Revolving Doors with SEC & Wall St and a few other facts

William Cohen (Investigative Reporter and author of House of Cards) announced on Bloomberg August 29th, that while Hurricane Irene raged, the SEC was destroying records and investigative files.  More than 9,000 files were destroyed involving investigations into Goldman Sachs, Bernie Madoff, Lehman Brothers and many others involved with Wall Street.  Cohen stated that there is a revolving door with the SEC and Wall Street.  He said there are 220 former SEC employees that now work on Wall Street.  He said this is unhealthy as they are totally beholden to each other.  Close the doors on the SEC and start over is Cohen's advice!

During the month of August, 5 Trillion was lost on global equities. (Reported on Bloomberg)

Norm Roubini said the US has 60% chance of going into recession. (Reported on Bloomberg)

I just thought you should know that now is a very good time to buy gold as it has dropped to $1821 oz.  Remember it is always good to buy on the down slope.  It will go up again soon enough.  Protect your money by investing in gold. 

Rationalism for The New World Order

Modern:
Rationalism is defined (today) as using reason as the source of knowledge but it is considered to be more of a method which truth is intellectual and deductive.  Rationalism is more a matter of a way to solve problems, not by tradition or experience but as a technique and an engineering. But what does this really mean.  Rationalism is not to be confused with being rational or rationality.

Historical:
It is an ideology that came out of the Renaissance in the 1600's.  Bacon felt that knowledge was not advancing fast enough and he set about to formulate a new method of inquiry.  Bacon believed that natural reason was lacking certainty.  Therefore, he argued that the whole system of gaining knowledge must start fresh, that the mind shouldn't be allowed to take its own path but needed to be guided at every step.  It required a "sure plan, a new way of understanding, an art or method of inquiry."  Thus, he formulated that there must be a technique to inquiry.  Bacon recommended 3 characteristics of inquiry:
1. A set of rules.  A precise set of directions.
2. The set of rules needs to be purely mechanical as if done by machinery, no knowledge needed except of that technique.
3. The set of rules needed to be universal, that is indifferent to subject matter of inquiry.
The rules of discovery would begin anew with a new foundation.  By first purging the mind and thus the new instrument (Novum Organum) was developed.

Character:
Out of the ideas developed a new character, an intellectual type that is the Rationalist. As such the Rationalist have taken Bacon and Descartes as their intellectual guide but have also continued to add and advance their ideolgy and methodology farther.  Today the Rationalist can be left or right, conservative or liberal.  Nevertheless, they all believe in the same methods or techniques to obtain truth. Basically, the Scientific Method and Statistics. 

Politically Speaking:
For the rationalist the way to soliving problems is not through reason, tradition or philosophy but more a matter of engineering and applying the right technique (Political Science).  It is the politics of the determined need of the moment.  The crisis of the moment is now the nature of politics.  Not with the view of the future but only the needs of today.  The Laws are not built on our past traditional moorings but are started fresh and decided anew. 

Ever Learning

I love to learn.  And I especially love to learn what I am interested in.  I am an Information Seeker.  I am a hunter and gather of information that I deem important.  I want to understand the world I live in, present, past and most definitely the future.  I do believe that the past informs us on our future.  I spend most of my time in study and thought.  I get easily bored with the mundane and common.  I love to study hard stuff that I have to chew on awhile to fully understand.  So one will understand that I am both excited and fearful as I begin a new semester at the University.  My courses are all extremely difficult and I hope my mind will grasp the many new avenues that I will traverse.  My posts will discuss things I am learning in class, and through my readings.  It should be enlightening and informing as well.  So be prepared for some controversial information coming your way and hopefully you, as well as I, will learn some new things about the past regimes of fascism, socialism, totalitarianism, Asian Pacific Countries, behavioral statistics, and hopefully some more social psychology.  And as ever, I will still have an eye on the markets and financial occurrences that can affect us all.   

How We Know What Is True

According to psychological statistics the goal of science and psychology is to know what is true.  They teach that the way of knowing what is true is by applying statistics and the use of the Scientific
Method.  There are 3 main ways or methods of knowing:

Authority: Which is based on some other person's ideas or beliefs.  Can be based on tradition or trust of a person or expert.

Rationalism: This method is based on reason and/or logic.  It is the assumption that if the premises are true then the conclusions are true.

Intuition: This is based on our beliefs, faith, hunches, and feelings of what is true.  There is no evidence that is required and conflicting evidence is just discarded.

But the scientific explanation of truth requires that the Scientific Method is applied to test truth:
1. Empirical: based on experiment that can be repeated to get the same result.
2. Rational: it must be logical, and go along with known facts.
3. Testable: that the idea in question can be verified.
4. Parsimonious: that the results are the least complex explanation with the fewest assumptions possible.
5. General: it should apply to a variety of related circumstances, not just the one that is being examined.
6. Tentative: the results are open to revision and replacement if a more accurate explanation is developed.
7. Rigorously Evaluated: constantly evaluated in lew of new evidence.

