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Turkish Economic Conundrum and Kurdish Emergence

September 15, 2016
Verizano Bridge Sundown

Turkish Economic Conundrum by LushFun


Contrary to popular opinion that money wants tranquility and quiet of most emerging

markets Turkey held up the most, especially if one were to take into account currency

fluctuations. This is in light of all the political tumult of the past several years. It has been

one of the relatively stable emerging markets, especially in regard to foreign exchange


This is likely to begin to end. It has less to do with politics but with the overall

orientation of the economy. Ergo, export oriented economic growth reliant on foreign

participation in various sectors; from tourism, energy, manufacturing, logistics services

and so on. Balance of trade will have a tough hurdle to climb in being able to make up

tourism currency flows and export market losses. Oversaturation of global markets and

increased competition make marginal producers the expendable capacity that gives up

utilization and operating fund flows to other participants. In some ways Turkey is reacting

to these aspects by fostering a more flexible financial system by expanding Islamic banking

and pushing down rate policy. However, there is a big problem on the horizon.

Coming dollar bond maturities in the financial sector that will begin to come more

frequently from the beginning of 2017 will pressure foreign reserves. This will create a drag

on the financial system since many of the banks have borrowed in foreign currency, U.S.

dollars and Euros mostly. It is very likely that the outflows of these funds will have a

multiplier effect on the Turkish economy that will magnify the pressure on the Euro/Lira

and U.S.Dollar/Lira, exchange rates. Posture of Turkish economy currently would have a

tough time adapting to these headwinds. A competitive devaluation in an environment

where utilization of factories and productive assets is levered via an ability to arbitrage

marginal demand in key industries, such as: tourism, construction, logistics, food

production may work over long periods of time. But, during a short to intermediate period

it would impact the ability of raw material imports, marketing, and other facets. The

coming crunch may influence a severe devaluation in Turkey over a two year period, to align

purchasing power carried by its’ potential markets of export, Russia and former Soviet

States, and the Middle East.


Math that is fairly straightforward. Total foreign reserves were around 112 billion dollars of

which 19 billion dollars were gold, about 1 billion in SDRs and the rest in other convertible

currencies, mostly dollars and euros. Ergo, 92 billion dollars with a rolling 12-month

rolling deficit of -27 billion dollars. At around 2-3 billion dollars in deficit a month Turkey

will face tough choices in the coming 18-24 months if one considers the contingent

liabilities of its government, corporate sector, and financial firms at around 74 billion

dollars. Something somewhere will have to give to curtail the outflows in light of lower FDI

and balance of trade aspects.

Three internal pressure positions have to be resolved. Lower growth and unemployment in

regard to marginal slack due to trade and tourism disruption. Immigration and

non-integration of culturally different minorities, ergo, Kurdish population and the

millions of Syrians whom are now living in Turkey. Finally Turkey will have to reconcile

capital constraints in the financial sphere either through capital controls or injecting of

capital that has to come from somewhere to offset the maturities of upcoming debt. Note

the last aspect is slowly but actively gaining some traction with attempts to entice FDI into


various sectors and a formation of sovereign wealth fund, but thus far it has not brought

the necessary results.


All three internal positions come against external political vectors. We can reconcile them

as following. North that includes the Post-Soviet space, South that involves Middle-East

and Africa, and West that include Europe and U.S.. Western vector is coming into increased

scrutiny due to conformity and compliance expectations that are in conflict with Turkish

power verticals being established to posture society for stability during the shifting phases

of re-configuration of politico-economic re-alignments. Abandonment or attempts to

significantly leverage away will put in danger the financial system and disrupt the last

remaining export markets Turkey is now dependent upon, while it mends its other outlets.

Contention for economic and political representation in light of the decline by minority

elements that are the most marginal on the economic curve; Kurds and Arab refugees from

Syria has to be addressed to mollify both the Western vector and situation at large.

Thus, Turkey is relegated to push forward maximalist leverage upon focal points where

minimalistic returns can be garnered. In some sense this is a path of desperation where

each of their external vectors may extract optimal concessions. Each concession will limit

the flexibility of future trade-offs and we can see this in Russian reconciliation position

that will lower the amount of Saudi and other financing that contends with other

geopolitical positions in the region.


There is one player that has the maximum amount of leverage that can provide Turkey with

breathing room, via opening of markets or capital participation. China, has the most

leeway to leverage a position in the economic space. Albeit, there would have to be an

integration into a larger scope system to yield out results that would make this

interventions worthwhile. Thus, Russian reconciliation ties into this tandem to create a

land bridge that would make it possible to approach such a proposition. However, the

economics of such a proposition are moot even under the best circumstances.


Right now we can see there is a hidden temporal constraint. It is tied both to economic

imperatives and necessity to stabilize the social structure into conformal amplitude that

could allow for development. Turkey still has a few cards it may play. NATO exit or frozen

participation may provide certain concessions but they would not be long term fixes. It may

freeze participation in EU customs agreement which be a fairly destructive undertaking,

closing the last market outlet it has. Such an event is highly unlikely though.


Certain hypothetical events do come to mind. If Turkey threatens to leave NATO, where

would it go? It is possible that it would be able to reposition into CSDP(Common Security

and Defence Policy) before exiting NATO, which would ameliorate differences with

European members, such as; Greece and other Balkan states, while simultaneously provide

it with the aegis of remaining part of the West, but on different terms. A bridge to

re-configure the relationship that would perhaps provide funds and gravitas to both EU

and Turkey. Granted the likelihood of this event is negligible it would allow a far more

flexible relationship to both parties in their foreign policy and solve short and intermediate

problems. It would also effectively provide Europe an exit strategy from NATO similar to

the Brexit event, only on a different strategic plane. It may also solve Turkish procurement

and technological problems, especially if one considers they already participate in some

OCCAR(Organisation for Joint Armament Cooperation) programs. An event such as this

would require major concessions from Turkey and Europe but would allow a competing

alliance that is under NATO umbrella but without compliance issues.

If we look at foreign policy Turkey aligned with, we can clearly see a policy where the

foundation backed into dominance to put forward an agenda that others should coalesce

into. This proved to be a failure for various reasons. An integrationist approach to gain

from overarching agreements between states would have yielded more robust results with

fewer strains while removing a winner take all mentality. It is obvious that transitioning to

integrative approaches that are feigned at by the leadership right now are a matter of

survival and once freedom of action returns, defecting to a different strategy may likely

occur. Trust internationally to view Turkey as a consistent actor is fairly low. Dependence in

trade, weaponry, raw materials, technology, capital, and other aspects, puts forward an

increasingly deterministic and opportunistic action map.


What does Turkey want from the United States? Even if Gulen was given up it would not

address any of the problems Turkey currently faces, other than provide it with expendable

clout. Access to a swap line from the Federal Reserve similar to what the ECB received

(during 2008 crisis) to bridge maturity gaps and secure a financial transition would be

extremely enticing. However, the likelihood of Turkey providing compliance guarantees

would be questionable. Technical transition and development assistance for local armament

industry is also unlikely.

