the whole trip thing, a plane ride city to city is not much better than a 4 engine turboprop from the fifties.

Remember the old mantra from yesteryear:

Progress is Our Most Important Product

z said...

"One of the most interesting differences between the typical Subjective Analysis and Objective Analysis is who is calling the shots. Keeping in mind when one person looks at a cloud and sees a face, another may fail to see the pattern altogether. Our mind will fill in the blanks when use our visual process, so we must be aware of that potential.

Projecting the future on purely pattern recognition is very speculative at best. The critical factor will be the experience of the observer. One who has traded for many years wil1 see in the patterns memories of trends long since past. Thus, someone who has been burned by a crash, if he does not embrace his loss and try to now reason why it took place, will end up being skeptical of every rally and only look for the opportunity to sell.

Others will pitch that nobody can predict anything so the key is to ( 1 ) hold long-term, and ( 2) average in on the dips. The problem here, when the big-one comes, you are totally wiped out with nothing left. This is the sales pitch taught brokers to drum-up business, not to actually help clients make money.

The real trick is to let the market tell you what to do, never try to tell the market what to do or should be done! There is an old saying - you can't fight the tape. That means the market is always right. If it is not performing the way you expect, you are dead wrong, never the market.

The Dow Jones Industrials is the perfect example. While it would have been nice to just get the Waterfall Effect into a June 2009 low at 4,000 and then swing like a pendulum out and to a raw high for 2012, the market stopped precisely with the 17.2 month frequency from the 2007 high. This warns us that the March 2009 low may in fact hold, and while we should retest support, the low may be in place. However, I also warned that if we were to be on course for a dramatic rise into 2016, then the key will also require the Dow to start in part to move contrary to the dollar, which it has begun.

The critical resistance still remains at the 11,000 level on a monthly closing basis. The primary resistance for the year-end closing will stand at 10,800 and then 12,500 with the major support at 6,600 and 6,200. There should be forming a pivot point for next year at the key level of 8,800. If the Dow remains above this area, it will be short-term| still positive. Falling below this level, will suggest we are turning for a retest of the support.

From a timing perspective, the key monthly targets are December and next May. We could still see new lows in May without a monthly closing above 11,000. But if December at least closes above 10,800, then a retest of support into May 2010 should hold the 2009 low. The now critical long-term support has moved up from 4,000 to the 5,000 level for 2010.

Being able to see into the future is a lot different than reading tea leaves or trying to figure out how the pattern will now play out over time. The market actually will tell you what is to come once you are willing to open your eyes to pay attention."

Martin Armstrong: Objective vs Subjective Analysis Nov. 1, 2009

z said...

"At Princeton Economics we devised the various different ways to carve up the key movement of the global economy and the core markets around the world. What was critical to comprehend was TIME and once you began to see that markets were fractal in nature, the movements were the same on all TIME levels.

Major trends such as the 2007.15 high on this cycle, are easily seen for they will unfold on al1 levels and thus proceed on a slow motion basis. Just as it can be stated with absolute certainty, that the global debt crisis in Western nations will resolve itself as always, and without exception, in complete chaotic default. No government has ever paid off its debt. Adam Smith pointed that out in his chapter on government debt back in 1776. Sadly to say, that statement has proven to be correct ever since.

"The long-term trend is unquestionable. We will collapse without any dispute even possible. This is as certain as the sun will rise and the earth will rotate. It would be nice if Government would listen and we could do a slow burn to save the future. But that is just not going to happen with lawyers and academics at the wheel.

The markets will tell us what they are doing if you are willing to listen. In the Dow Jones Industrials, the 10,800 level is critical for year end. If the Dow closes above this level, it is warning that the wave of inflation that is on the horizon is in fact coming faster than anyone expects. A year-end closing below 10,800, will not be a sell signal, just a neutral indicator on the immediate time line for 2010.

Resistance will still stand at 11,800 for 2010 and the 11,000 and 10,000 numbers will present pivot points as well. We will see below 8,800 and 8,300 as initial key support with major support starting at the 6,200 level.

Closing support for the Dow will be at 8,600 and 7,200 levels. A closing below the fest will signal a retest of lows for May where as a year-end closing below 7,200 will signal a test of the 5,000 level with the most extreme support at 3,800.

Keep in mind, however, this is a pendulum type movement. The further it goes to the support, the greater the energy will be to swing to higher levels in the future. There is no question that the two yearly targets for major crisis are 2011/12 and 2016. The market will tell us very soon bow nuts this whole thing is going to get. Those who harp on the same old thing unfolding as 1929, only look at charts and know nothing about how the global economy interacts for back then, we were the creditor nation." Ibid.

ogardener said...

