BARVENNON.COM
11th - 16th - 23 - 27th February 2005
AUSTRALIAN DIARY
- AYMAN
AL-ZAWAHIRI -
Yahoo news quoted Al-Zawahiri, first lieutenant of Al Qaeda as having
said on Al Jazeera that real freedom is:
- "not the liberty of
homosexual marriages and the abuse of women as a commodity to gain
clients, win deals or attract tourists," In "The Rights of Man"
1789, Liberty is defined as (Article IV) "Liberty
consists in the freedom to do everything which injures no one else;
hence the exercise of the natural rights of each man has no limits
except
those which assure to the other members of the society the enjoyment of
the same rights." I might not approve of those liberties
condemned by Al-Zawahiri, but given article IV, I am forced to
defend the rights of others to those liberties.
- "not the freedom of
Guantanamo and Abu Ghraib" No doubt Al-Zawahiri is complaining
of
the "torture" allegedly carried
out in those locations. To each his own. I would any day
prefer the
torture following US capture (as reported by those freed from
Gautanamo) to
the torture (to death) that follows Al Qaeda capture, (as shown on the
video clips released showing
e.g. throats being slashed.) I actually find it hard to
believe that US prisoners were officially tortured. Torture is
known to be an inefficient method of extracting the truth. I
would have
expected that US interrogators would have used voice-stress
analysis, filmed micro-physiologic responses and performed brain scans
during
questioning, Skilled psychologists could then determine
with high accuracy the answers to questions put, even if the prisoner
said nothing. I can think of several reasons why they might not
want to make their interrogation methodology public. I believe
that any torture committed was strictly
an amateur effort by prison guards, driven by misguided vengeance.
- "the right to choose its
leader, hold him to account, criticize him and isolate him,"
e.g.
freedom to choose leaders like Saddam, freedom of electoral
choice like Iran, freedom to hold leaders to account like
in Afghanistan & Iraq, freedom to criticize and isolate leaders
like those in Qom.
- "I do not think that we
can
achieve reform while we are under American and Jewish occupation."
Maybe not achieve a Sharia state under American or Jewish occupation,
but if that is the issue, why do any Muslims care to live in the
USA? Wasn't the old Turkik empire (pre 1900) a Sharia
state? Is that
what Al Qaeda really
wants? Taking Turkey as an example, I can understand why
Christians
& Jews (& many Muslims) might not want to live in a Sharia
state.
- Reform cannot be achieved
"under governments installed by the occupation with forged elections",
is no doubt a reference to occupied Iraq. Does he think that he
can so simply discount the fact that even under threat of death by his
organization, sixty percent of the citizens of Iraq voted? He is
also, I note,
in an extreme hurry to condemn the election results which have yet to
be determined. Well even if Al Qaida got the other 40% of the
vote, they still would not have ruled Iraq. In a democracy, you
abide by the umpire's (people's) decision, and hope that the bastards
in power do such a big fuckup that the people dismiss them at the next
election.
Al Qaeda lost their war for hearts back in November 2003 when they
failed to disavow attacks on fellow
Muslims. Did not the Prophet specifically prohibit such
attacks?
Better for Al Qaida to
admit your bads and try to make amends. It is too
late now for impassioned speech about the so
called "failure" of elections.
- IRAN
& NORTH KOREA -
The unfortunate thing for the leaders of Iran and North Korea is that
the USA is not just the leading industrial and military power in the
world, it is also the leading scientific power in the world. I warned
the leaders in Iran a few weeks ago (Bush - v- Iran)
that Bush had not yet decided whether to invade. They apparently
listened closely enough to ask their military experts whether they had
anything to fear, and their experts apparently told them (much like
Saddam's advisers might have told Saddam) that Bush could not mount
such an offensive action.
I think they might be in for a nasty surprise. I believe that the
US (perhaps using Israel as a deniable operator) could take out all
(meaning > 95%) of Iran's nuclear facilities
with no unnecessary loss of life. Considering recent events, I
would suggest that if you are Iranian and live close to a military
supply facility, it might be a good idea to move house. It is
unlikely that the USA would attempt to conquer Iran. Drawing the
poison from it's fangs should be sufficient. I expect that the US
government would calculate that the example of the developing democracy
in
Iraq will strongly influence political development in Iran.
