Friday, December 30, 2011

China 2012: Collapse vs. Triumph vs. Mere Survival

Gordon Chang has been predicting the collapse of the CCP Chinese government since 2001. Mr. Chang is not yet ready to change his mind about the ultimate demise of Chinese communism -- although he admits his timing may have been off by several years. Here he updates his predictions of collapse:
Why has China as we know it survived? First and foremost, the Chinese central government has managed to avoid adhering to many of its obligations made when it joined the WTO in 2001 to open its economy and play by the rules, and the international community maintained a generally tolerant attitude toward this noncompliant behavior. As a result, Beijing has been able to protect much of its home market from foreign competitors while ramping up exports.

By any measure, China has been phenomenally successful in developing its economy after WTO accession -- returning to the almost double-digit growth it had enjoyed before the near-recession suffered at the end of the 1990s. Many analysts assume this growth streak can continue indefinitely. For instance, Justin Yifu Lin, the World Bank's chief economist, believes the country can grow for at least two more decades at 8 percent, and the International Monetary Fund predicts China's economy will surpass America's in size by 2016.

Don't believe any of this. China outperformed other countries because it was in a three-decade upward supercycle, principally for three reasons. First, there were Deng Xiaoping's transformational "reform and opening up" policies, first implemented in the late 1970s. Second, Deng's era of change coincided with the end of the Cold War, which brought about the elimination of political barriers to international commerce. Third, all of this took place while China was benefiting from its "demographic dividend," an extraordinary bulge in the workforce. _Gordon Chang China Collapse 2012
Chang goes on to explain why China no longer enjoys these favourable conditions...worth a look.

Damien Wa takes a different position on China's prospects, one that could almost be called giddy, considering many of the changes currently taking place within the celestial kingdom:
Major economic adjustments are usually never pleasant, and most leaders would prefer to minimize the pain on the largest swath of the population possible during that process. The Chinese are no different in this regard, but how much heavy-lifting can they tolerate?

Yu and a similarly reform-minded lot are advocating temerity over timidity, likely in a bid to influence the direction of debate as there are forces inevitably arrayed against them. Plenty of interests in China eschew these changes that will involve taking away some of their wealth, likely prompting a vigorous defense of the status quo...

To me, one of the biggest questions next year is whether China can create the necessary political conditions, amid one of the most important transitions in a decade, to forge ahead with its restructuring. With the anticipated slow down in growth and a shrinking export surplus, there appears to be an opportunity to steer the ship of state in a different direction. _Damien Wa The Atlantic
Alright, perhaps Wa is not being giddy over China's prospects. But he is allowing the possibility that China's leadership might make the right decisions over the next year or two.

Investor Jim Rogers has long been a China optimist, and has even moved himself and his children to Singapore, in order that his progeny could learn to speak fluent Mandarin Chinese. But is Mr. Rogers' optimism justified?
Claims by Jim Rogers, talking up his New Asian Home, that Chinese real estate financing methods avoid the extremes which gave us the subprime crisis are hopeful and highly charitable but are unreal. Before 2007, his storyline is that Americans and Spaniards were buying four or five houses with no job, no down-payment, and 120% loans (with the 20% extra to buy Donald Duck furniture and washing machines from China). The myth goes that China and India dont have that problem - but in fact what they have is far worse.

The loans to finance phantom housing projects are lent to nobody, or rather persons who might or could buy in 5 to 10 years, represented "in trust" by often fictive or notional municipalities that either do not exist or will never be created. Housing and apartment types and fixtures/fittings are deliberately given upmarket specifications and costs, making it even more unlikely that real human beings can or could buy them. Exactly like the USA or Spain, Asian banks take the mortgage amounts and jiggle them up even more, play the cash on the pinwheel casino of the global finance machine, go bankrupt, and get bailed out by the State. We can ask: How is this different from the US subprime crisis or Spain's real estate meltdown ?

Maybe only in one respect: related to their economies and average GNP per capita, the Chinese and Indian real estate bubbles are several times bigger than in the US, UK, Spain, Portugal, Ireland and other hard-hit countries now either openly in recession or near it.

Strong industrial production growth and growth of exports from China and India can only absorb this hole in their domestic economies for a certain amount of time. With sales to the depressed European and US markets - their biggest export markets - already declining, the multiplier feedback of decline inside their economies will rapidly grow, This feedback inside their economies to falling demand growth is already producing the fast feedback of their central banks printing a lot more money: the inflation generating process is well under way, even harder to control than in the OECD economies which were already semi-stagnant or "in persistent slow growth" when the crisis hit, and is unlikely to stop anytime before the economy slumps. Our concern is to predict when decline shifts to sudden and rapid falls in overall economic activity. _Market Oracle
All of this is not meant to suggest that Europe and the Anglosphere -- not to mention the Asia Tigers -- are sailing clear and untroubled waters. Every industrial power on Earth is going through difficult times of one sort or another -- particularly problems of debt and demographic decline.

But China (and India) was (were) meant to be the hope of the future, the economic bulwark (s) for the 21st century. Signs of significant cracks in China and the other BRICs may be telling us to look elsewhere for hope.

Tuesday, December 27, 2011

Gazing at Economic Doomsyear: 2012?

In general, the parts of Canada that are producing energy are doing well economically. The same is true for US states such as North Dakota and Texas, and parts of Australia and Norway. But the overall global economic picture for 2012 is not so bright -- if looked at without the rose-tinted glasses. Here is a decidedly negative look at the near term economic future:
The economic, political and social outlook for 2012 is profoundly negative. The almost universal consensus, even among mainstream orthodox economists is pessimistic regarding the world economy. Although, even here, their predictions understate the scope and depth of the crises, there are powerful reasons to believe that beginning in 2012, we are heading toward a steeper decline than what was experienced during the Great Recession of 2008 – 2009. With fewer resources, greater debt and increasing popular resistance to shouldering the burden of saving the capitalist system, the governments cannot bail out the system.

Many of the major institutions and economic relations which were cause and consequence of world and regional capitalist expansion over the past three decades are in the process of disintegration and disarray. The previous economic engines of global expansion, the US and the European Union, have exhausted their potentialities and are in open decline. The new centers of growth, China, India, Brazil, Russia, which for a ‘short decade’ provided a new impetus for world growth have run their course and are de-accelerating rapidly and will continue to do so throughout the new year. _Infowars

The viewpoint above paints with a broad brush, but is in many ways correct. The US under Obama is in full energy-starvation mode, which starves industry and commerce, and adds unnecessary economic burdens to every household. Europe after Fukushima is likewise in energy-starvation mode, which further hampers the debt and demographic decline which was already sinking the continent. As for the BRICs, the picture is quite uneven and in rapid flux, but the early rosy predictions are beginning to fail.
China ’s economic growth, which is largely dependent on real estate speculation, will be adversely affected when the bubble is burst. A sharp downturn will result, leading to job losses, municipal bankruptcies and increased social and class conflicts. This can result in either greater repression or gradual democratization. The outcome will profoundly affect China ’s market – state relations. The economic crisis will likely strengthen state control over the market.

...The world recession will weaken the Russian economy and will force it to choose between greater public ownership or greater dependency on state funds to bail out prominent oligarchs.

...All indications point to 2012 being a turning point year of unrelenting economic crisis spreading outward from Europe and the US to Asia and its dependencies in Africa and Latin America . The crisis will be truly global. _Infowars
All predictions must be taken with a grain of salt. Infowars is a political activism site with many rigidly held viewpoints which do not always mesh with each other smoothly. But by looking at the world through a variety of eyes, one can better understand the wide range of perceptions -- and better predict how people will react to changes and events.

Monday, December 26, 2011

Russia is the Birthplace of Modern Terrorism

Russia is the birthplace of modern terrorism. The Russian nihilists of the 19th century combined political powerlessness with a propensity for gruesome violence, but their attacks were aimed at the Tsarist state and ruling classes. Later, the Soviet Union and its allies actively supported terrorism as a means to politically inconvenience and undermine its opponents. The East German Stasi and the KGB provided funds, equipment, and "networking" opportunities to the myriad of leftist German terrorist cells in the 1960s, 70s and 80s. The Red Army Faction and the 2nd June Movement in Germany, as well as the Red Brigades in Italy, shared Marxist philosophies, a hatred of America, solidarity with the Palestinians, and opposition to the generation, some of its members still in power, that had supported the Nazis and fascists. They were good foundations for a Cold War fifth column. It was not just Europe, either: Soviet equipment, funding, training and guidance flowed across the globe, either directly from the KGB or through the agencies of key allies, like the Rumanian Securitate, the Cuban General Intelligence Directorate.

Palestinian groups were enthusiastic participants in Soviet terror largesse. General Alexander Sakharovsky, head of the KGB's First Chief Directorate, famously said in 1971, "Airplane hijacking is my own invention," referring to the Palestinian Liberation Organization's hijackings. In the 1950s and 60s there was, on average, five hijackings a year; in 1969, Palestinian terrorists hijacked 82 aircraft. George Habash's Popular Front for the Liberation of Palestine was crucial. The secular, left-wing Habash boasted, "Killing one Jew far away from the field of battle is more effective than killing a hundred Jews on the field of battle, because it attracts more attention."

