Economics: How Smart Are Manhattan`s Landlords?

 

(Drivebycuriosity) - I live on Manhattan´s Lower East Side. I notice that in my neighborhood many storefronts are unoccupied. Alone on my block are seven outlets closed and waiting for a new renter. And 2 of my favorite sushi joints closed in the recent weeks and their spots are on the market.

There are many reasons why a shop closes, but the most common is the rent. Many shop, bar & restaurant owners can not afford the high rents in Manhattan, even in lowbrow areas like East Village & the Lower East Side. A while ago a tiny store front on my blog was advertised for $5,000 per month, it might be even higher now.

I understand that landlords need to earn money and that they have to pay their mortgages. So they wait till they find someone who takes the place and is able to pay the stipulated rent.

But some storefronts are idle for years. In the year 2017 closed Schiller´s, which was once a very popular bar. The place stood vacant till 2022, when Shake Shack finally took the spot. The fast food joint opened just last week.

The landlords receive zero money for the long waiting period and have still to pay the banks, so they are accumulating losses. And a row of vacant store fronts does not really advertise the area and might even reduce the value of the real estate and so the possible rent.

Why aren´t the landlords not flexible and adapt the rents to the demand and the market situation? Accumulating losses over years - in the vague hope to find soon a new renter  - does not look really smart.

Science Fiction: Brontomek! By Michael G. Coney

  (Drivebycuriosity) - I love science fiction because the best authors of the genre employ logic and science to create entertaining tales about possible futures or alternate worlds. Michael G. Coney belongs to these writers. I loved his novel "Charisma" about parallel worlds (my review). This inspired me to read his book "Brontomek!" ( amazon).

The novel is set on an earth like planet where most of the population specializes in fishing and agriculture. Unfortunate developments had set its economy on decline. A corporation, which spans over many worlds, took the advantage and bought the whole planet (this is a spoiler free blog).

The novel focuses on the conflicts between the settlers and the corporation and between different fractions of the settlers. Coney elaborates the economy of the planet, the sociology and the behavior of crowds. I enjoyed Coney`s descriptions of the bizarre fauna & flora and how it influences the lives on the planet. 

One - very peculiar life form - has an important role in the plot, event though the author introduced it very subtle. Describing it would spoil the story, but this life form lifts the novel above the genre.

"Brontomek!" belongs to the filet pieces of Science Fiction and is highly recommended.

 

Books: Clinch By Martin Holmen

 

(Drivebycuriosity) - Scandinavia is cursed (or blessed?) with long and dark winters. Maybe this is the reason that the region developed an own dark literature genre, the Nordic Noir. Martin Holmén belongs to the newest voices of the genre. His novel "Clinch" reminds me of Raymond Chandler`s & Dashiel Hammet´s hard boiled thrillers ( amazon). But these were the good old times, Holmén`s tale is much, much, much more violent & brutal.

The novel is set in Stockholm in the 1930s, the Great Depression, and told in first person. The protagonist is an ex boxer, still quick with his fists, who makes his living by collecting debts from those who were unfortunate enough to borrow money from criminals. He is a brute but smart with an analytical brain. One of his endeavors brings him into deep trouble (this is a spoiler free blog).

Holmén can really write. His writing skills remind me of Knausgard who also has the talent to describe simple observations in an entertaining way. I enjoyed the atmospheric descriptions of wintry Stockholm, the frequent restaurant visits, the food & the booze.

The novel touches many aspects including the influence of an horrible childhood, nightlife in 1930s Swedish capital, Stockholm´s queer community and more  

Holmén spiced the plot with the explicitly elaborated sexual adventures of the bisexual protagonist - the wasabi on an already spicy dish.

Even though the plot was partly too violent & too brutal for my taste I consider to read some day "Down for the Count", the next book of Holmén`s Stockholm Trilogy.

Economics: Federal Reserve - Move Fast And Break Things

 (Drivebycuriosity) - Last Friday Federal Reserve Chairman Powell gave his usual Jackson Hole speech. As feared Powell called inflation too high and warned that the Fed is prepared to raise rate further ( cnbc). Powell´s message reminds me of Mark Zuckerberg`s famous motto: "Move fast and break things" (hbr.org ). 

