Interweaving threads from science, politics, economics, and history.
Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).
The NATO chief was on TV again today explaining the NATO's sole role in Libya is the protection of civilians. The rapid advance of rebel forces in the wake of NATO's airborne attacks against tanks and hard points is merely coincidental. I couldn't help but notice the rebel army has convoys of truck-mounted rocket launchers (a la Katyusha), which is not exactly a precision weapon, particularly if used against an army in an urban setting.
It is interesting to speculate how NATO will react if rebel forces lay siege to Tripoli. Will NATO start bombing the rebels in this case? Or do they count as civilians?
The Harper government has fallen and is being held in contempt of parliament (or so it appears from over here in Ghana--I don't know how accurate this position is).
I'm not a fan of Mr. Harper but I have to admire anyone who brings dishonour to government.
The higher the margin requirements go, the easier it is to call for delivery at the end of the month.
After all, if you have to put in full cash value for all ounces under contract, you don't have to come up with any money at all when you call for delivery.
As the calls for delivery are what will eventually blow up the system, the increasing margin requirements will ultimately have an effect opposite to what is desired.
The coalition partners in this operation include France, the UK, the US, and possibly some Arab states. Canada is tagging along too. The Harper Government has asked rhetorically whether we believe in freedom or merely say we do. Their reply is to join the UN in violating Article 2 of the UN charter in which the sovereignty of each of its members is assured. The UN is only intended to intervene in conflicts between or among states, but internal affairs of a state are specifically off limits.
Article 2 finishes thusly: "Nothing in the present Charter shall authorize the United Nations to intervene in matters which are essentially within the domestic jurisdiction of any state..."
So the UN doesn't like the Libya's form of government? They are not permitted to intervene.
The Harper Government's (no longer the Canadian government) response is problematic. As a democracy, Canadians are accustomed to the idea that if those that form Canadian policy make a mess of things, the voters have the opportunity to vote them out of power. But now Canada is bound to join a war chosen by foreign bureaucrats. How are we to express our disapproval?
Now I'm no fan of Gaddafi, but it seems to me that there are many places around the world where civilians either are or were being slaughtered by their governments (whether fairly elected or not), and the UN has not seen fit to act.
Perhaps I could be convinced if our particular method of lending assistance to civilians were not so devastating. But unfortunately, since the beginning of WWII, the preferred method of military intervention by the Anglo-American powers has been the mass bombing attack--the one method which has been field-tested and which is conclusively proven to have the highest ratio of civilian deaths to military targets destroyed.
And much of this field testing took place in an era when military targets were obvious targets--you had airbases, certain types of manufacturing, certain types of radars, armored formations and troop concentrations--but the military scenarios in the middle east involve small groups of fighters hidden among civilian populations. Attempting to destroy such targets by air strikes leads to the common Afghan problem--large numbers of civilians killed for each demonstrated insurgent.
The UN plan to save civilians will involve the murder of many others. It seems a little imperious to be deciding which Libyan civilians should live and which should die.
"What has happened in Libya differs from the goal of imposing a no-fly zone and what we want is the protection of civilians and not bombing other civilians," Arab League secretary general Amr Mussa told reporters.
As many know there are a group of ex Morgan traders who decided to take on Blythe Masters and JPMorgan by standing for delivery but then asking for a huge fiat premium. We have now heard from one trader who also is a reader of my blog. The name given to the ex traders is "Wynter_Benton:
Here is what is posted by Louis Cypher: "Wynter_Benton update on their recent raid With permission, I can update the results of our raid. It was successful beyond imagination but that "success" has spawned even more questions about the price of paper silver going forward. It was reported by SGS that he heard that on Friday Blythe was offering 30-50 percent premium and that at least 4500 hundred contracts will stand for delivery. I am here to give you a more accurate update (and a first hand account of what happened on Friday Feb 25). Our group was detemined to stand for delivery going into Monday because we were not going to take a 30 percent premium on a price of $33.50. It was reported that Blythe offered 50 percent premium. That was not even close in our case. We got over 80 percent premium. That's right. Over $50 per contract on the condition that our group sell all our contracts. Our counterparty even threatened us with the ghost of Herstatt. They openly admitted that they could not deliver even 20 million ounces to us but that if we stood for delivery they would be sure that they make delivery to everyone else before they defaulted on us which would make us 'unsecured creditors'. They told us directly that they could not allow even 5000 contracts to stand for delivery because they could not deliver a mere 20 million ounces. Like Vito Corleone said, "I'm gonna make him an offer he can't refuse." And indeed we did not refuse as this was our intention all along.
