July 17th, 2010

S.C. Hickman

Global Meltdown: The 21st Century World Depression

In a blog article  by Shelden Filger he mentions a private dinner held at Columbia University where George Soros and Paul Volker both fear economic doom for the foreseeable future. Soros tells us that the global  financial system "was placed on life support, and it's still on life support. There's no sign that we are anywhere near bottom."; while Volker added, "I don’t remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world.”

Recent comments by Soros suggest that the European Union is coming apart at the seams. "Unfortunately, a collapse of the euro and the European project cannot be ruled out," Soros was quoted as saying in the Die Zeit weekly. "That would be tragic, because then Europe would be threatened by the sort of conflicts between states that have shaped European history," added Soros. Volker in a Reuters article suggests this, "If we need any further illustration of the potential threats to our own economy from uncontrolled borrowing, we have only to look to the struggle to maintain the common European currency, to rebalance the European economy, and to sustain political cohesion of Europe."

The University of Michigan's Consumer Index fell to 66.5 in early July from 76 in late June as consumers have been worried about weak hiring and a slowly healing economy. Rex Nutting, Washington bureau chief for Reuters, said of this:

"Only once did the sentiment index fall so far without being accompanied by an event so big that it's in the history books: December 1980.

In that month, much like today, Americans were anxious about the future of the economy, which had just emerged from a recession. They had elected a president who promised big changes, but the people weren't quite sure what that meant, or whether the new policies would work. The market sold off. The economy dipped back into an extremely brutal recession soon thereafter." more...

Michel Chossudovsky in his new book tells us that "America is dying. It is self-destructing and bringing the rest of the world down with it." John Petras in the same book states it succinctly:

"A world depression, in which upward of a quarter of the world’s labor force will be unemployed, is looming. The biggest decline in trade in recent world history defines the future. The immanent bankruptcies of the biggest manufacturing companies in the capitalist world haunt Western political leaders. The “market” as a mechanism for allocating resources and the government of the U.S. as the “leader” of the global economy have been discredited.

All the assumptions about “self-stabilizing markets” are demonstrably false and outmoded. The rejection of public intervention in the market and the advocacy of supply-side economics have been discredited even in the eyes of their practitioners.

Among almost all conventional economists, pundits, investment advisers and various and sundry experts and economic historians, there is a common faith that in the long-run, the stock market will recover, the recession will end and the government will withdraw from the economy. Fixed on notions of past cyclical patterns and historical trends, these analysts lose sight of the present realities which have no precedent: the world nature of the economic depression, the unprecedented speed of the fall, and the levels of debt incurred by governments to sustain insolvent banks and industries and the unprecedented public deficits, which will drain resources for many generations to come."

It seems the Russian academic Igor Panarin has been predicting the U.S. will fall apart in 2010. For most of that time, he admits, few took his argument -- that an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S. Conspiracy theory? Or economic forecasting? It seems the Russian Foreign Ministry sees some validity in his theories of late, yet some like Vladmir Pozner see these ideas a "crazy": "Mr. Panarin's apocalyptic vision "reflects a very pronounced degree of anti-Americanism in Russia today," says Vladimir Pozner, a prominent TV journalist in Russia. "It's much stronger than it was in the Soviet Union."

Panarin predicts that economic, financial and demographic trends will provoke a political and social crisis in the U.S. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the union. Social unrest up to and including a civil war will follow. The U.S. will then split along ethnic lines, and foreign powers will move in.

California will form the nucleus of what he calls "The Californian Republic," and will be part of China or under Chinese influence. Texas will be the heart of "The Texas Republic," a cluster of states that will go to Mexico or fall under Mexican influence. Washington, D.C., and New York will be part of an "Atlantic America" that may join the European Union. Canada will grab a group of Northern states Prof. Panarin calls "The Central North American Republic." Hawaii, he suggests, will be a protectorate of Japan or China, and Alaska will be subsumed into Russia.

see map...

Is this all madness? A crazed and foolish novelization of our American future? read more...

And what about war with Iran. The right-wing Italian Prime Minister Silvio Berlusconi recently made the stunning admission that the G8 nations "absolutely believe" that Israel will attack Iran. One author features seven potential effects of an Iranian War:

1) The Price Of Oil Would Skyrocket
2) Fear Would Explode In World Financial Markets
3) World Trade Would Instantly Seize Up
4) Military Spending Would Escalate
5) Russia Would Greatly Benefit
6) Massive Inflation
7) The Price Of Gold Would Go Through The Roof

The same author published 25 signs that almost everyone is expecting an economic collapse. read more... As he states it:

"The truth is that bad economic signs are everywhere.  Consumer confidence is plummeting, big banks are hoarding cash, top financial experts are issuing recession warnings and it seems like almost everyone is trying to accumulate as much gold as possible.  Now that the G20 nations have all pledged to dramatically cut government spending in an effort to get debt under control, worries about a double-dip recession have reached a fever pitch.  So will we see the full-fledged economic collapse that so many analysts are warning of before the end of 2010?  Of course it is possible, but it seems much more likely that  we will just see the beginning of another recession that could certainly deepen into a depression as we head into 2011 and 2012.  There are so many variables and so many moving parts that it is always difficult to predict exactly how things will play out.  What does seem virtually certain, however, is that we are heading into a time of extreme economic stress."