Thus, according to science and the experts this method of testing truth is preferable to belief, common sense, rational explanation and logic.  This might explain why truth is so fluid and ever changing.  But shouldn't truth based on whatever method just remain true because it is true?

Surveillance as Power

Foucault (French Philosopher) turned the idea that knowledge is power to an expansive idea that "power is knowledge."  He believed that power has access to knowledge of many kinds.  Foucault asserted that power and knowledge were so inseparable that he linked the two words together power/knowledge.

In his book Discipline and Punish (1975) he investigated punishment and separated it into 3 separate periods and forms:
1. Gruesome executions that was meted out by a centralized government and legitimized by the general population.
2.  An abhorrence to previous eras of gruesome punishment, to the 19c of a transformation of use of power through technology.  This new phase introduced punishment based on surveillance and discipline.  Physical punishment was replaced according to Foucault with technologies of observation aimed at the mind rather than the body.  Though less painful, it is deceitful as it proceeds inconspicuous and can be more intimidating.  Foucault contends that social institutions rely of technologies of surveillance and is thus "taken-for-granted" as just part of the system. 
3.  Foucault's last phase of punishment is in a postmodern world that has advanced and developed new forms of power/knowledge through scientific discoveries, educational necessities for employment, psychotherapy, and pharmacology's that now generates new was of applications for power and control. 

This explanation of Foucault's theory of surveillance as a means of punishments and control just needs a little bit of thought to grasp the significance of what he has asserted.  Foucault was a modern man having died in 1985 at the age of 57.  He saw the tip of our advanced technological times.  It is necessary to look at the use of each new development in our day and ask yourself can this be used as a form of surveillance?  And if so, who is doing the surveillance?   And why?  It all seems so harmless today.  But will it remain so? 

Surveillance and You

There has been many changes in the U.S. since 9/11.  One of the most terrifying of these changes is the surveillance that we are under no matter where we go.  I can barely leave my home before the first camera picks me up at the first stop light.  I remember when the first surveillance cameras began to show up.  I read an article by our then Mayor Billings that said the cameras on every corner was to promote more efficient flow of traffic.  But that never seemed to be the case.  Traffic remained slow and congested.  Then cameras where everywhere.  I would sit at a restaurant and see that there was camera pointed straight at me.  (And I was taught that it is rude to stare!) 

Surveillance is suppose to be the price we pay to be kept safe in our paternalist world.  But according to Michael Foucault, the french philosopher, it serves an entirely different purpose.  His argument was that when a society is continually being watched that it puts everyone on their best behavior and creates a "self disciplinary society."  Foucault thought that to be "visible is to be trapped."  He further stated that there will not need to be social structures or specific institutions of power but instead "power will be destructured and individualized, free-floating within society in multiple manifestations." 

The invisible power is watching, collecting data and information about us, documenting and recording and saving it for what....?  It is an odd thought to know that we are watched on camera, the Internet, our phones, our car GPS, through our purchases, school and work and yet we do not know who has access to this information or what they are doing with it.  We know that Google is tracking and saving our every search and our emails.  And Facebook's social networking allows them to have access to all your photos, family and friend connections.  This is all different forms of surveillance and monitoring that did not even exist a few years ago.  I just wonder what all this means and where we are heading in the future.  Smile! You are on candid camera!

The Foolish Mistake Maker

The foolish mistake maker is someone that processes information badly.  Cass Sunstein and Richard Thaler in Nudge call these people the Homers.  It was decidedly more interesting to study people that do foolish, self-destructive, and irrational things than to show that people are sensible and most often do decent and good things.  Therefore, it has become popular to characterize the thoughts and actions of regular people as "stupid, biased and counterproductive" (Finkel, 2010).  By concentrating and exposing the dumb things people do, it leads to publication and career advancement.  That is why all the research and studies are designed to show people as "fools, suckers, and hypocrites" (2010). 

Another trick of the trade is to show people as lazy and always taking the easiest path without thought or reflection.  It isn't that this is always the case but studies are set up to search out and prove a particular point that has been set forth by the researcher. 

Polls are also designed by highly educated people that know how to ask the questions to get the answers that they want.  We live in a highly sophisticated world of experts that know exactly how to lead the audience to behave like Homers and be manipulated in the direction the choice architects want.  It is everywhere.  It is done everyday.  And in order to not be taken in, it is necessary to think and pay attention.  If we did that...then who would be the foolish mistake maker...us or them?

