Streetwise Professor

September 17, 2019

Fentanyl: The Real Trade War

Filed under: China,History,Politics — cpirrong @ 5:21 pm

The Sino-American “trade war” narrative is one of the most idiotic ones in recent memory, and given that it has to compete with things like “Russian collusion” that’s saying a lot. This narrative is appealing to superficial, lazy journalists, is tailor made for governments and companies looking to excuse poor results, and fits right in with the relentless anti-Trump media drumbeat.

Trade is just one weapon in a deeper geopolitical/geostrategic contest between the United States and China. This contest pits an established status quo power with an emergent, revanchist, revisionist one. These powers have fundamentally different visions for the operation of the global system.

The struggle is being waged in myriad dimensions, and often in a quite asymmetric way. One of China’s most deadly–literally–asymmetric weapons is fentanyl. And anyone who thinks that China’s shipping of massive quantities of this extremely dangerous drug to the US is not an intentional asymmetric warfare tactic is delusional.

Consider this story about the “rise and fall of an Eagle Scout’s Fentanyl Empire.” Consider this line in particular:

The case against Shamo detailed how white powder up to 100 times stronger than morphine was bought online from a laboratory in China and arrived in Utah via international mail (emphasis added).

China is the most intrusive security state in the history of the planet. In particular, its surveillance and censorship of the Internet is beyond intense. Nothing happens on the Internet in China without the security establishment/Party knowing about it, and allowing it.

Further, China is the most ruthlessly repressive state in the world, and has absolutely no compunction about summarily executing those who cross it. They will even go one better, and sell the organs of those they execute. If it wanted to crack down on the fentanyl trade, it could do it. With extreme prejudice.

So if it is possible for an American to buy massive quantities of fentanyl online in China, it is because the Chinese government wants to sell massive quantities of fentanyl to Americans.

That is the real trade war that is going on. The trade in fentanyl is a deliberate tactic by China to kill Americans and weaken American society.

China is playing for keeps. Yet a large portion of the American establishment has been corrupted and co-opted by China, and/or is so blinded by Trump hatred that they turn a blind eye to this conduct, when they are not bewailing any attempt to confront China.

Yes, the opioid crisis–which should really be called the fentanyl crisis, because prescription opioids are not the big killer–reflects serious problems in American society. But it is necessary to recognize that China is exploiting those problems in a most cynical way. By all means attempt to address the demand issue, but do not ignore the supply issue. And in particular do not ignore the fact that the supply issue is only one aspect of a struggle between the United States and the worlds most repressive and most totalitarian power.

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Funding Market Tremors: Today May Not Have Been “The Big One,” But It Was Bad Enough

The primary reason for my deep skepticism about the wisdom of clearing mandates was liquidity risk. As I said repeatedly, in order to reduce counterparty risk, clearing necessarily increased liquidity risk through the variation margining mechanism. Further, it was–and is–my opinion that liquidity risk is a far graver systemic concern that counterparty risk.

A major liquidity event has occurred in the last couple of days: rates in the repurchase market–the major source of short term funding for vast amounts of trading activity–shot up to levels (around 5 percent) nearly double the Fed’s target ceiling for that rate. Some trades took place at far higher rates than that (e.g., 9.25 percent).

Market participants have advanced several explanations, including big cash demands due to corporate tax payments coming due. Izabella Kaminska at FTAlphavile offered this provocative alternative, which resonates with my clearing story: the large price movements in oil and fixed income markets in the aftermath of the attack on the Saudi resulted in large margin calls in futures and cleared OTC markets that increased stresses on the funding markets.

To which one might say: I sure as hell hope that’s not it, because although there was a lot of price action yesterday, it wasn’t The Big One. (The fact that Fred Sanford’s palpitations occurred because he couldn’t get his hands on cash makes that bit particularly apropos!)

I did some quick back-of-the-envelope calculations. WTI and Brent variation margin flows (futures and options) were on the order of $35 billion. Treasuries on CME maybe $10 billion. S&P futures, about $1 billion. About $2 billion on Eurodollar futures.

