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Wednesday, March 24, 2010
And then there is California - $20 Billion Deficit
"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
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
Thursday, March 18, 2010
Fox Interview of Pres. Obama on Healthcare
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
Wednesday, March 17, 2010
Microsoft Data Centers
http://gizmodo.com/5495174/this-is-the-cloud-inside-microsofts-secret-stealth-data-centers
New Jersey outlines its deficit - $11bn
http://www.newjerseynewsroom.com/state/new-jerseys-state-budget-deficit-could-reach-11-billion
Financial Warfare - Part 1
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.
Saturday, March 6, 2010
GM ... Telecom Execs take over
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
Friday, March 5, 2010
Weakness found with RSA
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
Wednesday, March 3, 2010
All the money in the world - Part 3
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.
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/
Monday, March 1, 2010
The Economic Destruction of Illinois
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