Archive for the ‘Finance’ Category

Hourglass Politics

August 23, 2019

Six in the morning, in the middle of the Scottish lowlands.

A timid dawn casts a faint light over layers of cloud, and seagulls cry overhead—weird, because I’m equidistant from Glasgow and Edinburgh, about as land-bound as you can get in this country of highlands and islands.

But there you go—the seagulls, like the humans they poop on, live in interesting times.

The hourglass is an apt metaphor for the countdown to Brexit—the sand trickles steadily downward with sixty-nine days to go. A political segment of the UK is scheming and plotting to give the hourglass a sharp tap, just as the last grains of sand pass the isthmus, while another is hell-bent on running down the clock.

Here in Scotland, any Brexit conversation quickly shifts to the independence debate—the Scots don’t feel represented by the English, which is certainly justified when you study their history.

A pro-Brexit punter on the radio yesterday explained that Britain had two options—no hope and bob hope—a reference to Bojo, the current UK prime minister Boris Johnson, who is an incarnation of characters from the British comic Beano.

Johnson’s former employer at the Telegraph, puts Beano Boris into perspective.

He’s a sly fox, disguised as a teddy bear.

Bojo got himself photographed yesterday with a shoe plunked on Macron’s coffee table—a pose sure to find favor with the more xenophobic Englishmen—while Macron was at pains to point out, as Merkel had done the previous day, that Europe is more than happy to accept a deal as long as the UK provides a solution to the Irish border question.

What Macron and Merkel don’t want to do is to give Boris an excuse to blame France or Germany before the British people for a no deal. Both were at pains to throw the door wide open, in the knowledge that there is no solution currently acceptable to the Irish.

The smaller nations in the EU smile upon this whole shenanigan, which binds them closer to Europe—after all, this is the first time in history the Irish are successfully thumbing their noses at Westminster without any loss of blood.

The Dutch, Belgians, and Danes dwell on Germany, the Croatians on Italy, the Portuguese on Spain. All the little guys know what it means to get fucked by large neighbors.

The most likely outcome of all this teletubby frolic is that the UK parliament will block no deal, forcing a general election. It’s difficult to see how this can take place before Halloween, but it’s easy to see that the Bojo game will not force a no deal at this time, but aims to win a strong Tory majority at the ballot box that legitimizes his actions.

A Beano-style depiction of Bojo, alongside another paragon of British esoterica, often spoofed as discussing the economics of Carthage.

The opposition are, to use a technical term, screwed, because the alternative to a parliamentary block is effectively a no-deal exit.

General elections it is, which promises a spot of Christmas chaos.

A pro-Europe win, somehow binding Labour and Libdems, brings the threat of a Corbyn government—many Labour voters don’t want that, and no one believes in Corbyn’s pro-Europe credentials—Britain would live the irony of having a remainer, Theresa May, trying to get them out, and a leaver, Corbyn, trying to keep them in.

A pro-Europe win, for many, will also mean a betrayal of the will of the people, as expressed in the Brexit referendum—a second referendum has the same effect, should Brexit be defeated.

A pro-exit win will create the conditions for government policy to be supported in parliament. The question is whether that will force the Tories into an unholy alliance with Farage’s Brexit party, whose success in the European elections earlier this year was largely due to a combination of Brexit-dithering by parliament and to proportional representation.

But the hourglass metaphor extends well beyond Brexit. The consequence of an ever-widening income gap between rich and poor, together with the steady erosion of the middle class, is political extremism.

The rotund, Humpty-Dumpty-like politics of the center, a bell-shaped curve with a narrow band of nutters at either end, has been replaced by a Dolly Parton distribution—twin peaks, if you will—with two separate mounds of fruitcakes.

This is the politics of Italy, Spain, Greece, Holland, Britain, and… oh yes, the United States. The opposite tends to happen in nations where that middle class is growing—even if the political systems do not allow democracy to thrive, Asian countries where the economic extremes are becoming less polarized will tend to a more rotund political landscape.

It’s unsurprising that the shape of wealth distribution will determine that of political preference, having itself at one time been molded by political choices. This is clearly a cyclical system, where those radical preferences will once again shift the form of the wealth curve—the problem lies in the fact that we are all sorcerers’ apprentices—like Dias and Columbus, we sail uncharted waters.

A further complication is that apparently well-behaved, linear systems can easily turn chaotic. In nature, than spells floods and typhoons—in humans, it translates to war and bloodshed.

History teaches us not to underestimate the consequences of our actions.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

The Rogues

June 20, 2019

After spending a whole week in Ireland and England, during which both the weather and politics were disgraceful, I concluded that the U.K. is having a miserable June.

I flew out of a cold and wet Belfast, and by the time I got to Paddington the rain was coming down in sheets. Even the Ubers were begging off—it took three attempts before a Romanian in a silver Mercedes made it to the pick-up point.

The other two drivers who pulled out were also foreign, as was the waiter who brought me dinner, all the receptionists at the hotel, and most of the staff in the office block where my meetings took place.

Later in the day, when Bojo, as Private Eye calls him, took a significant lead in the hustings to become leader of the Tory Party, and therefore prime minister of the U.K., I heard Boris senior on the BBC. Stanley is an avid attention-seeker, and he was more than happy to comment on Bojo to Auntie Beeb.

