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Tuesday, February 9, 2010

The High Cost Of The U.S. Budget

David Malpass and Eric Singer, 02.08.10, 03:10 PM EST

Remember the ending of ''Thelma and Louise''? This is worse.

Early last week the administration unveiled its new $3.8 trillion budget. This budget, and the spending it assumes, is so reckless it is difficult to fathom. It projects a deficit of $1.6 trillion for fiscal 2010, with an explosion of publicly traded government debt to $18.5 trillion by 2020. Debt service is projected to reach $912 billion a year by 2020, or over $5,000 for every working person in America.

Even assuming that wages grow over time, the budget suggests the government believes that as U.S. citizens we should devote 10% or more of our grossincome just to pay the interest on the federal debt. That 10% comes out of income even before people start paying for actual government programs like national defense, health care, bank rescues and welfare. Nor does it count the spending people need to make for state and local government obligations and their own mortgage and credit card payments.

The administration clearly believes that we can spend our way out of a slow economy and has put us on a path to have total government spending over 40% of GDP. This is Disneyland thinking. While it is true that we can spend our way into a depression, there is little evidence we can spend our way out. It didn't work last year, when we allocated $ 787 billion in stimulus spending on the threat that unemployment would go over 8% otherwise. (It is now at 9.7%--16.5% if you count the underemployed and those who are too discouraged to look for work.) Excess spending didn't work for President George W. Bush. It didn't work for Presidents Roosevelt or Obama.

When the government spends $3.8 trillion, there is no net multiplier effect. There is a divider effect. We become divided from our income and wealth. The government taxes inefficiently and spends inefficiently, wasting a big chunk of the transfer. Yes, it is possible for purposes of a speech anecdote to find isolated beneficiaries. The government will soon be able to claim massive "job gains" for temporary workers for the 2010 census. But much government spending misallocates resources--it's distributed without a profit motive and with frequent conflicts of interest, including an eye toward political returns rather than longer-term growth and private sector jobs.

Markets are waking up to the fiscal crisis. The price of a credit default swap for a five-year U.S. Treasury has gone up 700% since 2007, from about 8 basis points to 56 basis points. Germany, at 40 basis points, is now deemed by the market to be 28% less likely to default than the U.S., and the difference is growing. More ominously, the U.S. swap has more than doubled in price in the last few months. As recently as 16 months ago Greece was at levels we are today. When a country goes past owing 100% of its nominal GDP in publicly held debt, as this budget schedules us to do by 2020, there is danger.

Given our politicians' willful innumeracy, perhaps the best way to understand what the budget does for us is to compare it with the movie Thelma and Louise. For those who never saw it, Thelma and Louise was a film about two women on a supposedly liberating road trip. Toward the end, running out of money, they rob a convenience store and blow up a gasoline truck for fun. FBI agents close in on them, and they decide to drive their car off a cliff. In a Hollywood ending they are shown with a look of joyous freedom while they are in free fall.

Like Thelma and Louise, we are spending beyond our means, and at some point the bond vigilantes will close in. With this budget we almost guarantee that the United States AAA debt rating will at some point be called into question. If and when it is, the result will resemble the downward arc of that terrific 1966 Pontiac Thunderbird. In real life, at the end, when you go off a cliff at 100 miles an hour, gravity takes hold, and there is a fiery crash.

David Malpass is an economist and president of Encima Global LLC. He writes a column for Forbes. Eric Singer is the president and portfolio manager of the Congressional Effect Fund (CEFFX).

Monday, February 8, 2010

IBM Unveils Power7 Systems, Ramps Up Competition Against HP, Sun

IBM is rolling out the first of its Power7 systems as it looks to grab more market share in the $14 billion Unix server space from HP and Sun. The move comes as HP and Intel prepare to release the next-generation Itanium processor and Oracle looks to bring Sun into the fold.

IBM is rolling out the first systems based on its new Power7 processors, setting the stage for a new round of competition in the rapidly changing high-end server space.

IBM will officially unveil the four new Power7 systems at an event Feb. 8 in New York. At about the same time, at a press conference in San Francisco that also will be Webcast, officials with Intel and Hewlett-Packard are expected to officially release “Tukwila,” the much-delayed next-generation version of the Itanium processor.

All that comes as Oracle works to incorporate Sun Microsystems’ SPARC/Solaris hardware line into its business, and Intel and Advanced Micro Devices look to grab more high-end workloads with their x86 processors.

“We’re seeing three very big vendors … sharpening their elbows a bit,” Charles King, an analyst with Pund-IT Research, said in an interview.

IBM officials are looking to press their advantage, having gained 12 points of market share in the $14 billion Unix space since 2005 and more than 2,200 HP and Sun server and storage customers over the same time span.

“We view the Unix market as very, very robust and mission-critical, and with [the Power7] platform, we have a perfect spot in the market,” Scott Handy, vice president of worldwide marketing and strategy for IBM’s Power systems platform, said in an interview.

With the new Power7 systems, IBM is offering greater performance while consuming less energy than their predecessors, according to Handy. The servers also dovetail with IBM’s Smarter Planet initiative, with capabilities to not only process large amounts of data, but also to analyze that data at the same time.