ALGORITHMS, the Makets and Movies

I love movies.  But lately I find it very hard to find a movie I enjoy.  I have wondered who is writing this stuff?  I search through my full cable line-up of channels and think to myself who is selecting our movie viewing?  Then I came across a very informative article on BBC News that made sense to me.  It is called When Algorithms Control The World.  This is an excellent read: http://www.bbc.co.uk/news/technology-14306146

In brief the article states that algorithms are codes that are created and then set-out on their own, without supervision and is reaching further into our lives then we know and then they can control.  It is reported by the BBC that algorithms are predicting what movies to make or not.  It is even predicting which stars to place in the movies.  I thought of this as I tried to watch the newly released movie THE BEAVER.  Now I thought the plot sounded ridiculous but with Mel Gibson and Jodie Foster I thought I would give it a try anyway.  I must admit I couldn't watch the whole thing so it is possible (though hard to fathom) that the movie pulled out at the end.  The movie was a complete insult to anyone with any kind of intelligence whatsoever.  It was beyond belief.  Only a non-person could decide to make this movie.  Imagine this: Mel Gibson passing out cards to family and co-workers that they shouldn't talk to him directly but only to the BEAVER  puppet on his hand.  I can't say anymore.

Another incident concerning algorithms occurred on Bloomberg right after the 5.9 earthquake hit the East Coast.  Matt Miller reported that copy is sent to the computers of what they are saying (in code of course) that human eyes can't see.  He said when the computers (which control 70% of market trades) read earthquake that the market dropped significantly and then came back shortly with steep gains.

Back to the BBC article that concluded with the idea that maybe we are giving too much  uncontrollable power to algorithms.  Wakefield suggests that maybe we should figure out exactly how much these algorithms know and try to tame them before it is too late.   

GOLD The Ultimate Perservation of Wealth

GOLD is the one safe haven that investors, small and large, can trust.  No matter what occurs in world markets, gold will ALWAYS have intrinsic value which is more than we can say about bank shares!  GOLD has risen 34% this month while banks shares have dropped on average 20% and Bank of America has dropped 34% this month (ouch!).  GOLD has hit a new record high today (August 22) of $1910. 

Here is a breakdown of how long it has taken for GOLD to hit $100 jumps:
It took 58 days for GOLD to jump from $1400 to $1500.
It took 89 days for GOLD to jump from $1500 to $1600.
It only took 21 days for GOLD to jumped from $1600 to $1700.
It was only 10 days for GOLD to jumped from $1700 to $1800.
And believe it or not, only 5 days to sky rocket from $1800 to $1900. (European Bloomberg News)

Stocks are gaining (barely) with high hopes that Bernanke will implement QE3.  Most economists think this is not a good idea due to the already record low of the dollar.  Some feel that QE3 would push the dollar to a record worth of $70 to the Yen! 

Nobel Laureates are meeting in Lindau, Germany to discuss the state of the world and what the economists think it would take to solve the worlds current crisis (including U.S. Recession, Exposure, Libya, & China).  Link to listen to the lectures:
http://lindau-nobel.org/LecturesOnline.AxCMS?ActiveID=1173

Therefore, it is true that all that glitters today is GOLD.  GOLD may still be cheap at $1900. 

The Information Seeker

The Information Seeker theory develops the idea that it is important and helpful for people to understand the world they live in.  People are constantly gathering information and storing it for future use.  People need to understand their environment in order to prepare for and predict events that might come their way.  The information that is gathered is both physical and social.  The social aspect can more highly more difficult to understand and predict, as people are always in the process of change.  Another aspect of this theory is gathering information about oneself.  This can be as helpful as it is difficult.  As mentioned previously in other posts, people give themselves the benefit of doubt.  People tend to attribute their own behavior in a favorable light, giving credit to themselves due to their enduring traits or good choices.  Or they will explain their bad behavior on external circumstances.  But when it come to others behavior they are not so generous.  Nevertheless, the Information Seeker (which we all are) are busy being curious, while trying to learn and understand to make coping in an uncertain world, a little bit more certain.

The Self-Esteem Maximizer

People try to protect and increase their self-esteem.  We have been taught in all grades at school the importance of high self-esteem.  Schools and organizations go out of their way to create and promote self-esteem.  We find that people will do many things to maintain a favorable view of themselves and will strive to not appear inconsistent because that makes one look bad. 

The Self-Esteem Maximizer seeks above everything else to avoid losing their self-esteem.  They fear anything that will make them look in a bad or that could make others create a poor opinion. Therefore, people will avoid certain situations or certain people that might cause them to have to reappraise their high self-regard.  This is one cause of aggressive reaction to criticism.

Few people will argue that people enjoy thinking well of themselves and avoid criticism at all costs.  We see this in every aspect of life.  People seem to idealize themselves.  Maybe this comes from the fact that since babyhood (or birth) all children have been video-recorded and see themselves on TV.  Most adults, teens, and children have facebook pages so that anyone can look at their pictures and learn their profile which may lead to a tad bit of self-aggrandizement.  And of course their are tweets, blogs, and websites to promote oneself further.  Does all this maximize self-esteem?  Of course it does.  Well, unless it all backfires. 

YEARS OF PAIN

Economics is a backward looking science.  Therefore it becomes advantageous to pay attention to those that work with the market to help us look into the crystal ball of the future...economic futurists.  Many of these economic futurists are telling us that the times ahead are not going to be better.  This does not mean that everything is lost and that all is bad so why not go out spending.  No! This means that you can help to stave off some of the trouble by paying attention and preparing while you can.  So let's take a calm approach and see what this means.