‘Have you spoken with your son yet, Mr. Johnson?’

‘No, but he sent a message using something called WhatsApp. It’s a new thing, have you heard of it?’ he asked the interviewer (who replied ‘No’).

The Boris team is keeping the Beano-like character under wraps because the man has two things in common with Trump—crazy hair and a natural bent for shooting himself in the foot.

In Private Eye, Boris and his acolytes are often displayed as a set of Beano characters.

With such a significant lead (114 votes, to 43 for his closest contender, Jeremy Hunt), the best thing for Bojo is to keep his mouth shut to avoid clangers.

After the Conservative Party received the trouncing of a lifetime at the hands of Farage’s Brexit Party—the irony that it happened in the vote for the European elections, which the UK should by then not have been a part of, was missed by no one—many feel that stonewalling Brexit will be the end of the Tories.

As I dealt with both business and pleasure in London, it again and again became apparent that the transport and hospitality industry will collapse without foreigners. I recurrently heard Italian, Spanish, Portuguese, as well as the languages of Eastern Europe—you’ll hear them in many key sectors of British society, of which the NHS is the most important.

Nevertheless, the people have spoken, so leave England must, dragging with it the whole of the UK—of the other three, only Wales (pop. 3 million) voted to leave.

The EU set a limit date for Halloween (who says Brussels doesn’t have a sense of humor), and all the Tories running (of which there are really only three or four in the running) strenuously emphasize that Britain will leave—the degree of stridency about leaving without a deal is what sets them apart.

How easy is it to leave without a deal?

To analyze the question, let’s first look at the opposite—leaving with a deal. Theresa May failed miserably in her attempts to do so, Brussels has repeatedly stated there will be no further negotiation, and Boris is intensely disliked by the European Union.

Some of the other contenders for the Tory leadership have been involved in the Brexit negotiations—they all know exactly what’s achievable, i.e. nothing. In their hearts, the British also know this.

The House of Commons will not support the current deal. But will also not support a no-deal exit. One of the ironies of this process is that many Labour constituencies who voted leave have a ‘remain’ member of parliament. Those MPs, who sit in Westminster, are stuck between a rock and a hard place—they are fully aware that their constituents will crucify them.

If those MPs back a no-deal, the consequences for livelihoods of their voting base will be considerable—the voters will blame them and throw them out. If the MPs do the opposite, their voters will react with fury—betrayed by their representative, who will be thrown out.

Unfortunately, for the conservatives, much the same is coming. If parliament finally approves the same deal (since no other deal is likely), hard-line Brexiteers will be incensed. If it doesn’t, and Johnson forces a hard Brexit, a general election is almost inevitable.

To force a hard brexit against the will of the politicians, the only option is to prorogue parliament—effectively suspending it over the limit date so MPs cannot block the withdrawal. The main (pro)rogue, Dominic Raab, is out of the race, but there are still a few rogues left.

The debates have been appalling, without a glimmer of an idea. Today, only four candidates are left, and by tomorrow we’ll be down to Bojo and Hunt. Of course, it may be that the usual Tory skulduggery steps in and chucks the current second, replacing him with Gove or even Sajid Javid—Rory Stewart was apparently only carried through so Tories could hear him debate.

Historically, as both Thatcher and Major discovered when they beat the front runner, the top dog doesn’t win—maybe when the vote goes out to the Conservative Associations the  curse will rise again.

Whoever wins, the exchange rate of the pound will flutter on the wings of the forthcoming discussions, reflecting ebb and flood. The coming months are short—July means vacation time in northern Europe, August is the same in the south—before we know it, there’ll be trick-or-treat.

One or the other, but not both. Five days after Halloween is Guy Fawkes night—maybe this time the houses of parliament really will blow up.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

Mayday

May 26, 2019

I considered May Day as an alternative title, but I chose the more panic-stricken naval distress call.

The resignation of the British prime minister has been on the cards for a while—and now it’s official. If she were a monarch, her epithet would have been May the Moribund, the Westminster equivalent of the zombie.

Hard-core supporters of Brexit love to point out three things:

  • Contrary to doomsday predictions, the UK has been doing fine after the referendum vote in 2016
  • Border delays or paralysis due to a no-deal scenario are a conspiracy of Project Fear
  • The EU needs the UK far more than the UK needs the EU, so trade agreements are assured

I don’t agree with the doomsday stuff, but then only fools believe economic predictions. The whole concept lacks a paradigm, and empirical predictions for both economics and weather only work in the very short term and in the long term—though that last one is questionable.

Apart from  the lack of a paradigm, economic forecasting is inevitably flawed because it deals with humans. It can potentially work if it is unadvertised. The prediction is made, locked in a drawer, and revealed a year later, whereupon it is found to be reasonable. The Achilles’ heel is that it has to be disclosed to be acted upon, at which point humans react, thereby shifting the model conditions and outcome.

But my main objection is because people react, they don’t proact—in other words, they haven’t acted yet because there was nothing to act upon.

There still isn’t, but it’s a comin’ to an economy near you. The UK is now firmly between the devil and the deep blue sea—the ocean is the forthcoming rapprochement with the US, if a hard-line Tory such as Johnson or Raab becomes prime minister. Trump will encourage this, partly because he sees Brexit as a confirmation of his line of isolationism.

