‘Gravity’ with Sandra Bullock: In space no one can hear your ship getting smashed up.

Gravity Film Poster
Gravity Film Poster

The film ‘Gravity’, with Sandra Bullock, and George Clooney is a visual masterpiece. Set initially aboard the  space shuttle Explorer, Bullock, Clooney and another astronaut are outside the Hubble telescope  attempting to fix some technical problem, when earth control tells them that a Russian attempt to destroy a defunct satellite has gone wrong, and space debris has been scattered in all directions. The debris soon hits Bullock and Clooney, and the Explorer, killing everyone but them. They have lost communication with earth. Using the booster packs they have on their backs, they get from destroyed craft to the International Space Station, only to find it abandoned. I’m guessing the ISS crew have left due to the space debris problem, but that point didn’t seem one hundred per cent clear from the film.  They then try to get from the ISS to the Russian craft Soyuz, but Clooney becomes entangled in chords, and he has to cut himself loose, sacrificing himself to save Bullock, and leaving Bullock to make it to the Soyuz alone. She has 90 minutes before the space junk completes a full orbit of the earth, and comes back to hit her a second time.

The basic theme of the film is survival during disaster, so the plot resembles the plots of other films and books where people find themselves in earthquakes, forest fires, floods and other natural catastrophes. Bullock is on her first space mission, so she’s a newbie who has to learn and figure out things as she goes along, and because of losing communication with earth, she is thrown onto her own resources.

The photography of the space shuttle and the explorer with earth below it is completely convincing, although I found myself unable to recognise a lot of the bits of earth as views from space. Perhaps my geography isn’t as good as I believed. Large parts of the film take place in silence, since we, as the audience, only hear what the astronauts themselves hear, and collisions of junk in space are, obviously soundless. This adds realism to the film.  A lot of the camera shots are held for a long time, so the film doesn’t suffer from Hollywood’s tendency to give us a new camera angle every two seconds.

I won’t discuss the ending, but I can promise the film is worth the money to see. I intend seeing it a second time before it finishes its run at the local cinema.

So has anybody else seen this film? What did you think? would you pay to see it again?

best wishes – Richard Snow

My novel Fire Damage, an action thriller, is available on Amazon Kindle, here. The novel is based on the Japanese religious cult Aum Shinrikyo, which released Sarin nerve gas in the Tokyo subway system in the 1990s. If you don’t have a Kindle, you can download the app to read it on your computer or phone from here. A paperback version is available here. It’s also available as a Kindle on Amazon UK .  Blog: http://richardsnowwriter.com  twitter: @Richard_A_Snow

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Plain English for non-economists – what happens in a government bond sell off?

 In the last week, the mutual fund which was largest holder of short-term US government debt sold off all their holdings of US government bonds that matured in the next 90 days. So what happens next?

From Wikipedia
From Wikipedia

I need to explain a bit of arithmetic here, but please bear with me. The arithmetic will only take a minute.  A bond is a tradable IOU. Suppose I wanted to sell you an IOU that said I would pay you $100 in a year’s time. If the interest rate were 2 per cent, you’d be prepared to pay $98.04 cents for it. You get this by dividing $100 by 1.02 (1+ the interest rate as a decimal.) Why? Because if you put $98.04 in the bank at 2 per cent, you’d get $100 at the end of the year.  Suppose interest rates were 5 per cent.. you’d pay $95.23 for it. ($100/1.05)  Why? Because if you put $95.23 in the bank for a year at 5 per cent, you’d get $100 at the end of the year. If it were 7 per cent, you’d only pay $93.46 (100/1.07).

Do you see the pattern? As the interest rate goes up, the resale price of a bond goes down. Saying the bond price went down is the same thing as saying the interest rate went up. Investors  are beginning to dump US government IOUs that mature in the next 90 days, because they are afraid the US government won’t be able to pay up on time. Once a few funds begin to do this, others will be forced to follow. Investment markets work as herds. If everybody is dumping something, and you don’t, you get stuck with an asset that’s worth less than what others are holding. So if the price of US government securities fall, interest rates go up. It’s the same thing.