North Korea is a problem requiring a different strategy. Kim Jong
Il is of the class described by Machiavelli as a dictator who maintains
his
position in government by fear & military power, (like
Saddam). The classic methodology to "solve" such a problem is by
erasing the leader. I do not know
what magic technology is or soon will be available to US planners, but,
considering the Presidents apparent preference for direct action, I
would recommend that Kim Jong Il's strategy for avoiding erasure
not be a reliance on North Korean armies seeking revenge, nor on his
Chinese
friend's horror at such underhand tactics. If the USA starts
moving troops out of S. Korea, I would strongly recommend
that Kim find out what the USA wants, and provide it forthwith.
By doing that he might retain some of the trappings of his
megalomaniac fantasies. I do not however rule out the (above)
suggested Iranian option.
Journalists from Japan have the belief that the Chinese expect that the
two Koreas will eventually unite, and they report that South Korea has
already calculated that the cheapest way to make unification is by an
orderly transfer of the powers of government. The Chinese
(Kissinger & Mettenich would have approved) are not employing the
obvious tactic of threatening Kim's energy imports (they are playing
good cop to the US bad cop). If their strategy does not
facilitate a stepdown by Kim (probably the incentive would be a
lifetime amnesty in a luxury refuge inside China, a bit like the deal
Idi Amin
got with Saudi Arabia.) then I expect the hard option threatened by the
USA (described above) would become viable.
So what is in it for the Chinese? They have their own internal
problems, the greatest of which is persuading their population that a
triannual election of leaders is not a viable system of
government. I would expect that they might request of South Korea
that, (in order to persuade the North to unite peacefully), they should
change their constitution THUS
and SO, which would have the
ultimate effect (not immediately obvious) of turning unified Korea into
an electorally unresponsive dictatorship. (Most western
politicians would applaud, because the suggested changes would be of
the kind that most of them would like for themselves, e.g.
Parliamentary terms of ten years, controls on the press, etc.)
- OZ
INTEREST RATES -
"The emperor has no clothes" was always a favorite fairytale. I
did not expect to have the opportunity in this lifetime to play
the child.
OK, why is everyone (even the interest rate market) saying that
interest rates are due to rise in the near term? Even according
to classical economics, the only things
that might make that likely are that (1) the USA lifted interest rates
recently, and we like to follow the USA, and (2) possibly that the
Australian economy seems to be
growing too quickly, and raising interest rates might temper that boom.
So what is the case against? Again, in classical terms, (1) our
dollar is at an all
time high (well, compared to the last few years) against the US dollar,
(2)
there is still a shitload of money being pumped into the economy by the
(15% = 9%+6%) superannuation levy, giving
us an enforced "savings rate" that must be near the top of the class in
historical terms, and (3) many noises made in the daily broadsheets
would seem to be implying that our business leaders believe that our
economy is cresting out of the boom. Combine that with the
busted housing real estate sector and most economists would (in normal
circumstances) make out a good case for an
interest rate fall.
On this site I have in the past propounded the theory that capitalism
is broken. As recently as the last issue
I was recounting the difficulties that even the shrewdest investors
were having in finding a good return. Capitalism's failure has
been brought about by the
explosive growth
in communications resulting from the dissemination of computers and the
internet. Instances of this destruction can be found in the
retail industry, where internet sales
requiring only low cost warehouses have acquired a significant and
still growing share of the market, the telecommunications industry,
where all communications will eventually become IP packets, and all
telecommunication modes (local, long distance, fax, internet, possibly
even TV) will be carried free along a single rented (or owned)
broadband line connected to the internet. Timed minutes are a
thing of the past.
The common thread is that less capital is required to install the new
technology, and it is cheaper to run. Hence there are fewer
investment opportunities for the owners of capital, and the returns are
lower.
Another factor is that there are no
new enterprises in which to invest. (This is because new
enterprises tend to be small, to not be capital intensive, but do
require labor having a high level of skill.) That is why real
estate and stock prices are rising, even though the (absolute) returns
from these investments are static (the rate of return is consequently
falling). There is too much money chasing too few
investments. Another by-product of this failure of investment
opportunities will be a declining government tax base. The last
great untapped source of government income is land. I expect that
land taxes will begin to escalate rapidly as income taxes fall,
producing a rather unpleasant squeeze on property investments.