Terms:
Recession: Is a period of declining incomes and rising unemployment.  When firms find they can't sell all their goods and services, they cut back on production.  At which time, the firms lay off employees and unemployment rise.  When the economy produces fewer goods and services GDP falls.  When GDP falls the cycle of declining income and rising unemployment grow stronger.
Depression: Simply stated, it is a severe recession. 
Sovereign debt: Is Central Banks throwing more money at debt through unsavory means (printing money is monetizing our own debt). 
Economic growth: Means a higher standard of living for all of us. (Not likely)

The markets are fluctuating so severely due to the current fear of a more severe recession (double-dip).
 
Because:
1. Consumer confidence is plummeting.
2. Housing prices are declining again (more).
3. GDP in the past few years has been in consumer spending, healthcare and government spending.  It has not been in production or areas for more growth.
4. Too much debt that can't be cured by more debt.
5. Government's continue to solve these problems with Central Banks printing more money which is causing further sovereign debt problems.
6. This plan is a bankrupt economic plan.

Result:
1. Unemployment will go up.
2. Inflation will rise.
3. Dollar will become worth less.
4. Fed will implement QE3...which will exasperate the whole cycle by dumping MORE dollars into the system.

Suggestion:
1. Buy Gold.
2. Buy Silver.
3. Have a stash of cash.
4. Stay informed.
5. Don't panic but be wise!
6. Do something to help prepare yourself for a declining future.  Educate yourself. 
7. We are in for some years of decline and pain.

Conclusion:
The system is in trouble.  Prepare now.

 

A Gloomy Picture

The markets are displaying a severe case of bi-polar disorder, with rapid cycling on a bi-daily bases.  Today the diagnoses came from Morgan Stanley that the U.S. and Europe are "dangerously close to a recession."  For 4 weeks now the markets have been declining, with no sign of stabilizing.  As the markets display weakness and volatility, fear and uncertainty grows creating a severe crisis of confidence.  Faber stated that the "financial conditions are worse today than they were prior to the crisis of 2008."  This is not a time for screaming that the sky is falling.  Although, all signs point to the fact that it is.  What is one to do in a crisis?  Remain calm and assess the situation and then take the necessary steps for safety.  If a recession is coming how can you prepare?  That is what each person needs to decide for themselves.  During a recession with high inflation it is hard to purchase new products.  It is a time when those that are hit have to give up the luxuries.  People even tend to give up their namebrands for generics.  So this might be a good time to buy some of the necessities that you use the most and feel you can't do without.  But do try to conserve as much a possible.  Try to have a little bit of savings put ahead for that rainy day.  If you have some investment money there is safety in gold.  A few think it is a the next bubble.  But most investors are running for safety to gold.  It has been the best place for a safe haven for years.  Today gold is at $1845 an oz.  Yes, that does seem like a lot.  Nevertheless, it is still predicted to go higher with all the world currency problems and bank funding and tightening squeeze.  Plan ahead.  Begin to cut back. Put some cash away.  Buy gold (and silver). 

Eliminating Choice

In helping people to simplify life the choice architects want to make it easier for you by eliminating choice.  The easiest way to eliminate choice is to place the option they want you to chose as the default option.  Sunstein and Thaler in Nudge report that due to inertia (inactivity, sluggishness) in humans (Homers) it is important to set an easy button.  The way to accomplish this is through the default option of a given choice that "there is a default option, an option that will be obtained if the chooser does nothing, then we can expect a large number of people to end up with that option, whether or not it is good for them" (2008).  They continue to argue that it is noted through behaviorist that the tendency to do nothing can be enhanced if the default option is stated as representing the "normal or recommended course of action."

Public and private organizations know and use the powerful default option.  Sunstein and Thaler say it is like a "dead man switch" on lawn mowers.  (I believe we are the dead man in this scenario, if we continue to do nothing)  Sunstein and Thaler believe that "required choice is favored by many who like freedom, as the best way to go."  Thus, humans (also known as Homers) "prefer to have a good default...when choice is complicated and difficult."  This is a built-in Homer proof choice that isn't really a choice as it has been chosen for you.  But it does require that you do nothing.  That is your freedom of choice.  Because if you choose the default option the decision is already made for you by the choice architects.  Thus, by eliminating choice and by doing nothing you are chosing, by default.

Strange Stats....

TV Viewing:
American adults watch 35.6 hours of TV a week.
Those over 65 watch 49 hours per week.

Cell Phone Uses:
83% of American adults have their own cell phone.
73 % use their cells for texting & taking photos.
54% use their cells for sending photos & videos.
44% use their phones mostly for accessing the Internet.
And 13% are just pretending to be on their cells to prevent interacting with people.

