A Congressional source told Reuters that the White House expects a new record one year deficit for 2010. $1.6 trillion in the red. Is that cool or what? I love it when humans strive to achieve what has never been done before.
Bill Gross of Pimco in his February 2010 column has a ring of fire around a group of industrialzed nations headed for sovereign debt crises. The United States is in that circle and will likely reach the important 90% of GDP sovereign debt threshold that is proposed by another book that I (and apparently Gross) am currently reading: This Time is Different: Eight Centuries of Financial Folly by Carmen Reinhart and Kenneth Rogoff. The book is a look at the history of sovereign financial crises. Reinhart and Rogoff built up a database of history of financial crises over many countries and 800 years. To my knowledge this is the first time a quantitative analysis on this scale has been done for sovereign debt and banking crises. The book is therefore able to offer unique insights into the frequency and triggers for financial crises.
Since the United States had such a financial crisis in 2008 and since its leadership shows no signs of developing an appreciation that we are skating on thin ice I expect we will experience a bigger financial crisis in the next 10 years or so. If the patterns Reinhart and Rogoff found are applicable to the US (and I see no reason to justify exceptionalism - look at 2008 for evidence of our fallibility) then our economic recovery will be slow for several years. Our big debt increase is no surprise to Reinhart and Rogoff:
On average, government debt rises by 86 percent during the three years following a banking crisis. These indirect fiscal consequences are thus an order of magnitude larger than the usual costs of bank bailouts.
Anyone who says "this time is different" is deluded.
Our immersion in the details of crises that have arisen over the past eight centuries and in the data on them has led us to conclude that the most commonly repeated and most expensive investment advice ever given in the boom just before a financial crisis stems from the perception that "this time is different". That advice, that the old rules of valuation no longer apply, is usually followed up with vigor. Financial professionals and, all too often, government leaders explain that we are doing things better than before, we are smarter, and we have learned from past mistakes. Each time, society convinces itself that the current boom, unlike the many booms that preceded catastrophic collapses in the past, is built on sound fundamentals, structural reforms, technological innovation, and good policy.
The book looks at inflation crises, currency crashes, currency debasement (when currencies used real metals and were debased with cheaper metals), the bursting of asset price bubbles, external debt crises, and domestic debt crises. The US has had the asset price bubble. Now it is moving on toward a debt crisis. At best US debt will weigh down the economy so that growth is slow. At worst, a bigger economic contraction could be heading our way.
Over at Secular Right Razib has written a post about Scott Brown's Senate election victory in Massachusetts and Brown's ability to appeal to non-religious voters.
What you see here is that there is no correlation on the state by state level between those with “No Religion” and voting for Republicans or Democrats in 1988, but that by 2008 the proportion with “No Religion” can explain 20% of the variation by 1988. Some of this is just due to the rapid expansion of the proportion of the American population which avows “No Religion”. But the secularization process exhibits geographic patterns; Vermont now has a plural majority for those with “No Religoin,” and perhaps tellingly it is a state which has shifted much further to the Left than the national average since 1988 (it voted for Bush in ‘88, but was a deep blue state by ‘08). Secularization in fact has been most pronounced in northern New England, which has seen a shift toward the Left over the past generation.
What relevance does this have for current politics? 21% of political Independents have “No Religion,” as opposed to 16% of Democrats and 6% of Republicans. The role of Independents in Scott Brown’s recent victory, and in New England in general, is notable. There is no doubt that today the Republican party is defined by its white Protestant core, and this will be the basis for any future Republican majority. But I think Scott Brown’s election shows the importance of demographics outside of the core in creating a viable majority party. Though Brown himself is an Evangelical Calvinist, his campaign did not seem culturally colored in a way that the secular Center-Right might find off-putting. I think this is an important insight, and suggests further analogies between Scott Brown and Barack Obama.* Though Obama does not seem to be personally a particularly religiously devout individual, he managed to appeal to substantial numbers of religious voters through his mastery of rhetoric and presentation. Similarly, though Scott Brown’s personal beliefs are conventionally Christian, his tone and presentation was such as that voters otherwise skeptical of the Religious Right coloring of the modern Republican party found him acceptable.
I think continued development of a split between the two political parties along religious lines is unhealthy for the commonwealth. A cleavage based on religious belief will end up preventing non-religious or only mildly religious candidates from running as Republicans and also prevent deeply religious Democrats from attaining office. That would have the effect of preventing many talented potential candidates from seeking office. I think the election of George W. Bush and also of Barack Obama both demonstrate the costs of using selection criteria that give special preference to candidates due to just one facet of their identity (Christian fundie in Bush's case and racially black in Obama's case) means that needed qualities in a good leader are not met by those who end up winning office.
The Republican Party will do better in elections if it manages to moderate the religious rhetoric of some of its candidates and tries to appeal to agnostics and atheists as well. It will especially do better if it its voters do not enforce a religious litmus test on candidates.
WASHINGTON, Jan. 30 (Xinhua) -- Ignoring repeated solemn representations made by China, the U.S. government on Friday notified Congress of its nearly 6.4 billion-U.S.-dollar arms sale package to Taiwan.
The sale is a wrong decision, which not only undermines China's national security interests and her national unification cause, but also once again hurts the national feelings of the Chinese people.
Moreover, it also will cause serious damage to the overall cooperation and relationship between China and the United States.
Frankly speaking, U.S. arms sales to Taiwan have become a chronic disease that has been disturbing China-U.S. ties for a long period of time.
China's GDP is still less than a third of US levels. But it'll probably be over a half US levels in 5 years or so.
The Washington Post has an interesting article on how this latest episode fits with a recent trend where China's triumphalist attitude is worrying countries around the world. Once China becomes the most powerful country I expect political elites in many countries to look back with nostalgia on the era of American dominance.
China's indignant reaction to the announcement of U.S. plans to sell weapons to Taiwan appears to be in keeping with a new triumphalist attitude from Beijing that is worrying governments and analysts across the globe.
From the Copenhagen climate change conference to Internet freedom to China's border with India, China observers have noticed a tough tone emanating from its government, its representatives and influential analysts from its state-funded think tanks.
