Daily Digest

Daily Digest - June 2

Tuesday, June 2, 2009, 10:05 AM
  • “Is Larry Summers Taking Kickbacks From the Banks He’s Bailing Out?”
  • Swine Flu May Be Human Error; WHO Investigates Claim
  • 7 States Now With Historical High Unemployment Rate. Michigan 22.8 Percent Unemployment Rate (U-6) with Official Government Data.
  • Map (Unemployment)
  • Quiet (Video)
  • Bond Vigilantes Confront Obama as Housing Falters
  • FDIC Banking Report: 305 Troubled Institutions up from 90 in 2008. $13.5 trillion Assets held with 2.1 Million Employees at 8,200 Institutions.
  • The Fall of the Mall (Chart)
  • The Shadow Banking System and Hyman Minsky’s Economic Journey
  • Zoellick Warns Stimulus ‘Sugar High’ Won’t Stem Unemployment
  • Fed Clueless Perplexed About Spike in Bond Interest Rates

Economy

“Is Larry Summers Taking Kickbacks From the Banks He’s Bailing Out?”

The Ames piece is provocative, but it’s certain no explicit payoff was made. But the flip side is it is highly likely the banks invested to curry favor with Summers. Even if the only payoff was privileged access to him, that alone would be troubling,

From Ames:

Is Larry Summers taking kickbacks from the banks he’s bailing out?

Last month, a little-known company where Summers served on the board of directors received a $42 million investment from a group of investors, including three banks that Summers, Obama’s effective “economy czar,” has been doling out billions in bailout money to: Goldman Sachs, Citigroup, and Morgan Stanley. The banks invested into the small startup company, Revolution Money, right at the time when Summers was administering the “stress test” to these same banks.

A month after they invested in Summers’ former company, all three banks came out of the stress test much better than anyone expected — thanks to the fact that the banks themselves were allowed to help decide how bad their problems were (Citigroup “negotiated” down its financial hole from $35 billion to $5.5 billion.)

The fact that the banks invested in the company just a few months after Summers resigned suggests the appearance of corruption, because it suggests to other firms that if you hire Larry Summers onto your board, large banks will want to invest as a favor to a politically-connected director…

According to filings obtained for this story, Summers first joined the board of directors of Revolution Money back in 2006 (when it was called “GratisCard…Revolution Money/GratisCard was a startup headed by former AOL chief Steve Case. Revolution Money billed itself as the Next Big Thing in online payment,…

In September 2007, Revolution Money announced that it had raised $50 million from a group of investors including Citigroup, Morgan Stanley and Deutsche Bank. Some found the investment strange even then, because normally big banks don’t get involved in seeding small startups — that’s the domain of venture capitalists, not mega-banks. Especially not in September, 2007, when these same megabanks were Chernobyling their way into full-fledged balance-sheet meltdown.

What seems clear is that at least part of Revolution Money’s success in raising funds is due to their star-studded board of directors — which included not only Larry Summers, but also the notorious Frank Raines, the former Fannie Mae chief whom Time Magazine named to its “25 People To Blame For The Financial Crisis” list. Raines is still a board member.

(More)

Swine Flu May Be Human Error; WHO Investigates Claim

Adrian Gibbs, 75, who collaborated on research that led to the development of Roche Holding AG’s Tamiflu drug, said in an interview that he intends to publish a report suggesting the new strain may have accidentally evolved in eggs scientists use to grow viruses and drugmakers use to make vaccines. Gibbs said he came to his conclusion as part of an effort to trace the virus’s origins by analyzing its genetic blueprint.

“One of the simplest explanations is that it’s a laboratory escape,” Gibbs said in an interview with Bloomberg Television today. “But there are lots of others."

7 States Now With Historical High Unemployment Rate. Michigan 22.8 Percent Unemployment Rate (U-6) with Official Government Data.

There have been many comparisons to the past with our current recession. For the most part, people are trying to find something familiar so they can have a better sense of where we are heading. The only problem is that there isn’t much in our own history to guide us forward. This is a unique and deep recession unlike anything we have seen since World War II. When I put together a post highlighting that 24,700,000 Americans are unemployed or underemployed some people questioned the actual number. The only issue is that this number is from official government data which if we look at the stress tests, tend to be conservative.