US state and local tax revenues plummet
By Tom Eley
31 December 2009

"New US census data show that state and local government tax revenue continued their year-long plunge in the third quarter, falling by 7 percent from the same period last year. In response, governments are cutting spending on social programs, infrastructure and education, and are laying off or cutting the wages of government workers.

It was the fourth straight quarter in which tax receipts fell on a year-over-year basis, the Census Bureau’s Quarterly Summary of State and Local Tax Revenue shows. Collections for 2009 through the third quarter were down $76 billion, or 8 percent, from a year ago, while federal tax revenue fell even more sharply in the same period, by 19 percent."


Just as predicted.

Chris said...

I have been reading this blog for a number of months. This is my first post.

The opening article was an excellent read. It provides a nice framework to hang my vague, inexpressible (for me!) feelings that things are too complicated for our own good. The comments about BC's forests suffering from pine beetles and increased risk of forest fire hit particularly close to home. I live in a small community north of Kamloops, BC. We have watched forests suffer from both threats. Recent forest fires have been so intense that some burned areas lost all of their organic material ... quite frightening.

You have mentioned traveling to Vancouver and talking with people face-to-face. How would I find out more about this?


Bukko Boomeranger said...

Reading Stoneleigh's essay -- and a lot of the comments here -- put me in mind of tripping on LSD. It's like synesthesia, the blending of the senses you get when you're under the influence of psychedelics. You can see sounds or feel colours. Reading about how evolutionary neurobiology illustrates macroeconomic behaviours is like the brain-scramble you get on acid. Things that seemingly aren't related, but all of a sudden, you can see that they are.

Of course, you wind up laughing a lot more at psychedelic synesthesia than you do at the economic kind...

Unknown said...
This comment has been removed by the author.
scandia said...

@ board, " You'd better watch what you say " as I am now armed with TWO dictionaries!:)
Purchased used, A Collins ( British) and a Websters College(US)
@ El viscosity:
COLLINS:the extent to which a fluid resists a tendency to flow
WEBSTERS:the internal friction of a fluid which makes it resist flowing past a solid surface or other layers of the fluid.
I found the Websters definition more revealing.
@gravity, would you weigh in on the use of " viscosity" as it refers to economic gains?
@Ahimsa, the Oxford 2 volume set on offer was $95 used. Bit out of my purchasing power at the moment.

I confess feeling like an eagar adolescent as I walked home,leaning into an artic wind, clutching my precious dictionaries to my breast! At my age such an experience is a moment of late grace!

Yogibear said...

All of these articles bring to mind the Angle of Repose, a mathematical model to predict collapse of any crystalline structure. Think pouring table salt or sugar on a flat surface. The pile rises until it exceeds its angle of repose, and then rapidly collapses. The angle is different for coal, corn, wheat, sugar, salt. I think society and economies are approaching a level of complexity which will exceed an angle of repose, and which will result in a rapid and violent collapse. We cannot sustain either populations or economies with the current consumption of energies. "Throughput" is no longer sustainable.

Anonymous said...


@ Scandia

Glad to see you found some good dictionaries.

Note also that there is an excellent bilingual web site run by the Québec government on technical terminology. It is full of excellent information (mono and bilingual) whenever you need to check out a term. I find that it is an excellent complement to paper dictionaries. You will find it at:

On that page, you will find a link (upper right) to the English section.

Have fun,

Stoneleigh said...


You might find this (from TOD, Jan 2008) interesting: The Failure of Networked Systems. It deals with exactly the concept you raise.

Stoneleigh said...


I will be coming out west between Jan 16th-24th. I will arrive first in Vancouver and intend to travel to Seattle and Portland from there. After that I'll be back in Vancouver and will head over the Victoria via Saltspring Island. It's a lot to pack into 7 days, after subtracting traveling time, but I hope to meet up with as many people as possible. I'll keep people posted as plans evolve. If people have any specific plans that I would need to build into my itinerary, then let me know at theautomaticearth(at)gmail(dot)com .

jal said...

What you conjure is entirely determined by basic geometry.
Learning about fractals and geometry can be a lifetime passion.

If you are so inclined here are a few starting places.

Some Solid (Three-dimensional) Geometrical Facts about the Golden Section

ogardener said...

