Bitcoin: How A Mathematical Artifact Became A Bubble - And Now Needs To Be Regulated

The headline ('Crypto Investors Dig Out of Disaster') in the Markets section  (p. B10) of the Jan. 2, WSJ  was not exactly an earth-shaking revelation to those who've been following the fortunes (or misfortunes) of crypto-currencies like bitcoin.  So we kind of muttered 'Meh' on seeing the quotation:

"A lot of people got punched in the face when bitcoin fell below $6,000"

According to Chris Burniske, author of 'Cryptoassets', and also a partner at the venture capital firm  Placeholder.   And as we further learned::

"After rising nearly 1400 % in 2017, bitcoin reversed hard in 2018, falling about 70 percent and erasing some $160 billion worth of value.  The selloff exposed the budding currency market's shaky footing.

Despite the entry of some established Wall Street players, scammers abound and few tangible uses for bitcoin and its underlying blockchain technology have emerged."

Then asking (ibid.):

"Where does the digital currency market go now that many speculators have been wiped out?"

Well, I'd say 'nowhere'. Or at least they shouldn't.  One huge strike against it is that bitcoin is not a real entity at all but a mathematical creation,  an artifact invented by quants using obscure equations for its design. So it is a virtual currency only,  as well as being built on shaky assumptions for security and transparency.  While I know my Morgan silver dollar (which I can hold in my hand)  has the full faith and credit of the U.S. government behind it, all I know about bitcoin is something called 'blockchain' is supposed to assure us of legitimacy.

In this respect, bitcoin is called a :cryptocurrency" because its very existence relies on the abstruse mathematics underlying cryptography to exist in the first place. Mathematics such as the peculiar functions known as elliptic curves, i.e.

http://brane-space.blogspot.com/2016/12/peculiarities-of-elliptic-curves-and.html

Thus, for example, bitcoin uses elliptic curve technology - a type of public key cryptography = to ensure the validity of transactions. I.e. that the bitcoin you are using is every bit as valid as the one I am using.  You can learn more here: about elliptic curve cryptography.

An inherent problem has always been with the potential duplication of bitcoin and especially  using it to generate "counterfeit" bitcoin. Think of it this way: I mathematically invent a digital currency using fractional calculus and call it a "Copernican Copper'.  Fair enough. But then if I send my precious little virtual 'copper' off  to ten friends they might simply cut and paste it and send it to ten of their friends. In no time the value would be gutted, and any hopes for a speculative "market" dashed. . But on the other hand, if one absolutely halts such a crypto from being duplicated, he also stops it from being circulated and it still becomes worthless.  Catch 22 here?  Not really.

While this would pose a humongous problem for any virtual currency,  Bitcoin attempts to solve it using what's called  "blockchain".  Basically, this is a registry of all the Bitcoin transactions to date, and which all users can see.  It includes: when the Bitcoins were created and the dates for transactions between individuals.   The problem then becomes ensuring the blockchain is accurate. This is accomplished using powerful, number crunching computers that basically solve fearsome elliptical equations that help in verifying the Bitcoin transactions, dates, and hence the blockchain is accurate. If not, then it would be possible to steal or duplicate the currency.

This then gets us back to the confidence of investors in Bitcoin and all the other cryptocurrencies,  namely those who remain "wary of owning too much of the still risky market" (ibid.)  And to quote once more Mr. Burniske of Placeholder:

"Crypto has a hard time realizing how small and nascent it really is."

Which may well be because there remains the need to develop a means for determining a fair price for Bitcoin and the other virtual currencies.   This effort may well get a boost when the Intercontinental Exchange Inc., the parent of the New York Stock Exchange, launches its crypto-based exchange Bakkt.    This exchange will allow customers to buy, sell, store and spend digital currency.  If Bakkt can prove as safe and secure as the NYSE it could alleviate the concerns of may investors.

But, like the NYSE - especially with the obscure credit derivatives  that infiltrated the markets in 2007-08  -  it will not prevent speculative asset bubbles or busts.  Recall those credit default swaps were also mathematical creations, using something called the Gaussian Copula formula, e.g.













The formula, invented by David X. Li while working at JP Morgan Chase and articulated in his (2000) paper: ‘On Default Correlation: A Copula Function Approach”  was blamed for “wrecking your 401k” according to an article ('A Formula for Disaster’) appearing in WIRED  in 2009.  On account of the lingo used and the complex nature of the underlying formula – few ordinary mortals would figure the credit default swaps  (CDS) out before it was too late. I n the meantime, the Gaussian formula itself allowed the credit derivatives to be sliced and diced numerous ways to package them throughout ordinary securities such as collateralized mortgage obligations.  The failure of the credit agencies themselves to be onto the junk bond nature of CMOs and allowing the presence of one fraction of ‘AAA’ bonds in each – then designating the whole AAA - led directly to the collapse of the credit markets in 2008.  

In many respects the rush to CDS especially in the baking system,  was the result of a bubble, in  this case of a risky asset that insinuated itself into bonds.  It was difficult to track because of its complexity and the mathematics used to create it, which was beyond the comprehension of nearly everyone but the quants.   As Jack Rasmus, author of 'Central Bankers At The End Of Their Rope' has put it:

"Is Bitcoin the new ‘Subprime Mortgage Bomb’? Just as subprime mortgage bonds precipitated a crash in the derivative, Credit Default Swaps (CDS), at the giant insurance company, AIG, in September 2008, setting off the global financial crash that year—will the Bitcoin and crypto-currency bubble precipitate a collapse in the new derivative, Exchange Traded Funds (ETFs) in stock and bond markets in 2018-19, ushering in yet another general financial crisis?"