The announcement sounds outrageous. The Fed had already lifted her interest rates at a breath taking speed to 5.25 to 5.5 percent from near zero in March 2022. On the financial markets the interest rates for bonds, mortgages & credit cards followed.

 ( source )

I strongly believe that inflation is already defeated and the Fed is overshooting.

 

                      Helicopter Money

The high inflation rates of the recent months were caused by a flood of money in the past. In 2020/21 the US government - supported by massive bond purchases by the Federal Reserve -  flooded the US economy with trillions of dollars, giving the Americans enormous purchasing power. Friedman called this action prophetically helicopter money (cato ). The government money landed directly on the bank accounts of the Americans, blowing up the money volume M2 (bank notes & coins & liquid deposits at banks).

As a result in 2020 & 2021 the US money supply M2, the engine of the inflation, jumped 40% (image below). The money deluge met a constraint supply of goods & services, partly because of COVID-19 which disturbed the supply chains.  

"Inflation is caused by too much money chasing too few goods and services", notice the economists at fisherinvestments. "It is no surprise that prices increased so much", comments Tyler Cowen, Professor at George Mason University (marginalrevolution).

 

 (source )

                            Causal Connection

The causal connection between money and inflation is known since the 16th century at least. Nicolaus Copernicus described already in the year 1522 how "too much money" causes inflation. Copernicus` "quantity theory of money" is based on observations: 

Early in the 16th century Spain conquered today`s Latin America and looted the silver stocks. The Spaniards send the precious metal to Europe where is was printed into coins and used as money. 

As a result the European money supply jumped. The flood of money raised suddenly the demand for scarce goods & services and caused a jump of the price level. 

Elaborated studies by Milton Friedman, Karl Brunner, Allan Meltzer and many other economists (known as Monetarists) described already in the 1960s how and why the inflation rate follows the growth rate of money with a time lag (causal connection).

The  monetary growth already peaked in February 2021 (with plus 27%). Since then the monetary growth rates have been falling and turned negative in December 2022. In the recent months the money volume has been shrinking! In July M2 dropped 3.5% YoY ( fred.stlouisfed).

 

 (source )

 

                   Monetarist Playbook

As a result inflation peaked in June 2022 with 9.1% and dropped to 3.3% in July, following the pull of the shrinking money supply.

The Fed does not only ignore the cause of the recent inflation wave, Powell & Co. also follow an outdated inflation definition and focus on the so-called Core PCE price inflation (plus 4.1% YoY source ). 

The Core Inflation excludes energy costs & food prices and focuses on shelter, a mix of rents & house prices which counts for 42% of the core-inflation (americanprogress fisher)! 

 

 ( source )

Unfortunately the shelter component does not show current house prices. Instead it has a time lag of 12-18 months ( aier). As a result the Fed is way behind the curve and might already overshoot.

The collapse of the inflation rates follows the monetarist playbook and proves the Fed wrong. It is highly likely that the recent interest rate hikes are driving inflation rates further south. Inflation might even turn into deflation - following the shrinking money volume (negative growth rates). The Fed`s stubborness could lead to deflation and might even start a new recession. Move fast and break things! 

Science Fiction: Stories Inspired By The Fermi Paradox

 (Drivebycuriosity) - There are countless stars in the universe. Many of them have planets which might be habitable. But we didn´t find any signs of advanced life so far. There are no signals of other life forms. This phenomena is called the Fermi Paradox, named after the physicist Enrico Fermi.

"Paradox - Stories Inspired By The Fermi Paradox", edited by Ian Whates is a collection of science fiction stories about this issue (amazon).

The book contains 15 stories and a scientific introduction written by the physicists Marek Kukula & Rob Edwards from the Royal Observatory Greenwich. 

These are my favorites:

"Catching Rays" by David L Clements. The astrophysicist wrote a smart story with very original ideas about an alien contact based on quantum physics. I want to read more by him.

"Lost to Their Own Devices" by Adrian Tchaikovsky. This is a kind of space odyssey mixed with militaristic science fiction. The story, which is spiced with amazing ideas, is thrilling and has a surprising twist.

"In The Beginning" by Gerry Webb. The author delivered a mystery story set into a lush and rich future.

"The Worldmaker" by Rachel Armstrong. The plot describes dating in a sophisticated bar in an advanced future where people can control their moods by pheromone pills and other technologies - a glance into a new baroque.

