Dialectics of History

Discuss the future with a leading technologist, businessman and philosopher

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Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

Dialectics of History

Post by Spiralman »

For several years I've been fortunate to be on the private mailing
list of a leading technologist, philosopher and businessman, with
contacts around the world.

His mailings cover a wide range of topics, including geopolitics,
economics, finance, science, biology, health, energy, information
technology and the Singularity, and he often analyzes these topics
from the point of view of generational theory.

He describes his overall methodology as "Dialectical Historical
Materialism meets Generational Dynamics."

According to the dictionary, "dialectics" is "A method of argument or
exposition that systematically weighs contradictory facts or ideas
with a view to the resolution of their real or apparent
contradictions."

And "materialism" is "The theory that physical matter is the only
reality and that everything, including thought, feeling, mind, and
will, can be explained in terms of matter and physical phenomena."

For several months, I've been trying to coax him to post his mailings
on this forum, or to allow us to repost them.

Finally, he's given us permission to do so under the name
"Spiralman."

We've named this thread "Dialectics of History," covering history,
geopolitics, and current events. As second thread is named
"Dialectics of Science, Health and the Singularity," convering the
remaining topics.

I would like to thank Spiralman for allowing us to repost his
mailings, and also want to thank Matt1989 for volunteering to do the
actual work of editing and reposting the mailings.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.GenerationalDynamics.com/forum

Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

USA Unemployment 14.8% & Wage Deflation & European Industria

Post by Spiralman »

USA Unemployment = 14.8%
http://globaleconomicanalysis.blogspot. ... re-un.html

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Wage Deflation Sets In
http://globaleconomicanalysis.blogspot. ... ts-in.html

European Industrial Orders Plunge 34%, [exceeded forecast]
http://www.bloomberg.com/apps/news?pid= ... fer=europe
Industrial orders in the euro area fell 34 percent from the year-earlier month, the European Union statistics office in Luxembourg said today. The January drop was the biggest since the data series started in 1996 and exceeded the 28 percent decline economists forecast in a Bloomberg News survey. From the prior month, January orders fell 3.4 percent.
......
Industrial production plunged 17 percent in January, the most since the data series began in 1986, and the jobless rate increased to the highest in more than two years. Europe’s manufacturing industry contracted for a 10th straight month in March and job cuts accelerated, data showed this week.

5,000 Workers

Germany’s Heidelberger Druckmaschinen AG, the world’s largest maker of printing presses, said yesterday that it plans to fire 5,000 workers, about a quarter of the workforce, as it lowers costs to counter slumping orders. Heidelberger’s orders in the three months through December fell 42 percent.

Continental AG, Europe’s second-biggest auto-parts manufacturer, said on March 11 it plans to eliminate at least 1,900 jobs over the next 12 months and reduce tire-making in the region because of falling vehicle sales.

The global slump in auto demand poses an “existential threat” to carmakers and component suppliers, Daimler AG Chief Executive Officer Dieter Zetsche said on March 25. Daimler, the world’s second-largest maker of luxury cars, will reduce hours for 68,000 German workers beginning next month to cope with what Zetsche called a “Darwin year” of survival for the industry.
Actual production has fallen by 17% and now orders have fallen by double that, so we can see that the following months production will fall even further. The fact that the drop was bigger than the Bloomberg forecast which was based on interviews with corporate management, shows that they have less and less visibility into the future.

For start up companies in Silicon Valley lack of visibility into the future is commonplace, yet during overall good times, an entrepreneur will still plow ahead. But in bad times and for mature industries, there is no way a businessperson will have any confidence in taking out loans to expand their business.

And for consumers, what type of loonie would increase their debt when they are seeing that increasingly large numbers of their neighbors and co-workers are unemployed?

So all the talk about cleaning up bank balance sheets with Geithner’s Trillions, so that they would be willing to lend is irrelevant. Willing lenders does not mean there are willing borrowers.

This money for moving the toxic assets off of bank balance sheets is money flushed down the toilet.

