Friday, December 30, 2016

The New Cold War is out in the open now

Russian interference in US electoral affairs has finally triggered the visible emergence of the New Cold War.

There were often hints of a New Cold War, but these were limited to chatter on the internet and in the occasional outburst by official sources in the media.

The war was intense in cyber space - but now it has entered into the real world.

To recap - when the Soviets and the US realized they could not nuke each other to death, they fought a bitter and terrible conflict which we call the Cold War. While maintaining a twisted kind of nicety in public and carrying out grand gestures towards each other on the world stage, the two sides spent vast sums of money on undermining each other. A great atmosphere of tension existed and every move had to be considered with the mindset of a chess grand master.

It was a strange world, but it was one I grew up in. One that I got used to.

Most of the millennials would find these ideas absurd. I recall vividly the empty looks in the eyes of my teenaged nephews when I tried to tell them about this history. They couldn't understand how a war could be raging a few feet from their house and they would be completely clueless. The idea of a Soviet illegal living among them as a perfectly American family might was crazy. They couldn't get their head around the idea that Joe and Jill Schmoe next door might actually be Pavel and Anne Gottslieb from Finland and that when they weren't baking apple pies, they were putting together attack plans on the nuclear missile launch complex that was ten miles down the street. Naturally my nephews didn't know about the nuclear missile base either.

Unbeknownst to many in my own generation - the old Cold War was actually horribly expensive both for Russia and the United States. Not many realize how many man hours this kind of thing chews up in unproductive activity. It is always better than a nuclear war or conventional war, but it is still extremely expensive.

I don't know if Russia actually hacked the electoral machines. It may be as the evidence so far suggests Russia tried to slant the election against Hillary Clinton and leak all manner of nasty bits and bobs of information via Wikileaks, DC leaks and so on. Whatever they did - I am guessing that it was premised on the idea that somehow Donald Trump was a far easier adversary to manage in a New Cold War. 

I want to point out to the folks at Yasenevo - that premise may be fatally flawed.

Donald Trump has a well known tendency to say something and then completely reverse himself in seconds. When confronted about this he compulsively gaslights the people asking the questions.

Look at the way he treats the press in the US, the manner in which he manufactures hatred of them in special interest groups. Why would any SVR analyst think that he would not do the same with a foreign nation like Russia? If he treats his own countrymen so badly - why will he treat foreigners any better?

The simple fact is that Donald Trump only behaves nicely with people who have huge teams of lawyers to go after him. He only bows to someone he sees as a bigger and better armed fish. Therein lies the place where it all falls apart. Whatever Carter Page is saying to you, whatever "Rexie and Putie" pulled together looking at maps - the only way to actually achieve any of that is to keep RU Nuclear Forces at high alert. That is leverage that RU will not be able to do without. President Donald Trump will blow smoke up President Putin's ass just the way candidate Donald Trump blew smoke up the asses of millions of Americans that voted for him.

Raising the readiness level of Russian nuclear forces sounds possible in theory - but in practice - we all know that is very very expensive and Russia with all its infinite might can't actually afford that expense right now.

I know that sometimes in Moscow (like that time when Hitler's army charged across the border)  it becomes hard to state the obvious. How many high ranking intelligence personalities in Moscow knew that Hitler was conducting no exercise? - and how many dared tell Stalin? Is it a surprise really?

Unless someone voices the obvious - it is not clear how things will proceed divorced from the reality of the time.

If no one in Moscow dares voice the truth - the good luck -we are all going to need it.

Thursday, December 29, 2016

The economic effects of introducing tariffs on a national economy

Donald Trump has talked a lot about tariffs on China and Mexico. He has trash talked the TPP and NAFTA - which is what we use to trade with Japan and Canada. These four nations are our biggest trading partners and together with our financial partners in the UK and Europe - form the basis of the current global economic miracle.

I ran into this presentation on the effects of tariffs on a country [1]. It is pretty tersely written but slide 12-26 get into a macroeconomic description of the effects of tariffs on an economy as a whole. I am going to try and put this into words and fill out the missing parts of the presentation. I think this is a pretty decent discussion on econophysics.

For references keep this link to the wiki entry on supply-demand curves handy [2]

In any supply-demand curve there is a point at which the curves intersect. This point defines the price of a good/service in the market defined by that demand curve and the producers defined by the supply curve.

The area above the price point and below the demand curve is the benefit to the customer. If the price point is lower - the customer benefits more.

The area above the supplier curve and the price point is the benefit to the producer. If the price is higher the producer benefits more.

If you introduce tariffs - you increase the price of the good/service. This is basically the same thing as moving the supply demand curves relative to each other.

The result is a change in the areas corresponding to the customer benefits and the producer benefits.

When you have no tariffs the price is very low and there is a massive benefit to the customer. There is very little benefit to the producer.

Once you add tariffs to this situation, you move the price up and that decreases the consumer benefit but increases the producer benefits.

Now the part that is hard to understand is that the increase in producer benefit from tariffs does not have to equal or exceed the decrease in consumer benefit. 

Everyone who supports adding tariffs assumes this is a zero sum game - what you lose by way of increased prices is made back as salary people who produce the same good/service domestically. This is incorrect.

The supply demand curves do not have trivial shapes - the areas do not add up to the same amount. When you shut down free trade, you end up creating dead weight losses which are not picked up either by the producers or by the consumers. This is lost benefit that is never recovered.

Unless the amount of money earned in revenue to the government is somehow sufficient to overcome the dead weight losses - the act of introducing tariffs leads to a net loss of benefits to the nation.

This is not something that can be easily explained to people who want to use "common sense" instead of economics - but here is my attempt at translating this.

Currently you pay $100 for a Chinese smart phone. The US buys some 40 million of those a year. You might be willing to pay $200 per  smart phone so 40 M * (200-100) = $4B is you current consumer benefit. US manufacturers do not make any smart phone so there is no producer benefit.

Now tomorrow President Donald Trump introduces a 45% tariff on Chinese made smart phones. You have to pay $145 instead of $100. The high prices causes demand to drop by 25%. So now the customer benefits are 30M*($200-$145) = $1.95B. This is a net loss of customer benefit of $2.05B.

Now if it costs  $125 to make the smart phone in the US then by selling the same smart phone as the price of the import - US manufacturers could reap a benefit of $20*10 M =  $0.2 B. The US government would stand to get $45*30 M = $1.35B in taxes. A total producer benefit + tax gain would be $1.55B.

This would not be enough to offset the loss in consumer benefits. We would still be short by $.45B.

You can do this kind of calculation for every sector that we currently enjoy a consumer benefit in and the result is pretty much similar.

Applied across the hundreds of thousands of products we currently get from China alone - I think we would likely see a net consumer benefit loss of several trillion dollars.

What nukes does Russia want to test?

As you may have heard, President Putin and President Elect Donald Trump have indicated a desire to build stronger nuclear arsenals [1].

I think most of us have some guesses as to what that means at the US end - but what does it really mean at the Russian end?

As you might expect, it is very difficult to find actual information about Russian nuclear weapons design. The usual (American and British) sources are reluctant to talk about what they know about Russian designs and issues as this information is often secretly sourced. Only very skimpy descriptions of Soviet nuclear designs are known in the public domain. Wikipedia maintains a pretty decent archive of these things [2] but as you can see there is very little meat on the bone there.

We know that the basic soviet fission design centered around ideas gleaned from American sources via a formidable spy network. However as the spy network was disrupted and the American knowledge of higher yield fusion based devices was shaky at best when the network was still active - the Soviets had to come up with their own ideas for how to use fusion reactions in nuclear explosives. For some detail see LANL's wonderful history collection [3]

As indicated in the Wiki article - there is a tiny bit of insight into the workings of Soviet physics packages. We know that in 1948 Dr. Andrei Sakharov's team expanded existing notions about fusion boosted fission devices (capable of ~ 10kT) and developed a "layered cake/sloika" design. The bulk of the yield in this device came from fission reactions and the fusion yield was just to enable boosting the fission yield of the device (capable of ~100kT). We also know that by 1955, Dr. Sakharov's team had worked out how to build two stage devices and use the X-ray emission from a fission primary to compress fusion fuel (capable of ~ 1MT). The Sakharov team also pushed aggressively to see how far they could go with this technique and built a three stage device with a fission primary and two fusion secondaries. The X-rays from the first fission primary were used to compress the first fusion secondary and the explosion of the first fusion stage heated and compressed a second fusion stage. The result was a 50 MT design. A plan to add a boosted fission element to the design was abandoned after it was felt the yield might exceed 100 MT. In this fashion the Soviet physicists were able to create a design ladder that straddled the 1kT - 100 MT range.

These experiments in nuclear explosive design were sufficient to demonstrate Soviet mastery of the core ideas of nuclear weapons design (i.e. knowledge of the precision needed to control stacked sets of fission and fusion reactions) - but it too completely different tests to prove that it was possible for the Soviets to make practical nuclear weapons.

