America's long-term strategy over the US Dollar

Follow Zimbabwe, where 100 Billion dollars can get you three full eggs.

May god bless America.

Hat tip.

Ohhh I'll be sooo popular during the Apocalipse!

The Exorcist Economist is running a story (now on the cover) about the financial meltdown and the Fed's rate cut. Dramatic times. I've placed the following comment, and, if anything, I will be really popular as the apocalypse unfolds and we start to eat rats. Here's my top-rated comment, followed by some favorite ones:

linhares wrote:March 18, 2008 22:38

Ok. I am a little on the slow side. So let me get this straight.

The US is a country that lives on borrowing.

The dollar is falling like a skydiver.

Commodity prices are soaring, and lower US demand won't change much of that.

By cutting the rates, correct me if I'm wrong, those trillions of dollars held by the Chinese, Indians, Arabs, Brazilians, and so on, will lose value even faster.

So, if these countries ever decide to protect their (hard-earned) cash, they should switch. Perhaps to the new alternative in town, the Euro.

And if they switch, which they should rationally do, the dollar ceases to be the world standard, inflation in america skyrockets overnight, and the value of goods inside the usa becomes a huge unknown.

But of course I'm wrong. The best way to treat a (debt) alcoholic is to give it an ample supply of liquor, for sure.

Recommended (57)

Now take a look at this:

Great Cthulhu wrote:March 19, 2008 17:14

Personally, I am doing everything I can to rack up over $1 billion in personal debt, knowing full well that the US government will bail me out, as I'll be someone "too big to let fail" at that point. The problem is in getting enough credit cards to max out. You'd think with all the junk mail those credit card companies send out, I'd have over $1 billion in my back pocket by now, but I don't. With a credit limit of even $1 million per card, I'd need a thousand of the things to hit my target debt. Most only start with $25,000-$100,000, depending on what fake information I've used to get free subscriptions to magazines that target corporate executives, and that means I'll need about 10,000-40,000 credit cards for my project.

I guess I should just face it. I'm too poor to matter to the Fed. Oh well... a dollar collapse will at least make illegal immigration a moot issue, leave the US unable to pay for its wars overseas, and will give me the opportunity to discover a new career catering to the wants and needs of foreign tourists here in the states... perhaps I could supplement my income as a taxi driver at nights and earn some precious Euros, Pounds, Canadian Dollars, and Pesos in my tips... that would be something!

Recommended (23)

Or my personal favorite:

cognate wrote:March 18, 2008 22:00

Ahhhh, the wonders of the welfare-warfare state.

Better brush up on your potato planting, chicken feeding, and goat milking skills - just like in Doctor Zhivago.

Recommended (11)

========================
Humorous remarks aside, this is of sobering consequence. The real risk is that of a change of historical proportions.

The USA has benefited for over a century now, as the dollar became the world standard, the international safe haven against bad times. But there is an immense, unsustainable, amount of dollars stashed in the Bank of China, or in the Brazilian Central Bank, or with the Arabs.

If these folks decide that they want to protect their reserves, they will switch. And if there is such a switch, it will quickly become into a massive free-for-all international panic against the dollar. God knows what might happen afterwards.

And what's most eerie about the whole thing is the following set of facts:

1. I've yet to see Hillary talk about the weak dollar as America's largest problem
2. I've yet to see McCain talk about the weak dollar as America's largest problem
3. I've yet to see Obama talk about the weak dollar as America's largest problem

The dollar's skydiving adventures, and the myopia with which one of America's greatest assets is being handled gives to me an awful feeling of a dramatic change without parallel or precedent; something that could make 1929 look like a walk in the park.

(For what it's worth, I'm stacking on Euros... and I'm leaving Citibank.)

Maybe we should even start praying... please god... just prove this scenario wrong.

Raging against the machine

He can bring people together, but can he make history?

Is Microsoft still the power?

The first war was, at the beginning, Microsoft vs Apple for a graphical user interface (GUI), where in 1984 Apple strikes first. In 1985, Microsoft shows the world Microsoft Windows, a GUI for any personal computer, no only Macs, overtaking Apple.