Calling in U.S. Ambassador Jon Huntsman on Saturday, Chinese Vice Foreign Minister He Yafei said the United States would be responsible for "serious repercussions" if it did not reverse the decision to sell Taiwan $6.4 billion worth of helicopters, Patriot Advanced Capability-3 missiles, minesweepers and communications gear. The reaction came even though China has known for months about the planned deal, U.S. officials said.
Since Boeing is making some of the weapons for Taiwan this bodes well for future Airbus aircraft sales to China at the expense of Boeing. Though eventually China will stop buying from Western aircraft makers and use mercantilist policies to create a national champion in aircraft manufacture.
WASHINGTON -- China curtailed military exchanges with the United States on Saturday and threatened to sanction U.S. firms in retaliation for proposed American weapon sales to Taiwan.
The moves signaled a souring of relations between the world's two largest economies.
The decline of US power and influence is going to make life more difficult for countries that will fall into China's sphere of influence.
Arnie, still the governor of the fiscally deteriorating state of Calfornia, wants to outsource the imprisonment of illegal alien criminals to cheaper Mexican prisons.
We pay them to build a prison down in Mexico and then we have those undocumented immigrants be down there in a prison and with their prison guards and all this. It will halve the costs to build the prisons and halve the costs to run the prisons. That is money—again, a billion dollars right there—that can go into higher education.
His predecessor Gray Davis made a sweet deal with the union for California state prisons that made salaries and other labor costs for prison guards quite high. So California state prisons are expensive to operate.
This idea can be extended: Deport all the illegal aliens from California to Mexico so their kids can go to cheaper Mexican schools, they can use cheaper Mexican dentists, cheaper doctors, and cheaper police. Time to save money. California is a high cost state and no place for high school drop-outs from groups that continue to perform poorly in later generations.
Arnie is also making greater use of private prisons. He is trying to undo the damage caused by Gray Davis's big raises for the state prison union members.
Without a doubt, the state saves money by using private prisons. A recent state audit estimated that the cost of housing an inmate in private lock-up is between $3,200 and $7,800 less per year than in a state prison.
One reason is that private companies pay guards far less than the state pays prison officers, many of whom earn in excess of $100,000 with overtime and other bonuses. Therein lies perhaps the largest obstacle to any expansion of private prisons.
The California Correctional Peace Officers Association fiercely opposes private prisons, and regularly spends millions on state campaigns.
The union was particularly close to Schwarzenegger's predecessor, Gray Davis. Indeed, the union donated $251,000 to Davis on a single day in 2002, shortly after the Democratic governor signed a labor contract intended to give prison officers pay raises of 37 percent over five years.
Political systems accumulate parasites until crisis forces a cutting back. In California's case it is amazing just how bad the crisis has to get before various forms of parasitism get trimmed back. It isn't even clear that a reduction in parasitism will continue to happen. In the 2010 election the Democrats could win the governorship and gain seats in the legislature. If that happens the parasites will raise taxes.
The audience at last Tuesday’s UC Berkeley lecture given by Eduardo Fierro, one of the first U.S. earthquake engineers to visit post-quake Haiti, collectively cringed as Fierro showed slide after slide of haphazard columns, brittle frames, and slipshod rods and joints. “This was not an earthquake disaster,” Fierro said. “[This] was caused by people that didn’t know how to use codes, that built things in bad shape. These were the people that caused the tragedy.”
The international aid agencies and developed world governments ought to spend a substantial portion of their reconstruction funds on architectural engineers and building construction inspectors to make sure the new buildings can withstand the next earthquake. Take over the building inspection function of the Haiti government and run it smartly and without corruption.
"Porte-au-Prince is probably one of the worst constructed cities in the world, and even the presidential palace collapsed," said Bilham. "An earthquake near a major city on one of several faults bounding the edge of the Caribbean Plate is one that many of us were expecting sooner or later."
With a population over 9 million and a population growth rate of 1.838% even if Haiti has lost as many as 250,000 people the population will be above 9 million once again by the end of 2011.
With a per capita GDP of $1,300 is it the poorest country in the Western Hemisphere. Along with architectural engineers and building inspectors Haiti also needs free widely available birth control and family planning counselors.
If you're thinking the legislation will tamp down overall health care spending, reconsider. Policy analysts ranging from the neutral Congressional Budget Office to the HMO lobby see no abatement in the growth rate of health care spending. That sector of the economy is growing at a 7.4% annual rate, says actuarial firm Milliman. Medicare's chief actuary, Richard Foster, thinks that the Senate bill would expand health spending by $234 billion above current projections.
The amount of cost shifting onto private plans will rise.
The premium hikes will result from cost shifting, better known as passing the buck. The House and Senate insurance bills aim to cover their costs in part by cutting annual Medicare reimbursements to hospitals, doctors and drug companies by $45 billion. Those providers will likely try to offset the cuts by negotiating higher rates with private HMOs--which then get passed along through higher premiums. That's exactly what occurred after past Medicare and Medicaid cuts, according to the CBO analysis. Families USA, a nonprofit group advocating expanded federal involvement in health care, says insured families are already absorbing $1,000 a year in costs shifted away from uninsured patients.
People who buy medical insurance on their own will be hardest hit because the individual insurance market won't be able to deny coverage due to pre-existing conditions. So some will wait to buy insurance until they get seriously ill and those people will get paid for by those who pay all along. Read the full article for estimates of how much premiums will rise. Individuals buying their own insurance might pay as much as 53% more. Employers won't be hit as hard as individuals. The more powerful and more organized manage to shift costs toward the less powerful and less organized.
People who make less money will be even more subsidized by the most productive. That's a more general trend that makes me worried for the future.
I think that the moral thing for most borrowers to do, under present circumstances, is to default on loans when it is in their financial interest to do so.
Much of my thinking on economic and social issues comes back to T.S. Elliot’s proposition, “It is impossible to design a system so perfect that no one needs to be good.” Once upon a time, I chose to disagree. I thought it was the challenge of our day, and the grand project of modern economics, to build a system in which people pursuing their own self-interest would provide all social goods, in which the benevolent invisible hand would rule all and we’d have no need to rely upon ideas as shifty and manipulable as “virtue”. I have done a full 180 on this question. Economic self-interest and formal legal frameworks are simply insufficient to regulate a decent society. Elliot was right.