A practical nuclear weapon is one which can be used to deter an adversary from launching a nuclear attack.

A practical nuclear weapon is reliable - as in when you ask it to explode - it always explodes.

A practical nuclear weapon is safe - as in it doesn't go off when you don't want it to.

A practical nuclear weapon is economical - as in when you have it sitting in storage - you don't have to keep pouring ungodly amounts of money into refurbishing it.

The Soviets spent a great deal of time and effort in pursuing practical aspects of nuclear weapons design. And the Russian inherited all this when the USSR fell.

Things were pretty messed up for a while in the FSUs but over the last two decades Russia has consolidated its hold on *all* nuclear weapons mission critical resources. Perhaps the most revealing comment in  [3] is in the conclusion slides -

"The Russian nuclear weapons complex has downsized while modernizing within a smaller and more efficient footprint." 

This speaks to the Russian sensibility of maintaining their nuclear deterrent at economically acceptable costs. This is very reassuring to me as a human being - because I really do not believe the caricature of the mad vodka slugging Russian general who pushing the button while totally wasted. The Russians are fundamentally speaking a cultured and rational people - but their sense of culture and rationality is very different from what we might easily recognize.

I think all this together tells us what Russia wants to do on the nuclear front.

I feel that if the Russians want to test a new physics package - it will lighter, more survivable and more easily serviceable.

Leaving aside fantasies about a Gen-4 direct fusion package, one can visualize a small two stage or a FBF design as being more suitable for modification to such narrowly defined aims.

The first part of that is probably the least difficult given how much the Russians have inherited in package design from the Soviets. The Russians are also very good in the chemistry side of things, so it would not be too hard for them explore different compact explosive lens designs. The Russians have also made a lot of progress on the electronics side, so you can imagine that they are able to produce lighter weight rad-hard electronic controls quite reliably.

The second and third parts of that goal are somewhat more difficult as the design window narrows quite rapidly and trade-offs come into play.

If you want a physics package that can handle the shocks that accompany a sudden maneuver at Mach 27 (as you might want in a MARV as opposed to plain old MIRV)  you need to bulk up the warhead to handle things like the thermal shock and vibration. If you put a nice thick shell on the package and rigidly anchor everything inside it - you get a package that is very difficult to service and not very light.

There have been some advances in material science recently that permit you to push ahead with certain compromises but the utility of these in the demanding environment of a mass produced physics package is unknown at this time.

So that is where things may lead us in the near future.

If the Russians want to test new warheads - the best place to go would be to lower yield but better guidance. You can always use some Laser, RF signals or GPS to guide your weapons platform, but this is not secure and we all know that "Real Men only use INS". Most INS require a bullet-proof idea of what the errors in your gradiometer and gyroscope are. So any improvement on this side requires more work in gradiometry and gyroscopy. This in turn requires better gravitational mapping. Some of that work is going on [4,5] , one will need to see how such knowledge is transferred to the Russian weapons design side.

For external observers of the Russian special weapons program, the challenge will be to maintain a state of highly informed opinion. This is challenging at the best of times - and this is why an Arms Race as postulated by several people in the Non-Proliferation community might develop.

The Arms Race of the 50s developed because of an imperfect state of information on the size of the Soviet and American nuclear arsenals. When Edwin Land and others were able to bring the CIA's scientific intelligence operations to a level of maturity - the IMINT was able to reduce ambiguity and the Arms Race gave way to strategic arms limitation talks.

In our age - independent OSINT has taken the place of pride once occupied solely by the all seeing eye in space. This is where the bulk of the work will need to be done in the coming years.

Perhaps the best way to cope with a potentially dangerous situation would be for the Russians to educate the world at large about their plans. 

Wednesday, December 28, 2016

The settlements question - Israel's national security conundrum

As most of your are aware Israel's national security consists of one conundrum after another. The most vexing of these is the issue of settlements.

As Israel's population grows, it needs more housing. There is no more land in Israel, the only place where new housing can be constructed is the occupied territories. Housing cuts right to the core of the Israeli national identity - Israel is the Jewish homeland. If there isn't enough housing then the Israel's USP is kind of lost. For its part the Israeli government has stated that it isn't seizing land as much as recovering it - because the land was originally Jewish but taken over by non-Jews after forcing the Jews out a thousand years ago.

The world at large supports the idea of an Jewish homeland,but does not entirely legitimize the way Israel seizes territories and puts Jewish settlements in them.

Even within Israel, public opinion is divided on the issue of settlements, although most people agree that some solution has to be found to the housing issue.

The matter is complicated by the fact that neither Israelis nor other external observers actually know whether the settlements help make Israel more secure.

The unstated risk in this settlement debate is that while the settlements do help fulfill the promise of a Jewish homeland by providing housing, they actually deeply compromise the security of Israel by creating the appearance of a land grab. This appearance alienates people who want to support Israel and it creates opportunities for various anti-Israeli groups to coalesce.

The debate inside Israel is very touchy and barring a few opportunistic political groups - most people try to steer clear of the issue if they can. If the issue is forced to the forefront, it typically results in a situation where fissures open up between the Israeli law enforcement and the settlers and this is seen as being extremely corrosive to Israeli national security. The effect is even more pronounced when the Prime Minister is politically indebted to powerful settler lobbies like YESHA.

From the perspective of the international community, Israeli settlements and their local political impact are less of a concern than maintaining the ties to a region rich in energy resources. Most international players would like it if Israel could just play nice with its neighbors and by and large international actors try to sidestep the whole issue of settlements and engage Israel in a variety of trade deals as they proceed to tip-toe around and shake hands with the oil rich Arab kingdoms.

As the settlers do not recognize Israeli law and its limits, they push ahead with settlements whenever and wherever possible. The Israeli government then has to oscillate between tearing down settlements and retroactively legalizing them. This makes it a very nasty and risky game for real estate developers who are in the business of opening these opportunities to outside investors. Matters are also complicated by the fact that certain groups of people control a substantial chunk of the private property in Israel and there is public pressure to get these groups to behave less like a cartel. So even if the Israeli government is actually just enforcing the law, settlers make it seem that the government is actually acting on behalf of a land mafia. It is very complicated.

Things come to a head when some Israeli politician makes a promise to the settlers that in exchange for votes in today's Knesset election, s/he will work the system to get them the legalization they desperately seek. Once that kind of deal is in place, the entire Israeli political system becomes extremely sensitive to the smallest international perturbation.

It is at times like this that we see stuff like the UN Vote saga play out.

The sudden appearance of this dynamic also sheds light on key events preceding the November election. I think we get a unique window into the role of Sheldon Adelson, Bibi Netanyahu and Jared Kushner in the election. A lot of the posturing around the Iran deal also seems comprehensible now.

Tuesday, December 27, 2016

News channels are mixing up declarations with decisions, decisions with completed actions, and completed actions with outcomes.

In India one observes a disturbing trend in media coverage of the Great Event. A common thread here is that bits and pieces of opinions are mixed into the actual news to give the appearance of a complete story.

Declarations are being presented to the general public as government decisions: There are numerous examples of this but the vernacular media are particularly susceptible to such misrepresentation. Perhaps it is because their reporters are not sufficiently experienced or it is because their editors have misguided ideas of what actually improves their channel's ratings. Whenever this kind of misrepresentation creates the mistaken impression that a declaration of a lofty policy goal is somehow an actually complete government policy positions and that a decision has already been taken to implement it. This is often not the case. A high level official may announce a policy merely to drive public debate about it and gauge the peoples' response. This is called floating a trial balloon and it is sometimes the most efficient way to determine if a policy is viable. This is not the same as a completed government decision that has been through several layers of internal reviews.

Government decisions are being shown as completed actions: Again all channels are guilty of this at some level, and I understand why an editor might be tempted to do that. We are all susceptible to falling victim to fantasies, who wouldn't want to live in a corruption free world? - we are bad as the editors. But there is a major difference between a government decision to do something and actually doing it. For example, PM Modi might decide he wants his government to prosecute all people who have "black money". That is very different from the GoI actually prosecuting the several million people in actual court cases and securing convictions based on evidence that stands up to the court's scrutiny. Reality has a way of pushing back against this kind of thing - as things stand the current case load on the courts in India is so high that if the GoI suddenly drops 1 million new corruption cases on the system - it will push the resolution timescales for even the smallest disputes into a century. The typical wait now for a court case is a decade. If these proposed measures are actually implemented the entire judicial system will be jammed with an insurmountable amount of suits and counter-suits. I will be highly shocked if even a dozen of those seizures by the CBDT after Nov 8th are actually upheld by the courts. Yet somehow - news channels are presenting it as if all the corrupt people are somehow magically being arrested and prosecuted successfully already. Very few charge sheets have been filed - no one has been prosecuted yet.