Is this true?  It's possible.  According tot he WSJ special investment article ('Exchange',  Dec. 15-16, p. B18),  'Bit Coin Was No Bubble Until It Was':

"A speculative craze isn't defined by its frequency or even its amplitude, which makes defining a bubble tricky.  When bitcoin appreciated by more than 1 million percent ab expert in manias said it didn't meet his criteria for a bubble. Months later, bitcoin finally ticked off nearly all his boxes."

Which shows me the expert's 'perception of a mania or asset bubble was too conservative.   In the case of Bitcoin, as with CDS, another striking alarm was the use of leverage for purchases. Many institutions went way out on leverage to purchase CDS back in 2007-08 leading to the unimaginable amount of nearly $55 trillion in toxic assets left on banks' balance sheets. (See e.g. 'The $55 TRILLION QUESTION' FORTUNE, October, 2008, p. 135)


The same applied to Bitcoin where we learned WSJ, ibid.) "stories of people selling all their possessions to invest in crypto currencies or buy it with credit cards."  And the kicker - showing the direct analogy to CDS:

"Futures contracts, a traditional way to make a bet with even more bang for the buck, also took off. In fact, researchers from the San Francisco Federal Reserve believe it is no coincidence that bitcoin peaked the day the Chicago Mercantile Exchange listed contracts on it. Futures finally gave skeptics a way to bet on its decline."

In the case of the CDS realm, side bets were allowed on all sorts of things, such as whether particular collateralized debt obligations (CDOs)  would lose money, or the interest rate (average) on a segment of them would drop one half percent, or whether there would be at least 100,000 foreclosures in the third quarter of the financial year.

In the case of the credit default swap, all that was needed to make the bet formal was a counter-party. Thus, the “party” renders the bet and the amount wagered, and the counter-party takes the bet. The actual exchange, as already noted, was often done on cell phones and no formal records other than what the cell phone statement showed were available.  It is fair to say that for both Bitcoin and CDS leverage  helped drive the respective bubbles into danger territory.

Even more basic in the case of bitcoin, it is the currency of choice for hackers as well as nefarious transactions of all sort on the dark web. As Janice put it yesterday when I aleted her to eh $160b lost by investors: "They deserve to lose that money if they're dabbling in a currency that supports and enables criminals!"  Ouch!

The earlier (December) WSJ piece however warns "Bitcoin skeptics need to remember that early froth doesn't necessarily mean an asset is flawed."   Maybe not, but too much investment in an asset that indeed is the preferred choice of n'er do wells, can indeed render it toxic - maybe even as much as the CDS became financially toxic -even requiring the Fed to implement TARP (the Toxic Asset Relief Program).

The good news is that the SEC has finally cracked down the past year on what are called "initial coin offerings" - a method of financing cryptocurrency ventures.  SEC regulators cited in the Weekend WSJ (Exchange,  by Anthony DeBarros) have stated many ICOs were "fraudulent" while most "failed to comply with rules that require investors be given audited financial statements and detailed risk disclosures".

Pardon me, but these lapses, failures remind me too much of how the main credit agencies, i.e. AIG, Standard & Poor's, didn't do their due diligence before allowing the toxic CDS assets into all manner of bonds and rating them AAA.  In each case,  Bitcoin and CDS, a lack of transparency contributed to the attendant financial woes and the resulting harm. At least now there is a chance to catch the Bitcoin bubble before it gets out of hand.  As on WSJ author (Spencer Jakab)  put it: 

"Clearly, bursting bubbles doesn't inoculate us against falling for another one."

Evidently, neither does having the old saw "If something sounds too good to be true it probably is" drilled into your head a million times.

Skewering Alan Greenspan's Myth Of Endless Economic Growth

Former Federal Reserve Chief Alan Greenspan believes he knows what's best for the U.S. and that is endless growth, as measured by ever rising GDP.  ('The Great American Growh Engine And How To Fix It', WSJ,   Oct. 13-14, , p. C1).    One of his main recommendations for improved growth is:

"Get entitlement spending under control. Putting the system on a more sustainable footing could be done by raising the retirement age by a couple of years, indexing it to life expectancy so that the problem doesn't keep coming up."

Note  this is despite the fact  that a third of seniors have Social Security as their only income. Also, more than 50 percent of Americans claim their Social Security by age 62.  Why are so many doing this? It isn't always a case of not wanting to work but rather, for too many,  not being able to last at demanding physical jobs, i.e. landscaping, roof repair, nursing home aide,  etc.  It is fairly easy to work past 70 when it's all consulting, paper pushing or brain work.   But not so much when one is involved in heavy day -to -day labor like a nursing home caretaker moving an elderly patient from bed to chair and back many time a day - not to mention other tasks, such as bathing, toilet use etc. Work that takes its toll on the back, as well as many other parts of the anatomy.

Never mind, Greenspan fantasizes this ongoing rampant growth because well, it's the "American way", i.e.  "Today the United States has the most powerful economy in the world. It still accounts for almost a quarter of global GDP."

Well, yeah, given that it also has barely 5 percent of the global population but consumes 25 percent of its resources annually.  Greenspan also goes on to blab:

"The key to America's success lies in its unique toleration for creative destruction, the destabilizng force described by the economist Joseph Schumpeter in 1942. Creative destruction reallocates society's resources from less productive pursuits to more productive ones, or from horse and buggies to motorcars."

 Creative destruction, irrespective of who conceived it, is one of the most tragic and wasteful aspects of American cowboy capitalism.  It entails perpetual waste of energy and investment that ravages precious resources. In Barbados, with few resources, each must be maximized. There isn't the quantity  available (on a 166 sq. mile island) to allow duplication or other squandering in wasteful competition. In the U.S., the exact opposite holds. Huge amounts of resources are yearly squandered in competitive games- that have only one or a few 'winners'.  There is Alan Greenspan's "reallocation" of resources for you.

By contrast, the endemic socialist, communitarian structure of Denmark- for example - promotes a healthy growth of the social commonweal and the belief that what is done for the benefit of one, or a few, redounds to the benefit of all. E.g.