I see Herr Harper has done away with Parliament again in my beloved Great White North. How is that even possible? Could Harper assume dictatorial power with a non-functioning Parliament?

I am upset that so many innocent Yemenis are about to feel the wrath of Joe Lieberman in order to instill freedom and democracy and shop till you drop foreign policy.

May the farce be with you!

Top Hat Cat said...

I've rarely hear the term 'angle of repose' outside of soil mechanics engineering circles, certainly not in casual cocktail party conversation. It is a concept extensively used in grading embankments in all sorts of situations, especially road work and where humans have disrupted the land.

Very nice to see it tied into the complexity failure information vortex that appears to be blossoming in learned circles.

Environmental Hydrology pays very close attention to 'the angle of repose' because the tendency of humans rearranging the environment is to cut corners, literally and figuratively, and have walls make up for proper natural soil grading. Soil erosion is a big problem and will be even bigger in the future when trying to feed a planet in radical overshoot.

Of course, a professor I had teaching this used, in order to focus the all male class attention, Edouard Manet's famous painting Olympia to illustrate a different angle of repose.

scandia said...

@ Yemen you might like this piece from The Independent.'t-learned-the-lesson-of-history-1853847.html

scandia said...

@JB, the Quebec technical dictionary site is restricted.
You must be paying for it?

Frank said...

@Scandia, It works for me. Band gap has multiple meanings, photonic crystal -> cristale photonique.

Anonymous said...

@ Scandia


Just tried it again, no problem. I have used it for years and never heard of any restrictions.

Just clicked the English section for the first time. Big surprise. It does not at all resemble the French page. The English page does not look useful.

Hope you can make it work. Otherwise, contact the people there, they are very helpful.

Good luck,

Anonymous said...


On another subject, Nate Hagens over at TOD has an interesting set of resolutions.

Worth a look.


el gallinazo said...

Tero said...

"What I was mainly trying to argue was that energy alone isn't the main resource. The intelligence to use that energy is equally important."

If what you say is true, we are in deep shit. We hit peak intelligence decades ago.

el gallinazo said...

For you iPhone and iTouch owners. Now a superlative free dictionary app. No connection required to use.

Wyote said...

Down to the nubs..

About one in 50 Americans now lives in a household with a reported income that consists of nothing but a food-stamp card.

Make that 1/25 in Detroit, 1/17 in Yakima, WA.

So much for the angle of repose.

jal said...

Re.: preparing for the reset

Look at the person on your right ...
Look at the person on your left ...

Only one of you will be around after the reset.


Jim R said...

Tero, to paraphrase the Fabulous Furry Freak Bro's:
"Energy will get you through times of no gold, better than gold will get you through times of no energy".

Ric said...

It's an acquired taste for the Jane Austen set and I've no idea how relevent it is to the phase change we're now in, but I recently watched the BBC miniseries, Cranford, and found it fascinating for the way it depicted life in a small English town in 1842--and recommend it for those interested in a portrayal of life before the petroleum industrial age when community means something different than it does today. It's a compilation of three works by Elizabeth Gaskell, who wrote round 1850. People in Cranford lived with a small carbon footprint--lighting two candles at night was an extravagance only for when visitors came--yet the townspeople seemed far more "civilized" than most I meet today. I've no experience of English class system or knowledge of the economic realities that allowed the townspeople to live as they did, but Gaskell writes with integrity and left me with the impression that "civilization" is not an industrial product.

Anonymous said...

Years and years ago (1973), Roberto Vacca wrote The Coming Dark Age. His argument was simply that human technology was becoming increasingly complex and that very complexity would eventually become larger than we could control, resulting in a collapse. It was sort of a prequel to Tainter's diminishing returns on complexity thesis. I suggest reading it. You can also find it online nowadays in PDF form, released by the author himself that way.

Gravity said...

I used to pretend the universe can be elegantly and fully described as an oscillating holographic fractal, though recently it was necessary to slightly reallign this conceptual framework by contending gravity remains a recursive algorithm, thus greatly clarifying matters when all capital is inherently subject to gravity, as this would permit capital which is moveable within a (rotating) gravitational field to attain dynamically embedded energy-potentials expressible as relativistic mass at varying momentum when appropriate, and also when not.

The synchronised downwards movement of unraveling complexity and release of stored potential within coherent energy-systems occuring simultaneously at all superspatially and gravitorotationally interconnected levels in the omega-phase could equally be decribed in terms of an energy-ratio inversion cascade,
yet most of the released potentials resulting from this process will violently decompile into waste-heat on a planetary level instead of being available for restructuring in the alpha-phase.

