Debt and the .001%

Read this article from Paul Krugman (or any article by Krugman).

Paul Krugman is a thoughtful fellow (I know he won the Nobel and therefore can say and do no wrong... so did Milton Friedman... and those 2 would never have agreed on anything... if you catch my drift), but he does not address the multiplication of credit within the financial system over the past 40 years and that input's effect on wealth distribution.

I would assert that the credit system is THE point, if not the only point. I intend to write Krugman an open letter here... I find him brilliant and interesting... but not infallible.

I would also assert that Krugman simply CANNOT make the credit/wealth distribution connection... the implications are too damning to much of the Left's agenda.

(BTW... a number of polls show Americans defining themselves as" Independent nearly 40%. Democrat, roughly 1/3; and Republican between 25 and 30%. The Left and Right are at each other's throats... and as soon as the Independents organize, those other 2 won't even matter.)

In 1970, total credit (debt) was $1T, today it is over $64T. Look at how much of that debt is sovereign. During that time World GDP increase 5X. Hmmm.... 5x and 64X?

For every debtor (sovereign nation) there is a creditor. It is the .001% that “own” all that debt (total debt is nearly half of ALL wealth. By creating this "debt", "wealth" is also created)… And why did these nations need to issue all of that Sovereign debt? Hint. It wasn't their military. But to acknowledge this is anathema to social justice folks... even though it is an absolute mathematical necessity… so... since the system will absolutely positively require "capital" to fund that debt... the question becomes how is that capital created? And who benefits? And WHY?

And that comes back to our Fractional Reserve Banking System and the Federal Reserve Act. Yet the Left, while accurately assessing the risks and political consequences of this outrageously unfair and unreasonable outcome, has the wrong Bad Guy in the Dock… and I would further assert that that is because the Left is the REAL establishment... the Harvard/Princeton/Penn alumni running the financial system… They see what they have wrought... but are not really serious about giving up their prerogatives.

The .001% leverage their control of this debt in a credit inflation environment (Iike the one we have had from 1970 or so until 2008) to capture other assets... which is why the Central Banks did what they did - the credit system was contracting... and that would have killed the .001%... so the Fed and Treasury bailed out the big banks and Wall Street (which bailed out the .001).

In order explain this to the Average Joe he will need to understand a few concepts first: Fractional Reserve Banking and Money Creation.

So... money is created by being lent into existence. How does money cease to exist? By having the debt either repaid OR defaulted upon... So... for the financial system to keep growing... money supply must increase (not talking about GDP growth directly, which is really a measure of the money supply X the velocity of money... but having increasing volumes lubricates things to help velocity for the most part... though that is very questionable at the moment).

To increase the money supply... new lending must be larger than debt repayments and defaults.

Diversifying does not help the .001%… so what if the .001% keep their money all over the world... we are talking about the value of assets... (and how do you define "money"?).... if the entire credit system contracts, debt contracts, and the .001% wealth goes down by that amount.... and by mathematical necessity, the net worth of the 99.99% goes up (they are in less debt.

Wrap your mind around that for a moment... Its the deficit spending that is causing most of the disparity in Wealth Distribution. Look where the debt's are largest on that wiki link to sovereign debt... he U.S. and Eurozone... and they do not even include the future payments to their social programs... without running up that debt (most of it on social programs for the Eurozone, and in the U.S. it is social spending, regulatory spending and military spending) you don't have a .001% nearly so "wealthy" and a 99.99% in nearly so much debt.

For the moment, please leave out the Keynesian arguments... just focus on the balance sheets of the various sovereigns and the various central banks... and what defines "wealth".

Every time a sovereign issues more debt, that asset seems to wind up on the books of .001% (and the sovereign wealth funds, but that is another story and another segment of the .001%)  and the liability on the books of the 99.99%. I assert and submit that we will only correct this by ending or limiting that debt issuance... but then how would money be created? We would have to scrap fractional reserve lending and the Federal Reserve Bank and System.