The second war was against Netscape to the Internet. Netscape strikes first in 1994 with 85% of market share. Microsoft, in 1995 uses its Windows share ands "gives" Internet Explorer to all Internet users, flattening Netscape to 1%.

The third war was to instant communication, ICQ strikes first in 1996. In 1999, Microsoft launches MSN Messenger, using its OS monopoly again.

The fourth war was and is to the search market. Google strikes first, in 1998, with PageRank technology. Internet was bigger then anyone could imagine. Google has 53,6% of it, a virtual monopoly. This time Google vs Microsoft seems like David vs Golias. Microsoft has no quick jabs. Time goes so fast that, today, 10 years later, nothing has stated yet. Google expanded to Gmail, YouTube, Orkut, Earth etc. A new tech-empire. Everybody shouts David, David, David...

Is Microsoft still the power?

Today I saw MSN Video embedded on MSN Messenger. I saw, at a glance, Microsoft again. How subtle and weak an empire might be. Incredible, when things sounds stable I see Facebook overtaking the consumed social networks phenomena. Look at behind of it, Microsoft on the fire. The brand-new Windows Vista comes powered by Microsoft Search as native or default for everything.

Where are Google fast moves? Now I prefer to think about Adobe Systems. While nobody used to give attention, it has 99,1% of computers around the world using its engine. More then Windows, Google and Firefox. Browser style goes down and it is coming Adobe AIR.

Microsoft tries to patent mind reading

Full story from the Wall Street Journal.

Microsoft Word has passed away. Time of death: 12.23AM.

Adobe has acquired Buzzword. Having one of the largest, and by the way, coolest, companies behind it will be the kiss of death to Microsoft Word.

With Buzzword, you get almost all word-processing functionality what really matters on your browser--with the addition of online collaboration. I was one of their first beta testers, receiving my invitation from Roberto Mateu on July 19th. I have Masters and PhD students writing up papers and theses with it, in real time collaboration, dispersed all around: Taisa is in the heart of the Amazon, Anne is in Harvard University, and Analize is in Curitiba, in the Brazilian South.

They have been adding features every month. It´s one of those things that, after you have it, you wonder how could you live without it. Soon, it will have the host of Adobe TrueType fonts, pdf support, offline functionality, etcetera. Yesterday it was alpha-geek only, but now it will spread like wildfire.

Adobe isn`t disclosing the financial part of the deal, but something like this just wouldn`t go for less than 100 million, perhaps some multiples of that. After this huge incentive, expect similar start-ups to jump in the Adobe AIR bandwagon and, twelve months from now, spreadsheets and more sophisticated presentation programs. In the future, expect everything all the way from charting to equation editors. Microsoft Office "ultimate" (¿?) goes for USD679,00. The "student edition" goes for USD149,00. (By the way, Apple should just give up this space and bundle iWork into new machines.) Scoble mentions that MS will still have some "office" revenue stream, yet: "There is blood in the water even if only the early sharks can smell it."

I`ve just replied to Tad Staley`s email, congratulating these folks.

As I wrote before, I´m almost feeling a little bit sorry for Mr Gates. But only almost. And only a little.

But, hey, maybe that cool Zune will make up for these lost sales?

Quick link

Today I'm flying to the Amazon for a few day's work. As I prepare the trip, The Economist is putting out a "correspondent's diary" about the amazon. Like all of their "diaries", it's enormously rich--and entertaining.

Don't fight the laws of economics

Paulo Brum hopes that this blog is not turning into a political outlet. He is absolutely right. It shouldn't. Yet, some things need to be said, before moving on:

First, sometimes neutrality means omission. Tobias Lengsfeld, a tt30 & Club of Rome member for whom I have enormous, utmost respect, once explained to me how Switzerland, his nation, was criticized for being neutral during WWII. By being neutral, the Swiss had been helping Adolf Hitler's moves. Sometimes neutrality means omission. As someone who has written, previously to this mess, about our air-transport in a policy book & in the journal of air transport management, I want to state my position. As the finger-pointing circus goes on; there is only one place to point the fingers: president Lula. He is not guilty; but he is responsible for these deaths. He has looked the other way when a government report warned, from ambassador José Viegas, that serious investment was urgently needed; and that the security of the air system would be compromised. The report was ignored. He has backed up his political team through all their pathetic adventures in this crisis. He is not guilty, he is responsible.