In March 2008, David M. Walker, the Comptroller General of the United States and head of the Government Accountability Office, resigned 5 years before the end of his 15-year term expired. His reason of resigning was stated publicly that the Comptroller was limited in what he could do and that the United States was in danger of collapsing in much the same manner as the Roman Empire.  

William Jennings Bryan during his tenure with Woodrow Wilson resigned do to the plutocratic control of government by the financial sector much like that of our time, saying, "Plutocracy is abhorrent to a republic; it is more despotic than monarchy, more heartless than aristocracy, more selfish than bureaucracy. It preys upon the nation in time of peace and conspires against it in the hour of its calamity.... The time is ripe for the overthrow of this giant wrong."

Strong words for a desperate age, but maybe no truer words were ever said against the global economic power of the American Oligarchy that still rules over Washington and the world financial markets. The Banking elites seem to have a stranglehold upon the world. President Obama once spoke of change and we thought it might be a change for the better. After the redistribution of wealth from the taxpayer to the very elite banks and brokerage firms that caused our economic mess to begin with is it time to rethink what kind of change the Obama administration has given us? It seems that neither the left nor right have any vision or answer for our current economic predicament. On all sides we seem to be told that the only way out is for the taxpayers to make the great sacrifice: next will be the abolition of our Social Security and higher taxes to pay for this global piracy. Once again the American public and the world has been duped by the machinations of the economic policies of a handful of central-banks and their false leadership. Bob Chapman tells us that "Americans and others are being systematically betrayed by their legislators." read more...    

Roy C. Smith says that the recent reform bill signed into law by Obama "does little to prevent a systemically important bank from failing, and makes it far more difficult for regulators to assist one seeking to avoid failure. This all but insures that the system-wide calamity the bill should be trying to prevent will, in fact, occur again." He adds: "Most of the systemic risk in the U.S. is now carried in the six largest bank-holding companies (Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley). The bill lets them off easy: none is to be broken up and the effort to lower the risk they take on was diluted." read more... 

Americans for Financial Reform tell us "under current law, there is no single body designated to look at the “big picture,” and head off financial crises like the crash of 2008 and major non-bank players in the financial market operated in the shadows without any government oversight." A new aspect of the bill recently passed by the House and Senate, and signed into law by Obama, is the creation of a new “council of regulators” who will both monitor system-wide risk  and advise the Federal Reserve Board – the current primary systemic risk regulator. To understand what we won and lost in this new reform bill read more...

Chapman suggests we throw these politicos out in November. I would add that we clean out both parties, that it is time to vote for real change, real reform both monetary and politically. Time to bring down the piracy of Washington and Wall-Street. Time to awaken this planet to a new alternative to the dilemmas of globalization and its dark heritage. Some offer us a socialist progressive path, others a libertarian communitarianism, and  still others an anti-globalist coalition. Whatever we do we must all realize that this is our earth, our lives, our future and that we all are part and partial responsible for this mess and we must all start by looking into our own complicity with the powers that be and resolve not to ever let others have so much economic and political control over our lives again. How and by what means this is accomplished is going to be a global struggle for justice and equality of all by all. No matter what name you label it with.

S.C. Hickman

Living with the unknown in our personal and social lives - Nassim Nicholas Taleb

    "I am moving on: my new project is about methods on how to domesticate the unknown, exploit randomness, figure out how to live in a world we don't understand very well."
               - Nassim Nicholas Taleb, The Fourth Quadrant

Nassim Nicholas Taleb author of The Black Swan recently said that "while most human thought (particularly since the enlightenment) has focused us on how to turn knowledge into decisions, my new mission is to build methods to turn lack of information, lack of understanding, and lack of "knowledge" into decisions—how, as we will see, not to be a "turkey"." Socrates once said "I know that I know nothing". The idea of turning one's lack of knowing into a positive formula for decision making seems interesting if not quite original. What is original is that he is speaking of probability theory, the use of statistical analysis based upon mathematical assumptions

After twenty years in the business of managing portfolios he realized that there is a divorce between the theoretical mapping of reality using statistical models and the actual lived world. "So knowledge ...matters little, very little in many situations. In the real world, there are very few situations where what you do and your belief if some statement is true or false naively map into each other." He goes on to tell us that there are two types of decision making: 1) The first type of decisions is simple, "binary", i.e. you just care if something is true or false.; and, 2) The second type of decisions is more complex. You do not just care of the frequency—but of the impact as well, or, even more complex, some function of the impact.

He goes into a full discussion of probability theory and how it relates to his Black Swan theories. read more... Not being a mathematician or logician I'll let the reader pursue the full extent of his theory. Yet, he does come up with some interesting ideas on wisdom. He provides a set of guidelines or Phronetic Rules: What Is Wise To Do (Or Not Do) In The Fourth Quadrant:

1) Avoid Optimization, Learn to Love Redundancy.
2) Avoid prediction of remote payoffs
3) Beware the "atypicality" of remote events.
4) Time.
5) Beware Moral Hazard.
6) Metrics.
7) Where is the skewness?
8) Do not confuse absence of volatility with absence of risks.
9) Beware presentations of risk numbers.