Honorable mention:

"Baedeker´s Fermi" by Adam Roberts. I didn´t really enjoy the plot, but the style in the manner of a travel report from the early 20th century has its charm.

The book is an interesting introduction into an often discussed topic and a valuable enrichment for any serious science fiction collection. In the moment of writing Amazon.com offers the Kindle version for just $4.99 (amazon). Enjoy!

Books: Beautiful - The Life of Hedy Lamarr

 (Drivebycuriosity) - Are you interested in the history of cinema? Then you might enjoy the biography "Beautiful: The Life of Hedy Lamarr" by Stephen Michael Shearer (amazon).

The author describes life and career of a Hollywood star who`s light shined from the late 1930s through the 50s. Hedy Lamarr had an ambivalent personality. The Austria born actress wasn`t just a glamour girl, she also was highly sophisticated, super-smart and a pioneer of digital technology. 

Hedy co-invented, "together with composer George Antheil, an early technique for spread spectrum communications and frequency hopping, which paved the way for today's wireless communications and which, upon its invention in 1941, was deemed so vital to national defense that government officials would not allow publication of its details" (wikipedia).

Hedy´s biography gives an impression how Hollywood functioned in the so-called golden age of cinema. Hedy, and other top actors, weren´t free, instead they were a kind of slaves because they had  tight contracts which bound them to the studios. Over many years Hedy Lamarr was a property of the studio Metro Goldwyn Mayer (MGM). Studio boss Louis B. Mayer decided in which movies Hedy played and in which not. According to Shearer the actress was temporary neglected and underemployed because Mayer didn´t see her fit for some of his projects.

The book also gives a glance into the economy of movie making. As today movies were just commercial products - like soap. The author describes Hedy`s relationships with Hollywood moguls like Mayer and Cecil B. DeMille, the director of her greatest hit "Samson and Deliah", who used her as an asset.

Shearer focuses on the movie business, describes Hedy´s films (with spoilers)  and elaborates about the star´s personal live (a lot of divorces and short time friendships). The  strengths of his book are the insights into the Hollywood machine of the 1940s and 50s; but her role as a co-inventor of one of the most important technological achievements of the last century went a bit under the radar.

"Beautiful…" is a fascinating portrait of a chatoyant personality and Hollywood`s golden years.

Economics: Why The Interest Rates Rally Doesn`t Make Any Sense

 

(Drivebycuriosity) - The interest rates are rallying! "10-year Treasury yield hits highest level since 2007" reports cnbc. That is the interest rate for bonds running 10 years, an important bench mark for the financial markets. The rally doesn`t make any sense to me.

A strong rise of the interest rates would make sense if we would expect an economic boom and anticipate that  the growth rate of the GDP would climb from today´s 2% to 3% or more. In this case investors would seek for more loans to finance their business expansion, which would justify higher interest rates. 

But there are no signs of an accelerating economic growth. The business unfriendly policy of the Biden administration (more regulation, international trade restrictions, higher taxes, sanctions) does not support more economic growth.

 

(source )

A rise of interest rates would also be appropriate if we would expect climbing inflation rates. Then higher rates would compensate bond holders for their inflation losses. But we are experiencing a disinflation with falling inflation rates, following the shrinking money supply ( I explained it here ).

It seems that the managers of the leading pension and hedge funds think otherwise. Apparently they are selling bonds as a bet on the return of inflation.

I strongly believe that they will lose.

Economics: Why The Amazon Monopoly Claim Is Based On Nothing

 (Drivebycuriosity) - The Biden Administration, represented by the Federal Trade Commitee (FTC), America`s antitrust body, is preparing a big attack on Amazon ( politico). The coming law suits could be the crown of an anti-Amazon campaign which started around 2014 ( driveby). The crusade is based on the claim that Amazon is a monopoly. In the year 2017 a law student named Lina Khan published a paper with the claim the Amazon will become a monopolist, which turned her into the Jeanne d'Arc of the antitrust community (yalelawjournal reason). In 2021 President Biden announced the Khan chair of the mighty FTC.

What is the Amazon monopoly claim based on? Here are the facts, based on the recently published quarterly results:

In the second quarter 2023 Walmart`s e-commerce segment grew 24% Y-oY (image above cnbc ). Amazon`s online store grew just 5% in Q2 (image below, first line ir.aboutamazon). So Walmart´s e-commerce grew about five times as fast as Amazon`s.

