27th July 2004


A competent economist on the www is the writer of the Buttonwood Column in "The Economist".  Our politicians, when they created our pension scheme by automatic deduction of 7% of wages to be accumulated in investment funds, probably made the biggest mistake of our lives.

They have interfered with an important free market mechanism.  No longer is the quantum & quality (destination) of the commodity "savings rate" determined by the perceived risk/benefit calculation of investors.  That quantum is now tied to the income and employment of wage & salary employees, and the quality of investment is in the hands of MBA's.

Buttonwood has drawn my attention to the "Volatility Index" (VIX).  Basically this is a number which is calculated from the spread of risk trade.  For instance a mining house paid in $US might want to protect itself against a falling $US.  To do that it would purchase a forward currency "risk" contract.  When it was paid in $US for delivery of minerals, it would have a guaranteed exchange rate.  The cost of that guarantee as a percentage of the value of the contract is (presumably) the VIX.

Buttonwood has pointed out that the value of this index is at an all time low.  He also mentions that many people are worried about inflation.  He goes on to say:

Buttonwood is almost certainly in a very tiny minority on this, but it is not even certain that inflation is a greater worry than deflation, for all that this is dismissed by most as last year’s story.

Buttonwood also pointed out that the risk spread might mean that there is a low risk of currency upsets, or more ominously:

So why then is volatility so low? Jim Bianco, who runs an eponymous research firm, suggests an answer of beguiling simplicity. Many people—at hedge funds and banks in particular—are selling options to earn money from the fees for doing so.

Your diarist has the same fears, although from a different paradigm. 


My sojourn in the USA finished on 15th July, from whence I travelled to London, UK.  I decide to see the midwest, Winnipeg, Dakotas & Las Vegas.

From NY I drove up to Salem, NH, and traversed to Maine.  Like many US states, those guys up north have decided to penalize drivers by installing virtually unavoidable turnpike (toll) roads.  I then doubled back, and diverted through Massachussets to Vermont, NY, across through Pa and stopped for a few hours in Ohio on lake Ontario.  Ohio and Pittsburg are mining/industrial states.  It has been estimated that the US has sufficient coal energy reserves to power the world for at least two centuries.  Ohio was very green, and (as an Australian) I am very impressed whenever I see such an abundance of water.  From Ohio I touched into Michigan, then down to spend (another) few days in Chicago.  Chicago is an easygoing town, and one of only two cities that have a 24/7 Starbux T-Mobile hotspot.  (Of course many cities have 24/7 Kinko "offices", (e.g. Boston) however the ambience is not conducive to recreational internet use.

Next across Illinois and then up through Minnesota where I visited the alleged largest Mall in the world, named "the Mall of America" which is so named because it is on America Avenue, not as a cheap publicity stunt. (Although I would not rule that out).  It is centered around a children's amusement park, with roundabouts, an extensive rollercoaster system, and scores of other rides, games of skill & luck & etc.  I made a dash across the state line from Minneapolis-St.Pauls into Wisconsin, then retraced and continued on to Winnepeg Canada through North Dakota.  The land up there is FLAT.   It is also the wheat basket of the US.  I understand that planting is done before the winter snows.  The crop germinates in the warmth & moisture when the snow melts.   Some regions obtain two crops annually.  Probably the very long days at this latitude (around 18-19 hours) enables this by allowing rapid maturation of the crop.  The wheat is not as "hard" as that from Australia. (Hardness is a measure of the protein content, apparently a desirable attribute in wheat.)

Winnipeg is one of Canada's larger cities, with a population in the millions.  I was most annoyed however that the Starbucks in Winnipeg did not have T-Mobile hotspots.  Instead I found a place in the old french district that charged me CA$5 for an hour's use of wifi.  It was also a public holiday "Canada Day" and nothing much was open.  I also learned that my trip had been shortened by about a week, and had to leave immediately.

I crossed back into ND, travelled down into South Dakota, and across into Wyoming.  These are not wealthy states, but the attitude of the people is mostly quite laid back.  The big events (at least in summer) are the Rodeos.  The number plates of this state bear a bucking horse.

During most of my travels in the US I had been aware of the pall of atmospheric pollution.  I have seen red sunrises whilst travelling down through Louisiana, across New Mexico, in Tennessee & Utah.  Objects more than from two to ten miles distant were hidden by smog in California, Texas, Iowa, the Dakotas, NY.  In fact, in just about every US city I visited, pollution was bad.  I do not think most Americans realize how bad the pollution is, because they do not know what a clear atmosphere is supposed to be like.  For instance, from Barvennon the other side of the valley, around 40 Km (25 miles) away, can be clearly seen, with no haziness of the atmosphere most of the time.

So it is with some pleasure that I discovered that I could see the distant (40 miles?) mountain ranges to the East of the I-80 in Wyoming.  Of course my pleasure was somewhat marred by haziness, but at least it was diminished in comparison to other states.

I continued up to Montana, and stayed overnight in a city that was at the edge of an extensive (50 miles) Indian reservation.    Next morning I travelled into Idaho, down through the Eastern edge of Yellowstone park, and into Salt Lake city, Utah.  The pollution in Utah was fierce.  This city is the home state of IBM, and the home state of the "Church of Latter Day Saints" otherwise known as the Mormons.  They seem to believe that industriousness and industry are both good.  My intended road was south to Las Vegas, however I drove a detour East to see the desert.  From there I drove back to Salt Lake City and continued down the I-25.

The "Great Salt Lake" is a terminating lake, like the Dead Sea.  It is around 4,500 feet (about 1400 meters) above sea level.  The river that flows into it is named the "Jordan".  The land around the western side of the lake, and continuing south is well watered & looked quite fertile.  Crops and livestock were abundant.  It was not until I reached the southern end of Utah I reached country that, in Australia, we might call "poor".

When you are in Nevada near Las Vegas you are in near desert.  I suppose that some of the South Australian breeds of merino might scrape a living off the vegetation - with only occasional hand feeding.

Las Vegas is only a fewscore miles from both where the I - 25 crosses the Arizona border, and also from the Boulder dam on the Colorado river.   Water is piped to support Las Vegas, a city in the desert about 15 Kilometers in diameter.  About the only business in Las Vegas seems to be gambling and prostitution, both of which are legal.

In Las Vegas there are "Trader Joe" stores, the mark of the presence of those who demand cheap food that is organic.  In the gambling strip at night, shills handed me the business cards of the prostitutes.  "Miranda comes to you naked, so you can see what you are buying" says one card, another says "Anna & Belle, get two for the price of one."   I notice that Anna & Belle come for around $80, which is more than Miranda, who was $50.  I went into a few Casinos and watched the play.  Blackjack, or 21 was played by the same rules that we used in my college days.  Baccarat and roulette were also in play.   When I looked at the players, I saw ordinary Americans, not at their best.  Las Vegas has a reputation for glamour and legalized naughtiness, but when you get down to it, it is tacky & seedy.

Then on back up through Utah and onto the I-40 which took me into Colorado.  Crossing Colorado I drove through a pass that is about 10,000 feet (3,000 meters) above sea level.  That is a few thousand feet higher than the highest point of Australia, Mt. Kosciusko, around 7,000+ feet.  According to an article I read in the WSJ, Denver is supposedly the best city in the US for singles, regrettably I did not have the time to verify that statement.

I detoured North then down through Kansas, Oklahoma and into Fort Worth Texas.   I spent a few days recovering there at the home of my friend Barbara, and then flew on to NY for my connection to London.