May succeeded Cameron following his resignation, and the appearance of a substitute Tory now will set a poor example of yet another unelected prime minister—Brits like to choose their leaders at the ballot box.

The trouble with calling elections is the Tories will lose—and that’s where the devil comes in.

Jeremy Corbin is a red rag to the business bulls, and most in the conservative party are scared to death he might show up.

If a Tory brexiteer takes the helm, WTO rules are the most likely outcome—the deadline is Halloween, and many EU politicians feel that the dog and pony show laid on by the UK since 2016 is sinking the union itself and must be stopped.

As usual, ordinary Brits are completely self-absorbed, and completely fail to understand that most citizens of Europe don’t give a shit about all the UK toing and froing.

Border issues will be a reality, at least for some time, because national connections are generally difficult unless simplified through agreement, which is precisely what EU membership provides.

Trade, on the other hand, is a different matter. Even with a no-deal exit, trade deals with Europe will in time be forged—it just won’t happen now.

What will happen now is the following, if my crystal ball is to be trusted. Despite (or perhaps because of) his buffoonery, Johnson will be the next prime minister.

The UK will move to leave the EU as quickly as possible. Since no alternative deals are on the table, or apparently acceptable, this will be a fracture, rather than an amicable parting. The UK will attempt to quickly strike bilateral trade relationships.

Quick is tough, as Trump learned the hard way with NAFTA and China. It’s easy and populist to break agreements—think Paris Climate Change, Trans-Pacific, and Iran.

Doing nothing after is possible, perhaps even popular, but unless you’re addicted to the poison cup, consider why Obama and others entered into treaties in the first place—the answer, of course, is for the common good. It’s possible that previous leaders misjudged those benefits, and the conditions thereof, but it’s unlikely—there is only one world power in the field of poor judgement, and that’s the orange man.

The UK joined the common market for the same reason, i.e. the common good, although a majority of British citizens now feel they will do better outside it—that was a nation’s democratic choice, and it must be respected.

Should there be a second referendum, the UK has been obsessing about the questions—the solution to that is trivial—a second referendum would have three: Leave with no deal; Leave with the deal; Remain. If the two leaves combined beat remain, then the higher of the two leaves stands. If they don’t, the vote is remain.

The ‘deal’ was the May deal, now it would be whatever else is forthcoming. If we take Brussels at face value, whatever other deal comes to the table won’t differ much from this one.

But there will be no second referendum—diehard Tory brexiteers will prefer to leave with no deal, and the devil take the hindmost. In this case the devil is Corbyn, and he will.

After the Halloween Brexit, the Labour party will clamor for a general election—this will happen within a year, at the latest, to avoid fracturing the whole country. At that stage, Johnson will lose, and the Tory leadership will pass on to someone else who will take the party through the inevitable desert crossing that awaits it.

This narrative is a sad one for Labour, because it will be in charge of a Britain hamstrung by Brexit, bilateral deals of any significance will be a distant twinkle, and it’s impossible to visualize Corbyn as an international deal-maker.

If my crystal mojo is working, then in one year Johnson will fall, and in one legislature Labour will fall. The Conservatives will return to power in a few years on the fallacious argument that the left made a pig’s ear of Brexit.

As with any self-inflicted wound, the periphery suffers first. England’s progress will be interesting to watch, but the reaction of Scotland and Northern Ireland will be fascinating.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

Made in China

May 12, 2019

Look at your belongings—much of what you own is made in China. The Middle Kingdom is the world’s factory, and the United States is the supermarket—in this simplistic view of planetary order, Europe is the museum.

In particular, China is the semiconductor capital of the world, which makes it a powerhouse in tomorrow’s digital society.

The orang-u-turn decided to show America how a deal is really done, taking on the tariff war to please an electorate that depends on all things Chinese—the poor and disenfranchised in the States buy the cheaper goods, hardly any of which are made in the USA.

China stands accused of unfair trade practices—largely driven by government support or participation in business. Europe and the US, on the other hand, draw a clear line between private and public sector, and fight monopolies and cartelization.

At the heart of the dispute is the enormous trade deficit between the US and China, but also the obligation of foreign companies to disclose trade secrets in order to operate in the Middle Kingdom—like Robert Johnson at the crossroads, US corporations sell their soul to the devil so they can play guitar.

Americans see all these aspects as unfair, and the Trump narrative of bringing back blue-collar jobs is the Eldorado, but quite how this is to be done is, to quote Churchill, ‘a riddle, wrapped in a mystery, inside an enigma’. A typical factory worker in Shenzen receives 2725 yuan per month, or around four hundred bucks, while their equivalent in the US gets $22,425 per year—a monthly salary of almost nineteen hundred bucks.

If the labor cost of product manufacture increases five-fold, you can expect a price hike. But analysts worked out that the cost difference of a US-made iPhone would only be a hundred bucks if all parts were made in the States.

If this were a job-rich activity, the difference would be much higher, so these numbers tell the story in one word—robots.

So, no new jobs. But those hundred bucks are make-or-break when it comes to price wars, and a lead weight for folks already below the waterline.

Semiconductors R Us. Computer City in Guangzhou, China.