Even with government data, 7 states have now broken statewide historical unemployment averages. Those states are:

  • Oregon: 12.1%
  • South Carolina: 11.4%
  • California: 11.2%
  • North Carolina: 10.8%
  • Rhode Island: 10.5%
  • Florida: 9.7%
  • Georgia: 9.2%

Map (Unemployment)

Quiet (Video)

Bond Vigilantes Confront Obama as Housing Falters

For the first time since another Democrat occupied the White House, investors from Beijing to Zurich are challenging a president’s attempts to revive the economy with record deficit spending. Fifteen years after forcing Bill Clinton to abandon his own stimulus plans, the so-called bond vigilantes are punishing Barack Obama for quadrupling the budget shortfall to $1.85 trillion. By driving up yields on U.S. debt, they are also threatening to derail Federal Reserve Chairman Ben S. Bernanke’s efforts to cut borrowing costs for businesses and consumers.

The 1.4-percentage-point rise in 10-year Treasury yields this year pushed interest rates on 30-year fixed mortgages to above 5 percent for the first time since before Bernanke announced on March 18 that the central bank would start printing money to buy financial assets. Treasuries have lost 5.1 percent in their worst annual start since Merrill Lynch & Co. began its Treasury Master Index in 1977.

“The bond-market vigilantes are up in arms over the outlook for the federal deficit,” said Edward Yardeni, who coined the term in 1984 to describe investors who protest monetary or fiscal policies they consider inflationary by selling bonds. He now heads Yardeni Research Inc. in Great Neck, New York. “Ten trillion dollars over the next 10 years is just an indication that Washington is really out of control and that there is no fiscal discipline whatsoever.”

Investor Dread

What bond investors dread is accelerating inflation after the government and Fed agreed to lend, spend or commit $12.8 trillion to thaw frozen credit markets and snap the longest U.S. economic slump since the 1930s. The central bank also pledged to buy as much as $300 billion of Treasuries and $1.25 trillion of bonds backed by home loans.

For the moment, at least, inflation isn’t a cause for concern. During the past 12 months, consumer prices fell 0.7 percent, the biggest decline since 1955. Excluding food and energy, prices climbed 1.9 percent from April 2008, according to the Labor Department.

Bill Gross, the co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co. and manager of the world’s largest bond fund, said all the cash flooding into the economy means inflation may accelerate to 3 percent to 4 percent in three years. The Fed’s preferred range is 1.7 percent to 2 percent.

“There’s becoming an embedded inflationary premium in the bond market that wasn’t there six months ago,” Gross said yesterday in an interview at a conference in Chicago.

(More)

FDIC Banking Report: 305 Troubled Institutions up from 90 in 2008. $13.5 trillion Assets held with 2.1 Million Employees at 8,200 Institutions. (Please use link to view many, many charts)

What is drawing down the funds? It is the amount of banks going under and being taken over by the FDIC. The number is growing. Last year, the FDIC had 90 banks on its troubled list. Today, there are now 305. Keep in mind that last year gigantic failure IndyMac Bank which ate up nearly $10 billion of the fund wasn’t even on the troubled bank list. So take the 305 bank list for what it is worth from the FDIC. It is also the case that the FDIC will play a crucial role in the private-public investment program being dolled out by the U.S. Treasury. Recent reports estimate that the program will start in July and should be a taxpayer rip off to the ultimate extreme.

The PPIP will game the system and foot taxpayers with the bill of the most toxic assets in the world. Private investors will only need to come up with 5 percent while the U.S. Treasury will kick down 5 percent and the rest will largely be financed by non-recourse loans by the FDIC. It is incredible that we are going to give this institution which is already dealing with tremendous amounts of bank failures the duty of handling some of the most toxic mortgages known to the world.

That is why that in the last year the actual amount of assets at these 8,200+ institutions actually decreased for the first time in 2 decades:

The Fall of the Mall (Chart)

The Shadow Banking System and Hyman Minsky’s Economic Journey (12 pages, an important read IMHO)

The Financial Instability Hypothesis: Minsky took Keynes to the next level, and his huge contribution to macroeconomics comes under the label of the “Financial Instability Hypothesis.” Minsky openly declared that his Hypothesis was “an interpretation of the substance of Keynes’s General Theory.” Minsky’s key addendum to Keynes’ work was really quite simple: providing a framework for distinguishing between stabilizing and destabilizing capitalist debt structures. Minsky summarized the Hypothesis1 beautifully in his own hand in 1992:

“Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified.

Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on ‘income account’ on their liabilities, even as they cannot repay the principal out of income cash flows. Such units need to ‘roll over’ their liabilities (e.g., issue new debt to meet commitments on maturing debt).…

For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principal or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes.…

It can be shown that if hedge financing dominates, then the economy may well be an equilibrium-seeking and -containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation-amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.