Oprah got perfect response from Danish woman on their social welfare state  

Hence, the imperatives for government subsidized low cost housing, national health insurance for all, free education through college.  Enough to make Greenspan and his ilk apoplectic.

Matt Miller in his The Tyranny of Bad Ideas has pointed out that all the so-called European "welfare state" economies (e.g. Denmark, Norway, Sweden etc.) fared much better than the neo-liberal, market dominated U.S. during the financial crisis and Great Recession. They provided the resources for their citizens to be more resilient, and also their higher formal tax structures prevented the sort of macro-scale deficiencies we still see in the U.S. where infrastructure is crumbling, public pensions are under-funded.  Does Greenspan factor in the cost of repairing our infrastructure (est. $2 trillion) into his growth delusions? I doubt it.

It's also somewhat ironic the former Fed chief praises "creative destruction" as a major contributor to the growth engine, while invoking the transition from horse and buggy to motorcar. This is given what all those existing 1 billion motorcars around the planet have wrought - putting us on the cusp of runaway warming  e.g.

Climate report understates threat

Of course, it's also choice and ironic that it was none other than Alan Greenspan  who was actually complicit in creating the financial crisis, though he disingenuously blames a "combination of fear and herd  behavior".    Adding  that this combination "led people to overreact to bad news and to plunge economies into self-reinforcing cycles of decline."

 That takes a lot of chutzpah given Greenspan relentlessly pumped ARMs  (adjustable rate mortgages) to people who didn't know enough about them and how an initial 3% rate could balloon into an 8 %- 10% rate  and ultimately lead to foreclosures. Then there were Greenspan's and other bankers' moves to bundle the credit default swaps into mortgage loans (collateralized mortgage obligations, or CMOs) and peddling them to folks with little or no credit. That set up the immediate collapse of the credit-loan system, especially as the debased loans were awarded AAA or other high ratings by the likes of the credit agencies, such as AIG and Moody's.

 Fear on the part of the hoi polloi?   How about crass manipulation of an exploitative mortgage market and inadequate oversight of destructive financial devices? See e.g.

Brane Space: The Financial Black Hole

Another factor 'Greenie' overlooks is that the onset of the productivity growth slowdown nearly matches the point U.S. employers gained access to workers from low wage countries to whom they could pay much lower wages than to American front line workers. Especially as the former often had similar skills to the latter.

Even given the current 3 percent growth of 12 months through September, Greg Ip in his WSJ piece today (On the paradox of 3% growth, p. A2) argues it isn't sustainable. As Mr. Ip writes:

"To keep this up the unemployment rate would have to go negative in eight years, a mathematical impossibility."

Better clue Greenspan in on his fantasies there, Mr Ip.

A further hidden factor damping growth which I've discussed before is the decreasing energy return on energy invested (EROEI) of fuel sources. In other words, our energy-dependent civilization is becoming ever more impoverished as the efficiency of the energy to run it diminishes over time. So no, with conditions like this, and a projected EROEI of 7.7 to 1 by 2030 do not look for more growth.

With such a forecast, energy costs will absorb as much as 15% of GDP by then. So we will be lucky to sustain the growth rate of 0.7% per annum Greenspan bitches about as characterizing the economy the last few decades.  Nor is the oil shale -fracking option the way out. As  Robert Heinberg observes ('Snake Oil: How Fracking's False Promise Imperils Our Future'), while it may cost less to extract a cubic foot of natural gas or a gallon of oil shale today, it will cost much more in just five years and even more in ten - such that one would have to spend as much or more to get the energy as the benefit it delivers.

Heinberg summons a point that most of the snake oil salesman humping fracking won't tell you, that it costs energy to get energy. And if you are a nation that resorts to employing 15 to 1 EROEI energy to extract  5 to 1 EROEI  oil shale energy.....well, can we say 'stupid'?

As Heinberg puts it (p. 116):
"No evidence suggests that the technology of fracking has actually raised the EROEI for natural gas production. It temporarily lowered prices but only by glutting the market."

Greenspan and his growth humpers need to process that lowered EROEI translates to increased debt - nationwide as well as for (most) individuals, since it will cost more and more in the future  to obtain the same services, products one currently depends upon.  Raise the per barrel oil prices by even 15%  - say from $100 to $115, and watch the impact on food prices, not to mention gas, or electricity. Eventually, as   Tullet Prebon Strategy Insight   notes, the economics becomes "non-viable" and that means the only way people can access the food or services is to go into debt, i.e. using credit cards or other means.

Here's another "stinger" or a reality bite - which is the subject of a forthcoming book by London School of Economics sociologist Mike Savage: It is very likely that, given the Earth's limited resources, there is also a very limited capacity to handle traditional growth. This is  easily discerned from the graphic below on how many "Earths" are currently being consumed by humans per year,

At root, the issue is sustainability - especially for water which is needed for crops. NO water, no crops to feed a growing population. Simply put, there simply aren't the resources to support a growing human population which is conditioned to consumption. (Especially in the developed, industrial world - which now includes China and India).  The projections now are for at least 10 billion people by 2050, and an 80 percent probability of 12.3 billion on Earth by 2100. 

 By June, 2030,  TWO full Earths - that is,  the resources therein - will be needed to support the then population. Already we are at 1.7 Earths. Every year Global Footprint Network raises awareness about global ecological overshoot with its Earth Overshoot Day campaign.   I believe even a guy like Alan Greenspan ought to be able to grasp these figures and the graphic, and that his growth ideal is a mirage, a myth or fantasy, if you will.

As sociologist Savage explains (The Nation, October, p. 16):

"If we want to live in a better society, it's not 'How do we grow more?' It's how do we become more sustainable and consider what level of inequality most people might find acceptable  and not extreme." 