Irrespective of how many marches or sit-ins the Occupy folks do... they are less than nothing in the way of change until the system is reconstructed. Now... here you are an establishment guy that doesn't actually KNOW HOW to do ANYTHING. He can't invent the I-Phone, or Windows, or develop medicines, or engineer dams, or build airplanes, or raise cattle or crops... he has a Liberal Arts degree (or MBA, same thing) from THE establishment institution granting him entrance to The Club. Under no circumstances is he going to knock this system... he has no talent; no training... only POWER. The power vested in Fractional Reserve Banking and the Federal Reserve system.

But since he benefits mightily from this Keynesian created dream (for him)/nightmare (for everybody else)... he pretends to be an enlightened Liberal, when he is really and truly a f***ing child molester.

The incentive to create more and control more and more debt/credit has all manner of nasty unintended consequences... wars and the battle for control of Oil come immediately to mind... and the do-gooders on the Left know all of this full well... and justify this in their own minds with "without this debt there would be no medicare/social security/medicaid/foot stamps/no child left behind/blahblahblah... and he is right... these things would not exist in the absence of that debt, and they WILL NOT EXIST when the Keynesian end game comes to pass. However, all that debt absolutely, positively requires US$ hegemony, which in turn requires that the U.S. has a massive military to enforce that US$ hegemony... which in turn has, again, all manner of unintended consequences.

AND! that debt creates the out of control and unreasonable distribution of wealth now harming our societies irreparably... under no circumstance can you or any well intentioned individual correct that imbalance until you correct all of the above.

Now... what would happen if the debt/credit issuance was overwhelmed by defaults and repayments? That is what happened in 2008 till now, which led the various sovereigns to enact these "stimulus" programs... the sovereigns issued MUCH MORE DEBT (and you can see it in the Deficits) to overcome the debt that was defaulted upon, that was not applied for, or was repaid within the private sector.

Now Krugman rightly argues that if the austerity folks get their way, it will make matters "worse" (I am talking the U.S. situation here… Europe is a different breed of cat altogether). Yep. Infinitely worse for the .001% in percentage terms... the Keynesian argument is simple: "Private credit is contracting (fact). If we don't offset this with deficit spending (stimulus) the economy will contract (recession). He is absolutely correct. And? In order to correct all of the excesses from the municipal employee pension that have permanently destroyed housing (via excessive property taxes) to outrageous military spending to obesity... I could go on and on... ALL of these things are directly linked to the economic policies that concentrate the "wealth" (and with it political power) in the hands of a very, very few... undoing that is going to be BRUTAL... and it is going to get brutally undone one way or another... I respectfully submit that no American politician is going to tackle this... they are going to try to get thru the next election cycle... not to worry... "things that can't go on forever, won't."

Krugman is the ULTIMATE establishment Liberal. He knows ALL of this. He is simply too brilliant not to see the interconnectivity of this... but he can't see it out loud. He would lose his position within the establishment.


- to be cont...

Methane Hydrates?

If the technical obstacles to recovering Methane Hydrates are overcome, I will have to change the name of this Blog.

I have to wonder if this is election year marketing are not... given that the government is only "pouring" an additional $6 Million in to the program... well, that means $5 Million for Lobbyists and Campaign operatives and $1 Million for the program... given that drilling a small, land based 20 barrel per day well in the U.S. is about $500k...

Still... Worth keeping an eye on...

Or perhaps not.

Wikipedia reports that the volumes and deposits that Dr. Ken Deffeyes (from his books early last decade) and others believed to exist in nature were significantly overstated. Of course, given how wrong the Peak Nat Gas folks turned out to be...

Back to the India Street Dentists

Ok, so you had a chance to view this freak-you-out video on street dentistry in India.

Someone raised the point about the unsanitary environment. Fair enough (crossed my mind, too!).

So.... I spend a great deal of time in rural Tennessee. In the mythical land somewhere North of the "Dental Line". Don't know the Dental Line? Growing up in metro NYC there was an invisible demarkation somewhere north of Peekskill, NY, beyond which there were apparently no dentists. Why is it apparent? Because upon crossing this invisible boundry the denizens of the region all seemed to be missing vast quantities of teeth. The area had no formal name... it was just "North of the Dental Line", or NDL for short.

