The iPAD and I ... Part 1

Best thing since sliced bread? Well, maybe. So a quick summary of my current opinion.

OK, I like my iPAD very much. Perhaps Apple should have named it the iPED for Personal Entertainment Device, it really is a wonderful gadget. So why do I like it so much? For one it is highly portable, no mouse, no physical keyboard. The UI (user interface) is very nice. I suppose since I never owned an iPOD, the UI is new to me. The use of icons for programs and Web pages is very handy. The browser is very nice, very capable even without FLASH.

I do have a couple of issues mostly minor at this point.

For one, there does seem to be a problem with the browser, if you have a window within your main window, it does not scroll. This is very annoying, there are a variety of sites that use this feature, for example, a menu might be a "subwindow" in the main window, you only get to see the top portion. In fact there are many lists that are used by some WEB sites where you get to see only the top part.

Second, if you browse a book on Amazon, you have the option to look at front cover, back cover, table of contents, first few pages of the book and perhaps a few pages randomly selected. Like the previous issue, the browser does not handle this very well. You can see the top 2/3rds of the page but not the rest. So after viewing the partial table of contents pages, the text pages of the book get squished. Very annoying. I have tried the Amazon app, specifically fitted for the iPxDs but I still prefer the Amazon Web site.

Third, this is probably by design, the keyboard as far as I can tell does not support a "backspace". Yes it does have a backspace that earses but not a cursor backspace. You have to use your fingers to position the cursor. This makes editing annoying as you can't fix a error in the middle of a string without some ackward finger positioning.

In any case, these seem relatively minor issues as compared to the entire package. So, if you don't have an iPOD but enjoy surfing the Web without being tied to an ackward laptop or even a NetPC, I suggest you get one.

Illinois ... An American Joke

In a previous post I wrote about the monetary issues plaguing Illinois. Well it has not gotten any better. By the end of June, the state needs to pay over $7 BILLION which it does not have. According to the following article, "Mr. Quinn presented a budget in March that would still leave the state with a $10.6 billion deficit. ". Mr. Quinn is the current governor of Illinois.

So if you think Illinois bares no resamblance to Greece, think again. Once Illinois has to make deep cuts to its budget, will there be people with bricks in the streets. I guess we will see.

But as in Greece the legislature is unwilling to make appropriate changes to how money is spent. Acting in a cowardly fashion, saving their electoral skins, they will defer making important decisions until it is too late.

"Illinois Comptroller Daniel Hynes said in his April report that the state's cash position for the quarter ending June 30 "looks exceedingly difficult." By June 10, Illinois must repay $1.75 billion, plus interest, in short-term borrowing.

Meanwhile, the state still owes billions of dollars to hospitals, universities, social-service providers and others. Mr. Hynes said the state's backlog of unpaid bills probably will exceed $5.5 billion at the end of June."

http://online.wsj.com/article/SB10001424052748703686304575228582377071698.html?mod=WSJ_article_LatestHeadlines

Can the military keep its edge?

As nations scramble for raw materials, the US military is thrown into the fray. As China and India as well as the rest of the world demands more raw materials, the US military must deal
with limited quantities of resources scattered around the world.

More to be said on this topic later. But the following article illustrates the current predicament for the Defense Dept.

http://online.wsj.com/article/SB10001424052748704608104575220112898707130.html?mod=WSJ_hps_MIDDLEForthNews

Republicans are Anarchists

Whatever happened to the party of "Law and Order"?

Growing up during the Vietnam War, the Left was considered anti-government and the Right was pro-government. How times have changed.

Democrats are accused of becoming socialist because they support government rules to manage an orderly process in the governance of the country. At the same time, Republicans have become the party of removing government rules that manage orderly regulatory laws. They seem to prefer a lawless, "wild-west" approach to medical and financial approaches to the US economy.

So in the grand scheme of things, if Democrats are portrayed as the party of Socialism, then Republicans should be portrayed as Anarchists.

Anarchists support an anti-government society. That to me is certainly the mindset of the Republican party. Why have laws?

This push for an anti-government philosophy seems to have been pushed by right-wing extremists. It seems, looking at developments over the past several months, that Republicans accepted an opportunity to join groups opposed to Barack Obama. Whether the opposition is beneficial for the country seems secondary, the focus seems to be to oppose Obama at any cost.

Thus as an alliance of convenience in opposition to Obama, Republicans connected with these right-wings extremists. Is this the best for the country or just people with a grudge seems unclear. Similarly what is the connection with respect to the Republican party with the "Tea Party" movement and the rise of "militias".

So looking into the future, will Republicans become ever more polarized by continuing to promulgate an anti-government philosophy? Or will they distance themselves from the fringe splinter groups such as the "Tea Party".

Taking back government? Less taxes? What does this mean other than empty slogans. Perhaps someone can explain what taking back government means. Less taxes? Under Eisenhower and Kennedy the upper end of the tax rate was 92%, it is now somewhere around 35%. I do believe the US was not socialist under Eisenhower.