Completed actions are being presented as obviously desirable outcomes: Again this is a case of wishful thinking getting the better of our common reasoning and rationality. Even if an action is completed - that doesn't mean a desirable outcome has been achieved. For example, let's say that all real estate transactions are somehow electronically accounted (such as might happen through the EPPB scheme). This is a big check mark that the Modi government can give itself. That does not however mean that all benami ownership is at an end! Any electronic record can be hacked or modified or corrupted. This will frustrate any effort to enforce the Benami Properties act. Without consistent enforcement the entire exercise will be completely defeated. What works in the context of an EPPB also applies in the context of gold ownership documents.

I understand there is such a thing as post-Truth but the fucking motto of the nation is supposed to be "Satyameva Jayate" - Truth Always Prevails - so can you at least pretend to give a fuck about it?

Can President Trump start a nuclear war with Twitter?

Short answer - Yes.

I had refrained from speaking directly to this issue as I felt it might not be appropriate, but as others have already done so - I feel comfortable talking about it.

Details below.

As Jeffrey Lewis has already commented, there are two main ways in which President Trump can start nuclear war via his twitter account.

1) "Appearing to telegraph a decapitating nuclear strike" - this means two things see below:

  • President Trump suggests on twitter that a decapitating strike is imminent. This will push the US nuclear command authority into a "use or lose" position. 
  • President Trump suggests on twitter that the US should carry out a decapitating strike on another country. If the other country is a nuclear power - then it will pushed into a "use or lose" situation. Unless cooler heads prevail in the other country which Donald Trump targets in his tweets, they will launch against US targets.
2) "Publicly closing off diplomatic exit ramps" - this is more obvious - if the nation being targeted in President Trump twitter trolling feels that it has nothing to gain from diplomacy, it will be pushed into a nuclear "use or lose" situation and the is almost no way to avoid using nuclear weapons at this point.

There is one more scenario that I feel Jeffrey Lewis seems to have missed.

Deterrence at its core relies on the notion of the adversary being a rational actor. This is perhaps the most questionable part of the whole deterrence process - and naturally national security communities everywhere have large sections that push back against it. 

In order for this to actually work one needs to be able to make a determination that the adversary is not irrational. If no such determination can be made - then one ends up in a very very dark place. You simply cannot determine if a threat is emergent and so your instinct is to raise your readiness levels. Once you operate at higher readiness levels, you open yourself to misuse or accidental release mishaps and your adversary might read your actions as a hostile intentions and put their own forces at a higher level of readiness. The situation can quickly creep up the escalation ladder before corrective measures kick in. 

Whether we like it or not - all intelligence gathering is a matter of polling and averaging (or perhaps more correctly statistical modeling). Most agencies prefer to do these polls and models in an explicit fashion, although every intelligence officer at some point of time uses their own personal judgement to determine whether the intelligence estimate is reliable. There is no magic bullet and all data is averaged in building up an estimate. That is why even a twitter feed can become part of an estimate. If you don't believe me ask all the financial analysts that are now trying to figure out how to capture the "twitter-risk" to their stocks. This problem is particularly acute in the case of Donald Trump's twitter account as he uses the account as his personal communication space. It automatically feeds directly into the intelligence estimates of all our adversaries - including traditional foes like Russia. 

During the campaign it has been noted that Donald Trump frequently reversed his positions on key issues, and displayed an amazing lack of comprehension and coherence on nuclear weapons issues. His supporters saw this as a sign that he had some savant level understanding of things, his detractors pointed out that this is exactly a way a bullshit artist behaves. 

Now that he is no longer campaigning and still doing all manner of flip-flopping, his supporters are bewildered. His detractors see something more sinister at play. (for example he said he had a secret plan to fight ISIS - he had none - his landing team in the DoD asked the officials there to prepare one. His supporters have fallen remarkably silent on this - his detractors are saying he will declare a war on ISIS to seize control of executive powers currently outside his reach.) .

President Trump's flip-flopping may be "just politics" (whatever that is) - but any rational SVR-RF and GRU analyst would be within their rights to wonder if President Trump is a rational actor. By questioning his rationality, these analysts could call into question the stability of the US-RU deterrence regime. 

As long as President Putin is in power - he will be able to hold the voices of dissent inside Russia's intelligence community at bay. If he is unable to do so - or is removed from power, the RU will move its nuclear strike forces to a maximum lever of alert.  

The closest historical analog to this is the early 80s - when President Reagan's irresponsible campaign rhetoric put the world at the edge of a nuclear sword. And the worst part was that Reagan and the USIC really didn't know how close it came. Only after the USSR fell - did the terrible secret of Able Archer become known. As Chairman Andropov lay dying in hospital and the final hours of Able Archer dragged on, the Russian military asked for powers to move and launch nuclear weapons without direct Kremlin authorization as clearly nuclear war was imminent. 

Most people don't know the story of Able Archer. It is too terrifying for a greater portion of people to even begin to comprehend in its entirety.

Thursday, December 22, 2016

What are the Democrats up to?

It is a common refrain among Trump voters these days - "the Democrats are irrelevant".

I agree that is what you might want to see but is that really true? and more to the point what are the Democrats doing lately?

If you follow the usual liberal talk shows you see a pattern -

1) the shows that supported Bernie Sanders continually push the line that the reason the Democratic Party lost these elections is Hillary Clinton. She is simply "too disliked" by "too many people" and "if only" people had listened to the Bernie supporters - the election would have been in the bag.

2) the shows that favor the Democratic establishment push the opposite idea - that Bernie supporters were too flaky to begin with and when Bernie lost the democratic primaries, they simply didn't turn up to vote or simply switched their votes to Trump as a way of getting back at Hillary.

This visible dissonance aside - both factions are united in their opposition to Trump and his cast of anti-liberals.

To understand what the Democrats are really doing - (as opposed to what the Trump supporters would like to believe that they are doing) - one has to look at the election of 2016 very carefully.

Since the Donald Trump campaign has proven beyond any shadow of a doubt that brazenly lying to peoples' faces and openly gas-lighting is very rewarding - large sections of the Democratic party's underground have taken to spouting the same kind of stuff that Donald Trump himself spouted about President Obama. An every widening front against Donald Trump legitimacy is being mounted via democratic proxies and it is just as likely to succeed as Donald Trump's own campaign on Pres. Obama's birth certificate issue.

The result is a widening polarization and since all scientific surveys now prove that people are inclined to believe fake news especially if it contains apocalyptic visions of the future - the Democrats are now positioning themselves to cash in on this trend.

Once viewed through this lens, a lot of stuff starts to add up.

Hillary Clinton's campaign is over - there is no reason for that organization to even exist and yet it does. It exists purely because it is a psychological bulwark and from behind this bulwark the Democratic party can launch attacks on the Donald Trump campaign while leaving room for its legislative units (did you see the bit about Sen, Schumer welcoming President Trump refreshing new ideas?) . This is a variation of the old two step.

Most independent observers noted that asking for recounts in states like WI, MI, PA was unlikely to change the election outcome. And yet the Democratic Party via the Clinton Campaign chose to challenge these results. A similar attempt was also made to lure electoral college voters away from Donald Trump. The price of the bride of course was providing visible accommodation to Bernie Sanders supporters. It was clear that strategy would never win, but the net effect of the move was to remind President Donald Trump - that he was only as secure as the Republican party would let him be.

Most people would take that last part as a "uh - Duh - of course he knows that!" - but think about. Does Donald Trump really know that every second he remains President is entirely due to the Republican party and that he must toe the party line every instant of his physical existence? does he realize that party bosses like Reinhold Preibus and Paul Ryan call all the shots and he is merely a figurehead allowed to loot the country while the anti-liberal agenda makes visible headway?  Do you think he knows that he has to distance himself from the "drain the swamp", "lock her up", "bring the jobs back", "build the wall" etc... rhetoric that got him the votes?  and that he is expected to martyr his political legacy on the altar of the anti-liberal manifesto for the United States?

A sane person would find such thoughts debilitating. We all know how big "the Donald's" ego is - would it withstand contact with something that corrosive for any length of time?

I think the answer to that is a resounding "NO". My personal guess is that President Trump does not like to be reminded of the fact that despite all appearances he is entirely at the mercy of the Republican Party bosses at this time. I suspect he likes to think that he is still a free agent with a massive public support base and a vanguard composed of Brietbart following diehard fans. He probably actually believes that he will be able to live in Trump Tower for the most part and then occasionally fly to the White House and put in a few hours of work - you know just like he does with his charity.

Now that I have come out and said that - you can see where the weakest point of this entire political situation is.

The Trump political machine's relationship with the Republican Party is a sheet of some very thin ice. If either Donald Trump or the GOP bosses get it into their heads that this relationship is not viable - it will shatter in a spectacular and "unpresidented" way and that is no "euphenism" - I really mean that - there is no such thing as a political prenup.

