charleshughsmith
Executive Summary
- The key requirements for being a word power
- Is the "superpower" model sustainable in today's age?
- The key ability to leverage resources
- Which country(ies) is most likely to dominate in this century?
If you have not yet read Who Will Be Tomorrow's Superpower? available free to all readers, please click here to read it first.
In Part 1, we surveyed the nature of power to explore the concept of superpowers. In this Part 2, we look at power as the ability to solve problems.
What Are the Available Resources?
Solving problems in the real world is not an abstract project, though abstract concepts may undergird the solutions. In the real world, we have to use whatever resources are available, with an eye on cost, scale and sustainability.
Alternative energy offers a useful example. Almost everyone agrees that alternatives to fossil fuels would be beneficial, but what is generally overlooked is the tiny scale of alternatives in the current scheme of things. Depending on what’s being included as alternative (hydropower, etc.), alternative energy sources currently comprise a few percentage points of total energy consumption.
To scale alternatives up to even 50% of current consumption will require not just a monumental amount of capital investment; it also requires the invention and manufacture of new systems of energy storage on an equally vast scale.
As has been noted many times, this capital investment includes an extended period of fossil fuels consumption, as we need huge amounts of energy to construct alternative sources and storage systems. Some have characterized this as building an aircraft in the air while keeping your current aircraft aloft.
As Peak Prosperity members know well, capital has a variety of forms, all of which work together: financial, intellectual, social, human, cultural and symbolic. All these forms of capital must be…
Who Will Dominate This Century?
PREVIEWExecutive Summary
- The key requirements for being a word power
- Is the "superpower" model sustainable in today's age?
- The key ability to leverage resources
- Which country(ies) is most likely to dominate in this century?
If you have not yet read Who Will Be Tomorrow's Superpower? available free to all readers, please click here to read it first.
In Part 1, we surveyed the nature of power to explore the concept of superpowers. In this Part 2, we look at power as the ability to solve problems.
What Are the Available Resources?
Solving problems in the real world is not an abstract project, though abstract concepts may undergird the solutions. In the real world, we have to use whatever resources are available, with an eye on cost, scale and sustainability.
Alternative energy offers a useful example. Almost everyone agrees that alternatives to fossil fuels would be beneficial, but what is generally overlooked is the tiny scale of alternatives in the current scheme of things. Depending on what’s being included as alternative (hydropower, etc.), alternative energy sources currently comprise a few percentage points of total energy consumption.
To scale alternatives up to even 50% of current consumption will require not just a monumental amount of capital investment; it also requires the invention and manufacture of new systems of energy storage on an equally vast scale.
As has been noted many times, this capital investment includes an extended period of fossil fuels consumption, as we need huge amounts of energy to construct alternative sources and storage systems. Some have characterized this as building an aircraft in the air while keeping your current aircraft aloft.
As Peak Prosperity members know well, capital has a variety of forms, all of which work together: financial, intellectual, social, human, cultural and symbolic. All these forms of capital must be…
Executive Summary
- Understanding the two different ways money flows into the US dollar
- How currency crises elsewhere can send the dollar skyrocketing
- Why yen, yuan and euro printing are not the same as dollar printing
- How these accelerating money flows are creating the next global crisis
If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.
In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.
The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.
Two Kinds of Dollar Flows
Let’s start by differentiating between the two kinds of money flows into the dollar:
- Money converted from periphery currencies into dollars to pay back loans denominated in dollars
- Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.
Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.
In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.
This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.
The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to…
Why The Strengthening Dollar Is A Sign Of The Next Global Crisis
PREVIEWExecutive Summary
- Understanding the two different ways money flows into the US dollar
- How currency crises elsewhere can send the dollar skyrocketing
- Why yen, yuan and euro printing are not the same as dollar printing
- How these accelerating money flows are creating the next global crisis
If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.
In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.
The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.