"Anarchism is a political philosophy which considers the state undesirable, unnecessary and harmful, and instead promotes a stateless society, or anarchy.[1][2] It seeks to diminish or even abolish authority in the conduct of human relations." [from Wikipedia]

A Polish Tragedy

Here is a photo list of the most prominent Poles who lost their lives at Smolensk Airport. The list is from a Polish web site so the language is Polish but it does give a prespective of the lives lost in this tragedy.

http://wiadomosci.onet.pl/150325,21,0,0,1,pokaz.html

ACM Competition -- MIT, a loser!

US Universities Can't Compute

A lot of literature has been dedicated to education in the US. Much of the discussion centers around K-12. But maybe we should be looking beyond K-12 and what is happening at our colleges, especially considering the results of the ACM competition. This is in light of the fact that there is a battle going on in the Internet. Cyber-attacks are pervasive. Many of them originating in China allegedly (more on that later).

The ACM (Association for Computing Machinery) is a professional organization dedicated to all things related to computers and computing. Once a year, it hosts a competition among colleges and universities world-wide. The competition deals with solving computer-related problems.

MIT is a loser! Rather a bold statement, but when MIT finishes in the "peloton" of a competition related to computers, maybe it is not so outrageous. In fact MIT finished behind Stanford, Cornell and CMU as far as American entries were concerned. Which themselves finished 14th, 15th, and 17th respectively, although they all are listed as 14th.

So who were the winners? Of the top ten, 4 were from China and 4 were from Russia; the remaining two, one was from Ukraine (#4) and the other was from Poland (#8).

While winning competitions is not a predictor of the ability of a nation to deal with the issues of Internet security, it does point out the strength of students and potentially the future workforce for all things Internet. This includes cyber-attacks and cyber-protection.

The Competition

From the news release:
"The contest took place in Harbin, China with 103 teams competing in the final round. Earlier rounds of the competition included 22,000 contestants representing 1,931 universities from 82 countries. The top four teams won Gold medals as well as employment or internship offers from IBM." [http://www.acm.org/press-room/news-releases/2010/icpc-2010]

The Results

http://cm.baylor.edu/ICPCWiki/Wiki.jsp;jsessionid=DDAD0FF7938BF90C73C0D917AF29F681?page=Results%20World%20Finals%202010

The Problems

The problems are listed under the first column in pdf (finals problems). [http://cm.baylor.edu/welcome.icpc]

iPAD Setup

Just a quick link to what I find is a nice description of dealing with your new iPAD. I continue to believe that the iPAD may change the way we interact with the Internet.


http://gizmodo.com/5508769/how-to-set-up-your-ipad?skyline=true&s=i

Pension Debt

It is amazing that whereever you turn in the US, there are huge amounts of debt. Besides the federal and state spending, consider pension funds in the various states. Furthermore, these pension finds are guaranteed by state constitutions, which means they MUST payout before payroll and other state obligations.

One of the most debt-ridden entities in the US seem to be pension funds. As we have mentioned in the past states like New Jersey have an acculmated pension deficit of $46B and the city of Chicago alone has a pension deficit of $18.5B. While Illinois itself has a pension deficit of $35B. Other states and municipalities are not necessarily in better shape.

http://articles.chicagotribune.com/2010-03-07/news/ct-met-public-pensions-cost-0308-20100307_1_pension-funds-public-pension-funding-deficit

http://www.chicagobusiness.com/cgi-bin/news.pl?id=8191

And yet the pension funds continue to play Russian roulette with their funds expecting Vegas-like returns. Consider the following item reported in the NY Times. The pension funds "gave" private equity firms $17B just so that they can have illiquid assets.

"The nation’s 10 largest public pension funds have paid private equity firms more than $17 billion in fees since 2000, according to a new analysis conducted for The New York Times, as the funds flocked to these so-called alternative investments in hopes of reaping market-beating returns. [http://www.nytimes.com/2010/04/03/business/03equity.html]

Jobs, Jobs, Jobs

The end of the week seemed to be a public relations coup for the Obama administration. They exalted in the employment figures which indicated that payrolls rose by 162,000 workers. And all the paundits were saying how the employment numbers grew by the most in 3 years. All this seems to indicate that the recession is over and happy days are here again.

http://www.bloomberg.com/apps/news?pid=20601010&sid=aDCWdea8_JO0

But in my view there is no silver lining, the US continues to live off printing money. This is indicated by the trade deficit numbers. Consider the deficit numbers in January. There was a deficit of $37.3B. As we have preached in the past, the US must become more self sufficient in manufactured goods. While the US struggles to blame China for currency manipulation, there is no effort to try to deal with increasing manufacturing in the US itself. This is akin to blaming the drug supplier for the demand of the drug user. Irrespective of whatever monetary policies the Chinese chose to follow, the US should encourage in every way possible the return of manufacturing items back to the US. The US must relearn to make shoes, shirts, hats,etc.

And while it is necessary not to begrudge anyone getting a job, it is also important to understand that the more money the government throws into the system, the more likely it is that some if not most of that money will leave the US. Thus incentives like federal-back infrastructure jobs (not to mention the current increase of census workers) hire people (a good thing), pay them so that they can spend money on imported necessities. So the government creates more money only to see that money (or a good portion of it) leave its shores. Again this is not sustainable.

So the bottm line, solving the recession or making the US a strong economic (viable) country is NOT about more jobs, it is about creating an environment so that manufacturing companies are more likely to build in the US. Once that is done, the jobs will come!