Viscosity of debt was something relating to shear viscosity (velocity gradient) or kinematic viscosity (diffusivity of momentum), these being more applicable to certain kinds of debt described as a highly frictive fluid or thick sludge, the concept of quantifiable interdynamic fluid velocity in parallaxed monetary tensor-fields also requires the medium be described in discreet terms of reflexive viscocity, perhaps.

Bigelow said...

Bernanke Says Low Rates Didn’t Cause Housing Bubble Bloomberg
““The best response to the housing bubble would have been regulatory, rather than monetary,” Bernanke said today in remarks to the American Economic Association’s annual meeting in Atlanta.”

When at first you don’t succeed, lie, lie, lie again.

Ilargi said...

"Bigelow said...

Bernanke Says Low Rates Didn’t Cause Housing Bubble "

So John and everyone else,

Which do you think is more likely when you rd that:

That Bernanke is a really dumb ass who makes honest mistakes wherever he goes

Or that Bernanke is a passably well-trained fraud very much aware of the consequences what he does?


Phlogiston Água de Beber said...


RE: Bernanke multiple choice

Why not all of the above? A well-trained fraud who is such a dumbass that he screwed it up.

Bigelow said...

That would be door #2 Ilargi!

"Or that Bernanke is a passably well-trained fraud very much aware of the consequences what he does?"!!!!!

Guess writing "when at first you don’t succeed, lie, lie, lie again" was a bit too opaque.

Anonymous said...

Excellent expose by Peter Dale Scott.

"Obama and Afghanistan: America's Drug-Corrupted War"

Anonymous said...


Enjoy them!


scandia said...

@ gravity...A random capture of a bevy of sun spots by the vaporizing tension demonstratable between the expansion of universal law and the non - receptivity of transgressionary forces triggers a galactic cascade,perhaps.:)

zander said...


Try "larkrise to candleford" by the BBC

It's even better.


Hombre said...

Ric - Just watched Cranford last evening--3rd episode. I had seen it before on PBS but found it interesting for the "period lifeworkings" even though the ladies gossiping was a bit overdone.
Most potent scene... how a badly diseased leg is treated... er... removed!

Scandia, 12:48 - You took the words right out of my mouth! ;-)

ogardener said...

When talking about Resiliency Stoneleigh's article mentions:

"A resilient world would promote biological, landscape, social and economic diversity."

I get the first three, biological, landscape and social diversity but how does economic diversity relate to "panarchy"? Does this mean the wealthy continue to own the natural resources?

Further on while still outlining "Resiliency" the article states:

"A resilient world has institutions that include "redundancy" in their governance structures and a mix of common and private property with overlapping access rights."

Again I'm curious as to the proportions and scale of the "mix" of private property to common property. Who controls what and how much and under what authority?


ogardener said...

Blogger scandia said...

@ Yemen you might like this piece from The Independent.

I read the article and while I was informed of the tenacity and determination of the Yemeni people it still did not put my mind to rest as to why ALL Yemenis ought to be punished as the result of an action by one extremist Yemeni. Should not this failed terra event be considered an individual crime instead of an act of war?

HappySurfer said...

@ Greyzone

Looked up your book "The Coming Dark Age" and didn't pay too much attention who it was written by and followed the Google links to this:

(can download the .pdf from here)

to find another book " The Phoenix Principle and The Coming Dark Age" which looks quite interesting from the table of contents.

A completely different book!

Tristram said...

I hate to be the one defending Bernanke, but I think he was mis-paraphrased in the Bloomberg article. I think what he said was:

-- The low interest rates of the Greenspan-Bush era did not make a housing bubble inevitable;

-- The first resort to contain localized bubbles should be regulatory policy not monetary policy (i.e. not interest rates);

-- More timely and effective regulation could have prevented the housing bubble;

-- Interest rates might be raised to prevent a localized bubble as a last resort.

What was left unstated:

-- low interest rates of the Greenspan - Bush era were meant to blow a macro-bubble, not a housing bubble specifically.

-- the Fed desperately does not want to be the narc who says no more debt to debt-snorting junkie economy. Like the chastity of a whore, the independence of the Fed must be preserved by not having to take any stands that are politically unpopular.

APC said...

a cac at +1.97% or 4,013.97

seems we have not seen the highs yet eh, Stoneleigh?

Bigelow said...


Resiliency and redundancy

“5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.”


scandia said...