In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values.”

 Zoellick Warns Stimulus ‘Sugar High’ Won’t Stem Unemployment

May 30 (Bloomberg) -- World Bank President Robert Zoellick warned policy makers that fiscal-stimulus plans are insufficient to turn around the “real economy” and rising joblessness threatens to set off political unrest across the globe.

“While the stimulus has given an impulse, it’s like a sugar high unless you eventually get the credit system working,” Zoellick said in an interview yesterday with Bloomberg Television’s “Political Capital with Al Hunt.” “When unemployment increases, that’s probably the most political combustible issue.”

Zoellick’s caution is a contrast with private economists, who are raising their outlooks for growth from India to China as stimulus measures take effect. The biggest developed and emerging nations have committed spending increases and tax cuts totaling 2 percent of their combined economies, a level the International Monetary Fund recommended to end the recession.

The World Bank is monitoring private companies’ abilities to roll over “a lot” of debt in the developing world, Zoellick said. At the same time, he played down risks to the global recovery posed by rising U.S. Treasury yields, saying that “in terms of absolute levels, rates are still pretty low for most players.”

Fed Clueless Perplexed About Spike in Bond Interest Rates

Lordie, if this Reuters article is to be taken at face value, the Fed is even more detached from reality than I feared. The Fed does not understand why the Treasury bond market had a mini-panic last week. Is it that investors believe the “green shoots” story and are seeking riskier assets? Or is it that they are worried about burgeoning Treasury auctions and a possible fall in the dollar?

Note there is another theory, that it was Fannie and Freddie moves to manage their duration risk that caused the mess. However, it did appear that the selloff in the dollar and longer Treasuries was triggered by Standard & Poors’ announcement that it was putting the UK on negative watch, meaning it is at risk of losing its AAA rating.

While both factors, a shift to riskier assets and worries about a tsunami-like incoming tide of Treasuries, bizarrely, are in play, from what I can tell, the second, the fear of the growing Treasury calendar, is the big driver. Look, the Chinese have done everything but put up a billboard in Time Square to let the US know that it is not happy about US fiscal deficits (really, it ought to be, they need the economy to be something other than prostrate) and has moved aggressively to the short end of the yield curve.

So we have two possibilities. Either the Fed is as completely clueless as this story suggests it is, or it is coming to realize that it cannot, like the Wizard of Oz, manage all the variables it is trying to control and tune things as it would like. Doug Noland offers a similar line of thought (hat tip Andrew U):

The notion that there is a system price level easily manipulated by our monetary authorities to produce a desired response is an urban myth. During the 2000-2004 reflation, I would often note that “liquidity loves inflation.” The salient point was that the Fed could indeed create/inflate system liquidity. It was, however, quite another story when it came to directing stimulus to a particular liquidity-challenged sector. Almost inherently it would flow instead to where liquidity – and resulting inflationary biases – were already prevalent.

The Fed’s reaction strikes me, behaviorally, as a re-run of 2007. The Fed saw the credit contraction as only the subprime mess, therefore something familiar, sat on its hands, then overreacted. As things appear to be working out not to its liking, it its reflex again is to hold pat. I’d expect the Fed to overreact as before if it comes to believe it has a real problem on its hands.

The fact set this time of course is wildly different. The Fed is trying to achieve aims that are not internally consistent, namely, prop up asset prices by directing credit to preferred sectors, and create positive inflation expectations.

Keeping yields (or more accurately spreads, the Fed claims it is only trying to control spreads) while also trying to raise inflation expectations, albeit modestly, is a conflict. Higher inflation expectations mean higher yields, particularly on long dated assets like mortgages. And enough observers think privately that the Fed secretly wants to create much more significant inflation, say 5-6%, to alleviate the real debt burden on households. Those sorts of worries among bond investors are cause enough for some to abandon the long end of the curve.

And the “will the Fed amp up its quantitative easing” is yet another concern. Even though the Fed could in theory control rates at the long end of the curve via its unlimited firepower, Mr. Market could well play a game of chicken. If the Fed decided to hold a particular long rate, it could well wind up owning that market. The Fed is no doubt well aware of this risk, which may be the big reason it is holding off, and hoping this problem somehow resolves itself.

(More) 

39 Comments

Davos's picture
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Re: Daily Digest - June 2

The Minsky article I stumbled about in a wierd sort of way. There is a blogger who posts a super newsletter written by an author who gives his newsletter to his clients.

