The world media and people in general keep talking about this as a credit crisis. And how to 'fix' the credit system. And there certainly has been many measures passed to 'fix' the credit system.
But what if the whole financial meltdown is simply the reality of the political-economic system revealing itself in financial terms.
The financial system is a representation of real wealth. Where pieces of paper(contracts) are assigned relative values to each other, and most importantly to things in the real world. £2 pounds can buy 12 eggs. £20,000 pounds can buy a new car. 1,000 shares of XYZ corp is currently valued at xxx pounds.
An analogy is when the Soviet Union began failing. Was the monetary problems in the Soviet Union during the late 1980's a failure of their credit system. Or was the failing credit system a manifestation of the deteriorating reality of the Soviet political-economic system as a whole.
You know the answer to that question. You intuitively know that the Eastern European communism was failing as an economic system by the 1980's. Drowning in an ever rising tide of bureaucracy. Trying to compel people to do things against their own human nature. Increasingly trapped in laws/regulations and so forth. It became unmanagable.
I see Western European democracy as now coming to the same end game. Never ending bureaucracy, the huge nanny state, a ruling ideology that is incompatible with human nature, never ending laws.
Russia eventually found a new system. It cannot be admitted in the Western press, but the new Russia works. There is actual real jobs for people, there is big opportunity, real projects are actually being carried out and completed. I notice 'miraculously' Russia's financial system is functional. Its banks do not need bailouts. Are we so stupid that we believe it is because Russia has better banking regulations than us?
Isn't this idiotic worship of regulations and laws as our salvation, part of what has gotten us into this morass?
Saturday, June 16, 2012
Tuesday, June 12, 2012
Why the Banks are Dead Long Term
For this explanation forget about banks that lent recklessly. Lets imagine you
own a bank only lending at normal historical standards. And lets just talk about
mortgages because it is the type of loan the average person is most familiar
with.
At your bank you have 1,000 mortgages on the books. The downpayments are 20% of the home value. You are in a wealthier area so every borrower has a family income of £100,000 pounds a year, and all your mortgages begin as £300,000 on a £360,000 property. On the downside because you are so conservative with your loans, the spreads between what you get money at, and the rates you charge customers is small.
But change is afoot in the society. Robotics are taking jobs in factories, computers are replacing the mass cubicle workers, machinery is advancing and reducing man hours per job, foreign trade is causing factories to shut down, foreign workers are taking over jobs at home.
In Britain like clockwork the labour force is shrinking by 125,000 people a quarter. Half a million a year. Since the labour force is around 27.5 million, this 500,000 loss a year is 1.8% of the workforce disappearing a year.
So of your 1,000 mortgages, 18 a year are eventually defaulting. Now this is not a problem as long as you can seize the property and sell it for more than the 300k loan. (Hence the total focus of the UK government on keeping property price up).
There is another problem, since probably 80% of those mortgages are based on dual income, there is actually 1,800 incomes paying your 1,000 mortgages. Without both incomes they cannot maintain the loan. so 1,800*.018=32 a year who will eventually default.
There is an even bigger problem though. As a surplus of labour builds it eventually drives down the wages of those who do hold onto their jobs. So a great deal who are holding onto jobs will be facing loss of overtime, benefits cuts, even wage cuts. And if severe enough they will eventually fall into default.
Eventually with the labour force shrinking and wages falling, the prices on properties will come down. This is where you lose that cushion of the 20% down payment.
In the future if these trends continue banks will have to charge much higher rates on even safe loans. Like 8% would allow them to absorb the losses, run their organizations and still make a return on investment for their shareholders.
What screws them is they have millions and millions locked in on huge mortgages at exceptionally low rates. Going to 8% would crush the housing market, and cause mass defaults on their current mortgage pools.
I think the only option is continual bailouts and gradually rising rates the banks are charging until the business becomes viable again. Which is what we have been seeing.
At your bank you have 1,000 mortgages on the books. The downpayments are 20% of the home value. You are in a wealthier area so every borrower has a family income of £100,000 pounds a year, and all your mortgages begin as £300,000 on a £360,000 property. On the downside because you are so conservative with your loans, the spreads between what you get money at, and the rates you charge customers is small.
But change is afoot in the society. Robotics are taking jobs in factories, computers are replacing the mass cubicle workers, machinery is advancing and reducing man hours per job, foreign trade is causing factories to shut down, foreign workers are taking over jobs at home.
In Britain like clockwork the labour force is shrinking by 125,000 people a quarter. Half a million a year. Since the labour force is around 27.5 million, this 500,000 loss a year is 1.8% of the workforce disappearing a year.
So of your 1,000 mortgages, 18 a year are eventually defaulting. Now this is not a problem as long as you can seize the property and sell it for more than the 300k loan. (Hence the total focus of the UK government on keeping property price up).
There is another problem, since probably 80% of those mortgages are based on dual income, there is actually 1,800 incomes paying your 1,000 mortgages. Without both incomes they cannot maintain the loan. so 1,800*.018=32 a year who will eventually default.