In any event... it would seem to me that there is probably a good reason(s) for the obvious lack of dental care up here in NDL... I wonder if it has anything to do with money? My bet is that many of my toothless neighbors would be only too happy to stop at a road side dentist or WalMart parking lot dentist and get a set of choopers if the cost was $200 and not $5,000.

So... for the sake of argument... let us assume that all the utensils were throw aways, and that every instrument was new and sanitary. Or better yet, the customer would have access to the materials they needed at the local medical supply store and brought them to their street dentist.

Is fashioning a plate and glueing tooth shaped plastic pieces to it requiring of 4 years of training costing $200k+?  REALLY??!! Look, I am NEVER going to a street dentist for a cap or a bridge... but what if I weren't so fortunate? Is it better that I never have teeth to eat with?

(On my farm I do all my castrations, suturing, vaccines...  My horse cut himself GOOD... so I did what any red-blooded American Macho Man would do... I watched a guy suturing on youtube and dosed my horse good and stitched him up... and if I say so myself, he looks great.)

Abe Lincoln was  a talented lawyer by all accounts... with a 3rd grade education (formal)... the balance of his education was self-inflicted. While there were several "Law Schools" at the time, most lawyers were self-educated. There are no "labs" at law school. The job is essentially a glorified librarian... so why is it necessary to attend Law School? Either you can pass the entrance exam or you cannot. Pretty simple, really.

(One of my favorites absurdities is "Brilliant Constitutional Scholar". ROFL!!!! Do you know how many pages the U.S. Constitution is? 6. 6 whole pages! The Bill of Rights is 1 page. Madison probably wrote it on a napkin at the local Greek diner... anyway... you mean to tell me I need a scholar to help me understand these 6 pages? Of course not... I need him to help me understand the convoluted reasoning of past SCOTUS Justices.... NOT! Why would I need to prejudice myself by listening to someone else's interpretations of 6 f***ing pages? I can't do it myself? WTF!!!)

And what's up with 3 years of law school for all lawyers? A Law School student probably spends a month MAXIMUM on trusts, wills, and estates... why do I need to pay for the training in criminal law for my trusts & estates attorney?

Surgeons are selected by academic achievement. Seems to me that a big part of the abilities and talents required would be fine motor skills... do these training programs test for that? Nope. If I were selecting somebody to stitch up my face and I had a choice between an Indian peasant rug seamstress with some training on human tissue and a burly, ham handed surgeon, all else being equal (as in a sterile environment) I'll take the seamstress every time (and no, I don't want an untrained seamstress doing ACL repair on my knee... just bringing up some of the talents that seem to be required that simply are not considered).

The point is that we, The People, should be able to make the decisions on who is and is not qualified to serve us for ourselves.

Thinking Outside the Box (on Education)

I spent a lot of time training Brazilian Jiu-Jitsu back in the day at a place that turned out more UFC MMA fighters than any other camp in history. About 10 years ago, I met a young man, really a teenager, and he was finishing his last year in college. I thought this was odd... he couldn't have been older than 18. One of his parents was Brazilian and the other was American. He was bright, articulate, and personable. At the time he was fighting amateur MMA and would go on to fight professionally (he's in the grey and red shorts fighting UFC's Rick Lamas back in 2008)... but he was making too much money in his real career to continue fighting.

He had dropped out of High School, and before he was permitted to take his GED, he had already finished community college. He then went on to complete his undergrad program at the local State U. - graduating college a year before he was scheduled to graduate high school. He worked for a year while applying to Law School, and despite graduating from nobody U an excellent Law School accepted him into their program at the age of 19. He graduated Law School on time and passed the Bar exam at the ripe old age of 22.

Got that? Before his high school classmates were done with their Frat House boozing this guy was a Member of the Bar (with a 6 figure salary). But my friend had the advantage of necessity...  He came from challenging circumstances and had spent enough time in Brazil scratching for enough to eat to be properly motivated... and it must run in the family, because his little brother took the exact same path.

