Archive for October, 2008

The biggest pyramid scheme ever!

2008/10/29

Have you ever heard of a ‘pyramid scheme’?  One of those ‘get rich quick’ scams that work as long as new people keep entering the system at the bottom, pouring in cash, which is used to pay the upper echelons, instead of buying product, paying bills, or whatever.  The United States economy is starting to look like a pyramid scheme that is going bust, because the steady inflow of cash has finally come to an end, and people are demanding their money back right and left.  Where did the idea that investing is risk free come from, by the way?  When strategies involving billions of dollars have absolutely no provision for a downside, for shrinkage, for deflation, doesn’t that practically guarantee that the strategy is going to implode at some point?

Money that was owed people was lent out again, or put into a stock, in the hopes that it could make even more profit before it was paid back.  That can work once in a while, but when it is a constant practice, the bottom will fall out.  Investment used to be done with long-term goals, and no expectation of immediate returns.  Nowadays, Greed wants big payoffs the moment it lets go of its money, perhaps because there were so many positions to cover, and not enough cash.  And Greed will always try to cover itself before worrying about anybody else, even if that means pushing the whole system under.

As long as lots of cash was flowing through the system, the shaky deals, the hidden payoffs, the transactions kept off the books could all continue without much fear.  There was always somewhere to get the cash from on short notice to cover a position for a little while.  But with no cash available, there are so many positions being left open that the shell game is no longer possible.  Merely inflating the value of some transaction is no longer enough to offset the payouts that have to be made.  We have made so much money that we don’t have any anymore, because it was mostly an illusion.

There has been no fundamental or significant change in the means of production, the cost of materials, the productivity of labor, or the margin of profit, yet, somehow, a whole bunch of companies suddenly became worth a lot more.  We were counting the same dollar over and over again, pretending that each one was real.  Greed became the driving force in the financial markets, overshadowing sensible growth, honest returns, and sustainable profits.  For a little while, a small number of people made out like bandits.  But now, the rest of us are going to have to pay over and over again for the profits of a few.

Power for the future.

2008/10/28

When I was a kid, I loved cars, especially race cars.  To me, Formula One racing was the ultimate, because they raced on real roads (sometimes,) and didn’t just go in circles.  I also enjoyed going to drag races, and was impressed by the sheer power of the funny cars and rails.  They are still impressive, but I lost my fascination with automobiles.  Burning up gasoline is no longer cool, and there are much better ways to produce power than the reciprocating internal combustion engine.

During my service in the Air Force, I was exposed to engines which are far more powerful than reciprocating engines.  They are called turbines, which is short for gas turbine engines.  Their power to weight ratio far exceeds even the most souped-up drag racing engines, primarily because they are so much more efficient.  Instead of burning the fuel for a brief instant, and then shoving the unburnt fuel and the waste products out the tailpipe, which is what a reciprocating engine does, a turbine burns the fuel continuously, which makes it far more efficient.

The best reciprocating engine in terms of efficiency is a diesel, which can approach 46 or 47 percent efficiency.  A modern turbine averages about 97 percent efficiency.  A reciprocating engine has a huge number of moving parts, from the pistons, which travel up and down, up and down, to the valves, which open and close, open and close.  A turbine has one main moving part, which spins.  This means that maintenance is simpler, and required less often.  It also means that energy is not wasted by parts having to stop and begin moving in the opposite direction all the time.

An example of the increase in efficiency is the difference in weight between a diesel powered, 20,000 watt generator set, and a turbine powered, 20,000 watt generator set.  The diesel powered genset weighs about 1,200 pounds, and the turbine powered genset weighs about 550 pounds.  They both will burn a variety of fuels, but diesel is the preferred fuel.  Basically all new aircraft are powered by turbines, even the ones with propellers.