"The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Departmentof Commerce, announced today that total January exports of $142.7 billion and imports of$180.0 billion resulted in a goods and services deficit of $37.3 billion, down from $39.9billion in December, revised. January exports were $0.5 billion less than December exportsof $143.2 billion. January imports were $3.1 billion less than December imports of $183.1billion."

http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

And then there is California - $20 Billion Deficit

Not to be outdone, there is California with a $20 Billion deficit. One problem that is inherent in the system is that we have been living in a dream world of sustained growth and thus more revenue from taxes. But all the money is in China (more on that later). With China holding $3 Trillion, because of the trade deficit, that is money that is not taxable.

"Our forecast of California’s General Fund revenues and expenditures shows that the state must address a General Fund budget problem of $20.7 billion between now and the time the Legislature enacts a 2010–11 state budget plan. The budget problem consists of a $6.3 billion projected deficit for 2009–10 and a $14.4 billion gap between projected revenues and spending in 2010–11. Addressing this large shortfall will require painful choices—on top of the difficult choices the Legislature made earlier this year."

http://www.lao.ca.gov/2009/bud/fiscal_outlook/fiscal_outlook_111809.aspx

New Jersey - Take 2

Earlier we wrote of the about the deficit haunting New Jersey. It seems that it was just part of the story. It did not take account of the pension fund which has an accumulated deficit of $46 billion.

Not to pick on NJ, but this shows the predicament that states have gotten themselves into. With few exceptions, most of the country faces similar problems.

http://www.businessweek.com/news/2010-02-25/new-jersey-pension-deficit-grows-to-46-billion-update2-.html

Fox Interview of Pres. Obama on Healthcare

Recently Bret Baeir of Fox News interviewed Pres. Obama regarding health care. My only comment is that I hope in the future that Fox News give the same respect to Sarah Palin that they gave Pres. Obama. After all, they are fair and balanced.

Actually the more I think about it, is there any way we can get Bret to interview Sarah Palin?

http://video.foxnews.com/v/4113350/fox-news-exclusive-president-obama/?loomia_ow=t0:s0:a16:g2:r5:c0.037577:b31982604:z6

Microsoft Data Centers

How many data centers does Microsoft have? According to the following article, more than 10 and less than 100. Obviously Microsoft wants to protect its data (not unlike Google and others). This is a short article about what Microsoft has, the pictures are cool as are the videos.

http://gizmodo.com/5495174/this-is-the-cloud-inside-microsofts-secret-stealth-data-centers

New Jersey outlines its deficit - $11bn

One by one, the states are showing the desparate shape they are in. Previously we mentioned how Illinois had a deficit of $13bn, consider New Jersey with a deficit of $11bn. This is just the beginning of a long decline of states being able to meet their fiscal responsibilities. Furthermore, this reaches much further down as municipalities also face growing deficits. While "economists" (the same ones that couldn't or wouldn't predict the financial collapse) tell us that the US is no longer in a recession, states are reeling from unprecedented deficits.

http://www.newjerseynewsroom.com/state/new-jerseys-state-budget-deficit-could-reach-11-billion

Financial Warfare - Part 1

This blog begins a new thread that I want to discuss and maybe get feedback. I have discussed much in the nature of the current financial status (and there is more to come). Most of it giving information about the "numerology" of the economic world. Also I have discussed some aspects of cyber-conflicts.

The topic that I want to consider is "financial warfare", by this I mean the ability of a nation or an organization (NGO) to "attack" the economic wellbeing of a sovereign state. The attack can come in many forms, open or covert. It can come through currency manipulation, aggravated marketing, cyberattacks on the bank system, etc. The purpose being to manipulate the country into certain behaviour or just plain terrorism. The dependence of a nation on the Internet makes covert or cyberattacks more probable, just consider the recent attacks on Estonia allegedly by Russia. [http://en.wikipedia.org/wiki/2007_cyberattacks_on_Estonia]

I would consider "vanilla" financial warfare as being an open (non-cyber) attack on the financial condition of a nation. One form of financial warfare is the sanctions placed on countries that don't comply to specific demands. Consider banking restrictions on Iran, implementing severe restrictions on Iran to do business due to imposed restrictions on how much business it can do can be considered a form of financial warfare. But "financial attacks" can be more immediate.

One of the most flagrant financial attacks was by the US against a supposed ally, Great Britain, during the 1956 Suez Canan crisis. In an article in "Wired" magazine,

"During the 1956 Suez Canal crisis, for instance, President DwightEisenhower used market pressures to keep the UK and France from attacking Egypt by ordering theTreasury Department to flood the market with the Sterling. "This depressed the value of the British pound, causing a shortage of reserves needed to pay for imports," writes Yale management professor Paul Bracken. "The message quickly got through to London, which, along with Paris, soon pulled out of the Canal."
[http://www.wired.com/dangerroom/2009/03/finance-threat/#ixzz0gVKwGQq2 ]

What does this mean for the US? Consider how much the US financial system is leveraged, the ability of China to pursue actions not unlike what the US did to Great Britain is not out of the question. Can (or will) China be able or willing to "punish" the US for actions it (China) considers objectionable is certainly not out of the question. Recently Chinese PLA (Army) officers urged the sale of US bonds as a punishment for US sales of weapons to China. While this did not happen, the future is less certain. [http://www.reuters.com/article/idUSTRE6183KG20100209 ]

Another aspect to consider is the role on NGOs. Given the amount of money that is held by private organizations, it is not out of the question that these entities could do serious harm to the wellbeing of nations. While probably not a hostile attack, consider the role of Goldman Sachs in creating the financial crisis in Greece.