Finally, the decision-making biases involved here are worthy of attention. The wrong questions are being asked. People are talking about the danger of Congonhas, the lack of grooving in the track, the rain, the possible problems with the aircraft, and on and on and on. These are the wrong questions, because they do not explain countless other quasi-catastrophes we have been having. It does not explain why another plane has slipped in that same track the day before. It does not explain why, some months ago, two planes crashed their wings, while still on the ground. By sheer luck they did not explode with everyone inside. It does not explain why the Santos Dummont airport in Rio was under fire the same day the plane would crash in São Paulo. It does not explain the huge delays, the traffic controller strikes, the numerous alarms sounding before this second crash.

None of these questions can explain the impossible accident in the Amazon airspace. The territory of the Amazon is larger than Britain, Portugal, Spain, France, Italy, Germany, Switzerland, Belgium, and Greece, all combined! Even if planes fly through established "tracks", a mid-air crash in the middle of nowhere cries out for explanation. The enormous amount of minor incidents previous to this second crash just points out that this was an tragedy waiting to happen. It was no accident. It is the fruit of acts of negligence. This administration created a governance and operating context in which everyone is in control; this, of course, means that nobody is in control. Fingers are being pointed the wrong ways. The man on the 3rd floor of the executive palace deserves all credit.

Unfortunately, realpolitik teaches that this president is staying, despite the few people who call for impeachment. So how could we get out of this mess?

Today the government announced minor tweaks and minor changes of policy. A new airport somewhere in São Paulo, a minor change here, a minor tweak there. They're killing the hub-and-spoke system in Congonhas, which does not alter anything of consequence besides the economic repercussions. Is this supposed to mean that if, instead of going for a connection, that plane would return to Porto Alegre, then it would not have crashed? A plane can crash regardless of its numbers of connections. These questions do not shed light in anything that would ever change the facts that the first plane crashed in the Amazon, the huge flight delays, or that air traffic controllers strikes.

So what lesson can we take?

"Don't fight the laws of economics".

Why is an airport overcrowded and another empty? Because the laws of supply and demand do not hold. Because the airports are not private, and are government-run, their prices remain either the same or closely aligned. So what is the incentive for a passenger (or an airline) to go to a worse-positioned airport? Better positioned airports should be able to charge much more. A ticket from empty airport Galeão in Rio to empty airport Guarulhos in São Paulo costs the same price of a flight from Santos Dummont in Rio to overcrowded Congonhas. This may not seem as central as it is, but it shapes the demand, and that's why one airport is overcrowded while others remain empty. Without the price signal, there is no incentive to move elsewhere.

Since Southwest Airlines's outstanding success, the low-cost low-fare model uses secondary, lower-cost airports. In Brazil, that does not happen. Ask yourself why. Then look at Lula's ideological team.

Instead of killing the hub-and-spoke system, they should let prices signal demand. Basic economic laws should dictate policy. Airports should be privatized, and criminal responsibility should be placed where it rests. We need accountability, incentive systems, justice, governance, and market forces. This government is unable to provide those, and without them we're at our own luck.

Don't fight the laws of economics. We have tried in the past to kill inflation by prohibiting price increases. We failed.

Don't fight the laws of economics. Those people are dead because ideology and political convenience dictate policy. With this, I hope to end writing about this whole catastrophe. At least until the next plane falls.

(Some people are speaking it out)

Don't fight the internet

One of Google's key philosophical ideas is "don't fight the internet". This explains, for instance, their instance on some of these issues, among many others:

• Offering Google apps for your domain, for free, for as many accounts as you'd want.
• Buying services such as analytics or writely or blogger or Google earth or feedburner, and offering them for free.