But it’s crucial to remember that “what is moral” is something we collectively decide, and not without constraints. A social order that routinely demands heroic sacrifice of people in the name of virtue will fail. Clever hypocrites will be rewarded while naive saints pay, and the overall tenor of society will not be virtuous. The most we can demand of fuzzy constructs like morality and social norms is what Arnold Kling calls “soft rule utilitarianism”, under which people accept modest personal costs on the theory that if everybody does so, we’ll all better off. But emphasis on the word “modest”, and expectations of reciprocity. Economic and legal scaffolding has to sit beneath informal social constraints so that in general it makes sense to be good. It is like the relationship between flesh and bone: You could not build anything as beautiful as a smile out of bone, but the smile will not survive if the jaw beneath is fractured and misshapen. We regulate the “bone structure” of our society explicitly via legal arrangements, and more subtly, via social and reputational incentives. There’s a kind of hygiene we have to attend to, in order to ensure that doing well and being good are not terribly inconsistent. Over the past few decades we’ve failed to attend to that hygiene, in large part I think because we let simplistic economic ideas persuade us that we didn’t have to, and that the pursuit of wealth yields virtue automatically and dirty is the new clean.
Whatever the reason, we find ourselves disillusioned. People in the financial industry earned huge sums making loans that shouldn’t have been made, offering “affordability products”, Orwellian slang for means of selling homes at unreasonable prices that buyers could not afford. They failed to perform the core social duty of creditors, which is to make prudent judgments about whether loans are likely to be in the mutual interest of borrower and lender over the full term of the debt. Once originators could resell loans, once the financial industry adopted practices of paying cash commissions and bonuses at the time of origination, once we had severed the nexus between the self-interest of the people making lending decisions and the long-term interest of borrowers, it was inevitable that bad loans would be made. So they were. Now that those bad loans are doing what bad loans do, lenders have suddenly found religion, and argue that the moral fabric of our society would be riven if homeowners behaved like, um, bankers. I think that under the circumstances, quite the opposite is true.
Read the whole thing.
I can see another and quite compelling reason for people underwater to walk away from their mortgages: The losses will teach banks not to lend with low down payments and under conditions where housing affordability is low. The US government is determined to shield banks from the full costs of their mistakes. This just creates the conditions for yet another round of folly. Bigger losses by the banks will teach them lessons that they otherwise won't learn.
One can see from this housing price index and another housing price index along with a graph of price-to-rent ratios when a housing bubble is happening. Banks which take taxpayer-guaranteed deposits and gamble with them in housing bubbles need punishment. Strategic default is punishment that'll teach them not to do the same next time - at least for several years anyway.
BTW, big commercial real estate investment corps use strategic default as a business strategy.
WASHINGTON — Tensions between China and the United States over Internet policy deepened Friday, with the Chinese government accusing Secretary of State Hillary Rodham Clinton of jeopardizing relations between the two countries with her criticism of Chinese censorship.
The Obama administration said it stood by Mrs. Clinton’s words and repeated its demand that Beijing provide a more detailed response to Google’s allegations that its computer network had been infiltrated by hackers based in China. But the United States held off lodging a formal diplomatic protest, suggesting that administration officials were still uncertain about how hard to push China on the matter.
Criticizing China amounts to jeopardizing relations. Attacking American companies to steal their intellectual property? Nothing new here. Move along.
“Operation Aurora” indicates to me that the Chinese government is willing to attack large numbers of Western (mostly American) corporations to steal their technology and otherwise mess with them. This isn't really new news except for the method used. China's all about intellectual property theft. But the scale of the attack ought to make Westerners pause and think about a mid 21st century dominated by China.
Hackers seeking source code from Google, Adobe and dozens of other high-profile companies used unprecedented tactics that combined encryption, stealth programming and an unknown hole in Internet Explorer, according to new details released by the anti-virus firm McAfee.
“We have never ever, outside of the defense industry, seen commercial industrial companies come under that level of sophisticated attack,” says Dmitri Alperovitch, vice president of threat research for McAfee. “It’s totally changing the threat model.”
This article from Wired is worth a full read.
Employees out surfing the internet ought to be viewed as akin to tools of corporate spies. Corporate firewalls can be defeated by a hole in a browser (like the one Chinese hackers used in MS Internet Explorer which Microsoft took over 5 months to close or the Adobe Acrobat zero day vulnerability also used) or one corrupt employee. Inner firewalls for servers are at risk because even the PCs of admins (who have extensive rights for getting into servers) can be compromised. How can corporations with very valuable intellectual property protect that IP from the Chinese government?
Prof. Kushnir surveyed 188 primary physicians in Israel to determine whether doctors changed their professional behavior on good mood days, as well as days when they felt stressed, tired or anxious. Physicians' burnout levels were also assessed. The study asked doctors to rank how their mood affected the extent they talked to patients, prescribed medications, sent them to lab or diagnostic tests and referred patients to a specialist.
Her findings show that a good or bad mood affected all five physician behaviors. On days the doctors felt positive moods, they spoke more to patients, wrote fewer prescriptions, ordered fewer tests and issued fewer referrals. However, when doctors were in a bad mood, they did the opposite. Additionally, if the physicians' burnout level was higher, their moods more strongly impacted their behaviors.
"The finding that on bad mood days physicians tend to talk less, and may needlessly prescribe and refer more than on good mood days, implies that negative moods may be detrimental to quality and costly to healthcare systems," says Prof. Kushnir. Conversely, positive moods that have the opposite effects may help contain costs."
To make this actionable information we need to know when doctors are most likely to be in good or bad moods. Among the considerations:
When to get the best treatment?
The academic profession “has acquired such a strong reputation for liberalism and secularism that over the last 35 years few politically or religiously conservative students, but many liberal and secular ones, have formed the aspiration to become professors,” they write in the paper, “Why Are Professors Liberal?” That is especially true of their own field, sociology, which has become associated with “the study of race, class and gender inequality — a set of concerns especially important to liberals.”