Any physicists among you probably realize where I am going with this. The Trump-GOP relationship represents the critical portion of the current set of political equations. It is the one to watch if any predictive power is to be retained at this time. Like any system perched perilously close to a major phase transition, the system will experience periodic oscillations across the point of collapse. When these oscillations appear to grow in amplitude in a short time - the likelihood of a runaway effect kicking in are extremely high. That is where the phase shift will present first.

Wednesday, December 21, 2016

Stories from a planet in a galaxy far far far away - The Cyber War crashed the World

On a planet in a galaxy far far far away - there once was a mighty information sharing network that connected all the citizens with each other. This network called the Borld Bide Beb (BBB for short) the citizens of this planet were able to share their collective knowledge and solve problems that were simply too hard for any one citizen to cope with.

However this Borld Bide Beb was a utopian fantasy as the intelligence services of various nations on this planet had penetrated the Beb to spy on their own citizens.  This logic of this went as follows -  the intelligence services were supposed to protect people - and how could they protect the people if they weren't keeping an eye on everything?  

There was unfortunately a fatal flaw. In order to do this "protecting" these intelligence services had to identify weaknesses in the construction of the Borld Bide Beb and keep these weaknesses secret in order to be able to exploit them for security reasons. 

This fatal flaw manifested itself in the fullness of time. The intelligence services were in a state of constant war in cyberspace. As they fought each other tooth nail and claw - they constantly searched for ways to one-up the other. In this process they routinely attacked each other tools - stealing and damaging as many as they could. It all started out a relatively genteel alternative to actual war - but then quickly metastasized into a full blown death match. 

In this death match -  the tools used by the intelligence services leaked out  - first into the hands of other adversary services and then later into the hands of criminals. As the free market in the development of such tools took hold, the threats multiplied and there was no limit to the zero day vulnerabilities that spouted all over the place. As soon as a code was written, the vulnerabilities were exposed and marketed to select groups of criminals for a price.

The criminal incentive took over the rational desire for meaningful security and like a place where the license to kill has just been handed out to random people - a free for all occurred. 

In this fashion all sense of security enjoyed in transactions over the Borld Bide Beb disappeared. With this sense of security went the large numbers of financial transactions and as the financial transactions dropped so the the global market for goods and services. As the planet's stock markets reeled under the impact of this degradation of transaction security - the economy of the planet collapsed completely.

Based on a free exchange of goods and services, the economy of the planet had gotten too used to having whatever it wanted - whenever it wanted. The citizens of the planet could not accept the sudden shift to an economy where only certain things were available at certain times.

It was a most terrible affair - that happened on this planet in a galaxy far far far away.

Perhaps one can learn something from it. It is never too late to prevent the same from happening on our planet. 

Tuesday, December 20, 2016

Can one define an alternate reality in which one only wins?

Short answer - Maybe...

You can always define an alternate reality - in which you are perpetually winning. Even if you are losing "bigly" and everyone else knows it - you can still pretend you are "winning".

A case in point - a candidate you voted for because you felt that he was going take down corruption is elected and he turns around and says "by the way - all that stuff I spoke about corruption removal" - "that played well in the election - that is not on anymore". You can still pretend he is somehow going to remove corruption and that he is just saying that so that he can fool all those corrupt people into a false sense of complacency. That way you are still "winning" - even though everyone else can see you are being robbed blind.

Another case in point - a candidate you voted for because he said he would bring jobs back is elected and when he has a chance to do some tough negotiation, he offers a company a bribe to make a show of having brought back jobs. The union organizer who was handling the details of the negotiations says your candidate "Lied his ass off" and gave money to the company so that they can get rid of even more jobs in the coming year - you can still go on pretending that you are "winning bigly" and that all those liberal idiots didn't know when to take him seriously because he was obviously using the promise of getting jobs back as a "euphenism".

Still another case in point - a candidate you voted for because he said he would pay for his own election out of pocket and so he wouldn't be in bed with the big players of wall street goes on to be elected and then he turns around and hands out all the plum postings to his Wall Street and corporate big bank big wigs. You can still pretend to be "Yuuugely winning" because he has picked the "best people", the "biggest experts" - even though everyone else with a degree in economics wouldn't touch such people with a sterilized barge pole. Since when did what those economists matter to you anyway? "Leave out those economists" - "use common sense" - I am "winning" - you say.

Yet another case in point - a candidate you voted for because he was less corrupt than the alternative gets elected and now starts bringing his unelected family into every government transaction. He doesn't put his business into a blind trust and he doesn't even go through the fig leaf of pretending that there isn't a conflict of interest. He simply says he is President and cannot have a conflict of interest. And then his company starts shaking down foreign governments to invest in his hotel chain and pay for his branding.  You smile on the outside - for a few days you tell yourself "it would have been the same if the other person was elected" - but as his corporation continues to outsource jobs to foreign markets - you begin to wonder and run out of any way of saying this is actually winning, so you go back to pretending that you are "winning" - this time around you trot out no explanation to either yourself or to the "liberal retards" you hate because apart from "winning" you know you have nothing. You shout and scream on top your voice - "You damn Mexicans - can your see I am winning!!".

With each iteration of "winning" you have to double down and that leaves your reserve exhausted.
As the reserve exhausts you have no strength left to fight when the candidate you elected takes your social security, medicare and medicaid and hands it over to his Wall Street friends. Big deal you say -  "I'm winning" because the taxes are now expected to go down. They do go down for your candidate's friends on Wall Street but on Main Street - it is a different story - "I'm winning and those liberal retards are not!!" you tell yourself.

Since you have no energy to fight anything anymore, your candidate now goes on to miss "a few bond interest payments" and the global economy crashes. Your retirement funds and social security and medicare and medicaid funds freeze up as they are the biggest investors in the bond markets and they are owed the lion's share of the "missed bond payments".  You can't make your mortgage or your rent. Your taxes actually go up and you tell yourself "I'm winning" - I don't have to pay any mortgage or rent now - screw this ridiculous lifestyle with all its trappings and big bank inspired consumerism and you decide to go the way of your ancestors who colonized this great land with little more than a musket and some pemmican.

You grab your bug-out bag and head for the hills in the hope of eking out a living in the wild in your ancestors footsteps - but actually your real ancestors never actually colonized the country - they came in the fifth wave of immigrants and although most knew what they were doing living off the land - a very small fraction of them actually survived - the elements were brutal and without health care too many died to count. But you tell yourself "I'm winning" - after all you are in the wild - those liberal retards couldn't possibly do this kind of stuff.

After freezing your ass off for days on end - you catch a bus to your candidate's house and ask him for help. You figure he's a nice guy after all - and I voted for him so that has to count for something. But when you get to his door - his private security guards shoot you dead - because in their eyes you are a "loser" who is begging on his street.

As you slowly bleed to death on the steps outside his towering building... you realize - Heck! I have just won a non-refundable-all-expenses-paid-one-way-ticket to the next world!!

Yay - you're "winning" again!!!

Monday, December 19, 2016

Russian Ambassador to Turkey assassinated by Turkish Police officer Mevlüt Mert Altıntaş

I am totally shocked by this development. My condolences to his family and the people of Russia. This is terrible news.

I don't think I have seen this kind of thing in a long time.

A member of the diplomatic community is always at risk of being attacked but this is beyond the pale of what is acceptable behavior.

This is one of those Archduke Ferdinand moments in history.

Craving change - and supporting nonviable and risky ideas

As I travel to twitter, I see a pattern among Trump supporters. There does not appear to be a great deal of clarity in their minds about what they really want to see happen now that Donald Trump has been elected. This lack of clarity is giving way to a maximal posture that wants everything but is completely nonviable because of the resources such a measure would consume.

For example - urban Donald Trump voters want to see industry bring jobs back to the country. When Donald Trump starts talking about "35% tariffs" on industry shifting jobs to China or Mexico,  they love the man. However most corn farmers who supported Donald Trump don't want tariffs because they know that if Mexico and China buy a vast majority of US Agricultural produce. If Donald Trump appeases the urban voters, he will end up driving most of his corn belt supporters into bankruptcy.

Continuing on - Donald Trump corn belt supporters want him to boost domestic ethanol production and consumption. The best way to do this is to actually raise the EPA mandated levels of Ethanol in the gasoline supplied at the pump. This idea sounds great but it cuts into the money that domestic oil suppliers stand to make if the mandate is reduced. Domestic oil producers and suppliers also support Donald Trump because they think he will reduce the EPA mandate and cut down the Obama inspired EPA actions on fossil fuel use restrictions.

Continuing still further - Most domestic oil producers and suppliers are struggling against competition from Natural Gas. The Natural Gas guys also support Donald Trump as they feel that he should help them open up more reserves in Russia and the Eastern Mediterranean Levant Basin. The problem with doing that is that Natural Gas becomes even more competitive with oil and its not-too-distant cousin - Coal. Coal miners are another group of Donald Trump supporters. After all - McDowell county practically crowned the man King for simply talking about hair spray and holding a shovel while pretending to dig! So if Donald Trump appeases the Natural Gas guys with their deep pockets, he will alienate the oil and coal guys.