When it comes to the garment industry, or other labor-intensive manufacture, the problem differs—here, blue-collar America would be out of their new-found jobs in a heartbeat, unable to compete on price.

The only way the weaving and dyeing of the industrial revolution might return to developed countries is through AI, and the same is true for much of the heavy industry sector, including steel production. As long as there are folks in Asia, Africa, and South America prepared to work long hours in dangerous conditions for paltry wages, no tariffs will ever save the Western World.

Furthermore, in the West the environmental costs to our waters and to our atmosphere are too high a price to pay. Legislation enacted through the US EPA, the European Environment Agency, and other agencies adds to the costs of production, making it impossible for North America and Europe to compete.

In the US, the American way of life is widely regarded as a summit to which other nations aspire; this regard is itself aspirational—few Europeans would agree. The annual quality of living survey shows the top US city (San Francisco) comes in at number thirty-four, and eight of the top ten cities are in Europe.

The perception that the American way is the way, and the lack of understanding of other societal models, is at the root of the collapse of the trade talks. The Chinese Communist party implements a command economy with a bruising fist, just as the Soviets, East Germans, and so many others did in the past.

Since Deng Xiaoping—the little bottle—China started applying a different economic model, using test areas such as Shenzhen, but no Chinese thought for one second the regime would fall.

In practice, private enterprise has always been beholden, and at the highest level controlled, by the Party. In Chinese society, the two are inextricably linked—it is possible for politicians to do business, but it is not possible for businessmen to do politics.

The notion that an American businessman, and not a particularly good one at that, will impose a new value system upon the Middle Kingdom is laughable. Chinese society, as it stands today, will never accept a private model where government is not involved—it was government that set up China Inc.

China has a number of disadvantages in this war, including exposure, but it has two major advantages—time and control. Time, because like the Taliban, it needs only wait for the next US election, voter fatigue, or an economic crisis in the US, and North American priorities will quickly shift—this is partly why democracies have a tough time with asymmetric warfare, as evidenced by Iraq, Afghanistan, and Syria.

Control, because the Chinese political system can make the country turn on a dime and stay the course—whereas the American elephant can’t dance. Control, because severe economic hardship in China is enforceable, whereas in the US it’s not. Finally, control, because as Mao famously noted during the Korean war, ‘one dead American is a tragedy, one million Chinese is a statistic.’

Nanjing Dong Lu, leading to the Shanghai Bund, part of the International Settlement (1863-1941)

The Chinese know they are the celestials, and they resent everything about the mei guo ren—long memories do not forget the oppression of Chinamen who built the American railways, the Shanghai international concessions, the Korean war, and US support for Japan and South Korea.

In this foolish and naive attempt to impose societal change through trade negotiation, Trump is once again making a poor decision, regardless of how unfair Chinese trade practices really are, or are perceived to be.

Just as with Kim Jong-un, the border wall, and the anti-immigration laws, the orange man is seeking a second term using a simple recipe to please his base—he wants to show he tried, and build the narrative that he won. Whatever needs to be completed will be done in the following four years—in the minds of simple people, the story flies.

A year and a half away from the US elections, the Democratic field can only be described as chaos. And although the sitting president has solved nothing, he stands every chance of being re-elected.

With respect to his self-serving objectives, Trump shows extremely good judgement, as he has all his life.

From an international perspective, the forthcoming American election is a struggle between Russia and China. Regardless of the Manchurian candidate controversy, it is unquestionable that Russia is stronger if China is damaged and the European Union weaker.

Election meddling will again be rife, with the Chinese supporting the Democrats and the Russians backing their man.

May you live in interesting times.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

Shopped!

April 13, 2019

After strenuous denials about one week ago, which of course meant the diametrical opposite, Equador opened its er… door on Thursday and pushed Julian Assange out.

The founder of Wikileaks didn’t go willingly, but the Brits arrested him nonetheless and presented him to Westminster Magistrates’ Court.

The whole affair took on a farcical dimension when it emerged that Assange had violated embassy orders ‘to pay for his own health care and to clean up after his cat.’

In addition, Assange had been repeatedly warned to stop Wikileaks intercepting the president’s private messages, and had apparently failed to comply.

Refuge from extradition requests from Sweden and the US was granted in 2012 by Equador’s left-wing president, Rafael Correa, who granted the whistle-blower asylum in the country’s London embassy—an immediate thorn in the side of Equador’s relationship with the UK and US.

The fall in oil prices led to Moreno’s replacement by a more right-wing president—ironically called Lénin Moreno, literally the dusky Lenin.

Assange’s star rose briefly during the orang-u-tan campaign, when Trump publicly asked Wikileaks to reveal a set of Clinton emails. I confess that until this moment I was a Wikileaks virgin, but having spent the last fifteen minutes trawling the site, I can’t understand what the email fuss was about—all in all, pretty sophomoric stuff.

That was when the bizarre Australian should have negotiated a presidential pardon—it’s way too late now.

Equador needed the IMF, and the US pulls the strings on that front, so it was only a matter of time before the ‘stone in the president’s shoe’ was cast away.

The feline angle brought in the comedic element, and prompted my theory that the arch-leaker was shopped by his cat.

Details about one of the Amazon cloud data centers, sourced through Wikileaks.

