America

"People, the world over, have always been more impressed by the power of our example than by the example of our power" 

Bill Clinton, 2008

Contrasts

I just arrived from Malaysia, where I spent a couple of weeks traveling around.
Malaysia is a cheap country. Food is cheap, accommodation is cheap, transport is cheap, most things for sale are cheap. Oil is cheap...
Malaysia is also a warm country, tropical, humid, rainy at times, so we can not blame the locals for abusing the air conditioning...apart from the fact of setting it to polar temperatures. Everything is air conditioned, houses, shops, cars...

What led me to write this post however, is that in Malaysia, it is common place to leave your car running while you go shopping or while you have a pause along the highway to rest, just so that the car is still cold when you come back.

We live a confortable life in the western world, and can't blame them for wanting one also. Nobody keeps themself from buying and using airco in the car, or heating in the winter. All people should have access to a comfortable life.

It is easy to provide comfort, if people are willing and/or able to pay for it. Shouldn't we also provide education.

creative capitalism

There was a nice article on Time a few weeks ago, on creative capitalism, explained and defended by Bill Gates:

http://www.time.com/time/business/article/0,8599,1828069,00.html

Portugal, what's wrong with you?

As an emigrated portuguese I keep an eye on what goes on back in my country with the Público newspaper RSS feed. A brief summary of the news I've seen pass in the last couple of weeks:

• Robbery to the BCE bank branch, police shoots down robbers
• Robbery to security van in highway A2 with explosives
• Robbery to jewelry and murder of the owner
• Robbery to construction site and police shoots son of thief
• Robbery to gas station in Cascais using robbed cars with Carjacking
• Stolen car causes accident and kills 3 people
• Robbery to Post Office in Setubal
• Robbery to gas station in Caparica by 2 men in disguise
  
• Robberies to houses in Gaia, thief caught by police
  
• Robbery to gas station in Fogueteiro by 3 armed men
  
• Robbery to the BCP bank branch in Sintra by 2 armed men
  
• German citizen shot in the head in Boliqueime
  

Today alone I registered 6 of the above occurrences... despair is taking over in times of crisis?

Another angle on the oil price crisis

Yesterday we went out to dinner with friends and one of our friends happened to be working in banking, more precisely in oil futures and options in London financial industry. He is a financial engineer. We asked him what he thought was going on with the oil price and he gave an interesting insight.

The reason, according to him, why oil price and other prices in general (as food) suddenly went up, was related with two factors. The first one, the sub-prime crisis in America. The trillions of dollars in mortgages that cannot be repaid, require the government to issue dollars to finance the losses. The availability of more dollars not matched by a corresponding increase in production (GDP) causes the value of money to drop. And since most goods in international markets are indexed to dollars, including oil, the prices went up as dollar went down. He does not believe in current unbalances in production and demand or speculation, although he doesn't exclude it may yet happen. The second factor, which had to do only with the price of oil, was related with problems in America to refine oil into gasoline, forcing them to look for gasoline in the european market, which caused prices to rise because of more demand.

Now what amazed me the most was his explanation of the financial system. A great amount of the money currently circulating in financial markets, does not exist, nor is there any real chance it will ever exist, and believing that it exists requires a faith as great as believing in God himself. 

How it works most of the time, according to my friend, is like this. Say for example Jim has 100 euros. Jack comes along to get a credit with Jim. He asks for 100 euros. Jim does not really hand him the 100 euros, but rather he hands a note that says "I owe you 100 euros". Jack trusts Jim, because he's such a nice fellow and he knows Jim actually has 100 euros somewhere and he will be able to collect it any time in the future when he really needs it. Now Jim knows Jack trusts him, and is convinced he'll get some more money in the future anyway and Jack is not in a hurry to collect so he goes ahead and spends his actual 100 euros somewhere else. 

Jack takes the note Jim gave him and goes into a car stand where John works and asks to buy a car, the car costs 100 euros, Jack doesn't have the money but he has the note from Jim, which is good for 100 euros. John also trusts Jim and accepts the note from Jack in exchange for the car. John goes down to Jill's furniture store, and again manages to get the note pushed through in exchange for a complete new set of furniture for his living room. So up to now a lot of transactions have been made purely trusting on Jim's ability to cover that 100 euro note, sometime in the future.

This whole financial system is based on trust and faith. It is enough that the word comes out that Jim is not to be trusted and that note he gave away looses its value and the whole system collapses. So the only way to slow down these fluxes of virtual money is to force interest rates on these credits (by the way have you noticed how interest rates have risen since 2004?)

source http://www.bank-banque-canada.ca/

Of course this happens at a scale much larger than Jack and Jim and the purchase of a few items, it goes on at the scale of countries, and global gigantic financial transactions...

Finance specialists actually attempt to measure the amount of money flowing in the economy, and that amount grows at a rate of 10/12% a year. The GDP which should equal the production of value in an economy grows currently at less than 2%. So there is clearly a lot of virtual money flowing around to purchase futures, options, insurance on profit losses and other crazy financial products, which cannot ever be matched by real hard cash...

This brings us to what happened in the States with the sub-prime loans. Mortgages taken by people who had to make extraordinary effort to pay the installments, to buy houses which were extremely over-valued by speculation. Then the economy slows a bit, unemployment raises or people get sick (and have no health coverage) and they can't pay back, the bank takes their house, a lot of houses appear in the market, their over-valued price drops like stones, the bank has no way to recover the money, the government steps in to issue more money, money drops value, etc...

"The problem for financial markets is that the virtuous circle which pushed asset prices higher in the middle of this decade may be turning vicious. Banks lend money against the collateral of assets, most notably in the form of housing. As house prices increase, the collateral rises in value and the banks are willing to lend more. That enables buyers to bid up prices even further. But when banks stop lending, buyers are unable to purchase assets. Some investors are forced to sell to pay off loans. The value of collateral falls, making banks even more reluctant to lend. Markets freeze up, as neither buyers nor sellers have the confidence to do business." (in Economist 5th July 08)

This was the second person I've met in the last 2 months who says he's working in the financial system to make as much money as possible as quickly as possible and then get out, because everything is so virtual and ethereal, that it is hard to believe it exists at all... 

The catch is this though, it is a system that you can't believe can ever work, but if you don't believe it and remove the trust it comes tumbling down... let's pray my sisters and brothers...

Which trucks are actually coming?

It is somewhat difficult, when you're out on a nice walk, to distinguish of all the sounds you hear which ones are potential trucks coming around the corner, as suggested in the example in the previous post.

So I decided to make a list of the main potential trucks that people keep talking about lately, and that generate all sorts of dangers, debates, doubts and dilemmas:

• Global Warming due to CO2
  
• Oil peak and the end of reserves
  
• Resource depletion (forests, water, arable land, minerals, etc.)
  
• Global financial system crash
  
• Asteroid hitting the planet
  
• Polar caps meltdown and the Gulf Stream disturbance
  
• Iran nuclear arsenal
  
• Demographic explosion
  
• Terrorism and religious fanaticism
  
• Economic recession or another great depression
  
• China and India economic growth
  
• Russian military revivalism
  
• Pandemics and Epidemics
  
• Crash of Pension schemes due to aging population
  
• Loss of Biodiversity
  
• Violations of human rights
  
• End of democracy
  

If you're actually reading this post, you may like to comment and add to the list, choose the ones that scare you the most, the ones which are less likely to cause any hassle, an so on.

Thanks already for any contributions!