What I want to see is a diesel fueled, turbine-electric vehicle.  Because diesel fuel contains more energy per unit than gasoline, and is easier to refine, it should be the fuel of choice in the future.  We are already building gasoline-electric hybrid cars, and a diesel turbine-electric would be far more efficient, in my opinion.  The gasoline engine has dominated for so long because of the torque that it can produce, not because of any other characteristitc that I know of.  By using electric motors, the high revolutions per minute of the turbine can be harnassed effectively, making possible even higher amounts of torque than the gasoline engine can produce.

Better than term limits!

2008/10/27

Do you ever get a little miffed that the person that is supposed to be serving you in some public office is instead spending their time campaigning for re-election, or, even worse, another office?  Both of the current candidates for president hold the office of U.S. senator, which should be their primary focus, in my opinion.  How has their candidacy affected their votes on the Senate floor?  If elected, would either person put the needs of the country ahead of their re-election?  Would either person be willing to take unpopular action, knowing that it would probably eliminate their chance for a second term?

How often have you heard that passage of critical legislation is unlikely during an ‘election year’?  If a person has choosen to make their career in politics, won’t they consider keeping their job the most important goal?  Many people have become disgruntled with the advantage than an incumbant has over a challenger, and various attempts at limiting the number of terms that can be served in a given office have been put forward.  Most have failed, because there is no agreement on the limits.

When this country was founded, getting people to serve in public office was a huge problem.  Often, it meant being away from one’s farm or business for months at a time, which could lead to financial ruin.  Now, we have legislators who have been in office for decades, who have hardly spent any time in the areas that they represent, who have developed close relationships with lobbyists.

I say, force people to step down when their term of office expires, and don’t allow anyone holding elected office, even if it is at the local level, to run for another office.  I am sick of mayors running for state representative, or county commisioners campaigning for state senate office.  I don’t want to see any more governers using their office as a stepping stone to higher office, because they have been elected to do a job.  When an office holder is campaigning for re-election, or election to another office, how focused are they on their job?  How likely are they to do what is right, even if it means displeasing the public initially?

No term limits, for any office.  But no incumbancy, either.  You serve your term, then you are out.  You can run as many times as you want, but, if elected, you have to step down when your term is up.  This is the only truly fair way to insure that we get proper representation in our government, as well as the only way that I can think of that important decisions will be made with the interests of the country in the forefront.  The term ‘career politician’ offends me, because a career politician is someone who has made staying in office their primary goal, not serving their country.

Future shocking?

2008/10/26

It amazes me that we are not hearing any straight talk about what lies ahead, as if things could somehow go on as they have before. Even though I have only a small education in economics, it seems obvious to me that the United States is going to have a huge amount of debt to pay off. This can only be done by working together to create things of lasting value which can be used by large numbers of people. Infrastructure. Trade cannot pay off debt, because nothing of lasting value is created in trade.

Consumer spending is based almost entirely upon trade, so consumer spending will have to decline. But how could consumer spending continue at previous levels if people are all broke? Something is going to have to replace consumer spending as the engine of the economy, and it will have to be big. Instead of building roads, though, maybe we should consider some new kinds of infrastructure. Like fiber optic cables to every home, and a combination data terminal/videophone in every house. A national high speed rail network. Upgrade the electric grid, and run transmission lines to areas where wind is plentiful. Insulate every structure in the nation. Not just spending money, but actually increasing our efficiency as a nation.

Demand for resources can easily outstrip supply if developing countries begin large-scale consumption. The resulting supply-side shocks cripple the economy, pushing up inflation at the same time that wages become stagnant. Greed overwhelms the markets, and a herd mentality emerges, where any profitable strategy is immediately copied, over and over again. One sub-prime mortgage is not a problem. Several million of them are. So markets will have to be guided into spending a portion of their capital on long-term projects, which will dampen the volatility in the short term, while providing guidance for investors as to where long-term growth will be.

Our future economic expansion must be based in increasing our net worth, not financial manipulations of value. Paying for this increase will mean working longer hours, so that the tax burden is spread over more earnings. The payment of cash dividends has got to be discouraged, so that corporations can invest their earnings into new means of production, training, and research. Military spending has got to be reduced, as that is money that disappears from our economy after one pass through it. Spending on space exploration needs to be increased, because it generates new wealth at a rate nearly unequaled, while engaging the high-tech military-industrial complex.