Despite Assange’s predicament—extradition to the US followed by a show trial and a substantial period in prison—Wikileaks is going strong. Recent leaks include a list of Amazon cloud data centers.

Why is that interesting? Because allegedly Amazon works closely with the CIA and the US Department of Defense, partly because it’s one of the few organizations with appropriate security clearance. Contracts to develop cloud infrastructure are very substantial, and few beyond the IT community and the secret world know anything about Amazon’s alleged role in such matters.

One leaked document claims Amazon not only refuses to reveal the physical locations of its data centers, but obfuscates these further by using different names, such as Vandalay Industries, an obscure Seinfeld reference.

The partners page on Assange’s creation lists some of the most prestigious news organizations in the world, including Der Spiegel, Le Monde, and the New York Times.

Wikileaks appears to be itself under attack—a number of links to supposed CIA computer viruses are broken, simply reporting a ‘content encoding error.’ One such link describes AngelFire, an attack designed to infiltrate the Microsoft Windows operating system, using a sophisticated five-part package.

Just as the Guardian publishes the long read, this the long view. If you enjoy a good hack…

The message from the world’s great powers is clear: cyberwar is the new battleground—it’s a big boys’ game, played by Americans, Russians, and Chinese, with some help from the UK, North Korea, and Israel.

For the planet’s rulers, the cloud is the ultimate repository, containing top secret materials, details on the earth’s citizens—I’m not a quickfire conspiracy theorist, but I firmly believe we’re all there.

In a nutshell, ‘We know where you live.’

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

Blockchain

April 6, 2019

While Bitcoin came and went—oh, and just came again—the foundation for the cryptocurrency has steadily gained ground.

I’m talking about DLT, or Distributed Ledger Technology. If you want to take this seriously, and I believe you should, your starting point is the abstract of the original bitcoin paper by Satoshi Nakamoto—who has never been established to be an actual person.

You could read the full paper, or just skim the abstract below. It all depends how deep you want to dive.

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

I like concepts, and this one is neat. The wording is indigestible, and as far as I can ascertain, the paper was not peer-reviewed, and was not published in a reputable journal, but that doesn’t mean it isn’t a good idea.

The financial side of it proposes a mechanism for avoiding double-spending and trusted third parties. At present, all the world powers are printing money digitally, well beyond what the economy can support in terms of tangible underlying value, and the only reason they get away with it is belief—the belief system is predicated on the ‘trusted third parties’, aka central banks.

Since all the central banks overprint money, whether they call it quantitative easing, LTRO, or Nellie the Elephant, the water level rises for all. The water is however infested with ever-expanding bubbles, and when these burst, the level suddenly falls—that’s when the ship runs aground and the rats go scurrying off.

So much for the trusted third parties—the lunatics are in charge of the asylum.

If you channel your transactions through the banks, one incentive is that there is a trust-based system you can depend on. When you buy or sell on eBay, you know that you can get your money back if the product is defective, or even if you change your mind—every major internet seller uses that business model—they have to, since the internet is inherently untrustworthy.

My favorite cartoon has gone through many morphs, but it’s still the best. In this version, the hound looks like he just got busted…

The financial part of the transaction is dealt with by Visa, Paypal, and others—the trusted third parties.

A peer-to-peer financial trust system would essentially dispense with central banks, but more importantly, the underlying ledger technology means that every currency unit could be traced back to when and where it was first mined. In other words, no money could be printed on an unsupported commodity—no gold, no coin.

The orange man is now pushing the Federal Reserve to go back to quantitative easing, knowing this will push the water level up—very handy for 2020, but the orange tide rises on trapped methane bubbles.

The chances for bitcoin to emerge as a potentate are slim—every major central bank hates it, and China imposed a blanket ban on cryptos in 2017.

Blockchain, however, is a different story.

Blockchain is serious business.

Some very large financial institutions are taking the whole thing seriously, and huge players like Microsoft, Amazon, Google, and IBM are selling the picks and shovels. Although the focus of blockchain began with money. it’s now recognized that DLTs can play an important role in monitoring the supply chain.

If we use a coin-based example, that dollar bill, pound note, or euro coin in your pocket provides some information on provenance, but not much. Euros in coin form have country-specific markings—these markers can be used to understand mobility of Europeans.

But that bill in your purse has little traceability, apart from DNA markers. You may recall whether you got it from a friend, a store, or an ATM, but you can go no further—when it comes to digital, the same thing applies. The Starbucks barista who accepts a five dollar payment from your contactless card knows it came from you, but were those five bucks part of a paycheck or a split Uber fare? Who knows.

Blockchain changes that—your digital cash becomes granular, and you can search through any transaction to look at the origin of the money, right back to the time it was coined (or mined). As a consequence, you cannot ‘make’ money out of thin air.

What this really means is traceability. Let’s say you’re enjoying a dozen oysters in a seaside restaurant in the small French town of Arcachon. You naturally assume you’re eating local produce, but that oyster you are about to eat may well have started life in a hatchery in the Netherlands. From there, it might have been bagged for growout in Dungarvan, a small town in SE Ireland.

Why would that happen? Because oysters now suffer from the Herpes virus, and colder waters provide more resistance. At some point, a batch of mid-sized oysters may have been relayed to France, grown to market size, and served at your table.