When the Soviet Union ended, so did much of the secular, left-wing terrorism it had sponsored. Logistical support, funding, and advice all stopped. But, just as importantly, the intellectual, spiritual, and philosophical engine of leftist terror had become broken and powerless. Communism did not work; liberal democracy and capitalism had won. Marxism lost its inspirational impact without a superpower cheerleader and benefactor. The potential terrorists were no longer motivated by Marxism and, crucially, neither were their supporters.

Terrorism has always been about more than the terrorists themselves. The perpetrators need a motivating ideology to justify their crimes, as well as committed enablers around them. The enablers themselves require a broader base of political supporters and advocates -- "the useful idiots" (an expression credited to Lenin). In the early 1970s, one poll reported that a tenth of Germans under the age of 40 said they would shelter members of terrorist group Baader-Meinhof; a quarter expressed their broad support, even after Baader-Meinhof had murdered over 30 people, including police officers, newspaper workers, and businessmen. With the fall of the Soviet Union and the collapse of communism, extreme leftism lost its inspiration and the terrorists lost their support. Baader-Meinhof announced its own disbandment in 1998, five years after its last terrorist attack and seven years after the Soviet Union disbanded. _Atlantic
And then Muslim terrorism rose up to fill the gap left by the suspension of leftist terrorism. But the idea behind leftist terrorism has not actually gone away. In the west, the erstwhile left-terror enablers have taken over much of the establishment and are able to control the message to some extent, without the use of overt violence which can be linked to them.

And back in Russia, Putin's use of terror to control his own population has not gone unnoticed. Given popular discontent with the Putin dynasty in Moscow, it is likely that Putin will be forced to pull out the old tools of terror once again, to cow his people into total submission.

Terrorism is apt to come into vogue over a wider domain, as debt and demography continue to take their toll on a declining west, and as the formerly hopeful BRICs begin their inexorable crumble. The tools of terror are likely to grow more sophisticated, as its practitioners extend from the primitive tribal populations of Islam into the more imaginative, better educated, and higher IQ populations of the western and East Asian worlds.

Think of it as Russia's gift to the modern world.

Saturday, December 24, 2011

Yes, Virginia, China Still Uses Political Prisoners as Organ Donours

Thirty-six scheduled executions would translate into 72 kidneys and corneas divided among the regional hospitals. Every van contained surgeons who could work fast: 15-30 minutes to extract. Drive back to the hospital. Transplant within six hours. Nothing fancy or experimental; execution would probably ruin the heart.

With the acceleration of Chinese medical expertise over the last decade, organs once considered scraps no longer went to waste. It wasn’t public knowledge exactly, but Chinese medical schools taught that many otherwise wicked criminals volunteered their organs as a final penance. _TWS

China is a land of many contrasts. The modern face of the Shanghai urban waterfront stands in contradiction of what is taking place in the hinterlands, well out of sight of western newsmen.

Outsiders would generally like to believe the best of China's leadership, given the rapid ascendancy of Chinese wealth and power in the world. If the coming century is to be "The Chinese Century," westerners do not want to wake up to discover that they have ceded superpower status to a nation that is little better than Germany under Hitler.
In July 2009, Urumqi exploded in bloody street riots between Uighurs and Han Chinese. The authorities massed troops in the regional capital, kicked out the Western journalists, shut down the Internet, and, over the next six months, quietly, mostly at night, rounded up Uighur males by the thousands. According to information leaked by Uighurs held in captivity, some prisoners were given physical examinations aimed solely at assessing the health of their retail organs. The signals may be faint, but they are consistent, and the conclusion is inescapable: China, a state rapidly approaching superpower status, has not just committed human rights abuses—that’s old news—but has, for over a decade, perverted the most trusted area of human expertise into performing what is, in the legal parlance of human rights, targeted elimination of a specific group.

... By the end of 1999, the Uighur crackdown would be eclipsed by Chinese security’s largest-scale action since Mao: the elimination of Falun Gong. By my estimate up to three million Falun Gong practitioners would pass through the Chinese corrections system. Approximately 65,000 would be harvested, hearts still beating, before the 2008 Olympics. An unspecified, significantly smaller, number of House Christians and Tibetans likely met the same fate.

By Holocaust standards these are piddling numbers, so let’s be clear: China is not the land of the final solution. But it is the land of the expedient solution. _TWS
China is not what you might have thought. It is not an orderly, well-behaved, good-intentioned and benevolent nation that is ready to become a global hegemon.

The neighbors of China better understand what a nightmare living under Chinese hegemony would be. That is why they have scrambled to form political and military alliances with the US and anyone else who might act as a cushion against Chinese aggressiveness and bullying. Not to mention China's hunger for human organs . . . .

Wednesday, December 21, 2011

China In Hard Landing Mode?

China is obviously in hard landing mode: Excavator sales in China tumbled 27% in October from the previous month, the sixth consecutive monthly decline. Cumulative sales volume through October were up only 16% year-on-year after surging 78% in the 12 months to last December. With property sales falling, developers are buying less land from local governments, which rely on land sales for around 70% of their revenue. The ratio of land acquisition expense to property revenue for leading developers is now as low as 21%, according to a report of Centaline Property Agency. _EM
China's communist government was certain that it could control the swings and uncertainties in a mixed industrial economy. But the CCP figured wrong.

In the middle of plans for its once a decade transition of power, deep schisms are forming both within the Beijing government, and between the central government and the regional governments.
China is now in an export hole. Reuters reports flows are down. Exports fell in sequence 2% lower in each month in the 4Q. West Coast ports data comfirms the same trend. November marks six months in a row of YoY declines.

This squares with my theory that the Chinese export sector began a severe contraction back in early part of 2011. The only thing that sustained exports in the first half were warehouses of inferior goods, which are now emptying. If imports from China are down for the reasons I have always cited, it does stand to reason that a little marginal production might move back to the US.

So at tremendous cost and because Chinese exports are hollowing, the US gets a minor uptick in production output, that could last all of about a quarter or two. Remember that the spin last year was that the BRICs would keep growing and support the global economy. Now it centers around this artificial and expensive pickup in US activity.

For anybody who is alert in the US, the quality of Chinese goods is way down. My girl friend is so in tune with this that she checks manufacturing tags. One aspect she has noted is that origin is now frequently omitted.

In the surprise, surprise Dept. it turns out that China is the epicenter in illicit financial flows, with over $2 trillion in illegal money moving in and out of China between 2000 and 2009, according to a new report from Global Financial Integrity. GFI defines illicit financial flows as “the cross-border movement of money that is illegally earned, transferred, or utilized.” And noting what I observed years ago, GFI cites trade mispricing as the major conduit for transferring illegal money in China.

Factoid front: every year since 2005, more than 20% of China’s GDP has consisted of construction-related spending versus 6% in the US. To put this in perspective, in 2010 China consumed 25 X of the US consumption of concrete. China’s low hanging infrastructure build out fruit has been largely picked, and projects on the board are declining. China has built out the equivalent to the entire EU housing stock in less than a decade. 60% of elevator delivery go to China. On a paved road per car basis, China is far ahead of it’s development curve. Charts taken from a Societe General report. _EM

Between China's trillion dollar "infrastructure to nowhere" and its massive overcapacity in real estate and manufacturing capacity, China is getting a crash course in capitalist economics 101. That is the economics course which all NYTimes columnists are required to have either flunked or skipped.

Regardless, in the real world, what a government wants and what it can achieve in the end, are usually two different things.

Videa h/t Mish

Ron Paul is threatening the status quo by being competitive in the Iowa caucus and the New Hampshire primary. It is understandable why the Republican Party establishment is blasting away at Paul with both barrels. But even Democratic Party press outlets such as the Washington Post and the Huffington Post have been running hit pieces on Ron Paul.

It seems that Ron Paul threatens everyone who feeds at the public trough.

Tuesday, December 20, 2011

The Manipulation Behind the Markets: Who Pulls the Strings?

Great fortunes can be made by manipulating global markets. And if you can tip the markets far enough, you may even be able to bring down governments. Here is the story of a market manipulation that may have helped trigger the great 2008 global markets crash:
... a group of scientists has released a study that shows a critical piece of the puzzle went missing, and that piece continues to go ignored, to everyone’s peril, including the banks.

...Their new study shows that banks themselves were under attack by other players on Wall Street. The study authors at the New England Complex Systems Institute (NECSI) retraced events to show that at a critical point in the financial crisis, the stock of Citigroup was attacked by traders by selling borrowed stock (short-selling) which may have caused others to sell in panic. The subsequent price drop enabled the attackers to buy the stock back at a much lower price.
This kind of illegal market manipulation is called a bear raid and the new study supports earlier suspicions that the raids played a role in the market crash.

