Thursday, July 20, 2017

Standoff at Doka La: Some Thoughts

A lot has been written and said about this.

I am not convinced a threat to the Siliguri corridor is emergent. I am not seeing a path to de-escalation.

Someone seems to be selling the idea that if India went toe-to-toe with China on the Himalayan border the US would have India's back. This kind of assurance has been given in the past, but I am not sure whether it has led to an acceptable outcome for India/America. A very simply counter-move which the Chinese can mount to this is to pre-empt the cooperation, i.e. to escalate the situation before either India or the US are in a position to action on the proposed alliance. That will leave India and US in a hole that neither can climb out of.

I want to briefly review what I feel the situation in China is, and where I feel things are going internationally vis-a-vis China.

1) China controls a vast fraction of bulk manufacturing of goods on a global basis. The major driver of this dominance is low labor costs in China (approx 10x lower than US/EU). Most of the low labor costs emerge out of China's vast labor pool. China's labor pool is large because its population is large and its agricultural sector has significant amounts of hidden unemployment.

2) China has been able to steadily grow its industrial labor pool by pulling labor out of the agricultural sector. However recently China appears to have reached or crossed the "Lewis Point".  Given that it is no longer as profitable to transfer agricultural labor in to the industrial labor market, and the fact that the Chinese population growth rate has slowed - the industrial labor pool in China is not growing. This is causing labor prices to rise and margins in China based manufacturing to fall.

3) A typical US/EU based manufacturing business has a low margin ~ 5%. Shifting manufacturing to China, adds ~ 15% to the margin of the business. Most corporate executives can't resist that spike, the bulk of the margin goes into their bonuses and salaries. If that margin falls it cuts into the bonuses and parachutes of the corporate leadership in US/EU.

4) Neither the Chinese nor the US/EU corporate big shots like the idea of falling margins but there seems to be a divergence between these groups on what to do about it.

  • The Chinese want to cut down on transportation and energy costs. By shifting to renewables* and reworking sea/road/rail transport mixtures** to get lower $/ton-mile the decline in margin can be made back. Unfortunately this cuts into the paychecks of the coal and oil barons who sell fuel to China and it give China even more control over sea and land based communication routes. Done this way, the corporate bigwigs of today would be reduced to the rulers of Indian princely states in a few decades.
  • The US/EU corporates want China to hand them a slice of the emerging luxury goods market. The lust for branded goods in China's newly minted economic elite is high, and people are willing to pay a very high premium on branded products. Right now this market is supplied with knock-offs. If China agrees to respect the intellectual property and trademarks regime, the US/EU corporates would get access to a new market in China and that would make back the lost margins. This doesn't work for China as it puts too much control in the hands of US/EU corporate groups. It brings back Chinese memories of the colonial period where everything "good" was foreign made. 

5) It is no surprise therefore that the Trump Corporation is so keen to get access to trademarks and the apparent exclusivity they confer. It should also be no surprise if Trump is willing to throw his voters under the bus to get China to give his company a leg up.

6) Unfortunately Trump cannot directly leverage China with threats of a trade war. That would cause all corporate executives in the US/EU to turn on him. He can't carry that much heat, especially as people already suspect he is a RIS agent. So Trump has been reduced to applying lateral pressure on the Chinese.

7) China only sees India as a place to dump products that do not make it to US/EU markets. India doesn't care for that treatment. But lacking a real dependence on Chinese profit margins, and supported by its own expanding industrial labor market, India can afford to piss of China (Something neither US nor EU can really do). So when it comes to putting lateral pressure on China, India would be the natural place to start.

I suspect someone from the Trump side has gone around stoking the Indian Army's perennial fears about China. After 1962 the IA has something of a "we'll show them" psychosis when it comes to the PLA. It is simply too easy to bait the IA into a "stick it to the Chinese" adventure.