Now, contrast this stance with those companies that try to fight the internet:

• Myspace, which blocked photobucket users (probably as a Schelling threat maneuver to obtain a better bargain in the sale);
• Websites such as the Nobel academy, or MIT opencourseware, which make it difficult, or impossible, for one to embed their videos in other sites (I have embedded from both in posts here, but it's hard to do so). Contrast that to the easiness which is embedding videos from youtube or metacafe.
• The Belgian news outlets, which have actually sued Google for sending them traffic through Google news!

The basic point is: some people and companies simply want to control how their information gets distributed after it is on the network; but that is counter-productive and reflects the thinking from a previous long gone age. If your newspaper is not on Google, other newspapers will get more traffic (and more profits). If your videos are hard to find, people will flock to youtube or elsewhere. And Myspace is seeing users flocking to Facebook, perhaps as a consequence of its stupid decision, among others.

Now here's some crazy news. European governments want to make an European "Google". Not that they want to breed geniuses to make the next killer application. What they want is a top-down, the-central-goverment-controls-everything approach. A company full of politically appointed people; not world-class geeks imported from Bangalore.

First it was French-based Quaero, now German-based Theseus. Of course, as with any government organization, the only real objective turns out, in the long run, to go deeper into the taxpayer's pocket. They stand no chance against Google. It is, indeed, quite third-worldish for the EU to pose as if their pride has been hurt by the power of a 10-year-old company. And, of course, the European projects are already fighting internally:

"THESEUS developed out of the Quaero initiative suggested by a German-French industry study group in April 2005. In the wake of working out the details of the individual research projects, both sides realized that different focuses had evolved. Therefore, at the request of France, the decision was made at the turn of the year 2006/2007, to continue with the two programs separately for the time being."

I'm not yet an EU taxpayer, but I'm a Brazilian one, and what we do here is just as bad: we fight the laws of economics.

The president responds to the crisis

48 hours after the disaster, president Lula (pictured left) boldly responds to the crisis, quieting those who charge him with omission.

Yesterday, he canceled all items on the agenda; and went though minor plastic surgery.

Преступление и наказание

Преступление и наказание, things they've never heard of in Brasilia.

In 2005, I published a chapter called "Por uma nova logística nacional" in this book. Easy money... I wrote the plain obvious: the federal government is broke. Everything needs to be privatized, starting by the airports, in order to keep things going.

Also in 2005, a study I conducted with Fabio, a former masters student, and Cristian, a London Business School Economist, came out in the Journal of Air Transport Management, downloadable here. The whole planet, except Brazil and perhaps China, has seen deregulation, decentralization, privatization, market forces take over the soaring demand for air travel.

But over here in our jungles, our weak, populist, demagogue, president, will always respond with ideology. Never decide by looking at the sheer plain naked data. His omission and lack of leadership have created an incredible circus in which authorities from ANAC, INFRAERO, the ministry of defense, the airlines, the air traffic controllers, among many many others, can't speak the same language. We've had, 10 months ago, an impossible accident, a Hollywood-style mid-air crash in the middle of the Amazon; something of unbelievable, epic, proportions. Now, after months of an intensifying crisis and countless small incidents, the obvious happened. Around 200 people are dead, in the heart of São Paulo.

The news today was pathetic. All authorities have denied problems. The laws of physics were claimed not to hold, as an official, with a straight face, explained to reporters that it was "impossible for a plane to slip over the landing track"--an event that had happened the day before the tragedy.

In the end, the dead will be at fault. The pilots will be claimed to be responsible. The pilots can't defend themselves now, can they? "So sad, it was human error", they'll say. Over here, nobody is ever held responsible for anything.

Brazil stands before a decision. Either the president falls, or more planes will.

So here's some hoping for Преступление и наказание.

Time for impeachment proceedings

"Relaxa e goza?"





The time for impeachment proceedings has come. Brazil cannot stand any further without a president. It is time for this drunken sailor to go.

As people burned to their deaths this very night, Brazil stands at a crossroads; are we going to keep on faking democracy? The president's incompetent inaction is responsible for this awaiting tragedy; yet, impeachment should be applied not for his incompetence, but for the high crimes committed, and admitted. The law must apply.