These sets of facts from our traders lead us to believe that the paper price of silver may have a difficult time surpassing $36 because if the counterparty at the Comex is so willing to pay north of $50 to dissuade people from standing for delivery yet the paper price of silver is still under $35, then we suspect that losses triggered by derivatives is the main reason for the price suppression of silver. We can see no reason why they would not allow the paper price to go up yet are so glad to pay off the comex contracts to show the world that so few are standing for delivery. In our mind, Comex could default with if as little as 4,000 contracts stood for delivery. We are very curious to see how high the paper price of silver actually trades during this run. Posted by Louis Cypher"
The problem with our financial system is that this story is even plausible.
If we had a "real" system with proper checks and balances; where wrong-doing was investigated, punished, and publicized; where it was impossible to sell something you couldn't deliver; where there was no improper collusion amongst what should be competing interests--in such a system you would laugh out loud at such a story, and your only wonder would be that I believed it. Instead, most people I've told this to have all mused aloud, "I wonder if that's true?"
One reason why the story might be doubted is that if true, it would suggest there is riskless profit for everybody who can go long any number of silver contracts. Supposedly, there is no such thing as riskless profit, except where market subversion is involved.
Since the problems in the Japanese nuclear reactors have been publicized, the safety of nuclear power plants comes into question everywhere.
How are North American reactors in terms of earthquake safety?
Are nuclear reactors in Southern Ontario at risk of earthquake damage.
The Toronto Star has published its answer. No, they say. The basis of their argument is that southwestern Ontario (particularly the Lake Ontario and Lake Huron basins) are not known for large earthquakes.
It is well known that the western margin of North America is seismically active. Less well known is the potential for seismic activity in eastern North America.
Here is the seismicity map for eastern North America from the USGS. Sourced from this document.
Right away we see four hot areas--in South Carolina; in Missouri; near the mouth of the Gulf of St. Lawrence; and along the Ottawa River. These areas represent the locations of sizable earthquakes in the past 200 years.
The Charlevoix seismic zone is the most active in eastern Canada.
Significant earthquakes have occurred along the Ottawa River from Montreal to Temsicaming.
The map is entirely dependent on the past record of earthquakes. Prior to 1811, it is unlikely that central Missouri was considered a seismic hazard area. The next major earthquake, wherever it occurs, will generate its own spot on the map.
To evaluate seismic risk, we need to evaluate structures. In eastern North America, a major plane of weakness intersects the earth's surface along the St. Lawrence River, and passes through Lake Ontario and Lake Erie. It passes southward, and follows the trace of the Mississippi River to the Gulf of Mexico. A failed rift arm extends through Lake Huron and Lake Superior (these structures go a long way towards explaining why these features are where they are).
The main structural feature passing through Lakes Ontario and Erie and up through the St. Lawrence is the same structure on which the near magnitude 8 events occurred in 1811-12. We therefore must recognize that there is potential for events of similar magnitude in southwestern Ontario. The reason why this is largely unrecognized is because such an event has not occurred in recorded history.
One of the charming things about earthquakes is that they demonstrate scale invariance. In particular, the size distribution of earthquakes in any given area shows a 1/f distribution. This relationship has long been observed in seismic studies--the famed Gutenberg-Richter law is an example of an empirical law which has been shown to have predictive value.
If you have an area where historical records are short, and you have only observed small earthquakes, it is still possible to make use of the scale-invariant nature of earthquakes to predict the recurrence interval of earthquakes larger than noted in the historical record. Using this technique, Arsalan Mohajer calculated that the recurrence interval of a magnitude 6.5 earthquake in western Lake Ontario was 1000 years. (see figure 2).
Figure 2 of Mohajer, 1993.
True, he doesn't actually state the numbers in the report, but the extrapolation of the data in the figure above gives us a recurrence interval for a magnitude 6.5 earthquake to be 1000 years.
Assuming that the power plants are to last 50 years, there is a 1 in 20 chance of an earthquake of this magnitude affecting them. The hazard assessment for earthquakes in Ontario is based more on the official data, which notes the lack of any such events in the past 250 years.
Reference
Mohajer, A. A., 1993. Seismicity and seismotectonics of the western Lake Ontario region. Geographie physique et Quaternaire, 47:353-362.
There is considerable excitement over the damaged nuclear reactors in Japan after the earthquake and tsunami.
The explosion at the Fukushima nuclear power plant looks bad at the surface. What's behind it?