What distinguishes Mr. Gross and Mr. Fosse’s research from so much of the hubbub that surrounds this subject is their methodology. Whereas most arguments have primarily relied on anecdotes, this is one of the only studies to use data from the General Social Survey of opinions and social behaviors and compare professors with the rest of Americans.
Seems to me this theory could be tested by going back 60+ years and looking up the voting registration party affiliations of major university professors. My guess is that the academy moved left before the stereotyping of academics as liberals became commonplace.
Have American politicians and pundits deluded themselves about China's eventual embrace of democracy and a free press? We've certainly plenty of other recent delusions of our elites (democratization's chance in the Middle East, Iraq's supposed WMD program, the foundations of the latest financial bubble to burst) to point to as demonstrations of elite foolishness.
Both Bill Clinton and George W. Bush firmly believed that free trade and, in particular, the information age would make political change in China irresistible. On a visit to China in 1998, Mr Clinton proclaimed: “In this global information age, when economic success is built on ideas, personal freedom is essential to the greatness of any nation.” A year later, Mr Bush made a similar point: “Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy ... Trade freely with the Chinese and time is on our side.”
The two presidents were reflecting the conventional wisdom among America’s most influential pundits. Tom Friedman, New York Times columnist and author of best-selling books on globalisation, once proclaimed bluntly: “China’s going to have a free press. Globalisation will drive it.” Robert Wright, one of Mr Clinton’s favourite thinkers, argued that if China chose to block free access to the internet, “the price would be dismal economic failure”.
So far, the facts are refusing to conform to the theory. China has continued to censor new and old media, but this has hardly condemned it to “dismal economic failure”. On the contrary, China is now the world’s second largest economy and its largest exporter, with foreign reserves above $2,000bn.
Will China have freedom of the press 30 years from now? Want to make a prediction on this? I'm thinking NO myself. Of course, China could get a democracy and as a result become more nationalistic and pushy on the world stage. Obviously democracy hasn't kept the US from engaging in foolhardy foreign adventures. Also, industrialization didn't prevent Japan from trying to build an empire (or the US for that matter).
China's already acting uppity in ways not expected until 2025. Some think it is because the Chinese see us as in decline.
Beijing's virtual snub of talks in New York on Saturday on Iran's nuclear program was just the latest example of what many China watchers see as a growing assertion of its self-interest.
One Western political leader, according to an associate, said after Beijing took the lead in blocking a deal at last month's Copenhagen climate talks, he had not expected China to be throwing its weight around in such a way for another 10 to 15 years.
China's government is going to do whatever it thinks will keep its economy growing. That means saying no emissions restraints aimed at global warming, no to pleas to import more goods to balance trade, and otherwise no to anything that the Chinese ruling elite sees as holding the potential to slow economic growth. If the Chinese economy slows it'll be because an inevitable bursting bubble due to overexpansion of credit by government. All developing countries go thru bubble bursts. Just read the book I linked to for the details (I'm still reading it myself).
Hugo Chavez recently devalued (he rebranded this as "revalued") the Venezuelan currency. This rose prices of imports. He threatened to seize and nationalize any store that tried to raise prices in now more expensive imported goods. Well, stores tried to raise prices and Hugo has begun nationalizations in the retail sector starting with a small French retail chain.
Chavez announced on Sunday the imminent expropriation of Exito, owned by Casino Guichard Perrachon SA of Saint-Etienne, France and Almacenes Exito SA of Medellin, Colombia, for what he described as repeated instances of raising prices in defiance of government regulation.
The French firm holds 67 percent of Exito.
Last week, the leftist government closed 70 individual Exito and Cada stores for 24 hours, accusing them of increasing prices after a devaluation of the bolivar.
The country's central bank has estimated that the economy shrank 2.9% in 2009.
And according to the International Monetary Fund, Venezuela is set to be the region's worst performer in 2010, with a projected contraction of 0.4% in a year when Latin America as a whole is expected to grow by 4%.
Without oil to export Venezuela's economy would collapse.
Oil, as ever, is still the mainstay of the Venezuelan economy.
In fact, it is responsible for more than 90% of the country's foreign currency inflows and 50% of government revenues.
Venezuela's declining oil production has continued downward beyond the time range of this graph. Notice the increase in consumption. Gasoline prices are subsidized and cheap in Venezuela. So soaring consumption is further cutting into oil available for export to earn foreign currency.
The government oil company can't afford to develop enough production to arrest the decline. Hugo seized oil fields developed by ConocoPhillips and ExxonMobil among others. So most foreign oil companies aren't going to invest there. Hugo fired a lot of the technically skilled national oil company employees and then hired lots of supporters.
It is pretty easy to predict more decay. But Hugo has cracked down on inflation and brought it down to a mere 25.1%.
Annual inflation in Venezuela was 25.1 percent last year, down from 30.9 percent in 2008.
A severe drought has forced Venezuela President Hugo Chavez to ration electricity in South America's top oil exporter, but underinvestment and shortsighted planning during an economic boom are as much to blame as the weather.
Those games they call 'PlayStation' are poison. Some games teach you to kill. They once put my face on a game, 'you've got to find Chavez to kill him'.
He sees cigarettes, drugs and alcohol as the capitalist road to hell.
Games, said Chavez, "promote the need for cigarettes, drugs and alcohol," adding "That's capitalism, the road to hell."
Chavez has chosen the socialist road to hell.
Hugo thinks the US is going to occupy Haiti. Um, what would be the motive? I fail to see how the place could possibly pay for the cost of occupation. Though, to be fair, neither do Iraq or Afghanistan.
“I read that 3,000 soldiers are arriving, Marines armed as if they were going to war,” Chavez said. “They are occupying Haiti undercover.”
Marines armed as if they were going to war? I would hope so. Port au Prince was a dangerous place before the earthquake.
Why did an only moderate sized earthquake kill so many people and collapse so many buildings in Haiti? Corruption kills. Virtue is essential for good government.