He is in his late 20's now and hitting the cover off the ball in all areas of his life. He took on ZERO debt working at anything to get through his undergrad programs, and some to get through Law School... but given his young age and the subsequent length of this Legal career I think a wise investment.

The system fought him every step of the way in his young life but there was no holding this Force of Nature back.

If you know a young, bright, and ambitious person I think this is a story worth sharing.

Overtraining and Unnecessary Training

Before you watch the video I am proposing to support my very unsettling contention (and the video is more than unsettling in and of itself) I hope you will consider this personal anecdote of mine:

Nearly 10 years ago I came back from a horse back riding vacation with my older son. We rode hard everyday in the mountains of Colorado, and I came back with knee pain so bad I could do nothing beyond walking. I waited an hoped that it would heal on its on... and if it was healing it was not apparent to me, but my leg was atrophying, so... I went to see a highly recommended Orthopedist in my home town of Boca Raton. Nice guy, trained at Harvard.

During the exam the Doctor breaks out a replica of the human knee and starts in on his explanation of what is wrong and what my treatment options are. It occurs to me that what I am seeing is not a complicated problem... so I ask the Doc "In your years at Med school... how much time did the school devote to the human knee?" "Excuse me?" he kindly replied. So I said "Look, you had to study brain tissue, spinal columns, do a pysch rotation, liver diseases, and acne... so how much time did you spend on the human knee while in Med school? I would guess no more than 2 or 3 weeks. Tell you what, I don't know a thing about the human knee and I would like to speak with you about my knee intelligently and on equal footing... so I am going to leave here, head to the library and hit the web, I will be back in a couple of weeks... and I will know everything about the human knee that any recent Med School grad knows. Then, let's talk."

When I got back, we had a 20 minute discussion about sheering, lateral, impact, bending, and compression forces on the human knee and their impacts on the articular cartilage behind my knee cap and on the grove that it slides on at the bottom of my femur (among other things). "We" decided that surgery was a poor choice, that there were some activities people my size have liabilities with, that shock resistant shoes were very important, and that physical therapy was my best treatment option.

After we get done that, the Surgeon says to me: "I have been practicing for over 10 years (he was a young guy... at the time we were both in our early 40's) and I have never had a patient tell me that he would study a knee, shoulder, or elbow and then speak with me "as equals" (and he used his hands to gesture quotation marks).

The fact was this... had I worked at his elbow for a year or less, I feel I could have performed any of the surgeries he did on a human knee...and I told him that. I said, "its just carpentry, doc". To which he said that his profession was referred to as a "saw bones" and we had a good laugh.

So why does the system make this guy get an undergrad literature degree and then spend time doing dermatology and studying the human eye if his practice is entirely the surgical treatment of human joints? Because he is going to need to talk about those other areas of study with the referring physician?

The military puts medics on the field of battle with 16 weeks of training. We then trust him with field tracheotomy's (talk about delicate surgery under pressure) in a hostile environment/combat zone... we couldn't train him to do ACL repair in the confines of a sterile operating room absent the bullets and and shrapnel?

Look, physician M.D.'s LIKE the cache of being over-trained... and they want to be paid for it. OK with me. But they should not have a monopoly. If I don't want to pay for your 8 years of over training and under earning by going to a super specialist for my knee surgery (and I don't want to pay for someone else's neurosis, either, in the form of insurance... if you want this guy's particular training you should pay for it all by yourself) that should be my business.

So watch this video.... and tell me what you see....

The Lack of Debate on the College Cost/Benefit Analysis

The Balkanization of the Web continues apace.

I am part of an interesting discussion group over at Facebook. One of my childhood friends recommended inviting a friend of his, so I "friended" him on FB. We were short of an uber-Liberal in our group (we had several, but they each in turn became angry and left rather than support their positions... so I invited this gentlemen).  He declined to participate, but I did comment a couple times on his threads. In each case "the line went dead" (that is Facebook speak for when the owner of the thread messages the other participants to cease communicating - this "Balkanization, or complete rejection of ideas, fairly sums up the American Body Politic at this time).