The only money that should be spent should be for keeping people with food, water, medical care, and shelter as well as for serious investments in systemic profitability enhancement through major reorganizations of industries and buildouts of new infrastructure.
Fixing freeway overpasses in the US adds very little marginal profitability enhancement to global capital, whereas laying down road, rail, and urban mass transit in Latin America, Africa and Asia does.
Adding solar panels and wind turbines to the US, which has plenty of electricity capacity, also adds very little marginal benefit to the world economy yet doing it in the Global South, where rural inhabitants consume 1/200 the amount of electricity of an American and instead have to burn down their forests to boil their water and spend 1/3 of their monthly income on lighting their homes with kerosene, is of immense benefit.

Within the US:
Spending more on healthcare adds little value when the real need is for a program that would increase widespread health literacy and provide free schooling for tens of millions of people to become nurses, doctors, radiologists, etc. so that we can drive down the overall pay that doctors receive.
The electronic medical record idea is very valuable in principal (we’re all tired of having to fill in the same info over and over and forgetting some along the way), but the real issue is privacy. So instead of the government and health providers owning the patient’s health information, the only way this won’t deteriorate into Totalitarian Medicine is if the patients themselves holds their own electronic medical record and can control which information can be shared.

Improving education requires much more than standardized tests for teachers and repainting and adding insulation to schools. It means tying education to the real world, which means breaking down the barriers between the education and work worlds with co-op programs, breaking down the barriers between the rich world and the poor world, and breaking down habits of teaching and learning which are based around individuals competing instead of cooperating to learn things in order to accomplish things.

I could go on but I’ll stop for now. Suffice it to say that the Obama Administration’s programs are so lacking in imagination, so nationalistic in scope, so top down, banker and insurance industry focused and generally individualistic in orientation that they are barely marginal uses of increasingly scarce capital, which is desperately needed for a real revamping of the world’s systems, so that there can be a recovery from the Great Contraction, which has only just begun.


Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

With Eyes Bigger Than Their Wallets, Homebuyers Are Forced t

Post by Spiralman »

http://www.nytimes.com/2009/03/21/your- ... ty.html?em

This article marks the first time in a very long time I have seen in the mainstream media anyone refer to a sustainable % of household debt.
FTA wrote:Several financial advisers recommend reverting to an old standard known as the 28/36 rule. Using that rule, households should spend no more than 28 percent of their gross income on housing costs — including mortgage payments, property taxes and insurance — and less than 36 percent on all debt. The total includes obligations like car payments, student loans, credit cards and medical debt.

There is some debate about whether you should base your calculations on gross income or take-home pay. While some advisers said using gross income was reasonable enough, Mr. Birkofer said he told his clients to apply it to net pay.

“I want people to have more than a house, I want them to have a life, too,” Mr. Birkofer said. “The application of the 28/36 rule can be an eye opener and a ‘go slow’ or ‘reform now’ sign.” The original maxim of a week’s pay for a month’s rent was also based on take-home pay, given that it predates the federal income tax system, which formally started in 1913, said Danilo Pelletiere, research director at the National Low Income Housing Coalition.

Many people are spending much more than that. According to the Census Bureau’s American Community Survey in 2007, the latest available, 38 percent of homeowners with mortgages spend more than 30 percent of their monthly gross income on all housing costs.

And a swath of homeowners was even more thinly stretched. In 2007, nearly 9.17 million homeowners, or about 12 percent of all owners, spent more than half of their gross income on housing costs, according to tabulations of Census data by the Joint Center for Housing Studies of Harvard University.
When interest payments are included (assuming at 5%), this ratio gives rise to the other simple formula that the average price of homes in an area should be only 3X average annual net income.

And you might notice that I underlined “gross income” above. Since the 28/36 ratio or “One Week’s Take Home Pay For One Month’s Rent” applies to Net income not gross income, both the percentages of overleveraged families as well as their degree of overleveraging is “grossly” understated in the paragraphs above.

