Talk Amongst Yourselves: Earthquakes

Many small earthquakes mean fewer large lethal earthquakes. Discuss.

Negativity

To clarify - quantitative easing (QE) is buying commercial paper of banks, which is equivalent to depositing money at the bank, which is equivalent to giving the bank a loan. CP matures very quickly (1-4 weeks).

If QE doesn't cause banks to lend more, and if banks have to resort to negative interest rates to discourage the risk-averse practice of depositing excess funds at the central bank (see Japan, Dennmark), then the following are happening:

• Banks don't want to lend because:
• They are artificially constrained by government-imposed capital reserve requirements
• They are constrained by increasing % of bad loans, which are increasing their capital reserve requirements 
• They are so administratively inefficient that none of them can do their core business
• They are afraid due to uncertainty about future government requirements or actions
• They see no viable loan applications
• They think inflation will devalue the future repayments they receive
• Companies don't want to borrow because:
• People aren't buying their stuff for a profitable price
• They are afraid due to uncertainty about future government requirements or actions
• They think their company will not grow in the future and/or is already shrinking
• They think deflation will make their debt painfully expensive to pay back

If QE broadens to include equities or real assets, this is exactly equivalent to government manipulation of markets or nationalization at the extreme. This is not the behavior that made the US the world's largest and strongest economy. This is not the behavior that makes other governments want to sell their own currency and hold their money in USD. This is not the behavior that makes the USD the currency of reference on the vast majority of financial tranactions worldwide, including most oil and other commodity transactions.

Rather, this is the behavior of a failing state - Post-coup Thailand; Argentina; Ecuador; 1980s Mexico; 1970s Iran; Stallinist Russia, Mao's China.

But ... isn't the core issue really about lagging demand? If so, that is driven by:

• Consumers who overspent in the past and are paying down debt (including student debt?) instead of consuming
• Consumers who are broke and/or don't have a reliable income and/or are delaying consumption because they are still acquiring skills to build a career 
• Consumers who are afraid for the future and are saving everything they can
• Consumers who are delaying purchases because they think deflation (aka industry-wide discounting) will mean cheaper prices in the future
• Fewer consumers (ahem, one-child-China?) 

While I'm not going to take a position on which of the above are the primary drivers, I will say that we all keep hearing how expensive it is to have kids. Betcha didn't think that's where this was going. No debate about the cost of kids, but it's interesting to break that into component pieces:

• The "we don't want to give up our current level of consumption/lifestyle" aspect
• and the "the cost of having kids is high and increasing rapidly" aspect
• and the "we are saving for our own retirement and thus don't need a gaggle of kids to support us when we're old" aspect, which may sound silly until you look at how we took care of the elderly 150 years ago. (Hint: it wasn't an assisted living facility covered by a supplemental insurance policy).

All of the above decrease the motivation to have more than 1-2 kids, if at all. The planet is crowded, and emerging economies continue to make it more so, but they don't consume at the same levels we do (yet). Coastal China, Mexico, Philippines, and urban India all demonstrate that consumption patterns can swing from subsistence to luxury good quickly (in way less than a generation). So, despair on this front may be temporary. Or maybe not.

What will tomorrow bring? Trump baseball

This week is inning 8 in the meltdown story. The 9th inning may be ugly.

Two birds one stone

The Economist magazine this week suggested turning Greece into a giant refugee processing center funded by the entire EU. Brilliant!

Follow Up: Dronestrikes over US Soil?

One way to address the risk of drone collisions: registering drones like guns.

http://www.ksdk.com/story/life/2015/10/19/new-drone-rules-to-include-hobbyists/74242146/

Dronestrikes over US Soil?

Flying into LaGuardia (NY) this weekend, at probably 2000 feet, I looked out the window to see the sun glint momentarily off a tiny metal object just a few feet below and a few hundred feet to our port side. It was a drone being flown by some idiot in some backyard in Queens.

If birdstrikes can bring down a passenger plane (remember "Sully"?) what do you think a hobbyist drone would do to an aircraft engine?

We have the technology to prevent that, and it would be criminally negligent to delay implementation of systems to protect our planes and people. Airports have radar monitoring of their column or airspace. It's probably not accurate enough to find a small hobbyist drone, so it needs to be improved. Once they are identified, the airports need lasers or laser-focused electro-magnetic pulses strong enough to disable a hobbyist drone. These weapons wouldn't be strong enough to hurt a plane (or even a military drone), but could prevent a dumb or malicious hobbyist. 

What Will Tomorrow Bring: Austri-zona

As Arizona is to the US immigration issue, Austria is for western Europe. The same radical nationalism and anti-immigration politics will blaze through Austrian politics. Some of the same tactics will be tried. Very similar cultural impacts will be felt in terms of dilution of the "Austria-ness" of the place. However, the religious differences will create a vastly more complicated and, at least initially, untenable situation. Mideastern immigrants who are relatively parochial will have a tough choice to make, similar to that faced by countless migrations around the globe in the past, and recently in Europe (north Africans in Paris circa 1980's or Turks in Germany circa 1995). "Do we prefer to live separate from the local culture in order to preserve all our traditions, religions, and mores? Or do we integrate?"

20 years from now, the answer will be "neither" - as both sides will have met somewhere in the middle or some sort of clash will have occurred.

By then, the debate will be about what to do about the fact that ethnic non-Austrians, on average:

• earn less than Austrians
• are incarcerated at a greater rate
• attend university at a lower rate
• and feel they have less opportunity

And, despite likely changes to Schengen to limit mobility, this will not just be an Austrian problem.

Chinese Car Trolls

In case anyone was still worried about Chinese world domination ... this is the kind of innovation the country is betting their future on:


http://www.bbc.com/autos/story/20150818-youxia-ranger-x-is-totally-not-a-tesla

"We are no longer surprise by Cinese carmakers paying legally questionable homage to successful Western models"

"The driver interacts with that system through a vertically oriented 17in touchscreen display, much like the driver of a Model S would interact with that car’s vertically oriented 17in display. Small world. "

The idiots who sent this bunch of posers their investment dollars got exactly what they deserved. You are what you invest in.

Shocking

http://humanprogress.org/static/3018?utm_content=buffer5b2e9&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer

UKISIS

Ever the speartip. Brittain, please report to the stage. You must devolve power to local governments, stem the exodus of corporates and financial services, close structural deficits, achieve a cheaper nimbler military, avoid prickles with neighbors, and beat ISIS on home soil. All others, remain in the green room until the UK has written your script. That's global relevance.