His main gist is that in the Fourth Quadrant statistical analysis breaks down and decision making can no longer be founded on probability theory but is now negotiated through a set of rules based upon our lack of understanding rather than on models of mathematical precision. An interesting theory which he seems to applying to Climatic change.

 “A black swan is an outlier, an event that lies beyond the realm of normal expectations. Most people expect all swans to be white because that’s what their experience tells them; a black swan is by definition a surprise.”

The polar regions, which are warming up to three times as fast as the rest of the planet, are our black swan.

With increasing evidence that the warmed world faces the release of massive amounts of methane, a very potent greenhouse gas, from a superheated tundra, this particular black swan will drive what happens in the rest of the world."

His points made in his book, Black Swan, on the "ludic fallacy" and "narrative fallacy" help understand the complexities of our unknowing and how our minds tend to invent straight-jackets for Reality:

1) Ludic Fallacy:

What is the ludic fallacy? Ludic comes from ludis, Latin for games. … In the casino you know the rules, you can calcalute the odds, and the type of uncertainty we encounter there. …

In real life you do not know the odds; you need to discover them, and the sources of uncertainty are not defined. Economists … draw an artifical distinction between Knightian risks (which you can compute), and Knightian uncertainty (which you cannot compute), after … Frank Knight ….

Yet we automatically, spontaneously associate chance with these Platonified [or "scientitized"] games. …

Those who spend too much time with their noses glued to maps will tend to mistake the map for the territory. … I recently looked at what college students are taught under the subject of chance and came out horrified; they were brainwashed with this ludic fallacy and the outlandish bell curve. The same is true of people doing PhD's in the field of probability theory. … [A]ssuming chance has anything to do with mathematics, what little mathematization we can do in the real world does not assume the mild randomness represented by the bell cureve, but rather scalable wild randomness. What can be mathematized is usually not Gaussian, but Mandelbrotian.

Now, go read any of the great classical thinkers who had something practical to say bout the subject of chance, such as Cicero, and you find … a notion of probability that remains fuzzy throughout, as it needs to be, since such fuzziness is the very nature of [real world] uncertainty. Probability is a liberal art; it is a child of skepticism, not a tool for people with calculators on their belts to satisfy their desire to produce fancy calculations and certainties. Before Western thinking drowned in its "scientific" mentality, what is arrogantly called the Enlightenment, people prompted their brain to think—not compute. … (pp. 127-129)

2) Narrative Fallacy:

We like stories, we like to summarize, and we like to simplify, i.e., to reduce the dimension of matters. The … narrative fallacy… is associated with our vulnerability to overinterpretation and our predilection for compact stories over raw truths. It severely distorts our mental representation of the world; it is particularly acute when it comes to the rare event. …

The narrative fallacy addresses our limited ability to look at sequences of facts without weaving an explanation into them, or, equivalently forcing a logical link, and arrow of relationship, upon them. Explanations bind facts together. They make them all the more easily remembered; they help them make more sense. Where this propensity can go wrong is when it increases our impressions of understanding. …

We … have a hunger for rules because we need to reduce the dimension of matters so they can get into our heads. Or, rather, sadly, so we can squeeze them into our [strictly limited "working memory]. The more random information is, the greater the dimensionality, and thus the more difficult to summarize. The more you summarize the more order you put in, the less randomness. Hence the same conditions that makes us simplify pushes us to think that the world is lesss random than it actually is.

And the Black Swan is what we leave out of simplification.

Both the artistic and scientific enterprises are the product of our need to reduce dimensions and inflict some order on things. … A novel, a story, a myth, or a tale, all have the same function: they spare us from the complexity of the world and shield us from its randomness. Myths impart order to the disorder of human perception and the perceived "chaos of human experience." …

Our tendency to perceive—to impose—narrativity and causality are symptoms of the same disease—dimension reduction. Moreover, like causality, narrativity has a chronological dimension and leads to the perception of the flow of time. Causality makes time flow in a single direction, and so does narrativity. (pp. 63-70)

Trying to force reality into mathematical or narrative models is always a part of the revisioning process of the mind as it collects information, and is something we all must strive to limit and beware of in our search for truth lest we become victims of our own inventiveness to our detriment. Is this not the fictiveness of all human enterprise? Humans have developed these tools gradually over the millennia to guide their social, cultural, political, and religious agendas. Is he saying anything new? Didn't such a philosopher as Nietzsche once state that "What then is truth? A movable host of metaphors, metonymies, and; anthropomorphisms: in short, a sum of human relations which have been poetically and rhetorically intensified, transferred, and embellished, and which, after long usage, seem to a people to be fixed, canonical, and binding." So are not after all bound to the very fallacies of math and narrative that have formed and shaped our vision of the world? Or, shall we begin to question the very nature of those time worn truths that have brought us to the brink, the edge of our own political and economic, not to say climatic destruction? Is is time for new truths? Only time will tell... but how much time do we have?