Obama And Banks Ran Out of Time

I just want to emphasize that the Obama Administration and the banking industry has run out of time, referencing my previous post where I said that they were hoping to wait out the recession.  They were hoping that, by delaying the foreclosure process, they could soft land the housing market and the economy, and rebound before the banking industry and consumers run out of money.  Well, as I said yesterday, the consumers have definitely run out of savings.  The Greek debt drama could soon drain the banks dry, too.  So yes, they have run out of time.  We are now entering the second dip of the classic depression.

Liberal Economists' Blind Spots

Derek Thompson of the Atlantic asked, "How did 2011 go so wrong?"  He could not understand why the year started out so well, with all of the economic indicators pointing toward a recovery, yet 6 months later we are stalling.

Well, he came pretty close to the answer himself:  Housing.  He himself said that investment (for the top 10% of Americans mostly) plus housing constitutes the savings for American households.  Therefore the housing collapse, which we are still sorting through, dampens the demand.  And then, at the very end, Thompson concluded, well, "The hardest thing for Washington to understand is that not every economic question can be solved in Washington."

What Thompson has conveniently forgotten is that we are still sorting through the housing wreckage because of the Bush/Obama administration's housing policy.  At the beginning of the crisis in 2008/9, the presidents concluded that a "soft landing" is our top goal.  Therefore, they slowed down the foreclosure process.  The banks themselves, fearful of exposing their own liabilities and thus going out of business, went along.  The TARP program allowed the administration to dictate foreclosure policy and pace for awhile.  The Making Home Affordable program of mortgage modification gave many people the false hope of staying in their homes, and thus exhausting their savings trying to save that sinking ship of their houses.  The search for foreclosure scapegoats ended up at the robo-signing title agents, which does not change the material facts behind the foreclosure cases, but simply delaying the process.

The federal government has succeeded in their economic policy of soft landing housing.  The economic cost of that priority is the current malaise we're going through.  We have yet to find the bottom of the housing market.  There is still a huge shadow inventory in the foreclosure pipeline.  The administration's TARP funding prevented the banks from running out of cash, yet the banks' safety net allowed the banks to hold onto their foreclosed inventory, hoping that the housing prices will come back up before they run out of cash, thus allowing them to still make a profit.  So consumers' savings are tied up in their houses.  Too many people have exhausted their savings trying to stay in their untenable houses.  The rest are waiting for the market to recover before realizing their real estate savings.  The real estate market is sucking the liquidity out of the market, preventing a consumer demand-driven economic recovery.

See, in a "normal" recession, housing market starts crashing.  People start losing jobs and have to stop paying mortgages.  They either arrange a short-sale or foreclosure.  The banks start accumulating properties instead of the revenue streams of mortgage payments.  Thus banks quickly runs into their own liquidity crises.  Even though the rational banker wants to hold onto the properties as long as possible, to recover the investment, the liquidity crises forces him to offload properties.  The glut of housing supply is quickly realized, allowing the real estate market to discover the bottom quickly.  At this time, the people with cash move in.  They buy the cheap houses with their savings, releasing the cash into the economy.  The discovery of the bottom allows business owners to start planning for the recovery.  The additional cash in the economy greases both demand and investment.  Voila, recovery.

An additional factor is that, as people lose their jobs and got foreclosed on, they move to greener pastures.  The liberated labor move to where jobs are, satisfying the labor needs and increasing the monetary velocity of these growth areas.  The result feeds back into the overall recovery and we get onto the peaks again.

Whereas, because of the delay in the foreclosure process, we have too many people holding on in the Rust Belt (And California), instead of moving to the Sun Belt where the jobs are.  This exacerbates the unemployment problem, and decreases the monetary velocity in the Sun Belt. [With less labor in the Sun Belt, employers have to bid up wages.  People with higher income have lower velocity.  Thus, lower monetary velocity for everybody, and slowing down recovery.]

So yes, the government can do plenty to improve the economy.  They can start by encouraging people to move to where the jobs are, and speed up the foreclosure process.