The Eurodollar numbers can help give a rough idea of margin flows on cleared interest rate swaps. Eurodollar futures open interest is about $12 trillion. Cleared OTC notional volume (not just USD, but all IRS) is around $80 trillion. But $1mm in notional of a 5 year swap is equivalent to 20 Eurodollar futures with notional amount of $20 trillion. So, as a rough estimate, variation margin flows in the cleared IRS market are on the order of 100x for Eurodollars. That represents a non-trivial $200 billion.

Yes, there are potentials for offsets, so these numbers are not additive. For example, a firm might have offsetting positions in EDF and cleared IRS. Or be short oil and long Treasuries. But variation margin flows on the order of $300 billion are not unrealistic. And since market moves were relatively large yesterday, that represents an increment over the typical day.

So we are talking real money, which could certainly contribute to an increased demand for liquidity. But again, yesterday was not remotely a truly epic day that one could readily imagine happening.

A couple of points deserve emphasis. The first is that perhaps it was coincidence or bad luck, but the big variation margin flows coincided with other sources of increased demand for liquidity. But hey, stuff happens, and sometimes stuff happens all at once. The system has to be able to withstand such simultaneous stuff.

The second is related, and very concerning. The spikes in rates observed periodically in the repo market (not just here, but notoriously in China) suggest that this market can go non-linear. Thus, even if the increased funding needs caused by the post Abqaiq fallout wasn’t The Big One, in a non-linear market, even modest increases in funding needs can have huge impacts on funding costs.

This highlights another concern: inter-market feedback. A shock in one market (e.g., crude) puts stress on the funding market that leads to spikes in repo rates. But these spikes can feedback into prices in other markets. For example, if the inability to fund positions causes fire sales that cause big price moves that cause big variation margin flows which put further stress on the funding markets.

Yeah. This is what I was talking about.

Today’s events nicely illustrate another concern I raised years ago. Clearing/margining make markets more tightly coupled: the need to meet margin calls within hours increases the potential stress on the funding markets. As I tell my classes, unlike in the pre-Frankendodd days, there is no “fuck you” option when your counterparty calls for margin. You don’t pay, you are in default.

This tight coupling makes the market more vulnerable to operational failings. On Black Monday, 1987, for example, the FedWire went down a couple of times and this contributed to the chaos and the potential for catastrophic failure.

And guess what? There was a (Fed-related!) operational problem today. The NY Fed announced that it would hold a repo operation to supply $75 billion of liquidity . . . then had to cancel it due to “technical difficulties.”

I hate it when that happens! But that’s exactly the point: It happens. And the corollary is: when it happens, it happens at the worst time.

The WSJ article also contains other sobering information. Specifically, post-crisis regulatory “reforms” have made the funding markets more rigid/less-flexible and supple. This would tend to exacerbate non-linearities in the market.

We’re from the government and we’re here to help you! The law of unintended (but predictable) consequences strikes again.

Hopefully things will normalize quickly. But the events of the last two days should be a serious wake-up call. The funding markets going non-linear is the biggest systemic risk. By far. And to the extent that regulatory changes–such as mandated clearing–have increased the potential for demand surges in those markets, and have reduced the ability of those markets to respond to those surges, in their attempt to reduce systemic risks, they have increased them.

I have often been asked what would cause the next financial crisis. My answer has always been: the regulations intended to prevent a recurrence of the last one. Today may be a case in point.

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September 16, 2019

Beta O’Rourke Fails Texas History–and Texas

Filed under: History,Houston,Politics — cpirrong @ 7:14 pm

Democratic presidential candidate Robert Francis “Beto” (AKA “Beta”) O’Rourke, currently running neck-and-neck with Rounding Error, is attempting to jumpstart his floundering campaign with strident threats to confiscate “assault weapons”:

“Hell, yes, we’re going to take your AR-15,” the former Texas congressman shouted, to cheers from the audience. “We’re not going to allow it to be used against our fellow Americans anymore.”

This prompted Texas state representative Briscoe Cain to tweet: “My AR is ready for you Robert Francis.”