If we put ourselves into the position Turkish leadership is currently in, we can somewhat

understand how their directional prerogatives change as various problems need to be

solved. Influence from migrants that fled into Turkey is completely ignored but it creates a

background of internal economic competition under the auspices of collapsing export

market outlets. Likelihood of civil conflicts expanding from current suppression attempts

by the regime in South-East is increasing. Agreements that could have allowed cooperation

were abandoned in light of attempts to re-format the regional relationships completely. Yet

the gains that were prescribed from said change of relationships are now necessary to

alleviate the strain on socio-economic actors. Re-conciliation is now a necessity instead of

an option, and yet the terms became far worse than before. There is a great need to

consolidate the body politic to generate enough cohesion in Turkey for the transition, which

we can somewhat glimpse right now. Interest groups will have to be brought to an

understanding that flexibility to placate their interests is much lower, which in my opinion

is going to be quiet unlikely. Under resource constraints nationalists, secularists, and other

–ists will press their political clout to undermine others on economic planes to gain

consolidation in various areas. Bringing objectivity to keep them all at bay away from

pressing their opponents too much, resulting in capital flight will be a very tough


Hypothetical scenario for devaluation is as follows. Balance of payments deficit erodes

reserves closer to Forex liabilities(debt). Forex deposits in the system are taken to procure

material or service imports necessary by their owners. Banking system as a whole has

Forex outflows with Forex maturity mis-match which begins the devaluation process as

flows are directed one way to close out the maturities or purchase obligations by economic

actors externally. The crisis begins before the Forex liabilities(deposits) and borrowings

derived from them mature in the system. This can be seen in the example with Belarus. One

can see that maturities were set to be paid back after the devaluation crisis was under way.

We can also see from Malaysian example that it is possible to overcome these tumultuous

periods if one is pre-emptive in how the economy is positioned. The problem for Turkey is

at this juncture there is an attempt to foster growth and not to impede it in any way.

Towards winter if energy prices spike in regard to natural gas prices and balance of

payments begins to turn significantly negative investor confidence may begin to wane. As

curtailment of FDI gains momentum, herding impact of foreign investors will manifest in

the short term portfolio investor space, as they will begin an exodus slowly at first and the

forex flows will begin to increase outward even as balance of trade deficit shrinks. FDI was

what held up the balance of payments in 2015 (p25). FDI has turned down significantly,

if/and/or when it turns negative to cover credit used to deploy those funds in the first place,

there will be a significant strain and necessity to make tough choices on the part of Turkish

government. Pre-empting an investor exodus via the Malaysian example may be better if it

is done before their exit is underway and any psychological panics develop. Once investors

head for the exits cutting them off from an exit would create pandemonium and exacerbate

the possible impact, magnifying the damage to the Turkish economy. Dynamic in shorting

Turkish Lira Bonds in order to satisfy hedged exposure by FDI investors and portfolio

investors, especially large institutional ones, will be the prevailing headwind under a

culminating scenario, in all probability these hedges would have been established prior to

digressing macro factors influencing the flows and by cutting off the marginal investor,

Turkish gov’t would essentially strip liquidity from these instruments precipitating the

actual devaluation and rate spikes.


Kurdish Emergence

Kurdistan is getting closer and closer to emerging as a national entity. There are only

questions of when, how, and in what form it will emerge. Shifting foreign ties influencing

Turkey reinforce the necessity for a Kurdish entity to exist from the point of view of United

States and Europe. Not only have the Kurds been armed and organized into a fighting force

both in Syria and Iraq but they have been provided backing in some form from both U.S.

and EU. Turkish compliance thus far prevented that backing from imparting on Turkish

national interests, however, this is most likely at an end. Whether Turkey attempts to

blackmail NATO in addition to EU, no longer allows for a stable calculus in regard to its

actions. Desperation in order to cure economic, social, international, and other conflicts

simply detract from the ability to bargain in good faith and follow through on promises

provided. This has become apparent to both EU and U.S. interests in the region. Others,

Saudi Arabia, Qatar, U.K., Egypt, Jordan, etc. are coming around to view Turkish influence as

destabilizing and will most likely side with the idea of pushing them out of the region. How

that is done is another matter.


While, Turkey did negotiate with two out of three entities in Iraqi Kurdistan it is the

third entity which proliferated in Syria, that is on the cusp of being reinforced by foreign

interests. National emergence of a new sovereign and perhaps unified Kurdish entity

provides leverage that may be extremely long term in the region. Considering ramifications

from the military coup attempt in Turkey, long term purges in the armed forces, and

general decline in morale there would need to be a significant effort to re-integrate the rift

between the armed forces and polity at large to impede the situation from spiraling out of

control in the South-East of Turkey.


Syria will most likely give up the North to a new Kurdish entity under pressure from

the West. When this event occurs the ramification will be apparent to everyone. A buffer

state between Turkey and the Middle East will emerge, that will throw its’ weight into a

conflict of massive proportions, that was previously directed southward will be pushing

north. Benefits of such an entity for the West are very large. Destabilization of Turkey and

recognition of the new entity will go hand in hand, since any agreements crafted in regard

to Iraqi Kurdistan by Turkey and other Kurdish ‘isolationist’ actors will be broken.


One has to understand that thus far the proportions of the Syrian civil conflict were

perhaps half to a third the proportion of the possible conflict that may conflagrate Turkey.

This is based simply on the amount of forces in the region Kurds can bring to bear in sum

total and country population sizes in regard to possible contentious groups. Ergo,

approximately 300-500 thousand if one includes Syrian, Iraqi, and Turkish, Kurd

amalgamations, while a population intensity of around 20-40 million. Considering the

terrain and the possible scope and width of the area in question, the disruption would be

significant. Another influence point, that Turkey under-estimates are the possible

sanctions West could bring to bear against it, similar to what happened with Russia. This

point is completely ignored and in a sense Turkish government is quiet oblivious to such an

occurrence. In regard to forcing a solution and peace processes after the beginning of full

scale conflict, Turkey will be directed after some time by economic fallout it will be forced to

bear, especially if one overlays multiple events into single timeframes.

Kurds as an entity will have balance of power shifts that will favor their expansion(s).

Economic cooperation from the West, technical and military assistance, certain guarantees,

and the overall background of inverted situational parameters by their adversaries. It is

important to keep in mind, that just because one is an important state in the region, one is

not an irreplaceable actor. In the world of national interests irreplaceable actors don’t

exist. If one were to be objective the ability of a “Greater” Kurdistan to exist will provide

tremendous leverage to anyone whom will be given access to project power from said

entity. If one imagines having basing rights for airfields and port facilities to an entity that

is going to be dependent on your cooperation for the next two, three, or more decades to

form institutions and gain recognition and trade ties from hostile surrounding actors.

Hence the ability to shape and shift foreign policy through that foreign entity, especially if

conjunction of interests aligns over said time frames persist.

Catalysts on the horizon for acceleration of said emergence. While Turkey did go

through political turmoil and trade turmoil, it has mostly been spared a financial turmoil

that permeates a significant balance of payments crisis. It is likely that such an event will

occur in the coming few years and wreck havoc on the fragile stability that is eroding in the

business sector. Once the cumulative factors overlap they will create an impetus that is

internal in nature for separatism by the South-Eastern polity that has economic

imperatives. Imagine for a second that the Turkish national entity is under sanctions,

monetary control imposition, and social unrest. In these circumstances as the outlet to

compromise and negotiate a flexible solution is beyond reach due to internal political power

struggles, there will be only one solution for the fringe groups. That is to exit the entity.