 

The Amazon monopoly caller also complain about the strength of AWS, Amazon`s cloud business, which grew 12% Y-o-Y (image above ). In the same time competitor Azure, a segment of Microsoft, grew 27% (statista ).

The growth numbers indicate a healthy competition. Amazon is far away from becoming a monopoly. Quite contrary, the numbers show that the company is losing market share.

The Amazon monopoly claim is not based on facts. Activists like Lina Khan are using the false accusation for their crusade against private business. The crusaders hate Amazon because it is big & successful - and more popular than the Biden Government ( stratechery). Khan & Co. try to harm a company which is popular for low prices - benefiting especially low income groups  - and they attempt to destroy a service used by millions.

Books: Cities By John Reader

 (Drivebycuriosity) - Do you like cities? Are you fascinated by metropolises like New York, London, Singapore or Tokyo? Then you might also enjoy the book "Cities" by John Reader ( amazon).

The author knows a lot about cities, "the defining artifacts of civilization". "We shape the city, then it shapes us", he claims. Reader explains why cities were founded, why they grow or sometimes shrink and what kind of challenges they generate.

"The advent of the city as a center of human activity freed ever increasing numbers of people from the burden of finding food and shelter for themselves, directly from the land". Cities provided "food, security and cultural environment". 

Naturally the book starts with the beginning of the cities, the first known settlements and their growth to regional metropolises, especially in Mesopotamia (today: Iraq and parts of Syria, Turkey and Iran) which were known as Ur, Uruq and Babylon.

Readers discusses intensely the influences of politics & the economy for founding and expansion of cities. Some are the capital of a Prince, others merchant´s places. Cities like Berlin owe their growth to the politics (Prussian kings) but many other grew because they become important centers for merchandise, such as London, New York and Singapore. 

The Author describes further the snowball effect which leads some cities to grow into metropolises and global centers: "Financiers liked to congregate in regional and national cities, close to the ear of governments that controlled public finance, where legislative control of economic social affairs was exercised and might be lobbied". Along with the banks and the insurance companies came the headquarters of large industrial companies, the media and marketing agencies. He concludes that the driving forces are banking, accounting, management, law, journalism and advertisement.

We learn also about the immense tasks the growth of cities generate, especially for feeding the inhabitants of ancient Rome (at it`s peak one million!) with grain. Despite his ardor for cities Reader finishes his book with a slightly pessimistic undertone. He sometimes describes them also as "dangerous parasites, with a capacity to harm regions far beyond their own boundaries". 

Anyway, highly recommended, not only for lovers of cities. 

Photography: Manhattan Billboards 2023

 

(Drivebycuriosity) - I am fascinated by New York City, where I live since 2012. The metropolis is full of life. I am impressed by the sheer size of the city and her buildings. Part of the fascination are the huge billboards you can spot all over Manhattan.

 

 

I display here a selection of pictures I collected on the streets of Manhattan.

 

 

Stay tuned. 

Books: Longitude By Dava Sobeil

 

(Drivebycuriosity) - Imagine you want to travel by ship to the Bahamas and you miss the islands because you cannot find them? That happened quite often before the 19th century.

The seafarers didn`t have precise maps. The captains and steermen lacked the correct coordinates, the longitudes, to navigate their ships. Longitude is an imaginary line drawn from north to south pole, and combined with latitude (measured from the equator by parallels north and south of it) you create a grid which helps finding any place on the globe you want. Without longitude captains steered their ships just by guessing. 

Therefore sailors hit very often islands, which surprisingly got in their way. For example, in October 1707 British Admiral Sir Clowdisley Shovell and his whole fleet suffered wreckage and sank, just miles short of the safe British harbor, because the Admiral miscalculated the correct route home.

Missing the route was a big obstacle for the raising world trade and fledgling economies. Therefore the governments of Great Britain and other seafaring nations offered high prizes for finding a workable method to discover correct latitude.

The book "Longitude: The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time" by Dava Sobeil, describes how this problem was solved in the late 18th century (amazon ). There was a hot competition to win the bounty which the British Parliament offered in its Longitude Act of 1714. 2 competing schools tried to find ways for determining the correct longitude. One group tried to find the coordinate with the help of astronomy, the other group focused on clocks.