The study has direct evidence. Through its analysis of stock market data not generally available to the public, namely the borrowing of shares, NECSI reconstructs the chain of events.
On November 1, 2007, the number of borrowed Citigroup shares jumped by 100 million shares, a value of almost $6 billion. Six days later, a similar number of shares was returned on a single day.

Shares are generally borrowed to sell on the market. The trading on November 1 was almost four times the usual volume. The newly borrowed shares represented over three-quarters of the volume on that day. When a large volume of shares is sold it can drive prices down. The price of shares that day dropped by almost 7 percent. By the time the shares were returned, it had dropped nearly 20 percent.

Professor Yaneer Bar-Yam, President of NECSI, maintains this was no "freak" or coincidental event. "When 100 million shares are borrowed on a single day and then returned on a single day, the evidence that this is a concerted action is hard to refute. The likelihood of such an event happening by coincidence is one in a trillion."

The NECSI scholars are also voicing concern about how the incident was allowed to happen. Selling shares to deliberately cause a price drop to induce others to buy or sell is illegal, but enforcing the law after it is violated is much less effective than preventing it from happening in the first place, they maintain.

"There used to be a rule that prevented it from happening by forbidding borrowed shares from being sold in large blocks that drive the price down," said Bar-Yam. "The Securities and Exchange Commission repealed that rule, known as the price test or uptick rule, on July 6, 2007."

Last year, the authors of the report sent preliminary results of their study to the financial services committee of Congress, and Congressmen Barney Frank and Ed Perlmutter sent it to the SEC.

Unfortunately, Professor Bar-Yam says that he hasn’t seen any action by the SEC to identify or prosecute those responsible or to prevent its occurring in the future. _Physorg
Of course, the affirmative action banking rules put into place by Presidents Carter and Clinton -- and reinforced by assorted members of Congress such as Dodd, Frank, Waters, etc -- did not help to calm the instability that was building in the markets.

Certainly the SEC dropped the ball, as did the ratings agencies, and the due diligence mechanisms of financial institutions themselves -- which should have known to fight back against destructive government rules rather than to be complicit in their own quasi-suicide. Or perhaps they knew they would be bailed out, no matter what dysfunctional government regulations forced them to do?

The episode related above was likely just one of many -- one that was particularly clumsily done, and easiest to detect. Certainly the Russians had made threats against the US economy sometime before the crash. Wealthy currency traders / manipulators such as George Soros are always looking for an inside play, and have hands in many pockets, and on many strings.

The larger the government bureaucracy, the more difficult it is to clean it out when it becomes corrupted and infested by assorted rats, spies, and the cats' paws of assorted power players.

The unsightly and unstable towers of governance in the US and Europe have grown so large and off-balance, that less and less pressure will be required to send them tumbling. The problem was predicted and predictable many decades ago -- even farther. But they will not listen. They never listen.

You should begin making preparations, should the worst occur.

Sunday, December 18, 2011

Popular Discontent in the Most Populous Nation On Earth

Growing public discontent [in China] over corruption and mismanagement in the government has led to growing unrest and more violent protests. Public demonstrations against corruption or government policies have increased in the last two decades from under 8,000 a year to over 180,000 a year. Attempts to hide this have backfired as the Internet and cell phones quickly spread news, and images, of police brutality. _StrategyPage

As economic conditions worsen in China, disillusionment about the future is beginning to set in. A normally subservient populace is growing restive over government abuses and rampant acts of corruption and theft by officials. Modern communications technologies are making it easier for citizens to catch government officials lying to them.
The central government can intervene but rarely does. That's because the central government does not have the resources to run the entire country. China has always depended on strong local governments at the province level and below to take care of things. But this is where the corruption is worst. More and more provincial officials are being prosecuted for corruption but there are so many of them and they tend to help each other out. In effect, China is at war with itself over the corruption and bad government and everyone is losing.

Another cause of growing unrest is uncontrolled air and water pollution. For example, the government is pressuring the United States to halt the use of an air quality monitor on the roof of the Beijing embassy and releasing the data hourly on the Internet. This began in 2008 before the Olympics that year as an aid for American tourists. The Chinese government only publishes data on sand storms that blow in (as they have for over 10,000 years) from the Gobi Desert. Pollution from coal burning vehicles and factories, and the thick smog the create, is simply called "fog" and officially ignored. The citizens of Beijing know better and pay close attention to the U.S. Embassy pollution reports. Increasingly, the pollution is ten times the legal limit in the West. This is no trivial matter as more people are getting sick from the pollution and dying. _StratPage
In a country where citizens generally have no siblings, no uncles, aunts, cousins . . . and virtually no social safety net, alienation and anger can easily set in when the economy goes down.

The bursting property bubble is eating up the life savings of the older generations, just as the younger generations are finding it harder to find good opportunities. It is the time just after optimistic hopes are dashed, that resentment against officials and the well connected can grow the greatest.

The Chinese government missed its best chance for cleaning up rotten state owned enterprises and banks. And the 3 year spending spree that was meant to send the Chinese economy into self-sustain mode seems to have done little more than help China and much of the rest of the world to avoid taking its bitter medicine for a little while longer.

China, Europe and the US all seem to be facing a cross-roads in 2012. If none are willing to do the difficult things that must be done to clear bad debt and get on sounder footings for healthy economic growth, the time period between now and 2020 is likely to see some very difficult and even desperate times.

Thursday, December 15, 2011

Economic Growth: The Limits Are In the Human Mind

Are human societies reaching their "limits to growth." One might think so when observing the economic problems faced by Europe, the US, Japan, and a number of other more advanced technological societies. The most popular modern argument for "limits to growth" revolves around the issue of limited energy supplies, eg "peak oil."
... in a recent article, Richard Heinberg, author of The End of Growth, claimed that growth has come to an end. Millennia of growth have now apparently come to a crashing end. We have gone from the slow-burning Neolithic revolution, which re-arranged nature to our liking, to the expansion of agriculture, and the great Industrial Revolution, which eventually freed us from the land. However, growth sceptics such as Heinberg are positing why economic growth should end right now, in the early twenty-first century, when we are more prosperous and resourceful than at any time in the past.

...The key point to Heinberg’s argument is that growth is constrained by the availability of energy. In this, he is correct. Physics tells us that we can put order into disordered matter using high-grade energy, generating low-grade waste heat in the process...Heinberg argues that high-grade energy is becoming scarce, that we have eaten the low-hanging fruit. Consequently, growth must end as we lack sufficient energy to rearrange matter into more useful forms, whether smartphones, tractors or vaccines. In reality, high-grade energy is anything but scarce.

We live in a finite world, with finite resources. Even the sun will expand and die out eventually, and life on the planet will be unsustainable. But that will likely take a few billion years to occur. In the meantime, perhaps there are steps that we can take to maximise our chances of survival?
Even the prophet of ‘peak oil’, M King Hubbert, a man beloved of growth sceptics, cleverly recognised that while fossil-fuel use will no doubt ultimately peak, nuclear fuels are essentially forever, because they are so energy dense.

Let’s be clear: there is no shortage of high-grade, carbon-free energy to deliver a future of shared prosperity. But we need the will, ambition and inventiveness to exploit it. We also need to recognise that we have only scratched the surface of nuclear energy. Even modern light-water reactors are woefully inefficient at turning the energy of collapsing stars stored in nuclear fuels into useful work. But through future innovation, we can tap almost all of that clean, compact energy considerately provided by nature. _Spiked-online

Modern environmentalists consider all forms of abundant and reliable energy to be unsafe. They consider fossil fuels to be unsafe due to pollution and global warming. Nuclear energy is said to be unsafe due to radioactive contamination and nuclear weapons proliferation. If biomass fuel and power are considered, environmental activists warn that food supplies would be threatened and planetary biodiversity would be destroyed.

The Obama administration has followed the environmentalist agenda of energy starvation almost to the letter -- creating political limits to energy and resources which would not otherwise exist.

Humans are always looking for better, cleaner, more economical sources of fuels and energy. But an innovation society cannot "think its way" out of current conundrums if its political leaders shut off the energy flow to society -- for whatever reason.

Eventually, human ingenuity will devise cleaner, more abundant, and more economical forms of energy than the dominant energy forms today. But big wind and big solar are too expensive and unreliable to substitute for natural gas, coal, nuclear, oil sands, and crude oil. Pursuing the solutions proposed by environmental activists will lead us down the path to global poverty, disease, die-off, and long term backwardness -- a new dark ages.

Here is the alternative: The Ultimate Resource. The human mind is constantly looking for better ways to do more with less. When allowed the freedom to innovate, experiment, invent, and create, the human mind can solve problems in a wide range of often unexpected ways.

The environmental greens who control the US government, the EU government, and many powerful inter-governmental and non-governmental organisations, cannot imagine the possible solutions to the problems which haunt their dreams. Their minds were never tuned to innovative problem-solving in the sense of science, technology, industry, and energy.