I put some comments on it (the section below this particular newsletter) time to time. As anyone here knows, I'm pretty critical. 99% of this authors articles got comments from me like "Super read." (There are very few articles that I put that on because usually I find fault with 80% of the article, picking stuff that is good to post here is a weeding out process).

What I didn't know was this author read the comments, I got a few emails from him. I mentioned I had linked to his work and I was asked to get permission before doing so each time, so I have been reluctant to ask for that permission as I don't want to bother him on a daily basis. He was most kind and added me to his mailing distribution list.

I never went to college for economics and the Keynes and Minsky reading I have done is limited. This article the author I respect as much as CM pointed out was a condensed article that would spare one reading a book on Minsky to get the entire gist.

I hope everyone has the oppertunity to take the time to read the artilce and I hope you take from it as much as I did. 

Take care

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Re: Daily Digest - June 2

I wouldn't be caught dead in that car.  In order for it to be electrically powered you have to sacrifice safety for weight.  The car is left defenseless in an accident.  Let there be a market for it, but as a loving parent I would never expose my children to a toy of the ideologues. 

I am not a suscriber the cult of global warming.  We have been in a global cooling cycle for the last 10 years. Remember, in the 70's the cause celeb was global cooling. 

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Re: Daily Digest - June 2

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Re: Daily Digest - June 2

In reference to the Quiet car, Tom you are very correct that car may not be able to be sold in the USA and I am not so sure about the European requirements due to safety. 

That said, if all the people in a country decide that electric cars are the way to save the environment, than all these cars need to be charged, the power from the charge ((assuming mass electric power is used not solar/wind at home)) from power plants that normally burn coal.  Coal burning has much more pollution than the mass of cars would ever have.

Are E-cars the solution, unless you use renewable energy, no.  We have to find another solution.   

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Re: Bond Vigilantes Confront Obama as Housing Falters

Exactly **how** does one convince the Chinese to keep buying American trash debt instruments????

I doubt the Chinese will fall for obvious lies and deceipt, such as insurances the Dollar will not hyperinflate, or that the global economy will continue to grow post-Peak Oil.   The Chinese are simply too smart to fall for that.  The Americans and European sheeple could be fooled.  But not the Chinese government. 

The Chinese must have been promised something tangible and valuable - like a substantial ownership stake in American land and labor.  We can only guess, since the discussions are held behind closed doors.  We can be confident that the dealmakers' (Clinton, Geithner, Paulson) private estates will be unspoiled and even protected by the Chinese once the terms of the deals are activated.  The American people will be conquered in their sleep, with neither a shot nor protest to disturb them from their happy consensus trance.

How long will this debt facade continue?  To answer that, we need to calculate how many more fiduciary (401K, etc) and stupid money dollars can be pounded down the casino rathole.  There are still many many foolish dollars to be harvested by from ignorant "investors" who are really just consumers of worthless feelgood paper.  The harvest could take years, if not a decade.  The only real limit is the maximum numeric value that our most sophisticated computers can store and process: the 128 bit octaword = 170,141,183,460,469,231,731,687,303,715,884,105,727   See http://en.wikipedia.org/wiki/Integer_(computer_science)  Even astronomers who calculate the number of stars in the known universe have no need for numbers so immense.  The greedly overlords running the FED have little respect for boundaries as insignificant as the Known Universe.

Final Advice:  Read this book - "The Creature from Jekyll Island" by G. Edward Griffin, especially chapter 2 "The Name of the Game Is Bailout". 

 

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Re: Daily Digest - June 2

Glenn Beck: What if Americans didn't pay their taxes?

"Gandhi said: "Withholding payment of taxes is one of the quickest methods of overthrowing a government."

And it jives with common sense: Starving them out of trillions of our hard-earned dollars would literally put them out of business."

http://www.glennbeck.com/content/articles/article/198/25987/?ck=1

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Re: Daily Digest - June 2

Good stuff at Freedomforce's Unfiltered News

http://www.realityzone.com/currentperiod.html

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Re: Daily Digest - June 2

 On the EVs:

I believe if I'm not misstaken that 50% of elecricity comes from coal.

I'm no fan of it, haveing flown in and out of Charlseton WV with a guy who used to operate the heavy equipment there before becoming a pilot I don't believe it does one bit of enviornmental good. Also on approach into Pittsburgh from Toronto you'd usually fly over some lakes that were green/purple from the coal ash. I mean, these stood out like a soar thumb.

On AGW: I would not debtate cooling nor the amount of carbon released. I watched on doccumentary that said the last time (few hundred million years ago) that this much carbon was released there was an ice age that followed.