Two Kinds of Dollar Flows
Let’s start by differentiating between the two kinds of money flows into the dollar:
- Money converted from periphery currencies into dollars to pay back loans denominated in dollars
- Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.
Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.
In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.
This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.
The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to…
Executive Summary
- As we increasingly revere the superficial, we increase our subconscious craving for substance
- What the success of Breaking Bad tells us about our confidence in meritocracy
- The hopelessness of achieving the sold "American Dream" has created a cultural social depression
- Healthy, authentic social mores will be found in our own making of them, not the idiot box
If you have not yet read The Schizophrenia Tormenting Our Society & Economy available free to all readers, please click here to read it first.
In Part 1, we set the stage for an analysis of American TV as a reflection of the cultural schizophrenia created by a widening gap between the few at the top of the celebrity/wealth pyramid and everyone else. TV’s winner-take-all competitions reflect the normalization of our acceptance of a society that produces few winners and an abundance of losers, and of the partial redemption offered by temporary recognition or social-media popularity.
On the surface, such shows reflect our culture’s belief in merit as the arbiter of success: the “best” competitor wins fair and square. But beneath this superficial elevation of meritocracy are a variety of questions about the critical role of judges (experts) and the rewards of recognition, however fleeting: if the public spotlight is inaccessible, attracting a large number of “likes” for “selfies” photos offers a consolation form of popularity.
That such adulation of celebrity and the gaze of others trigger the loss of an authentic self is never mentioned; asking why draws a blank, as that interpretation of celebrity simply doesn’t exist on the cultural stage.
Let’s continue our exploration of TV’s subtexts by examining the ground-breaking series, Breaking Bad.
The Many Subtexts of Breaking Bad
Let me start by stipulating I am no expert on the series Breaking Bad, or indeed, on any TV series; I am commenting not on the plots or characters per se but on the series’ subtexts.
Many have noted the implausibility of a schoolteacher in America not having health insurance (and also not qualifying for Medicaid), not to mention the premise (that a schoolteacher starts manufacturing one of the most destructive and addictive drugs on the planet, crystal meth, to pay for his cancer treatments).
James Howard Kunstler recently took note of…
Desperately Seeking Substance
PREVIEWExecutive Summary
- As we increasingly revere the superficial, we increase our subconscious craving for substance
- What the success of Breaking Bad tells us about our confidence in meritocracy
- The hopelessness of achieving the sold "American Dream" has created a cultural social depression
- Healthy, authentic social mores will be found in our own making of them, not the idiot box
If you have not yet read The Schizophrenia Tormenting Our Society & Economy available free to all readers, please click here to read it first.
In Part 1, we set the stage for an analysis of American TV as a reflection of the cultural schizophrenia created by a widening gap between the few at the top of the celebrity/wealth pyramid and everyone else. TV’s winner-take-all competitions reflect the normalization of our acceptance of a society that produces few winners and an abundance of losers, and of the partial redemption offered by temporary recognition or social-media popularity.
On the surface, such shows reflect our culture’s belief in merit as the arbiter of success: the “best” competitor wins fair and square. But beneath this superficial elevation of meritocracy are a variety of questions about the critical role of judges (experts) and the rewards of recognition, however fleeting: if the public spotlight is inaccessible, attracting a large number of “likes” for “selfies” photos offers a consolation form of popularity.
That such adulation of celebrity and the gaze of others trigger the loss of an authentic self is never mentioned; asking why draws a blank, as that interpretation of celebrity simply doesn’t exist on the cultural stage.
Let’s continue our exploration of TV’s subtexts by examining the ground-breaking series, Breaking Bad.
The Many Subtexts of Breaking Bad
Let me start by stipulating I am no expert on the series Breaking Bad, or indeed, on any TV series; I am commenting not on the plots or characters per se but on the series’ subtexts.
Many have noted the implausibility of a schoolteacher in America not having health insurance (and also not qualifying for Medicaid), not to mention the premise (that a schoolteacher starts manufacturing one of the most destructive and addictive drugs on the planet, crystal meth, to pay for his cancer treatments).