It is very sad, but realpolitik dictates that the law will only apply after a disgrace like this one.



After the unprecedented corruption scandals broke out in 2005, all around the president's inner circle, I talked to a high-ranking official from the opposition: "The law must apply here". The response I obtained, to my astonishment, was: "ok.. hmmm... but... but this vice-president... he's horrible". That, of course, was 2005, and the opposition was underestimating the president's ability to deceit, to lie, to pose as the savior, the messiah.

It is time for impeachment proceedings. Of course it won't happen. But it should. The vice-president is obviously horrible; yet, the law must stand above opinion and convenience. Brazilian democracy is not working. The law must apply.

Brazilian democracy is not working. This is of serious, sobering, consequence.

Here's to some overcoming bias

Mahalanobis reports:

The WSJ reports for eight years John Mackey, CEO of Whole Foods, used a pseudonym to talk smack about how great his company was:

Rahodeb began posting messages about Whole Foods shares on Yahoo.com in the late 1990s. He quickly gained a reputation as being one of the stock's biggest cheerleaders, and gamely defended himself when other posters chastised him for being too rosy. "I've never pretended to be anything but enthusiastic about WFMI," he wrote in 2000, using Whole Foods' stock symbol. "I admit to my bias -- I love the company and I'm in for the long haul. I shop at Whole Foods. I own a great deal of its stock. I'm aligned with the mission and values of the company... Is there something wrong with this?"

Rahodeb often sparred with other users, deploying a rigorous analysis of financial statements. "Your quarterly cash flow variance isn't statistically meaningful because the time period is too short," he complained to another user who had criticized Whole Foods in March 2006. He then pasted a summary of the previous six years of Whole Foods' operating cash flow. "Over the past 5 years operating cash flow has increased 330%," Rahodeb noted.

Mahalanobis is Ok with it, and so am I. In fact, I think this could be a very promising way for someone to avoid overconfidence, groupthink, appeals to authority and confirmation bias, status quo bias, among other serious biases. If a CEO has regularly to step down and be a nobody and argue for his stock prices using publicly available data, all these biases vanish. The guy obtains crucial, incisive criticism. If only the folks at the White House (or, for that matter, Brasília), were to try it.

Hooray! The end of the world hath arriveth, finally! Hip hip...

About time now.

China dropped 9%, others followed suit; Greenspan is seeing nasty clouds up there in the sky, and I can't help but rejoice in watching the world fall apart.

Maybe I should rewind the tape a little.

If you want to understand Brazil, you must try to visualize 3 things:

First, the world's greatest natural resources on a gargantuan piece of land larger then the continental USA, properly packed with 180M people around the edges. Second, take out 90% of the brainpower you imagined in those 180M people. Finally, take out another 90% of the brainpower that's left in your imagination. Now you have a pretty good idea.

For these last few years, we have seen political scandals of the highest order. ALL top-ranking officials have been caught with their pants down (one, in fact, had 100K dollars in his underwear). Yet, despite the tragicomic corruption scandals, Lula, the Messiah, was re-elected. In the process the Messiah created a large divide in the country, throwing his own sins into "the elite". That elite, of course, was based mostly of poorly paid journalists pointing out that it is wrong to steal.

In any case, the economy saved the day for the "president". A strong currency pinned down inflation and increased gross earnings for the masses. Brazilian analysts heralded the economy's strenghts based on macroeconomic figures; inflation, exports, reserves, and so on. There is enormous consensus that Brazil is about to become investment grade just around the corner. The São Paulo Stock market has been on bullish for years, beating record after record. Since I have been bearish for quite some time now, it will be time to rejoice when the house of cards starts falling apart.

Lula the Messiah has never been in a financial crisis. His government is full of pathetic, embarassingly incompetent people such as the foreign policy or the economic ministers. In his first term, he managed to hire some 40 thousand additional government supporters employees, boosting government spending. Never in his entire life has he given any thought to the concept called productivity. The obvious result is Brazil's ridiculous rate of growth. Now, quite pathetically, he managed to create a fantasy dream "acceleration growth program", which will either fail fantastically or create a chicken's flight. He could very well buy some rapid growth now at the expense of tomorrow. He knows a lot about buying: this is, after all, the man whose presidency is under the charge of buying votes in congress for 30K reais/month.