The next problem is how banks price interest rates on loans. They take what they regard as the “risk free interest rate”, and then add margins onto it for riskier loans. For as long as anyone can remember, US banks have regarded US government bonds as the risk free asset.

If there is a default on bond payments, what is the risk free rate? It’s very dangeerous territory, because it only happened before in 1979 (see below) and circumstances were very different then. And what would  financial institutions hold for short-term debt, if they think US bonds are unsafe? British, German or Swiss IOUs? Nobody knows.  Many personal investors have bonds in their pension funds. Many banks need short-term instruments for liquidity. A sell-off could begin to snowball, affecting bonds beyond the 90 day papers that had been sold off so far, reducing the value of other, longer-term bonds. If that happens, a lot of damage will have been done. So know you know. If a solution isn’t found, a lot of people and banks will be deep in doggy-do.

There was one incident, during the  Carter Presidency, where the US was up against its debt ceiling, and while a deal was done at the minute to raise the ceiling, the US Treasury was a late in making interest payments. Not everything was computerized as well back then. Investors knew the payments would be made, because the deal had been struck, but nevertheless, interest rates went up by 0.5 per cent, and didn’t go down again immediately the payments were made. That meant an increase in on-going interest costs and some institutions sued the US govt over the back interest.

I’m reproducing a description here from a website that gives the details of the 1979 incident, but you’d need to scroll down a long way to find these paragraphs, so I’ll reprint them here. The reference is to April 1979, when there was a fight over the debt ceiling, and a deal was made but interest was paid late.

In April of 1979, Congress failed to legislate to reach a deal in time, and the Government hit the debt ceiling. Without the ability to borrow more it had to decide who not to pay. It could ‘close down the government’ and stop paying employees or suppliers, or it could stop paying interest and maturing principal on its debts – Treasury bills, notes and bonds. It chose the latter.

In the 1979 defaults, the US Government didn’t treat all its creditors equally. Most Treasury bills, notes and bonds are held by banks and other financial institutions like insurance companies and pension funds, with a small minority held by individuals. In 1979, the Government chose to repay the main institutional creditors in full, out of fear of triggering a banking crisis, but chose to default on 6,000 individual investors.

On 26 April 1979, the US Treasury defaulted on $41 million of maturing Treasury bills. They were paid 20 days late on Thursday 17 May 1979 after the Government found some money. Then again on 3 May 1979, Treasury defaulted on another $40 million. These were also paid 14 days late. Then again on 10 May 1979, Treasury defaulted on yet another $40 million of maturing T-bills. These were also paid on 17 May.

Treasury refused investors’ demands to reimburse the $325,000 in lost interest on the late days and so investors were forced to sue the US government in a class action (Claire G. Burton v. United States, US District Court, Central District, California, D 79, 1818LTL (Gx)). Unfortunately the Court threw out the investors’ claim by relying on a 1937 Supreme Court ruling that, “interest does not run upon claims against the Government even though there has been a default in the payment of principal”. (Smyth v. United States, 302 U.S. 329, 1937). It came as a shock for Americans to discover that not only had the Government defaulted on its debts, but there was a decades old judicial precedent establishing that it didn’t legally owe interest when it failed to pay on time! When the money market opened on Friday 27 April 1979, the day after the first default, T-bill yields spiked up by 50 basis points  [Note by RS: 50 basis points mean half a percent.] and this default premium on US T-Bills remained even after the default was rectified the next month. This demonstrates that the US Government has indeed defaulted on its debt (at least temporarily), and that US T-bills are not ‘risk-free’, but are prone to a credit default premium in their pricing.  

 Quote from  http://cuffelinks.com.au/us-government-previously-defaulted-risk-free/

So, a delay of about 3 weeks in paying interest on bonds previously caused a rise of half a percent in the government’s borrowing costs. It seems plausible that a longer delay would cause a bigger rise in interest costs. Hopefully we don’t find out the answer to that.