There is an even bigger problem though. As a surplus of labour builds it eventually drives down the wages of those who do hold onto their jobs. So a great deal who are holding onto jobs will be facing loss of overtime, benefits cuts, even wage cuts. And if severe enough they will eventually fall into default.
Eventually with the labour force shrinking and wages falling, the prices on properties will come down. This is where you lose that cushion of the 20% down payment.
In the future if these trends continue banks will have to charge much higher rates on even safe loans. Like 8% would allow them to absorb the losses, run their organizations and still make a return on investment for their shareholders.
What screws them is they have millions and millions locked in on huge mortgages at exceptionally low rates. Going to 8% would crush the housing market, and cause mass defaults on their current mortgage pools.
I think the only option is continual bailouts and gradually rising rates the banks are charging until the business becomes viable again. Which is what we have been seeing.
Friday, February 3, 2012
Half the economy on Health Care by 2050
The next paradigms of medical technology will start going after the aging process. An interesting statistic that I read is if we cured every disease, so no one died of heart attacks, cancer, kidney failure.. etc.. we would only add 12 years to the average life expectancy. From 80 to 92. See the diminishing returns?
When you are 85 years old, even if you take something to cure your Alzheimers.. realistically something else is going to get you shortly. The whole organism if failing at that point.
And not just slowing down the aging process, but actual reversal of aging damage. The opportunity is limitless from the perspective of 2012. I believe the USA is ahead of the rest of the world as usual, and now spending near on 20% of their economy on health care. I expect it to be 50% by mid century.
The biological body is of such astonishing complexity that we are talking millions of man years of research that is needed to go and figure out how to reverse this aging damage.
When you are 85 years old, even if you take something to cure your Alzheimers.. realistically something else is going to get you shortly. The whole organism if failing at that point.
And not just slowing down the aging process, but actual reversal of aging damage. The opportunity is limitless from the perspective of 2012. I believe the USA is ahead of the rest of the world as usual, and now spending near on 20% of their economy on health care. I expect it to be 50% by mid century.
The biological body is of such astonishing complexity that we are talking millions of man years of research that is needed to go and figure out how to reverse this aging damage.
Thursday, February 2, 2012
Big Pharma and diminishing returns
I've been saying for quite a few years now there is just no good drugs left to find. All the juicy oranges in the orchard have been picked already.
Big Pharma gave it a Herculean effort during the last decade.. in the face of finding fewer and fewer promising drug, they ramped research spending up to staggering amounts. However not many drugs were found.
Now Big Pharma had to admit the truth to themselves, and the completely logical thing to do is shut down most of their research. The big pharma companies will become distributors of generic drugs. Well the surviving companies which are left after they buy up the other companies. And generic drugs is a great and profitable business.
This is about the fifth paradigm of health technology that has been explored and then faced diminishing returns. Vaccines was an earlier one.. once they got vaccines for the big 5 killers of mankind, that accounted for about 99% of the deaths from contagious diseases.. there was not anywhere else to go. They have managed to make an industry out of chasing that last 1%.. but again diminishing returns.
Big Pharma gave it a Herculean effort during the last decade.. in the face of finding fewer and fewer promising drug, they ramped research spending up to staggering amounts. However not many drugs were found.
Now Big Pharma had to admit the truth to themselves, and the completely logical thing to do is shut down most of their research. The big pharma companies will become distributors of generic drugs. Well the surviving companies which are left after they buy up the other companies. And generic drugs is a great and profitable business.
This is about the fifth paradigm of health technology that has been explored and then faced diminishing returns. Vaccines was an earlier one.. once they got vaccines for the big 5 killers of mankind, that accounted for about 99% of the deaths from contagious diseases.. there was not anywhere else to go. They have managed to make an industry out of chasing that last 1%.. but again diminishing returns.
Wednesday, February 1, 2012
If computing was like housing, thought experiment
Probably 50 million Brits own a computer. I could set up a shop selling computers and software to any person I wanted. Anyone is allowed to use a computer.
But imagine the 'capitalists' wanted to do to computing what they did to housing. The government would restrict sales of computers, say to 1 million a year, instead of 10 million currently. And only a few politically connected companies would have the rights to sell them.
Instead of 50 million Brits owning a computer, only 10 million would be allowed. You would have to purchase a license in order to own a computer. Only the richest people could afford to, by outbidding the other people. The winners would be the people who had the licenses. Which would be determined randomly at birth to start.
But then 'investors' would be allowed to purchase the licenses. And lease them out to people who wanted to the highest bidders who wanted or needed to use a computer. They then would make a profit when the value of the license 'appreciated'. And of course to buy a license you would surely need to take out a bank loan. Then through the leases you could make the monthly payment on your loan. The banker would be a happier man.