@ogardener...the individual involved was recruited by a network to serve a cause/mission so I think he wouldn't qualify for an individual crime label.
Just like covert ops by the US are not crimes by individuals. As for declaring an act of war historically such declarations are made against nations, not amorphous resistance fighters as we now witness. US response to declare war on every nation who cannot control it's citizens is both ridiculous and rather frightening. It's all starting to look like empire over reach to me...

Ilargi said...

Things you wish you would have said:

Bono net policing idea draws fire

Bono, frontman of rock band U2, has warned the film industry not to make the same mistakes with file-sharing that have dogged the music industry.

Writing for the New York Times, Bono claimed internet service providers were "reverse Robin Hoods" benefiting from the music industry's lost profits. He hinted that China's efforts prove that tracking net content is possible.

The editorial drew sharp criticism, both on its economic merits and for the suggestion of net content policing.

"The immutable laws of bandwidth tell us we're just a few years away from being able to download an entire season of '24' in 24 seconds," he wrote.

"A decade's worth of music file-sharing and swiping has made clear that the people it hurts are the creators...the people this reverse Robin Hooding benefits are rich service providers, whose swollen profits perfectly mirror the lost receipts of the music business."

In a move that drew significant criticism, Bono went on to suggest that the feasibility of tracking down file-sharers had already been proven. "We know from America's noble effort to stop child pornography, not to mention China's ignoble effort to suppress online dissent, that it's perfectly possible to track content," he said.

Several commentators assailed both the logic of net monitoring and the economic arguments of the essay, pointing out that U2 topped 2009's list of top-grossing live acts.

"Bono has missed that even a totalitarian government...can't effectively control net-content," tweeted Cory Doctorow, a blogger and journalist noted for his study of file-sharing policy.

"If only greed and ignorance could sequester carbon, Bono could FINALLY save the planet" , he added.


GunHillTrain said...

I still have a paperback copy of Robert Vacca's The Coming Dark Age, which I read about thirty years ago. I'll have to look through it again, but I remember he had a fairly narrow focus - namely the technical/organizational problems that could collapse a society.

He didn't have much to say about financial issues or "limits to growth" issues (e.g., energy resources).

Mike said...

They've come a long way from Sunday Bloody Sunday..

Gravity said...

That last paragraph in my previous post was pretty bad, worse than usual even, superfluous words, nonsensical phrases, a general technobabble froth masking a lack of substance, I was unsure about viscosity being applicable in terms of debt, but I think something could be made of it.

No industries or artists actually lose money by downloading if the money to purchase or fully monetise said product does not exist. There is not enough purchasing power or money in circulation to actually buy those items, which is why their consumption is displaced to a non-monetised realm.

Ultimately, no sufficient demand exists at that price level, and no demand can possibly exist, perhaps only 10-15% of all downloaded material would otherwise be purchased, no more.

"A decade's worth of music file-sharing and swiping has made clear that the people it hurts are the creators...the people this reverse Robin Hooding benefits are rich service providers, whose swollen profits perfectly mirror the lost receipts of the music business."

The lost receipts of the music business were never available and are not lost because there is no money to buy them with, even if there were no deflation, the economy would have to allocate existing flows from elsewhere to purchase all of the downloaded material, the dubious multiplier effects in this industry are only sustainably positive if the entertainment product increases productivity in other non-related sectors.

The entertainment industry in general is oversaturated, output could be reduced by half and there would still be enough supply to satisfy all demand that can be monetised.

Josh said...

Ilargi said.....

"There is very little upside left, nobody sees S&P 1250"
November 6, 2009 2:02 PM

Back in September, Barton Biggs called for SP500 1250 by the end of the year. We're getting pretty close to 1250. Only 10% more and we're there. When BLS data shows the economy added jobs last month (Krugman's prediction), we'll be on our way. You can argue all you want about reality, its the perception of reality that matters.

Ruben said...


re: Stoneleigh in Vancouver--I think an email to the info@ address would be the best thing. I am going to do that myself right now. I am hoping for a beer and chat. Dr J? Bukko? Toddbrock?

Ruben said...

Sorry Chris, I mean theautomaticearth at gmail.

Greenpa said...

"You can argue all you want about reality, its the perception of reality that matters."

STILL laughing here. Good luck with that!

(There is some convincing historical evidence that people/people with major delusions go extinct shortly after they start to believe reality doesn't matter.)

Gravity said...

About energy as the master resource, is it not a certain potential of energy gain that would be the functional master resource; net energy returned on energy invested, the sustainable capacity to use energy to harvest or harness more energy?