Q.E.D.
Because capitalism is
broken, interest rates must keep falling,
and land taxes must keep rising.
Getting back to interest rates in Australia. My own cynical
assessment is that the reserve bank governor
(McFarlain?) is misdirecting the market that interest rates must rise
because he does not want to change rates either way, and
so has built a case for rates to rise so he does not have to fight
pressure to drop rates.
After all, the US Fed has used the talking strategy to manage rates, so
perhaps it would work in Australia?
Why should our frugal government
want to pay more interest on it's borrowings? Because that is
what raising the interest rate does.
Caveat - Of course McFarlain could, against all economic logic, raise
interest rates. I predict that if he does the result would be
such extreme economic hardship that he would
have reverse that move at the next reserve bank
meeting.
1st March
2005
In "The Australian" of today a position on increasing interest rates
"Better
late than later" is taken under the nom de plume Henry Thornton.
Ross Gittins "Macfarlane's
secret fear: pay-packet inflation" has already countered (on 26th
Feb) most of Henry's assertions, but one unanswered assertion that
particularly struck me was Henry's discussion of "Taylor's Rule".
"The (Australian)
cash rate = the inflation rate + the real interest rate + 0.5 x (target
unemployment - forecast unemployment) + 0.5 x (target inflation -
forecast inflation)."
To apply the formula, Henry gives inflation as 2.6%, real
interest (?)
=3.25% and forward (forecast) inflation as
3%. The existing cash rate is 5.25%.
The first thing to note about Taylor's Rule is that it
contains two
forecast figures. So already the formula requires either input of
a guess, or of some other formula. The next thing to note is that
"the
real interest rate" is a fiction, which is actually defined in a
circular fashion, because it is intuitively defined as:
Real Interest Rate =
Cash rate - Inflation rate.
Plugging those values into his formula, Harry obtained an equilibrium
cash
rate of 2.6% + 3.25% = 5.85%.
I believe that Henry might have made a numerical error when he
obtained a rate of 6.25% using forecast inflation of 3%. The
calculation using Taylor's rule (assuming that target
inflation remains unchanged at 2.6%, and unemployment is neutral) is:
2.6% + 3.25% + 0.5*(2.6% - 3%) giving 5.65%, not 6.25% as the cash
rate. To obtain Henry's result of 6.25% with Taylor's rule
above and the given inputs would have needed a target inflation of 3.8%.
Of course I suspect that there must have been some sort of
transcription error in Taylor's rule. It just doesn't make sense
as it is written. Further research on the internet substantiated
that suspicion. The formula can be corrected by inserting a
negative sign in front of each instance where "0.5" occurrs. In
that case the correct result from Taylor's rule would be 6.05%
What many people who are not scientists do not realize is that not all
"sciences" have equal reliability. When an engineer
designs an aeroplane, he does not plan that it should function as
designed in 95% of cases, but in 99.99995% of cases. Engineering
is considered to be a "hard" science because it produces reliable
results. On the other hand, when a
psychologist declares a law in Psychology, it is based on a "95%
confidence limit". He does not expect that all persons will
function as predicted by the Yerkes-Dodson law, he is happy if 95% of
persons do so. Psychology is known as a "soft" science.
Economics is a soft science, despite what Econometricians might
otherwise imply (wish?). Taylor's rule is
not a rule in a
hard science. It is an hypothesis in a soft science. Even
if Henry
had correctly calculated the optimum cash rate, (6.05%) I would not
have
accepted that
Taylor's rule had reliable predictive power. This is because
everything
(even the mystical NAIRU) is changing because capitalism is being
destroyed.
My cousin crystallized it in two sentences. He said, "I have
performed a complex mathematical analysis of
share movements over the last twenty years, and have developed a
formula
that perfectly predicts all share price movements up to
yesterday. The trouble is it has no predictive
power whatsoever for tomorrow."
The soft sciences are in their infancy. There is an argument that
formulae in Economics cannot work, because if they did, then everybody
would
then use that formula to bet on the stock exchange, thus altering the
predicted changes and rendering the relevant formula invalid.
EMAIL
ARCHIVES.