But now that the storm may be finally coming we will stop seeing these ridiculous pretensions of greatness. Some think that the dollars flowing in were from exports... that view ignores the gigantic liquidity in economic markets, and the carry trade that Brazil had been receiving:

"The carry trade of Brazil is certainly one of the biggest in emerging markets and some people are reducing positions."

The party is about to stop anytime now. Expect to see that carry trade stop. Expect to see a higher dollar, inflationary pressures, stock market crashes, company crashes, the works.

Reality is knocking at the door.

On the happiness of nations

Mahalanobis is discussing the happiness, or reported subjective well being, scale. The subject has gained a lot of momentum since The Economist did a story on its special, years end, issue and David Cameron argued that SWB should influence policy:

"It's time we admitted that there's more to life than money, and it's time we focused not just on GDP, but on GWB - general well-being," he said.

"Well-being can't be measured by money or traded in markets. It's about the beauty of our surroundings, the quality of our culture and, above all, the strength of our relationships.

"Improving our society's sense of well-being is, I believe, the central political challenge of our times."

Tom West, in a comment in Marginal Revolution, brings out this intriguing point:

I get a strong feeling that happiness research is frowned upon by a lot of economists because it threatens the motivation behind the one thing they know how to do well: create growth.

There's pretty strong evidence that the ideal conditions for creating growth (such as insecurity, high labor mobility, and increased inequality) are not conducive to happiness. If one decides that even the desired end-product doesn't produce happiness, then it's a pretty short road to asking why we're making ourselves miserable pursuing an outcome that doesn't make us happy.

And if we do that, then a lot of economists holding hammers get told that the world is not necessarily a big nail.

In any case, it's always nice to have a glimpse at how nations compare in the happiness scale, as measured in

Marks, N., Abdallah, S., Simms, A, Thompson, S. (2006). The Happy Planet Index. London: New Economics Foundation.

So here it is. [I'm sure readers will understand that, for reasons of space, I had to make a random, arbitrary, cut point.]

Nation	SWLS Score
DENMARK	273
SWITZERLAND	273
AUSTRIA	260
ICELAND	260
BAHAMAS	257
FINLAND	257
SWEDEN	257
BHUTAN	253
BRUNEI DARUSSALAM	253
CANADA	253
IRELAND	253
LUXEMBOURG	253
COSTA RICA	250
MALTA	250
NETHERLANDS	250
ANTIGUA AND BARBUDA	247
MALAYSIA	247
NEW ZEALAND	247
NORWAY	247
SEYCHELLES	247
ST KITTS AND NEVIS	247
UAE	247
USA	247
VANUATU	247
VENEZUELA	247
AUSTRALIA	243
BARBADOS	243
BELGIUM	243
DOMINICA	243
OMAN	243
SAUDI ARABIA	243
SURINAME	243
BAHRAIN	240
COLUMBIA	240
GERMANY	240
GUYANA	240
HONDURAS	240
KUWAIT	240
PANAMA	240
ST VINCENT AND THE	240
UNITED KINGDOM	237
DOMINICAN REPUBLIC	233
GUATEMALA	233
JAMAICA	233
QATAR	233
SPAIN	233
ST LUCIA	233
BELIZE	230
CYPRUS	230
ITALY	230
MEXICO	230
SAMOA WESTERN	230
SINGAPORE	230
SOLOMON ISLANDS	230
TRINIDAD AND TOBAGO	230
ARGENTINA	227
FIJI	223
ISRAEL	223
MONGOLIA	223
SAO TOME AND PERINI	223
EL SALVADOR	220
FRANCE	220
HONG KONG	220
INDONESIA	220
KYRGYZSTAN	220
MALDIVES	220
SLOVENIA	220
TAIWAN	220
TIMOR-LESTE	220