Beta then proceeded to go all drama queen, replying on Twitter: “This is a death threat, Representative. Clearly, you shouldn’t own an AR-15—and neither should anyone else.”

Going even drama queenier, Beta reported Cain to the FBI.

FFS. So what’s next? Will Beta demand the digging up and ritual burning of Charlton Heston’s corpse? (Actually kind of amazed YouTube/Google hasn’t consigned that to its memory hole.)

Beta, who is from Texas, apparently needs a Texas history lesson. Cain’s sentiment has a long tradition in Texas, dating from the dawn of the Republic in 1835, in fact.

The story is this. In 1831, the Mexican government gave the Anglo “Texian” citizens of Gonzales a small cannon for use in defense against marauding Comanches. When the Texians became restive a few years later, and began to resist the Mexican government, the Mexicans thought better of their gift and sent a detachment of 100 men under a Lieutenant Francisco de Castañeda to retrieve it. Men from Gonzales and other towns rallied, and told Castañeda to bugger off. They emphasized their message with a homemade flag depicting the image of a cannon, with the words “Come and Take It” emblazoned on it.

After some fitful skirmishing, Castañeda decided he’d rather not, actually, and so he scooted off, leaving the cannon in the Texians’ hands.

Castañeda was not only present at the very beginning of the Texas Revolution in Gonzales: he was present at the end, surrendering the Alamo to Juan Seguin on 4 June, 1836. Two time loser. Id, puta!

State Rep. Cain was therefore echoing a proud Texas tradition, and O’Rourke, who affects some Mexican connection with his faux nickname (why isn’t that considered cultural appropriation?) (maybe his ancestors served in the San Patricio Battalion!) is the one playing the role of the threat to the liberties and right of self-defense of Texans–and Americans generally.

So as someone who got to Texas as soon as I could, I say to Beta: Come And Take It. And that is your history lesson for today.

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September 15, 2019

The Attack on Abqaiq: Iran Burns Its Boats

Filed under: Energy,History,Military,Politics — cpirrong @ 6:07 pm

There is an apocryphal story about Moshe Dayan, in which when asked what was the secret of his success, he answered “fighting Arabs.” True or not, there is a certain veracity to the judgment. It’s not for no reason that there are articles with titles like “Why Arabs Lose Wars” and books with titles like “Armies of Sand: The Past, Present, and Future of Arab Military Effectiveness.” Yes, there have been exceptions, like the Jordanian Legion, but for the most part when Arab armies fight non-Arabs, the former get by far the worst of it.

The Saudi armed forces are arguably the worst of the lot, despite the billions in advanced arms that have been lavished on them over the years. It is a force designed primarily for regime protection, or more accurately, designed so that it does not pose a threat to the regime. Fighting the KSA’s external enemies is a secondary–or tertiary–consideration. In their minds, that’s what they pay the US for.

The appalling performance of the Saudi army in wars in Yemen, whether it be decades ago or today, provides ample testimony to this rather harsh judgment.

With this sorry history in mind, I consider it highly likely that Saudi military ineptitude contributed to, and was arguably the primary cause of, the devastating attack on the Abqaiq oil processing plant. This has resulted in the disabling, for an indeterminate period, of 50 percent of Saudi oil production.

Especially in light of past Houthi (and Shiite Iraqi militia) attacks on Saudi facilities, this was an obvious target. For it to be hit so effectively, with not even the Saudis claiming to have downed any of the attacking aircraft (drones? rockets? missiles?) is a military failure of the first order.

So what now? The US has come out and directly blamed Iran. Whether Iran used one of its myriad cutouts, or pushed the button itself, is immaterial. It is almost certain that it is responsible.

So how to respond?

Even by Trump’s standards, his initial tweet in response was cringeworthy:

It’s one thing to await information from the KSA, and to coordinate with them. It’s quite another to delegate–as Trump appears to do–the decision on the American response to the militarily inept oil ticks that rule Saudi Arabia who are not our friends.

Trump has shown forebearance with Iran before. But shooting down a drone (albeit an expensive one) and attacking what is arguably the singlemost important oil installation in the world are on totally different levels. And Trump no doubt is thinking “if this is what forebearance gets me, screw it.”