In wider terms, the Chinese insistence on treating Pakistan as "our Israel" always goes against India's strategic outlook which tends to see Pakistan as "our backyard".  With the large community of ill-educated Modi Bhakts who claim to know everything about the world, the India-China dissonance over Pakistan is a good lure also.

So in grand terms - India is perfectly positioned for a totally unproductive war with the PLA in the Himalayas. Various segments of the Indian national security community know this, but since the Modi regime only listens to sounds that come out of its own posterior (see demonetization saga for details), no one is willing to listen to them.

No one appears to want to hear that a confrontation with the PLA could escalate to levels that will be very painful to India.

No one appears to want to hear that the vulnerabilities attributed to the Siliguri corridor exist along every MSR used to 3 Div and Joshimath Bde forward positions. (FYI I don't know if these formations are on alert yet).

No one seems to care that an escalated conflict along the Himalayan border would invite China to deploy nuclear weapons in outer Tibet and that would put the entire Gangetic Plain with 700 Million Indians within range of China's nuclear tipped and highly tested SRBMs.

Fantasies about the capabilities of the SFF are easily sold these days to an army of twittards and an ounce of Bhakti is made to seem worth a kiloton of common sense.

So this is where the "Occupy Chumbi" ideas are coming from.

It's like the "Occupy Skardu" ideas of 1998-2002.

It is deja vu all over again. 

* China pays ~ 5x the price for carbon based energy because the fuel has to be transported out there from distant sources but solar panels are made cheaply and locally. By contrast the US pays ~ 5x the price of solar panels in China but carbon fuels are available cheaply and locally.

** Road + Rail offer significantly lower cost per ton-mile than shipping for smaller volumes. A shift away from high volume sea transport creates an incentive for an innovation driven agile manufacturing sector which affords much higher margin for China and US/EU corporate types. This is why the Chinese put that much effort into running a train all the way up to London.

Wednesday, July 12, 2017

Micro grids are not a reliable substitute for nuclear base load generation.

We are seeing France proceed on reducing its nuclear generation capacity. This move has baffled most of us who see nuclear power production as a critical component of a low carbon base load.

Nuclear base load plants come with their share of issues

1) High capital outlays,
2) Need for "Spinning Reserves" (to hedge against loss of generation and accidents), and
3) Spent fuel related costs.

France is the world leader in nuclear electricity technology, and with the election of E Macron, most rational people were hoping for France to surge ahead on climate change issues. As the center of gravity of the world was shifting back to Europe and Asia. The French were supposed to be leading agents of positive change.

I am struggling to understand why the French chose to reduce their nuclear generation capacity.

One of things I have come across is a myth that is gaining ground among anti-nuclear renewable advocates.  The core of this myth embodied in several public articles [1][2] is that local generation and storage ("Micro grids") will reduce dependence on base load.

I call this a myth because while the economics of distributed generation are somewhat explored, the economics of distributed storage are a complete unknown. The whole micro grid concept is untested at scale. We have no idea what it costs to keep one of those operating for long periods of time.

FWIW - I favor smart compact grids that exploit all opportunities for localized generation and storage. I strongly support building scale storage like flow batteries and so on.

Where I am choking on this is the idea that this is somehow a dependable alternative to base load. 

Whatever you may feel about a nuclear power it is a much more survivable asset than a windmill or a solar panel. It is protected against earthquakes, hurricanes and so on.

Yes I know about Fukushima - but it was a f*cking Tsunami - nothing w survive that. But by the same token Japan's power grid has survived numerous earthquakes and typhoons - that won't be the case if it runs on windmills and solar panels.

Local generation options and small grids are not as survivable as base load power plants.

I feel like people are missing this dimension in their thinking.

What you are actually going to do by shutting down nuclear power plants is jack up your carbon emissions while exposing yourself to much greater amounts of catastrophic risk.