James Howard Kunstler recently took note of…
Executive Summary
- The critical role of interest rates and carry trades
- How capital flows across borders
- The growth in supply of dollars is slowing
- The rationale for the dollar strengthening from here by 50-100%
If you have not yet read Is Part 1: The Dollar May Remain Strong For Longer Than We Think available free to all readers, please click here to read it first.
In Part 1, we reviewed the key concepts that drive supply/demand (and thus the price/relative value) of the U.S. dollar. In Part 2, we’ll cover the dynamics that could push the value of the USD vis-à-vis other currencies much higher in the years ahead.
Interest Rates, Bonds and Carry Trades
To understand the price of any currency—measured in other currencies, gold, oil, etc.—we look at a currency as a special kind of commodity, one that greases transactional trade of goods and services and also serves as a store of value. Like any commodity, its price relative to other commodities is determined by supply and demand.
If demand is strong and supply is tight, the value will increase. This is the same for dollars, gold, oil, grain, bat guano, etc. The reverse is equally true: if demand slackens and supply balloons, the value will decline.
To understand the supply and demand for currencies, we need to understand the role of interest rates, sovereign bonds and carry trades.
The connection between interest rates and demand is self-explanatory: if interest rates paid at home are near-zero, and another nation’s bonds are paying a higher yield, it makes sense to sell (or borrow) one’s own currency and buy a bond denominated in another currency.
This is the foundation of currency carry trades. PP.com’s own Davefairtex recently offered an excellent explanation of how carry trades work on the Gold & Silver Group forum:
I believe that QE causes inflation in other countries by dropping rates to 0% which encourages carry trades, whereby traders borrow USD for extremely low rates here in the US, and then send it overseas to find a yield. Cheap money in the US causes money to flow elsewhere, where rates are higher.
Carry Trade For Dummies:
Step 1) Borrow $1 billion US at LIBOR-1M rate; cost 0.16%.
Step 2) Trade $1 billion US for 1.075 billion AUD.
Step 3) Buy 1.075 billion 2-year AUD govt bonds; yield 2.52%
Step 4) Collect $23 million USD/year for doing no work at all.
Carry trades work in both directions for the dollar…
Why the Dollar Could Strengthen – A Lot – From Here
PREVIEWExecutive Summary
- The critical role of interest rates and carry trades
- How capital flows across borders
- The growth in supply of dollars is slowing
- The rationale for the dollar strengthening from here by 50-100%
If you have not yet read Is Part 1: The Dollar May Remain Strong For Longer Than We Think available free to all readers, please click here to read it first.
In Part 1, we reviewed the key concepts that drive supply/demand (and thus the price/relative value) of the U.S. dollar. In Part 2, we’ll cover the dynamics that could push the value of the USD vis-à-vis other currencies much higher in the years ahead.
Interest Rates, Bonds and Carry Trades
To understand the price of any currency—measured in other currencies, gold, oil, etc.—we look at a currency as a special kind of commodity, one that greases transactional trade of goods and services and also serves as a store of value. Like any commodity, its price relative to other commodities is determined by supply and demand.
If demand is strong and supply is tight, the value will increase. This is the same for dollars, gold, oil, grain, bat guano, etc. The reverse is equally true: if demand slackens and supply balloons, the value will decline.
To understand the supply and demand for currencies, we need to understand the role of interest rates, sovereign bonds and carry trades.
The connection between interest rates and demand is self-explanatory: if interest rates paid at home are near-zero, and another nation’s bonds are paying a higher yield, it makes sense to sell (or borrow) one’s own currency and buy a bond denominated in another currency.
This is the foundation of currency carry trades. PP.com’s own Davefairtex recently offered an excellent explanation of how carry trades work on the Gold & Silver Group forum:
I believe that QE causes inflation in other countries by dropping rates to 0% which encourages carry trades, whereby traders borrow USD for extremely low rates here in the US, and then send it overseas to find a yield. Cheap money in the US causes money to flow elsewhere, where rates are higher.