GM ... Telecom Execs take over

Is it possible for GM to get into more trouble? Well, consider that Pat Russo has become lead director. Pat Russo was the Lucent CEO during the Alcatel takeover. She became the CEO of the mergered companies before being replaced recently. As the article states two other directors have serious Telecom backgrounds.

Considering Nortel, Lucent, and other Telecom companies, maybe a Telecom background is not the the right model for GM or the auto industry. Maybe a more successful corporate business model would be more beneficial for GM. Let's see banking, NO, manufacturing, NO; can't think of a recent success story for a large scale company in the US.

In any case, we can only hope that GM is successful. For I do believe that manufacturing of any kind is beneficial to the wellbeing of the US economy.

http://www.bloomberg.com/apps/news?pid=20601108&sid=a1SlWVy9fwvw

Weakness found with RSA

Just a quick post for the techie at heart. RSA is a commonly used encryption method found just about everywhere.

According to the article

"The scientists found they could foil the security system by varying the voltage supply to the holder of the "private key," which would be the consumer's device in the case of copy protection and the retailer or bank in the case of Internet communication. It is highly unlikely that a hacker could use this approach on a large institution, the researchers say. These findings would be more likely to concern media companies and mobile device manufacturers, as well as those who use them."

http://www.ns.umich.edu/htdocs/releases/story.php?id=7551

All the money in the world - Part 3

Let's continue with the numbers. I'll try to wind down a little on this topic. But given the numbers, I would say there is no good news regarding the US economy. No matter what the experts say!

It seems that everyone is fixated on the stock market or the job numbers. But to me the only number that matters right now is the trade deficit, not the budget deficit althought it is important as well. Between the trade deficit and interest payments on US government borrowing, dollars seem to be the major export commodity. So let's look at the numbers.

The GDP of the US in 2008 was roughly $14tr. The GDP of the "world" ( sum of the GDPs of the countries of the world) is roughly $60tr. Remember that this year 2010, the US debt is $14tr. That is roughly 100% of the GDP. In 2009, the interest payment was $189bn of which 50% goes into foreign hands.

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

So here are the numbers regarding the federal budget. This is a little off as the income stream is from 2007, but assume that the numbers have not changed drastically in the following years. Although presumably with the increase in unemployment and lower profits, there will be some decrease in tax revenues.

US Income: about $2.7tr (in 2007 before refunds)
US Budget: $3.6tr (approx.)
$2.2tr mandatory
$1.4tr discretionary
-------------------

So again roughly, the US is about $1tr in the hole. Needs to borrow. And, of course, the current lender of choice is China. Let's see why.

Of the foreign debt, approx. $3.7tr, China and Japan hold about 45%, which is $1.66tr. But that is not the entire story, China held $2.4tr at the end of December 2009 in foreign reserves. This is obviously due to the trade imbalance between China and the US. Also the US is paying $189bn in interest payments, of which approx. $45bn is going to China. So what does it mean to hold more in IOUs than the entire amount of cash that the US has?

The US trade deficit with China in 2009 was $227bn. In 2008 the deficit was $268bn; $258bn, $234bn in 2007 and 2006 respectively. In fact you need to go all the way back to 1985 to get a semblance of parity. This is the reason that China has become the bank for the US. When the US government needs to borrow money, the place to go is China. And to reiterate, the reason that China is the lender of choice is because of all the stuff we have bought from China.

So the other unfortunate part to this, is that there is all that money that can't be taxed! The more money the US gives to China, the less amount of wealth there is in the US to be taxed.

http://www.census.gov/foreign-trade/balance/c5700.html

So what is the answer?

Clearly the US and the Obama administration have been trying to get China to raise the value of their currency. This would make imports more expensive and presumably make Chinese imports more expensive. People would spend less on Chinese products, and thus lowering the trade deficit.

Does China want to continue funding the US economy? In the following article, Kenneth Rogoff argues that the next move is for China.

"China needs to strengthen its social safety net and to deepen domestic capital markets before consumption can take off. But, with consumption accounting for 35% of national income (compared to 70% in the US!), there is vast room to grow."

http://www.project-syndicate.org/commentary/rogoff61/English

Far for me to disagree with Prof. Rogoff, but I will.

The US has a problem, and it is up to the US to solve it, not wait for external events to fix it. The problem is the consumption that Prof. Rogoff talks about. But more to the point it is consumption for cheap goods. We can call it the "Walmart Syndrome" or the US, the "Walmart Nation". Buy lots and buy it cheap. If fact make it so cheap, that US manufactures can't produce the goods because of all the federal and state "safety" nets that don't exist in China. There is certainly a moral question that we can explore in another blog.