As soon as the earthquake occurred, the power plants shut down automatically. The control rods enter the core to stop the nuclear reaction. There is a great deal of residual heat, which is handled by the plant's normal cooling system. But the earthquake damage was severe enough to knock out power to the plants, so the cooling system had to be run off backup diesel generators.
The backups have failed because diesel generators don't run well underwater.
So the Japanese have to run around on their destroyed infrastructure and bring power to these plants.
Notably, the power plants were designed to withstand a magnitude 8.2 earthquake, so they have done well to be still there after the 8.9.
However, the sequence of events since Friday does not appear to have been anticipated by the engineers.
Friday's earthquake off the coast of Japan reminds us of the power of water.
But first, a little animation of a model of the tsunami.
Here is a model of amplitude of wave height as posted by NOAA.
This model is constructed first from knowledge of the motion of the earthquake, which can be seen here.
The beachballs in the figure above give you a sense of the motion of the earthquake. To interpret them, imagine a beachball divided into four longitudinal quadrants. One pair of opposing quadrants is black, the other pair is white. The black refers to the portion of the globe where the first motion of the ground after the earthquake is compressive (i.e., the ground is pushed away from the focal point). The white areas represent the areas on the globe where the first motion is extensional (i.e., the ground is pulled toward the focal point).
In order to divide the beachball into four quadrants, you have two intersecting planes. In the diagram above, we can see that of the two planes, one must be approximately vertical, and the other is nearly horizontal. One of these planes is the fault plane--the plane along which the earth has broken. In the diagram above, we are not given enough information to tell which one it is, but additional information on the USGS website allows us to tell it was the nearly horizontal plane.
The other plane is perpendicular to the direction of motion along the fault plane. Knowing that the nearly horizontal plane is the fault plane, we can tell that the direction of motion is perpendicular to the nearly vertical plane, which is oriented approximately NNE-SSW. The direction of motion is therefore either north of west, or south of east. Since the compressive motion is on the west side, we know the motion was towards the west.
Notice the thin arc of white around the Harv and CPPT solutions. The ground in the black has moved upward/outward from the focal point, and the white areas have moved toward the focal point. Hence Japan, to the west of the fault has moved towards it, but much of the seafloor between Japan and the focus has moved upwards, spawning the tsunami.
The tsunami starts off from the earthquake epicentre and flows outwards. In order to model what happens next, you need a model of the topography of the ocean basin.
The velocity of the tsunami is a function of water depth--the deeper the water the faster it goes. When the wave hits shallower water it slows down, and piles up as the faster moving water behind it catches up to it All of those little and islands and seamounts will diffract some of the energy (in doing so they act like new, but smaller sources of radial waves). Either the islands or the topography may act to focus the energy of the wave along some portions of the wave front, explaining how central California was hit by higher waves than areas either north or south of it.
The key to the energy transmission on a global scale is the geometry of the source. If you throw a pebble into a pond, the ripples you get have the form of a series of expanding circles.
Consider the portion of the ripple outlined in red (between the two yellow lines). Let us say that the quantity of energy represented in that portion of the ripple is a. As the ripple expands, the amount of energy in the ripple remains the same (it actually declines due to friction and internal factors). However as the length of the red arc increases as the ripple expands, the amount of energy per unit length of the wave declines with distance travelled (in addition to friction and other losses).
An earthquake occurs along a plane. The motion does not occur along the plane everywhere at once, but propogates at a finite speed.
Diagram showing both magnitude of motion along the fault (colours) and the length
of time before motion was initiated at points along the fault (contours). Source here.
Thus instead of a point source for the wave, you have a line source (we are only considering the ocean surface at this point). The effect of a line source makes a tremendous difference in energy propagation.
Note here that as the waves propagate, the lengths of the red arcs stay constant. Thus there is no loss of energy to expansion of the wavefront over parts of the tsunami (not the case at the ends in the diagram above). There are still losses due to friction and internal dissipation.
Here is a screen capture of the NOAA model (from the model above).
Right at the moment of this capture, the wavefront heading towards South America is nearly linear, meaning there is little loss of energy as the wave flows. Where the front is curved, energy is declining dramatically.
The plot shows the unemployment rate (the same data as used here, here, and here) plotted against the rate of annualized growth of weekly non M1 M2 money (data previously used here).
The result is a two dimensional state space. The system state has spent most of the time since early 2000 in the lower part of the graph. The dates of a few of the points have been labelled.
First observation is that there does not appear to be any systematic relationship between the rate of money creation and the unemployment rate. The caution here is that these are official statistics, which may have been altered to make them more palatable.