Ironically, moreover, this occurred after Trump unceremoniously defenestrated the most conspicuous Iran hawk in his administration, and made noises about negotiating with Iran, and backing the French credit line initiative.

Want to bet that John Bolton is laughing his ass off now?

And what say you, Emmanuel Macron and Angela Merkel?

Iran’s escalation at a time of American efforts to defuse tensions is akin to burning its boats. It makes clear that negotiation is off the table. It is either capitulation by the US (and Europe, as if it counts) or conflict. And how the US responds to this extremely provocative act is not something that should be left to the House of Saud.

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September 14, 2019

Bakkt in the (Crypto) Saddle

ICE is on the verge of launching Bitcoin futures. The official start date is 23 September.

The ICE contract is distinctive in a couple of ways.

First, it is a delivery settled contract. Indeed, this feature is what made the ICE product so long in coming. The exchange had to set up a depository, the Bakkt Warehouse. This required careful infrastructure design and jumping through regulatory hoops to establish the Bakkt Trust Company, and get approval from the NY Department of Financial Services.

Second, the structure of the contracts offered is similar to that of the London Metal Exchange. There are daily contracts extending 70 days into the future, as well as more conventional monthly contracts. (LME offers daily contracts going out three months, then 3-, 15-, and 27-month contracts). The daily contracts settle two days after expiration, again similar to LME.

The whole initiative is quite fascinating, as it represents a dual competitive strategy: Bakkt is simultaneously competing in the futures space (against CME in particular), and against spot crypto exchanges.

What are its prospects? I would have to say that Bakkt is a better mousetrap.

It certainly offers many advantages as a spot platform over the plethora of existing Bitcoin/crypto exchanges. These advantages include ICE’s reputation, the creation of a warehouse with substantial capital backing, and regulatory protections. Here is a case in which regulation can be a feature, not a bug.

Furthermore, for decades–over a quarter-century, in fact–I have argued that physical delivery is a far superior mechanism for price discovery and ensuring convergence than cash settlement. The myriad issues that were uncovered in natural gas when rocks were overturned in the post-Enron era, the chronic controversies over Platts windows, and the IBORs have demonstrated the frailty, and vulnerability to manipulation of cash settlement mechanisms.

Crypto is somewhat different–or at least, has the potential to be–because the CME’s cash settlement mechanism is based off prices determined on several BTC exchanges, in much the same way as the S&P500 settlement mechanism is based on prices determined at centralized auction markets.

But the crypto exchanges are not the NYSE or Nasdaq. They are a rather dodgy lot, and there is some evidence of manipulation and inflated volumes on these exchanges.

It’s also something of a puzzle that so many crypto exchanges survive. The centripetal forces of liquidity tend to cause trading in a particular instrument to gravitate to a single platform. The fact that this hasn’t happened in crypto is anomalous, and suggests that normal economic forces are not operating in this market. This raises some concerns.

Bakkt potentially represents a double-barrel threat to CME. Not only is it competing in futures, if it attracts a considerable amount of spot trading activity (due to a superior trading, clearing, settlement and custodial platform, reputational capital, and regulatory safeguards) this will undermine the reliability of CME’s cash settlement mechanism by attracting volume away from the markets CME uses to determine final settlement prices. This could make these market prices less reliable, and more subject to manipulation. Indeed, some–and maybe all–of these exchanges could disappear if ICE’s cash market dominates. CME would be up a creek then.

That said, one of the lessons of inter-exchange competition is that the best mousetrap doesn’t always win. In particular, CME has already established liquidity in the futures market, and as even as formidable competitor as Eurex found out in Treasuries in the early-oughties, it is difficult to induce a shift of liquidity to a competitor.

There are differences between crypto and other more traditional financial products (cash and derivatives) that may make that liquidity-based first mover advantage less decisive. For one thing, as I noted earlier, heretofore cash crypto has proved an exception to the winner-takes-all rule. Maybe the same will hold true for crypto futures: since I don’t understand why cash has been an exception to the rule, I’d be reluctant to say that futures won’t be (although CBOE’s exit suggests it might). For another, the complementarity between cash and futures in this case (which ICE is cleverly exploiting in its LME-like contract structure) could prove decisive. If ICE can get traction in the fragmented cash market, that would bode well for its prospects in futures.