Under such a background of cumulative constraints, being outside the system will outweigh

being part of it.

Kurds are slowly being induced in the direction of unified political field. Irrespective

of control in various regions, there is a push for an overarching position regarding

fundamental political framework that would accompany a sovereign entity. “Young Syrian

Kurds launched a new initiative on April 1 to give voice to the Kurdish youth who demand a

unified Kurdish position amongst political movements in Syria.” is one of a number of such

attempts to unify social strata. PUK-Gorran party unification in Iraq creates a platform

where an aggregation of national interests condenses the political spectrum behind itself to

create a more manageable push in directing initiatives. In light of these changes it is

apparent that “isolationist” Barzani(KDP) political entity will have to back initiatives they

have shied away from, or risk being eroded in the political spectrum. If a referendum were

to actually occur in Iraqi Kurdistan it would create a platform unto which other extra-

territorial groups could attach themselves. Either; politically, deterministically,

idealistically, or in other ways that would further their aims to carve out an entity.






Kurdish Emergence References:



Puerto Rico bankruptcy? Why and Where does it go next?

May 2, 2016

Puerto Rico bankruptcy? Why and Where does it go next?


by Lushfun


Some questions arise from the coming ‘bankruptcy’ of Puerto Rico, which technically cannot go bankrupt. New York and Texas have as government workers about 1 out of every 7 people in their civilian labor force, while Florida is at 1 government worker out of every 9 people. Puerto Rico is at around 1 government workers out of every 5 people. While this number has gone down from 2008 or so it did so with migration off the island. So from around 1.133 million people 229 thousand are government employees. Which hides the fact that quite a few of the industries on the island are essentially government owned and run. The quiet reality is that there is simply too few dollars entering the island and the economy has been set up in such a way as to make it impossible for it to recover. Bailing the island out will only make certain that the next time the funds needed are larger and will not solve the problem. Structurally the way it operates has to change and the whole distribution of money within the system through essential government control of all if not most major industry will end one way or another.

It does not matter that the wages are lower than in the U.S., it does not matter that the island has “tax incentives” for businesses to operate upon it. What does matter is that the nepotism and regulations on the local level essentially make certain that investing in a foreign country is more likely to succeed than in the local economy. Sales tax becoming VAT of over 10% and other improvements to make the dead economy keel over are paving the way for insolvency. Tourism is dead precisely for the fact that costs for tourists are not competitive with any and perhaps all Caribbean countries. Why would a tourist pay New York prices for steak and wine in Puerto Rico?

Where will insolvency lead? Well theoretically when payments shut down due to them being re-directed to pay creditors government employees will no longer be paid. There will probably be court battles that are ongoing and future going but none of this will make disruptions go away. If the debt Puerto Rico was nullified tomorrow, none of the structural problems go away. The sales/Vat taxes will still be there, the tourism sector will still be dead, the government overhead will still be there, and insolvency in major enterprises will persist.

It is very likely the pension debt Puerto Rico has will be nullified, or to put it more realistically pensions will stop being paid because the amount of cash coming in will not be enough to cover them. Real Estate market will have to have a complete collapse for any enticement for non-island money to pour into it.


The truth is Puerto Rico will be a test case to a degree. Of How, When, What, and to what degree things can be turned on or off and the consequences of said actions in regards to a population. Yes, I know this sounds terrible but I am an observer and my opinion is just that. I think in a certain way there was a perception by the government in PR that they could have the last say while the flows of money were kept going to ‘stabilize’ the everlastingly ‘deteriorating’ situation. The reason I say this is that funds required to keep the system afloat increase constantly as expenses rise even in a contracting economic environment. I wonder if the governor of PR ever considered making a Plan B or a Plan C where the only way out was to abrogate pensions and get rid of at least half of government workers. It would have been possible to restructure things were there some realistic movements 8 years ago, but alas wait and prey is what occurred. True there were a significant decline in government workers, but it was in the context of an exodus of people out of the island. I think to a degree the governor will be deprived of financial ability to maneuver and will be sidelined in the matters of making decisions in that sphere, and the rest will flow out of these constraints.

“The Authority will ensure the payment of debt obligations, restructure the workforce of the Commonwealth government, and reduce or freeze public pensions. It will also supervise the entire budget of the Commonwealth government, including its pension system, legislature, and public authorities; and all leases, union contracts, and collective-bargaining agreements.”*link on bottom*

Hopefully whatever happens the people of Puerto Rico will do well and it will pass quickly.


Be well dear reader, stay healthy, and hopefully summer will visit us soon.



Status economics and ideological regression

April 8, 2016

Status economics and ideological regression

by Lushfun


If one slowly skims through the decay of global ‘growth’ and the economic implosion underway there seem to be three or even more paths that are coalescing together.


Path One.

Social groupthink is disintegrating as based by rating implosion via TV and other channels of mass conditioning. This carries with it dis-anchoring of what it is to mean of a person to belong to a specific socio-economic group. Don’t get me wrong the rich know they are rich and the poor know they are poor. The problem is in the meaning that carries forth for the people in between. These meanings are not just disappearing or being shaped into things we know nothing about but are diverging into aspects we have no understanding of in theory. Ergo imagine you are making seventy grand a year but can’t afford to buy any “assets” due to overhead such as; student loans, rent, food, insurance costs, and so on. Theoretically you are productive, yet you have no benefits other than the ongoing treadmill of your life, in an, as is condition. Without meaning or some foundation people in such ‘constraints’ burn out. This is easily seen in the treadmills of HR departments that are harvesting skill-set graduates into motion within a set environment where they have low-to-no growth prospects but are niche contributors, easily replaceable yet have no way of influencing their environment since their time constrained. Meaning is displaced by being, and there is no big idea to fill the void for people to create some sort of foundation upon. It is no longer ‘necessary’…



Path Two.

Social norms of what people can, may, or should do is going away. There is no religious constraint even for the fairly religious strata in society, it is simply replaced by either “I am going to get mine whatever it takes” in relation to some object, or a completely random set of behavior that makes people operate in the grey-zone of society while pretending to comply with society at large. Only fear of what may or may not happen is constraining these outward manifestations, but only to a degree. Monetary excess by some is dangled in front of public at large, while images of gluttony bombard the advertising channels of the internet, TV, radio, and other venues for the destitute to feast upon. There is some sort of idiotic self-righteousness that is put forth through the delivery of want for the sake of want because of want in idealism of want. Yet, even for people on the screen these things are hollow.


Path Three.

Trade and businesses are leveraged for growth in a world of imploding demand. There is no expansion of the cycle in the future unless there is a big wipe-out of inventory and credit overhead that will not go away to allow for the cycle to re-set. Even a big war would not solve this, since any aftermath demand will quickly be saturated due to better technological progress and access to raw materials already stock piled. There is no new way of doing things that allows consumers to consume without bending future demand forward by constraining credit. Other thoughts do not enter central banking heads for there is no other way to solve things in their mind. We are approaching the wall and it is us.


Imagine a world where costs are growing daily but income is imploding monthly. How long will such a world last? It may outlast you or I but it cannot outlast itself. Perhaps, prospects of evolving into some new way of social interactions is underway but I doubt it. Society is extremely set in operating the way it can, until it can’t no longer.