The death toll in the massive 7.0 magnitude earthquake in Haiti Jan. 12 is expected to continue to rise in the coming days, likely in large part because of corruption and resulting shoddy construction practices in the poor Caribbean nation, according to a University of Colorado at Boulder seismologist.
The earthquake hit about 10 miles west of the capitol city of Porte-au-Prince, which has about 2 million inhabitants, said Professor Roger Bilham of CU-Boulder's geological sciences department. The earthquake occurred along what is known as a "strike-slip zone" similar to the San Andreas Fault in California, where one side of a vertical fault moves past another one, he said.
"Porte-au-Prince is probably one of the worst constructed cities in the world, and even the presidential palace collapsed," said Bilham. "An earthquake near a major city on one of several faults bounding the edge of the Caribbean Plate is one that many of us were expecting sooner or later."
Send in some uncorruptible Finns as building inspectors for the rebuilding. Of course, assign two Xe Services (formely Blackwater) bodyguards to each of them for protection.
More than 30 companies were attacked simultaneously through an undiscovered software security hole. The incursions appear to have had the blessing of the Chinese government, if not its direct involvement.
Royalty in Europe used to support the depradations of pirates against rival states. This seems like a modern parallel.
Last year a cyber attack took place against a larger number of companies.
The concerted assault also bears similarities to one on 100 companies last year, according to security experts at iDefense. So it shouldn’t be dismissed as a one-off or rogue operation.
It managed to gain access to a computer in Taiwan that it suspected of being the source of the attacks. Peering inside that machine, company engineers actually saw evidence of the aftermath of the attacks, not only at Google, but also at at least 33 other companies, including Adobe Systems, Northrop Grumman and Juniper Networks, according to a government consultant who has spoken with the investigators.
Were all these other companies oblivious to the attacks before smart engineers at Google figured it out?
The Googlers aren't clear as to the motives for the attack. My guess: multiple goals. Go after dissidents. Steal technological secrets. Get insights into political and commercial competitors.
Besides being unable to firmly establish the source of the attacks, Google investigators have been unable to determine the goal: to gain commercial advantage; insert spyware; break into the Gmail accounts of Chinese dissidents and American experts on China who frequently exchange e-mail messages with administration officials; or all three. In fact, at least one prominent Washington research organization with close ties to administration officials was among those hacked, according to one person familiar with the episode.
China is going to become the most powerful nation in the world. My advice: Do not create online accounts with Chinese companies.
The Washington Post has a piece that dwells on the diplomatic angle.
The United States has until now addressed cyberattacks "separately from diplomatic relations" with China and other countries, "but increasingly, this is more and more difficult to do," said Susan Shirk, a China expert at the University of California at San Diego. "So it's definitely complicating foreign policy relations in that sense."
Rob Knake, a cybersecurity expert with the Council on Foreign Relations, said that a "reluctance" to raise the issue of Internet censorship with China "is no longer a tenable position."
The Chinese government still has deniability. Good luck with those diplomatic protests. I'm sure the Chinese will file those protests the same place as they file protests against currency rate fixing and other mercantilist practices.
The Chinese government has already stacked the deck in favor of domestic search engine companies. Now an internet attack on Google computer servers in China has Google threatening to pull out of China entirely.
In a blog posting by David Drummond, the corporate development and chief legal officer, Google said that it had found a “highly sophisticated and targeted attack on our corporate infrastructure originating from China.”
“These attacks and the surveillance they have uncovered — combined with the attempts over the past year to further limit free speech on the web — have led us to conclude that we should review the feasibility of our business operations in China,” Mr. Drummond wrote in a blog post.
Internet search is one of the industries where the mercantilists who run China aren't going to let a foreign company become a big player anyhow. So it is not like Google loses that much by withdrawing. Google already suffers reputation damage by restricting or censoring search results in China in order to satisfy the censors in the Chinese government.
In a separate development, Google officials said, the company discovered that the Gmail accounts of dozens of China human rights advocates in the United States, China and Europe "appear to have been routinely accessed by third parties." The hacking occurred most likely through phishing scams -- luring users to download malicious software by opening innocent-looking e-mails -- or malware placed on users' computers, rather than by breaking into Google's corporate infrastructure, the company said.
China is among a handful of countries considered to have impressive cyber offensive capabilities, but U.S. officials have refrained from publicly accusing the country because determining with certainty who is behind an attack is quite difficult.
The next largest and most powerful country in the world plays by rules that are just not cricket. In the 21st century less democratic and less open China is going to become much more powerful and the West's appeal as role model will weaken.
Global Equities Research analyst Trip Chowdhry claims that Google gets 8-10% of their revenue from China. I find that hard to believe because Google is not the biggest search player in China and Google dominates most other markets. Anyone know if Chowdhry is correct?
Update: The native search engines more thoroughly censor. So if Google leaves the Chinese people will have a harder time learning the truth about political topics.
Frank He, research analyst at BOCI Research in Hong Kong, said home-grown players such as Baidu program their search engines to more effectively censor content on issues sensitive to Chinese authorities -- such as Tibet's autonomy or the Tiananmen Square massacre -- than Google.
A Google search on China's Communist party, for example, gives much different results than the same search on baidu.com, he said. "Baidu plays smart in China, they know the local culture."
With all the censorship within China I would expect search results to be skewed simply because fewer web sites link to pages that contain truths inconvenient to the Chinese Communist Party.
According to data from comScore Inc., Baidu's share of the Chinese search market stood at 62.2% as of November, compared to Google's 14.1%. Analysys International, a research firm based in Beijing, pegged Baidu's fourth-quarter market share at 58.4%, compared with 35.6% for Google.
Google probably gets more searchers from people who are looking for info about censored news. So Google's exit would have a disproportionate effect on those looking for censored news.
An article in BusinessWeek entitled The Disposable Worker looks at the trend toward greater use of temp workers. The huge downturn in employment in this recession is due in part to greater use of temporary workers who are easily laid off.
In a typical downturn, the percentage decline in payrolls is about the same as the percentage decline in gross domestic product. But in the recessions that began in 2001 and 2007, the decline for payrolls was much steeper—1.8 percentage points more during the latest downturn. Worse yet, only about 10% of the layoffs are considered temporary, vs. 20% in the recession of the early 1980s.