The human mind must be freed and empowered to solve problems. This means that the huge governmental, inter-governmental, and non-governmental bureaucracies of the world will have to relinquish significant power of action to ordinary people.

If these inbred monstrosities of cancerous bureaucracy cannot be reined in and partially dismantled -- if they are allowed to continue to grow out of control -- they will choke the life out of the societies they pretend to watch over.

What will you do about it?

Sunday, December 11, 2011

Russia and China on Tenderhooks?

Those who know Russia the best are the most eager to get themselves and their money out.
Money is flowing out of Russia faster than it is flowing in. The net outflow is expected to reach $70 billion by year-end, and the figures suggest that the bulk of that will be from large investors.

Yaroslav Lissovolik, chief economist for Deutsche Bank here, notes that “the scale of capital flight has more than compensated for the rise of oil prices.”

Even if oil output is maintained and crude prices stay relatively high, according to Russian finance ministry estimates, the nation’s current account will slip into deficit by 2014. Then Russia’s economy, like that of the United States, will depend on an inflow of investment, economists say. _NYT

Russia faces a political crisis as well as an economic one. And underlying it all, is the crisis of the shrinking demographic -- the vanishing away of the ethnic Russian.
After a decade of “stability”, Russia now looks as vulnerable to shock as the Soviet Union was at the end of its days. The big difference, however, is that the Soviet Union had a clear structure and, in Mikhail Gorbachev, a leader who was not prepared to defend himself with force. Today’s circumstances are very different.

Mr Putin is unlikely to follow the advice of Mr Gorbachev and cancel the results of the rigged election. He may instead resort to more active repression, thereby making the country look a lot more Soviet. This would only make the crisis worse. _Economist

China's situation is somewhat different from Russia's, although there are a few parallels in terms of movement along the spectrum from totalitarianism to partial liberalisation. But China's demographic is in no danger of shrinking to nothing. Instead, China's demographic is dangerously close to asserting itself against the government by revolutionary means.
When China's leadership saw how Moammar Kadafi was shot in the street, how Saddam Hussein was marched onto the scaffold and how Hosni Mubarak was tried as he lay in a cage — when they saw, as those autocrats lost power, how their families lost everything too — they must have sensed, I think, that it is not democracy they should fear but revolution. As the relatives of our high officials grow more wealthy, they emigrate to democratic countries (never to dictatorships); they know that the possibility of revolution in China is growing by the day. They know that revolution is never reasonable, that it drips with blood. _LATimes
When comparing the serious financial and political problems present in advanced nations such as Germany or the United States, with the problems facing Russia and China, the salient thing to remember is this: We expect that the Germans and the Americans understand, by and large, what is wrong and what will eventually have to be done to fix it. That is far from true for the Russians and the Chinese, who are sailing far from charted waters.

Of course, even in the more prosperous west, with its traditions of order and rule of law, the coming disruptions of growing debt and massive demographic change may prove to be too much of a shock for the governmental infrastructures of some nations to bear. Uncertainty about the future is not limited to "the coming anarchy" nations of the third world and nations trying to emerge from a recent totalitarian past.

Hope for the best. But keep your eyes open, your gas tank full, your boots oiled, your powder dry, and your knives sharp.

Saturday, December 10, 2011

After the Collapse of Advanced Civilisations, Comes a Greater Die-Off

The idea of a coming great human die-off is gaining popularity among those of the lefty-Luddite green enviro persuasion. Whether the die-off will be triggered by resource scarcity, by a voluntary reduction of human fertility, or by more aggressive means, such a great die-off is being seen more as a positive event by the more trendy and green forces which have taken over most media outlets, Green NGOs, funding agencies, and large segments of academic institutions.
Advanced societies are considered "soft targets," because their populations have become so accustomed to things running relatively smoothly. Just a bit of disruption can go a long way toward upsetting such societies.

It is becoming easier for individuals and small groups to trigger events which can lead to momentous calamity in the advanced world. Increased networking of vital infrastructure is making it easier for hackers to commit cyber-terrorism:
Government pressure to create "smart power grids" to replace traditional grids, provides malicious hackers with a wide range of new targets to attack, at various scales.

The threat of an EMP attack -- capable of taking out continental scale power grids -- is likewise increased, as nuclear proliferation proceeds across the Pakistan-Iran-N.Korea axis (aided by China and Russia). As many as 90% of an advanced society can be expected to die within 1 year as a result of a large-scale EMP attack.

Chemical terrorism is another way in which advanced cultures could be targeted specifically. Coordinated chemical attacks using various vectors could decapitate leadership and expertise in several vital areas, leading to widespread paralysis of normal infrastructure. Such a paralysing strike might well be a set-up for a more devastating followup attack.

Increasing sophistication of inexpensive tools for "bio-hacking" are also making it more likely that individuals or small groups will create novel microbial agents of mass contagion.
Security futurist Marc Goodman says that synthetic biology will lead to new forms of bioterrorism — opportunities for the bad guys to create never-before-seen forms of bio-toxins. These bio-threats might be nearly impossible to detect because they can be customized to the genome of a certain person or groups of people. Goodman, who has long worked on cyber crime and terrorism with organizations such as Interpol and the United Nations, believes the potential bio-threat is greatly underestimated. “Bio-crime today is akin to computer crime in the early 1980s,” said Goodman at the Singularity University executive program this week. “Few initially recognized the problem, but one need only observe how the threat grew exponentially over time.” _WaPo
It is not necessary to target the third world, in order to achieve a high magnitude die-off such as is depicted in the chart above. The third world has become so dependent upon the technological infrastructures and products provided by more advanced societies, that if the advanced world goes, most of the third world will quickly follow.

The resulting world of much lower human population, will also be much less technologically capable than the world at present, in a quantitative sense. In a qualitative sense, however, most of human technology will be saved in digital and book form. This means that within 1 to 2 centuries after the great die-off, the higher intelligence populations of the presently advanced world will grow to a large enough size to begin implementing modern technologies on a global scale once again.

In other words, if lefty-Luddite greens are engineering the great human die-off for purposes of saving the world -- or simply out of hatred for the human species -- their efforts will ultimately fail.

But that will be cold comfort for your children and grandchildren who will have to suffer through the bloody mess aftermath left to them by the possibly well-intentioned greens.

It is up to you to make sure that they survive that bloody mess. Hope for the best, prepare for the worst.

Wednesday, December 07, 2011

Jim Rogers Explains Current Economic Situation

Jim Rogers is a world class investor with a useful perspective on current economic trends. It is worth a bit of time to listen to his POV. Although Mr. Rogers is not perfect nor omniscient, his ideas are thought provoking and closer to the truth than what one generally hears from the skankstream media.
In a pyrrhic victory for America, Rogers believes things will eventually get so bad that Americans will finally vote for real change and economic progress. Alas, the measures he feels are needed to cure our economy are so harsh that those same officials will also get tossed out when voters realize just how harsh the road back to prosperity is.

Regardless of the necessary suffering, spending cuts are needed in order to save the most fiscally responsible citizens, those whose savings are funding this disaster.

"What the Federal Reserve is doing now is ruining an entire class of investors," says Rogers. By forcing rates down and keeping the economy on a flatline, he believes the Fed could cause another lost generation of investments. Suffice it to say, vaporizing those who faithfully accumulated savings over the years is no way to restore confidence in our financial markets.
Rogers isn't simply a disgruntled American patriot, he's an investor with a legendary record of success. That being the case, and having established what the depths of suffering the world is facing now, the obvious question is where Rogers is putting his money to avoid or even profit from the pain. _YahooFinance

The US Federal Reserve is following the dictates of the Obama administration. The US regime which is currently in power, has dedicated its political capital to the destruction of the private sector and the middle class of the US. Both fiscal and monetary policies of the US government -- along with bureaucratic regulations and judicial trends -- all lead to those ends.

Knowing this, you had best do whatever you can to protect your assets and locate yourself in a reasonably secure location. Even if you do not live inside the US, the fallout from the Obama devastation of the US economy will spread to cover the globe.

Tuesday, December 06, 2011

Michael Pettis on China's Economic Prospects

For years I have been arguing that the Achilles heel of the Chinese growth model is the unsustainable rise in debt that comes as a necessary consequence of capital misallocation fueled by bank lending.

Capital misallocation, I argued, was the nearly inevitable consequence of high investment growth over many years in a system in which price signals are severely distorted and there is political incentive to maximize economic activity in the near term. If capital misallocation is funded by debt, the increase in debt is necessarily unsustainable. _EM

One could say the same things about government misallocation of capital in the west, of course. Rapid unsustainable buildup in debt in western nations has already caused one collapse (2008), and threatens another -- even as the world flounders in a quagmire of ongoing recession.

But China has been "the golden child." China has represented "the way out," the hope for the rest of the world. What Michael Pettis is saying, is that the Chinese government has no secret formula for building perpetual sustained economic growth. The mandarins of Beijing are "playing at economics" just like everyone else.