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Financial War is over, we all lost.

April 1, 2016

Financial War is over, we all lost.

by Lushfun


Extracting future value into the present via leveraging credit up the pyramid scheme is likely at its’ end. U.S. financials are slowly crawling back into reality as their losses are becoming more clear. Non-performing for auto and student loans are periodically glimpsing at us and we feel the attempt by capital to automate as much as possible to extract the fleeting dollars of consumer demand into profits to keep alive their perceived solvency.


China is slowly emerging from a capital investment boom that turned bust and will lead to a deflationary tornado of pain for every actor involved. Consumers are being hit with higher prices and fleeting jobs as global demand for most product implodes. Cities of empty apartments that are unaffordable by most locals won’t be filled until they flood the market and clear at rock bottom prices. Unfortunately even if that does occur some won’t be able to afford ongoing costs with infrastructure and related upkeep as it relates to these buildings. Nationalism is periodically used to re-direct the energy of anger at the problems that aren’t being solved. Tariffs that are now being erected will only increase barriers faced by Chinese goods abroad


Japan is imploding as it monetizes its’ debt and consolidates the robbery of the elderly citizenry. It destroyed the hope of any new generation sprouting through wage stagnation and repressing its’ youth and the job market they participate in. It keeps attempting to push through inflation and the success it gains is reciprocated by the confiscation of purchasing power of its’ population. Yen is strengthened every time it is revealed that negative rates of monetized bonds essentially reduce the volume of its’ debt.


Europe is approaching Japanese solution to the same problem. Too many bad debts, too little capital for the banks to absorb them other than by making the destitution of the population an institutional priority. Europe is slowly attempting to exchange old problems for new problems in an attempt to reduce the number of problems by increasing the number of problems. I know complicated stuff, but it apparently does not work. Whom knew. Elite seems to be focused on furiously doing nothing, because attempting to lead or actually solve anything is not possible without upsetting someone. It seems strange to most bureaucrats and leading politicians that doing nothing is the right thing to do because it forces discipline, and outward scape-goating for self-created problems. There is a fundamental consensus that there has to be consensus even if the problem becomes deadly to functionality and well being of the system at large it may not solve it, for that solution may undermine the system, and whom knows where that will lead?


Across the spectrum the youth has been bamboozled by education that does not give fundamental skills or knowledge, student loans that create indentured servitude, and job market that provides meager-to-non-existing wages or ability to build up a career or an ability to survive in the system as it currently exists.

The elderly have been swindled by the mortgages and financialization of their savings into the perpetual investment holes of fluctuating markets, while being provided negative real rates of return throught the suppression of interest rates. Healthcare costs have been given the ability to carry loan shark growth rates in order to put to good use anyone falling into the system that needs care to suck out any savings they have.

Ah the bright future ahead of us, looking at the blazing sun where the global warming is shining bright, although it seems kind of cooler these past few decades. I know soon the message will change but until then we have this amongst a myriad of other useless distractions. Perhaps when virtual reality becomes the norm we can be provided virtual government services for which we pay real money but until then we can simply imagine them as they should be.

Strange times are upon us, and yet the vortex of yesterday is slowly making its way toward the horizon of the future. It is catching up with all the stupidity and pyramid schemes built on the numerical impossibilities tied into the weaving threads of corruption. Things always come undone at the worst possible moment, the question is; For whom?

Money, China, Consumers, and Cash Cycles.

March 24, 2016

Money, China, Consumers, and Cash Cycles.

by Lushfun


There seem to be a strange dissonance between purchasing power available for consumers and it being embedded in the monetary system globally. As division of available free cash was pledged to more and more long term ‘capital’ in the form of loans, bonds, and other forms there formed an idea that further and further division in favor of capital would occur indefinitely and at higher exponential rates, FOREVER. Alas, we live in a finite system. Every country that attempts to industrialize rapidly runs the risk of going into an adverse cycle both in the industrial sense and cash conversion sense. Ergo it will begin to deploy factories and capacity into a rapidly declining purchasing power environment from the consumer front, as was the point of entry for China.


What would be the fix for an environment such as this? Division of cash flows between capital and labor to re-balance participation rates in the cash cycle. Giving people ability to participate more broadly in the economy would require jacking up rates to implode asset prices and give more churn in the transactional sphere. This will not happen of course.


Devaluation games such as the one China is attempting do not work. They do not work for several reasons. Competitiveness for export products through devaluation does not rise, since generally products that are embedded in the export product have to be brought from the outside at real world prices, which have their own variations in price. Devaluation is an attempt to sequester purchasing power in the capital sector at the expense of the labor sector and the consumer at large. Ergo, it attempts to create an environment where capital that was spent on excess capacity can be profitable at the expense of the environment in which it operates, because its’ destruction is feared more than the consequences of externalities emanating from these actions.


Long term and short term these costs that appear to be inconsequential, but they destroy not just the capital in question but the overall ability of the economy to function and compete in said industry. The reason is that excess capital will be competing with depreciating capital that will gain from technological progress through the cash cycle and become more cost efficient and far more dynamic. It is tantamount to a surrounded army getting more and more reinforcements as it is getting slowly annihilated while the equipment is uses is going back in time and the adversary is slowly getting newer and newer stock.


Participation in financial markets in allowing the Yuan to float will not make it enticing for those buying it as an instrument. The reasons for these are many but the most common are it maintaining purchasing power long term, ability to have instruments that provide you with yield that is over and above inflation in said currency, and ability to use it as an asset purchasing mechanism globally. Expecting others to share in the depreciation in order to grow out the monetary base and fill it with purchasing power is a folly. It is very erroneous to think that nomination of a denomination gives it convertibility or acceptability, a market does this but it has to have ease of entry and exit.


We shall see what happens.


Turkey Dark Decade ahead? (a satirical escapade)

March 18, 2016

Turkey Dark Decade ahead? (a satirical escapade)

by Lushfun

A huge statue of Turkish former leader Erdogan is going up in Trabzon, “Bless that man” says one local named Ahmed, “if it weren’t for him none of this would have been possible” he exclaimed as his eyes welled up in emotion. It seems fitting that Laz autonomous republic under Russian guidance was formed and incorporated into Armenia giving it access to maritime trade. Once the denunciation of Treaty of Kars occurred and Kurdish independence was recognized by the United States, Russia, and Iran borders of Turkey were considerably changed. Syria regained most of Hatay province except for parts in the north that were given to the Kurds to establish maritime access. Between ten and fifteen million refugees went to Europe where their relatives helped them integrate into society. Germany had its’ population swell to 95 million as it was the most obvious choice. Most of the new arrivals were being settled in the state of Yeni Ankara formerly known as Lower Saxony.


While a blessing for some it was a true disaster for Turkey. Chaos that occurred after invasion of North-Eastern Syria and Iraq created a shock in financial markets. Lira began to plunge precipitously as most of foreign capital began to flee, capital controls were imposed and overnight it went from 3 to the dollar to 7, after a week it hit 10 and you could not get dollars anywhere but the black market, foreign reserves were almost completely depleted in futile attempts to prevent the unwinding and to refinance industry. European Union bureaucrats were running around screaming about “stability loans” and “immigration prevention subsidies” but the tumult that was unleashed could not be put back as it was before. Bread shortages occurred after two months because Russia would not export grain and other producers had already sold their forward.