About a quarter of the labor force has jobs that are not standard full-time jobs.
The trend toward a perma-temp world has been developing for years. Bosses are no longer rewarded based on how many people they supervise, so they have less incentive to hang on to staff. Instead, the increasing use of bonuses tied to short-term profit performance gives managers an incentive to slash labor costs. The Iowa Policy Project, a nonpartisan think tank, estimates that 26% of the U.S. workforce had jobs in 2005 that were in one way or another "nonstandard." That includes independent contractors, temps, part-timers, and freelancers. Of those, 73% had no access to a retirement plan from their employer and 61% had no health insurance from their employer, the Iowa group said.
The article reports on an increase in hiring of more skilled workers as temporaries. This has been happening with software developers for decades. But now some companies even hire temporary marketing directors and and temps in other management positions.
The situation is especially difficult for young people, many of whom haven't been able to get a first foot on the career ladder. The percentage of people 16 to 24 who have jobs has plummeted by 13 percentage points since the beginning of 2000, while the share of workers 55 and over who have jobs has edged up over the period, despite the recession. Some young people are so desperate to get a start, they're working for free as semi-permanent interns. "Companies that used to use only one or two interns are now asking me for five or six at a time," says Lauren Berger, who runs a company that matches interns with entertainment, marketing, and media companies. Berger also reports a rise in the number of "adult interns," who work for free while trying to break into a new career.
After the 2001 recession jobs came back very slowly. This recession is deeper and the job recovery looks to be just as long. Given the financial crisis I expect the recovery to be much slower.
Those internships might look like plum spots in years to come, for the gloomy trends in the labor market show no sign of abating. Consider some statistics. In the 2001 recession cycle, the economy lost 2% of its jobs and took four years to get them back. This time it has lost more than 5% of its jobs.
The recovery this time will take several years. More jobs will go abroad. Salaries will stagnate at best. If the global recovery becomes strong then oil prices will go so high that our living standards will decline due to high energy prices.
Once upon a time living standards in the United States went up every year for the vast majority of workers. That was then. This is now.
Shockingly, pay for production and nonsupervisory workers—80% of the private workforce—is 9% lower than it was in 1973, adjusted for inflation.
US oil production peaked in 1970. We need to send more and more goods and services abroad to pay for the imported oil. That lowers living standards. But we are still running a large trade deficit. Closing that trade deficit will happen sooner or later and will require lowered US consumption (i.e. lower living standards) to do it.
The nation's December unemployment rate remained unchanged from November at 10 percent, the federal Bureau of Labor Statistics reported yesterday, a sign that the hoped for turnaround in joblessness had not yet arrived.
Barack Obama thinks this is good news.
"This is the best jobs report that we've seen since 2007," the president said then. "I've got to admit, my chief economist, Christy Romer, she got about four hugs when she handed us the report."
Having a female in the position of chief economist means we have to put up with this nonsense about four hugs from our progressive liberal President. How about some rational thinking instead?
Note again that Barack Obama at least claims this report is good news. Does he believe it? The only reason the unemployment rate didn't rise is because 661,000 people gave up trying to find jobs. People gave up looking faster than people lost jobs. If Obama could only do a better job of demoralizing the unemployed he could get the official unemployment rate heading downward.
The Labor Department announced this morning that 589,000 jobs were lost in December. The official unemployment rate remained at 10.0%, as the civilian labor force also shrank by an even larger number, 661,000.
Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent, according to economists including David Rosenberg at Gluskin Sheff & Associates in Toronto and Harm Bandholz at UniCredit Research in New York.
All told 1.9 million have given up looking for jobs since May. So the official unemployment rate greatly understates the extent of job loss.
Since May, the labor force has dropped to 153.1 million from nearly 155 million, a 1.2 percent decline. More than 660,000 people exited in December, the most in any single month in 14 years.
In her analysis of the Bureau of Labor Statistics data, Ms. Shierholz noted that according to federal numbers the labor force has decreased by 810,000 since the recession began in 2007 at a time when, due to population growth, it should have increased by 2.8 million. She said that means there are 3.1 million missing workers who should be in the labor force but are not counted as such. They are a group that, when the economy recovers, also will have to be absorbed into the work force.
Over all, an estimated 3.6 million out-of-work people have been uncounted since the recession began in December 2007. They include people who had not recently looked for work and those who would have entered the work force in normal times, like recent high school and college graduates, but remained on the sidelines as jobs disappeared.
The participation rate, or the share of the population in the labor force, fell to 64.6 percent in December, the lowest level since 1985, from 64.9 percent.
In 1Q 2000 the labor force participation rate was 67.3%. Oh, the good old days.
Let people who are getting on an airplane search each other and their carry-ons. Move the ticket zone back up to the concourse and have people show their tickets and walk into the sitting area. Then as people go to get on the airplane let the other passengers decide who to search. Passengers could all agree to let on granny or granddad or a teenager mother with a baby. They could question some others and ask to look thru the carry-ons or pat down still others. Tell the passengers 5% of each flight has to be thoroughly checked. Okay, who to choose?
The people who get on the airplane are the ones who are putting their lives at risk. I'm guessing they'll pick out a guy like Richard Reid, the Jamaican shoe bomber or Nigerian Muslim Umar Farouk Abdulmutallab. When your own life is at stake you won't put much truck in politically correct mythology about human nature.
The world spent the last 5 years on a bumpy oil production plateau. Was that the peak in world oil production? Nate Hagens thinks so and he thinks most still (incorrectly) imagine this recession is just another normal recession where normality will soon resume.
Everything did in fact start to change in the 1970s, as US energy per capita consumption peaked, real wages peaked, US oil production peaked, and we started to use debt (spatial and temporal reallocation of real wealth) to increasingly supplement energy's role in current growth. Urged on by socially acceptable excess consumption via advertising, borrowing from the future also became socially acceptable, and the linkages between real capital (natural, built, human and social) and financial markers for this real wealth became blurred. I should clarify: I think we have plenty of energy, resources, technology and materials for this many or more humans for a generation or so to come, just not at current levels of consumption, aspiration, and the perceived extant (digital) wealth.