So he basically has to appease everyone - which if he could magically do - would imply a major increase in the availability of coal, oil and natural gas to US consumers. This would cause the price of all these commodities to fall and that would hit the energy commodities trading crowd in places like NYMEX. While that might not seem so bad - after all most of Donald Trump's voters hate Wall Street but see - a good fraction of Donald Trump's own investments are in the same sector. If any end of that sector takes a hit - he will take a hit also.

So one sees the outlines of the Trumpography - a mass of contradictory impulses all powered by the desire to see sudden and "great" change.

If Donald Trump acts on even one of these promises he has made to all these people - he will bring his house of cards down.

So what can he do - well - he can do what he does best - make promises and never actually deliver - his smart followers will realize what is going on and their ardor for his cause will decline. I will be able to see that in a gradual decline in popularity of Trump inspired hash tags like #draintheswamp #hillaryforprism and #MAGA etc... The not-so-smart followers will continue to cling to the idea that somehow they can salvage their personal standing among family and friends by going down with the proverbial shift. The pro-Trump # will end up being propped up by these remaining followers.

It is here that I humbly ask The Yasenevo Guys to please back off with the Twittervasion (hey I think that is a new term).  I mean only the highest respect when I ask you to please not interfere with my poor-man's data collection. I don't have the big fancy cloud in Utah to pore through every twitter feed and chase it down to the last server in the anonyimizer app's chain. I also don't have the time to write hack a binary and stick that inside the anonymizer app or the twitter app and see what the true geolocation of each pro-Trump tweet is. Now if you folks in Yasenevo would please step back - then I could sample the twitter feed and correlate trends in it to the desperation tone in the Anonymous' video uploads on Twitter.  Between those two alone, I should be able to construct a working metric of the true support for Donald Trump. There is a third statistic - the number of negative sentiment scores that articles against Donald Trump receive - thankfully most major website have started carrying such a scoring card now and it is easy to work out how things are progressing from there, but the measure is in its infancy and I don't know how good their semantic analysis clustering algorithm is.

So once again - Yasenevo guys please back off - thanks and BTW - even you must admit that the SNL Christmas cold open is a classic. You may be greatest hackers in the world, but the US is still ahead of Russia in the world of comedy.

Saturday, December 17, 2016

Actual fake news poses a nuclear threat

Before one jumps on the "other side" for being misinformed or misdirected by "fake news" - we need to remember that there is a distinction between non-factual information and partisan opinion editorials that are based on a selective reading of the factual news.

Both actually fake news and slanted oped have been a staple of political campaigning for a very long time now, what makes the entire recent episode stand out is the sheer volume of this stuff that seems to be directly sourced from Donald Trump himself.

There is no denying that Donald Trump shoots out a staggering amount of fake information. The brazen manner in which he gaslights people sitting in front of him makes him one of the most prolific bullshit artists I have seen in my lifetime.

This kind of behavior is dangerous to democracy - even if it looks like it bolsters your brand of partisan opinion.

Even the Trump voters at his Wisconsin rally had a moment of complete nausea when Donald Trump openly distanced himself from the "drain the swamp" posture by saying "it played well in the election but not now". The same kind of thing happened in an earlier rally on the topic of his campaigns most memorable "lock her up" chant, though in private conversations most Trump supporters had indicated that they didn't think he was actually going to do that and this was the libelous way that "Midwesterners talk". I guess saying something highly specific about the "Carrier company keeping its jobs in Indiana" is also just a Midwestern "euphenism".

One might mistakenly think - "Oh that is so smart of him, he said whatever he needed to get elected and now he taking a more pragmatic approach." That is not what is going on here.

What one is seeing here is a candidate gaslighting his own followers.

This speaks to a fundamental disconnect with reality itself. Taken together with the high volume of non facts coming from him directly - we see the outlines of a major trust issue.

I suppose it would be essentially fine if the desperate Midwestern folks that voted for him because he was the "last hope" were sold out in favor of his Wall Street friends but we can't have Russia of China distrusting him on critical stuff like nuclear issues. Unlike the disgruntled Midwesterners who won't be able to afford the expensive coastal lawyers they will need when Donald Trump inevitably shafts them.. the Russians and Chinese have countermeasures they can activate.

Donald Trump is entitled to his own opinions of course - but currently he seems to get away with completely making up stuff and passing it off as fact. The moment he does that a large crowd of supporters quickly surrounds him and chants MAGA drowning all the people who call bullshit on his claims. You don't have to take my word for this - go check out his twitter feed or any news items that favor him on Brietbart or New York Post.

So as things are - we do not have any barriers to Donald Trump simply inventing a "fact" that says "Russia is going to launch a nuclear strike on the US with its Kanyon submarine drone". If he said that on Twitter - the Russians would not have enough time to raise their defense condition.

The Russians for their part would have to assume the worst - that the US was going to conduct a sudden attack. They would be within their rights to respond as best they see fit.

Even if Donald Trump was able to somehow reverse himself and say "Only Joking"... the Russians might not be able to recall their drone submarine.

This would inevitably snowball into a major nuclear escalation and since we as a nation learn absolutely nothing from our own history - the process would repeat nudging us closer and close to a nuclear holocaust.

Friday, December 16, 2016

Does President Putin actually want Donald Trump to be President?

I think the CIA and FBI are finally on the same page wrt the role of FSB/SVR-RF/Line(PR) operations.

Although that only took a million years to actually happen - I find it hard to disagree with so many agencies that protect our nation.

Given that nothing is obvious in the world, I want to ask a simple question.

Does President Putin actually want Donald Trump to be President?

It makes sense to me that President Putin would want to mess around with the US electorate. It is all too easy to manipulate low information density types and after all that the US was doing to Russia, maybe President Putin felt like it was worth it to have a good laugh at America's expense.

Meddling with the minds of people who don't fact check information before them and jump random conspiracies is just too easy. Having Line(PR) set up an entire Troll-on-Demand service is also brilliant. So some congratulations are in order.

Kudos FCD /SVR-RF or whatever you prefer to call yourself - you are sheer genius - not that you didn't know that already or that you need me to tell you that.

So let me ask the son-of-a-bitch question to you guys in Yasenevo.

Where exactly do you want this to go?

Let us turn the clock back a little bit to Kabul 1978

Some genius came up with the idea of getting the PDPA to take out Daoud. Which would have been enough, but then it wasn't - so it became necessary to take out his successor, and then his successor and then finally god-only-knows how many Russian soldiers ended up in Afghanistan wondering which way is up.

One thing leads to another, it is the law of unintended consequences.You can meddle in these things up to a point and then it gets really really messy.Once it gets to that point - it all goes pear shaped.

I know you read this blog.

You don't have to answer me.

But - if you don't know the answer to that question - please figure it out because this is going to turn into something open ended and that isn't going to work for anyone.

And also - aah.. you do know that Trolls on the internet have a mind of their own right? It is not possible to control them - even if you have them all parked in one building - the armies of Troll-kind they assemble in cyber space are for too distributed for anyone to contain. Once these get going - they will turn and bite the hand that feeds them without a second thought.

Why is the GOP conducting a "Coup" in North Carolina.

I am sure you are all watching what is going on with the GOP in North Carolina and wondering what is going on.

The answer is simple - the GOP is building a political bug-out. 

The writing is on the wall. A major market correction is coming. When that happens, President Donald Trump will largely look out for his own business interests. It is unlikely that the GOP will be anywhere on his list of priorities.

Without any access to Donald Trump himself, the voters will blame the GOP for getting them into this mess and that is an anti-incumbency load that the GOP cannot bear. The GOP is completely fragmented on the inside. By pushing Trump out in front - they basically avoided internal collapse in the primary process.

They know what is coming - they have to build a bug-out shelter for that.

North Carolina is a decent place to do that. It is actually a purple state, the rural areas are dominated by tobacco related agricultural activities. The small urban areas are home a series of financial services and high-tech industries. After the "Bathroom Bill" was passed, the non-agricultural industries were forced to vacate their offices in NC. This created a massive hole in the NC revenue and the result was that the incumbent republican lost the election after a bitter and acrimonious battle.

As economic depressions go - North Carolina is well suited to survive the worst aspects. It is home to the Piedmont Plateau which is sandwiched between the Appalachian mountains and the Atlantic ocean. The plateau is quite fertile (as most places in the US go) and is home to a good bit of tobacco and cotton. The tobacco industry will likely not suffer any significant degradation during even the steepest economic down turn. People will still buy cigarettes and probably switch out of e-cigs to plain old cigarettes.

Having a stranglehold on a gold seam like that will ensure that the GOP survives even if the nation collapses.

What we are looking at in North Carolina is the re-purposing of a state's resources to secure a lifeline for the GOP.

As others have said - this is the beginning - there is more to come in the days ahead.