On safety: Great point who knows if they will even be allowed on U.S. roads with trucks owned and repaired in Mexico. (Humor intended).

All that in mind, why I posted this? Because I believe in peak oil, I believe that the less amount of carbon we can release is probably better, and I know from reading that 90% of the energy from and EV motor goes to the wheels and 10% makes it there in an ICE. That is one reason why you can get away with about 1/2 the horsepower in an EV. One could also put up a small solar array to charge the EV. I posted it becuase it was nice to see "affordable" EV's in the news.

The other point the EV books make is there is a LOT of stuff that can be left out of the car, catalytic converters, exhaust, oil, radiator, radiator fluid, and the list goes on and on. One concern is the used batteries - not eco friendly. But, since most of us here are believers in the 3E's it is nice to see cars coming out that will use less resources.

Also, I think this is a reason China is hoarding copper.

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Re: Daily Digest - June 2

Page not found

Sorry, the page you were looking for in the blog naked capitalism does not exist.

Davos on the top Story about Larry Sumners I get this on the link??

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Re: Daily Digest - June 2

I come here for a better understanding/education.  Post whatever you wish.  Thats what great about this website.  I come-I learn!  Keep up the good work

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Re: Daily Digest - June 2

 Hello iDoctor:

Thanks for the heads up. The link has mysterously dissapeared, I'll email Yves, think she did some work on her site, I no longer can listen while to articles on her site while I read articles on other sites.

His work is here. Yves's work I really respect, I have to read it a few times because she functions well above the simpleton level where I lurk and I often have to Google words to find their meaning, but anyway, her comments on the article put things in what I would call a rational perspective.

Take care

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Re: Daily Digest - June 2

Some random thoughts on Energy comparisons ICE vs. Electric from a little bit of googling for data.

Don't forget the whole energy chain when doing comparisons.   The electricity out of the wall from fossil fuel plants comes with significant losses. 

Electric Car Efficiencies:
Steam Power Plants: 39%  (too much energy is consumed in the water to gas phase transition of water, and it is not recouped in condensation..ie all goes to waste in the cooling towers)
Electric Transmission: 93%
Battery Charge/Discharge  Lead Acid: 70%,  Li Ion: 95%?
Electric Motor: 92%

.39 x . 93 x .95 x .92 = 32% total energy efficiency to the drive shaft

ICE Efficiencies:
Fuel refining 93%
Fuel Transport?  Evaporation? Exploration?
ICE 18-20%
http://en.wikipedia.org/wiki/Internal_combustion_engine#Energy_efficiency

.18 x .93 = 17% efficiency to the drive shaft
Electric should be at least 2x more efficient not including regenerative braking which can save a lot in city driving.

Li Ion batteries, at least like in your laptop, lose about 20% of the capacity each year to internal decay. I do not know if the car batteries will have the same effects.
http://en.wikipedia.org/wiki/Lithium_ion_battery 
1st year 100-80%  capacity left
2nd year 80-64%
3rd year 64-51%
4th year 51-40%  capacity left

Assume a battery cost per Kwh is about $210/kwh and a 35 Kwh battery gives you 4 mi/Kwh (140 mile range)... $7,300 for a new battery every 4 years.  Assume 30,000 miles/year.  Battery cost $0,06/mile not including interest charges.  Assume $0.11/kwh at home.   

Battery and electricity cost per mile (0,11 /.95/4) + 0,06) = $0,088/mile

30 mpg ---> breakeven at $2.64/gallon

Things to consider in the whole balance.

Scott
BS Mechanical Engineering Purdue 1982

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Re: Daily Digest - June 2

 Hello Scott:

Wow! I flew with some Perdue grads and they were just as sharp. Thank you for this information, I'm printing it and sticking it in the EV books, which by the way never mentioned this or coal or safety.

Take care

PS Tom815: Thanks, what you posted about safety has merrit, I have read the same about the air car ever making it here. I also like this about this blog that Chris created, your merrits and things like Scott wrote and others about coal really leave me with a LOT more than the article that I read and posted.

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Re: Daily Digest - June 2

Let's get one thing straight here.....  cars CANNOT save the environment.....!

Mike

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Re: Daily Digest - June 2

Let's not forget it takes 90 barrels of oil to build a car, the roads are paved with oil and all the world's lithium comes drom..... BOLIVIA!

And when the demand for Li goes through the roof, just what do you think will happen to the price?