Rough guess based on above:
In 2007, 50% of homeowners were spending 50% or more of their gross income on housing costs.


With lots of foreclosures and refinancings at lower interest rates that percentage of grossly overleveraged homeowners could be down to 25%, but on the other hand, layoffs - actual or potential – could easily bump that % back up to 50% or more.

Why do I include potential layoffs? Because the more shaky someone’s job is the more they should be saving in order to survive until they can find their next job. While this doesn’t change their actual net income and actual mortgage payment, it does increase their need to save which theoretically takes away from sustainable levels of debt, since sustainability has to not only include stable employment, but preparation for turbulence.

Given how much of the American economy is a derivative of the Finance, Insurance and Real Estate or Auto sectors, a high % of people’s jobs are at risk. So even a normally sustainable debt load doesn’t take into account the more acute need in turbulent times for higher savings right now, which then reduces the level of debt that is truly sustainable.

And should we include the fact that people not even in jobs derivative of the FIRE or Auto sectors have lost huge amounts of their savings and pensions, and are now likely to lose many levels and aspects of government-provided safety nets as the Municipal and State Governments collapse from lower property and sales tax revenue and the Federal Government’s deficit taken on to bolster the bank’s balance sheets in order to keep them privately owned, but under the theoretical, but false notion, that that is sufficient to spur lending/borrowing during times of debt deflation?

If we include the above facts that not only have people diminished their savings and pensions in the stock and bond markets but that the impending slashing of Social Security and Medicare in favor of the Bush/Paulsen/Obama/Geithner deficit taken on for keeping the biggest banks private, then I think it is fair to say that more than 50% of homeowners are grossly overleveraged.

Whether this is passed along as imminent foreclosures or as radically reduced spending which then drives further unemployment, which then leads to deferred waves of foreclosures doesn’t change the downward direction of things, but only makes the shape of the curve look more like a staircase to hell instead of a straight line.

Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

California Association of Realtors (CAR) March 2009 Analysis

Post by Spiralman »

California Association of Realtors (CAR) March 2009 Analysis: Already -59% over 21 months

http://globaleconomicanalysis.blogspot. ... s-car.html

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This is just the first half.
The next leg of this will really hurt.
As you look at those peak prices, just quietly calculate what the median household takehome income probably was for each area, and it becomes apparent that all of these homes were priced about 10X compared to what should be 3X median take home income.

So, if the peak was $600,000, you could say that it should drop to $180,000, ie –70% (-$420,000) from peak, so that the ratio of 3 is reached.

However, that still will not be the bottom.

1. people are losing their jobs and having their wages reduced
2. real estate and other taxes are rising to make up for government shortfalls from falling home prices and slower consumer spending
3. people are becoming more cautious and less willing to stay in debt on underwater mortgages, and even refinancings will eventually stop when rent prices drop as more people subdivide their properties to rent them out to make the mortgages or previous separate renters move in together or with other friends and family who own their homes to consolidate their costs


#1 leads to a lower denominator of house price / median takehome income
#2 leads to a lower denominator of house price / median takehome income

#3 leads to a lower tolerable ratio overall.

If let’s say median household takehome income was based on 1 1/2 people working and bringing in $50K post-taxes, seems safe to assume that could drop by 20%, to say $40K with job losses, wage reductions and tax increases.

If the ratio stayed at 3, then the median home price would drop to $120,000

But if the ratio dropped to 2 out of overall diminished confidence in future earning power or collapse in value of savings and pensions or just a cascading walkaway from underwater mortgages, then the bottom looks like $80,000.

If the ratio dropped to 1.5 then bottom is $60,000.

So, those who don’t own, but who think they still will have enough of their savings left in 3 years, can rejoice that they can buy a house that used to cost $600,000 for $60,000. Those who are wealthy and already own their home, can dollar-cost-average by buying up more properties.

Those who rent can be happy that their rents can probably be renegotiated downwards.