Entry into a derivatives or cash market in competition with an incumbent is always a highly leveraged bet. Odds are that you fail, but if you win it can prove enormously lucrative. That’s essentially the bet that ICE is taking in BTC.

The ICE/Bakkt initiative will prove to be a fascinating case study in inter-exchange competition. Crypto is sufficiently distinctive, and the double-barrel ICE initiative sufficiently innovative, that the traditional betting form (go with the incumbent) could well fail. I will watch with interest.

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September 3, 2019

Rogozin the Ridiculous: Like a Bad Kopec, He Keeps Turning Up

Filed under: Politics,Russia — cpirrong @ 6:29 pm

A few months ago long-time commenter Ex-Global Super-Regulator on Lunch Break inquired of the whereabouts of one of my favorite whipping boys, Rogozin the Ridiculous. Well, he’s reappeared! And not in a good light! (I’m sure you are all shocked, shocked!)

Apparently RtR was playing the typical role of a dog fighting under the carpet, but the battle has become public. Rogozin’s replacement as Deputy Prime Minister (Rogonotcop having moved to head Roscosmos) came out blasting his predecessor for massive corruption and mismanagement in the construction of the Vostochny Cosmodrome, something I wrote about when the stores about this first appeared:

A series of corruption scandals, cost overruns and mishaps at Russia’s new Vostochny Cosmodrome have brought long-simmering questions about the leadership of the country’s space agency into public view.


“The situation is unacceptable for everyone, including the construction of the first stage and the second stage” of the space center, Deputy Prime Minister Yury Borisov told Vedomosti newspaper in an interview published Monday, adding that the Defense Ministry may take over part of the work.

Rogo’s response? Basically “eta Rossiya”:  “It’s always been this way: some build, while others criticize. It’s part of the business.”

Truth be told, Rogozin’s building left a lot to criticize: inspectors found a “critical defect” on a launchpad in November (two years after it became operational!). And of course the corruption was epic:

The Prosecutor General’s Office has opened a series of criminal cases after uncovering 10 billion rubles ($150 million) in losses during construction at Vostochny. In one sparkling example of corruption, a contractor accused of stealing 4 million rubles was detained in Minsk, Belarus, while driving a Mercedes covered in Swarovski crystals.

Corruption is apparently rife at Rogozin’s new gig:

Alexei Kudrin, the head of Russia’s Audit Chamber, told lawmakers last year that he had found 760 billion rubles ($11.4 billion) of financial violations in Roscosmos’s books, including several billion that had been “basically stolen,” describing the space agency as “the champion in terms of the scale of such violations.” Roscosmos said the criticism related to a 2017 audit, before Rogozin’s appointment.

I’m totally sure he clean that right up!

Rogozin is like a bad kopec: he always keeps turning up. So never fear, EX-Global Super-Regulator on Lunch Break, I’m sure I’ll have an opportunity to write about him again.

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August 31, 2019

Americans’ Realistic Response to a Fight For Freedom in Hong Kong

Filed under: China,History,Military,Politics,Russia — cpirrong @ 6:22 pm

Hong Kong has been convulsed by anti-government protests for weeks. Protestors have numbered in the hundreds of thousands, and are facing increasing violence from Chinese authorities. The atmosphere is heavy with fears of a fierce crackdown by Beijing, along the lines of Tiananmen Square, a little more than 30 years ago.

Hong Kong protestors are literally wrapping themselves in American flags (redolent of the replica of the Statue of Liberty in Tiananmen). Some are even donning MAGA hats and pleading for the US to come to their aid.