According to IBM, the Power7 servers deliver twice the performance and four times the virtualization capabilities for the same price as the Power6 servers, all the while consuming half the energy.

They also offer better price for performance than comparable systems from Sun and HP.

The new Power7 chips bring greater performance than the Power6 processors. Power7 offers up to eight cores, with each core able to run up to four instruction threads, enabling each chip to run 32 simultaneous tasks. That includes four times the number of cores and eight times the number of threads per chip than in Power6.

However, the new servers come with more than just new chips, Handy said. There are a host of new integrated hardware and software features designed to increase performance and energy efficiency, Handy said.

TurboCore mode is a workload optimization feature that can have four cores running, and putting the resources—include cache memory and memory bandwidth—of the other four dormant cores before those active ones. It also can increase the clock speed of those four active cores.

Not all systems will support TurboCore mode. Among the four new servers, only the Power 780, designed for such high-end transaction workloads as databases, will support TurboCore.

When not in TurboCore, all the Power7 systems are in MaxCore mode, which takes advantage of its increase in thread count.

The chips also feature Intelligent Threads, a technology that can dynamically change the number of threads being run depending on the type of workloads.

Another Power7 feature, dubbed Active Memory Expansion, uses memory compression technology to make the physical memory appear to be twice as large as it actually is, and can dynamically change the amount of compressed memory based on workload demands.

In addition, IBM engineers have optimized the company’s middleware—including WebSphere, DB2 pureScale, Lotus Domino and Rational—to take advantage of the new capabilities in the Power7 systems.

Regarding virtualization, Power7 systems can support 1,000 virtual machines on a single physical server, four times as many as Power6 servers can support.

“They can put lots of virtual images on these machines and really consolidate the number of servers,” Handy said.

In addition, IBM’s Intelligent Energy technology lets customers power on and off parts of the system, or ramp up or down processor speed based on thermal conditions and system utilization, he said. Intelligent Energy can be run on a single server or across multiple systems. The goal is to help users balance the competing needs of energy consumption, performance and utilization.

The gains in performance and energy efficiency enable IT administrators to do the same amount of work on fewer systems, or to do much more work on the same number of servers, Handy said.

Along with the Power 780, IBM is rolling out the Power 770, a midrange server with up to 64 cores; the Power 755, a high-performance cluster with 32 cores; and the Power 750 Express, a midmarket offering.

IBM also is enhancing its Systems Director Express, Standard and Enterprise editions to make management easier and to bolster virtualization capabilities through enhancements to VMControl.

Power7 - Big Blue eye on UNIX Four server preemptive launch

By Timothy Prickett Morgan • Get more from this author

The scuttlebutt is that IBM seemed perfectly content to wait until May to launch the Power7-based Power Systems servers, but something changed and compelled the company to move up the announcement of its first machines using the eight-core processor to today. Big Blue is not in a habit of explaining its motives or its timing for product launches, but it seems clear that IBM wanted to get out in front of a whole lot of processor and systems launches that are expected between now and the summer.

With so many customers expecting Power7-based machines, it wasn't like IBM was going to have stellar sales of existing Power Systems machines, which run the AIX, Linux, or i/OS operating systems and which are based on the Power6 and Power6+ processors.

The machines announced today are clearly aimed at blunting the attack of midrange X64, Itanium, and Sparc servers as well as some bigger boxes that are going to start creeping up into the power class of the current top-end Power6-based Power 595 machine, which packs 64 cores running at 5 GHz into a single system image. IBM is especially focused on the Unix part of the Power Systems business, where it has generated $1.6bn in revenues in takeouts of Hewlett-Packard and Sun Microsystems boxes in the past three years.

Scott Handy, vice president of worldwide strategy and marketing for the Power Systems division at IBM, says that Sun and HP are each bringing in about $4bn a year in Unix systems sales, with Big Blue getting the lion's share of what is left over of the $14bn Unix market.

"We have 40 per cent share, but this is still a tremendous opportunity here," says Handy. "We are taking Unix to a new leve." And by Unix, IBM apparently means both AIX and i/OS, which share the scalability, reliability, and energy-efficiency attributes of a system designed to support mission-critical workloads.

"We want to position Power as the future of Unix. HP and Sun haven't caught up to Power6, and we will trounce them with Power7. The best marketing executive in the world cannot position Tukwila against Nehalem-EX, which does not support HP-UX," Handy says with a laugh, talking about the four-core Itanium chip that Intel will announce today and the eight-core Xeon chip due sometime in the first half of this year. "HP-UX customers are going to be just as distraught in 2010 as Sun customers were in 2009."

Neither HP nor Oracle, the new owner of the Sun Solaris server business, seem to think there is as much blood in the water as Big Blue thinks it smells. But clearly there is going to be some fierce competition in the server racket this year, particularly with so many projects delayed since the summer of 2008, leaving servers in need of capacity upgrades, and budgets under continuing pressure.

The blood may have more to do with red ink associated with steep discounting than technical superiority when all is said and done in 2010. Which would make it look a lot like 2002 and 2003 - truly awful years for Sun, so-so for the then-merged HP/Compaq, and great ones for IBM's Unix biz.