But everyone will be quite uneasy knowing that this collapse in asset values will translate into lower economic activity and therefore less job opportunities, higher pressure at work for those still employed and at lower wages, reduction in government safety nets and services, greater domestic discord, rising substance abuse, but with cheaper substances, etc.

Bottomline is that we’re still far from the bottom.
In fact as a % of the value remaining, we still have another 75% to fall.

Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

Munchau: Banks Sinking Faster Than Governments Are Bailing T

Post by Spiralman »

http://www.nakedcapitalism.com/2009/03/ ... -than.html

Almost all assets become “toxic” in an overproduction crisis.
Every piece of real estate that had a mortgage that was being paid will ultimately be “underwater.”
This is inevitable. When I noted a month or so ago that 19 million homes were vacant in the US, that was perhaps the simplest demonstration of an overproduction crisis so massive that either allowing mass immigration into the US, trucking them off to Latin America, turning them into homeless shelters or bulldozing the homes are the only real options to avoid a continuing collapse in housing prices.

And the same is true for the tens, if not hundreds, of millions of square footage of commercial and industrial real estate.

This same dynamic is present not just in the US, but Canada too, Europe, Japan, China, India.

The banks, and the governments who love them, will be dragged down by the weight of this massive excess of speculatively located and specialized square footage under roof relative to current prices and thus, either the profitable business opportunities or the disposable income of potential mortgage payers.

As home prices and rents plummet, properties bought longer and longer ago will become ‘toxic,’ and owners will be increasingly tempted to walk away adding their properties to the pile of foreclosures and further driving down prices.

I have previously offered what many might think is just some bizzarro, futuristic wishful thinking set of proposals for how to make productive usage of this real estate if folks don’t like my other suggestions above of allowing mass immigration, trucking them off to where they are needed, giving away free usage to the homeless or bulldozing them:

A) Convert vacant real estate into community health, recreation, counseling facilities. Placing healthcare professionals into every neighborhood would be a far more efficient way of delivering preventative healthcare information and primary healthcare diagnosis and emergency response. Considering that hospitals themselves have become major incubators of infectious disease where going there with one problem could likely result in acquiring a new one, maybe a decentralized approach would be more effective. Already we have a growing industry of home-care workers and their standard operating procedures and toolkits have been developed precisely to handle an extreme form of decentralization. Maybe enabling them to have more base areas in every neighborhood could be helpful for them

B) Convert vacant commercial or residential real estate in urban or suburban areas, such as shopping malls and high rise office building and condos into Urban Greenhouses. The nutritional and energy reduction advantages of providing food adjacent to where people live is very high. Indoor agriculture consumes a small fraction of the amount of freshwater used by outdoor agriculture. Depending upon the crop the savings can be anywhere from 80% to 95%. Since indoor agro is protected from the environment, the losses from bad weather, birds, insects, and rodents are minimized, and the need for chemicals to fight off insects and weeds is dramatically reduced.

These are all approaches that could be implemented in any of the countries of the world currently affected by the financial impact of Mortgage Mania.

Any of them would convert these ‘toxic’ assets into something very useful for (non)working people.

It already has been such a gigantic squandering of the surplus value created by the world’s labor and savings to build so many of these structures for purposes of financial speculation. At least, let’s try to salvage some of the world’s investment of labor, materials and money to make the most of these structures.

The Bonfire of the Properties will continue anyways until the prices of the assets reach their bottoms, which will be substantially below the historic trendline and stay there for awhile.

Might as well make the most of that.

Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

Russia backs return to Gold Standard to solve financial cris

Post by Spiralman »

Russia backs return to Gold Standard to solve financial crisis - Ambrose Evans-Pritchard

http://www.telegraph.co.uk/finance/fina ... risis.html
Arkady Dvorkevich, the Kremlin's chief economic adviser, said Russia would favour the inclusion of gold bullion in the basket-weighting of a new world currency based on Special Drawing Rights issued by the International Monetary Fund.

Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week, although the world may not yet be ready for such a radical proposal.

Mr Dvorkevich said it was "logical" that the new currency should include the rouble and the yuan, adding that "we could also think about more effective use of gold in this system".

The Gold Standard was the anchor of world finance in the 19th Century but began breaking down during the First World War as governments engaged in unprecedented spending. It collapsed in the 1930s when the British Empire, the US, and France all abandoned their parities.

It was revived as part of fixed dollar system until US inflation caused by the Vietnam War and "Great Society" social spending forced President Richard Nixon to close the gold window in 1971.

The world's fiat paper currencies have lacked any external anchor ever since. It is widely argued that the financial excesses and extreme debt leverage of the last quarter century would have been impossible - or less likely - under the discipline of gold.

Russia is a major gold producer with large untapped reserves of ore so it has a clear interest in promoting the idea. The Kremlin has already instructed the central bank of gradually raise the gold share of foreign reserves to 10pc.

China's government has floated a variant of this idea, suggesting a currency based on 30 commodities along the lines of the "Bancor" proposed by John Maynard Keynes in 1944.
The video at the link is actually better than the article. Not particularly deep if you are following this gold-currency stuff heavily, but a useful bit for the newbie.

Whether the fundamentals make sense as those fearing inflation argue is immaterial.
Fear will drive some money into Gold just as it will continue to drive money fleeing stocks into the USD.
While hedgefunds and some governments sell off their gold which has appreciated heavily if they bought it far enough back, in order to cover their losses on their other assets, and this pushes Gold downwards, the government interventions have triggered panics into Gold purchases which drive the prices back up.
The two forces seem to be overall in approximate equilibrium right now over multimonth periods.

You can track gold prices here and formulate your own theories about why it is moving in a particular direction and when:
http://www.kitco.com/charts/livegold.html

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Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

Geithner's Plan Can Succeed & Barack Obama as Herbert Hoover

Post by Spiralman »

Geithner's Plan Can Succeed & Barack Obama as Herbert Hoover

http://globaleconomicanalysis.blogspot. ... cceed.html

Wicked sense of humor in the title.

There’s also a great explanatory video showing how the big banks and/or bondholders, ie Bill Gross at Pimco ad Blackstone group, can loan money to dummie buyers who then clean the banks’ balance sheets, remove the risk of a bond default and take the minor loss, while putting the major losses onto your children and destroying any social safety nets.
The current plan is only $1T, but this will have to expand to several $T’s to fully cleanse the bank balance sheets.

And the real punchline is that even with those clean balance sheets, no one is going to borrow and no one is going to lend since the overproduction crisis does not magically go away through these accounting shenanigans, there still are the same amounts of square footage of unaffordable and unsustably leveraged real estate, and unaffordable/unsustainably indebted assets and assetholders of all types, and therefore there still are no profitable investment opportunities and workers will continue to lose their jobs and be scared ever more shitless.

Barack Obama as Herbert Hoover
http://www.nakedcapitalism.com/2009/03/ ... oover.html
Let's look back at the Depression for a second. Now, if you recall, Herbert Hoover became president in March 1929 when signs of a slowing economy were evident. By August 1929 recession hit.

This recession turned into the Great Depression, with the economy hitting bottom in March 1933. So, the entire recession we remember as being the depths of the Great Depression occurred while Herbert Hoover was President, not during FDR's presidency.
I love these relatively longer-term historical perspectives!
This is the first one I’ve seen that covers the length of the crisis from 1857 – 1879.
Sobering to realize that even after the bloody US Civil War, the Franco-Prussian War, the Taiping Rebellion in China, the Sepoy Mutiny in India, Italian Unification, German Unification, Meiji Restoration in Japan, that there still was a Depression.

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Here are some other longterm perspectives:
This one is not up to date, but you can see what the early 20th century past looks like, especially market bottoms like 1921, 1931 and 1982, when SP500 PE-ratio was 5 - 8

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Last Friday’s S&P500 PE ratio was 27!