Other states where the Republicans are in danger out being wiped out when the Trump experiment eventually goes sideways - will see similar acts.

I would not be too surprised if the GOP mounts a similar stunt in the Congress and Senate.

Red, Blue and Purple States in the US

A lot of us have heard these words in the US, but what do they really translate into in economic terms.

I tend to think of the divide as follows

Red State - A state where agricultural production dominates the revenue and the labor pool. Given how mechanized agriculture is in the US, these states have lower population density. Lower population density translates into a high fractional cost of social transactions (you get it wrong and it is a small world - so everyone thinks you aren't any good). This makes the populations conservative, the leadership set ups are visibly feudal (or neo-feudal) and it feels like a pre-industrial society. Given the low rate of wealth generation in such a socioeconomic climate - the entire economy of a Red State is basically driven off a set of long term debt instruments that are essentially underwritten by US Federal bonds. Given the perpetual scarcity of profits and their aging populations, these states receive the bulk of Federal aid (Discretionary and Entitlement) when normalized by the population (i.e. at a per-capita level). The level of education needed to have a job in a Red State is low because you don't need higher education to drive a tractor or combine.

Purple State - This is also called a "swing state". In such a state neither agriculture nor industry dominates the revenue or workforce. A typical scenario is that rural agriculture generates revenue but urban industry employs most of the people. These states typically have small dense population centers near river or sea port  - which are very liberal and very large low density conservative agricultural communities spread over the state. A state like this is constantly in political flux as opposing factions in the population pull the state revenues towards farm subsidies or urban development. As a number of industries are based on agriculture related products - the only thing that unifies the population politically is trade. If the state or federal government attempts to outsource jobs to another country - there is a backlash in the urban areas. If the state or federal government attempts to disrupt the flow of farm products - then there is a backlash in rural areas. These states are economically on the borderline between productive and badly indebted depending on how productive the industrial regions are.

Blue State - A state when non-agricultural production dominates the revenue and the labor pool.  Given how automated and efficient industrial production is in general, these states typically use resources efficiently and can provide employment and shelter to large populations. As the population density is high, you are always confronted with a point of view that is distinct from your and social interaction carry a lower overall cost. This makes the populations intrinsically liberal. Most of the political power is in the corporations, but as there are so many corporations there is a kind of democratic order that is difficult to get around. It looks and feels very vibrant economically and socially. As the wealth generated by value addition is much higher than the base commodity trade, these economies are highly profitable. Every ear of corn grown in a Red State passes through a Blue State before it gets on a ship to its markets in the world.  Since the value addition is complex affair, the populations in Blue States need to have higher education and display a great deal of technical agility. The Blue States end up accounting for a much lower level of per-capital Federal aid.

This basic competition between the two forms of production come into play in elections. The detailed geography of this divide is somewhat smoothed over by "redistricting". As the gerrymandering process is based off several political considerations including voter suppression, one quickly finds that the detailed geography of the divide is difficult to ascertain.

The GOP mass communication models are far better at reaching out to the low density regions that are correctly gerrymandered. The Democratic Party is better at reaching out to higher density populations that are appropriately connected by new media.

The big shift in the 2016 Presidential election was that Donald Trump was able to bypass the existing information channels and access non-traditional high tech avenues for mass communication in rural areas. This allowed him to get past the RNCs tight grip on the party and inspire an internal revolt. That process took him through the primaries. Beyond that it was a small fractional shift in the Purple States that brought him to commanding position in the Electoral Votes.

The result of the election was unexpected even for Donald Trump who told his wife that he was going to lose. The result certainly took the RNC by surprise. Whatever Donald Trump wants to do, the RNC is not prepared to see its control over the party degraded visibly like this.

Many speak of an Elector Revolt. If such a revolt does take place - it will be because the electors are more receptive to the GOPs traditional messaging channels than Trump's internet based channels.

More dynamically every irresponsible tweet and public speech by Donald Trump puts him at a high risk of losing support from Republican electors who are more receptive to the traditional information channels of the GOP. These electors represent the most logical place for the RNC to position its controls on the system.

Paul Staniland, Vipin Narang et al.. have opined that an Elector Revolt would set the country on a very dangerous course. That may be true (though I need to hear more before I am convinced) - from the RNC perspective - this is the only way to restore their primacy in the national political process. If Trump is elected as is - the RNC is pretty much finished.

Perhaps the most obvious indication of this that Donald Trump publicly rolled back both his harsh stance on "Lock her up" and his "Drain the Swamp" slogan. He also attempted to wriggle free of the "It is Rigged" position by saying "I don't care, I won". He also appears to have muted his talk of "term limits in Congress". I think he is looking to reach a modus vivendi with the RNC.

I don't know if the RNC can afford to accommodate him.

The Democratic Party, the Obama Team and the RNC may end up becoming unlikely bedfellows in this strange and bizarre world.

Thursday, December 15, 2016

Demonetization is failing to achieve its objectives

News reports are emerging that the amount of "black" money coming into the banks is simply not enough to make the entire demonetization justifiable. The result of this is that the committee that planned this entire thing is wondering why more black money has not been uncovered. The needle of suspicion points towards the bankers. That sense is driving major strikes against private bankers (Hawala traders and their couriers i.e. Angadias) and against "corrupt" bank officials. The IT department has been put under pressure to strike hard against people - the legality of these strikes is at best questionable.

The news channel ABP has been going around in the villages. The reports are in Hindi (if you can understand the language please use the original source), for those who don't understand the language, I summarize the gist of the overwhelming majority of the reports

  1. 1) The rural business side is hit hard with most people reporting 80% loss of income after demonetization
  2.  Rural people are being driven towards insecure and predatory lending. This system is turning into a major black economy in itself. 
  3.  The people "support" the initiative - but question whether any of the higher level goals of "eliminating black money" are being reached. 
  4. Farmers and agro businesses are convinced that there will be a significant yield issue in this years winter crop as the sowing cycle has been delayed. 
  5.  Most people feel they can somehow endure this for a few weeks at best, if the situation turns into months they are looking at starvation as local credit sources will dry up. 
  6. The support for the Prime Minister is weakening as people are beginning to question whether he thought this whole thing through. 
In effect the public anger over the inability to manage the demonetization properly is gravely damaging Prime Minister Modi's public image as a "superbly capable administrator". 

A number of allegations have emerged of personal corruption against Prime Minister Narendra Modi. These are being aired via Congress (I) channels in the media. A lot of people are wondering if Sri. Rahul Gandhi can prove these allegations beyond all doubt, but such people are naive about how cruel politics really is. In an age where people are inundated with news, the allegations put the onus on Prime Minister Modi to prove that he is clean. At a time when he is struggling with the biggest self inflicted economic wound in Indian history - he now has to defend himself against allegations of corruption. This is adding overhead to the governance process. These allegations are slowly but surely corroding Sri. Modi's image of being "incorruptible".

People like me who watched BJP leaders launch utterly baseless attacks on Prime Minister Manmohan Singh's competence on a daily basis cannot sympathize with Prime Minister Modi's condition, after all we were educated by our BJP friends that "that's just the way politics works".

That being said - the policy of unnecessary seizure of funds from the subterranean economy - specifically this set of raids - will likely be significantly damaging to India's natural security. It is important for all the OSD types in Modiji's PMO to understand that when you take money out from the underworld like this - the underworld tends to become very aggressive about getting its money back with interest.

Demonetization is failing

1) It is not generating a positive public image for Sri. Modi.
2) It is not leading to more money in the RBI's hands.

The best thing to do now is to cancel the initiative after the 50 day period so that Modiji can save face and say "Well we tried and it didn't work - I am sorry". That way this can all end before someone does something really really stupid. 

Wednesday, December 14, 2016

What does the Department of Commerce Do?

After looking at numerous statements by people like Gov. Rick Perry and a lot of tweets by Trump supporters, I get the distinct sense that these people don't actually know what the Department of Commerce actually does.

Any idiot can look up the website - so I will leave that to someone else.

I am going to focus on something the average Trump supporter will understand.

The Department of Commerce spends a great deal of resources on something called NIST - the National Institutes of Standards and Technology.

NIST maintains something called the "F2"  - this is a very precise clock that serves as our nation's time standard.

Every GPS satellite has a similar but less accurate clock on board that it synchronizes to the NIST clock.

Every LORAN transmitter does something similar.

Every military navigation system - synchronizes to the NIST time clock.

Every RF transmitter used in a major communication system (cell phones, TV station, Radio station) is synchronized to the NIST clock.

Every internet times stamp is synchronized to the NIST clock.

Every automated trading algorithm in your HFT firm is synchronized to the NIST clock.

Every stock market index reporting service - all those tickers - are synchronized to the NIST clock.

NIST's clock is one part of a much larger set of weights and measures maintained inside the Dept of Commerce.

The system of standardization operated via such measures keeps everyone from your local grocery store to your largest trading partner honest.