A "rising tide" then - contrary to capitalist myths- might not raise all boats but flood us all out of existence.  Of course there will always be economic Pollyannas spreading bollocks, like Tom Gionvanetti , e.g.

Why Not 'Trump Retirement Accounts'? - WSJ

who writes, evidently with a straight face (p. A15):

"The back door solution to the entitlement crisis is to make workers wealthy"

Right, even as employers are unwilling to pay their employees a fair wage, or enhance their job benefits - even after being flush with corporate tax cuts. As managing director of Aspen Advisors, Andrew Gadomski (from a January WSJ piece) fessed up, when companies lament they can't find workers to fill key openings, that is code for: "I can find talent, I just don't want to pay them as much as they cost."

One wonders what brand of "wealth"  Giovanette conceives of with this sort of payout?  Also what sort of MJ candy he's gulping to write such unadulterated codswallop?

Is there an alternative route?  The Index of Sustainable Economic Welfare which was first proposed by Eco-economist Herman Daly of the University of Maryland. is a prime alternative . Daly's point was that the GDP was too artificial and narrow an indicator of economic health. He argued that if one incorporates all the "externalities" usually dismissed or ignored by standard economic models, people would be more parsimonious in how they consume. This would then yield a more equitable economic landscape.

Ignoring these externalities leads us into a fool's paradise where we come to believe things are much better than the GDP numbers show. Similarly with energy, conveniently ignoring externalities of cost and demand leads too many to envisage a pie-eyed future of never-ending growth.    All this translates inexorably into lower growth and woe betide you if you dare intimate (as Prof. Daly has done) that a zero or negative growth index may be a lot better for humans, if they hope not to outstrip their resource support base

In the meantime, until we get to the Index of Sustainable Welfare, people may wish to consider redistribution of resources to bridge the gap. Why?  Well, because 0.1 percent of the world's population currently controls 50 percent of the planet's wealth and resources. 

Let those richies go on with their favorite playthings and pastimes  e.g.

Then don't come crying if the great 'unwashed' mass of the hoi polloi comes for them with torches and pitchforks in hand.  Faced with a choice between starvation or grabbing what they can from the richest, it shouldn't take a Mensa level IQ to figure out what will unfold.

See also:

Robert Reich

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Donald Trump | Economic Policy

The Truth About Trump’s Economy

Did Obama Diss Bernie In A Recent Speech? It Seems So!

Even as parts of the 'librul media' now claim Bernie Sanders is running a "con" (cf. Rachel Maddow Friday night) or "pandering" (Elizabeth King on salon.com) in getting younger citizens to buy into his concept of a political revolution, it appears the Prez is bearing down on Bernie too.  In her recent WaPo column, Ruth Marcus claimed that Obama - the day after the NH primary- delivered a speech in which he "lamented the poisonous political climate"  and mourned that "the tone of our politics hasn't gotten better since I was inaugurated, in fact it's gotten worse".

Well, duh! What would you have expected from hardcore Repukes who actually vowed (like Mitch McConnell in 2009) that their numero uno goal was to block Obama's plans at every turn?  And even Obama later conceded that obstruction by having to resort to a number of executive actions on a host of matters from immigration to the environment. So don't act so damned surprised, Mister Prez!  And also, if I may add, it took you way too damned long to admit what these rat fuckers were doing - to the point you actually tried to appease the bastards with Social Security cuts - via your now (thankfully)  defunct "Debt commission".

But I digress. The main thrust of Marcus' column was that Obama had a chief bone to pick with Sanders. Marcus wrote that "some correctly interpreted Obama as criticizing Trump" but "the more interesting aspect of Obama's speech was its implicit disagreement with Bernie Sanders - the previous day's winner."

She even went so far as to insist Obama's speech (which she admits was "bumped off the front pages and most media") "can be interpreted as a rebuttal to Sanders and a rebuke of the Vermont Senator's approach to politics and an unstated endorsement of Hillary Clinton's plodding pragmatism". Which  latter I already wrote about and took to task as essentially useless, e.g.

http://brane-space.blogspot.com/2016/02/why-hillarys-proposed-extension-of.html

Also noting:

"After all, if as Obama and Hillary demand,  health care be kept a business (since insurers are part of the mix) then profits will be incorporated. The profit expectations will also be continuously  increased so higher and higher premiums must be expected"

In other words, without calling out the term, I deliberately identified both Obama and Clinton as Neoliberals - which they are. Also known in Left parlance as "DINOS" or corporate democrats.  But again, I get ahead of  myself.

The point here is that no one with good sense ought to express surprise that a Neoliberal would "rebuke" the Bern. Hell, his whole legacy and identity depends upon it. And lest some forget, let's remind them of one of Obama's biggest, proudest Neolib badges, defending the TPP against fellow Dems, e.g.

http://brane-space.blogspot.com/2015/04/obama-needs-to-tone-down-his-rhetoric.html

 While we're at it, David Bromwich (at salon.com),   in an article Obama’s Disappearing Act- What Happened to the President He wanted to be?  put it in great context - much better than Marcus as to why he wouldn't have the courage to back a real Dem like Sanders:

"The truth is that Obama’s convictions were never strong. He did not find this out until his convictions were tested, and they were not tested until he became president.

 

Perhaps the thin connection between Obama’s words and his actions does not support the use of the word “conviction” at all. Let us say instead that he mistook his preferences for convictions — and he can still be trusted to tell us what he would prefer to do. “

Leading Bromwich to then revive the term "leading from behind". Waiting and waiting until a popular furor builds up and catapults the issue before embracing it. Marcus herself endorses this perception noting Obama's "ingrained tropism" (tropism being a feature of plants) to "move toward middle ground".