Finally, half a percent might not sound like much. But the US has about $17 trilliion of bonds outstanding. Unless the budget moves back to surplus and the government can start buying it’s own bonds back, each of those bonds has to be replaced by a new one as it falls due. Half a percent of 17 trillion would be about 85 billion in extra interest, spread out over the life of the existing bonds.  it doesn’t hit all at once but that’s a lot of cash.

So, are you affected? Do you hold government bonds in your pension fund or 401k? What do you intend to do? And what do you think about the current situation? Does it bother you?

 

My novel Fire Damage, an action thriller, is available on Amazon Kindle, here. The novel is based on the Japanese religious cult Aum Shinrikyo, which released Sarin nerve gas in the Tokyo subway system in the 1990s. If you don’t have a Kindle, you can download the app to read it on your computer or phone from here. A paperback version is available here. It’s also available as a Kindle on Amazon UK .    twitter: @Richard_A_Snow

Crazywatch Part1: Could Obama be the Antichrist? I’m only half joking :-)

Could Obama be the Antichrist? Obama’s date of birth was 08041961. If you add all the digits in his birth date together you get 1973. if you subtract the last digit of that from the second digit you get 1673. If you subtract the first digit of that from the third digit you get 1663. Now add the last digit to itself and you have 1666. Now the first digit is telling us there’s only one beast, the Antichrist, so we can ignore that because we already know that. So we are left with one person who is 666.

Michele Bachmann: a prophet for out times!
Michele Bachmann: a prophet for our times!

Where did I get this crazy idea? I owe it all to a US Congresswoman. Although I did the calculation myself, I was inspired by Michele Bachmann, who knows we are living in the end times, and that actions of Barack Obama’s are  proof!

So: Will the Fed start printing dollar bills that have serial numbers ending in 666?
What secret building lies at 666 Pennsylvania Avenue? And what secrets can we find hidden in Michele Obama’s date of birth?

I am so grateful for this inspiration, I want Michele Bachmann for Prime Minister of Australia. We need somebody down under to wake us up! Australian politicians are mostly boring. A couple of crazy people would make it much more interesting.

My novel Fire Damage, an action thriller, is available on Amazon Kindle, here. The novel is based on the Japanese religious cult Aum Shinrikyo, which released Sarin nerve gas in the Tokyo subway system in the 1990s. If you don’t have a Kindle, you can download the app to read it on your computer or phone from here. A paperback version is available here. It’s also available as a Kindle on Amazon UK .    twitter: @Richard_A_Snow

 

My vote for the Nobel Peace Prize: the girl who defied the Taliban.

Sometimes there are people who seem to have guts and moral fibre that leave the rest of us behind. 15-year-old Pakistani schoolgirl Malala Yousafzai was shot in the head and neck a year ago by the Taliban, for advocating that girls should be allowed to go to school.

MalalaShe had been writing a blog about life in the Swat Valley, where the Talibs were gradually taking over, forcing girls’ schools to close by threats of violence. Violence was so common that one day, when her younger brother was playing in their front yard, she asked what he was doing. “Digging a grave,” he answered. The Taliban found where Malala went to school, got on her bus and fired. The results became world news. After surgery and rehab in England, she is now (this Wednesday) on the anniversary of the attack talking about her future. She can’t go back to Pakistan yet, but she wants to improve her education, and keep pushing.

She has been nominated for a Nobel Peace Prize. It’s a long shot, since there are over 200 nominees. But I hope she gets it.

Malala reminds me a lot of people who have stood up against injustice, and/or to promote the cause of women. Rosa Parks may not have been shot or lynched  for refusing to go to the back of the bus with the “coloured folk,” in Montgomery, Alabama, in 1955, but she could have been. Protesters in Egypt two years ago risked death in the hope of democracy. Aun Sung Sui Kee endured 20 years of house arrest in Burma for upsetting the military by winning a democratic election.

The world needs more Malalas. The world need more people like you and I to give to charities that are specifically directed to educating girls in third world countries. The world needs people to put their money where their mouth is.

Malala has a book out, the kindle version is here, and there is a paperback in Book Depository.

Best wishes until next week.