Preventing Another Financial Crisis:
The French now trust German Chancellor Merkel to fend off another financial crisis by 46%.
While they trust US President Obama 37% to stop another financial problem. 
But they only trust their own President Sarkozy 33% to stop a new crisis.

Aggressive Behavior

Learned social behavior is the theory that we learn social behavior by observing and imitating others.  This theory has been observed in the learning to imitate aggressive behavior.  Bandura (1997) experiments included the effect from watching an adult that was frustrated.  Adults would take out the aggression on an inflated doll with punching, yelling, and kicking.  Then pre-school children that had viewed the aggressive act would be told that they could not play with toys when they were in a room filled with toys.  The children that had viewed the adult taking out their frustrations on the Bobo doll did the same when they became frustrated.  But the children that didn't view the upset adults did not attack Bobo.  From this study it was concluded that observing aggressive behavior would:

1. Lower children's inhibitions.
2. Teaches children ways to act aggressively when upset.

This makes us wonder and think about the negative or positive traits that can be learned in the family from mere observation.  It also points to the question of viewing violence from television and video games and the learned social behavior children (and adults) are gaining through observation.

Just World Theory

This is a theory that we find many people using to explain the unexpected in life.  People tend to seek answers as to why things happen.  One explanation is that if people live good lives they will have good karma or blessings bestowed on them and will be reward for their good deeds and hard work.  When bad things do occur, people tend to seek answers and often they will blame the victim for the bad luck that has come upon them.  People will do this for two main reasons:

1. They want to believe that the world is fundamentally fair and just.  In turn this will deflect their anxieties that bad things can just be random.
2.  People also want to believe that the world is just and fair as it helps them to feel less vulnerable.

The world may not be predictable and definitely it is not always just.

 

Social Comparison Theory

Social comparison is something we do everyday whether we like it or not.  It is something we are just hard-wired for and it seems like it is a very hard thing not to engage in.  We do it on a subconscious level all day long.  Here is social comparison theory in a nutshell.  It is the way we evaluate ourselves in comparison to others.  It can cause us to have a good self-concept if we choose to do a downward comparison...with those that aren't as good looking, or as smart as, or as rich as, we are.  Or it can cause us to feel extremely bad about ourselves if we do an upward comparison...with those that are movie stars, thinner or more muscular, or better off than us.  It is how we even know about ourselves by comparing our self with others.  Social comparison can make us feel better or it can make us feel worse depending on our comparison.  We tend to always look and judge yourself in relation to others.  But social comparison can have negative effects.  It causes us to always be unsatisfied in life.  It also leads us to do buy things so that others will think we are doing better than we actually are.  For instance, the house that we couldn't afford, the car we can't afford, the clothes we can't afford, the memberships, the clubs, the gifts, and on and on it goes.  For many women it leads them into unnecessary surgeries.  And if you think about it all; it turns into this never-ending circle that we all engage in.  But the more each one plays into it the more it continues on.  Because everyone just upped the anty.

Perseid Meteor Shower

The annual meteor shower is the resulting debris from the comet Swift-Tuttle.  Comet Swift-Tuttle was last seen in 1992 and before that it was last seen in 1862 by Swift and Tuttle.  A comet is a small body composed of ice, dust and rock that orbits elliptically around our Sun.  As a comet comes close to our Sun, it heats up and begins to melt the ice away which causes a tail to form which will always point away from the Sun and will even lead the comet as it reaches certain points around the Sun.  When all the ice and dust is melt away the remaining rock from the comet become an asteroid.  Asteroids also orbit our Sun and are smaller than a planet and are sometimes called minor planets (like poor demoted Pluto).  Sometimes asteroids collide and when they do they shoot out particles of dust, rock, and rubble. The rubble is what we call meteoroids or more commonly, falling stars or shooting stars.  This is what the Perseid Meteor shower is.  It is the debris from the comet Swift-Tuttle.

Social Identity Theory

People receive part of their identity from the social groups that they belong to.  This can be a key issue in a feeling of belonging.  It is through a group affiliation that many people gain their self esteem.  This self esteem is derived from belonging and interactions within the group.  It is the feeling of being part of the "We" that comes with group membership.  But with the territory can come a bias of superiority.  This can lead to beliefs that the ingroup which they belong is better than the outgroup which others belong.  Our social identity can cause us to categorize using heuristics about others.  It also can cause us comparisons which tend to benefit our ingroup with a bias of privilege and favoritism.  On the other hand, is it necessarily a bad thing to strive for belonging?  After all we are social beings according to Aristotle.