Sure, JFK would have ‘preferred’ also such lackluster behavior, e.g. so as not to face down U.S. Steel and earn the wrath of the corporatocracy, but he knew he had to do it for the welfare of the nation. Hence, he threatened that corporation with removing its defense contracts unless it complied and didn’t raise steel prices in the spring of 1962.  Similarly, Kennedy would have ‘preferred’ not to have to confront his Joint Chiefs over their intent to bomb and invade Cuba during the Cuban missile crisis, but he did so because he realized the preservation of life on Earth may well depend on it. 

Well, Bernie is THAT mold of President! One we haven't seen in the White House for over 53 years.

But what really annoyed the hell out of me is that Obama's middle ground "tropism" arose from Bernie's "call for political upheaval". Jeezus Peace, you'd think the woman was portraying a call to firebomb buildings, take over the Army bases and oust the high roller CEOs and banksters from their plush offices.

At no point did it sink into her thick cranium that when he calls for "political revolution" he doesn't mean it in a literal sense, say like the Marxist-Leninists did with the 1917 Russian Revolution! He meant it in the sense of a collective revolution in consciousness - much like author Charles Reich once proposed in his marvelous book, 'The Greening of America'.   The first step, as Reich notes, is hurling off the yoke of false consciousness - that infection of mind which leads us to only see reality through the lens of the System. Hence, leading us to accept such travesties as an economically rigged economy, a rigged banking system and a hopelessly defunct healthcare dinosaur.

Thus,  Sanders is correct when he avers that any real change must be stoked by the people - this after they doff the false conscious cocoons.  THEY must incite their reps to act on their behalf and do the right thing to make the system work for them and not against them. In this sense, it is true that Sanders (as he himself admits) is "no magician".  At the top of the list we have to override the mainstream media in its lies about Sanders' proposals - making them appear as if they're mere flights of fancy - say like constructing a gigantic space ship to go to Proxima Centauri.

Lastly, even as Obama was reciting his pabulum about uniting red and blue America" (which will NEVER happen!)  Marcus was bloviating how Sanders's depictions were too "dark" in terms of the business model of Wall Street being a fraud, the economy being rigged, and the billionaire class purchasing a "choke hold" on Washington. Hmmm.....methinks I need to send her a copy of my book, 'The Elements of the Corporatocracy'.

Anyway, even as she and Obama were blabbering their Neolib nonsense, the news from the February 12 Wall Street Journal was headlined: "A Warning Signal Flashes' (p. C4), the article noting how the market for credit default swaps - the same buggers that nearly crashed our financial system in '08 - are now on the rise again.  According to the Journal (ibid.):

"At the end of June the global CDS market was $14.6 trillion as measured by the total amount of default protection outstanding according to the Bank for International Settlements"

This is serious but confronting growing CDS toxic crap and also avoiding another massive bank bailout, depends on level-headed realists who see our craven, rigged system for what it is. Not on Neolib cheerleaders who value their legacies more than the truth! So Marcus can yap all she wants that we ought to follow Obama in his Kumbaya -unity themes and not Sanders "by manning the barricades". But if this CDS racket is on track to explode again, I believe we need the latter, and Bernie need make no apologies for his anti-establishment positions - nor should those of us who support him.

See also:

http://www.smirkingchimp.com/thread/thom-hartmann/65987/bernie-s-political-revolution-is-actually-happening-although-the-corporate-media-won-t-tell-you-that

And:

http://www.smirkingchimp.com/thread/donna-smith/65989/its-the-political-and-economic-establishment-stupid

Excerpt:

"Here's the list of issues I heard Bernie Sanders address at the Denver Convention Center on Saturday night: crumbling infrastructure, climate change, youth unemployment, mass incarceration, Medicare for all healthcare, campaign finance reform, tuition-free public education grades K-16, Social Security, poverty, income inequality, income equity, a woman's right to control her own body, and more. Was there one single thread running through his firebrand speech? Of course. And that single thread is the tie that binds people to Bernie's campaign."

House Dems Need to Sink That F%$^#@! Spending Bill !

Leave it to the Repukes to sneak a last minute poison pill amendment into a critical bill ($1.1 trillion spending bill to keep the gov't open). But this bastardized piece of crap cannot be allowed to go forward - no matter it has Obama's "blessing". Sorry, Obama, but we cannot allow an amendment that subsidizes another bankster bailout because risky derivatives are allowed to be insured by Federal Deposit Insurance money. That dog won't hunt and you are backing the wrong dog! (No one wants a government shutdown, but NO one should want to risk another financial meltdown either!)

Let's back up here and get our minds around this: Back in 2008 the mother of all financial crises was spawned after the banksters used the money from ordinary passbook accounts to make bets on risky derivatives called "credit default swaps".  The damned things were insinuated all over the place - and no one knew how much of any bond (mislabeled AAA) or other instrument held them. The presence nearly caused a financial calamity of Depression proportions, but the resulting Recession was bad enough with over 20 million losing their jobs and many losing up to half of their 401ks. Massive bailouts followed in the wake - including under Bush (for AIG) then in the early months of Obama's tenure - with a stimulus package of nearly $793 billion.

All this is history, which makes one wonder why Obama himself doesn't remember it and is prepared to back this jackass mutant of a spending bill which threatens the same thing.

Why? In the aftermath of the 2008 credit  meltdown, the Dodd-Frank bill was passed in some form containing a key regulation which stipulated that the risky derivative trades could henceforth only be done on the banksters' own dime. Thus, the federal government would no longer insure those trades. In other words, banks could do the risky trades themselves if they wanted, but they'd no longer be insured by the taxpayers.

When I say insured, I mean using the FDIC (Federal Deposit Insurance Corporation) monies. The FDIC, for those unaware, insures all regular passbook savings of up to $250,000. Thus, if I have $250,000 in an account (I should be so lucky) and the bank goes under because of bad financial dealings - then FDIC pays and I can recover the losses. (You can have more money in the account but it's only insured up to the $250k limit). This sort of depositor protection came into regulations after so many millions lost all their money with the collapse of banks during the Great Depression.