A few subtle issues about economics that folks seem to be missing

A lot of people are clinging to the idea that somehow massively crashing the economy will cause the Fed to forgive all debt, thus ending the massive credit crisis that looms over the future. The reason people think this is that they are extending poorly thought out ideas from personal scale micro-economics to the macroeconomic performance of the country as a whole.

A lot of people are drawn to the notion that personal finance is a good analogy for national economic behavior. There is a similarity but it's actually very different at the national scale.

The correct mapping between your personal debt picture is and the national debt picture looks something like this.

1) You get a salary, the government gets taxes.

2) You borrow from your credit card company/bank, the government borrows from the Fed by selling bonds.

3) You make a payment on your debts, the government pays the dividend on the bond.

4) You pay taxes to the government, the government pays for social services that benefit you (in the US this is mostly social security and medicare).

It is best to view the entire economy as a "debt trafficking" operation. You borrow from someone else and that someone borrows from you.

So if you think that crashing the economy through some Trumpian nonsense will lead to your personal debts being wiped out, that might happen but... that will also completely wipe out your earnings and since you won't be paying any taxes, the government will have no money with which to pay for those social services you are receiving.

This effect is sometimes called deflation. And here is where it gets interesting, since you and your government will at this point need to borrow money from somewhere to survive (o/w you won't be able to buy food and the govt won't be able to pay its employees) - your or your govt's debt history will factor into any creditor's calculation.

Historically deflation has occurred in various places and the resulting debt restructuring has always been accompanied by extremely high interest rates because lenders have to confront the fact they are taking on greater risk. You basically end up with predatory lenders at that point. You never come out of a bankruptcy without a interest rate hike or massively higher insurance premiums.

So even though it should wipe out your debts, the economic crash could just as easily cause you to go even deeper into debt.

The Trumpers are slowly coming around to the reality that the man that they voted for is something entirely different from what they thought he was, but they are still clinging to the stupid ideas of dodging their debt. It was idiotic ideas of this kind that led them to Trump's door in the first place.

Liberals need to understand that Trump isn't the worst thing that can happen, there are far worse things out there.  This won't end even if the book closes on the Trump saga. The underlying idiotic behavior will continue.

What Trumpers need to get that it is nice to be able to fantasize about what life would be like if  you didn't have all that debt... but if you actually end up in a situation where you backed off on debt servicing, you'd quickly spiral down an endless black hole of debt.

If you still don't believe me, just ask the first black people you see on the street and ask them what that is like.

Or go to the nearest refugee center and ask the people coming from war torn countries in the world what a debt trap feels like.

Friday, July 07, 2017

Some thoughts about money laundering patterns

This is an offshoot of a discussion with @MWR_DBM on twitter.

As wealth is acquired through illegal means by a criminal, they look forward to enjoying its benefits. This poses two main problems. The wealth many be stolen by the criminal's associates - for example - the guards protecting the ill-gotten cash may run off with it or change loyalties. Or the government may take it all away (i.e. 100% taxation) and jail the criminal.

Coping with these catastrophic risks makes criminals seek out ways of "laundering" the money - i.e. way of making the money less visible to these catastrophic risks.

I feel it is best to divide money laundering into two basic patterns.

1) transferring the money - where the wealth acquired illegally changes form, hands or jurisdiction. The main aim of such operations is to hide the original sources of income. Examples of wealth transferring mechanisms are restaurants, hotels, casinos or strip clubs. Here people come in and spend cash, and there is no way to know how much anyone actually spent. It is easy to claim that people spent more money than they actually did - no revenue intelligence entity ever actually audits the restaurant and the patrons at the exact same time. This turns illegal cash into legal cash.

2) storing the money - where the wealth is kept in a form that is relatively unchanging and slightly growing. The aim here is to create repositories which may be retrieved by their rightful owners at will. There are two main forms of storage which I call "static" and "dynamic". In "static" storage the wealth is converted into an asset which either keeps its value or grows slowly. The ownership of the "static" asset is relatively transparent. The asset is usually a piece of real estate, or a vehicle or a commodity. In "dynamic" storage the wealth is moved around frequently through a range of assets which all appreciate in value. The rapidly rising value of the asset is necessary to the repeated offset transaction costs. The "dynamic" storage can be anything even something as abstract as a cryptocoin.