But Americans’ responses to all this are decidedly muted, and many appear to be paying little attention to the truly historic events in Hong Kong. This has led many to wonder why. Tyler Cowen hypothesizes that Americans are too obsessed with their own inter-tribal political wars to pay attention:

Sadly, the most likely hypothesis is that Americans and many others around the world simply do not care so much anymore about international struggles for liberty. It is no longer the 18th or 19th century, when one democratic revolution provided the impetus for another, and such struggles were self-consciously viewed in international terms (a tradition that was also adopted by communism). The 1960s, which saw the spread of left-wing movements around the world, embodied that spirit. So did the anti-Communist movements of the 1980s, such as Solidarity, which overcame apparently insuperable odds to help liberate Poland and indeed many other parts of Eastern Europe.
In contrast, I hear no talk today about how the Hong Kong protesters might inspire broader movements for liberty.
Instead, Americans are preoccupied with fighting each other over political correctness, gun violence, Trump and the Democratic candidates for president. To be sure, those issues deserve plenty of attention. But they are soaking up far too much emotional energy, distracting attention from the all-important struggles for liberty around the world.
It’s 2019, and the land of the American Revolution, a country whose presidents gave stirring speeches about liberty and freedom in Berlin during the Cold War, remains in a complacent slumber. It really is time to Make America Great Again — if only we could remember what that means.

With all due respect to Tyler, I think the answer is far different: Americans are far more realistic than he is.

This realism is the bitter fruit of the idealism of the post-Cold War world, and in particular, attempts to advance liberty around the world.

Let’s look at the record. And a dismal record it is.

Start with the collapse of the Soviet Union, which led to a burst of euphoria and a belief that this would cause liberty to spread to the lands behind the Iron Curtain. The result was far more gloomy.

There were a few successes. The Czech Republic, Poland, Hungary. Not coincidentally, the successes and quasi-successes occurred in places that had been part of the Catholic and Protestant west. Outside of that, the states of the FSU and other Warsaw Pact states lapsed back into authoritarianism, usually after a spasm of chaos. (Ukraine went from authoritarianism to chaos to authoritarianism and then to a rather corrupt semi-chaos.)

In particular, the bright hopes for Russia faded rapidly, and after a decade of chaotic kleptocracy that country has settled into nearly two decades of authoritarian kleptocracy. Moreover, Americans (and westerners generally) soon wore out their welcome, in part because of their condescension in dealing with a reeling and demoralized yet proud society, in part because of their complicity in corruption (and yes, I’m looking at you, Harvard), and in part because their advice is firmly associated in Russian minds with the calamity of the 1998 economic collapse. Yes, you can quibble over whether that blame is justified, but that’s irrelevant: it is a reality.

Countries where Color Revolutions occurred (e.g., Georgia) also spurred western and American optimism and support. But hopes were soon dashed as these countries too slipped back into the mire, rather than emerging as beacons of liberty.

I could go on, but you get the point.

Let’s move forward a decade, to Afghanistan and Iraq. In both places, there was another burst of euphoria after brutal regimes were toppled. Remember purple fingers? They were a thing, once, what seems a lifetime ago.

Again, hopes that freedom would bloom were soon dashed, and both countries descended into horrific violence that vast amounts of American treasure and manpower were barely able to subdue. And again, especially in Iraq, the liberators were soon widely hated.

The lesson of Iraq is particularly instructive. The overthrown government was based on a party organization with a cell structure that was able to organize a fierce and bloody resistance against the Americans and their allies. The attitudes of the population meant far less than the determination and bloody-mindedness of a few hard, ruthless men.

Let’s move forward another decade, to the Arab Spring. The best outcome is probably Egypt, which went from an authoritarian government rooted in the military to a militant Muslim Brotherhood government and back to military authoritarianism. In other words, the best was a return to the status quo ante. The road back was not a happy one, and the country would have been better without the post-Spring detour into Islamism.

Elsewhere? Humanitarian catastrophes, like Libya and Syria, that make Game of Thrones and Mad Max look like frolics. Enough said.

Given this litany of gloomy failures, who can blame Americans for extreme reluctance to engage mentally or emotionally with what is transpiring in Hong Kong? They are only being realistic in concluding it is unlikely to end well, and that the US has little power to engineer a happy ending.

And what is the US supposed to do, exactly? The country is already employing myriad non-military instruments of national power in a strategic contest with China. Again, the “trade war” is not a war about trade: trade is a weapon in a far broader contest.