According to some, industrial civilization somehow requires a minimum net energy ratio of 5:1 on primary sources to accomodate the magnificent complexity we depend on, so that each harvested joule should be capable of multiplying itself by five in aggregate energy production. Below such a threshold modern industrial complexity would become unsustainable.

zander said...

I perceive reality to be totally unrealistic, so do I exist???

10500 is gone and
I'm currently preparing to relocate in eastern tasmania as a reclusive rufous wallaby.


Josh said...


Perception of reality is the only thing that gets you out of bed in the morning. Your perception of reality tells you to tend your nut groves. In reality, you and your nut groves are nothing but short-lived intermediates in the carbon cycle, soon to be recycled and forgotten. Even biology ABDs should know that. Delusional behavior isn't limited to bean-counters in Manhattan office towers. It keeps all of us warm and cozy in our skull-sized kingdoms.

Bigelow said...

2009: The Year of the Great Vampire Squid --C.A. Fitts
“For years, it was hard for many of us to fathom the psychopathic nature of our financial elites, or to expand the meaning of Matt Tabbi’s marvelous description of Goldman Sachs, the great vampire squid. Squid seems a fitting name for the financial cartel that drives what I have traditionally called the Tapeworm.

There were some who saw the danger immediately and tried to warn us, like Sir James Goldsmith. There were some, like myself, who tried to prevent the housing bubble and find alternatives to investing our life savings in it.

While those efforts did not stop the squid, they certainly made it clear that the squid take down of the planet was, indeed, a plan. That’s all documented now.”

Top Hat Cat said...


"The aide said that guys like me were "in what we call the reality-based community," which he defined as people who "believe that solutions emerge from your judicious study of discernible reality." ...

"That's not the way the world really works anymore," he continued. "We're an empire now, and when we act, we create our own reality. And while you're studying that reality—judiciously, as you will—we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors…and you, all of you, will be left to just study what we do."

~KKKarl Rove~ Goebbels Wannabe

Ric said...

Re: Mandel's Economic Stat of the Decade award, I'm partial to (in the US):

Total American Debt vs National Income

If you can't service the debt, the debt pyramid comes down. Is there a chart that helps illustrate that inflection point?

Thank you (I think ;-) The wife will go nuts.

Gravity said...

The excess purchasing capacity of all those people who download is certainly not equal to the total price of downloaded material, hence someone has miscalculated the loss.

The theoretical demand for downloaded product is only limited by bandwidth and available leisure time, the practical demand for the monetised product can only be expressed through money, and is limited by disposable income which is just not there.

In fact, frustrating downloading activities at the wrong time in this deflationary depression could actually ruin the productive parts of the industry, in so far as sustained output and employment are counterintuitively dependent on income streams generated by free exposure of marketable product that would otherwise never be bought.

Shutting down illegal downloading could also marginally increase the chance of civil unrest, in so far as certain parts of the population are effectively placated by the availability of said content, whereas monetised product would be unaffordable and regular media content would be insufficient. (unlikely)

Greenpa said...

Lord of the Pigs: "Perception of reality is the only thing that gets you out of bed in the morning. Your perception of reality tells you to tend your nut groves. In reality, you and your nut groves are nothing but short-lived intermediates in the carbon cycle, soon to be recycled and forgotten."

Yes, yes, all perfectly true. And all totally irrelevant to the discussion. There is very little you can tell me about this conversation; I'm intimately familiar, from all aspects.

Including personal experience- on all sides. OF COURSE my perception is - what I perceive. And is pretty much guaranteed to NOT reflect all aspects of objective reality.

On the other hand; I have several clients who persist in completely delusional behavior regarding their nut plantings. They believe money will grow on them; without fertilizer; which is not at all what I teach- or "know".

They're growing broke. I'm not. The difference between a delusional model of reality; and a somewhat reasonable model.

Ilargi said...

New post up.

Get the hell out of Dodge


Dov Henis said...

Fractals From Inflation To Life

For a convincing integrated conception of Fractals From Inflation To Life
look at the following notes, or wait until the 22nd century:

On RNA Cell Faring Programs

Cosmic Evolution Simplified

28Dec09 Implications Of E=Total[m(1 + D)]

03.2010 Updated Life Manifest

Dov Henis
(Comments From The 22nd Century)

ali anani said...

This is a great source of information on social fractals with perspectives coming from different angles.
I want to record my appreciation of this work