Full Faith and Credit of the United States of America

From the New York Times of March 9, 2010:

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds.

But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

Leo Kolivakis of Pension Pulse runs a story on that and asks:

So what are public pension funds doing? Cranking up the risk, investing in failed banks, leveraging up, shoving more money in private equity and hedge funds, whatever it takes to achieve that insane 8% average annual return they’re all still fixated on.

What are they doing indeed. I don’t know, of course, but what if the following was going on.

Private investors, e.g. private equity, private pension funds and hedge funds pile their money into treasuries because treasuries are, according to InvestorWords.com:

Negotiable U.S. Government debt obligations, backed by its full faith and credit. Treasuries are issued by the U.S. government in order to pay for government projects. The money paid out for a Treasury Bond is essentially a loan to the government. As with any loan, repayment of principal is accompanied by a specified interest rate. These bonds are guaranteed by the “full faith and credit” of the U.S. government, meaning that they are extremely low risk (since the government can simply print money to pay back the loan).

So, what do we have here? Private equity, hedgefunds and private pension funds buying treasuries and some of them also buy gold and get rid of equities, while public pension funds and banks buy equities and get rid of gold and treasuries?

Let’s just hope that the equities market is not anihilated, i.e. DJIA=zero, for some reason, otherwise, savings accounts, IRAs, pensions, etc will be wiped out. However, treasuries will not be worthless, even if the dollar is replaced by something else. Why? Because full faith and credit of the United States does mean that this debt must be repaid, as long as the United States exists.
Now you’d still have unemployment benefits, social security, Medicare/Medicaid, right? Maybe, maybe not. Since the debt will have to be repaid with interest and the government is already heavily in debt, it must save. Guess where it will save.

BTW, the loan iteself need not be repaid, that can be rolled over many times. However, the interest still has to be paid. Does this sound like debt slavery? Yes it does!

The result: You have nothing and will be working for, paying taxes for and basically exist for, private capital.

Thankfully, this is just too outlandish a scenario to materialize. Why I am so sure about that?


Famed NYT reporter tells Michael Moore capitalism driving humanity’s downfall

From Rawstory:

In his film Capitalism: A Love Story, Michael Moore squares off with the free-market system for its role in leveraging the United States’s wealth into the hands of a few.

But in one clip cut from the documentary — which Moore provided exclusively to RAW STORY — he interviews Pulitzer Prize-winning New York Times reporter Chris Hedges, who explains how capitalism is actually contributing to the very downfall of the human race and the “degradation of the planet.”

Read full article and watch video here.

In the above article, you’ll also find a link to a leaked document from Citibank dating 2005. It makes interesting reading.

In short, the authors claim that the US, UK and Canada – and a few other countries – are plutonomies. A plutonomy is defined by investopedia..com:

Economic growth that is powered and consumed by the wealthiest upper class of society. Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.

In their analysis, they explain that there was no such thing as the US consumer but rather rich US consumers and poor US Consumers, the same for UK and other plutonomies. They conclude that investing in certain equities, namely the ones that cater to the needs of the rich top 1%, was a sure winner and a no worries approach as an investment strategy. The rich will get richer and will always have enough money to consume stuff.

What they are writing sounds about right. However, before you start  buying the shares they have in their basket, and a few others not on the list but certainly in this category as well, keep in mind that the top 1% of the population – or even less – control the world’s stocks (equities) as well.
What does that mean? It means that they could not make any additional money if only they themselves invested in these companies that they buy their products from. That would be a zero sum game.
Since this is Capitalism and Capitalism is a (or rather the ultimate) Ponzi scheme, they must make new participants come in to pay off the previous ones. So make to make more money, they need to find fools outside of their class who “invest” in those companies. Putting out such research reports and “leak” them would do this job nicely.

It isn’t surprising  that a plutonomy exists. It lies in the logic of capitalism and is an entirely predictable result. Indeed it has been predicted by Karl Marx and others that capital would accumulate in ever fewer hands.