But in the poison pill amendment that was stuck in this spending bill, the banks can once again use FDIC monies to back up their risky trades. In other words, the assholes that stuck this thing in the spending bill are paving the way for a new credit meltdown and implosion if the derivatives blow up the banks' trades again. And who will lose? Who do you think? John and Mary Taxpayer!

This is why this perfidy can't be allowed to go forward and thank goodness to Nancy Pelosi in the House and Elizabeth Warren in the Senate for mounting an opposition. They both understand that the risk is too damned great to allow this abomination to pass- even with a government shutdown possibly looming. Evidently, Obama is too desperate to have the spending bill pass with this mutation - but that's too bad.

The best chance to kill the thing is in the House where an unlikely alliance of Tea Party members and liberal democrats (who are needed because there aren't enough Tea Party votes) would bring it down. With both factions withholding support it has to die, unless the poison amendment and gift to Wall Street and the banks is removed.

As Elizabeth Warren put it yesterday:

"This is a democracy and the American people didn't elect us to stand up for Citigroup. They elected us to stand up for all the people. I urge my colleagues in the House - especially my Democratic colleagues whose votes are essential to moving this package forward to withhold support from it until this risky giveaway is removed from the legislation."

Amen! And until that risky giveaway is removed, no damned spending bill!

See also:

http://smirkingchimp.com/thread/richard-eskow/60022/this-is-not-a-drill-the-budget-deal-is-a-disaster



--------------
Footnote: Alas,  the House Ds caved and voted for this perfidy, aware that a Continuing resolution would lead nowhere but into a world of hurt next year - when the Rs have majority control of both houses. Without Obama willing to use his veto pen, it was the proverbial losing wicket.

Millennials Need to Stop Whining About the Boomers!

Let's face it, the Baby Boomers have been a target of easy opportunity for all manner of nattering nabobs of negativity, who insist we Boomers are about to usher in the fall of civilization as we know it. From Arch-Boomer nemesis, Robert Samuelson who blames “entitlements” for an approaching fiscal train wreck, to a spate of authors – including P.J. O'Rourke, Joe Klein and  David Willets (in his book, ‘How the Baby Boomers Took Their Children’s Future and Why They Should Give It Back’)

Now enter a whiny Millennial, Alexander S. Balkin, who in a recent Salon piece (‘Boomers Ruined America’) cried for over 1,000 words on how terrible, amoral and  greedy the Baby Boomers are with choice shots such as:

The perfect example of this was the 2008 collapse of the toxic housing debt market. In government, baby boomers ballooned the defense budget beyond the point of reason. They then raided government programs to pay for their mistakes. Regarding the environment, baby boomers left the United States reliant on coal (cough, cough) while eroding the advanced nuclear energy infrastructure built by their parents. We can thank baby boomer leadership for a nation that has no sound policy on foreign affairs, the environment, energy, social welfare, human rights, terrorism, technology development, education, debt, etc. The point being, baby boomer leadership has provided America with a government that is the most partisan and self-serving the union has ever seen, and remains entirely reactive to the world around it.

All of which is over-generalized mush – can you say “fallacy of composition” i.e. when one claims that what is true of a part is true of a whole?  In this case, the “Boomers” he is referring to make up about 5 percent of the total generation. These are the entitled, 'silver spoon in the mouth'  twerps like Gee Dumbya Bush – who got his Harvard education via a legacy entitlement, and who – once elected- set the nation on a course of perpetual fear (following 9/11) , perpetual war (with defense budgets to match)  and massive oil  & coal dependency (well, BOTH Bush and Cheney were oilmen, after all, duh!)

But this twerp Balkin makes no distinction between that enclave of miscreants and the vast mass of Boomers – like me – who gave blood, sweat and tears either fighting in Vietnam for a war those like Bush instigated (in that case, LBJ – fawning fool for the Texas oilmen and military industrial complex) or serving in Peace Corps (as I did for 4 years) or some other volunteer mode. Yet this guy blames us and essentially dumps us all into the same mix as the Bushite- Neocon- Maul Street shyster  subset of Boomers!  This lack of rational discrimination alone calls into question his credibility in writing the piece.

As for the 2008 financial meltdown, don’t even get me started. But if this guy Balkin had a clue he could have researched and excavated the actual background – which can be boiled down to those of the elite Bushie-mold ilk creating credit default swaps and mixing them up with valid bonds and labeling the whole AAA. Those who want more information (and that especially includes Mr. Balkin)  can go here:

http://brane-space.blogspot.com/2014/02/lights-go-out-on-dismal-science-long.html

Also, the historical causes of multi-nation financial meltdown are a lot less obvious than picking on one highly visible demographic.  If you want the supreme distillation it can basically be summed up in two parts: 1) trashing the Bretton Woods Global Finance Agreement (1973), and 2) Launching numerous wars of choice which have not only cost blood but enormous treasure.

In the case of Bretton Woods, while it wasn’t perfect it did provide a more equitable global basis for competition and trade than what’s in place now – based on such travesties as G.A.T.T., NAFTA and World Trade Organization fiats (which sent millions of American jobs overseas). Worse, with the collapse of Bretton Woods, global currencies went from a fixed exchange rate system to a floating system. Only years after did many of the creators of the latter realize what an error they had made, and how much they facilitated currency speculation –especially in the carry trade. Since the Asian crisis in 1997, currency raiders have splattered the reserves of a number of nations as governments have watched helplessly. Only most recently, this piracy has reached new heights via the used of “naked credit default swaps” for speculators to bet on national collapse (as in Greece) with NO money on the table of their own.

If one now factors in how things have changed since 1973, one begins to see why the “younger generation” has been placed in economic peril – and it isn’t from the Boomers! For one thing, floating exchange rates and currency raids have allowed the dollar’s strength to deteriorate. This is called “currency debasement” and it’s been used over and over in recent decades for not very salutary purposes. For example, the Bush government used it to make the cost of domestic goods cheaper (via a cheaper dollar) to try to reduce the U.S. trade deficit.