China was the beneficiary of a massive transfer of capital and technology from the advanced world, and built a sizable nest egg based upon cheap labour exports. But when the export markets collapsed, did China's government overstep its bounds in the Sisyphean effort to maintain internal order for the empire?
Analysts too easily argue that investment in social housing is China’s trump card that will guarantee sustainable annual growth of 8-9% or more for the next several years. It isn’t. First, there is almost no way social housing investment will be large enough to replace investment in manufacturing capacity, other real estate development, and infrastructure, and if there is a problem with the latter, it will continue. Second, investment in social housing may itself be economically wasteful. Certainly there is no reason simply to assume that, given the conditions that have encouraged capital misallocation for over a decade, calling the investment “social housing” will change anything. _Much more at EM
Pettis looks at China's investment in electric vehicles, various state owned enterprises, and social housing, as examples of what he sees as an unsustainable misallocation of resources by China's governments.

China -- like Europe and the US -- may have misallocated itself into a corner, with no easy escape.

No, that isn't true. There is a simple escape, but it would be painful for many, in the transition. And for China, it would be particularly painful, given the long history of authoritarianism that has been stamped into the Chinese character.

What is the escape I am referring to? The escape which the European settlers to the 13 North American colonies of England chose -- freedom from arbitrary and tyrannical government. This freedom -- if well designed and codified -- opens the door to human innovation and enterprise. Self-interested productivity often serves where nothing else will do. But only if the people know how to profit from their own efforts, and are able to build upon those profits.

Russia, like a dog, keeps going back to the vomit (authoritarianism eg Putin), and it is likely that a liberated China would do the same -- or break up into competing fiefdoms. There is not always a perfect solution to every conundrum.

Monday, December 05, 2011

More on the Putin-Triggered Grand Exodus from Russia

Fifteen years ago, a teenage [Natalia] Lepleiskaya branded her cousin a traitor for moving to the United States rather than staying and working to change life in Russia for the better. As an adult, along with building a successful career, she volunteered at an orphanage and collected money and clothes for those in need.

In the early 2000s, she voted for Putin and his party, but as the years went by she became increasingly angered by what is happening in the country. Social inequality has worsened, corruption runs amok, opposition protests are violently dispersed and the television news often resembles Soviet propaganda.

"There came a moment when I stopped caring ... nothing will change substantially," Lepleiskaya said.

....She realizes that Russia's emerging market provides opportunities for high profits and quick career advancement in some spheres, but she doesn't trust the government to protect her savings against inflation and economic turmoil. Her father, a college instructor for 40 years, recently retired and receives a pension equivalent to $270 (euro200) per month.

"I don't want to sit on top of a tinderbox. I would rather build my career slowly, step by step, work and know that eventually when I am 60 the government will not let me down," she said.

She and her husband, Alexander, a 27-year-old IT specialist are set to receive their Canadian entry visas in the coming days and plan to fly to Montreal in the spring. Lepleiskaya now has to vaccinate her cat, who has the French name Xavier, sell off their belongings and begin saying goodbye to loved ones. _CBS

The depressing reality of life in Russia would wear down anyone, even a young, energetic idealist like Natalia. With up to 80% of Russia's elite university students eager to abandon ship and leave Russia, the ability for Russia to keep pace with global developments in science, technology, manufacturing, and infrastructure are virtually nonexistent.
Mikhail Denisenko at the Higher School of Economics in Moscow estimates that at least a half million Russians moved abroad in 2002-2009 and more are on the way in what he describes as the fifth wave of emigration since the beginning of the 20th century.

"The level of frustration is higher ... it's a feeling of discomfort, an aversion to life in Russia," said Lev Gudkov, the head of the Levada Center.

"The prospect of another 12 years of stagnation or even a worsening of the situation is frightening them and they are beginning to think about moving to a different country or at least providing a future for their children" abroad.

Numerous recent websites and blogs offer advice on how to emigrate. One of them, "Time to Shove Off," offers commentaries and videos exposing alleged crime and corruption among top Russian officials. "Yet another governor buys himself yet another Mercedes for 7 million rubles ($233,000 or euro175,000)," reads one posting. "Corruption as a lifestyle," a headline says.

"The news that Putin is staying has spoiled people's mood and this talk (of emigration) started resonating more," said Anton Nossik, a popular blogger and Internet expert, who holds seminars on emigration.

The democratic reforms ushered in by the 1991 Soviet collapse generated hope that Russia could finally become a free and progressive nation. But Putin's 11 years in power, first as president and now as prime minister, have left many people disillusioned and gloomy about the future. _CBS
Recent Russian parliamentary elections handed Vladimir Putin's party a stunning defeat, suggesting that even the Russians who stay behind are in no mood to put up with Putin's Tsar complex.

Putin believes that his control of Russia's massive energy resources and his own vast personal wealth will make him immune from growing popular discontent inside Russia -- and his growing unpopularity abroad. But it would be a mistake on Putin's part to count on the energy card too much. Global energy supply and demand are subject to significant change and flux.

Furthermore, if US voters wise up and eject Obama from the White House in the 2012 elections, the US is likely to turn into a formidable global energy competitor. Should that happen, a complete collapse of the Putin government between 2015 - 2020 is not out of the question.

Friday, December 02, 2011

Emperor Putin Prepares to Assume Role as Supreme Leader

Hanging over all the festivities in Moscow, like the sword of Damocles, is the demographic reality of progressive shrinkage and collapse of the core ethnic population of Russia. An empire requires the constant support of armies of loyal soldiers and citizens. Things may be moving too quickly for the sclerotic Russian bear too keep up.
2004 Premonitions of Putin Personality Cult

Back in 2004 at Putin's second swearing-in as Russian President, the mood in Russia was considerably more upbeat. Russia was clearly coming back from the brink, as oil prices were rising, and the global economic bubble was in full inflate mode.

Seven years later, in 2011, the prospects of 12 more years of Putin as "supreme leader" of Russia create a more somber mood. The underlying bombast and belligerence of an imperial Russia under Putin is just another thing the world has to worry about.
"Russia will begin this new iteration of a Russian empire by creating a union with former Soviet states based on Moscow's current associations, such as the customs union and the collective security treaty organisation. This will allow the 'EuU' [a Eurasia union] to strategically encompass both the economic and security spheres … Putin is creating a union in which Moscow would influence foreign policy and security but would not be responsible for most of the inner workings of each country," said Lauren Goodrich in a Stratfor paper.

Putin's third empire project also includes, crucially, a tightening of Moscow's politicised grip on Europe's strategic energy supplies.

Following last month's Gazprom deal with Belarus, industry analysts suggest up to 50% of Europe's natural gas could be controlled by Russia by 2030. This is hugely significant: Putin's new Russian empire can only be financed by continuing, high-priced energy export revenues. In effect, Europe could be paying for its own future domination.

The empire-fights-back scenario has numerous other aspects. Recent remarks by Medvedev about the lack of wisdom, in the context of the 2008 Georgia conflict, of unchecked Nato enlargement vividly illustrated Russia's visceral opposition to any interference in what used to be called its "near abroad" – and Putin's desire to roll back the western encroachments of the past 20 years. Russia's determination to defend wider spheres of traditional influence in the non-aligned and developing world can be seen in its obdurate refusal to penalise Syria, in the face of almost universal outrage over the crackdown there; and in its de facto defence of Iran's nuclear programme. Putin, meanwhile, continues to prioritise Russian military modernisation.

Western countries inclined to take issue with this external empire-building, or with Russia's lamentable internal democracy and human rights deficit, have been told to save their breath. "All our foreign partners need to understand this: Russia is a democratic country, it's a reliable and predictable partner with which they can and must reach agreement, but on which they cannot impose anything from the outside," Putin told the United Russia convention. Attempts to influence the election process or the reform agenda were "a wasted effort, like throwing money to the winds".

As Putin – former secret policeman, physical fitness fanatic and hyper-nationalist – prepares to resume Russia's presidency, his third empire ambitions become ever clearer. March's election will be no contest. Only when it is over will the real fight begin. _Guardian

The inability of the USSR's economic, scientific, and technological infrastructure to keep up with those of the western nations led to its much belated collapse. Something very similar is taking place in Russia now, with an important exception: The gates of emigration -- once closed tightly by the USSR dictatorship -- are now open. Russia's young can clearly compare Russia with the outside world, now, thanks to advanced telecommunications technologies, and communications with the huge numbers of Russians who have already emigrated.

Birthrates of Russian women after emigration to healthier societies tend to go up, compared with the unlucky girls who are left behind. The good Russian genes that created the beautiful women, world class chessmasters, top rank physicists and engineers, and highly skilled computer scientists and mathematicians, are being propagated mainly outside of Russia -- well-mixed with the genes of other, more worldly successful peoples.