Sobel`s "Longitude" focuses on the clock maker and pioneer John Harrison. In his lifetime the British constructed four timekeepers, called H1 through H4. These chronometers would display the correct time and therefore help the sailors to determine their exact position,  thus  longitude.

However, Harrison did not have just the problem of how to construct a clock which was robust enough to work exactly during extreme and changing conditions on long ship travels. Sobel also describes how Harrison had to fight with the Board of Longitude. This organization, which was determined by the British Parliament to decide about the bounty, was dominated by Harrisons competitors, the astronomers. And his rivals did everything to keep him from winning.

In describing the lifelong fights and frustrations Harrison had to accomplish, the author gives also insights to investors. She shows, that a strong idea doesn`t guarantee spontaneous success and quick fortune. Very often an idea needs a lot of time and patience to flourish. The stock market very often shows such setbacks. 

This book is not just a pleasant read, it is also a cheap and pleasant way to learn that. 

Science Fiction: In The Ocean Of Night

 (Drivebycuriosity) -  I love books, but I often stop reading before the end because I lose my interest. Otherwise I like to re-read some books from my library very often. One of these favorites is "In the Ocean of Night", by Gregory Benford (amazon). 

This is a hard science fiction novel (first printed 1972) in the tradition of Isaac Asimov and Arthur C. Clarke. The author mingles his tale with sciences like physics, logic, evolution and information technology.

Benford tells the story of an encounter with an alien sentiment. This is a space ship from another star system which is only inhabited by an artificial intelligence. Astronauts also discover ancient alien artifacts in our solar system. The book focuses on 20 years in the life of the leading character, who is a scientist and an astronaut for NASA. The novel describes how his personal life changed in response to his experiences and dialogues with the alien machine brain and the artifacts.

"Ocean of Night"  plays in a very near future. It isn´t`disturbing that the story already starts in the year 1999 and spans just to the year 2019. Maybe it describes a parallel world. 

Benford didn´t expect much progress for the human species by the start of the 21st century and designed a somewhat pessimistic view of the near future. He was especially very skeptical about politics and social relationships and constructed a lot of conflicts between the rationally behaving leading character and his NASA employers and his associates. But this makes the story more interesting.

The books doesn`t have a lot of action or spectacular technological accomplishments. Benford is more interested in plausible speculations about how alien life and their technologies might advance in the course of millions of years and in philosophic questions about the role of the human species in the universe.

The logical and scientific style of the book tells that the author started his own career as an astrophysicist and scientist (wikipedia). This is one of the virtues of hard science fiction and makes it more interesting for me. 

Benford also showed his scientific interest in the sporadic sex scenes, which are an exception from usually prudish science fiction literature which caters mostly young adults. Included is a Ménage à trois, between a man and 2 women, described in the language of an engineer. Hence, the author created a unique form of erotica suitable for this form of literature. "Ocean of the Night" is worth reading even today. 

Books: The 1920s - Told From A Contemporary

 (Drivebycuriosity) - We are living in the 20s again. Will they repeat the roaring 20s from the 20th century? Will we again experience an explosive growth of technology, economy & culture that leads to a collapse & and economic depression?

The book "Only Yesterday: An informal history of the 1920s" was published in 1931 by an eye witness:  Frederick Lewis Allen ( amazon). The author was neither a historical scholar nor an economist but the editor of the magazine "Harpers"and had enough insights into what was going on then. He described the developments with humor and spiced his report with a lot of anecdotes.

There was a technological revolution which changed the whole world: "In 1919 there had been 6,771,000 passenger cars in service in the US; by 1929 there were no less than 23,121,000." The sales of radios jumped from $60,000,000 in 1922 to $842,548,000 - an increase of 1,400%. A  lot of  other things,  including telephones, refrigerators, electric washing-machines, cosmetics, rayon (a synthetic fiber used for stockings & lingery instead of silk & wool) and more also became much cheaper and available to the masses. 

This led to an unprecedented industrial growth, the Coolidge Prosperity (named after President Calving Coolidge who was in office August 2, 1923 – March 4, 1929 ). Between 1922 and 1927, the purchasing power of American wages increased at the rate of more than 2% annually.