Then again, the global market tyranny that has replaced Bretton Woods, has enabled millions and millions of high paying, relatively secure jobs (especially in manufacturing, but more recently in computer software specialties) to be shipped offshore to places like Bangalore and Beijing. Minus those higher benefits, higher paying jobs, Americans have barely been able to make ends meet – and this partly explains their stupendous reliance on credit card – to make up for their lost income. Young people, caught in this vortex, will obviously not see the same economic security as their parents who held steady good paying jobs with top benefits, to the extent that one could even afford to stay home. The now (nearly extinct) single income family!

Now, to this, add in all the wars  (Bushie instigated- without higher taxes to pay for them) which have bled down the national treasury (as I noted by an estimated $6 trillion – not even counting whacked out “defense” spending such as the $2.1 trillion under Reagan) and you have the basis for an economic Armageddon. Because make no mistake, SOMEONE had to pay or will have to pay, for those wars. Who is holding most of the bonds right now? Chinese and Japanese bankers – to the tune of nearly $2 trillion. Who will get the bill in the future? Our kids and grand kids, because their cowardly government didn’t have the brains or insight not to try to act like the world’s cop – and especially (in the Bush years) launching a full scale war against robed lunatics when a localized police or intel action could have been effective.

They preferred to bankrupt us, as Osama bin Laden always wanted – playing into his hands. Nor did they have the inner fortitude, given they got their war vote (by reconciliation no less) , to at least mandate the taxes to pay for it.  They preferred instead to use future taxes (and higher interest rates) to pay for it, but on the backs of future generations.

Yet now the smarmy asses in congress that voted for these war travesties and their humongous costs, want to say we haven’t the money for decent health care reform.

No, the Boomers are not the ghouls they’re made out to be by the likes of David Willet  or Alexander S. Balkin.  One of whom (Willet)  blames us for having too few children to increase our wealth relative to theirs and the other blames us for everything from the credit crisis to exploding defense budgets and overt dependence on fossil fuels.  Neither displays any grasp of reality and therein lies the problem. Because minus test in reality and hard evidence you don't know what you're talking about. 

People need to wake up, stop their blame game, and examine who the real culprits are in this forlorn multinational debt and war miasma. One thing for sure: Boomers do not need to “give back” anything to the next generation. What we do have to offer is our insight, and best advice. It’s up to the young ‘uns to take it or leave it, but if they leave it – don’t blame us for their predicament and lack of political smarts.

If I had one piece of advice for the likes of Balkin and his compatriots, it would be to put down the Ipods, smart phones and Twitter access and head to the library to do some serious reading: on history, politics and economics especially. To see first hand how you got to where you are without having to rely on simplistic scapegoats....like a whole generation. Knowledge is the key to your liberation, not picking on a large group that in many ways has been victimized as much or worse than you and for a longer time.

And btw, despite Balkin's claims we were somehow all privileged and got it all handed to us, I will have him know that most of us weren't favored sons like George W. Bush. We either had to get scholarships to attend university or student loans. And after graduating we educated ourselves on the basics of the political system and economics - our parents didn't have the time to dote because they were too busy working.

Before Mr. Balkin or others of his generation go after the Boomers again, they may wish to pick up a copy of my book, The Elements of the Corporatocracy – to see how Millennials really ended up where they are:

 http://www.lulu.com/us/en/shop/philip-a-stahl/the-elements-of-the-corporatocracy/paperback/product-18649133.html

 See also:
http://brane-space.blogspot.com/2013/06/will-millennials-save-us-all.html

Protecting Social Security in Event of Financial Collapse

A recent and critical issue raised by Andrew Biggs in a Wall Street Journal column highlights the large jump in the projections of the Social Security shortfall since 2008. Biggs complains that progressives have responded to the economic collapse by proposing an increase in benefits that would make the shortfall even larger rather than supporting plans for eliminating the projected shortfall. Biggs' focus is exclusively on the solvency of the program, so the actions of progressives can only be understood against the larger economic context.

This is short sighted and absurd.

In fact, an expansion of benefits is a rational response to the economic collapse. Even more so because the collapse was 100 percent preventable and  one of the worst blunders in the history of economic policy-making. Nearly all of it could  have been prevented had two things happened: 1) Preserve the Glass-Steagall Act instead of repealing it in 1999, which allowed commercial banks to engage in investment banking, and 2) Regulate the credit default swaps  - a form of derivative - which took off in 2007-08. These derivatives were responsible for allowing low grade, risky bonds to be rated AAA thereby luring people into them. See e.g.

http://brane-space.blogspot.com/2014/02/lights-go-out-on-dismal-science-long.html

As a result of the credit collapse, many people nearing retirement saw their savings disappear as the stock market collapsed, house prices plummeted and they lost their jobs during their peak savings years. Thus, millions of workers had to draw down their savings to support their families at a point where they had planned to be accumulating wealth for retirement. In addition, due to the weakness of the labor market created by high unemployment, tens of millions of workers have been saddled with stagnant wages over the last six years when they could have expected to see real wage growth in the neighborhood of 1.0 percent annually had the economy continued on the path projected in 2008.

In short, the collapse vastly increased the need for Social Security, which is the basis for the response of progressives such as yours truly  We can't afford to impose any cuts, irrespective of type, because all will create even more financial havoc and economic stress. Biggs is correct that the cost of additional benefits will have to be covered at some point, but there is no obvious reason that it is necessary to come up with the full plan today. Part of the cost can be recovered by increasing the payroll cap as has been proposed by people across the political spectrum.