Bottom line, the US needs to bring back manufacturing of goods that are currently imported at the cost of over $200bn annually. So as a nation, is it really cheaper to build goods overseas? Probably not. Lost jobs, and lost tax revenue both at the state and federal level. It just seems cheaper when you look at the price at Walmart, forgetting that is being subsidized by the US government with a BIG credit card.

Enough for now, more on jobs in a later blog.

Other Holders of Dollar Wealth

Just a quick prelude for another topic.

According to Forbes magazine, the combined wealth of the first 35 richest Americans is roughly $500bn. It is not difficult to calculate that 400 Americans have in excess of the total physical money supply of the US. Furthermore, 400 Americans control over 10% of all the cash in the US, this includes M0 through M3.

http://www.forbes.com/lists/2009/54/rich-list-09_The-400-Richest-Americans_Rank.html

If that is not bad enough, just a few "Tech Giants" hold $265bn. So while the unemployement rate hovers around 10% (or 18% effectively), American companies are sitting on a pile of cash.

http://247wallst.com/2009/11/12/tech-giants-now-hold-265-billion-cash-to-spend-hpq-coms-intc-amd-msft-csco-aapl-goog-orcl-java-qcom-emc-yhoo-dell-amzn-ebay-ont-brcd-jdsu-star-vmw/

...

Is seems to me that there is something wrong when China and a few individuals and corporations hold some much wealth while the US federal government struggles with finding money to pay for unemployment benefits.

The Economic Destruction of Illinois

In a previous post regarding the financial condition of the US, I mentioned that for the time being I would not consider state issues. This post is a little detour.

The state of Illinois has an estimated $13bn deficit. That number is one-half of the revenues that the state brings in. Of course the revenues of $27bn is also an estimate for this year. Furthermore, the pension systems are underfunded to the tune of $62bn. In one county, the sheriff's patrol cars have been repossessed.

There is no way that Illinois can recover without federal aid. But that is only Illinois, what about California? New York? For example, California faces a $20bn deficit. And that is for the current fiscal year. Next fiscal year, 2010, the shortfall is predicted to be $40bn.

As reported by The Telegraph, according to the Economic Policy Institute states face a shortfall of $156bn in fiscal 2010. In any case, the federal government can only subsidize the states for a limited period of time. So while the President and Congress fiddle with health care and wars, Rome is burning.

http://online.wsj.com/article/SB10001424052748703795004575087733732827118.html

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7338857/Dont-go-wobbly-on-us-now-Ben-Bernanke.html

http://sunshinereview.org/index.php/State_budget_issues,_2009-2010

All the money in the world - Part 2

To continue the thread we started in the earlier article, there are certain statistics that we did not cover. Thus we need to collect more information about how much money there is and how much is used and how much is created. Sometimes this is like comparing apples to oranges as data is available from different years. But hopefully the scale of the issues will become clear or clearer based on this information.

Also the information presented deals with the US as a whole, we did not present a state by state debt totals. These are probably very significant given the size of the economies of California, New York, Texas, etc.

The information that was not covered includes the budget of the US. Here is the tax revenue for the federal government for the year 2007.

It is about $2,691,538,000,000 or about $2.7 trillion in 2007 before refunds.

[http://www.irs.gov/taxstats/article/0,,id=102886,00.html]

On Feb. 12, 2010, President Obama signed into law an increase to the federal borrowing limit by $1.9 trillion The federal government can now borrow $14.3 trillion. This is evidently what the federal government needs to function for the rest of the year. The House had already approved this several weeks ago.

US Budget
Mandatory spending: $2.184 trillion
Discretionary spending: $1.368 trillion

[http://en.wikipedia.org/wiki/2010_United_States_federal_budget ]

The following article from Bloomberg discusses the nature of public debt in order to finance growth. This has been the success story of America's economy till now. The problem is that
there is too much debt already. In the past when a recession is occuring, the government goes into deficit spending in order to jumpstart the economy. This has worked well in the past. There is concern that the current debt just does not allow for the same type of measures as in the past.

[http://www.bloomberg.com/insight/america-tied-up-by-record-debt.html]

Private Debt

Mortgages

The value of all outstanding residential mortgages, owed by USA households to purchase residences housing at most four families, was US$9.9 trillion as of year-end 2006, and US$10.6 trillion as of midyear 2008. During 2007, lenders had begun foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006. This increased to 2.3 million in 2008, an 81% increase vs. 2007, and again to2.8 million in 2009, a 21% increase vs. 2008. This is a little dated, but it only has gotten worse.

[http://www.federalreserve.gov/newsevents/speech/Bernanke20080505a.htm]

Student Loans

There is an estimated $730 billion in outstanding federal and private student-loan debt, says Mark Kantrowitz of FinAid.org, a Web site that tracks financial-aid issues—and only 40% of that debt is actively being repaid. The rest is in default, or in deferment, which means that payments and interest are halted, or in "forbearance," which means payments are halted while interest accrues.
http://online.wsj.com/article/SB10001424052748703389004575033063806327030.html?mod=WSJ_hp_mostpop_read

Credit Cards

There were 26.5 billion credit card transactions in 2008, totalling $2.1 trillion. That's up from 21 billion transactions totalling $1.4 trillion in 2003. (Source: Nilson Report, December 2009)
At the end of 2008, Americans' credit card debt reached $972.73 billion, up 1.12% from 2007. That number includes both general purpose credit cards and private label credit cards that aren't owned by a bank. (Source: Nilson Report, April 2009)
http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

Six Interesting Books on the Financial Crisis

OK, so I have a personal list of books to read to better understand what is going on with the financial issues of today. Feel free to add your favorite list. Some are of historical interest, others are current, while still others are informational. Why 6, because 6 is a "perfect" number. I have a few others but this is a good start.