Putin's empire may be shrinking, but the blood of Russia is mixing with the blood of the western world, outside the tsar's control. The resulting hybrid mix is likely to be hardier, if a bit more fatalistic.

Thursday, December 01, 2011

China's Death Row is No Picnic

From the first day of his detention, Chen was subjected to torture, as authorities sought to extraction a confession. The method was simple. Bronze wires from an old hand-cranked telephone were wrapped around his fingers and toes. The telephone handle was then cranked, sending an electric current through the wires. This is called: “being connected”. Repeatedly, the guards shook him and tried to wring a confession out of him. “Now can you remember what you have done?” they would ask. “Are you going to confess now?”

Chen said he had no idea why he’d been arrested. “The police never asked specific questions. They just kept on pressing me to give an account.”

When the police were not satisfied with his answers, they “connected” him. “As an instrument of torture, this old appliance is worse than being hit with a baton. It is extremely painful. You wish you could just die,” said Chen.

According to reports, Chen complained of his torture during his court appearances. He spoke of shocks to his genitals from an electric baton, forced drinking of hot-chili water, suffocation with a plastic bag, burning the soles of his feet with a lighter, squeezing his fingers with pliers, as well as the telephone wire technique.

The most horrific experience was when he was connected to five telephone appliances on his hands, feet and ears at the same time. He tried to commit suicide by biting his own tongue, and was hospitalized and treated with seven stitches before returning to prison.

After more than a month of continual torture, Chen almost surrendered. He told his torturers “Write whatever you like. There’s no need to beat me anymore.” Nevertheless when the policeman pulled his hand to sign on the hearing record, he deliberately erred in signing his family name, signing with a Chinese character that is slightly different from the one in his family name. He did this with the faint hope that “If I really died, maybe the superior court would find that my signature was false, and maybe they’d investigate…I didn’t want to shame my family name.”

Yang Hongyi, who was acquitted at the same time as Chen Ruiwu, as well as the other three involved but released earlier for the same case, all claimed to have been subjected to similar torture. _WorldCrunch
The president of the SEIU, Andy Stern, asserts that the Chinese economic system is a better system than the western one. One wonders whether Stern also promotes the Chinese system of justice? No doubt there are a number of people that Stern would like to subject to Chinese methods, beginning with Wisconsin governor Walker.

Wednesday, November 30, 2011

Mr. Putin's Paradise for One

A private poll of 5,000 students at Moscow State University found that 80% intended to leave the country. Nor are Russia's filthy rich too patriotic about the motherland. Negative capital flows doubled this year from $34bn to $70bn. Even if the price of crude oil hit $125 a barrel, more money would be flowing out of the country than in. As it is, four times as much money (as a percentage of GDP) is going out than in. It tells you everything you need to know about a Russia digging in for another 12 years of Putin.

Mr. Putin holds all the cards in Russia at this time. His enemies are in prison or dead. His friends and cronies hold positions of power around the country, and pay him tribute on a regular basis. Anyone willing to publicly threaten Putin within Russia would have to be crazy.
The going rate is $50m for a governorship, $500,000 for a middle-ranking bureaucrat. Little wonder that once in power, their job is to get a healthy return on their investment. There are decent governors, and the group saw one at work effectively attracting foreign investment in Kaluga, south of Moscow, but the directly appointed system itself is rotten. Putin makes little secret of his disdain for the alternative, freely elected governors. Some observers say he has a pathological hatred of democracy. To underline his disdain he has now, for the second year in a row, told the story of the elected governor who legged it out the back door rather than face the fury of the mob after a local disaster.

But, truth be told, Putin is also at a loss when he gets jeered. And this, according to the pollsters, will happen more often. It is not just that Putin's personal brand is ageing. The popularity of the entire St Petersburg clique around him is falling with him. United Russia, the party of apparatchiks he created, will by hook or by crook, but largely by crook, get the required percentage of votes in Sunday's Duma elections. Last time round Moscow students were told by tutors to take digital snaps of their ballot sheets if they wanted the right grades – one of many examples of the "vote early, vote often" variety. But the party is a fragile instrument of power because it represents no one but itself.

Putin's problem is not staying in power. It is leaving it – without all hell breaking lose between rival boyars, and with his personal fortune intact. _Guardian
Putin is easily one of the wealthiest men alive. In third world countries, that is how men grow rich -- through political power. In such states, opportunities for success outside government are minimal, and never secure or lasting. That is why the truly ambitious and competent persons in such countries who do not wish to work in the public sector, often emigrate to freer environments.

Tuesday, November 29, 2011

Wanna Save the Euro? That'll Cost You €2.3 Trillion

...the joint liability would amount to €2.3 trillion. But it would technically be temporary. For all these safeguards, Germany’s government has so far poured cold water on the idea. But time is running out. And the scale of the impending catastrophe demands radical answers. _Economist

There is no guarantee that €2.3 trillion would be enough to save the Eurozone or its currency. Recent equity markets have been behaving as if eurosalvation were a foregone conclusion. But that is far from true.
The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high.

...there are signs that the euro zone’s economy is heading for recession, if it is not there already. Industrial orders in the euro zone fell by 6.4% in September, the steepest decline since the dark days of December 2008. A closely watched index of euro-zone sentiment, based on surveys of purchasing managers in manufacturing and services, is also signalling contraction, with a reading of 47.2: anything below 50 suggests activity is shrinking. The European Commission’s index of consumer confidence fell in November for the fifth month in a row.

Now an even bigger calamity is looking likelier. The intensifying financial pressure raises the chances of a disorderly default by a government, a run of retail deposits on banks short of cash, or a revolt against austerity that would mark the start of the break-up of the euro zone. _Economist
There is much more at the article excerpted above. Follow the link.

The ongoing demographic collapse of several nations of Europe is not helping their economic prospects at all. Greece, Italy, Spain, and Portugal are losing core populations particularly quickly. Without people, there is no economy worth speaking of. And yet the topic of demographic collapse across Europe is studiously ignored, in favour of virtually any other conceivable topic of conversation -- no matter how trivial.

The Great Green Energy Suicide and the turning away from new clean reliable nuclear energy, should just about put the finishing touches to the failed Euro experiment.

No one can say that the Europe of the past 30 years has not been full of the best of intentions. Good intentions mean very little after one is dead, however.

Monday, November 28, 2011

Teacher's Unions Destroying Education in US

There is also evidence that the overall quality of teachers has declined over time and that a significant fraction of this decline reflects teacher unions. For example, Caroline Hoxby and Andrew Leigh find that the share of teachers who are among the top aptitude individuals, as measured by SAT scores, has declined over time from about 5 percent of teachers in 1963 to only 1 percent in 2000, and that much of this decline is due to the fact that teacher unions, like most other unions, compress compensation, which means that the spread in compensation between the highest quality and lowest quality teachers is reduced.17 And it is not only the very top aptitude individuals that are entering teaching at a lower rate. Wage compression benefits lower ability teachers, but reduces compensation of the best teachers, and this decline in compensation at the top end leads to fewer top aptitude individuals pursuing a teaching career.

Hoxby and Leigh also note that there has been a large increase in the lowest aptitude individuals—those in the bottom 25 percent of SAT achievement—entering teaching, and that they now make up about 16 percent to around 36 percent of the teacher population.18 This change in the composition of teachers is negatively impacting teaching outcomes...

...if the bottom 5 to 8 percent of teachers were replaced with average quality teachers, then U.S. student test scores in math and science would be at the top of international comparisons. This means that the human capital of future U.S. workers would rise, and thus generate higher production and income in the future. Hanushek estimates that the present discounted value of higher future incomes that would result from replacing poorly performing teachers would be about $100 trillion.

The public sector union problem in the US will have to be solved on a state by state basis. Once that is done, any remaining federal level problem with public sector unions should be solvable via elected representatives. In the meantime, some states such as California, New York, and Illinois may have to descend into painful bankruptcy proceedings, before the citizens of those states understand how their governments have hornswoggled them into serfdom.
Unionization is much higher in the public sector than in the private sector, and there has been no tendency for unionization to decline in the public sector. While private sector unionization has declined from about 37 percent to about 6 percent, unionization in local government has been steady at around 45 percent.

Public sector unions have been able to thrive because of the very limited competition in state and local governments. This has allowed unions to increase wages above competitive levels. In particular, state and local government compensation has increased by about 40 percent since 1980, compared to about a 20 percent increase in the private sector. The average public sector compensation level is now $70,000, compared to an average of $60,000 in the private sector.

Moreover, the much higher rate of job security in the public sector, plus superior public pensions, suggest that state and local government workers would be willing to work for less than private sector pay. My findings indicate that accounting for just the much higher rate of public sector job security suggests that public sector employment could be competitive even with compensation that was about 10 percent lower than the private sector. The fact that average public sector worker compensation is higher than in the private sector, without taking into account pension benefits, suggests that public sector compensation levels may be significantly above competitive levels. I find that reducing the wages of state workers by 5 percent would reduce California’s 2011-2012 state budget deficit by nearly 15 percent. _Lee Ohanion

Sunday, November 27, 2011

China's Emerging Hereditary Elite: Inevitable Decay of Empire?