The boom was fueled by 2 new stimulants: Buying on credit (installment buying) and massive gains on the stock market. "When stocks were skyrocketing in 1928 and 1929 it is probable that hundreds of thousands of people were buying goods with money represented, essentially, a gamble on the business profits of the nineteen-thirties. The confidence was strengthened by an almost superstitious belief that the ruling Republican Administation was the invincible ally." Apparently the boom was also made possible by a loose monetary policy.

The economic boom let to significant changes in lifestyle and culture. Thanks to the rise of radio, people at home could follow the news, watch baseball games and listen to concerts at home. There also was a steep rise of motion pictures and people flocked to the movie theaters. 

The boom also seemed to encourage a general zest for life and caused a " revolution in manners and morals": "A new generation of women, called the ´flappers`, wore thin dresses, short -sleeved and occasionally sleeveless; some rolled their stockings below their knees, revealing ´to the shocked eyes`  fleeting glance of shin-bones and knee-cap; and many of them were visibly using cosmetics".

Allen described the prohibition and the controversy between the "dry", who wanted to forbid producing  & drinking alcohol and the "dry", who opposed prohibition. "The world war accustomed the country to drastic legislation conferring new and wide powers upon the Federal Government. It necessitated the saving of food and thus commended prohibition to the patriotic as a grain-saving measure. It turned public opinion against everything German - and many of the big brewers and distillers were of German origin".

But the ban on alcohol couldn´t be a enforced totally, of course. There were legions of smugglers and speakeasies (disguised bars & pubs), neglected by a corrupt police force. Alcohol distribution  brought huge profits for organized crime and fueled the rise of the Mafia, mobster bosses like the legendary Al Capone build an empire on alcohol.
 

In the years 1928 & 1929 the boom led to an euphoria on the stock market  - the Great Bull Market. The value of many leading stocks tripled in just 18 months. Many stock purchases were financed with loans (on margin) which got cancelled as the market turned.

The book is an entertaining read. It also gives a chance to compare today´s developments with the past and to draw conclusions.
 

Contemporary Art: Lush - A Group Show @ Hashimoto Contemporary, New York

 (Drivebycuriosity) - Manhattan´s Lower East Side is a popular district with a lot of food places & bar. But there are also some interesting art galleries. One of them is Hashimoto  Contemporary on Ludlow Street, where I discovered these images ( hashimoto). On top of this post you can see Laura Berger`s "Ghost Garden" (oil on canvas).

 

Above follows "Rendevouz" by Sally Jerome & "Insominia, Geraniums" & "Insominia, Violas" by Rachel Gregor.

Above you can see "Bather on floral towel" by Zack Rosebrugh  & "A Flower doesn`t have a Backside" by Sofia Pashaei. All paintings are from this year.

To be continued

Books: Parallel Worlds By Michio Kaku

 (Drivebycuriosity) - The universe is weirder than we believe. I got this perception from the book "Parallel Worlds" by Michio Kaku, professor of theoretical physics at the City University of New York (amazon).

The  book is based on the idea that our universe isn`t alone and unique. There could be many more universes or so-called parallel worlds. "Maybe our universe is just a bubble in an ocean, with new bubbles forming all the time", says Kaku.

This is very speculative, of course, nobody can prove that. But there are indeed some logical and somewhat plausible arguments for the existence of parallel universes. Kaku points to the fact that life as we know it needs a lot of benign conditions, otherwise we wouldn´t exist. 

 

                     Goldilocks-Zone

For instance we need just the right amount of sunlight and just the right amount of gravity (which holds just the right amount of atmosphere without crushing us). If our moon would be smaller or farther away, the course of the earth would be less stable, causing catastrophic climate changes. 

If the basic physical forces which keep the particles of the atoms together (the so-called weak & the strong force) would be a bit different, then the particles wouldn`t glue together and there would be no atoms and no molecules, therefore no matter. Is it just luck, that our universe is in a Goldilocks-zone where everything suits to our existence?

 

                 Multiple Universe

No, says Kaku. There could be a huge number of universes which don´t have the right conditions and are without life. These universes might have just fogs of electrons without suns and planets, thanks to different physical forces. The beneficial conditions which shape our universe could be the result of the "law of averages".  "If there is a large stock of clothing, you`re not surprised to find a suit that fits" explains the author using a quote from the astronomer Martin Rees from Cambridge Univerity.