Mike

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Re: Daily Digest - June 2

cars CANNOT save the environment

only drivers

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Re: Daily Digest - June 2

 Mike Writes:

 

the roads are paved with oil

 

8,900 mile per gallon gallons per mile.

Hey, just for the record, I'd be content on horseback or carriage and working out of my home (more) but I just don't think that'll be possible.

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Re: Daily Digest - June 2

Li Ion batteries, at least like in your laptop, lose about 20% of the capacity each year to internal decay. I do not know if the car batteries will have the same effects.

http://en.wikipedia.org/wiki/Lithium_ion_battery  

1st year 100-80%  capacity left

2nd year 80-64%

3rd year 64-51%

4th year 51-40%  capacity left

Actually, this isn't true of Li-Fe-PO4.  Very different than the Li-CoO2 you are referring to in laptops.  Besides, nobody puts Li-CoO2 in an electric vehicle, unless they like explosions.  Li-Fe-PO4 is more stable and longer lasting.

Hopefully CM will post my article on electric bikes here soon.

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Re: Daily Digest - June 2

gregroberts post #7

Gregg - thanks for the video.  Though I wish he didn't refer to Waco or Ruby Ridge, I think his message is right on the mark.  We are slipping into a slavery of sorts as our freedoms and privacy are being exchanged for security - under the umbrella of the collective. 

The state reigns supreme as evidenced by the fact that our SS and future entitlements are fast going broke.  The priority has been clearly marked, our prosperity is secondary to the prospects of international bankers and corporate elitists who are have clearly hi-jacked the state.

We can win this battle any time we want.  Our numbers are irresistible and our backs are to the wall.  The only way we can lose this war is by not showing up.

Larry    

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Re: Daily Digest - June 2

 Happy farmers

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The Weimar Republic does not easilly forget:

The Weimar Republic does not easilly forget (WSJ):

  • JUNE 3, 2009

Germany Blasts 'Powers of the Fed

 

German Chancellor Angela Merkel, in a rare public rebuke of central banks, suggested the European Central Bank and its counterparts in the U.S. and Britain have gone too far in fighting the financial crisis and may be laying the groundwork for another financial blowup.

"I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line," Ms. Merkel said in a speech in Berlin. "We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years' time."

Ms. Merkel also said the ECB "bowed somewhat to international pressure" when it said last month it plans to buy €60 billion ($85 billion) in corporate bonds -- a move that is modest in comparison to asset-buying by its counterparts, the U.S. Federal Reserve and Bank of England. Details are to be unveiled by the ECB's president, Jean-Claude Trichet, Thursday.

[Angela Merkel]

Angela Merkel

The public criticism is unusual -- and not only because German politicians rarely talk harshly about central banks in public. When politicians around the world do criticize their central banks, they almost always gripe that they are too tightfisted.

The conservative German leader's comments came as Europe's statistical agency reported that unemployment in the 16 countries that share the euro rose to 9.2% in April -- the highest level since September 1999 and still below the 11.5% that the European Commission forecasts for 2010.

However, the economic straits of countries within the euro zone vary widely. Germany's unemployment rate of 7.7%, for instance, contrasts with 18.8% in Spain, where a collapse in the construction industry that was driving the economy has pushed unemployment to the highest in the euro zone.

It isn't clear what triggered Ms. Merkel's remarks, which came in a prepared speech. The ECB has been markedly less aggressive than the Fed or the Bank of England, particularly in moving beyond cuts in short-term interest rates to buy bonds to boost economic activity. However, German officials traditionally have been on the more conservative end of the central bankers' spectrum, partly because the country's hyperinflation of the 1920s is seared into people's memories.

The ECB, the Fed and the Bank of England are increasingly vulnerable to criticism because they have played such a prominent role and crossed so many traditional lines in the past several months -- even though they do appear to have steered their economies away from a repeat of the Great Depression. Neither the ECB, the Fed nor the Bank of England had any comment on Ms. Merkel's remarks.

Her tough comments about the extent to which the central banks are intervening in the economy also come amid attacks on her by some in her conservative base for putting €1.5 billion of taxpayer money into a deal to shield Opel from parent company General Motors Corp.'s bankruptcy-protection filing.

Ms. Merkel's critique jibes with statements from Axel Weber, the head of Germany's central bank and a member of the ECB's 22-person Governing Council. He has warned that too-loose monetary policy could fuel future inflation. Mr. Weber was among the body's most vocal skeptics on asset purchases before the bond-buying program, reservations that were also shared by Jürgen Stark, another German on the ECB council. In a May 12 speech, Mr. Weber warned that overly generous monetary policy had helped build asset-price bubbles in the past.