Source: GDP -Bureau Labor Statistics, Debt - Aggregate household, financial, corporate and government. Source: Fed Reserve Standards Board 2009
If we lived in a society of 100% reserve requirements, then peak oil would have been later, and implied higher oil prices pretty much right after the peak. As it stands, though, debt pulled forward allocations of energy and other resources and the 'peak affordability' engendered by credit collapse will run its course first. It is important to understand we are not close to running out of available energy or resources, even for this many billions. But it is very clear (to me at least) that the amount of energy flow rates (and accompanying non-energy inputs like water) are not enough to service/maintain the accumulated financial claims in this system, especially given that a large % of energy inputs have been spent long ago. It is likely if not inevitable that the claims extant in current system will cause currency reform which in turn has implications for all sorts of interdependent systems based on just-in-time inventories and global trade.
We are roughly where I thought we’d be 5 years past peak (technically just 1 year off the plateau) – still trying to maintain the façade that everything is normal, shorter attention spans, shorter interest in things academic and more interest in things practical. And a concerted effort among the icons of society to borrow and legislate our way back to just before the social precipice. I, like many people, misjudged government and central bank efforts to keep things afloat in the near term, and this could well continue for a while. Ignorance is bliss and all that.
The big debt run-up alone is reason enough to believe we can't easily get back to business as usual (BAU). But if we are past world oil peak production then consider this graph:
The liquids line up top might be about to go into a 5+% per year decline that'll play out for a couple of decades. The bulk of those liquids comes from oil. Natural gas liquids and biomass contribute smaller portions.
How do we get whacked when oil production starts going down, down, down? In a word: transportation.
1Does not include the fuel ethanol portion of motor gasoline—fuel ethanol is included in "Renewable Energy."
2Excludes supplemental gaseous fuels.
3Includes less than 0.1 quadrillion Btu of coal coke net imports.
4Conventional hydroelectric power, geothermal, solar/PV, wind, and biomass.
5Includes industrial combined-heat-and-power (CHP) and industrial electricity-only plants.
6 Includes commercial combined-heat-and-power (CHP) and commercial electricity-only plants.
7Electricity-only and combined-heat-and-power (CHP) plants whose primary business is to sell electricity, or electricity and heat, to the public.
All that oil flowing into transportation is our Achilles' Heel. It is not cheap or easy to shift that demand into other sources of energy. My advice: make your next car a conventional hybrid or pluggable hybrid. Do anything else you can practically do to lessen your reliance on oil. The biggest challenge: finding a job that'll survive the multi-decade decline in world oil production.
As I've pointed out in FuturePundit post just looking at oil consumption trends it is easy to see American economic stagnation as India and China outcompete Americans in oil buying power.
Rembrandt Koppelaar, President of ASPO Netherlands, captures this shift of oil consumption from the developed to the developing countries in his Oil Watch Monthly reports (PDF). See pages 8-12 for OECD (developed countries of Europe, US, Japan, Canada, etc) and then compare their oil consumption usage trends (all down including the US) with the trends for India and China on page 13. US oil consumption has already peaked. China and India can afford to drive up oil prices to levels that cause Americans and Europeans to drive less and to switch to more fuel efficient vehicles. This trend will continue.
Our economy will contract as our oil consumption contracts. If we are collectively wise we will make decisions that in the aggregate will cause the rate of economic decline to be slower than the rate of oil consumption decline.
Update: To clarify: I do not agree with Nate Hagens about investment strategy during a period of declining oil production. One can still find investments worth making during an economic contraction. Some assets will become worth more while others become worth less.
One of the biggest issues (unresolved in my own mind) is whether an economic contraction caused by Peak Oil will be deflationary or inflationary. The question hinges on politics. Which central banks will pursue an aggressively expansionary monetary policy? Some will. Faced with a sovereign debt crisis some central banks will buy up sovereign debt and cause inflation in order to inflate away some of the unpayable debt. I would like to read a good argument for which countries will go inflationary and which will allow deflation to occur.
Ireland and some southern European countries that are members of the Euro currency zone have run up too much public debt and some of them continue to run up sovereign debt at an alarming rate (just like the United States and Japan). A New York Times story suggests the moment of crisis could happen when economic recovery causes a sharp rise in interest rates. Suddenly sovereign governments that are already paying 1%-2.5% more than Germany on new debt will find their spread over German debt puts their cost of new bonds beyond their reach.
The true test for the world’s largest common currency zone, analysts say, will be whether it can withstand the economic, political and social strains once the European Central Bank begins to raise interest rates in response to economic improvements in Germany, France and other Northern European countries.
At that point, the laggards on the union’s fringe — Portugal, Ireland, Italy, Greece and Spain (the so-called Piigs) — will face even tougher choices to cope with what looks like several more years of stagnant economies, high unemployment and gaping budget deficits.
The higher their rates go the more the market will doubt their ability to pay and hence the market will demand even higher rates. Greece seems the likeliest candidate for such a crisis.
At that point a few choices become possible:
Note that These options are not all mutually exclusive.
Whenever global oil exports start declining year after year sovereign defaults and/or high inflation will happen. If the Germans insist on a stable Euro then southern European countries will default on their debts. Outside of Europe some countries will pursue expansionary monetary policies in response to economic contraction caused by declining supplies of oil. Those countries will experience high inflation that will cut back on debt in inflation-adjusted terms.
What I would like to know: Which countries will experience inflation and which will experience deflation in response to declining world oil production?
Finally the New York Times reports the obvious about US government policies aimed and preventing mortgage foreclosure.
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
The American people, American corporations, and US governments have too much debt. We can not get out of the financial crisis by finding ways for people to continue shouldering too much debt. People who make too little that they never should have gotten mortgages in the first place should be foreclosed on. People who have lost their jobs and have little prospect for being able to start paying should also be foreclosed on. It isn't nice. Life is cruel. But debt liquidation is necessary for a sustained economic recovery.
Postponing the inevitable is a bad idea when the postponement prevents needed adjustments.
“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”
The road to economic recovery is paved with bankruptcies and foreclosures.