Saving has got to be encouraged, so that the government will have access to money to use for these programs. Payroll accepted in the form of U.S. savings bonds should be tax free, and the payroll value calculated in immediate redemption value, not the face value at maturity. Interest on savings accounts should be tax free. We are going to have to stop relying on foreign countries to carry our debt, because we are making our money worthless. Only by working together, and sharing the sacrifices, can we have any hope of coming out of this economic meltdown.

Hey, buddy, can you spare a billion?

2008/10/23

A landlord once told me that he was worried where he was going to get his next 1,000 dollars, which kind of put my problems in perspective.  For many major companies right now, figuring out where they are going to get their next billion dollars is a major concern.  America has become addicted to easy credit, from the Federal government down to the folks next door.  The term ‘bridge loan’ has nothing to do with bridges, but instead is an industry term for short-term financing to get through until expected funds become available.  It is kind of like a payday loan, but at much lower interest rates.

The state of California was used to getting bridge loans, a few billion to tide it over until tax revenues start coming in next spring.  Many companies borrow for a day, a week, or a month, at low interest, to cover payroll, for instance.  But it wasn’t always like this, which is why things are so messed up right now.  It used to be, companies kept cash in bank accounts to cover any conceivable expense, because credit was hard to get, even for multi-million dollar organizations.  States would borrow money, but only through bond sales, which were usually long-term instruments, often 20 years.  They had to keep their accounts in the black to cover day-to-day expenses.

Homeowners had savings accounts that often represented a year or more worth of income, to protect against a water heater going bad, or having to buy a new car, or somebody getting really sick.  The only way to get the equity out of a house was to sell it.  But most people had enough in the bank to see them through, so they didn’t need to borrow against what they had paid on their home.  Then, something changed, something which was a fundamental shift in thinking.

When people had spent all of their extra cash, they quit buying stuff that they really didn’t need.  This seems logical enough, but it meant that consumer spending began to decline, which hurt the profits of many big corporations.  In order to keep people buying stuff, an new idea surfaced.  Easy credit.  The credit card.  A homeowner was a sure bet, because their house would be their collateral for their debt.  Enter Monster Card, and its brethren.  In an amazingly short period of time, the United States went from being the largest creditor nation to the largest debtor nation, as easy credit spread from homeowners to big corporations to states.

Borrowing money used to be looked down upon, because good people paid cash.  Little by little, that stigma was erased, and replaced with a belief that we deserved what we wanted, right away.  Instant gratification became the standard operating procedure of not just teenagers, but adults, executives, and elected officials.  Of course, lending out money is a profitable enterprise, so everybody jumped on the bandwagon.  And, an obscure rule of accounting made it even easier.  If someone owes you money, it increases your net worth.  Accounts receivable are counted as an asset on a balance sheet.

The more money that is owed you, the wealthier you are, irregardless of the ability of the debtors to pay you back.  On paper, you can be worth millions, even billions, but not have two dimes to rub together.  Say, buddy, can you spare a billion?  I’m a little short right now.

Words for the season

2008/10/22

HARVEST KING

AND

THE FESTIVAL OF AUTUMN

I am the Harvest King.
My colors are brown and yellow, orange and black.
I am the bounty of the land.
The death which brings life.
I am Change, and Sacrifice for the Future.
I am that which makes space for new life.
I will come for you.

In Death, we celebrate new beginnings,
As we cherish that which has passed on.
The Harvest King reminds us of the sacred nature of life,
And drives us together,
So that we may face the coming Winter.
The Life Force withdraws from the land,
And we gather to draw strength from each other,
And the memories of those who have gone before us.

We celebrate the Life Force which has died,
Cherishing the sacrifice made for the living.
We glimpse the full cycle of the wheel,
Life emerging from the residue of Death,
Growing, creating more Life, sharing in the harvests,
And then, joining the slumbering pool of Life,
Waiting to be reborn.