Oh, and we are starting to see the voices saying that a default on Treasuries is better than austerity measures.  If that happens, we are going to drag the world economy down with us.  The only thing standing in the way is the Republican House.  Let's hope that they hold the line.

Charles Stross's Saturns Children and Thoughts on AI

Finished Charles Stross's Saturn's Children this weekend.  It was a great read.  The "sex scenes", which obliquely referenced sex but not directly, are a welcome break from the modern fiction these days.  Given that the heroine is a pleasure robot, the sexual references were exactly right, relevant and integral to the story, without detracting from it.  Compared to, say, Tom Clancy, this book is a textbook example of addressing this subject.  One suspects that the extraneous sex scenes in books these days are a plague inflicted by the book agents.

In any event, Saturn's Children paints a thoughtful picture of Artificial Intelligence inheriting the earth.  The classic tragedy of robots bound by the human property laws, in a world where humans are extinct, is haunting.  The constraints of economic reality on robots' actions is a great reminder that, despite the hopeful communism of Star Trek, et al, Resource Limitation is the universal condition no matter the scale of your civilization.

The notion of Artificial Intelligence having to pattern the human brain to achieve symbolic manipulation, is in line with current thinking on AI.  The spontaneous emergence of consciousness is the combination of the hardwired neural complexity and the profusion of environmental stimuli.  To recreate that neural complexity in software form is probably too expensive, compared to implementing that complexity in hardware form.  Moreover, the role of the environmental stimuli is crucial in guiding the development of the neural complexity.  Without the interaction with the environment, a brain is only latent, not realized.  There are some interesting research taking place on this particular AI hypothesis, and we will soon find out if the hypothesis hold any validity.

One note of caution, though, is that current researchers may be underestimating the amount of environmental stimuli required to realize intelligence.  Brains emerged to interact with the environment, not just to observe it.  Without interaction with the data stream, these new AI brains may starve just like the sensory-deprived orphans of post-communism Russia and Romania.  Or worse, the Hikikomori phenomenon in Japan.  One might think that the current projects are somewhat flawed because they are focusing on building the brain itself, rather than the educational apparatus required to realize the intelligence.

If the prototypes succeed, Dr. David Brin's future of AI working alongside man will be close at hand.  That future of augmented intelligence (where a brain can interact with a digital computer) definitely sounds exciting!

MGI Might Revive Bushmaster Pistol

Mack Gwinn Industries, the inventor of the Marck-15 Hydra weapon system with modular mag wells and quick change barrels for multiple calibers, and the licensee for the Valkyrie belt-feed system, [which itself was a revival of the Ciener light machine gun,] has publicly expressed interest in the Bushmaster pistol.  Mack Gwinn, Jr, founder of MGI, was the primary developer of the original Bushmaster pistol, which later went to the Bushmaster Firearms company, had a rifle variant, and merged with the Edenpine SAK-30 to become the Bushmaster M-17S bullpup rifle.  Whew, that was a handful. 

Duncan Long's AR-15 Sourcebook said that Bushmaster and Mack Gwinn developed the Bushmaster pistol on their own, and which later evolved into the M-17S rifle.  However, other sources such as Small Arms Review's article as well as Guns.Ru stated that the M-17S directly descended from the Armstech/Edenpine SAK-30.  The original Bushmaster pistol does not appear to have the tensioned barrel that M-17S has, so perhaps M-17S inherited the barrel from SAK-30, and the receiver/fire-control/bolt/bolt-carrier from Bushmaster Pistol.  All three used the gas system from the AR-18.

In any event, MGI said that they want to bring the Bushmaster Pistol back into production, which is great news! [You can find the announcement in their Facebook wall photo album.]  In an earlier ('07-'08?) private correspondence with their marketing rep, they had expressed interest in reviving the M-17S at a later date.  Perhaps the time has come for this bull-pup design.  I hope they bring back the M-17S and the pistol together, but either one would be great.  Given their Hydra mag-wells and quick-change barrels, perhaps MGI can add these features into the new gun.  Guess I need to start saving money now! :D