Needless to say it would be sick to restrict computing in this way. But that is exactly what Britain does with a basic human need.. shelter. Actually Britain does this in most areas of life. Computing is the exception that is useful in showing how idiotic this way of setting up your economy is. (and why Britain has no hope in hell of competing in a global economy, when we have so many parasites sucking us down every step of the way).
But imagine the 'capitalists' wanted to do to computing what they did to housing. The government would restrict sales of computers, say to 1 million a year, instead of 10 million currently. And only a few politically connected companies would have the rights to sell them.
Instead of 50 million Brits owning a computer, only 10 million would be allowed. You would have to purchase a license in order to own a computer. Only the richest people could afford to, by outbidding the other people. The winners would be the people who had the licenses. Which would be determined randomly at birth to start.
But then 'investors' would be allowed to purchase the licenses. And lease them out to people who wanted to the highest bidders who wanted or needed to use a computer. They then would make a profit when the value of the license 'appreciated'. And of course to buy a license you would surely need to take out a bank loan. Then through the leases you could make the monthly payment on your loan. The banker would be a happier man.
Needless to say it would be sick to restrict computing in this way. But that is exactly what Britain does with a basic human need.. shelter. Actually Britain does this in most areas of life. Computing is the exception that is useful in showing how idiotic this way of setting up your economy is. (and why Britain has no hope in hell of competing in a global economy, when we have so many parasites sucking us down every step of the way).
Sunday, January 22, 2012
East Asians buildup of capital
Somehow I think Britain forgot what capitalism means. Its could be free markets, but you can have a capitalist economy in regulated, restricted markets. And its not about city speculators gambling on the futures market. It is about the relentless buildup of industrial capital.
So I was reading in 1990 your average Japanese worker was working with 250,000$ of capital. And your average American worker was working with 250,000$ of capital. But by 2005 your average Japanese worker was working with 1,000,000$ in capital, while the American was still at 250,000$. We have some capital plant in Britain like that.. like a 3 billion dollar steel mill with 3,000 steel workers at the site. Its not a big deal to pay a worker 100,000$ a year if they are working with 1,000,000$ in capital.
I asked a question on another thread. Would you rather be born into a family of artists who owned successful design company. And one day you could become the chief designer. Or be born into a family that owned £300 million in transport ships, and one day you could own the ships.
You see when you become that chief designer there is intense competition and no barriers to entry(and you have to go into work everyday). The chances of you continuing your parents success are slim. Otoh when you own the ships even if you are a complete and utter moron, you simply simply hire a shipping management company to run your ships.
The East Asians are thinking the same way. They don't want the hip automobile design firm in Milan, Italy. They want to own like the steel mill which provides the steel for the car.
So I was reading in 1990 your average Japanese worker was working with 250,000$ of capital. And your average American worker was working with 250,000$ of capital. But by 2005 your average Japanese worker was working with 1,000,000$ in capital, while the American was still at 250,000$. We have some capital plant in Britain like that.. like a 3 billion dollar steel mill with 3,000 steel workers at the site. Its not a big deal to pay a worker 100,000$ a year if they are working with 1,000,000$ in capital.
I asked a question on another thread. Would you rather be born into a family of artists who owned successful design company. And one day you could become the chief designer. Or be born into a family that owned £300 million in transport ships, and one day you could own the ships.
You see when you become that chief designer there is intense competition and no barriers to entry(and you have to go into work everyday). The chances of you continuing your parents success are slim. Otoh when you own the ships even if you are a complete and utter moron, you simply simply hire a shipping management company to run your ships.
The East Asians are thinking the same way. They don't want the hip automobile design firm in Milan, Italy. They want to own like the steel mill which provides the steel for the car.
Why production still moving to Asia
Would you locate production in a country that had out of control legal system that could hit you anytime, onerous labour laws, unions, a mountain of ever changing environmental and other regulations... fat, lazy populous who is anti-business, a government which is radically anti-business.
Or in a country powering forward and who wants real industry, like your business. Who couldn't care less about things like the percentage of women in your management. All they care about is you creating real wealth in their nation.
I think even when Chinese wages surpass European levels, production will still stay there. Just like it is staying in South Korea and Japan. Actually still production is moving to South Korea and Japan in many areas like shipbuilding and aviation.
The same question was asked recently with regards to automobile production. Why was GM moving production to Korea, when Korean industrial wages are higher than American industrial wages? Well for GM it is simple, they look at the output they get per $ spent, and they simply get more
Or in a country powering forward and who wants real industry, like your business. Who couldn't care less about things like the percentage of women in your management. All they care about is you creating real wealth in their nation.
I think even when Chinese wages surpass European levels, production will still stay there. Just like it is staying in South Korea and Japan. Actually still production is moving to South Korea and Japan in many areas like shipbuilding and aviation.
The same question was asked recently with regards to automobile production. Why was GM moving production to Korea, when Korean industrial wages are higher than American industrial wages? Well for GM it is simple, they look at the output they get per $ spent, and they simply get more
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