So, if bottom ratio looks like 1982, then 8/27 = 0.29 X 7,500 (DOW) = 2,175
If bottom ratio looks like 1921 or 1931, the 5/27 = 0.185 X 7,500 = 1,388

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Anything short of these numbers will probably mean we haven’t reached bottom yet and are just at a plateau of in a sucker’s rally.

The same thing for housing.
When prices reach bottom, you will recognize it because they will be 90% below what they were at peak.
And more importantly, everyone will have given up all hope of a speculation-based recovery.
That is when true bottom has been reached.

Until then, those with extra cash and gambling hope on making a quick buck will fuel another temporary bump which will just disappoint again later, although maybe at some point they will recover their investment.

You will recognize a generalized recovery’s commencement as when people are investing with an expectation of only making money over a much longer period.

Until then, there certainly will be fantastic investment opportunities in various industrial sectors, but these will not be part of a general economic recovery story, and have to be analyzed more carefully to see if further economic riptides will erode the opportunity. In some cases, the opportunity may be precisely because things are getting bad along most other dimensions, or there is an opportunity to be part of a state-capitalist campaign to strip wealth away from another sector, ie Carbon taxation and ‘green’ stuff generally.

Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

Financing the Empire by Michael Hudson

Post by Spiralman »

Financing the Empire
By MICHAEL HUDSON
http://www.counterpunch.com/hudson03302009.html
The U.S. media are silent about the most important topic policy makers are discussing here (and I suspect in Asia too): how to protect their countries from three inter-related dynamics:

(1) the surplus dollars pouring into the rest of the world for yet further financial speculation and corporate takeovers;

(2) the fact that central banks are obliged to recycle these dollar inflows to buy U.S. Treasury bonds to finance the federal U.S. budget deficit; and most important (but most suppressed in the U.S. media,

(3) the military character of the U.S. payments deficit and the domestic federal budget deficit.

Strange as it may seem – and irrational as it would be in a more logical system of world diplomacy – the “dollar glut” is what finances America’s global military build-up. It forces foreign central banks to bear the costs of America’s expanding military empire – effective “taxation without representation.” Keeping international reserves in “dollars” means recycling their dollar inflows to buy U.S. Treasury bills – U.S. government debt issued largely to finance the military.
This is a very important article and worth reading more than once, as it addresses why there is an increasing outcry against the USD around the world. And why it is ultimately an outcry against the US Government controlling the US Dollar and using this otherwise broadly useful mechanism of having World Money instead as a military weapon against all other countries.

It also simultaneously implicitly addresses why it will be the Obama Administration that invokes such an intense level of frustration, higher even than that of Bush, in the rest of the world.

When Obama was coronated as the President I noted that his transnational/biracial background was a source of inspiration for billions of people around the world who saw in him a potential President of the World, but that in end they would be bitterly disappointed because, at best, he would represent only US imperial interests since he was not elected by the world’s population.

The US Dollar and the US President both represent an abstract necessity for a world system, and both are simultaneously destined to be the target of contention for real formal control by the whole world versus the US as sovereign power.

The world more and more appears to the rest of the world as if it were a single Kingdom where every province (ie country) is becoming more similar to one another and ruled by a distant and decadent aristocracy (upper and lower, ie banksters and US middle class) that uses taxes collected by the local landlords (ie, nat’l gov’ts) and vassal bourgeoisie (ie. Export oriented capitalists) from the local peasants and artisans in order to quarter troops and invasive economic overseers (eg. IMF and NGOs) in their own towns and villages.

This implies that the world as whole, is looking more and more as if it were 18th Century France, and America as a whole is the French monarchy on the eve of 1789.

Spiralman
Posts: 107
Joined: Wed Mar 25, 2009 5:07 pm

The Quiet Coup by Simon Johnson, former chief economist of I

Post by Spiralman »

http://www.theatlantic.com/doc/print/200905/imf-advice
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time
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