Sky Skeltons

The market rebounded on Bernanke stating he would not raise the Interest till mid 2013.  That calmed the markets and up the dow went to 429 pts.  Since the controversy is sky high today I thought I would concentrate tonight on the constellations.  So in brief:
1. The Bigger Dipper, also called the Big Bear and Ursa Major.
2. The Little Dipper, or Ursa Minor...or the Drinking Groud...contains the North Star.
3. Draco, the Snake or fiery dragon.
4. Hercules or the Phantom on his knees as known by the Ancients.
5. Orion, the Giant Hunter.
6. Orion's hunting dog...called The Big Dog, containing the brightest star as the head of the dog called Serius for scorcher.  The Ancients thought it heated up the earth.  The Sun and Serius in the sky at the same time became known as "The Dog Days of Summer."
7. Cepheus, The King.  But in modern terms it is known as the house (sad).
Just thought we should look-up and know that there is a solid reality in the sky that does not change on peoples emotions.

$2 Trillion lost in the Markets Today

Oh my goodness! Were you watching the market today...?  The Dow Jones dropped 634 pts. the biggest daily loss since 2008.  The S&P drop over 6% with Bank of America down 20% today.  The markets around globe fared as least as bad.  What does the future hold?  Some say that this sell-off was nothing but FEAR.  Wilbur Ross stating that most markets around the world were down 10-15%, yet the world has not gotten worse or changed in the last 48 hours.  He says the only thing that has changed is perception.  Nevertheless, perception is a very important predictor of how the social influence will work to make that perception a reality.  Is the U.S. losing it's prestige around the globe?  Are we on an unsustainable fiscal path that might change our way of life?  Have we become compromised as a world super power?  I believe it can be summed up by an old Dylan song: A Hard Rain is Gonna Fall.

CRISIS OF CONFIDENCE ACROSS THE FINANCIAL WORLD

There is a complete crisis of confidence around the global over the world economy.  This has been brought on by many things but mostly over the downgrading of U.S. credit rating by Standard & Poor's.  Many investors, politicians, economists, and intelligentsia say "we are in uncharted waters."  Oil is dropping, while gold is reaching new highs ($1702) and the dollar reaches all time lows.  Some like Bill Gross (Pimco) think that S&P had "spine" to do what was needing to be done.  But others like Roubini says that there is now a very real risk of double dip recession, stating that S&P's decision came at the wrong time.  There is now a big worry for recession.  Gold is now the unofficial world currency, as gold has risen over every other currency and is the best performing asset.  The result of the ECB emergency meeting is that the Central Banks are willing to do whatever is necessary to stem the tide of trouble in Europe's troubled Spain & Italy.  Italy is going to amend their constitution for radical austerity measures promising to liberalize everything they legally can.  Meanwhile, London is in their second night of rioting and burnings as the citizens reject their austerity plans.  What does all this mean?  No one knows at this point.  Nevertheless, Jim Rogers is confident that helicopter Ben will run the printing press as fast as he can to print money to delay the pain. 

Personal Health Plan

With so much talk about the credit downgrade I thought I would switch gears and talk about applied social psychology and health.  It is likely that most people are feeling nervous and concerned about what might be next for the economy, it is important to think of the effect of this negativity on our health.  Applied social psychologists try to contribute to health and life expectancy through prevention techniques, helping people to change behavior and encouraging adherence to solid health practices.  This can be done through motivation and self-efficacy (knowing you can do what is necessary).  When people are confronted with health issues they wonder if there is truly a threat to them.  Then they look at their own perceived vulnerability...family history, their own disease history, and they then tend to make a social comparison using unrealistic optimism.  They play down the perceived seriousness of the threat or they begin to worry incessantly.  In the case of addictions, they have to either change their behavior to avoid the potential risks or they must disengage from the belief that it will do them harm.  After all it is not "soon nor certain."
One of the key aspects of changing the behavior is the intention to change the behavior (planned behavior theory). One of the greatest factors of determining if a person will change a behavior is whether they intend to change the behavior.  That is the best predictor of actual behavior.  Then the person must implement the intention by specifying when and where they plan to do so.  This involves writing it down and making a plan.  The next key factor to success or failure is if the person believes it is within their power to change the behavior (internal) or whether it is outside of their control (external situation).  Here is the Trans Theoretical Model for changing an unwanted behavior:
1. Precontemplation stage:  You think about it but not really motivated yet.
2. Contemplation stage: You think about it but put it in the future...you postpone.
3. Preparation stage:  You set your plan, work out the details of how, when, and where and write it down.
4. Action stage:  You do it.  You start the change.  Takes work and it is on your mind with lots of temptation to relapse.  This is a very critical stage that takes social support from family and friends to encourage and allow for the change.
5. Maintenance stage:  You have integrated the new behavior as a part of you and who you are and what you do or don't do now. 
With this model of change it is important to go through each stage without skipping any.
Now I will tie this in to our economic woes.  Maybe there are things that you are addicted to that is expensive and hard on your health.  Maybe the stress of working longer due to losing a hunk of retirement is necessary and working out could benefit with stress reduction and more energy.  Whatever the reason, you know if there are behaviors that could benefit your health, well-being, quality of life and longevity.  Don't postpone...make your intention known by writing down your plan and make your health a priority...It is the one thing you can control.