So here goes:

1) "Changing Fortunes, The World's Money and the Threat to American Leadership" by Paul Volker and Toyoo Gyohten. [http://www.amazon.com/Changing-Fortunes-Worlds-American-Leadership/dp/0812922182/ref=sr_1_1?ie=UTF8&s=books&qid=1266111684&sr=1-12]

This was actually written in 1992. But now that Paul Volcker has some influence it is interesting to get a perspective of his thinking then. There are more contemporary Paul Volcker books that you may check out. This describes more of a macro level as opposed to the rest that deal with financial markets. So more from government policy issues as opposed to market issues. Explains the Bretton Woods era, the place of gold.

2) "When Genuis Failed, The Rise and Fall of Long-Term Capital Management" by Roger Lowenstein. [http://www.amazon.com/When-Genius-Failed-Long-Term-Management/dp/0375758259/ref=sr_1_1?ie=UTF8&s=books&qid=1266111402&sr=8-1 ]

This has become a classic in understanding how brilliant minds, Nobel Prize winners almost brought down the financial system. How the Fed gathered the leading bankers of the time for a Sunday meeting and told them that they would bail out LTCM. A story of how a "David" hedge fund can bring down a "Goliath" financial system.

3) "Against the Gods, The Remarkable Story of Risk" by Peter L. Bernstein [http://www.amazon.com/Against-Gods-Remarkable-Story-Risk/dp/0471295639/ref=sr_1_1?ie=UTF8&s=books&qid=1266111436&sr=1-1 ].

This is a historical narrative on, of course, risk and how we should not fear it. Ha! It explains from a historical perspective of how risk came under control over the years. It start with the Greeks and ends in the modern era. The book was written before the current crisis.

4) "Stabilizing an Unstable Economy" by Hyman P. Minsky [ http://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997/ref=sr_1_1?ie=UTF8&s=books&qid=1266111482&sr=1-1 ]

This is tough read. From the cover (Wall St Journal) it says basically that Minsky fostered the idea that financial system are inherently flawed and thus susceptible to speculation leading to crises. As if we haven't learned that lesson the hard way. Anyway, if you have the will power this is a good read. This is by far the most technical of the books in this list, but well worth it, I think.

5) "The Panic of 1907, Lessons Learned from the Market's Perfect Storm" by Robert F. Bruner and Sean D. Carr [http://www.amazon.com/Panic-1907-Lessons-Learned-Markets/dp/0470452587/ref=sr_1_1?ie=UTF8&s=books&qid=1266111523&sr=1-1 ]

The 1907 Crisis lead to the creation of the Federal Reserve System (the Fed). In this story, the government stayed out and J. Pierpont Morgan came to the rescue. It all started with the San Francisco earthquake. This is a great read from a historical perspective. Nice historical "novel", by that I mean it is a relatively easy read.

6) "A Demon of our own Design, Markets, Hedge Funds, and Perils of Financial Innovations" by Richard Bookstaber [http://www.amazon.com/Demon-Our-Own-Design-Innovation/dp/0470393750/ref=sr_1_1?ie=UTF8&s=books&qid=1266111561&sr=1-1 ]

Not well understood by mere mortals are hedge funds, derivatives and other machinations and so this book hopefully explains some of those concepts. For me, it made me shiver as it started talking about Jack Grubman and WorldCom. Having lived through those times, it brought back memories. It does revisit LTCM.

Verizon to offer Managed Security Services

Security services seem to be catching up to business customer security requirements. Offloading security services under a managed umbrella from a large service provider such as Verizon for small and medium businesses is probably a very viable service. Large businesses probably have sufficient internal IT resources to deal with security threats, but this is very different for smaller businesses. Small businesses need to deal with the same threats as much larger corporations but without the financial resources or IT capabilities. The cybersecurity threats could be ignored, with the appropriate amount of risk to business operations.

From LightReading:

Verizon Taps McAfee for SMB Security

Verizon Business is teaming up with McAfee Inc. (NYSE: MFE) to offer mid-sized businesses a managed security service that makes it easier for them to stay up-to-date on potential network threats.