On the front the army was being decimated and massive casualties collapsed any semblance of structure. The insurrection of Kurdish rebels in many places all over South-East and elsewhere created pandemonium. When the flag of PKK the ‘terrorist organization’ that Turkey tried to destroy went up in Gaziantep the expeditionary front collapsed. All reserves were thrown to re-establish Adana-Sivas-Samsun line of defense. Three hundred thousand casualties occurred when retreat north was enveloped from various forces in two cauldrons that were decimated. Millions of displaced were shutting down traffic and paralyzing the country. People went to the streets in every city demanding something, anything, but to no avail. Panic consumed every facet of daily life as famine broke out.


That was ten years ago.

Today in the year 2027 Turkey a country of 43 million people with good relations with all its’ neighbors is back on the path to prosperity. Lira is at 2 to the dollar after it was denominated and three zeros were removed, years ago. Confederation of the Straights that was modeled after Switzerland, Kurdish Republic, Syria, Laz AR within Armenia, all have good trade relations established after the government in Ankara collapsed and a treaty of complete capitulation was signed. President Erdogan in a fit of rage as he was rallying the parliament in Ankara had a stroke, but the one after him was a tranquil man that enjoyed the rebuilding process. Reparations of $150 billion dollars and 1500 tons of gold were almost completely paid off to all the actors including Cyprus which was reunited after Turkey evacuated troops from the island.


Hopefully this was somewhat entertaining and enjoyable read with food for thought.


Be well and enjoy spring.

Central Bank Olympics

March 14, 2016

Central Bank Olympics

by Lushfun


We are witnessing battle after battle on the monetary front. Central banks are in dire attempt to hide away asset losses in clouds of easy money and negative rates assessable to the inner circle. Europe has found a way to side step its’ mandate and prop-up assets and it’s magnificently leveraged banks along with them. For a time of course.

If and when rates are increased by the Federal Reserve we will witness a considerable wave of actual money run for the exit towards U.S. and elsewhere where the books aren’t as cooked nor the asset liquidation cannot occur.


The crux of the matter is that the consumer is dead, borrowing isn’t turning over, and non-performing loans are piling up. Yet, assets are being stock piled as their usefulness depreciates away in the winds of time. It is fascinating to see the bottomless pockets of electronic account mechanisms be filled and refilled to battle the actual real demand that is waining and contracting due to their intervention. All purchasing power has already been sucked out from the plurality of those that had it, however there is still an attempt of banks to somehow, someway, save themselves for another day. By this point there could have been some sort of an orderly auction mechanism to gradually liquidate portions of assets that could have garnered something, anything. This begs a very rational question. Are these assets really worthless? Assuming anything worthwhile has been already sold and re-packaged into something else, perhaps what is remaining is simply holes in the non-existing capital that prevents the complete destruction of the savings (deposit) base. In some sense this is where the pathway leads.

However, one would question the existence of savings if purchasing power does not exist in relation to being tied to said savings.

If you have money but you cannot afford to buy anything with it without credit do you really have money?

So letting asset prices implode as they should have would restore some balance in the cycle of supply demand and otherwise. The ever present garnishing of the purchasing power by the financial system, seems to have gone too far. Appropriation of contingent liabilities tied to said ‘assets’ in relation to the ever increasing demand in the future that will never materialize due to these actions only creates a further gap of space we must fall through to reach reality.

Three outcomes are simultaneously slowly occurring.

1) Parallel monetary systems where these assets are worthless and nullified. I am not talking about Bit-Coin because it is tied to notional currencies directly via exchange mechanisms. What I am talking here is purchasing power tied to non currencies and non governments.

2) Demand required for profitable industry does not supply enough liquidity to carry expanding debt loads. Ergo, companies that can produce and make money have to reduce debt loads since expanding it to buy back shares or issue dividends cannot be prudently expected to last through payback of debt AND capital(machinery etc.) needs. a) This removes profitable debt that brings revenues to the financial system and removes an asset that could be conveyed for monetary liquidity. b) Repayment of debt reduces the amount of money in the system since most of the funds are parked at the Central Bank since their redeployment into real economy is in question. Thus reinforcing the likelihood of of purchasing power snapback.

3) Flows through the system are making it systemically weak in establishing a post-moment reality. Ergo, imagine asset liquidation begins to occur and other non liquidating assets start clearing at those levels as well. Access to get credit would be nil for some time for most participants, so alternative mechanisms will spring up to provide said funding. If you are forced into using part of assets you get as currency to function and the system becomes significantly entangled where one business owns part of another to supply it with inventory and so on along the chain to address liquidity that nobody has access to anymore. Even in an improving environment dis-entangling the system will be problematic.


Be well dear reader and enjoy the clouds.


Brazil, Petrobras, and Leverage.

March 7, 2016

Brazil, Petrobras, and Leverage.

by Lushfun

Hopefully Brazil makes it out of the path it is upon today, but my sense it is unlikely. What is happening is something similar to Russia when western sanctions went into effect and credit refinancing became unavailable for oil producers and other firms as a whole. The difference is that Russia had reserves which could be used to do the refinancing in order for those firms to not implode, and drag the rest of the industrial chain that is reliant upon them into dire straits. What also makes a difference is the amount of leverage those firms had, Lukoil and Rosneft combined had less than half the debt that Petrobras has today, while production was probably larger per firm while reserves are probably similar per firm. Even if one compares Petrobras to Conoco Phillips which produces similar amounts but probably has less reserves, there is a quick realization of the difference in debt burden.


As we speak Petrobras owes somewhere in the ballpark of about 130 billion dollars in debt, around 75% of it is denominated in dollars, 5% in euros and rest in reais. The problem is not the debt per se, but the maturity waterfall. Starting next year around 16-17 billion has to be paid back annually, it is likely that refinancing would be costly from a paying rate if it was available say at 8 or 9+ percent but it is also likely it is not available as questions regarding the validity of books and sustainability of cash flow at current oil prices will make underwriting unlikely.


The impact on Brazil at large just from this one company is not to be understated. If your commodity exports fell in value due to prices and your external reserves are under pressure due to debt maturities there may be an issue with meeting the regular import and export requirements if there is a mismatch that forces you to go insolvent with the outside world by having a shortage of external currency to CLEAR your transactions. Hence the isolvency issue arising in the future say a year or two from now. Note that I didn’t even bring up issues regarding Brazil sovereign debt itself nor other firms such as Oi or Braskem which themselves have issues.


Devaluation is a symptom of attempts by the government at large to create an environment where the purchasing power of the public is re-directed to pay-down or refinance debt to both internal and external holders by freezing the aggregate purchasing power EXCEPT for the transitional amounts. The mistake longer term is that this creates lack of trust for the home currency and reinforces foreign funding since the devaluation in home currency would be looked at as a undeniable fact of life. My rationalization of reis strengthening in light of investigation into corruption schemes is the fact that it will force some cure into the public breach of trust by the government at large. It would be better if companies that cannot survive their debt fail and be essentially given to the bond holders at large once they do, this would prevent a external debt crisis in the future and allow the government to simply reshape the fiscal constraints in regards to these companies to regain their lost equity. In regard to Petrobras at least. Most of these assets are worth 2, 3 or even less times than they were when the debt was taken on, even if you discount current equity to zero. Even Petrobras is probably worth half to two-thirds of its’ debt load or probably around 80 billion in my view in regards to today and possibly foreseeable future.


