Category Archives: Commerce

Vapor Trails Restored

It was the quintessential Florida spring day in 1981 and my first grade class was full of hope. We were the first generation to have Star Wars action figures and reruns of Star Trek perpetually ran in our homes. TV was not yet technologically advanced to fool the senses of six year old boys, but we also knew we were watching the dreams of men. We did not play cowboys and Indians or cops and robbers like our fathers did in grade school – we had homemade light sabers and blasters. On that spring morning we witnessed from the school yard a bona fide space ship, leaving earth for the first time. We did not yet know the implications of the new space shuttle in the political world. All we knew was that we were witnessing the first steps of the future of man – and it was real, in our sky, not on TV.

Nearing my 11th birthday, the space shuttle had already proven reliable to us. For nearly half our lives we had been flying them. And for me, it did not matter the payload, the length of the mission, or its purpose. For me, it was enough that it was a ship that was going out there and coming back. On our way home from a field trip from a local hospital, the class stopped to watch another shuttle launch on January 28, 1986. It was a quiet ride home. I had yet to understand the impact of that day on my life.

There was (and remains) a stubbornness inside me that would not yield to impossible. It seemed like a lifetime before I was once again on a school yard in Deltona, this time in High School, when I was standing on a field of Pensacola Bahia looking over the tall skinny Florida pines and the familiar thick white vapor trails had returned to the blue skies of Florida. It was then I knew – I didn’t need a “why”. It was more like “Why not?”

Needing to identify a school of study, my only criteria seemed to be Aerospace Engineering and the ability to get a co-op engineering position at Kennedy Space Center. I began my studies at Florida Tech in August 1992 and while the industry was undergoing contraction, I could not imagine myself doing anything else. I started my career at KSC in 1994, the year the space station had passed the house for funding by one vote. The following year brought the Oklahoma City bombing, OJ, and the Atlantis-MIR docking. It also brought my 20th birthday on which Discovery launched her 20th mission. But the space industry was politically neglected and the workforce morale was at an all time low. In anticipation of the contract rebids in 1996, the contractors felt the need to keep salaries compressed as companies merged and giants of the industry were reduced to three major names. As I progressed through my collegiate years, I watched as only nine of us finished a degree in Aerospace Engineering in 1997 (down from 58 which started the program in 1992).

By 1997, we were building and preparing to assemble a space station. I had graduated college and I began my first real job in operations at KSC. My assignment was the Boeing Thermal Protection Systems design engineer for Columbia. My goals were to continue to find ways to improve the processing and design for the vehicle that would reduce operational costs and improve performance and safety.

A mere five years later and several technical problems had caused schedule delays in the space station assembly missions. Schedule and budget pressures continued to compress the launch manifest while reducing the workforce to numbers not seen since the early 1980s. In addition, many of the vendors and suppliers that had produced the hardware and materials for the shuttle program had either decided to go out of business due to lack of commercial viability or move their manufacturing to other states or countries. These pressures raised the cost of sustaining the shuttle program at the time in which budgets did not keep up with inflation. Morale within the space industry continued to be low as the dedicated workforce rarely saw any accomplishments reported and always saw the mishaps reported in the media.

It was two days before my birthday and my family was in Jacksonville, FL visiting my folks. I had just endured two weeks of listening to the discussions over Columbia and the program’s decision to take the risk to come home without any pictures or attempts at repair. I fell asleep around 4 a.m. Saturday morning. I was awakened by the phone ringing and my wife calling to the room.

When President Bush announced the Vision for Space Exploration and the plan to return to the moon and on to Mars, I was skeptical. There were few in the industry who believed that funding a vision that size could be sustained. There were fewer still that believed NASA had the technical wherewithal to achieve such a goal – even if it had the money. And while NASA attempted to define a bold vision for the future, many of us back at KSC were working diligently to return the vapor trails to the azure blue.

Just a few years ago, it looked as though NASA was truly on a path to retire the shuttle and begin a new era of space exploration. However, at the end of the day, Constellation was merely another cancelled program, like X-33, X-34, and X-38. We have flown the last shuttle missions and they are retired relics. Will 30 years of vapor trails be the path forged for the next century and the next explorers? Or is America retreating from its heritage of Lewis and Clark? There are thousands of dedicated aerospace workers who have supported our country and the programs of NASA through the years. Was their effort for naught? Not at all.

Today, there is a great deal of interest in commercial space development. The investments made by the US taxpayer are not wasted, but may no longer be necessary. The future of space utilization is bright – if we can take a page out of Apple and keep focused on developing and serving the market rather than just making more cool gadgets. If we remember to offer value to the market, vapor trails will return once again.

The Looming “Fiscal Cliff”

The greatest advantage that the United States has (that no other country has) is a central bank which can produce currency and adjust rates to the advantage of its country’s goals. No other country has that. When our credit rating was reduced due to our spending habits, China and others threatened to raise rates. At that time, China was the largest single holder of our debt. However, since then, the Federal Reserve has absorbed much of that debt and the the Fed is now the greatest single holder of our debt.