So.... I commented on the above photo as follows:

Me: I think that the larger issue is that the availability of the loans drove the price of tuition at several multiples of inflation for 2 or 3 decades... much the same as mortgage availability drove housing prices to unsustainable levels... How this works out will be fairly interesting, as under no circumstance will the debtors (the student borrowers) be capable of paying the nearly $1Trillion in student debt. As a practical matter, if I were in this position, I would repudiate the debt. Currently, less than 40% of student loan debtors are paying down their balances... the lower that number goes, the higher the probability of some kind of "forced" forgiveness of the debt. 

Moving forward, we need to address the out of bounds costs of higher education and the harm caused by "prestige" educations rather than those that are measured empirically. After all, if the methods employed by the top institutions were truly better these institutions would want to expand their franchise... since that is not true, these institutions limit the supply of their graduates to maintain exclusivity - a logical strategy for the institutions... but not for our society.

correct: should have read "will the debtors be capable of paying the $1Trillion debt PLUS INTEREST".

Of course, by extension, this holds for nearly all debts... in 40 years, the credit system has expanded from $1 Trillion to $50 Trillion (50X increase), while world GDP has expanded 5X... like I said, should be fairly interesting.

At this point my comments were returned by an individual I have dubbed the "Professor".

The “Professor”: Not sure what's driving your argument there about the top institutions wanting to expand the franchise, Greg. They certainly do not, a significant portion of the value vests in the exclusivity - and consequent access to alumni networks, etc. It's not really possible to manufacture the kind of model most people are thinking about when they consider market forces and apply that to higher ed.

My answer is fairly clear (and polite). 

Me: I was saying that the top institutions have no incentive to reign in prices given the availability of student loans... and that they were charging an exclusivity fee, not a performance fee (other than the "performance" of exclusivity).

After all... if it was the empirical quality of the system of education that was resulting in better outcomes, then these institutions would be best served by "franchising", if you will, their "better" system. Of course, if it is exclusivity that they are selling franchising would only dilute the "exclusivity" value.

The “Professor”: It is certainly the latter. But, I should point out, that the higher ed product is not something that lends itself to franchising. Teaching college is an art, not a science, and is not replicable.

(Of course its the latter! That is the very essence of my position!)

Me: The "benefits" accrued to alumni of "exclusivity" peddlers has a mirror image.

The Professor: “Eh? The benefits accrued to alums of exclusive colleges is access to social strata and consequently to lucrative employment.”

This just blows me away... I am pointing out the fact that we have an "Establishment" sprouting from the higher education system... one that certainly contributes to the 1% at the expense of the 99%... one that is not "of merit" prima facie (remember, this is an uber Left thread...)

Me: Precisely! And it crowds out other individuals that lack the cache.

(People that took the exact same classes with the exact same grades and the exact same IQ will be held in lower esteem by virtue of the cache their institutions lack.)

Me: ‎"Teaching college is an art, not a science, and is not replicable." Not sure I agree with this statement.

After all, art is not measurable... and science is. But the last thing these folks want is to be measured.

The Professor: “Welcome to disagree, dude, but I gotta warn you, I'm not only a college professor, I'm the incoming editor of the primary education journal in my field.”

("Be Quiet!! Listen... Strange women lying in ponds distributing swords is no basis for a system of government/education..." Cue the scene from Monty Python and Holy Grail "Well, I am King!")