The long term problem of government attempts to shape how debt is pushed outward while control of desirable institutions is kept is that it expends a very real ‘financial trust’ that creates harsher costs for every actor that needs capital other than the favored institutions. Longer term even if local lenders swap into shares the debt waterfall maturity problem does not go away neither for the company or the country as a whole. The marginal impact of paying tens of billions of dollars in a month would eliminate a lot of reserve power needed longer term to operate in a global context.


Why is this dangerous? Considering the overall situation I’ll provide an example. Imagine you are a miller of grain into flour and everyone around you is going bankrupt (competition wise). Your bank requires higher rates of interest for the equipment you have financed and the grain you buy on the world market with U.S. dollars. Everyone around you whom provides you with a service or machinery is in a similar situation and requires higher prices for their products and in a sense you have to buy some of those services & goods to operate. You in turn will require higher prices for flour to break-even, as the market buys less products as a whole because the economy is declining you need higher margins for lower volume of goods for the survivors to compensate the marginal destruction of capital that occurred in the system. Now imagine the whole supply and production chain reeling from similar winds and having capital needs that are being closed by the market refocusing on larger actors. Top down you have structural problems in regards to necessity to change the big companies for them to remain alive, but bottom-up you are sending a cyclical message as those companies with leverage get wiped out and those without capital run out of product or machinery to operate. In a sense business becomes costlier, volumes implode, margins collapse, supply chain destruction permeates, and access to raw materials if they are external becomes questionable if you have no foreign exchange outside the country. This creates a push for those that do to take them out from the bottom and pressures those at the top to close that venue. In a sense something that Argentina experienced. Mistake in focusing the direction of credit is that once the cycle in that particular industry turns against you, all credit is at risk since what was focused will not be paid back in risk-adjusted terms, nor in greater purchasing power. Thus one industrial overexpansion garners an overall industrial over contraction. The way out is not forcing credit availability since that will never flow evenly to where it is needed, but to allow the most solvent firms to survive and allow the break up of the most inefficient and insolvent. The problem is that whom decides whom is insolvent or inefficient and generally the financial sphere wants those to survive because those are the ones whom owe it credit.

How fast things occur? Well that depends on maturities and if they bunch up in certain months this year and next. How much of ‘hot money’ leaves, this is money that is in funds or by international or institutional investors parked in stocks, bonds, etc. in Brazil’s markets. Essentially hot money is foreign deposits of foreign investors that a country would be returning that they invested into the country. According to IMF, reserves are ~360 billion with convertible currencies ~333 billion for January 2016. If one goes to the bcb Chapter V.28 External Indebtedness indicators there is more clarity. If one goes to line 31 you gain some scope of how fast things really occur. Over 2015 debt service over exports rose from 39.1% to 64.6% coming in at 66.1% for January 2016. You could say a 50% growth a year, perhaps over this year it goes to 100%. You could take line 31 of debt service over goods and service exports that grew at a 66% clip over a year so you would end up with ~90% using that number. These are the actual flows into the country, the reason I look at them and not other things is because if you have to pay in foreign currency for maturities and your service costs do not go away you are limited to your reserves and the number between your left over flows. Currently reserves more or less match external debt. However, I am going to give some food for thought.

Imagine a following scenario over the course of the year, maturities of short term external debt at around 55 billion dollars, hot money outflows of say another 50 billion dollars, with balance of trade outflows of say another 45 billion, and you roughly halve the reserves from 330 to 180 billion dollars. A year later you’re left with 30 billion. So roughly two years of reserves currently. But since markets are forward discounting mechanisms, and politicians are presently rationalizing people the later tend to distribute reserves in such a fashion that the former generally are overoptimistic about what is currently happening.


In 2009 Brazil instituted a 2% fee on foreign investment capital on entry, what happened most likely is some of that issuance moved abroad. What they do not capture is the credit shifts in regards to these aspects. Imagine if you issued capital abroad and then lent it to your own firm from the subsidiary that is not wholly owned. Theoretically if the company defaults the subsidiary would become the holding company and take over the parent since it is owned by other non-related investors. I know very unlikely but imaginative scenario, however at that point the capital base of the country flips and those foreign claims you thought you had on paper are no longer yours{from a country view} from every legal stand point the foreign entity{that may have same owners} is now the owner of this firm and you essentially exported capital since you are forcing it to flow where the people that own it cannot allow it for their livelihood depends on it.

How does any of this matter? Well if you gradually clamp down on foreign exchange reserves and companies that need to use them cannot, they will attempt to front run the event. Ergo the miller above will likely shift his available capital at least partly to finance his future grain buys, however he will try to do so with credit to himself so that capital is not ‘frozen’ in the country and he can no longer use it. Thus over a period of time the country incentivizes more capital to be brought out while associated credit tied to said capital brought in, which in the long run will make flows more unstable. Precisely what they are attempting to regulate away.


Be well, dear reader and look into the sky, the clouds are good.



Accelerating depredation on Global Capital

February 26, 2016

Accelerating depredation on Global Capital

by Lushfun

In some interesting sense nobody is realizing that all these tumultuous goings on in the markets are impacting capital investment decisions. I am not talking about stock or bond markets here, but about real live projects in regard to infrastructure, power grids, water, and otherwise. This is not about China which invested and overinvested in these aspects and still needs more capacity. It is more about everyone else from U.S., Europe, Asia, Africa, and so on.


Capital investments in a negative interest rate environment when real rates of return are sub-zero may be an unpalatable proposition. If deflation accelerates due to loss recognition by banks and asset prices falling it would alter the structure of price formation across all sectors. Returning capital deployed at that point into infrastructure of any sort would be unlikely. Theoretically there would have to be a shift in how it is approached to make it attractive for capital to go there.


The problem to all this is that consumer and other end-users of infrastructure will not be looking for overhead costs to go up as their income declines, and asset prices implode around them. Shifting costs in such an environment would not end well. Gasoline being stolen from pipelines in Mexico comes to mind. Payback requirements for factory or other ground up investments would look different from today in the ways expectations would finally hit home where exponential returns on investment compound over time.


It feels as though the Central Banks acting in concert in pushing forth negative rates do not understand that a global pressure on limiting capital flows and attempts to restrain depositor movements will bring about complete and utter destruction of savings from which all of these loans and other machinations are created to feed the financial system. If you cannot deploy capital anywhere for a period of time due to risk of not getting it back, you won’t. Strange but any marginal destruction will simply re-distribute purchasing power to whatever is left over.


Brexit is the first bell of Euro’s End

February 22, 2016

Brexit is the first bell of Euro’s End

by Lushfun

UK has been paying into the budget of European Union to the tune of about 15 billion euro. This is with the rebate which got lowered by Blair government. Balance of trade between UK and EU is about 230b pounds of exports for 290b pounds of imports for the last year. At an exchange of 1.27 Euro per Pound this comes out to 292b in exports and 368b in imports in Euros or around 76b euro net a year. It is extremely likely that as soon as UK leaves the competition that was suppressed by EU regulations in regard to what kind of tomatoe shapes can be exported within the common market or other non-tarriff barriers will slowly but surely gather speed. EU will not lose the market completely but they will have to compete and this will lower the overall deficit for UK.