Every empire eventually reaches a point where the number of individuals and factions vying for power passes out of balance. This is true from empires as small as a family farm to empires such as the USSR, Communist China, Imperial Rome, or the bloated and rapidly inflating bureaucracy of the USA.

In China, the one-child policy tends to retard the development of hereditary clashes within the same family. But the ruling (and ravaging) of the Chinese empire is developing along clear family lines. An obvious hereditary elite -- a new nobility -- is arising within the celestial kingdom, and it is set to acquire a firmer grip on power with the decadal change of leaders next year.
Their visibility has particular resonance as the country approaches a once-a-decade leadership change next year, when several older princelings are expected to take the Communist Party's top positions. That prospect has led some in Chinese business and political circles to wonder whether the party will be dominated for the next decade by a group of elite families who already control large chunks of the world's second-biggest economy and wield considerable influence in the military.

"There's no ambiguity—the trend has become so clear," said Cheng Li, an expert on Chinese elite politics at the Brookings Institution in Washington. "Princelings were never popular, but now they've become so politically powerful, there's some serious concern about the legitimacy of the 'Red Nobility.' The Chinese public is particularly resentful about the princelings' control of both political power and economic wealth."

...The antics of some officials' children have become a hot topic on the Internet in China, especially among users of Twitter-like micro-blogs, which are harder for Web censors to monitor and block because they move so fast. In September, Internet users revealed that the 15-year-old son of a general was one of two young men who crashed a BMW into another car in Beijing and then beat up its occupants, warning onlookers not to call police.

...Many princelings engage in legitimate business, but there is a widespread perception in China that they have an unfair advantage in an economic system that, despite the country's embrace of capitalism, is still dominated by the state and allows no meaningful public scrutiny of decision making.

The state owns all urban land and strategic industries, as well as banks, which dole out loans overwhelmingly to state-run companies. The big spoils thus go to political insiders who can leverage personal connections and family prestige to secure resources, and then mobilize the same networks to protect them.

The People's Daily, the party mouthpiece, acknowledged the issue last year, with a poll showing that 91% of respondents believed all rich families in China had political backgrounds. A former Chinese auditor general, Li Jinhua, wrote in an online forum that the wealth of officials' family members "is what the public is most dissatisfied about." _WSJ "China's Princelings"
Speaking of lowered social mobility, one intriguing development in the Chinese educational system, is the slashing of the number of subject areas in university. Education has generally been seen as a path toward upward social mobility in most countries. But China's leaders appear to feel that too many Chinese are becoming college educated.

Revolutions typically begin among intellectuals, and the better educated, when they feel that a society has grown too closed to allow them to achieve their potential. It will be interesting to see how those who are being closed out of the hereditary elite's celestial wonderland will react, as the new nobility tightens its grip on both political and economic power.

And it will be fascinating to watch the inevitable coming power plays between the members of the hereditary elite as they spar for advantage in the higher reaches of wealth and power. It is the sort of infighting one expects to see before deep schisms start to form, and power becomes consolidated regionally rather than nationally.

Saturday, November 26, 2011

Tragic Shortage of Bras Due to Chinese Worker's Strike

Chinese factory workers across the Pearl River Delta have gone on strike, protesting low wages and limited opportunities, in the midst of an export slowdown. Regrettably, even bra factories have been affected, with the result that even fashion models are being caught without bras (see below).
The strains underline recent warnings of a looming export slowdown from a senior Guangdong official and a survey of country-wide industrial activity in November that showed the worst contraction since 2009.

At Yue Yuen Industrial Holdings' giant shoe factory in Huangjiang town — a major supplier for sports brand New Balance — the mood remained tense after most of its 8,000 workers took to the streets on Thursday, blocking roads, overturning cars and clashing with police.

Experts and labor advocacy groups warn an external economic slowdown in debt-stricken Europe and countries like the United States could exacerbate the risk of social upheaval in China.

Besides labor disputes, Guangdong province — a crucial locomotive of China's economic growth with a GDP matching Indonesia's — has been roiled in recent months by riots over rural land grabs in Lufeng city, and abuse of power several hours drive west in the city of Zengcheng that saw angry crowds ransack government buildings.

A former deputy editor-in-chief of the official party newspaper, the People's Daily, said the number of “mass incidents” in China, an official euphemism for social disorder, was consistently above 90,000 per year from 2007 to 2009.

...As leaner times provoke aggressive factory cost-cutting and wage trimming, Chinese workers increasingly lashed by persistent inflation are often in no mood to compromise.

In a recent report, consultancy Exclusive Analysis said it sees growing risks of “violent labor unrest” flaring up in Chinese factories and causing property damage and losses, adding: “Real-time use of social media by striking workers and firms' decreased ability to meet workers' demands due to falling Western export demand are likely to drive this violence.”

Europe's economic woes, Chinese manufacturing fragility and flat consumer spending in the United States have all raised the risk that the world is headed for a steep downturn. _ChinaPost
Be that as it may, the threat of being forced to go without bras is sending panic through the ranks of most affluent western women over the age of 30. Some middle aged feminists have even threatened retribution against the Chinese government. If shipments of bras (particularly "wonder bras") to the west are not resumed, they threaten to send planeloads of feminists to the communist mainland to incite ill feeling between the sexes within the celestial kingdom.

No word yet on any response from China's leaders to the feminists' ultimatum.

Tuesday, November 22, 2011

Blowback from Chinese "Infrastructure to Nowhere"

In October, however, property transactions fell 39 percent year-on-year in China’s 15 biggest cities , according to government data. Nationwide, transactions dropped 11.6 percent, accelerating from a 7 percent fall in September.

The fall-off in transactions has affected developers’ cash flows and, in some cases, their ability to repay bank loans. Rising defaults after a lending surge in 2009 and 2010, much of which ended up in the property sector, were cited by the International Monetary Fund this month as one of the Chinese financial sector’s biggest risks. _CNBC
Property prices are falling in cities across China. Local and regional governments are chafing against the Beijing central government's recent tightening of lending rules, aimed to prevent runaway inflation. Some cities have openly defied the tightened banking rules, increasing tensions between the centre and the periphery in China today.
Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun,” said Alan Chiang Sheung-lai of property consultant DTZ to the South China Morning Post.

...Citi’s Oscar Choi believes prices will decline another 10% next year, but that’s a conservative estimate. Even state-funded experts are more pessimistic. For example, Cao Jianhai of the prestigious Chinese Academy of Social Sciences sees price cuts of 50% on homes if the government continues its cooling measures.

When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse. In any event, the markets are bracing for trouble.

...recent purchasers have taken to the streets because they had suffered losses even before taking possession of their homes. A crowd of about 300 people in Shanghai smashed windows at the sales office of Longfor Properties on October 22, two days after the builder had ended a sales promotion on a project. The protestors had bought properties in earlier phases of the same project at prices as much as 30% higher than the discounted ones.

And then, on the 23rd, a smaller crowd—on the same street—demonstrated against another developer, Greenland Group. Protesters were injured in Shanghai at another demonstration, this time against a unit of China Overseas Holdings. There were also protests against builders in Beijing and in other cities, Hangzhou and Nanjing.

The cities of Hangzhou and Hefei have reportedly told developers to limit discounts to 20% to avoid unrest, but the attempt to establish fiat prices will not work for long because many builders face insolvency.

Moreover, Premier Wen has to be concerned that sometimes he cannot control his own cities, which have flouted his decrees by removing curbs on property ownership. _Forbes _ Gordon Chang
It is indeed a reason for concern, when inter-governmental discipline within a police state such as China begins to break down. China has a long history of its empires fracturing into warring fiefdoms. As China braces itself for a leadership change next year, such pressures can only be seen as unwelcome.

Monday, November 21, 2011

Putin's Coming Next 12 Years: Rumblings of Instability?

Challenged with the view that Russia and its exhausted political system were heading towards stagnation, he disarmingly said, “I have nothing to object to in what you are saying”, adding later that “our system is not perfect.” _Economist


Mr Putin seemed blithely confident that Russia’s economic growth would not be affected by the global crisis. Others are more doubtful, including his former finance minister, Alexei Kudrin, who predicts that the oil price could fall to $60 a barrel, presenting Russia with challenges as serious as those in Europe and America. Mr Kudrin’s resignation, after Mr Putin’s promise to make Mr Medvedev prime minister, also lowers the chances of the sort of authoritarian modernisation that some liberals had once hoped for.