No Justifiable Rationale for U.S. Downgrade

Tim Geithner (Sec of Treasury) said that there was "no justifiable rationale" for the U.S. credit downgrading by S&P. The Omaha oracle, Warren Buffet, stated that Standard & Poor's had erred in lowering the credit rating. As well as, John Bellows (Acting Secretary for Economic Policy) joined in with Geithner and Buffet stating that it had been a math error on the part of S&P.  They had added the same $2.1 trillion to a different baseline which changed the numbers considerably.  Nevertheless, S&P acknowledged their mistake but changed their rationale from an economic justification to a political one.  Consequently, this is having a huge negative effect in many ways.  European Central Bankers are holding a crisis meeting to figure-out what this will mean to them and how to stem the tide of the tsunami that is already hitting their shores.  Michele Bachmann wants Obama to fire Geithner (memo to Michele, Tim said on June 30th at the Clinton Global Initiative, that he was considering leaving the government sector after the collapse of Wall Street, Bear Sterns & Lehman Brothers in 2008, and now this federal debt debacle...he wants to go).  So this might be a long week-end of wait and worry as we wonder how this will affect the global markets and our own markets on Monday.  Whatever you do, don't watch the link below or you really might not be able to sleep. 

http://marcfaberchannel.blogspot.com/2011_08_02_archive.html

MARC FABER OF THE GLOOM BOOM & DOOM REPORT

Marc Faber predicted the Crash of 2008.  You might want to take a listen.  He is worth the 8 mins.

MARC FABER CNBC VIDEO INTERVIEW AUGUST 5, 2011

The interviewer asks if this is the End Game...is it the collapse of Western Civilization as we know it? Is it the end of Capitalism?

http://marcfaberchannel.blogspot.com/2011/08/marc-faber-markets-has-experienced.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29

S & P Cut Rating to AA+

When any disaster occurs it takes a few days to assess the damage.  Now the statistical reports are coming forth to report that the US markets are facing more calamitous happenings.  Standard & Poor's waited till the markets closed on Friday before they lowered the credit rating one level to AA+.  They (like everyone else) are blaming the politics on the Hill for failing to cut spending enough to reduce the deficit. 
The talk by the economists today (August 5) was one of telling everyone not to over react.  They said the market was acting on emotion and needed to calm down as this was not the end.  Nevertheless, the damage from this last week of declines is hard not to get emotional about.
1. Stocks fell the most in 32 months.
2. The S & P 500 fell 9.5 % in one week...yikes!
3. Bank of America is the biggest loser with loses of 13 %!  Repeating: Bank of America fell 13%.
4. The Dow dropped 698 pts. in one week.
5. Over 2 Trillion wiped out.

If we go by prospect theory that losses are more painful than gains are pleasurable and that people give a higher negative value to a loss; then we know that this was a very upsetting week for many.  The losses were catastrophic with many retirement funds taking a huge hit.  And now with the US credit rating being lowered we will all feel this as our interest rates begin to climb.  If you ask me, this has been a very bad year in so many ways...all the natural disasters of fires, floods, droughts, tornado's, and now financial crisis must be added to the list.  All we can do is wait and see what tomorrow will bring.  And thank goodness it is a week-end. 

Global Financial Meltdown..again!

They say when America sneezes the world catches a cold.  Today has proven that cliche is true once again as we see the terrible illness that is infecting the world markets.  The Dow Jones fell 512 pts.  Marc Faber stated that the world has gone crazy with panic selling.  He states the "whole world has gone mad!"  The European and Asian markets tumbled more than we did today.  Some were saying to get out of the way of the oncoming freight train.  Many are predicting a severe recession and some say maybe depression.  It appears that we are headed for some very bumpy times for awhile as the world economy is slowing down.  That means there won't be growth.  That means there will be more job loss.  Some are predicting another crisis like 2008.  Others are asking if it is now time to consider "global austerity?"  (Austerity: severe, forbidding, without excess, luxury or ease, without ornament, simple, grave, sober, solemn, harsh, rough, and bitter)
Reasons for the severe downturn:
1. Already distressed markets.
2. Over-sold markets.
3. The fall-out from Capital Hill escapade.
4. Sovereign debt problems now spreading to Italy.
5. Worsening job market.
6. Lack of consumer confidence and spending.
The way the can has been kicked down the road makes me think that Ben Bernanke will ride in on his white horse and fire up the cannon with Quanative Easing 3.  Although, most economist don't believe that QE 1 & 2 fixed anything.  It has done one thing...postponed the PAIN.  We will see what tomorrow will bring.  But it doesn't look too good right now.  Nevertheless, we did get beyond the 2008 crisis.  And who would have thunk it!