What does this have to do with the fiscal cliff? In Obama’s defense, he didn’t create the spending problem or the debt problem. And if you know, as President, that the government needs revenue, the best ally you can have is a central bank willing to keep rates low. Because when inflation begins, you can raise tax rates. This benefits the country by building public equity and paying down the debt. It does not benefit the banks, because they earn less money from their debtors. But banks got their money from us during the bailouts. So perhaps they should be left to the least profitable while our government restores fiscal sanity.

Now, some people refuse to raise tax rates. In principal I agree. It is not the rates that are the trouble. It is the deductions. If our tax policy simply did not encourage any debt of any kind for individual or corporations, then citizens of this country would see debt for what it is – something to be avoided. The most horrendous effect of allowing interest deductions of any kind, is that the bank gets the revenue from the debt, and the government gets reduced revenue for its services. Now where is the money better spent for society – debt interest that produces nothing? Or government services to build roads and infrastructure?

The fiscal cliff could be avoided if we would simplify code and phase out all interest deductions for debt. Secondarily, if we eliminate the fed and allow interest free printing of US dollar bills to meet the needed supply, we could then restore the proper role of banks – a savings place for money with reasonable rates for borrowing and saving. Moreover, a dollar would be a dollar today and tomorrow. The argument over the social spending would be moot since over the long term, companies and investments would be based on equity trading without reckless debt accrual.

Do I think our government officials will avoid the Fiscal Cliff and do the sensible actions? Not in the least. We voted for no change, so we will get no change. What will happen when we hit the fiscal cliff? Nothing nearly as critical as they predict, but it won’t be pleasant. Taxes will go up and spending will go down, but social spending will not change. The worst possible outcome will be that the GOP will block tax increases, are able to protect defense spending, and social entitlements will not be addressed. The our debt will only grow, the interest rates will most assuredly rise, and then we will be Greece.

So – I pray that the January 1st sequestration does occur. I pray for stalemate because every time these parties compromise it is the worst option upon which they end up agreeing.

Money is the Blood of an Economy

So I was sitting at the gym [watching my future Olympian :) ] and listening to the live broadcast of NPR’s Marketplace and low and behold there is a piece on appropriate analogies to use as models for an economy. In the last two years, I have spent some time reading, researching, and writing my braynstorms about this subject and I was pleased to hear something on NPR address the issue. For some time, I have been almost obsessed with the basic philosophy of our economy and understanding why it seems so hard for so many smart people to get a handle on it. So, let’s take this opportunity to express my thoughts (once more) on the subject.

In this piece, they looked at ecosystems, gardens, and machines. These are all good, but not great. As a systems engineer, it is natural for me to compare it to complex systems of machines, but it has always been incomplete. In their piece, the comparison to a garden or ecosystem also seemed incomplete. This is because these metaphors do not have perfect matches in the economic system.

The most appropriate analogy/metaphor is that of a system, but the best fitting one in my mind is that of the human body or any other complex living organism. The problem with using a machine as an analogy is that no one designed an economy – economies just started – organically. Also, an economy of a state or country, as a whole, is a system of systems – just like the human body. Each organ can represent an industry or sector, but what they all have in common is the need for exchange of something. They need nutrients, water, and exchange of oxygen/carbon dioxide. To accomplish this, the body uses blood as a medium of exchange. Blood, in and of itself, has no value, but it serves as the medium of exchange of every other necessary element that the human cells need in various organs. It can not be overstated that this analogy is perfect to understanding how an economy works and how to best “manage it”.

In an economy, the medium of exchange is money. Money, in and of itself, has no value, but it is the common medium of exchange within an economy that enables exchange of real value for the industries and sectors within it. And just like blood, it enables transfer between economies. We may not be able to transplant organs with relative ease, but blood donation is readily available and readily accepted with relative simplicity. Similarly, transplanting manufacturing and other production capability is time and labor intensive, but using money to perform the exchange enables efficient use of resources where they exist.

The fallacy of our current economic metaphors is that they lead to two false extremes – leave it alone – or completely control and manage it. The first assumes it is all natural and needs no regulation. The second assumes it needs complete control by a central system. Neither is true. Economies need to be scalable by principles and tailored to their function based on their available resources. Economies, like the human organs, work best when they have minimal reliance on the central control system. Most of the body functions involuntarily, leaving the brain to dream, invent, relate to other bodies and lifeforms. These can be the local governments or corporations or industries within an economy. They need to be mostly self governing for the benefit of the economy as a whole. When one or more organs go out of whack, the focus of the brain becomes on mere survival and no dreaming or innovation or relaxation can occur. What’s worse, is that while the brain is focused on healing those organs, other organs and systems may come under duress or be stifled,strangled and/or harmed by the activities being used to save the critical organs which are failing.