Blockchain means that you have a trail telling you know exactly how the animal fared on its journey to you—where it grew up, and when. If you’re concerned about animal welfare (but not so concerned that you wouldn’t gobble the little guy up), you might also find out about how it lived. Were the waters clean, did it survive a red tide, was the oxygen suitable for an oyster to live comfortably…

Supermarkets, chocolate manufacturers, and many other businesses now see blockchain as a critical part of their strategy for managing the supply chain. Farmers who sell lettuce to Walmart now enter key data about each batch into a blockchain system. The distributor that warehouses the product logs environmental conditions of shipping: inside and outside truck temperature, transport time, stoppages, damaged packaging…

If the customer who takes the product off the shelf files a quality complaint, the seller can trace a particular lettuce back to the time it was first planted.

Of course when it comes to goods, you can’t cheat the mass balance. The quantity of steel is limited by that of its constituent ores, and the amount of lettuce is limited by the carbon, nitrogen, and other elements that are available to ‘manufacture’ it.

Money, on the other hand, violates the core principles of ecology—that’s partly why I loathe the use of the term ecosystem in a corporate or business context. ‘Corporate ecosystem’ is as great an oxymoron as ‘affordable legal costs’ or ‘plastic silverware’.

Blockchain provides the traceability to change that.

In a nutshell, it’s thermodynamics for economists.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

The Shift

February 3, 2019

In the historical sense of the word, the United States is not an empire, if you exclude peccadilloes like Puerto Rico and Guam. There are only five of these ‘little sins’ that are permanently inhabited, and the US has designated them unincorporated territories—by and large, they probably fall into the Trumpian ‘shithole country’ definition, as evidenced by the current administration’s treatment of Puerto Rico after Hurricane Maria—even the name is Hispanic, for chrissakes!

But the definition of ’empire’ that held true for Rome, Baghdad, Spain, and Britain is no longer valid. In the good old days, the historical context was simple—a nation with possessions beyond its conterminous boundaries technically qualified as an empire, all the more so if  those possessions were seized forcefully from their current but not necessarily rightful owner.

This definition held true as long as the ruling power had administrative rights over the subjugated territory. By that definition, a small country located at the edge of western Europe holds the record for the longest-lived empire in the history of the world.

The Portuguese king John I, whose wife was Philippa of Lancaster, eldest daughter of John of Gaunt—Jean de Gand, so-named because of his birthplace, Ghent—conquered the city of Ceuta in 1415. King John’s son, Prince Henry the Navigator, was the great promoter of the golden age of maritime discoveries, and Henry’s nephew, the Perfect Prince, took that work and exploded it into an empire that reached from India to Brazil.

The fruits were gathered mainly by his two successors, Manuel I and John III, by which time the empire reached parts of Indonesia, Thailand, and Malaysia, and the Portuguese had colonized the small island of Macao in the South China Sea.

Macao was the last European colony to be returned to China, in 1999. Towards the end of this video of the ceremony, you will spot the current president of the United Nations, then prime minister of Portugal.

The Portuguese empire lasted five hundred eighty-four years. It is most unlikely that any empire on this earth will ever beat that record, not least because massive empires of subjugation will not reappear.

We could explore the possibility of empires in space—these are the domain of science fiction, popularized by movies such as Star Wars. In his brilliant exercise in clairvoyance, Profiles of the Future, Arthur C. Clarke sets forth his predictions. Unlike the video below, his book doesn’t stray into the concept of enslaving chimps—I would rate that as morally untenable for society—let’s just keep on slaughtering our companions from other species in the usual way.

In the book, which is an obligatory read, Clarke discusses intergalactic empires. There’s a chapter entitled Space, The Unconquerable, where the visionary who gave us the communications satellite and all of its consequences pours ice-cold water on Star Wars.

The first sentence reads ‘Man will never conquer Space.’ The obstacle is distance, and therefore time. A conversation with someone on Mars is possible, but your words will take three minutes to reach that planet, so when you say “Hi”, the reply will arrive six minutes later. The difference between solar space and stellar space is enormous. Clarke’s analogy?

Imagine a world in which the closest object to you is only five feet away – and then there is nothing else until you’ve traveled 1,000 miles.

In practice, the ruler of some intergalactic empire could rule nothing—his orders would take decades to arrive, and resistance would take an identical time to be reported. This model became obvious within the great empires on our planet—in the days of sail, news of battles won and lost in Asia could take years to reach Europe, and colonial rule mutated into colonial autonomy.

Empires today are about economic control, albeit with a latent threat of violence—as evidenced by nuclear weapons proliferation. And in that context, the shift is clear. More than one Briton has told me, sotto voce, that a key reason for voting Brexit was that they could not abide a Europe economically owned by Germany.

The US and China have clearly grasped that the battle for empire is an economic one, not a nuclear confrontation. Putin, who understands Russia plays in the economic little league, ranking number twelve in the world, right next to Spain, opts for arms. The Moscow Times, in an article published on July 13th 2018, claims Russia is the sixth world economy, leapfrogging half a dozen places from official numbers—I don’t link fake news, just like they didn’t link any true news.