Military means are obviously out of the question. And let’s say that, by some miracle, the Chinese Communist Party collapses, and the US military, government agencies, and NGOs did indeed attempt to help secure the country. How would that work out? Badly, I’m sure.

The country is less culturally intelligible to Americans than Russia, or even the Middle East, and not just because of the language barrier, but because of vastly different worldviews. China is physically immense and has the largest population in the world. Chinese are extraordinarily nationalist, and it is not hyperbole to say that the Han in particular are racial supremacists. Years of CCP propaganda have instilled a deep hostility towards the US in particular, and many (and arguably a large majority of) Chinese blame the west and latterly the US of inflicting centuries of humiliation on China. A collapsed CCP would not disappear: it would almost certainly call on its revolutionary tradition and launch a fierce and bloody resistance. People in Hong Kong may be flying American flags now, but I guarantee that in a post-Communist China, there would be tremendous animosity towards Americans.

When you can’t do anything, the best thing to do is nothing. Some of the greatest fiascos in history have been the result of demands to do something, when nothing constructive could be done.

The American diffidence that Tyler Cowen laments reflects an intuitive grasp of that, where the intuition was formed by bitter experience.

I despise the CCP. It is, without a doubt, the greatest threat to liberty in the world today. It is murderous, and led by thugs. I completely understand the desire of those with at least some comprehension of a different kind of government, and a different way of life, to be rid of it. I am deeply touched by their admiration for American freedom–something that has become increasingly rare, and increasingly besieged, in America itself.

But there ain’t a damn thing I, or even the entire US, can do to make that happen.

Ironically, I guarantee any American involvement in a putative post-CCP China would only contribute to internecine political warfare in the US.

The situation is analogous to that in 1946, when George Kennan wrote the Long Telegram. Confronting (prudently) and containing China is the only realistic policy. After years of delusional policies that mirror imaged China, the Trump administration is finally moving in that direction, and has achieved considerable success in creating a consensus around that policy (the deranged Democratic presidential candidates and those corrupted by Chinese money excepted, both of whom are siding with China at present, because Bad Orange Man and moolah).

But even there we have to be realistic. For even after containment achieved its strategic objective, and the USSR collapsed, it did not result in a new birth of liberty east of the Niemen and the Dneiper. Nor should we expect that to happen on the Yangtze or the Yellow if containment consigns the CCP to the dustbin of history.

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August 27, 2019

“HE’S FULL OF SHIT”: You Read It Here First

Filed under: Climate Change,Economics,Tesla — cpirrong @ 5:50 pm

Three guesses as to who “he” is. First two don’t count.

Vanity Fair has a long article, with a title starting with the quote in the title of this post, showing that Elon Musk’s solar roof in particular, and its solar business in general, is a fraud. The article also shows that Elon engineered Tesla’s purchase of Solar City to prevent it from going belly up, and thereby torpedoing Elon’s reputation as a genius.

Which is exactly what I said on the very day the deal was announced three years ago.

I’ve been calling BS on Elon since May, 2013. Nice to see people are finally catching up.

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It Was Almost Certainly a Petrel Nuclear Powered Cruise Missile That ‘Sploded in Severodvinsk

Filed under: Military,Politics,Russia — cpirrong @ 5:40 pm

The odds that what blew up in Russia on 8 August had a nuclear reactor, rather than an isotope battery power source, are becoming increasingly strong. Specifically, four isotopes associated with nuclear fission, strontium-91, barium-139, barium-140, and lanthanum-140, have been detected.

Norwegian nuclear safety expert Nils Bøhmer says the information removes any doubts about the explosion’s nuclear nature.
“The presence of decay products like barium and strontium is coming from a nuclear chain reaction. It is proof that it was a nuclear reactor that exploded,” Bøhmer says.

He explains that such a mixture of short-lived isotopes would not have been found if it was simply an “isotope source” in a propellant engine that exploded like Russian authorities first said.

. . . .