So – if we use the human body as a metaphor, what principles would we use to best describe the functions of the components of the body? I submit to the reader that our current system is designed to conclude that quantity of money or its rate should be used to regulate the growth of the economy. If we use the body analogy, that is like saying speeding up our heart rate or thinning our blood is the best way to grow our body. This method of control hasn’t worked, because we have not quite understood the importance of this metaphor of money as blood. Increasing the heart rate stresses the body and can only be sustained so long. What we had in the 2000′s was an economy (body) that was on amphetamines in order to increase the heart rate and the resources could not continue to sustain the growth. This amphetamines came in the form of cheap debt – easy access to money and quickly flowing through the body. Complete sectors were at max capacity and began to overload. Both the US and Chinese economies were on hyperdrive competing for the same resources. As the markets and economy began to adjust, the blood makers sought to inject more blood into the system along with more additives to heal specific organs. This occurred over the course of three decades. Add to that the removal of certain organs from the body and moved to other locations (e.g. NAFTA – consider this as using someone else’s kidney to process your waste) and our economy becomes a sick body with failed organs from excessive blood, and numerous organs which were removed in the past and as such are unable to aid in the body’s healing. We are still an economy in recovery – an athlete experiencing the the results of overuse of performance enhancers and not enough rest. However, this president seems hell bent on doing what past presidents have done by driving more blood into the system rather than restoring the fundamental elements for growth. In addition to manipulating the money supply, centralization of infrastructure and industries is also occurring through regulation, taxation, and development of entire new agencies. The fallacy of this thinking is that the quantity of the blood or the heart rate are not the drivers of body growth and the quantity of money and its rate of circulation cannot be the drivers of economic growth. We need a better understanding of the role of money and the role of government in that money system.

If we understand money as blood then we understand that we cannot make a baby grow faster by injecting twice as much blood as his body needs. We know we will kill him when we do this. We also know that we should not give the baby drugs to speed up his heart rate nor can we remove blood too quickly. We know that a child that is growing will produce the blood necessary to meet that growth. This is the role of money in an economy – simply be produced at the rate of production that is organically driven by the industries and no more. Also, when industries and an economy slow through organic means of supply and demand, then money should be removed from the system to keep the total in balance. Today, we remove money when it is growing and pump in blood when it is slowing. A better system of money would produce to meet the need not drive need.

And what about war and natural disasters? Again – our economic system and its four basic needs – water, food, energy, and money – will be at their optimum security and sustainability when they are scalable systems and are allowed to grow at their natural rates and save for their posterity. When an enemy attacks – the body should defend itself. It is another country, then violence is necessary for defense. But if it is over natural resources, then perhaps we can show how the two bodies can both be fed rather than go to war over the limited resources. If it is over ideology and tyranny, then war must happen. A healthy economy enables a healthy defense. When you are not ill, you are better equipped to defend from an attacker. Regarding natural disasters, we will assume they are diseases to the body. When a tornado outbreak occurs, it is like a disease in the liver. Resources are used and recovery is hastened when the rest of the body is healthy and not likely to be infected by the same disease. Therefore, a healthy economy enables more efficient recovery from natural disasters. A healthy economy via healthy monetary and fiscal policy minimizes these events and enables quick use of saved resources to restore the damaged areas faster than if we are relying on artificial stimulation via blood pumping. Of course, we should consider that the wars and natural disasters can all happen simultaneously and deplete our resources. That is why it is good to have allies – friends and family who can donate blood and maybe a liver, lung, or kidney to help you recover.

As we have seen over the last two hundred and fifty years in America, attempting to control growth of the money or changing the form of money have all caused major economic disruptions, often taking decades to recover. Perhaps we are now ready to consider a better alternative and seek real change in our economic and political systems to enable prosperity in its natural and organic form. Perhaps now, we can consider the proper role of government to prevent cancerous rogue citizens from attacking the peaceful free citizens (justice department) and protect the body from harmful attackers (defense department) and properly produce the amount of blood necessary for natural growth of the human body rather than driving hemorrhaging or organ failure (treasury department). These are the simple, yet critical, roles of governments for nations of free people. By studying an appropriate metaphor for the economy, perhaps we can understand the roles and functions of the economic components and produce a stable, growing, and truly sustainable development for mankind.

Our country and our economy are sick. We need the right metaphor to understand the right solutions to begin healing. For that, we need to understand them and elect people to office who understand them, and then are brave enough to enact policies which can restore our system back to health and reduce the chances of future visits to the emergency and operating rooms.

This should be the debate of this election – what is the model of an economy that best fits a free society and how will we move our political system in the direction necessary to achieve that model?

Banks Must Raise $566 Billion in New Capital

From Yahoo:
The world’s largest banks must raise a combined $566 billion to satisfy new capital requirements, Fitch Ratings said on Thursday, as the authorities demand that banks hold more cash in reserve to protect against future financial shocks.

The figure represents a 23 percent increase on what the banks currently hold in reserve and will most likely reduce return on equity, a critical figure used to gauge a firm’s profitability, Fitch said.

For those who wonder why banks are not lending…it is because of the establishment of new requirements. The new requirements are the old requirements and they are needed because the system allows herd mentality and clearly humans are incapable of restraint and the government won’t allow failure.

Bottom line: Until the banks raise the $566 billion to cover the ratios required, they won’t be lending anytime soon. Look for interest rates to rise to entice deposits and discourage loans. This is GOOD – but will be painful.

What is Money?