In foreign policy Mr Putin remained unrepentantly blunt, notably on missile defence (see article). He promoted his pet idea of a Eurasian union to foster economic integration with Russia’s former Soviet neighbours. But the Kremlin has neither the money nor the popular support for this—and Ukraine, the biggest potential prize, remains unenthusiastic. _Economist
Russia is warning that the threat of nuclear war is rising once again, with Mr. Putin's return to the presidency. Putin wants to return Russia to superpower status, and one of his strategies is apparently to wave the nuclear threat.
"The possibility of local armed conflicts virtually along the entire perimeter of the border has grown dramatically," [General] Makarov said. “I cannot rule out that, in certain circumstances, local and regional armed conflicts could grow into a large-scale war, possibly even with nuclear weapons.”
But at its core, Russia is a sick, ageing, and shrinking nation. It is doubtful whether Russia can hold on to its land holdings in the far east for many more decades.
The fate of babies that are born in Russia is a bleak one. Russia ranks #6 in the world for fatality by suicide. It has the second-highest prevalence of AIDS in Eurasia. It is #7 in the world for cigarette consumption and #5 in the world for alcohol consumption. Its rate of fatality by fire is ten times that of the United States, and it is the most dangerous place in the world to drive a car or get on a plane.

...Russians are deeply, fundamentally, infamously suspicious of anyone who is not white, Slavic and Orthodox, and therefore the notion of creating a "melting pot" in Russia is nothing more than a pipe dream. If the inflow of such persons continues there will be a furious backlash led by Russia's fearless and shameless skinhead nationalists.
What's more, with every day that passes, more and more Russians flee their country, while they still have the chance. Entrepreneurs most particularly, are leaving in droves. As this process accelerates and the supply of wretched refuse so lowly that they see Russia as a step up diminishes, immigration will cease to be a factor in stabilizing Russia's population._AT
Here is how Russia can still throw its weight around:

...First, nuclear weapons. Simplest and most direct, Russia can threaten to blow up the world if it doesn't get what it wants.

Second, oil and gas. Especially in former Soviet space, Russia can threaten energy blackmail, turning off the lights and the heat in any country that doesn't do Moscow's bidding. The government of Ukraine has recently announced a massive shale exploration program to try to break its dependence on Russian crude.

Finally, cold war politics. Russia can funnel money, weapons and diplomatic support to the rogue regimes of the Middle East, just the way the USSR always did. It can threaten to roil their oil markets and create political instability throughout the region. _AT
Mr. Putin is not reluctant to play the international thug on the world stage, either. If he can not be the leader of a world superpower, at least he can make things more difficult for other leading economic powers. According to traditional thinking of the Russian peasant class, it is better to keep your rival from getting ahead, than to get ahead yourself.

But the erstwhile tsar will have his hands full just keeping his own country in one piece. Meddling in the far corners of the globe while his own human infrastructure crumbles, may be his downfall.

Saturday, November 19, 2011

Russia's Ongoing Brain Drain to the West

Not for the first time, Russian scientists are taking their considerable knowledge and moving abroad. Some of the brainy emigrants cite funding problems and Russian red tape as reasons to move. For others, heading West is simply a lifestyle choice.

...Russian graduate students prefer just about any small, unknown laboratory in Europe over the brand-new Russian scientific complex [Skolkovo]. “A stable trend has been established: 100% of working young people who get the opportunity to work abroad leave Russia,” said one scientific analyst. “If a young researcher gets the opportunity to enter the international arena, he or she will do it.”

Indeed, the trend extends beyond scientists. In October, 2011, a survey found that 22% of Russian citizens in general were prepared to leave the country. The only thing that sets the scientists apart is that they tend to be much more welcome by the receiving countries. “It’s not even really about the lack of financing for scientific projects, but general quality of life,” said one of the scientists. “If regular people are not coming back to Russia, then why would scientists do so?” _WorldCrunch

Russia is the world's largest country, in terms of land mass. It is a land rich with natural resources, and one of the world's foremost energy exporters. But not all is well in the land of the Russian bear. Alcoholism, suicide, mental illness, crime, and infectious diseases such as HIV and Tuberculosis, are all endemic. Russia's men die before they can retire, leaving Russian women with nothing but vodka to keep them warm at night.

Beautiful young Russian women compete to be mail order brides for European, North American, and Australian men. Ambitious and competent young Russian men compete for overseas positions -- anything to escape the dreary dead-end that Russia has come to represent to so many of its young.
“It turns out that in only two years the number of articles published by Russian scientists has dropped by 10%. That is unprecedented,” said a researcher at a Physics Institute in Moscow, who like other protesters interviewed, asked to remain anonymous. “That hasn’t happened in the United States, where funding is still plentiful for scientists, in Japan, which has suffered through several years of economic stagnation, or even in Greece, which is drowning in its own debt.”

...“Scientists have always left our country, but now we are talking about a large increase in the number of people who are moving away. Nearly all of our friends have packed up their things,” said one of the protest organizers. “Dissertation advisors don’t discourage young scientist from choosing to leave. Now we’re seeing a huge wave of people who are leaving the country. The only thing keeping most of them here is that they haven’t defended their dissertation yet.”

There are no specific statistics on the number of scientists who leave – emigrants don’t generally notify the Russian migration office that they are leaving. But this is not the first exodus. There was a massive wave of scientists who left Russia after the fall of the Soviet Union. Mathematicians, physicists, and biologists took whole laboratories to the United States. The second most popular destination was Israel, where a previous wave of Russian scientists had already set up shop in the 1970s.

By the beginning of the 2000s, nearly all the top names from Soviet science were working outside of Russia. According to the Association of Russian Speaking Scientists, there are around 100,000 Russian-speaking scientists and researchers working outside of the Russian Federation, counting those who left Russia before and after the fall of the Soviet Union.... _WorldCrunch
Russia's core population would be shrinking even without the outgoing emigration. But the loss of Russia's most ambitious, competent, and fertile young people to the outside world does nothing to improve the morale of those left behind.

Friday, November 18, 2011

Iran's Insurgency Begins to Heat Up

The world has been watching the Syrian dictatorship fighting off an insurgency made up of army defectors and disaffected citizens, with Turkey warning Syria to stop murdering its civilians. And now, an insurgency movement inside Iran is apparently beginning to heat up.

Iran's insurgency is likely to have much larger global repercussions, because Iran's mullahcracy has been the center of so much regional discord and killing over the past 32 years -- from Gaza to Lebanon to Iraq to Saudi Arabia. Overthrowing the backward and bloody theocracy of Iran would be a significant step forward to world harmony, and the dismantling of the Russia - Iran - North Korea - Cuba - Venezuela axis of global destabilisation.

What we are beginning to see in Iran, is an upsurge in explosions targeting Iran's energy infrastructure, and its Iranian Revolutionary Guard in-house instrument of terror and murder. If the Iranian insurgency is able to reach into the heart of the Iranian government's terror apparatus, it is apparently serious about changing the established order.
These attacks on the Guards — the symbol of the regime’s intensifying repression and slaughter of the Iranian people — are part of a pattern that includes explosions at refineries and pipelines. At the same time, strikes have been spreading (and no wonder; up to 30,000 retired teachers have been waiting for their pensions for many months). In short, people have lost patience, and the smaller of the two explosions at the RG base was aimed at Major General Hasan Tehrani Moghaddam, one of the most brutal of the country’s military leaders.

Contrary to the inevitable suspicions of the thumb-suckers (the Americans did it! no, the Israelis did it! no, it was an accident!), the operation was planned and carried out by Iranians from the opposition-that-does-not-exist. They intended to demonstrate that no leader is safe from the people’s wrath (if that base can be penetrated, any place can, and if that man can be assassinated, anyone can), and that the opposition knows its gravediggers.

The second, larger, explosion was not planned, nor was the extremely high number of casualties (I am told that hundreds of people, including some “very important foreign dignitaries,” were blown up). That second blast was apparently from a quantity of liquid fuel designed to extend the speed and accuracy of Iran’s Shahab-3 missile, the one the mullahs hope will some day carry a nuclear warhead. My sources claim that the fuel caused the big white plume seen in the photographs. The cloud may well have caused respiratory problems for the survivors.

There is another, fascinating report, that right after the explosions, the two main Green Movement leaders, Mir Hossein Mousavi and Mehdi Karroubi, were taken from house arrest, leaving their wives behind. This bespeaks a high level of anxiety within the regime, suggesting that they feared an all-out assault was under way, and under those circumstances they would take vengeance on the two Green leaders. Whether or not the rumor is true, its existence suggests that Khamenei et. al. take a more serious view of the opposition than some of our own expert analysts.

What this all means is clear was only a matter of time until the opposition abandoned its commitment to non-violence. We are now in a new phase. A French analyst, Jean-Jacques Guillet, understands the situation very well, and has called for a Western policy to intensify the pressure on the Iranian regime in order to bring it down. “If we press the regime strongly,” he said, “there could be an implosion. The real objective these days should be the regime’s implosion, not more talk.”

Instead, we have leaders [Dumbama etc.] who still believe in the talking cure, and who seem not even to know what the Iranian opposition wants, even when it’s delivered to them in black and white. As it was, at the height of the turmoil in 2009. _PJMedia