As most criminal enterprises massively degrade the value of human life, they end up producing large "profit" without visible investment. The amount of money generated is so large it quickly exceeds the criminal's ability to spend and they have find ways of coping with the money.

As the criminal is always shouldering massive catastrophic risks, their investment culture is very different from the normal investor. The normal investor makes money legally and lives without the constant fear of losing everything. The normal investor stores their wealth in stable low risk assets and only a small fraction of their wealth is ever invested in high risk ventures (typically about 1% if you are from Asia and about 10-20% if you are from the US/EU).

A criminal investor can't afford to be so relaxed. One way to think about it is that things that the ordinary investor thinks are risky, are as safe as an FDIC insured savings account to a criminal investor. This changes the investor expectations significantly.

A case in point is real estate investment. Most ordinary people look upon real estate as a place to stay. It is a lifetime investment, and very few people have other investment properties - usually ones that are inherited or bought as a means of generating rent.

While an ordinary investor may balk at the idea of putting down $1M for an apartment in a Trump development, a criminal investor will gladly pour in $3M into three apartments  because they know that Trump will ask no questions about where the money comes from & even if the apartments lose value, they will still be worth more than a room with stacks of $100 bills wrapped in plastic in where-ever-the-fuck-istan. Even at a massive loss of value (~25% for most people during the 2008 crisis), the criminal investor still gets more out of this transaction than they would if the cash had simply sat somewhere.

Now if the real estate values are exploding (as they once did around 2004), then it makes sense to use shell companies to quickly move the real estate asset around. This is an example of "dynamic storage". In this approach, you and a close friend in RU government set up shell companies in Panama and then toss Florida real estate between yourselves. After a dozen swaps and sales, you have effectively confused any investigative agency about who exactly owns the asset and what if any tax obligations they have.

This is one of the many weird ways in which the criminal real estate market differs from the normal real estate transactions market. Given the way the valuations are these days, I feel the criminal real-estate sector probably accounts for ~ 10% of the GDP, i.e about half the money in the RE sector is from conflict economic sources.

Wednesday, July 05, 2017

Is there a way to change things w/o misleading people?

When you want to change something, can you do it without subterfuge? I sometimes feel that is not the case - people become set in their ways and there is no way to get people to change without using the Pied-Piper-of-Hamelin approach.

It appears that is what the GOP is going for here.

I am at a complete loss to understand how a party of fiscal conservatives and national security hawks that has long courted older white voters is supporting a man suspected of spying for Russia and actively promoting an end to social security and entitlement spending that will kill its own vote bank.

The only way to reconcile this with the core of conservative ideas is to admit that the entire position is a feint.

The GOP is using the Trump agenda of radical change to fool older white voters into accepting massive cuts in entitlement spending.

Everyone accepts entitlement spending is unsustainable and there will be no way to support aging boomers through their retirements.

Boomers are quite rightly angry, they paid into social security and medicare all these years but they are not going to enjoy the benefits of that. But the boomers know they haven't paid enough into the entitlement system and that there is no productivity to support the long healthy retirements that the numerically smaller Great Generation came to enjoy.  Boomers also know it is too late to fix anything - there is no way to re-inflate the entitlement fund.

The GOP seems to be taking Boomer anger and funneling it towards other sections of the population. Once this anger has been controlled, the GOP will go ahead and implement steep cuts in medicare and social security.

It is foolish to believe that cutting Obamacare, Supplemental Medicaid & Welfare will not impact Medicare or Social security. Programs like that ensure that people do not become sick, they actually reduce the load on Medicare and Social Security by increasing their effective productivity of the aging population.