The suite of security services protects against five basic types of security threats faced by companies with between 20 and 1,000 employees: network, endpoint, Web, data, and email. The new services come in two flavors: McAfee Total Protection Service -- Advanced, which is hosted within the McAfee Software-as-a-Service infrastructure and doesn't require investment in hardware; and McAfee Total Protection for Secure Business, which provides software that a business can download on its own servers.

http://www.lightreading.com/document.asp?doc_id=187716&

http://www.mcafee.com/us/partners/global_strategic_alliances/verizon.html

http://www.internetnews.com/security/article.php/3859736

http://www.net-security.org/secworld.php?id=8794

Google and NSA

In an earlier post, I wrote about the problems of cyber-attacks on corporate infrastucture giving as an example the attack on Google. Well, it seems that Google has now teamed up with the National Security Agency (NSA) to investigate the attack. What this means and how far will this agreement will go is up for speculation. But at least in my opinion this is a good start. The NSA is tasked with monitoring communications across the world for the protection of the US. Anything federal agencies can do to enhence the protection of US corporations is positive news.

http://www.washingtonpost.com/wpdyn/content/article/2010/02/03/AR2010020304057_pf.html

All the money in the world

OK, the amount of money in the world is not infinite. Given that the US is about to spend $750 billion on defense, I was curious how much money there is in the world. How much money the US has, how many dollars China has. So here are some statistics for the curious. I don't try to make any conclusions here, that is for another blog, but I wanted at least to get a sense of perspective of the available cash in the world.

A calculation in January 2009 was done by Mike Hewitt of the economics blog DollarDaze.com. Hewitt calculated that in October 2008, there was about (in notes and coins of countries that comprised about 97% of the world's GDP) the equivalent of $3.94 trillion in U.S. dollars in circulation [source: Hewitt].

M0 is the amount of outstanding notes and coins in circulation. According to the Federal Reserve, there was $908.6 billion in the M0 supply stream as of July 2009 in the US [source: Federal Reserve].

Thus, about 25% of money (cash) circulating in the world is American dollars.

The global market capitalization for all stock markets that are members of the World Federation of Exchanges was $32.5 trillion by the end of 2008.[http://www.world-exchanges.org/about-wfe] [2008 WFE Annual Report, p. 84]. By comparison, the New York Stock Exchange capitalization is $28.5 trillion as of May 2008. [http://en.wikipedia.org/wiki/New_York_Stock_Exchange].

Just for thought, cash in the US = $908 billion, market cap of NYSE = $28 trillion.

Getting back to the US and the rest of the money, after all there is more money than $900 billion. The rest of the money is held in bank accounts of various types, and the Federal Reserve tracks these funds in three different values known as the M1, M2 and M3 money supplies:

M1 represents all of the currency in the M0 money supply, plus all of the money held in checking accounts and other checkable accounts, as well as all of the money in travelers' checks. In July 2009, the M1 money supply for U.S. dollars equaled about $1,655.6 billion [source: Federal Reserve].

M2 is the M1 supply, plus all of the money held in money market funds, savings accounts and small CDs. In July 2009, the M2 money supply was about $8,326.8 billion [source: Federal Reserve].

M3 is M2 plus all of the large CDs. As of March 2006, the Fed no longer tracks the M3 money stock as an economic indicator. That month, M3 totaled around $10.3 trillion [source: St. Louis Fed].

[http://money.howstuffworks.com/how-much-money-is-in-the-world.htm]

And lest we forget, the current US debt is $12,346,427,470,024.01, about $12.3 trillion. That is 4 times the total amount of cash in the world, to put it in perspective. Furthermore it is more than M3, total money in the US. [http://www.treasurydirect.gov/NP/BPDLogin?application=np]. Where there is debt there are interest payments. The annual interest payments by the US is about $400 billion annually. [http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm]

So how do we get out of this mess?

US and China

When it comes to trade, according to the US Census Bureau, the US deficit with China in 2009 was about $208 billion (excluding December).http://www.census.gov/foreign-trade/balance/c5700.html.

At the same time China held about $2.4 trillion in foreign reserves, of which it seems that $2.1 trillion is in US dollars. That is more than 2 times the amount of total cash in circulation in the US. [http://en.wikipedia.org/wiki/Foreign_exchange_reserves]. [http://news.xinhuanet.com/english/2009-07/15/content_11710420.htm]

Furthermore, the US debt to China, in form of US Treasuries, is around $800 billion as of Nov. 2009. [http://en.wikipedia.org/wiki/United_States_public_debt], [http://www.ustreas.gov/tic/mfh.txt].

Enough information for now, more to come so that we can make some conclusion about what it means to have a Federal budget of over $1 trillion and where will the money come from.

iPAD, Microsoft and Cybersecurity

OK, so cybersecurity is one of my favorite topics. There are lots of issues associated with cybersecurity both personal and social. Having said that, there are two innovations that I think work in the interest of corporate protection of data, one is the release of the iPAD and the other is Micorsoft's release of WEB-based M/S Office.

The great security feature of the iPAD is its lack of an USB port. I'm sure that it was not the intent of Apple to provide a non-USB device for the purpose of enhancing security but I think that a corporate IT infrastucture that does not have to worry about people storing data on USB devices or inserting USB memory sticks embedded with viruses is a good thing. Unfortunately, there are adapters but maybe there are ways to disable such devices for corporate applications.

Anecdotally, I have recently read about stories where an USB memory stick being left in a parking lot of a coporation with the appropriate logo of that corporation. A curious employee takes the USB device, inserts it into their PC and opens it, releasing a virus that has penetrated the best of Firewall, Router, Intrusion detection methods. With no USB ports, a product like the iPAD provides protection against such methods.