In contrast, Athanasios Orphanides, the former Fed economist who now heads the Cypriot central bank, has been a vocal proponent of aggressive ECB policy. And many private-sector economists contend the ECB's response to the global recession has been too cautious. The ECB cut its key rate to a record low of 1% in May. Mr. Trichet hasn't ruled out further cuts, but most economists expect the central bank to stand pat Thursday and foresee the rate remaining at 1% for the rest of this year. The Fed cut its analogous rate nearly to zero in December and has said it will keep it there for some time.

Although the administration of President Barack Obama has carefully avoided criticizing the Fed, Republicans and Democrats in Congress have questioned the wisdom of the Fed's power and its governance as they contemplate far-reaching changes to the nation's financial regulatory structure. The senior Republican on the Senate Banking Committee, Richard Shelby of Alabama, recently asserted that "an inherent web of conflicts is built into the DNA of the Fed as it now exists," a reference to commercial bankers' role in overseeing the Fed's 12 regional banks.

Some private economists -- and a few inside the Fed -- say the Fed's aggressiveness is increasing the risks of an outbreak of inflation and creating the unwelcome perception that it will bail out big financial institutions when they take big risks that turn out badly.

—Nicholas Winning in London and Jon Hilsenrath in Washington contributed to this article.

Write to Joellen Perry at [email protected]

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Re: The Weimar Republic does not easilly forget:

 Good read Patrick!

Saw another article that the Chinese kids college students laughed at Geither when he told them their money was safe with US.

Like one blogger said, short of erecting a billboard in Time Square the Chinese have all but told the US what they think.

Take care

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Re: The Weimar Republic does not easilly forget:

 As Rick Santelli pointed out today, Geithner lied in saying the US is not monetizing (!!!), we back a strong dollar policy, and our deficits are not in dangerous territory.  The second two statements could be "subjective", but the first is an outright lie.  As Sam Linder's sign-off says, "No matter how cynical I get, I just can't keep up" (I think that's how it goes).  

tc,

Pat

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Re: Daily Digest - June 2

Davos,

 

Happy farmers link cannot be shown here in UK :( A brief summary anybody?

Certainly interesting times: Oil dies - a way out for some. Food dies - no way out for anybody. Thank God we have responsible people in charge.

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Re: Daily Digest - June 2

 Hello LogBurner:

Gosh, where to start? I'm only part way through, I don't think I could do it justice. Could I suggest you download Firefox Mozilla and Tor or use some other anonymous browsing software, ugh provided that is legal over there of course? Take care

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Re: Daily Digest - June 2

Scott,

 

Sorry but I think you are off by quite a bit for power plant efficiency.  The last time I calculated a complete power plant (using super heaters, vacuum condensers, air optimizers etc) the plant efficiency surpassed 53%.  I think Wicki is being very general.  Modern power plants are approaching theoretical max.  Remember Carnot efficiency is 1-(TH/TC) and is about 67% thermal efficiency and is the max possible.

 

E

 

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Re: Daily Digest - June 2

 You can find the movie on youtube

J

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Re: Daily Digest - June 2

Davos,

You are close on the amount of electrical power generated by coal.  Actual is 51%.  Total for fossil fuels is 70% with 21% nuclear and 9% renewable (including hydro electric which is the biggest part of renewable.

The reason eclectic cars need less horse power has nothing to do with power deliver efficiency.  It is all about torque.  Electric motors have huge torque at low RPMs so you need far fewer ponies to get you going.  Torque is why you can pull an 80,000 lb truck with a 400 hp diesel engine.  That diesel engine is putting out massive amount of torque compared to a gasoline engine.  Electric motors are diesels on steroids when it comes to torque. 

 

 

 

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Re: Daily Digest - June 2
Davos wrote:

The Minsky article I stumbled about in a wierd sort of way. There is a blogger who posts a super newsletter written by an author who gives his newsletter to his clients.

...

I never went to college for economics and the Keynes and Minsky reading I have done is limited. This article the author I respect as much as CM pointed out was a condensed article that would spare one reading a book on Minsky to get the entire gist.

The economist Steve Keen in Australia stated that he believes everyone should read Hyman Minsky's work  :-)

Now off I go to read the linked article - thanks once gain Davos.

I know you say it's a cut and paste exercise etc but I think that's downplaying the work that you do for us all actually. It takes time to do these things. I often select specific articles from CM to email to some people at my work - yes, it is a cut and past exercise for me but it still takes time - a reasonable amount of it actually and I'm already working from filtered work - your far more at the coal face. Thanks once again.