Another rationale for the multiple universe theory delivers the quantum theory, which claims that the movements of electrons and others particles of atoms are random and not predictable (Heisenberg`s uncertainty principle) and electrons act both as a particle and as a wave.  

"Once we introduce the possibility of applying the quantum principle to the universe, we are forced to consider parallel universes".  For instance the existence of parallel universes could explain Schrödinger`s famous example, that a cat could be either dead or alive, depending on the spectator (wikipedia). Maybe there is one universe where the feline is alive and another where the animal is dead, offers Kaku.

 

               Rotating Black Holes

And he goes further. He claims that there could be so-called wormholes which allow traveling to the parallel worlds. These connections could be black holes, because their extreme gravity shapes the law of physics. Some of these black holes could be shaped like a ring and rotate around center (an idea from the physicist Roy Kerr from New Zealand). These black holes could rotate very fast and produce intense centrifugal force pushing outwards. These forces could cancel the inward force (extreme gravity) which would otherwise crush the traveler.

Albeit of all these speculative ideas the book is based on serious scientific theories. Kaku, who is an acclaimed physicist by himself, builds his arguments on theories and mathematical models developed in the last century by physicists & mathematicians like Einstein, Hawking, Heisenberg, Schrödinger, Dirac, Born, Gödel and a lot of others.

The author has the gift to explain sometimes bizarre considerations in a lively and narrative style. Kaku´s "Parallel Worlds" is therefore an open door into cutting edge physics, maybe a wormhole buy itself. 

 

Economics: How A Perfect Economic Storm Culminated Into The 2008 Crisis

 (Drivebycuriosity) - The financial crisis from 2008 is still in our minds. I am aware that the meltdown was partly caused by the bursting housing bubble that lead to a chain reaction of bank crashes. But I think there is a second reason for the severe recession: The oil price spike from 2007/08 (charts below). 

 

                   The Super Storm Effect
   

I believe both trends, the crashing house market and the oil shock, worked together and merged into a perfect storm. I borrowed the term from the meteorologists: 2 bad weather systems came together and amplified each other. 

I remember the infamous Super Storm Sandy that devastated parts of US East Coast in 2012. A hurricane, coming from the south, merged with a bad weather system coming from north: 

"A storm like Sandy would normally be losing steam as it moved into colder, less energetic waters..however, a trough of low pressure dipping down from the Arctic is feeding the hurricane, actually strengthening its intensity as it moves northward" commented one meteorologists  (livescience).

 

 ( source)

I think something similar happened in the US economy. The American banking system tumbled in a crisis because before 2008 the banks had lend too much money to home buyers, especially financially weak customers (subprime loans). In 2007 & 2008 many debtors got delinquent which caused some of the banks to go bankrupt. 

To make things worse the creditors had sold highly speculative financial instruments which were bound to their subprime loans (mortgage-backed securities and other derivatives). When the housing bubble burst these financial instruments got worthless. 

Unfortunately worldwide many banks had invested too much in these speculative instruments - and were sitting now on worthless investments. So the losses spread all over the globe, which caused a chain reaction of bank bankruptcies. These bankruptcies weakened the general belief in banks (credit comes from the Latin word "credere" meaning believing) and ruined also the trust in financial markets and in the general economy, starting a recession.

 

 ( source)

 

           Unprecedented Oil Price Rally

 

Unfortunately the weakening economy got hit by an unprecedented oil price rally, creating the perfect storm. Around the year 2000 the oil market had ended a 2 decades long period of stability and the price of oil started to climb. The images above show that around 2003 the ascent started to accelerate and the climb of the oil prices got steeper and steeper. From summer 2007 through July 2008 the oil price spiraled from about $50 to $147! 

A study by Prof. James Hamilton (University of California, San Diego) shows that this oil price shock turned the economic slowdown into a severe recession (econbrowser).: "The oil price increase over 2007:H2-2008:H1 should be regarded as a key development that turned the slowdown in growth into a recession" (archives).

Other researchers came to the same results: "Oil prices played a role in eventually bursting the US subprime bubble....In 2003, the average suburban household spent $1,422 a year on gasoline, which rose to $3,196 in 2008 (oilprice). "Rising household energy prices constrained household budgets and increased mortgage delinquency rates" (oilprice). Low income suburban homeowners suffered most from the rising gas prices.  Poor homeowners are called "subprime" and their delinquencies are known as "subprime crisis."