The Market Today

Is the market the pulse of the economy?  Many think so!  If this is the case then there are some points of interest from today's market report. 
1. The market has made a 10% correction.
2. Bloomberg reported that yesterday a trillion dollars was lost in the drop in the market (8/2/2011).
3. There was so much selling today that the "circuit breakers" kicked in.  (Circuit breakers were put in place to stop any stocks that fall more than 10 % in a 5 minute period as a result to the Flash Crash of May 6, 2010).
4. Gold has went up $70.00 since Monday.
5. They called the market today "a panic market" as it was dropping again today.
6. Companies were the biggest stock buyers today as they bought back their own stock as it was so cheap.
7.  The Dow has had the lowest slide since 1978 with 9 straight days of losses...till today.
This is just one day of news in the market.  Economists are worried that this "soft patch" may last and turn into a downward forecast for our economy.  The lowering of our credit rating is still being considered.  What does this all mean for you and for me?  Time will tell.

United States Default...Not Today!

I always wonder what is really happening when the media and government keep our attention concentrated so uniformly on one topic.  This past few weeks it has been agenda setting of "Will the United States default?"  The media had the whole country whipped into a frenzy with worry and disgust.  And alas, it has been kicked down the road till after elections.  But the real question is whether the country is out of the woods over this or is it growing ever so much larger with unimaginable consequences?
Neel Kashkari (Managing Director for Pimco) reported to Bloomberg News that the economy has taken on so much debt over the past few years to "fuel consumption" that spending has now fueled a crisis.  He believes that we need to restructure the economy towards savings and investment instead of spending and debt.  He argues that the politicians need to be leaders instead of looking to the next election or checking the latest poll for what is popular.  Kashkari argues that when government taxes an activity that society uses less of a certain activity like cigarettes or alcohol.  He stated that when government wants people to work more and save more that they shouldn't be taxing income and savings.  He also emphasized the need for a massive architectural change by considering Means testing.  Means testing would eliminate those that have saved all their lives, that have high paying jobs and retirement from collecting Social Security and Medicare and Medicaid.  Regardless, that they have paid into the fund all their lives.  I suggest that with the means testing and disqualification for entitlements that they should receive tax breaks on their retirement funds on scale according to amount of entitlement forfeited. 
When asked if he felt the United States deserved a credit downgrade he said that the US has too much promised liability, stating that "with all the promises we have made out into the future it does not hold well for our fiscal situation."  He says debt will be 85% of GDP by 2020 if cuts aren't made.  As such he argues that without getting the economy growing again and cutting entitlements that "we will eventually get a downgrade from Standard and Poor's and Moody's."  He believes that a downgrade could trigger a financial crisis as markets are believing in something that is proven untrue and could  cause the markets to adjust violently as we saw with the housing bubble.  Furthermore, and of great importance, is that the US Treasury Bonds are defined as the risk free financial instrument that underpins the entire global economy.  If people wake up realizing that they have taken on too much risk it could de-stablize the whole global economy.  Then the Central Banks around the world would be more diversified as to where they put their reserves by not putting them into the dollar. 
And that is where all this could takes us.  What would it mean if the dollar was not the reserve currency of the world?  Many countries would like to see this and the Economist has reported that that is exactly what China is preparing for.  So what have we accomplished by kicking the debt problem down the road...?  There will be a day of when the piper calls.  If we don't deal with this now with some pain, it could very likely become terminal for our nation.

Irrational Consumers

Sunstein and Thaler have assumed all of us are Homer Simpsons as they wrote their book Nudge.  They have divided their explanations to those that are "econs" and the rest are considered "humans."  Then they separate them into two different worlds....Econworld, where the Econs have no problem with difficult choices and Humanworld which is made up of the rest of us Homers.  What this boils down to is that they (obviously from the Econworld) are worried that we (obviously from Hormerworld) "are least likely to make good choices."  Their argument is to convince the choice architects of the necessity of our peril of choosing for ourselves. It is important for them "to design the choice environment and what kinds of nudges to offer, and how subtle the nudges should be."  Sunstein and Thaler are concerned about our making choices that would bring us benefits now but the costs come later.  These are considered investment goods and sinful goods.  It is also a great concern for them that we can not make the difficult choices such as a mortgage but we are fine to decide upon coffee flavored ice cream or vanilla.  Nevertheless, they do point out a few examples of restaurants that don't offer choice in selection but that the chef is authorized to make that choice for you.  This is where they begin to steer the choice architects into limiting the options.  "When people have a hard time predicting how their choices will end up affecting their lives, they have less to gain by numerous options and perhaps even by choosing for themselves."  Then Sunstein and Thaler turn their concern on the markets and their fear that the free market system may not work for the "irrational consumer."  This comes under their argument that there are situations that people are less likely to make good choices.  They turn their attention to the "potential magic of markets and ask whether and when free markets and open competition will tend to exacerbate rather than mitigate the effects of human frailty."  
We are at (or maybe beyond) the crossroad of change and free will.  Sunstein and Thaler are proposing a new system or movement as they like to call it of Libertarian Paternalism that will take away our burden of choosing.  They suggest (strongly) that choice needs to be limited and guided to save us from making a wrong choice.  And they are writing books, teaching in colleges and holding key positions in government trying to persuade others that we are irrational choice makers and are not capable of decision making on our own.