Several public statements from Russian officials in the days after the accident, which happened on a barge offshore from Nenoksa test site, claimed the failed test involved an “isotope source of a liquid-fueled propulsion unit.” That triggered speculations it could have been a radioisotope thermoelectric generator (RTG). Such isotope sources are previously known to come from lighthouses in the remote Arctic regions and space satellites.


“Had it been an RTG none of these isotopes would have been detected,” Bøhmer says.

Some still express doubt it was a nuclear powered Petrel cruise missile, because the initial explosion allegedly involved a liquid fuel rocket, and Petrel is allegedly launched using a solid fuel rocket. But there is no definitive proof that Petrel uses solid fuel rockets, and Russia has a well known preference for liquid fuel rockets. Indeed, perhaps the reason for the test is unsatisfactory performance of the solid fuel engine.

The mooted alternatives, the Poseidon nuclear submersible drone, or a seabed launched version thereof, don’t fit the facts. Although it is speculated that Poseidon will have a nuclear power plant (a closed cycle nuclear gas turbine or a pressurized water system), it would not require liquid fueled rockets, being essentially a torpedo that operates under water.

The bottom line is that the Russians almost certainly lied about the type of weapon that exploded. (This is my shocked face. No! Really!) Moreover, the weapon is most likely the Petrel, because that puts together a rocket and a nuclear reactor, and the alternative candidates don’t.

I wonder, though not very hard, if this will give Putin and his military people second thoughts about pursuing this weapon. Given his personal investment in it, and his apparent paranoia about US missile defenses, I doubt it. In fact, he’ll probably redouble the effort.

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August 21, 2019

Hillary (and Google) Deny That Google Can Influence Voter Behavior, Which Would Imply That Google Is the Greatest Fraud Ever

Filed under: Politics — cpirrong @ 6:52 pm

The latest Trump tweet-induced hysteria (other than Greenland!) was his claim that Google had thrown millions of votes to Hillary by manipulating search results to favor her. Trump invoked research performed by a Google gadfly, psychiatrist Robert Epstein. It turns out that the president exaggerated the number of votes that Epstein claims Google influenced, but even Epstein’s 10+ million (vs. Trump’s 16+ million) is hardly an immaterial number.

By having the temerity to challenge Hillary’s narrative that she wuz robbed, she claimed that the study had been “debunked” and called out her flying monkeys to attack Dr. Epstein.

(As someone replied to me on Twitter, that smile is something Hillary has seen humans use.)

The gravamen of the alleged debunking was that Epstein had relied on a small sample of experimental subjects to extrapolate how prioritizing search results could affect voter behavior. As someone well aware of the reproducibility problem, especially in experimental psychology, this is a potentially valid concern.

But that was not the entirety of Dr. Epstein’s research. He presents evidence that Google did in fact slant its search results in her favor. The question is whether such slanting would change voting behavior.

You want to know who believes it changes behavior? Google, that’s who. Its entire business model is built on it. Google’s profits, and its stratospheric stock price, are dependent on its ability to extract rents (from advertising, etc.) by prioritizing search results.

In other words, Google is the last entity you should believe if they say that prioritizing search results doesn’t affect behavior. If that is actually true, then the company is the biggest commercial and stock fraud in the history of the universe.

So here’s a dare for Google. Disclose the news algos. The ones you use now, and the ones you used in 2016. Further, disclose all of the internal research (much done under the direction of my former colleague, the brilliant Hal Varian) that studies how search results affect behavior, how Google should price prioritization, and how much money Google makes by optimizing its search results. Disclose any research relating to how prioritization of news searches affects voting outcomes. Also disclose how much money Google spends on its algorithms, including R&D. If the algos don’t matter, they wouldn’t spend anything on them.

Then we can see whether Google is a colossal fraud, or whether it actually can (and does) affect behavior–including voter behavior.

It is beyond bizarre that people obsess over a few retarded Facebook ads allegedly placed by the Russians, and ignore the Godzilla–Googzilla?–in the room. Google makes billions manipulating behavior. And if you think it is beyond manipulating behavior for political purposes, and especially if you believe Russian trolls are better than Google at manipulating behavior for political purposes, you are a fool and a knave.

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