And now to Microsoft, with applications such as Microsoft Office being able to be accessed on the Web, files need no longer be accessed by downloading them to a PC. For a user the experience should be no different than what it is currently expect that the data will never exist locally albeit on their web browser, and hopefully if configured properly the remote data would no be allowed to be downloaded by the browser.

No local access, no USB port; this protects against many security flaws that have allowed users to take data on an USB memory stick outside corporate offices and lose them or worse yet sell the data. Web-based applications allow for the protection of data from being moved outside of corporate facilities.

Is The Internet Broken? Cyber-Warfare

Noone will disagree that the Internet works. It works very well, almost too well. But it seems that everyday there is yet another report of a cyber-attack. Most recently at least 34 companies were targeted. The companies targeted besides Google, included Dow Chemicals, Northrup-Grumman, Adobe, Yahoo, etc. Were it not for Google, most of us would have been oblivious of this attack. Afterall why should a company advertise that it was the target of a serious attack, whether successful or not. It begs the question of how frequent and serious these attacks are.

Not too long ago the major concern was a new virus that would somehow infect your computer and either erase all your files or write something on the screen. But these days the concern, besides your computer, is the whole national infrastructure. As the recent attack suggests, no company is safe. Considering that the Internet is used for day-to-day business, any such attack whether successful or not, can significantly cripple the workings of a company. In fact, the result may not be known immediately.

The problem with the Internet is that it is very susceptible various forms of attack. In fact, the Internet has become a complicated game of cat and mouse. I suppose that it should not matter, except that so much critical data crosses the Internet that damage to personal or social data becomes a matter of constant vigilance. The Internet is known for it "openness", the ability of users to freely access data of whatever form limited by appropriate laws that are specific to each country.

Conceptually the ability to cripple an entire nation remotely is a compeletly new global phenomenon that presents some interesting issues. Not unlike the Industrial Revolution, the Internet created a "Communications and Control Revolution". Not only can the Internet provide us with ubiquitous communication, it also provides us with ubiquitous remote control. Picture a national leader with a TV-like clicker with buttons labelled with nations, each button represents the activation of a cyber-attack on the labelled nation. Perhaps the picture is a little extreme, but that is what the new world of cyber-warfare is all about. The ability to cripple all or parts of a nations infrastructure. This type of attack was certainly used by Russia against Georgia during their brief "hot" war.

The Internet moved us closer to a global village but at the same time it allows the village to be potentially self-destructive. Is a global village functional when there are no locks? When anyone can have access to your home?

So how do we fix this, or does it need fixing? Do you trust the Internet, should you trust the Internet? Whatever fixes need to be done, they will certainly cost money. The idea of an open Internet certainly needs to be examined. Perhaps ubiquitous access to all sorts of data is not such a good idea. We can certainly think about companies having very strong limits on global access to the Internet. Perhaps like national boundaries that limit free access of movement by people, the Internet needs to be policed by nations. As a foreign citizen needs a passport and perhaps a visa, should there be national boundaries for data that limit or in some manner curtail access to a national Internet infrastructure?

Already countries such as China has strong restrictions on various web sites, maybe we should create mechanisms that limit access from foreign entities. In some cases, countries would trust other countries (no visa) and in other instances strong access control mechanisms would be put in place to deter and/or prevent attacks from nations we don't trust. In anycase, there needs to be a discussion at the national level of how to "police" the Internet. Or in the absence of policing functions, a new form of Internet access that provides for some very strong security mechanisms.

So the question to ask yourself, how much government policing of the "national" Internet would you like? Should there be national boundaries for data? Do you want your personal data to be freely available anywhere in the world?

The following links provide more information about security issues. The first link points to articles recently appearing that describe some of the issues facing the country in dealing with cyber-attacks. The second link is a current article dealing with these issues.

http://topics.nytimes.com/top/features/timestopics/series/cyberwar/index.html

http://www.nytimes.com/2010/01/26/world/26cyber.html?pagewanted=1&hpw

Scott Brown wins in Massachusetts

This week the Republicans have discovered a new hero. Scott Brown, a conservative Republican, was elected senator from Massachusetts, a "liberal" state. Not only that, but he replaces Ted Kennedy argueably one of the most liberal politician in recent memory. So is this an historic event or just another day in the topsy-turvey world of the current political climate in the US.

One thing is for sure, the Republicans are looking for heroes and what a better hero than a conservative Senator from the Northeast. He has shown himself as an engaging personality, likeable, with a sense of humor. Furthermore, he can probably articulate his ideas and hopefully can identify the newspapers he reads.

But Senator Brown has 2 years to prove himself to the people of Massachusetts, in 2012 he will face reelection. His record will in all likelihood be conservative, he probably will not venture far from Republican orthodoxy. Whether this is the ideology that the citizens of Massacusetts have accepted or whether this was a knee jerk reaction to the lackadaisical campaign by his opponent, Martha Coakley, will be then determined.

But on the national stage, perhaps one of the biggest losers is Sarah Palin. She becomes overshadowed by a pickup driving newly elected Senator from the Northeast. He can become the poster boy in just about any Republican state, much less a Democratic state whose population is tired of complicated solutions. He is everyman, accessible, someone you can identify with. Again, whether this holds or not depends on his performance in the next several months. But I'm sure he will have lots of help.