Can you imagine what would happen if all that stopped working altogether?

Do you still want to "shut down the Department of Commerce"?

If I was Russian - I would want you to shut down NIST and the Department of Commerce - because that way I could replace all notions of time and weight and distance by whatever I was able to generate at the Russian equivalent of the NIST.

With Russian standards dominating the definition of trade agreements - the US would be reduced to "Rapey Drunk Uncle" status in the world.

I don't know how that could possibly sit well with the #MAGA folks who aren't FSB/FCD/Line(PR) provocations. 

NNSA is not and cannot be under DOD

A nuclear weapon is the most destructive device known to humankind. Absolute control over it essential to ensuring human survival.

In a democracy - all nuclear weapons issues are controlled by the highest elected office (i.e. the President). Only the President can authorize the *making* of a nuclear weapon and only the Presient can authorize it *use*.

The NNSA under the DOE - a civilian led department that is directly answerable to the President and Congress. The NNSA *makes* the nukes.

The DOD is military entity that only *uses* the nukes after it is told to do so by the President.

In the past the DOE (nee AEC) had custody of the actual weapons and when the president ordered it - the weapon would be handed over to the DOD.

For example in the Manhattan project - this *civilian* control came in the form of two physicists Dr, Luis Alvarez and Dr, Norman Ramsey. Before the first B-29 took off from Tinian towards Hiroshima the exact details of how the weapon ("Little Boy") was to be armed were released to Capt. Parsons (who was the true mission commander as opposed to Col. Tibbets). Capt. Parsons then armed the weapon after the Enola Gay had taken off from Tinian. Dr. Alvarez, his grad student Lawrence Johnston, and Harold Agnew (later head of Los Alamos National Lab) flew alongside the Enola Gay another B-29 - Great Artiste - and carried out bomb damage assessment. That is how tight the level of control was. Only after Dr. Alvarez, Agnew and Johnston had submitted their reports - was the operation officially termed a success. The Ramsay-Alvarez-Agnew-Johnston team was both the civilian control and civilian oversight on the mission.

Over time this kind of relationship evolved as nukes became much more compact. The DOD came to have control over complete weapons with attached warheads and could launch them when the authorization from the President came. In order to ensure a critical level of security - a series of controls (Permissive Action Links - PALS) were designed by the DOE. This made it impossible to launch the weapon without the Presidential authorization.

At no point of time - even today does the DOD have unfettered access to a physics package (i.e the actual atomic explosive in any weapon). This makes the President's control over nuclear weapons absolute.

If the NNSA was directly under the DOD - then the DOD would have complete access to a physics package with no PALS on it. If the DOD decided to use a nuclear weapon - it would no longer need specific authorization from the President. 

The highest elected official in the land would no longer have absolute control the use of nuclear weapons. That authority would devolve to an non-elected official - the Secy. DOD.

Without absolute control over the nukes - you might as well not have a President at all. No one will listen to such a person anyway.  

You might say - well what's the big deal? the military can handle the weapons and the responsibility that comes with them.

History is not quite so nice on that kind of thing. In the 50s even when the AEC/DOE had a lot of control, there was lot of confusion in the military about how nuclear weapons were to be used. The result was that characters like General LeMay wanted more and more nuclear weapons to be field deployable. During this time a large number of nukes were released into military custody with a very rudimentary amount of civilian control and oversight. The result was a massive increase in nuclear flashpoints - times when we came to the brink of nuclear war with Russia. This was not because our military did anything wrong but  because the Russians had no idea if the military action was a veil for a nuclear strike. The Russians reacted poorly when so much so as a Canberra reconnaissance flight made a run along Russia northern border along the Arctic patrol.  Because the Russians were jump so were our guys and that thing kind of fed on itself.

Additionally there were a number of accidents in which large quantities of radioactive material were released into the environment and ordinary people suffered the consequences. The military insisted on taking actual nukes on training missions and when a trainee screwed up - and actual nuke impacted the ground. We were extremely fortunate that none of those nukes detonated and no fallout landed on a populated area.

Nations like Pakistan, Saddam Hussein's Iraq, North Korea represent cases where all nuclear weapons development  is entirely owned by the military. In each of these places - democracy cannot exist.

Separating nuclear weapons development from nuclear weapons delivery agencies is followed by most responsible nuclear states. Even in Russia - the development of nuclear weapons is entirely under civilian control. It is best to leave it that way.  

Revised - after comments by Stephen Schwartz

Monday, December 12, 2016

A history lesson - the Smoot Hawley Act of 1930

People tend to forget things as time goes by. Most of us have forgotten the lessons of the Great Depression. It is understandable because lets face it - that was a long time ago.

Today I would like to revisit one of the most crucial actions of the Hoover administration that turned the recession that followed the great crash of 1929 into a Great Depression - the passage of the Smoot Hawley Act of 1930. Wikipedia has a great article on this - it is worth reading - but we have to see the Smoot-Hawley against a background of other events in that time.

The stock market crashed in October 1929. The Hoover administration rooted in ideas of laissez faire capitalism, found itself ill-equipped to handle the fallout of the crash. As it struggled to cope with the situation it fell into a series of ham-fisted measures that actually made matters worse.

As things stood in January of 1930, most factories were reporting a steady decline in productivity. This was a natural consequence of the crash. As the stock prices fell, companies were not able to raise working capital and the banks that lent them money were struggling to get repayments from stock brokers who lost everything on margin calls. One sure fire way to bring up productivity was to increase demand - this gave rise to a kind of wishful thinking as in

"Gee - wouldn't it be nice if Americans could only buy stuff that was Made In America? Why there'd be loads of demand for goods then..."

This overly simplistic view prevailed inside the Hoover Administration which was completely unprepared for the difficulties it faced.

It was this idiotic idea that took physical form in Smoot-Hawley Act of 1930. Smoot-Hawley called for an increase in tariffs on foreign made goods entering the US. The exact increase in tariffs was somewhat confusing and unclear - but the results of the tariff hikes were obvious for all to see.

US manufacturers that depended on imported goods could no longer afford to make products. They failed and had to lay off all their employees. With falling internal demand and weak prices, the Agricultural commodities side was a shaking footing at the time. The US agricultural sector relied on exports to generate a massive amount of income. This sector was badly hit by the counter-tariffs that our trading partners imposed on us following the passage of the Smoot Hawley Act. The glut of agricultural produce was dumped on to the local markets and as the farm produce prices fell, farms went out of business. As farms went out of business, rural banks followed. With significant fluctuations on the supply side of soft commodities - a famine ensued. The failure of rural banks removed a crucial support column from under the banking sector as a whole and several banks that moved debt between rural and urban areas failed soon after the rural ones collapsed.

We don't call these conditions in 1930-1934 a "famine" that is because we like to think that our country is immune to that - "That doesn't happen here..." we tell ourselves. This is a psychological thing - we lie to ourselves because we can't face the truth - It Can Happen Here!

As the various provisions of Smoot Hawley kicked in unemployment rose from 9% (1930) to 25% (1933). The act was repealed in 1934 but it took more than a decade to restore productivity to levels before the act was passed. International trade channels don't restore at a moment's notice.

The trade wars started by Smoot Hawley impacted the world. Germany was unable to earn enough money to make its reparations and rebuild itself from the ashes of WW-1. The German economy entered a black hole - and from that hole emerged Adolf Hitler. The Russian economy ended up in a similar place and from its hole emerged Joseph Stalin.

During his campaign President Elect Donald Trump has spoken of reinstating tariffs. The "35% tax" on "imported air conditioners from Carrier" that he has spoke about is actually a typical number from Smoot Hawley Act provisions.

If President Donald Trump steps outside the realm of rhetoric and actually goes ahead with imposing tariffs he will create conditions identical to 1930. We are already in the middle of a great recession - but this kind of stupidity will turn it into the greatest depression ever.

As my colleague Dr. LM says - "Hey its all new stuff - unless you actually know your history". 

Unregulated HFT in the commodities sector has clear parallels in the cartel driven stock market of the late 1920s. Smoot-Hawley has parallels in the PEOTUS Trump's promises on tariffs.

Will it really be any surprise if the Great Depression repeats?

Sunday, December 11, 2016

Who were the "5 researchers" that created the demonetization proposal?

As the demonetization scheme struggles in full view of the public. The effort within the government to carefully steer clear of the inevitable blame for this grows.

Thanks to several people talking about it with the press - we can begin to see who was behind the proposal.

We know that Min. Jaitley,  Governor Urjit Patel, and Secy. Hasmukh Adhia was involved. [1]

We also know that five other "researchers" were sworn to secrecy and developed the demonetization plan in detail.[2]

We know that Sri. Ajit Doval, Gen. Suhag and other services Chiefs, the heads of the Intelligence Bureau, R&AW etc... were not in the loop until the very last moment. [3]

So who were the "5 researchers"? I am asking the same question that the Indian Supreme Court asked the GoI recently [4]

The CNBC article [1] offers some clues.