The notion that service by the banks in London will be impacted is possible but unlikely. If the EU attempts to impose taxes on firms issuing bonds or equity in London the likelihood of success would be very low, since most would find a way around it. If they succeeded the costs for capital for those firms would move higher, and their ability to hedge by selling Forex or other contracts in London would also rise in cost. None of this would be beneficial for the firms nor their end customers. If you can’t buy a coffee contract without paying a financial transaction tax to the EU on the contract the cost will become imbedded for consumers through the supply chain.


Finally the biggest reason for UK leaving is the notion that non-Euro countries have to commit to Eurozone stability. The ESM and EFSM funds which essentially create backing by making non-Euro countries commit to back debt issued for the benefit of Eurozone bailouts.

“The EFSM issues bonds backed by all 28 European Union members and was used to help Ireland and Portugal.”

If one thinks about this long term, in the span of a decade or two at least there is a quick realization. If you are not in the Euro you are being forced to commit to it one way or another. Those commitments essentially pull you into the Euro by expanding its’ share in the incremental claims you issue and by implication decrease support for your national currency. After UK leaves and the budget contracts within the EU, there will be increased pressure to expand the Eurozone to keep it alive. At that point countries will be given some sort of ultimatum in regards to joining the Euro as promised ‘sometime in the future’ previously, or commit to it surreptitiously. Those commitments will become binding and more costly and eventually those costs will be far higher than joining the Euro. However, as other countries assert their sovereignty in regards to monetary means the Euro area will get backlash and eventual ultimatums with which it will not be able to cope. Visehrad (Poland, Czech Republic, Slovakia, Hungary) creates a common front for the countries to have an out in regards to Eurozone integration. Sure Slovakia is in the Eurozone but it has an out through the Czech relationship.


Be healthy & happy dear reader.


Negative Rates and Cash, possible futures.

February 18, 2016

Negative Rates and Cash, possible futures.

by Lushfun

There are several possible futures with negative rates and the “War on Cash”. Expectations that purchasing power would be contained within the financial system if Cash is eliminated is a folly. Any limit that is placed on deposit holders that prevents their use of their own resources leads to destruction of said purchasing power. Be it through a bail-in of depositor money into bank capital shortages or certain other ways. If said “War on Cash” ever succeeded it would lead to Chinese style mal-investments where funds would be stratified into non-liquid assets for the sake of controlling purchasing power in the future via natural claims. Ergo, you would buy a ton of copper even though you may not need it, because it would be more mobile if capital controls occurred, or if your bank decided to take a holiday and confiscate your savings.

All of this would not create inflation because every person and or business would go for assets that would have some intrinsic value or perceived value either for their business, liquidation, perceived liquidity, perceived transportability, and other attributes. In effect people would take higher discounts in the future through exchange of these ‘barter style’ funds in order to have more certainty in having something, rather than nothing. This would make the financial system not just insolvent if not on the brink of collapse but create a systemic market that shifts value and exchange outside of it. With banks losing the most and prevention of such a shift would be very unlikely.

Forcing capital and savings to eat negative rates long term will not be possible, even if most of this capital and savings is captured in the financial system and forced to not be convertible into physical cash. It will be shifted one way or another as discussed above.


Potential outcome of attempting to corral purchasing power as it is being amortized into non-performing loans will be to have no faith or backing in the system long term and every participant will be looking to get out as soon as their money clears and appear in their bank account. Ergo a perpetual bank run…


Negative rates will not trickle to end-users or corporations because they are a product of too much risk being in the system and too many losses taken on collateral. Margins for loans actually expand in a negative-rate environment, since banks have to ‘earn’ back their losses that they are not showing but carry on their loan books. The whole point of negative rates is to subsidize banks to earn enough capital to regain some measure of stability, so that they could perform the clearance mechanism in the financial system.

Be well dear reader, and fear not, for all things pass.

Lack of Global Liquidity making countries act more aggressive?

February 15, 2016

Lack of Global Liquidity making countries act more aggressive?

by Lushfun


As we approach the liquidation phase of the debt paradigm. Perhaps the internal/external dynamic as it impacts economies via debt growth and constraint by the necessity to pay it back in the future, we may see this desperation seep into the global political establishment. Every bet becomes more dear since the resources spent to establish it are no longer available in the same dynamic as before. This is can be seen in Turkey, Russia, Saudi Arabia, Iran, Syria nexus. We can even notice how lack of ability to expand trade or clear out debt is forcing China to posture outward to give it an out, if need be to re-direct any possible discontent from gradual marginal decline in global demand.


Theoretically there would be a clearance mechanism other than war for aspect such as this one. Where some countries lose their “bet” and are cleared negatively while other win and cleared positively. Ramifications of these aspects would seep into the financial system since a lot of sovereign debt is denominated in foreign currency and along with that corporate, and other debt of those countries as well. In some sense since the world was ‘stagnant’ for so long with borders not being dynamic in the sense of exchange of goods and services, the pent up energy of disequilibrium was directed elsewhere into destructive ideologies or geopolitical plans to rectify prior aspects.


We have yet to see a full unraveling of something coming to a heed, where the global financial waves are uplifted and shoock for a bit for some of the conflicts happening in the world today. If one loocks back in history the impact from various crisis changes some sort of dynamic of our lives, be it asset prices in the form of real estate, or how people are treated, or perhaps how we see the world. Right now most of the crisis that occur are somewhat in a vacuum and are only beginning to impact the world at hand. Refugees coming to Europe and setting off a right-shift in ideological lean is part of this but to a degree this was coming for a while simply was an accelerating catalyst to an already shifting world view there. Imploding debt setting off the need for ‘guaranteed income’ to maintain asset prices is more where my thoughts are going.

Money Geopolitics, Europe sinking.

February 11, 2016

Money Geopolitics, Europe sinking.

by Lushfun


Negative rates in Europe are a result of leverage, and the necessity to steal, take, replenish, financial capital in the banking system. All the risk has been taken it did not work out, it was not liquidated and the assets are on the books, or what is left of them at least. This will not work and will end in depositary bail-ins but if Europe saves the banking system, it will effectively destroy any and all productive capital deployed to do that. Ergo, attempts to keep the distribution of the financial sector’s share in the economy as is, or rising is not possible, and de-leveraging the system by “poofing” savings in order to cover up capital destroyed already will have very long term consequences.

  1. Trust will take decades to build back-up nation by nation and between nations.
  2. Euro will essentially be a dead currency either long before this occurs or right after. No solvent business will pay into a system that robbed it of part of its’ capital. Attempts to force them will create a drive to get out of the system anywhere else.
  3. International claims, in regards to deposits for products that were to be delivered will most like be extremely large.
  4. Asset implosion spiral and deflationary pressure would be so high after such an event as to become an unpredictable black swan. With people in official positions claiming “we didn’t know this would happen” after segments of markets go outside the boundaries that were ingrained in the psyche of the population in regards to; ‘how things work’.

Globally this will be akin to someone throwing a meteorite into the sea, expecting only mild waves slowly rising and falling just a few inches higher than before, and instead getting a tsunami.