It is likely that we will need some increase in the payroll tax at some point, but there is little reason that the exact timing needs to be pinned down today. In the decade from 1980 to 1990 the payroll tax increased by over 2.0 percentage points. In spite of this hike, many conservatives tout the eighties as an economic golden age. It is difficult to see why it would be such a disaster if there were a comparable increase somewhere over the next three decades.

Workers care about their after-tax wages which are primarily determined by what they earn before taxes. Due to economic mismanagement and trade and regulatory policies that were designed to redistribute income upward, most workers have seen very little growth in before-tax wages over the last three decades. If they get an even share of the projected growth in compensation over the next three decades, then before tax compensation will be almost 60 percent higher in 2044 than it is today. It is understandable that progressives would be more focused on ensuring that workers get their fair share of economic growth than the risk that 3-4 percent of these gains might be taken back in tax increases to support their retirement.

Beyond Social Security, Medicare must not be cut either! Fix the Debt parasites have vowed  to expand the means testing of Medicare to lower middle income seniors. According to the Newsletter  of the National Committee to Preserve Social Security And Medicare:

"The proposal would shift billions of dollars in additional costs to beneficiaries by further expanding means testing for Medicare Parts B and D – until 25% of all beneficiaries are paying higher, income related premiums. A recent study found that this proposal would eventually impact individuals with annual incomes equivalent to $47,000 in today’s money.”


Let’s make it clear here that $47,000 /yr. is not a princely sum for an annual income, especially for seniors who – unlike younger folks- are burdened by additional health care costs including more medications, as well as the possibility of having to enter a nursing home for everything from a broken hip, to Alzheimers. The nursing homes are not cheap at $3,000 a month or more. Hence, this expanded means testing is nothing short of deplorable. The fact that the richest 1% will still make out like bandits while lower middle income seniors suffer is even more disgusting.


The NCPSSM Newsletter went on to note that this expanded means testing along with a chained CPI for Social Security, and possibly higher eligibility age for Medicare would:


“generate a tsunami of seniors living in poverty”


Setting the cuts in stark contrast to the wealthy tax payers, the Newsletter goes on:

"The benefit cut resulting from the chained CPI proposal alone would result in Social Security beneficiaries losing about 2 percent of their income, while the 2013 tax increase on wealthy Americans earning $500,000 results in a negligible 0.6 percent loss’


Process that difference! For the half million a year wealthy guy his piddling 0.6% loss is barely equal to the current cost of one share in his favorite hedge funds or a 1/10  kt blood diamond. For the senior it would equal a month's worth of blood pressure and diabetes meds and half his groceries. Do the rich Neoliberals who make up most of the Beltway's blabber set care? Of course not!

In other words, the confluence of benefits cuts is designed to increase inequality and poverty rates dramatically (already 15% of seniors live at or below the poverty line)

By contrast, the increase of Social Security benefits will not only protect it for seniors who need it, but also compensate them for lost wages in the wake of the 2008 meltdown - after which they were unable to get jobs.  Such an increase in Social Security payments can also be justified given how much congress has ransacked over the years - which I enumerate below:

The following data shows how much has been raided each year, the data from the same Trust Fund sources and GAO:

Year:  ................Amount raided

2011.................$67.0 billion

2010.................$87.0 billion

2009...............$137.0 billion

2008...............$180.2 billion

2007...............$186.0 billion

2006...............$185.5 billion

2005..............$173.5 billion

2004..............$151.1 billion

2003.............$155.6 billion

2002.............$159.0 billion

2001.............$163.0 billion

2000.............$151.8 billion
----------------------------

TOTAL:  $2.63 TRILLION

Thus increasing S.S. payments by 10% or so would be an excellent way to start paying that stolen money back to beneficiaries who deserve it.  The worker-to -beneficiary ratio is a red herring meant to deflect attention from the REAL problem which is the yearly raids on monies received from payroll taxes and intended to go to future beneficiaries! So long as these raids continue unabated, NO solution or "re-tooling" of the program will work, not raising payroll taxes, not making cuts, NOTHING!

But providing a significant Social Security increase would at least demonstrate to beneficiaries that their government is operating in good faith with their interests at heart.

An even more important immediate way to do that is to halt the shuttering of Social Security field offices. The Social Security Administration has been forced to close dozens of field offices around the country, thereby limiting access to seniors whose only way may be face-to-face appearance with administrators.   Meanwhile, the Senate Special Committee on Aging held a hearing two months ago after a bipartisan report showed Social Security has closed 64 field offices since 2010, the highest number of closures in a 5-year period in history. (Denver Post, June 19, ‘Agency closes field offices’, p. 18A)

 

Interestingly, as the article also points out (ibid.):

“The closings came as applications for retirement and disability benefits are soaring”.

In other words, those who want to kill S.S. via the back door  are adopting the exact same back-handed methods they did with injured vets seeking VA care. In that case, the miserable fuckers declined to approve $24b to expand VA facilities for care – thereby creating the recent crisis we beheld. According to the Post article, again echoing what’s gone on with vets seeking care in the VA system:

“Seniors seeking information and help from the agency are facing increasingly long waits, in person and on the phone.”

Blogger R. J. Eskow wrote in June on the Huffington Post that:  “many disabled and elderly Social Security recipients depend on field offices, and the workers in them.” And as Michael Hiltzik of the Los Angeles Times said, “They haven’t been able to cut benefits, so they’re doing the next best thing: making it hard for you to know what you’re due, and harder to get it when it comes due.”

The bottom line is, Americans came together to create the Social Security system to provide a basic, reliable foundation for retirement and disability. Closing field offices and making it more difficult to access benefits information is an attempt to dismantle that foundation.

 

But even before we try to get congress to increase Social Security payments we have to ensure those field offices remain open so that millions of people can access their benefits in the first place! The push to strengthen benefits and enhance them is pointless if the yearly raids on S.S. continue unabated and the Repos keep using budget cuts to shutter S.S. admin offices!