Secondly, prior to October 2008, the rate of money creation oscillated widely without any observable correlation to unemployment, which varied between about 4 and 6%. After October 2008, the unemployment rate rapidly rose to 10%, and it has been varying between 10 and 11% since.
Ergodic theory suggests that a dynamic system will visit all possible areas in state space given sufficient time. So we need to wait to see what the limits of behaviour of this dynamic system are.
The internet is a wonderful source of data. For instance, we can find estimates for M2 (a form of money supply) here.
I present for your edification or amusement charts of non-M1 M2 data since November 1980.
There are two charts--the upper chart simply shows the growth of non M1 M2 money in the US economy going back to November 1980.
Historical data exists prior to this date, but there was a change in the way the number was calculated--apparently new forms of money were included after November 1980 which were not counted before, making comparison before and after this date problematic.
The lower graph is a chart of the data, but with the exponential trend removed. The exact method I used after tabulating the data was to take the natural logarithm of the reported number, use a linear detrend on the logarithms, and then calculated e^(detrended ln) to obtain the logarithmic detrended data. The resultant graph shows the periods where monetary growth was faster than average over the past 30 years (upward sloping sections) and periods where monetary growth was slower than average over that period (downward sloping sections).
This is not to suggest that the average rate of monetary growth over the past 30 years is the correct one. To my knowledge, there is no "correct" rate of monetary growth (perhaps we could try 0?).
In the larger scheme we see faster than average monetary growth from '81 to '85, average monetary growth from '85 to '91, and slower growth (and even actual shrinkage) from '91 to '95 (the era of the "strong dollar policy"?), more rapid growth to about '03, followed by roughly average growth into the spike of '09, followed by slower than average growth (the data I have used ends in mid-January 2011).
Working from memory, there was a bit of a housing bubble collapse in the early '90s. There was something of a recession after '01 perhaps into '03. It's possible that there are connections between asset values and monetary growth. This will be investigated at a later date.
Now we will consider the impact of monetary growth on unemployment. One common argument of the Keynesians is that increasing the amounts of money in circulation is a requirement of maintaining acceptably low unemployment. Let us test this notion. We use the monthly unemployment figures from the BLS website which we have previously discussed here and here.
Below is a scatter plot showing official unemployment rate plotted against the detrended non-M1 M2 data discussed above. I have only unemployment data going back to January 2000, so here is unemployment vs money from Jan-00 to Feb-08 (before the amazing change in state).
I always supposed that more money was supposed to decrease unemployment. However this chart shows just the opposite. More money = more unemployment. So--who really benefits from money creation?
But the story gets better. Let's add the part where the unemployment data drop into the black hole (up to Dec 2010).
Yow! So now reversing the money growth machine doesn't reverse the rise in unemployment! Talk about a Keynesian nightmare!
This type of behaviour in a natural system would be described as "irreversible". Climate scientists frequently fret about the possiblity of irreversible changes in climate due to human or natural activities. What we observe above may be an actual observation of an irreversible change in a dynamic system brought about by human activity. How exciting! Bernanke et al. are making history! If any of the eight or so of you who read this know him, why not drop him a line to tell him how he's doing?
In the natural world, the behaviour is not completely irreversible, because if the driving force in reversed long enough, eventually the system does return to its previous state. But the system usually displays hysteresis, meaning the way back to the previous state may be long and arduous. I fear the same may be true for the unemployed in America.
I use the term regulatory creep to describe the process by which regulations in an industry are expanded through time to increase the level and scope of control through casual application rather than by formal change. Apparently there is debate over whether this process is inevitable (it is in our current "everyone must be safe" regime). I intend this to describe a process, not the individuals responsible.
Last year I wrote an NI 43-101 qualifying report for some properties held by a client. The report went to the securities commission for approval. The client wished to float another company with the goal of exploring the properties described in the report. The report was reviewed by the commission, and came back with a deficiency--the client had not spent the requisite amount ($100,000) on the property.
This was a surprise, because according to the budget filed with the commission, the client had spent considerably more than $100,000 on the property. However the commission had disallowed a number of expenses without explanation leaving a final amount of approximately $90,000 spent on the properties. Good grief!
This result was so perverse that I had the urge to laugh when I saw it, despite the immediate impact on my livelihood.
The intent of that rule was not to exclude properties that had fallen $200 short of the $100,000 limit. The intent of that rule was to prevent people from digging a couple of holes in their backyards, spending $200 on assays, and then bringing that property to market. It was not meant to exclude properties which have previously been the subject of extensive soil and trench geochemical surveys coupled with significant drilling program which admittedly failed to define a resource--but evidently the properties were good enough that public companies had attempted to define a resource in the past.