Economic empires, just like their historical predecessors, cross borders. Britain may own Gibraltar (they hate hearing it said like that), but Spain owns Heathrow Airport. France may have lost Trafalgar and Waterloo, but the French energy giant EDF owns four British suppliers, including London Electricity. China’s Three Gorges Corporation is using Portugal’s EDP to develop renewable energy in Brazil—in a way, they want their own Macao, but this time as a gateway to the West.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

The Law of Averages

January 20, 2019

I stopped off in London a couple of days ago and felt as if I’d landed on a lost planet. I only muttered the ‘B’ word briefly, but the echoes were clear—people are fed up, confused, and mostly numbed to the political mayhem.

As I traveled east, the picture changed from a Europe troubled by the rise of populism to nations where freedom of expression—and therefore of choice—varies from limited to radically curtailed. As the plane flew over the Mid-East, and then on to Southeast Asia, the dawn brought me a little clarity.

The rise of populism in the EU is inevitable, as it is (and was) in the US and UK. The reason became obvious as I wandered around London and observed ordinary working people—it crystallized when an English lady opened a restroom door for me in an airport lounge two days ago. She was one of two englishwomen who stood in the access corridor providing these services—the lady was charming and worthy of all my respect, and as I exited she once again pulled the door open for me, to my great embarrassment.

In the lounge itself the opulence of the extremely wealthy hid in plain sight, and therein lies the rub. Over the last fifty years, income inequality in the West has mushroomed—and that got me thinking about GDP.

If you want to make absolute comparisons, you use absolutes (duh). China is the most populous nation in the world. France is larger than the Netherlands. Brazil has more head of cattle than Belgium.

But to make relative comparisons, you need to normalize—express your data per unit area, or perhaps as a percentage, or an average—which is exactly what happens with GDP. If you want to rank nations by living standards, per capita GDP is the weapon of choice.

Norway? 71,800 US dollars per annum. Portugal, less than half of that.

That’s all well and good, but are these fair comparisons? The short answer is no. Averages are only appropriate if we’re looking at a bell-shaped curve, but the distribution of income in the West is now much better aligned with what you see in the East, or in South America—fifty years ago, as a rule of thumb income inequality increased as you traveled east and south.

The analysis of income inequality is not new. The work by M.O. Lorenz led to a paper, Methods of measuring the concentration of wealth, published in 1905, and the Lorenz curve is widely used to represent distribution of wealth. The Gini coefficient was published in 1912, and provides a numerical representation of income inequality.

The Gini index on a world map. East and south are still the unfairest places on earth.

Let me pick five numbers out of a hat. The first numbers are similar: one, four, two, three. But the last number is whoppingly different: nine hundred-ninety. By sheer coincidence, these numbers add up to one thousand.

Bell-shaped they most certainly aren’t—four low numbers jumping to a huge one. If we average them, the result is two hundred. Is that a fair representation of 1, 2, 3, 4, 990? Nope. What might be fair is the median, i.e. the middle number: three.

If this were a human population, eighty percent of the people fall into the one to four income bracket, and the remaining twenty percent are of the species Felis crassus—that’s Latin for fat cat.

The Triple Eye Income Inequality Index, as a simple ratio of median/average, for several European countries and the US. Values close to one hundred indicate a well-balanced nation.

My own Triple Eye calculation suggests the developed world falls far short of equality—low values mean that a few wealthy people hold much of the income, which skews the per capita GDP. Values higher than one hundred exist only in Utopia—a nation with a smattering of poverty and an abundance of wealthy folk.

Of course, the Triple Eye in many gated communities, airline lounges, and luxury resorts is at least one hundred—that is, if you exclude the help.

How does all this relate to populism? If a hundred percent of families can vote, and eighty percent of them are poor, it’s only a matter of time before they vote to disenfranchise the twenty percent that tower above them financially.

Which leaves only two paths.

The first is China, whose Triple Eye score is 14.2%, lower than any of the results graphed above. In an unequal system where votes don’t count, there’s little threat to the status quo.

If the China model is not your bag, then there’s only way democracy can beat populism—fair play.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

Lost Nations

January 12, 2019

At the start of 2019, the world continues to be an absolute disgrace.

The refugee population from the six biggest crisis-countries totals over eighteen million people, more than the entire population of the Netherlands. The nations in question are the usual suspects: Syria, Congo, Afghanistan, South Sudan, Myanmar, and Somalia. An order of magnitude separates Syria (6.3 million) from Somalia, which has ‘only’ nine hundred and ninety thousand refugees.

‘Informal’ housing in the Congo, a nation where 4.5 million are internally displaced and seven hundred thousand are refugees in other countries.

Worldwide, UNHCR, the UN High Commission for Refugees, estimates the number to be almost sixty-eight million—the population of the United Kingdom. The worse thing about those refugee numbers is the way they’ve grown in the last ten years. What we are witnessing in 2019 is a doubling of the displaced human population.

If numbers are your thing, that’s an APR of 8.7%, so right now the refugee crisis is growing faster than the Chinese economy.

The Congo is an extraordinary example of the African curse. The country was massacred by King Leopold II’s occupation in the late XIXth century—the Belgians, a most unlikely nation of conquerors, stayed until 1960. Since then, independence has brought nothing but suffering to the folks of this fabulously rich nation, on which the world depends to keep its cellphones running. Oh, and then there’s the diamonds and gold—none of this wealth filters down to the poor souls who live in the Democratic People’s Republic of the Congo.