Most Americans who aren't old aren't aware of this but not all doctors accept Medicare patients due to low rates paid by Medicare for assorted medical services. Even the Mayo Clinic, touted as a low cost model for future health care, is going to stop accepting Medicare at one of its primary care clinics in order to cut losses.
Dec. 31 (Bloomberg) -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little.
Mayo claims in the last year it lost $840 million treating Medicare patients. Obama has praised the Mayo Clinic for high quality medical care with low costs. Obama wants to reduce Medicare pay-outs to doctors and hospitals to help finance health care for the younger poor. Of course this will increase the Mayo Clinic's losses from treating Medicare patients.
If you are an American who is counting on Medicare to pay your medical bills in retirement my advice is to question that assumption. The financial pressures on the US government to cut costs of medical care are going to become immense. Future generations of retirees aren't going to get the blank check for medical care that current and last generation retirees got.
I intend to save up a lot of money to pay medical bills in my old age. Already many doctors do not accept Medicare patients. Given the US government's deteriorating finances and the demographic and health care cost trends pressure to cut Medicare pay-outs will only grow. The ability to pay cash can help you get in to see top specialists who otherwise will be unwilling to see you once you turn 65.
A New York Times story on former Goldman Sachs investment banker and former US Treasury official Neel Kashkari’s move to bond investment house Pimco reveals much about how US government bail-out policy helped many big investors. Pimco made $1.7 billion off of securities price appreciation when the US government decided to fully protect the value of Fannie Mae and Freddie Mac bonds.
It was also hard, however, not to notice that Pimco was a direct beneficiary of the Treasury Department’s actions. In 2008, when it appeared that Fannie Mae and Freddie Mac might fail, Mr. Gross saw an opportunity.
He moved Pimco’s flagship Total Return Fund heavily into mortgage-backed securities guaranteed by the two agencies. Then he vociferously advocated for the government to rescue them during television appearances on CNBC and elsewhere. On Sept. 7, 2008, the fund’s value soared by $1.7 billion when Mr. Paulson announced the government takeover of Fannie Mae and Freddie Mac. As part of his government duties, Mr. Kashkari worked on that rescue effort.
I wonder how much Goldman Sachs made off of that move and ditto for Bank Of America, Citibank, and the government of China for that matter.
That Pimco profit from the Fannie and Freddie bail-out is small stuff as compared to the $12.9 billion that Goldman Sachs made and/or avoided losing when the US government decided to make good on all the bond insurance policies that AIG had foolishly sold for pittances.
Goldman Sachs, which set a Wall Street profit record of $11.6 billion in 2007 and may have earned $11.4 billion this year, according to the average estimate of 15 analysts surveyed by Bloomberg, won new and larger concessions from taxpayers in 2008. This time it was the threat of a financial meltdown that prompted the U.S. government, with Paulson as Treasury secretary, and the Federal Reserve to supply an unprecedented amount of aid to firms deemed critical to the financial system, including Goldman Sachs.
The 140-year-old company received $10 billion in capital, guarantees on about $30 billion of debt and the ability to borrow cheaply from the Fed. The Fed’s bailout of American International Group Inc., and its decision to pay the insurer’s counterparties in full, funneled an additional $12.9 billion to Goldman Sachs.
I'd like to know what other large sums of money were made from the AIG and Fannie/Freddie bail-outs. It is my impression that some pretty big European banks were saved by the US government spending big on the AIG bail-out.
The worst thing about these bail-outs is not the profits earned by Goldman Sachs and Pimco at our expense. No, there's something worse that portends poorly for the future: These financial titans will be more reckless in the future because their financial contracts with big, weak, foolish counterparties did not cause them to lose billions of dollars. The moral hazard here is that the bubble will be even bigger next time and when Peak Oil hits the financial house of cards will really collapse next time.
On a recent flight a retarded kid kept kicking my seat behind me while one of caretakers (might not have been a mother) kept reaching across the aisle to try to distract him. I tried suggesting to the flight attendants that they shuffle people around so that the adults traveling with the retarded kid could sit directly on both sides of the kid. The flight attendants weren't buying. Episodes like that come on top of the passage thru security to make me hate flying. Well, the recent attempt by a Nigerian Muslim (who had an apartment in Londonistan of course) to blow up an airplane descending on Detroit has the US government making all sorts of absurd rules to try to save passengers. Would you believe that hiding the flight map will protect anyone? It is that hard to know that an airplane is 10 or 20 minutes away from landing?
The back and forth between agency officials and airline executives has taken place on conference calls and through the airlines’ trade group and may have resulted in the relaxation of some of the stiffest requirements that the T.S.A. put in place over the weekend.For instance, the airlines have been able to turn in-flight entertainment systems back on after they were ordered shut down during international flights because their maps show the locations of planes.
If you are on a long flight and sound asleep you might be woken to take away your blanket and pillow when the airplane is an hour away from landing. But the pilot might grant you a reprieve. I'm thinking the pilots will ask the flight attendants if any of the passengers look like potential terrorists.
The pilots can now decide whether passengers are allowed to move about in the last hour of a flight and if they can keep their pillows and blankets, instead of requiring them to stay seated with nothing in their laps.
In case a guy with a Middle Eastern or East African accent (or perhaps a British accent with Middle Eastern or East African appearance) you best bring a warm coat since you won't be able to count on a blanket for the whole flight. These are the indignities that political correctness inflicts on us.
I have a much more effective idea: Stop all Muslim immigration and offer legal Muslim residents money to leave. Muslim radicals living in Western countries are going to end up killing more people and the security procedures around airports will probably get worse Any idea how much x-ray radiation we'll get when governments start requiring full body x-ray scans of passengers? At that point trains become a lot more appealing even though they are slow.
Next time you need a prostate exam, just go on an airline trip and have the security check it while they are 'in there.'
Get irradiated when you travel? Or repeal the ban on public nudity?
The agency also has announced plans to buy 150 "backscatter" machines, which use low-level X-rays to create a two-dimensional image of the body, from Rapiscan Systems, a unit of OSI Systems Inc. Those machines, which cost $190,000 each, are being deployed in U.S. airports now.