If you cut these ancillary programs, you basically cut the number of people who live long enough to claim Medicare. Once your illness reaches a point where the Medicare costs associated with it are too high, you are dead. Dead people don't claim Social Security.

Quite naturally the GOP behavior is reprehensible. It is criminal to exploit a human being's ignorance in a manner that leads to their death.

As the Democrats reach out to older voters and inform them of the GOP's actions, there will be indignation - but the GOP will simply say that was Donald Trump's agenda and after all - the same voters wanted Donald Trump.  This also works if it is proven that Donald Trump is a RIS agent - the GOP simply shrugs and says "Gee... but the voters loved him".

This allows the GOP to wash its hands off the entire affair - in the same way as center right German parties washed their hands off the whole "Hitler" issue.

I don't want to see history repeat itself.

There must be a better way to do this.

Is there any way to avoid misleading people like this?

Tuesday, July 04, 2017

What I understand of TrumpRussia...

After reviewing everything I can get my hands on here is what I think is really going on.

Trump is a small part of a very large USIC operation spanning decades. It may very well be one of the biggest intelligence ops in US history after the PSB's terrifying but extraordinary work in securing Post WWII Europe against the spread of communism.

Trump has been in the money laundering business for a while now. He has managed to stay out jail by agreeing to "wear a wire" for the USIC.  As the USSR collapsed, Trump began to move RU conflict capital into US and EU real estate. The USIC objective at this time was too keep the money where they could see it. I estimate almost a trillion USD (today's money) was moved this way.

In last decade the USIC began to notice that Trump was skimming off the top. CI's (Confidential Informants) sometimes do that but this is usually a bad sign. USIC couldn't figure out why the RIS was letting Trump get away with it. The question was raised - Is he skimming or being paid off for some hitherto unknown service by RIS? 

I do not know when this question was asked and how the investigation truly began, but it most likely turned into a retrospective analysis of the data already collected by the "wire tap".

The panic in the USIC became very real when Trump announced his run for President. The fear was that RIS could use him as a platform for undermining the sanctity of the US electoral process. What made matters worse I suspect was the realization that a number of NY FBI personnel involved in "handling" the Trump-Sater-etc... sting operation were leaving the agency and taking up lucrative jobs in the private security field. It appears people like Uher and Deck were getting contracts from the Trump organization. Not illegal per se but in the counter-intelligence community that sort of thing raises eyebrows. When Trump secured the GOP nomination, there would been alarm bells ringing inside the USIC.

As this incidental collection could not be used directly against Trump in a court of law, an external database (FVEY maintained) was searched first. Why did the IC want to do this in a court of law? - because it is easier to threaten a CI with legal consequences. Perhaps the hope was that a legal deterrent would go a long way in securing his cooperation. With the information generated via FVEY data, a FISA Court process was initiated.

When Trump announced his run for President, the choices before the USIC would have been,

a)  go public with Trump's RIS ties. This would risk exposing numerous USIC/allied assets before they could be replaced. It would put the entire IC under massive strain.

b) let it play out and use Trump as a lure to drag out RIS assets from their hiding places. Who knows - one might even get lucky and pull out the entire RIS/X-Dir A team?!

It appears the USIC went for the latter option. It makes sense as it is a resource conservative option. The real struggle remains going through the mass of data and determining whether the RIS turned the tables on the USIC's sting operation.  As long as that continues unimpeded, real progress has been made. Obviously the investigation will be painful but the USIC can't afford to not investigate, the Augean stables have to be cleaned.

Trump might try to argue this is all a conspiracy against him, that he never shifted his loyalty. But that what a bent CI would say. And lets face it - CI's are picked for their malleability to the handlers. Beyond a point they don't really get a say in what the handler thinks of them.

Unfortunately from the Russian perspective, they cannot back down either. Whatever they had going with Trump, they need to keep pushing it or risk losing everything.  From their POV it is ideal to cause maximum damage to the US democracy and the US brand worldwide.