Right now, the country is in post-electoral trauma, with hotly disputed results. After Mobutu and a couple of Kabilas, elections were finally held—a major stakeholder is the Congolese ‘Église de Christ’, the protestant Church of Christ. If you want to practice your French a little more, or just enjoy the retro animated gifs, praise the lord!

Change in refugees worldwide between 2008 and 2016.

The Congo provinces of North-Kivu and Ituri are Ebola hotspots—a report released one month ago counted five hundred cases, of which 452 were confirmed and 48 probable. 289 of these have died—241 are confirmed Ebola cases.  The health issue made voting in the provinces a challenge, and the election results reflect this omission.

Hemorrhagic fever, or Ebola, in full swing in the Congo. How long will it take to care enough?

But perhaps the most famous crisis you never heard of is Venezuela. I’m kidding, in a terrible sort of way—of course you’ve heard of it, but we don’t hear much. Occasionally there are shots of Nicolas Maduro, a man who cares more for his mustache than for his people, and the odd Trump rant, but that’s it.

Meanwhile, the IMF predicts a ten million percent inflation rate in 2019. When an economy collapses at that scale, we’re into chaos theory. It’s an extraordinary example of non-linearity, showcasing just how quickly a wealthy nation—Venezuela has the largest oil reserves in the world—descends from riches to rags, plunging a whole generation into despair. It’s an indictment of the command economy, and a dire warning of the consequences of saloon-door politics, where wild swings from left to right only ever benefit the opportunists.

In perspective, Europe, and even the United States, seem only mildly insane.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

The Hundred Years War

November 11, 2018

Today marks one hundred years since the armistice was signed at Versailles. Eleven o’clock of the eleventh day of the eleventh month—sounds like a blues tune.

The 1914-1918 war is possibly the greatest exercise in overreaction (the term overkill comes to mind) the planet has ever known. One guy got shot in an obscure Bosnian city and the world fell apart.

Many thought the war would be done by Christmas, but instead it lasted four interminable years. The First World War brought with it many innovations—the joys of chemical warfare were introduced, aerial warfare became a reality, and tanks entered the fray for the first time in the Battle of the Somme.

WWI was also a war where global finance gained prominence—the business of war was predicated on large loans to governments, and nowhere was that clearer than in Great Britain. Woodrow Wilson refused for years to bring the United States into the war—in fact he was re-elected in 1916 with a margin of four thousand votes running on precisely that ticket, with the slogan “He has kept us out of war.”

A century later, one over-arching message is that the US has a tradition of resisting involvement in European conflicts—ironically, Britain, France, and Spain historically illustrate the exact opposite.

But Wilson also actively promoted trade with Europe, particularly for armament. In this respect, US neutrality is questionable, since far more weaponry was sold to the Allies than to Germany. By 1915, the only way to sell arms to Britain was by loaning it money.

Enter the huge banking houses of New York and Philadelphia. Bankers with names like Warburg, Schiff, Brandeis, Rothschild, Baruch, Meyer, and of course J.P. Morgan, were at the ready—a war is a great business opportunity, but only if your side wins.

Bank of England posters for the purchase of war bonds during World War I.

If the Germans won, it was pretty clear that the Allied bonds would return pennies on the dollar, if that—they would be what became known in the 1970’s as junk bonds—potentially huge, but potentially ruinous.

After the US entered the war things rapidly changed, and the bankers were all smiles. They did, however, require Germany to lose, and in order for this to happen, an accommodation was undesirable. If an early cease-fire was negotiated whereby Germany would not have to make substantial reparations, the bonds were junk.

By 1917, the bankers had lent the Allies 2.25 billion dollars. In fairness, they also lent money to Germany—twenty-seven million, hardly a balanced book—it was pretty clear who the financiers wanted to win.

Early German overtures to end the war were refused and, by the time the armistice was signed, the so-called Central Powers (Germany, Austria-Hungary, Bulgaria, and the Ottoman Empire) were forced to surrender on ruinous terms.

Many, including the economist John Maynard Keynes, attribute the Second World War to those terms. Undoubtedly, they contributed to the rise of fascism in Germany and to Hitler’s popularity. Some of the popular hatred against Jews will also have stemmed from the financial support given to the Allies—several of those US banking magnates were Jewish.

All those WWI ‘achievements’ have only made the world more dangerous: chemical and biological weapons, followed by nuclear warheads; open cockpit prop planes, followed by jets, missiles, rockets, and drones. Tanks are now in the world of robotics and can shoot down a commercial airliner full of innocent souls.

However, there is one achievement we can all be proud of in the West. The absence of civilian men during World War I forced women to take over male jobs—shortly thereafter, this led to women’s emancipation and the right to vote. That’s led directly to the landslide female representation in the US congress of 2018—absolutely unthinkable back then.

But on the world stage, where are we now?

When it comes to world leaders, I’ll let you be the judge. Instead of Lenin, we have Putin. Instead of Wilson, we got Trump. Instead of Asquith and Lloyd George, we have May. Clemenceau? Makron. Instead of Enver Pasha, we have Erdoğan.

At least three of the above are enthusiastic warmongers. Four generations after the war to end all wars, I wonder how well positioned we are for the start of World War III.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.


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