Trade flow disruption will be interesting. The worst effects of demand will not be in Europe but all the marginal demand Europe provided to countries near and far. The more elastic demand for goods the worse ramifications for that country’s trade in Europe afterwards.

If one steps back it is almost like shrinking a market in nominal and absolute terms internally so much, that the price competition from external actors simply would not be able to devalue hard enough to gain competitive adjustment. Imagine for a moment goods that were sold for 1 euro to be halved not just in price, but in cost-basis for the producer so that he could be profitable from the new levels long term. On the other hand, when too many factors are in play, and people think they have thought of everything, something generally goes so very wrong, as to remind and humble them quiet certainly. Looking on the bright side, after an event such as this the financial system will most likely be the least of everyone’s problems and its’ subsequent decline into utility function will be most precipitous.


First aspect of something like this, will create a severe psychological push on values in Europe. An individualistic, consumption oriented view will be severely dented and people will seek something to anchor their being to as they search for closure of some sort across. Second aspect is the availability heuristic as it relates to responsibility will detach what people demand in regards to outcomes, something like this will not have a rationalization that could be hi-jacked and re-directed elsewhere; there will be a clear ‘actor’ responsible. Third aspect and the least understood is behavior when everything has been lost and consequences cease to exist, at least in the mind of the body politic.


Then again whom knows it is all imaginary speculation.

Be well and keep on going, things are getting ‘interesting’.

A society of goals, anchoring, and the disillusioned psyche

February 9, 2016

A society of goals, anchoring, and the disillusioned psyche

by Lushfun


If we look at things that we are told by society at large we are constantly presented with plans that we must make, ambitions we must have, wants we need, and hoops we have to jump through. By placing before you a set piece of information that gets into your perception of relative achievement in one or more areas of life you anchor to the relative position you are in, in regard to that information. What happens is you are driven forth by giving you relative discomfort to the lack of achievement in regards to “others” that are out there doing better than you and are far happier because of it. All of this is implied but the psyche plays its’ own games with us.

“Tversky and Kahneman (1974) introduced the concept of anchoring and adjustment. Specifically, when individuals need to reach some judgment–perhaps the price they are willing to pay to purchase a particular car or the number of jelly beans in a jar–they form an initial judgment from some simple feature and then adjust this estimate, called an anchor, to form a final judgment. The adjustment, however, is usually conservative, and hence the final judgment is usually biased towards the anchor.”

We have some sort of a conscious understanding of where we fit and how well we do. However, once relative anchors are set by society at large and it itself is molded in various verticals of happiness determinants all of which have median adjustments to unrealistic expectations we all end up sort of well below those marks. In some sense it is a pre-determined failure because you are setting your happiness relative to the global median of various vertical happy outcomes in various verticals that are conformed to various medians of societal manipulated “desirable” outcomes. None of these aspects create a better conscious happiness in any of us, but it does create a sense of ‘lacking’ and broken people are easier to manipulate. Easier to direct someone to ‘fix themselves’ over and over until they are completely broken down from their own internal compass. At that point their own path to happiness is so thoroughly trampled on what they think they should build, see, do, achieve, it becomes very hard to return to realistic positioning of what that person really needs for happy living. Being happy is relative to your own internal clock of desirable outcomes, setting those to the relative desires of society is generally a false paradigm. Especially today. Good thoughts on consciousness of one’s’ standing already permeates our being. How this is used is another matter.



If one goes back to my prior post about hedonic treadmill and our average median expectations are pushed in various directions on the curve of what we think would make us happy, after we come to grips and ‘adjust’ from the surrealism or false perception given by our surroundings we never adjust enough to get out of the loop, of the supposition made before. The whole premise is created on a false dichotomy. It is never about the anchor but the one whom is making the anchor, you. What you see around you, what you feel when you are exposed to various societal instructions, plans, goals, and so on is the goal. What you actually want without these things is another matter, far more interesting if one tries to get at it.

Real rebels, rebel against themselves first, define your own happiness.


Be well, and happy, as well as you can be.


Guaranteed Income Thoughts

February 8, 2016

Guaranteed Income Thoughts

by Lushfun


Imagine a world where you are guaranteed an income stream. Not much just enough for basic necessities. It may theoretically be plausible, so far Finland , Switzerland , and France have thrown out feelers to see what public thinks in essence. Theoretically in order to eat through the mountains of imaginary debt that won’t be paid back inside Europe there would have to be some sort of inflationary starter that makes it possible. Workers are losing jobs left and right and the youth is unemployed since global growth is really negative, so it could to a degree be interesting way to go. Printing money to give to the population to stimulate some sort of multiplier effect and generally allaying the unrest, and so on.


The problem with schemes like this is the distribution of costs that a system like this would set in motion. If one reflects on things in U.S., food stamps and other things, a unifying guaranteed income which essentially replaces these things in Europe. Perhaps not be such a bad thing from a social point of view. It would solve certain problems in regards to people becoming desperate and driven to change the dynamic. However, certain problems would be created, entitlement problems and what is ‘fair’. As of right now this is the only way to distribute enough money to keep the system going from imploding under the weight of financial leverage and non-written-off bad loans that accumulated due to asset-bubble mania and encouragement by the financial system at large.


I can see this being implemented. Ergo, 800 euro per person per month would be enough to create enough liquidity in order to promote some sort of wage-price-spiral. If Quebec and Canada at large move in this direction it is likely the U.S. may as well. Essentially a first-world self-liquidity loop to make sure the population has basic needs met. One begins to think about Huxley and the “Brave New World” in this context. The shift would be monumental, not just from an income-inequality stand point. If income is guaranteed then the printing press would essentially be ‘democratized’ a bit. The necessity of this action is apparent in the distraught implosion of demand for goods, services, and otherwise globally. Impact on capital, if one imagines 10-20 people pooling say 100 euro a month to fund themselves into a business and the dispersion of capital productivity into the economy would be interesting. Labor impact is far more cloudy. Any thoughts?


If we have about a billion people in this system and each gets $1,000 a month of guaranteed income the infusion of cash is $12 trillion a year. Considering that some people have money and jobs and that extra income will be taxed on that end and perhaps a third would actually be in need of the income right away, say students and elderly. The marginal spending would perhaps increase by half say $6 trillion a year. Amount of slack demand and trade boost this would provide would certainly fix a lot of problems.


There is a dark side to all of this. Government control and international government control would get a significant amount of leverage over vast populations. Political influence in certain areas would increase and allow Federal Gov’t or the EU beuracracy to cram down policy to the states and nation-states. Imagine the amount of control if your emission center is in Germany and Spain passes a law that deals with something “contrary to the spirit” of Eu constitution or laws and the emission of funds is suspended for the ‘guaranteed income’ in Spain? What do you think would happen? There would simply be hints of bureaucrats to national leaders to follow the policy of the central state and the funds to buy that power would be created out of nothing, backed by the populations of those same countries on the ground against their own self-determination in regards to laws and policy matters. This would create puppet states that are beholden to the central emission center from Foreign Policy to Family Planning and all for the price of guaranteed minimum income, printed out of thin air. Magnificent? is it not.

There are always strings, attached. Depends to whom and why, and how they are directed.


Be well dear reader.


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