Carry Trade For Dummies:
Step 1) Borrow $1 billion US at LIBOR-1M rate; cost 0.16%.
Step 2) Trade $1 billion US for 1.075 billion AUD.
Step 3) Buy 1.075 billion 2-year AUD govt bonds; yield 2.52%
Step 4) Collect $23 million USD/year for doing no work at all.
Carry trades work in both directions for the dollar…
Executive Summary
- The underappreciated impact of the Fed's current tapering
- Get ready for corporate profits to start rolling over
- Why record margin debt is such a big danger
- The myth of de-leveraging
- Why the data make a clear case the long Bull market is ending
If you have not yet read Is Part 1: Is This Decline The Real Deal? available free to all readers, please click here to read it first.
In Part 1, we looked extremes in valuations, sentiment, leverage and complacency, and how these make the Bull case for further advances in stock prices difficult to make without drawing this time it’s different parallels with previous asset bubble tops.
In this Part 2, we’ll look at how the fundamentals of the Bull case have been weakened or threatened, and determine whether indeed we are witnessing a key moment of direction-reversal in the markets.
The Federal Reserve’s Tapering of Quantitative Easing
Everyone who follows the financial news is aware that the Federal Reserve has tapered its unprecedented Quantitative Easing bond and mortgage buying program from $85 billion a month to $25 billion a month, and has made noises about ending the program entirely by October of this year.
Observers see two primary consequences of the end of QE:
1. Interest rates, no longer suppressed by Fed bond and mortgage buying, will likely tick higher from historic lows.
2. The support for stocks and other risk assets provided by QE will end, removing a key prop under stocks.
It’s clear that interest rates—shown here by a commonly used proxy for interest rates, the 10-year Treasury bond yield—have hit bottom, and while they might bounce along the bottom for some time, they don’t have much room to decline even if “risk-off” buying of Treasuries pushes the T-bill yield lower.
In other words, even if Treasury yields fall as investors flee ‘risk-on” assets such as stocks for the safety of Treasuries, this doesn’t necessarily translate into…
Prepare For The Bear
PREVIEWExecutive Summary
- The underappreciated impact of the Fed's current tapering
- Get ready for corporate profits to start rolling over
- Why record margin debt is such a big danger
- The myth of de-leveraging
- Why the data make a clear case the long Bull market is ending
If you have not yet read Is Part 1: Is This Decline The Real Deal? available free to all readers, please click here to read it first.
In Part 1, we looked extremes in valuations, sentiment, leverage and complacency, and how these make the Bull case for further advances in stock prices difficult to make without drawing this time it’s different parallels with previous asset bubble tops.
In this Part 2, we’ll look at how the fundamentals of the Bull case have been weakened or threatened, and determine whether indeed we are witnessing a key moment of direction-reversal in the markets.
The Federal Reserve’s Tapering of Quantitative Easing
Everyone who follows the financial news is aware that the Federal Reserve has tapered its unprecedented Quantitative Easing bond and mortgage buying program from $85 billion a month to $25 billion a month, and has made noises about ending the program entirely by October of this year.
Observers see two primary consequences of the end of QE:
1. Interest rates, no longer suppressed by Fed bond and mortgage buying, will likely tick higher from historic lows.
2. The support for stocks and other risk assets provided by QE will end, removing a key prop under stocks.
It’s clear that interest rates—shown here by a commonly used proxy for interest rates, the 10-year Treasury bond yield—have hit bottom, and while they might bounce along the bottom for some time, they don’t have much room to decline even if “risk-off” buying of Treasuries pushes the T-bill yield lower.
In other words, even if Treasury yields fall as investors flee ‘risk-on” assets such as stocks for the safety of Treasuries, this doesn’t necessarily translate into…
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by blaggers