Scott P. Holman

ID, or not ID?

2008/10/17

If you have been looking for work at all in the last few years, you are certainly familiar with the litany ‘you must have two pieces of ID to apply.’  What is funny, (to me, anyway,) is that the I-9 form (the Immigration paperwork which certifies that you are a legal resident and eligible to work,) only asks for one piece of identification.  The other thing that is required is proof of citizenship, which is a whole lot different than identification, especially since the document most people supply in addition to a driver’s license is a Social Security card.

I happened to apply for a position a while back with a temporary agency.  When it came time to fill out the paperwork, I got out my Social Security card, which I have had since I was in high school.  The person who was handling my application looked at it and said “Oh, we can’t accept this, because it says right here on the bottom “Not to be used as identification.”  You will have to go to the Social Security office and get a new card.’

Fuming mad, because this card had never been questioned, I drove over to the SS office.  When I finally got to the window and explained that I needed a new card, the person looked at mine and said “There is nothing wrong with this one.  I don’t see any reason why you should need a new one.”  I explained that a potential employer refused to accept it because it said ‘Not to be used for identification.’  The SS worker said “Yes, that is correct, Social Security cards are not to be used for identification purposes.’

Well, I went back to the temp agency, and tried to explain that the SS folks said that there was nothing wrong with my card.  It didn’t wash, and I was told that I would have to wait until the office manager came back before a judgement regarding my fitness to work could be handed down.  I was losing my temper by now, and rather heatedly said to the person “I’ll bet that your Social Security card says ‘Not to be used for indentification’ too.”  “Oh, no it doesn’t the person replied, although she did not actually get her card out and examine it.

I was fed up by now, and left, knowing that my chances of ever getting work through THIS temp agency were slim to none.  It just so happens that I have both my mother’s and my grandmother’s Social Security cards, and they both say “Not to be used for identification.”  I really have to wonder if the card belonging to the lady at the temp office says the same thing.  I also wonder at the mentality of people who repeat by rote “Bring two forms of ID.”  Have they ever actually read what is on the I-9 form?  Do they understand the difference between identification and proof of citizenship?  It really irks me now when someone from a government agency, such as the Employment office, spouts that line, because it tells me that they have been hoodwinked too.

No more IOU’s, just cash from now on.

2008/10/17

It cracks me up to hear the presidential candidates saying that they won’t raise taxes.  We are so deep in debt right now that we are probably going to see a longer work week sometime soon, just so that we can have something to take home after taxes.  Bailing out the greedy and the lazy will push us much deeper into the red than anyone thought possible just a few months ago.

What happened to the American work ethic?  When did it become disrespectful to work?  A great deal of the economic woe that we are facing now is because so many Americans were trying to get wealthy without having to work.  Not to mention the impact that having to pay a cash dividend every year has had on our industries.  Even when business is horrible, big companies have continued to hand out hundreds of millions, even billions, in cash to people who own their stock.

It used to be that buying stock was considered an investment in the future, because the payoff would take a few years, as the company gradually grew.  Somewhere along the line, somebody realized that they could sell a lot more stock if they promised to pay the people who bought that stock a cash payment every year, just for owning the stock.  In today’s world, large sums of cash can be hard to come by, resulting in companies having to get loans to pay the stockholders their dividends.

Even when that doesn’t happen, the profits that the company make are not being reinvested in the company, they are going to the shareholders.  Instead of developing new products, and more efficient methods of producing existing ones, companies are ‘outsourcing’ much, if not all, of their production.  This looks great on the balance sheet, but in the long term, it is suicide.  Who is going to buy the products that the company makes if everyone is out of work?

Everyone is getting all hot and bothered about the completely unrealistic levels of compensation that many executives have been getting, but all of their salaries and bonuses together would hardly be a drop in the bucket compared to the billions and billions that are paid out in dividends every year.  Those dividends are the future of our nation, the ability to grow, to innovate, to improve.  We are throwing those things away so that a bunch of lazy idiots can sit around doing nothing.