"It was made up of young experts in data and financial analysis; some ran Modi's social media accounts and a smartphone app that he used to solicit public feedback."

Well that puts the following people in the frame

1) Dr. Hiren Joshi [5]

If I look up Hiren Joshi's name on google, I find an interesting overlap with Hasmukh Adhia and members of something known as "Gujarat Team". And guess what - Dr. Hiren Joshi is an OSD (Officer on Special Duty) to the PMO. That means he came in on a direct special appointment from Prime Minister Modi himself.

It makes sense to use OSDs for something like this. OSDs have no connections to the bureaucracy. They are not bound by IAS/IPS/IFS/RAS batch loyalties and they can be fired from their jobs without a second thought. They are the very definition of disposable. A great many people have served the PMO as OSD - some good and some ... well why speak ill of someone (I am sure there were real reasons).

There is another reason one has to use OSDs for something like this - the IAS guys are far to canny to get caught up in the middle of something this risky. No IAS dude will want this on their resume. If you put five of them in a room - they will likely distance themselves form this. They are political survivors by nature and barring the odd person like Sri. Adhia - it is unlikely that you will find too many at Secy. or even Jt. Secy level willing to risk their back sides on something that the CBDT has spoken up against [12].

When I look up the other people on OSD in Modiji's PMO I find the following names [6]

2) Pratik Doshi [7]
3) Hemang Jani [8]

Both Pratik and Hemang are young and have a background in management. This makes them a good fit for the people described in the articles on the "5 who knew".

4) Sanjay Bhavsar [9] - a man believed to be extremely close to the PM and controls his calendar and all appointments go through him.
5) Ashutosh Narayan Singh [10]- has a background in media - and hence his portfolio - "Media Research".

Again both have research type roles inside the PMO and they also make a good fit for the kind of person described in the articles.

Most of these people (except Ashutosh Narayan Singh) are from Gujarat [11]

There are three other people inside the PMO who are very close to Modiji. These are  Om Prakash Singh, Tanmay Mehta and Dinesh Thakur - they were all RSS affiliated and worked the Modiji's personal assistants when he was CM of Gujarat. In my opinion they would not have the background to be able to conduct the kind of research and planning needed to do something like this.  

My guess we have the names that the Supreme Court is looking for. 

As always - I admit I could be wrong. 

FWIW - I feel Sri. Adhia and these researchers were not doing anything bad on purpose. They were misguided and fell into a group-think. That is why the planning was poor. 

Operation Kholstomer - fact or fiction?

A while back a small group of people on the India Defence Review editorial board sat down and carried out a table top gaming exercise. What they learnt from the exercise they wrote into a story of sorts - a fictionalized scenario. Today we know that scenario as OP Topac.  A lot of people think that OP Topac with is tributary operations OP Mushtary and OP Zarb-e-Kamil and OP War Cloud was an actual Pakistan planning staff document from the Zia-ul-Haq era. It wasn't - it was just a table top exercise in reverse analysis by some of the most experienced hands in the Indian national security community. However the outlines of OP Topac were so closely matched by the reality of India's security situation in Kashmir and Punjab in the early 90s, that OP Topac seemed to be indistinguishable from whatever Pakistani plan/s were actually at work.

Today we find ourselves in a similar position in the US. The derivatives market has exploded over the last decade. A "correction" (read crash) is only natural at this point. It will most likely be triggered by a Federal Reserve interest rate hike. What no one can predict is whether this crash will couple to other persistent debt problems like the massive load imposed on the economy by an aging workforce and population. No one knows how badly the coming crash will hit entitlements and if a depression will ensue. The smart ones in the US definitely know that the economy is on the edge of a very deep pit. Naturally at this time, the sensible folks want to see the national leadership kept under "Adult Management". No one wants to see old people left to die without Social Security or Medicare and no one wants to see young children starve do death on the streets because some preening sociopath wants to cut welfare/entitlements. So "Adult Management" is the key.

That does not seem to be where we are headed with the Donald Trump Administration. Key officials appear to have been selected out of the long list of donors, or visible ties to Russian entities. The entire Donald Trump Campaign has been under investigation by the secretive Counter Intelligence side of the FBI.

Against that backdrop you pay actual attention to the pattern of FSB cyber attacks on the US electoral system, you see a pattern emerge. The FSB has clearly interfered with the election and slanted the flow of information to make President Elect Donald Trump more desirable to uneducated voters. The FSB hacked both the RNC and the DNC computers but only made emails from the DNC public. The resulting chaos damaged the HRC campaign and acted effectively as a vote-suppression mechanism. Thought the GOP has traditionally used vote-suppression as a means to securing its electoral prospects, getting Russian help with that sort of thing is treason

Looking past the usual metrics of public honesty which do not seem to apply to President Elect Donald Trump, and staring even briefly into the vast maze of Limited Liability Companies he calls "his business" - one gets the distinct sense that one is looking at a large money laundering complex. Nothing is what it seems there, there are so many holes and bypasses by which debt and revenues can be shuffled between entities, that there is no way for anyone to really tell you whether his "business" is running in the red or the black or running at all. The maze like structure is extensive even by large multinational standards, and when you take into account that he is not a publicly audited entity - you wonder if this is a corporate entity or a hostile intelligence agency provocation.

That brings me to my original question - was Operation Kholstomer entirely a work of fiction? or has reality evolved to a level where it may be considered as an ongoing event?

Friday, December 09, 2016

The deregulation fetish nudges us closer to the brink

I noticed two news items today which point towards the dynamics alluded to in the last post.

Christopher Giancarlo is increasingly becoming the dominant voice in the CFTC. Here he is opining about the inability of commodity derivatives traders to actually get any collateral set up for the bulk of their transactions by *March 2017* - he thinks they will not be able to make it by the deadline set in the reform proposals created in the last eight years. On the face of it - Giancarlo - who everyone seems to think will succeed Chairman Massad as head of the CFTC - supports the basic ideas of the Dodd-Frank Act of 2010, but says " the agency should look beyond mandates from the 2010 Dodd-Frank Wall Street reform law to current trends in financial markets" - In those trends he finds cyber threats, liquidity risk, market concentration and de-globalization. 

Another interesting aspect of this approach to making American derivatives markets "competitive" again is an emphasis on Blockchain and AI guided transactions. On the face of it - this seems like a great idea - but in reality - it takes a very different form.  Let us examine what these terms really mean.

The Blockchain concept is only really understood by a small group of people. This information asymmetry is IMHO the root of the problem. While Blockchain is supposed to democratize the information in theory - in reality it reduces trace-ability and creates often invisible barriers to accountability.

At its core - Blockchain represents a decentralized and transparent ledger. There is no limit to the size of the ledger and access to it cannot be cut off by compromising any portion of the ledger. The ledger is maintained independently, has redundancy and has a high level of fault tolerance built into it. So far this sounds great - every time a trade is made or a contract is entered into it is recorded in this ledger and no one can erase it. Everything is electronic - so at the click of a button - we can all become part of the blockchain. This should make the market a better place right?

Well - not really - merely having a great ledger doesn't mean that all transactions are traceable. The most prominent example of a blockchain is Bitcoin. Blockchain is the biggest factor underlying the success of Bitcoin - specifically you can't use the same bitcoin to make two transactions (at least in theory). Once you buy something with a bitcoin - you transfer it into someone else's wallet and they own it from that point on. However try tracing a bitcoin's transaction history or the owner of a bitcoin wallet and you immediately run into a serious problem. Given how distributed the database is, unless the bitcoin owner wants you to know who they are - it can become highly challenging to trace them.

If Blockchain approaches are applied to derivatives trading, then as long as the derivatives are traded on an exchange or at a place where the can be accessed and coupled to some kind of informative IP search - everything should be fine. But if you do these trades off the market - then unless everyone involved in the trade is willing and able to share the information about the trade - it is untraceable. This kind of thing goes on today, however without all the push-button convenience - it is a much slower process which allows for human intervention preventing extremely stupid stuff from happening.

The point about human intervention applies equally well to AI guided trading strategies. In this electoral cycle we have seen humans fail to separate facts from fake news. What would make an AI any better at doing that? AIs still come up short on benchmark problems like image recognition and the rate of false positives and false negatives is quite high. The only thing that can guide a HFT algorithm is an AI. No human can keep pace with those HFT algorithms. If the AI gets it wrong, the HFT algorithm will too. The humans maintaining the AI will only be able to judge its performance by the false positive, false negative and accuracy numbers. As long as those are within published limits elsewhere in academia - they will be able to reasonably claim that their approach is state of the art. They will keep their jobs - even if you lose everything you own on the market.

Again - a regulated form of Blockchain and AI guided trading is perfectly acceptable to me. The regulations and thresholds will always be arbitrary but they will be necessary for keeping people in this line-of-work honest.

Absent that regulatory framework - we are heading straight for the abyss.