This economic system called capitalism works for the benefit of a few and to the detriment of all others, even to the detriment of nature. Capitalism destroys the basis on which the very existence of mankind depends.

Do they care? No.

Under the Sign of the Double Cross

Nowadays every time I hear politicians, economic leaders and economists speak, especially Western ones, it reminds me of the following  speech. Everything sounds somehow familiar but I can’t really identify what they are talking about.

Charlie Chaplin got the essence of his time right. The thing is remarkably in tune with our own time. Herr Garbitsch and Herring have modern analogs. Can you identify them?

С Днём Рождения – Happy Birthday

80px-Coat_of_Arms_of_Moscow.svgToday citizens of Moscow celebrate their city’s 862nd birthday. Writes ITAR-TASS (translation by Google with a few [corrections] by me):

MOSCOW, September 5. Itar-Tass. The capital of Russia celebrates its 862 th birthday.The main event, according to tradition, will be a theatrical performance at Tverskaya Square, which will open a series of festive processions. During polutorachasov [half the morning?] acquaint visitors with the Moscow youth. The submission [performance] will be attended by more than 2,5 thousand young artists metropolitan theaters, youth choir, students of urban schools, musical ensembles and groups.

Immediately after the opening ceremony, parade [of Moscow students] starts at Tverskaya,[followed by a] big youth concert. At Theater Square at 14:00 Moscow time will sound musical greeting Muscovites from popular music groups, Lubyanka Square invite to festive music and entertainment program “On the [About] Moscow – with love,” which will be attended by renowned masters Mosconcert.

Happy Birtday Moscow.

World Stocks Controlled by a Handful of Investors?

A recent study made by researchers from the Swiss Federal Institute at Zurich (Eidgenössische Technische Hochschule Zürich, ETHZ) thinks as much. J.B Glattfelder and S. Battison from the Chair of Systems Design write:

The Flow of Control

The Flow of Control

The full work can be downloaded here (pdf).

This reminds me of the following I once read:

‘More than 90 percent of the proteins in the network had five or fewer links, and only about one in five of these was essential to the yeast’s continued survival. With these removed, the yeast could still function by adapting its remaining network. In contrast, less than 0.7 percent of the proteins were hubs having more than fifteen links.’
From: Nexus by Marc Buchanan 2002

It seems that this is a pattern found all throughout nature and it is might thus not be surprising that we’ll find it in economics as well.
On second thought, however, it is surprising, because yeast and other such phenomena are natural occurences based on laws of a nature that cannot be changed, whereas the economy (especially finance) is not a natural phenomenon, but is entirely man-made with laws that can be changed.

Considering all the efforts made to create and maintain a more equitable society, I find this result still a bit surprising.
It seems to me that the old feudal structures we – well, not all but certainly the overwhelming majority of mankind – wanted to ged rid of are still here.

Hat tip Naked Capitalism

Flag Day in Russia

Tomorow, Saturday August 22 will be celbrated as Flag Day in all of Russia even in remote parts of Russia in Yakutia. Remote from Moscow that is. Yakutia is probably closer to Anchorage than to Moscow.
Hopefully all the celebration and noise comming over the Bering strait will not put Alaska on high alert. Putin rearing his head and such…

Celebrate Flag Day!
On Saturday, August 22, Yakutsk, along with the rest of Russia will celebrate the Day of the Russian Flag. The festivities will take place in all metropolitan areas.

Tomorrow  Ordjonikidze Square spread wide variety of whole hothouse flowers – gardening, houseplants, ornamental. As the organizers of the festival «blossoming rainbow Earth Olonkho» open to all interested parties. It will last two days – 21 and 22 August.
There is also a concert «Russia –  my homeland!» With the participation of bands and artists.
On Saturday, from 12.00 on Lenin Square the campaign «Your voice in the country’s anthem» is launched.
Moreover, as reported by the district administration, the branches of the centralized library system will be book exhibitions and quizzes.

[Source: Gazetayakutia, Russia]