Got that? "I am SMARTER than you." She has yet to debate me, or take my positions to task, or to support her own arguments... there is no need. She is my better ("Shut up!!... Now we see the violence inherent in the system!"). And it does not matter that I am a self-made multi-millionaire that has succeeded in spite of a very low start in the world

(I am, after all, a Self-Educated (for the expense of library card), White Trash male that grew up between a gas station and the housing projects in Greenberg... and The Professor is a Female College Professor... and not that I am Steve Jobs, either... but by any measure, and especially given my origins, my "qualifications", such as they are, would be apparent to anyone other than the class that extorts from the masses for the purposes of handing out "qualifications")

and despite having absolutely no qualifications, that I have traveled the world, excelled in chess and music, maintained my health and weight with zero medications past the big 5-0(the ultimate qualification of one's intellect), read extensively, taught myself well enough in economic and security analysis to succeed at a place where people of my ilk are NOT welcome (only thing Wall Street hates more than an "uppity" and "Qualified" black person is a White Trash man with absolutely no qualifications (I did have all my teeth, and I looked good in suit... that did help) - well, all except for the quirky Jews at Bear Stearns who said they were looking for guys with PSD's (Poor, Smart, with Deep desire to be rich - I had that qualification in spades) that took a chance on me and to whom I am ETERNALLY grateful - much love to those guys), raised children (and in the process stroked many a tuition payment check), went broke (twice) and still came back three times... this "Professor" has none of these "Qualifications"... yet she is my superior. Go figure.

Me: I am confident in my capacities, too...

Ready to debate the issue.

The Professor: On what grounds?

"I am your superior, damn it! How dare you question your betters?!"

Me: Do not understand your question. But given my own background, I am speaking to the economics and cost/benefit analysis of higher education.

Trying to give this hard case a way out. 

The Professor: You're confident in your capacities to speak to the matter of whether college teaching is an art or a science and the degree to which it is replicable...based on what qualifications?

She simply doesn't take the opportunity. After all, I am an idiot and she is a "College Professor". Never mind that on my worst day - drunk, feverish, and without sleep for days - I couldn't think as slow as this nit-wit... not even if I tried. And never mind that I am the "customer".  You know, the guy that has spent hundred's of thousands on my children's tuition (with much more to go). Never mind that the student debtors are not capable of servicing the debt on their education (bells should be going off over that little data point). My point of view is without merit. Because the emperor has new clothes!

Me: I am confident in my capacity to speak on the cost benefit analysis of the education. The balance is anecdotal, and cannot be measured.

An attempt to bring it back to the empirical.

At least, I cannot measure it.

And then the "line goes dark" (defined above).

Me: We are speaking about the debt incurred on student loans, are we not?
Or the measurable benefits for those able to pay without debt.

Me: The subjective value of being "educated" I leave to the individual... measuring the earnings outcome versus the costs in time and money is empirically measurable.

Me: sorry... that was from the department of redundancy department.

Me: Oh, well... you seem to have lost interest in this discussion... I would have liked to hear the perspective of an insider. Given that less than 40% of the loans within the student loan system (total of nearly $900 Billion) are paying down their balances (this metric negates the "deferment" versus "default" argument) it would seem to me that the economic value of what the students' received was insufficient to finance their investment. This is akin to an investor in real estate whose rent roll is insufficient to service the debt on a particular property. It then follows, given the sheer size of the problem (amount of debt in default or deferment) that the costs/price of the education are out of proportion to its economic benefit... I would assert that what brought that unhappy circumstance about was access to too much credit (student loans) in much the same manner that too much credit (mortgages) poisoned the well of the housing market.
And in the final analysis, like the housing market, the student loan debt will NOT be repaid as agreed. The implications for the higher educational system could not be more stark.

So... as the owner of the thread prefers to halt debate on his page (which he certainly has every right to do) I have taken the time to invite this individual (the Professor, that is... the thread owner is clearly not interested in co-examnation of any facts in contradiction of his belief system) here for a full and open discussion. Not in anger but in the search for truth. I look forward to the debate with GREAT anticipation.

That this is what has happened to us and our abilities to listen and reason with each other leaves little doubt in my mind about the health or our Body Politic. We are very sick. Our establishment brooks no dissent. There is "The Way", and everything else is base and course and without merit. We all know the definition of insanity... yet the Keynesian and Social Policy Left has been in de facto control for over 40 years. What has been the outcome? Why is it verboten to question the outcomes?

Because the 2 headed 1 party, the REAL 1%, benefits at the expense of everyone else and they have perfected an environment that neuters all debate.