If the work week ends up being 50, or even 60, hours, than I think we should make it illegal to pay stockholders in cash any kind of dividend.  Make their shares worth more, so that all of us will be worth more.  The growth that we thought we were enjoying has turned out to be an illusion, a bubble that all of us helped to create.  Wealth is once again going to be measured by tangible things, not pieces of paper.

No matter how much the government gives the banks, the banks are not about to start loaning money out, because the bankers know that we are all broke, and they don’t want to lose any more of the so-called value that they are responsible for.  Because they will have to pay their shareholders with cash, not IOU’s.

What health care crisis?

2008/10/10

With the economy collapsing about our ears, the crisis in health care has been all but forgotten.  Yet, the same cause behind the financial meltdown underlies the steadily rising costs of health care: Greed.  Not on the part of doctors and hospitals, but from the party that has no business being involved in health care in the first place, the insurance companies.  Health care is a transaction between two parties, the provider and the patient.  The insurance companies have weaseled their way into that transaction, by claiming that they are needed to allow for unforseen health problems.

But they provide this service at a cost, which includes a tidy profit after expenses.  And the expenses keep getting more expensive, as the insurance companies hire more and more people to oversee health care transactions.  No one asks what percentage of health care costs is created by the insurance companies, because the insurance companies pay dividends to their share holders.  All the talk is about reducing payments to doctors and hospitals.  Yet, it is the insurance companies, which demand extensive testing to justify expensive procedeures, and even second opinions, which drive up costs.

And these same insurance companies, who are supposed to make health care more accessible, often delay payment for treatments which will hurt their profitability.  If they wait long enough, all too often, the problem will go away, because the patient dies.  No one should begrudge doctors or hospitals their right to make money providing care, but why should we tolerate insurance companies making so much that they give cash payments to their shareholders?

An expensive luxury

2008/10/06

To me, the greatest luxury in the world is a hot shower.  There are many places on this planet where people have no idea what it means to stand under a seemingly endless stream of hot water.  But in the U.S., a great many people indulge in this luxury every day. claiming that it is the only way that they can wake up.  Some people even take two showers in a day, because they get so dirty at work or play that they have to bathe.  And many people seem unaware that bathing every day forces the body to create more protective oils, which makes bathing every day a necessity.

We evolved in the sea, and we still carry it within us.  We are ‘bags of water’, as one alien on Star Trek called us, consisting of nearly eighty percent salt water.  Our first line of defense against drying out is the oil that coats our skin.  Washing it away every day not only turns billions of gallons of drinking water into sewage, it also demands that we build more power plants to meet that huge spike in power consumption every morning.  If we could spread our electricity consumption out over the 24 hours of the day, we could probably get by with the power plants that we have for several more years, maybe even longer.

A generater will destroy itself, burn up, trying to meet the demand, or load, put upon it if that load is too big.  This is why a single, small power fluctuation can cause the grid in several states to collapse,  Computers automatically protect the multi-million dollar generaters from overload, throwing millions into darkness.  If we keep using more and more electricity every morning heating water, we will have to build more generating plants.

I try to take my showers in the afternoon or evening, when demand is lower.  I have always thought that it made sense to bathe before bed, because we get dirty during the day, not while we are asleep.  I also do not shower every day, so that my body is not at war with me, trying to protect me by turning me into an oil slick.  In some parts of the world, people use timers to keep water heaters from coming on while the water is being used in the morning, delaying the load until early afternoon.

By taking a great luxury for granted, we run the risk of losing the ability to enjoy that luxury.  Power costs will go up a great deal to finance the constrution of new power plants, and the control of the waste that they produce.  In a depressed economy, paying the power bill sometimes doesn’t happen in a timely manner, and the power company stops supplying the person with power.  A simple change in our habits would help immensely the struggle to protect our fragile environment.