Thursday, January 05, 2012

Currency Wars

I just finished the new book "Currency Wars - The Making of the Next Global Crisis" by James Rickards. It was very interesting. He describes several past currency wars and lays out his argument that we are currently in one. Rickards describes the causes, symptoms, and effects of these wars, and ends with a list of possible outcomes for the current one. He's gotten a lot of attention from this book, and it's easy to find audio and video interviews of him online.

The most popular measure of growth is increases of GDP. Gross Domestic Product (GDP) = C + I + G + (X - M). Distressed economies have stagnant or declining consumption (C). Investment (I) is tied closely to consumption. Government spending (G) can be boosted independently, per Keynesian economic theory, however governments need more taxes or borrowing to fund that spending. Voters don't like either of those options. "In an economy where individuals and businesses will not expand and where government spending is constrained, the only remaining way to grow the economy is to increase net exports (X - M) and the fastest, easiest way to do that is to cheapen one's currency."

This is exactly what the Fed and US Treasury Secretary are currently doing. Unfortunately, so are the economic leaders of other countries, for exactly the same reasons. This is a currency war.

Rickards predicts these possible outcomes of the current currency war:

1) Multiple Reserve Currencies The dollar would no longer be the single reserve currency around the world. Nations would keep reserves in dollars, euros and yuan to mitigate sensitivies to volatility in any one currency.

2) Special Drawing Rights (SDR) SDRs are a form of "money" created by the IMF that already exists, but is shrouded in mystery. It is backed by a basket of other currencies. SDRs might become the dominant currency for all international trade, leaving extant currencies for domestic transactions in each country.

3) Return to a Gold Standard Resumption of a gold standard at any TBD fractional backing, would result in the price of gold rising to about $7,500 per ounce. Gold asset sales would be taxed at up to 90% in a windfall profits tax scheme.

4) Chaos A chaotic, catastrophic collapse of investor confidence triggering emergency measures by many countries, including use in the US of the International Emergency Economic Powers Act of 1977 (IEEPA). In the end, a very long period of economic gloom would result.

Rickards thinks the last option is the most likely.

In his conclusion, he says:

"As applied to capital and currency markets, the correct approach is to break up big banks and limit their activities to deposit taking, consumer and commercial loans, trade finance, payments, letters of credit and a few other useful services. Proprietary trading, underwriting and dealing should be banned from banking and confined to brokers and hedge funds." ... "Derivatives should be banned except for standardized exchange-traded futures with daily margin and well-capitalized clearinghouses."

I don't think that will happen. And that's unfortunate. I liked the book and I recommend it to anybody interested in the topic.

Monday, January 02, 2012

Graham Pass and More

I recently drove the 4wd road over Graham Pass in the Little Chuckwalla Mountains. The trail connects I-10 and the Bradshaw Trail, which I've driven before. It was a nice day, with temps in the high 60s and a light breeze. I wanted to get away from the city, drive some trails, and do a little light hiking.

I turned east on the Bradshaw Trail and continued on to Blythe. Here's a typical fire ring beside the road.

Then I came upon this sight. Somebody had dumped an old boat skeleton beside the trail. I don't remember seeing that the last time I was here.

From Blythe, I headed north to explore some service roads for power lines and natural gas pipelines.

I was surprised to discover that all the ones I chose happen to be signed as BLM routes. That's common in the area for power line service roads, but not for gas pipeline roads. The gas pipeline road was more rugged (normal) requiring me to slow to nothing every 100 yards for small washes across the road. (a Ford Raptor could have driven it at 80 mph)

I ended up at I-40 in the middle of nowhere, where I came upon a large graded area. Consulting Google maps later, this is apparently the "Camino Airstrip." Definitely no services here. Here's a google map centered on that spot.

Sunday, January 01, 2012

The Post Office

Today I'm going to rant a bit.

I think post offices are like airports. People instantly get dumber just by entering them.

I went to the post office the other day to mail a small package. While standing in line, I made several observations. In the end, I realized that none of my observations were new. I've made them all before. Each time I visit the post office. That makes me wonder if others see the same things. I wonder if I'm just hypersensitive. The way we get when something annoys us, then we start to see it everwhere, even when it's barely there.

The customers appear to fall into a few categories: the one's who've never been to a post office before, the old people who are so lonely they appear to be lingering so they can have conversation with a live person for that day, the immigrants who barely understand english, the indecisive ones who are usually in front of us at McDonalds or Starbucks, and the few who know what we want and want to get it done quickly and leave.

Mind you, all of the above are negatively influenced by factors such as: the non-existent incentives in the postal workers for productivity or customer satisfaction, and the large fraction of postal workers who have limited English skills.

One young gen-Yer male was perplexed that the post office didn't offer the ability to track the exact location of his parcel at all times. Apparently he thinks the post office is competing with FedEx or UPS.

Another young man lacked the English skills to effectively express his interests, resulting in an odd scene playing out as he and the postal worker batted back and forth different words until they indicated that each was satisfied that understanding had been achieved.

Most customers were there for the same thing: to mail something and buy some stamps. The postal workers perform their lines from the script with listless boredom: do you want to mail it first class, do you want tracking, do you want delivery confirmation, would you like to buy some stamps, etc. The customers predictably respond with confusion and indecision. This boggles my mind. I'd like to pull them aside and say: You've been in line as long as the rest of us. You've been listening to this script for at least 10 minutes. You've probably been to a post office before. Why aren't you prepared for these questions? This is easier than driving a car, and yet somehow you drove yourself here!

They've been closing post offices in my area for the past many years. The one I visited is small and doesn't have any self service kiosks. That would have made my visit much easier.