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Re: Daily Digest - June 2

I am watching the "Happy Farmers" video but have not finished it.  In my mind it links directly to the article on the possibility that this swine flu was man made (through a medical lab accident, no-one wants to even talk about the possibility of biowarfare but that is a separate discussion).  Aren't we seeing the nightmare scenarios regarding the downside of genetic engineering in both cases?  Monsanto and other companies can patent food and livestock, loads of unintended consequences, same with viral engineering for medicine and defense, loads of unintended consequences.  And it gives the mega corporations a level of control over our day to day lives (and the livelihood of real farmers) that is quite scary to say the least. I look forward to finishing the film on "Happy Farmers".  Thank you for the links as always Davos.

Denise

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Re: Daily Digest - June 2

This guy looks very "normal" to me.....Can't really say that about some of the so called leaders in charge of this mess.

http://www.cnbc.com/id/31002400/

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Re: Daily Digest - June 2

Source in German Vorsichtige Entwarnung für Osteuropa - Politik - International - Handelsblatt.com

No crash

Cautious 'all-clear' signal for Eastern Europe

Eastern Europe does not threaten in the crisis nevertheless the completely deep case. Experts from Goldman Sachs and Moody's give a careful 'all-clear' signal: The complete departure of foreign investors is not approaching and also the financial assistance shows first effect. For some countries the economic risk remains nevertheless high.

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Re: Daily Digest - June 2

E,

Thanks.  when googling I found numbers ranging from 39% to the super modern high temp, Hi Temp pressure plants which were in the low 50%'s.   I'm sure the installed capacity in the US has lots of older plants, so we can take a mix and bump the number to 45% or so. 

I will have to read up on the Li Fe ion batteries. 

Thanks for the comments.

 

scott

 

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Re: Bond Vigilantes Confront Obama as Housing Falters
RedShift wrote:

The only real limit is the maximum numeric value that our most sophisticated computers can store and process: the 128 bit octaword = 170,141,183,460,469,231,731,687,303,715,884,105,727   See http://en.wikipedia.org/wiki/Integer_(computer_science) 

Nope, it's not limited by that.  Back when our most sophisticated computers were far more limited, the solution was invented.  http://en.wikipedia.org/wiki/Arbitrary-precision_arithmetic   Instead of using binary math on the entire number, do calculations "with an arbitrary number of digits of precision, typically limited only by the available memory of the host system" a digit at a time.

 

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Carlos P
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Re: Daily Digest - June 2

I just don´t understand why the builders of the Electric car need government assistance. If it is as good as they say it is, can´t they find a venture capitalist or some sort of investor to give them the capital they need??

 

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Davos
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Re: Daily Digest - June 2

 It is an enigma. Watching "Who killed the Electric Car" was like some Twilight Zone movie. Common sense

Greed!

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scotthw
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Re: Bond Vigilantes Confront Obama as Housing Falters
RedShift wrote:

Exactly **how** does one convince the Chinese to keep buying American trash debt instruments????

I doubt the Chinese will fall for obvious lies and deceipt, such as insurances the Dollar will not hyperinflate, or that the global economy will continue to grow post-Peak Oil.   The Chinese are simply too smart to fall for that.  The Americans and European sheeple could be fooled.  But not the Chinese government. 

The Chinese must have been promised something tangible and valuable - like a substantial ownership stake in American land and labor.  We can only guess, since the discussions are held behind closed doors.  We can be confident that the dealmakers' (Clinton, Geithner, Paulson) private estates will be unspoiled and even protected by the Chinese once the terms of the deals are activated.  The American people will be conquered in their sleep, with neither a shot nor protest to disturb them from their happy consensus trance.

 

Hi Red, I believe the reason the Chinese continue to buy Treasuries is they turn around and use them as collateral to purchase (ie, stock up on) things like precious and base metals.  Then if the treasuries become worthless, they get to keep their commodities and tell their debtors "Sorry, you knew all the warning signs about US insolvency".  What a deal!

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RSLCOUNSEL
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A bit Czar irony for everyone....

 

The US government has 15 "Czars" in the executive branch ("Car Czar", "Compensation Czar", etc.). I would much prefer "Car Pope" or "Compensation Pope" so we could presume some degree of infallibility when they speak Ex Cathedra.

Speaking of infallibility. If "we learn from our mistakes", don't you think that failure is too important to leave to chance?
 

tedbits.blogspot.com/2009/06/we-need-failure-czar.html   to read the rest.... ENJOY!

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