                         Peak Oil Hysteria


Why did the ascent of the oil price accelerate and why did it price spike in 2008 when the US economy already was slowing down?

There were several reasons:


1. The begin of the Iran sanctions in 2006 and the sharpening of the conflict in the following years  - especially the curbing of Iranian oil exports - lead to a sharp rise of oil prices in the years 2007 and 2008  (   youtube).  Speculation on a possible war against Iran - which could disturb oil supply significantly - fanned the oil price spiral further.

2. Some Opec members reduced oil production because of homemade problems. Venezuela cut off oil sales to ExxonMobil during a legal battle over nationalization of the company’s properties there and oil production in Nigeria was shut down thanks to oil worker strikes and terror attacks (rff.org). 

3. Investing in oil became fashionable. Hundreds of hedge funds, specialized commodity funds and others invested into oil in the hope of further rising prices. There was talk about Peak Oil. Many believed that oil production reached its peak and will shrink. 

Speculators bought financial contracts (futures) which are tied to the price of oil - often indirectly indirectly via ETFs & bank certificates which are backed by oil (Financialization). So oil became an asset which is traded on financial markets like stocks, currencies and bonds. 

The financialization process pumped billions of dollars into oil futures and created an additional demand for oil which drove prices upwards. Rising prices allured more speculators who followed just the trend (momentum players) leading to a snow ball effect. And Goldman Sachs called an oil price of $200! (reuters )

In 2008 I worked for a German online service covering financial & commodity news. There was a huge demand for "oil news" because many readers (users) invested in oil. Many believed in the peak oil theory, which claimed that the world will soon run out of oil and its price can only go up. They also set bets on geopolitical risks, the above mentioned Iran an other conflicts, that should make oil even more scarce and expensive. 

And in the first half of 2008 banks like Goldman Sachs recommended to invest in oil as an insurance against falling stock prices! Many speculators followed the advice and their purchases drove the oil price higher - the herding behavior worked as a self-fulfilling prophecy for a while. So losses on the stock market fueled the oil price spiral - till the oil price bubble finally burst.

 

                 Pushing Into The Abyss

And there was another factor which pushed the financial markets even deeper and finally into the abyss. Hedge funds and other speculators made bets on further falling stock & bond prices. These gamblers either shorted vulnerable stocks (they borrowed them and sold immediately in the hope to buy them back for a much lower price) or they purchased put options and similar financial instruments, which move reciprocal to stock or bond prices.  

Massive shorting accelerated the fall of the stocks which intensified the pessimistic sentiment and inspired so more short selling, creating another snowball effect. It worked again as self-fulfilling prophecy.

After the bankruptcy of Lehman Brothers, which brought huge gains for short sellers, groups of short sellers tried to repeat their success. They attacked everyone who seemed vulnerable, especially the banks. Federal Reserve member Richard Fisher (Dallas Fed President) described these groups as " big money" that "does organize itself somewhat like feral hogs. If they detect a weakness or a bad scent, they go after it" ( marketwatch).

The massive bets against banks and many other companies destroyed not just the trust into the attacked firms, these bets destroyed the trust into the whole economy. Bankruptcies and tumbling stock prices seemed to confirm those attacks. Thus the stock market went into a downward spiral which paralyzed the whole economy. 

Companies ceased investing & hiring, the recession was on the brink to turn into a disaster like the great depression of the 1930s. The destruction of trust lead to a spiral of pessimism that almost sucked the whole economy into the vortex of a depression. In spring 2009 massive stimulus programs (QE) and a zero interest policy stopped finally the downward spiral.  
  

The Federal Reserve could have minimized the damage by saving Lehman Brothers and flooding the markets with liquidity latest in Summer 2008 to dampen the destructive herding behavior, but that would be another blog post (driveby  Lehman ).

 

Conclusion: I think that the 2008 crisis was an odd accident caused by an oil shock (Iran conflict, commodity speculation, peak oil theory, herding behavior) in combination with severe bank problems created by the bursting housing bubble and over-investments in highly speculative financial instruments. Something like that could happen again, but I believe that the probability is very low.