Contrary to the rumors from last week, IBM did not launch the Power7 line with a kicker to the current Power 520 entry server. (More than a few readers told me this in private; perhaps they all heard the same wrong information). What IBM is rolling out today are four machines in the midrange and enterprise class, which leave entry and blade servers as well as big iron boxes to come out later in 2010.

Handy would not be specific about exactly what these machines would look like, but after some arm twisting he said that customers with current Power 520s (presumably using Power6 and Power6+ chips) will have an upgrade path to the future Power7-based entry machines (presumably to be called the Power 720 to be consistent with the names chosen for the four machines launched today).

Handy also confirmed that the kicker to the high-end Power 595 would have the same 32 sockets, presumably to be called the Power 795, and added that it would cram 256 cores into the same thermal envelope that a Power6-based machine with 64 cores had.

The mount

Like the prior generations of Power-based machines from IBM, the CPUs are mounted on processor cards that mount vertically into the system motherboards. Each processor card has sockets for the Power processors and slots for the main memory. I/O subsystems and external peripherals plug into the system board, which links out to the processor card through a backplane. (Generally speaking, this is the same sort of design that is expected with Intel's future "Becton" Nehalem-EX Xeon processors for multiprocessor SMP machines).

Like IBM's high-end System x servers, which can scale outside of the box using NUMA-like clustering (thanks to some technology Big Blue got when it bought Sequent Computer Systems in July 1999 for $180m). Up to four Power server nodes can be linked into a single system image for AIX, i/OS, or Linux using this interconnect. This interconnect is not available on every machine, and customers pay a premium for the scalability that comes from this interconnect.

The first new machine in the Power7 family of systems is the Power 750, which is the follow-on to the midrange Power 550 that was based on the Power5 and Power6 generations of chips. The Power 750 comes in the workhorse 4U chassis that IBM has had since 2004, but it has been modified to allow for up to eight front-mounted, small form factor disk or SSD drives. That 4U chassis can be configured as a rack or tower server and has room for up to four processor cards, each with 16 DDR3 main memory slots and each with a single processor socket.

This box has the widest variety of Power7 processor options among all of the machines announced thus far. One option has six-core Power7s running at 3.3 GHz, another uses eight-core processor cards that run at 3 GHz or 3.3 GHz. There is a top-end machine that only comes with four processor cards with all 32 cores turned on and running at 3.55 GHz. There seems little doubt that this box will carry the heftiest price.

The Power 750 offers from 8 GB to 512 GB of main memory expansion, with a maximum of 128 GB per processor card using 8 GB DDR3 DIMMs. The box has three PCI-Express and two PCI-X slots peripheral slots and a single GX+ adapter slot, which is used to hook remote I/O drawers (based on a modified InfiniBand link that IBM calls 12X) or graphics cards into the machine. The Power 750 can have four 12X I/O drawers using PCI-Express slots or twice as many using PCI-X drawers. With all of the I/O drawers in the box, the Power 750 can have 584 disk or SSD drives directly attached to it.

The Power 755 is a version of the Power 750 server that is tweaked specifically for supercomputing workloads (and maybe for parallel database clusters running IBM's DB2 PureScale software, but the company has not said). The Power 755 only comes with the four processor cards in the box loaded with 3.3 GHz cores and all 32 cores are activated. This machine can only have 64 GB of memory per processor card, however, which means memory tops out at 256 GB. Other than that and the fact that this machine only supports AIX and Linux, it looks just like a Power 750.

The 770 and the 780

The Power 770 is a version of the Power 750 chassis that has two disk bays removed and the NUMA/SMP clustering bus added in. The Power 770 server node also has two GX++ slots per node, which means it can support a lot more 12X I/O drawers and therefore a lot more peripherals. Each Power 770 server node can have six disks or SSDs and has six PCI-Express slots. With the maximum of 16 12X-based I/O drawers, the machine can support 184 PCI-Express slots across four server nodes and 1,320 disk or SSD drives.

The Power 770 nodes have two flavors of processor cards: one using six-core Power7s running at 3.5 GHz (with 12, 24, 36, or 48 cores activated) and another using eight-core Power7s running at 3.1 GHz (with 16, 32, 48, and 64 cores activated). Main memory on the machine spans from 32 GB to 2 TB. To get memory capacity up to 1 TB means dropping the memory speed from 1.33 GHz down to 1 GHz, and going up to 2 TB means dropping down to 800 MHz. For some workloads, the lower speed of the memory will negate the extra capacity benefits.

The Power 780 is essentially the same machine as the Power 770 with three changes. First, it uses processor cards that have two sockets per card instead of one, which means it has double the processor cores. (However, the memory slots stay the same at 16 per processor card and the maximum main stays at the same 32 GB to 2 TB range per machine).

The second change is that it comes in the same enterprise-class, green-striped chassis that the Power 595 and System z mainframes have. (It has the skin of a mainframe, but the guts of a NUMA cluster with an architecture that IBM has been developing for a decade and selling for six years.) The other big change is the machine only has one set of processor cards, but they have two operational modes. In MaxCore mode, as IBM calls it, each node in the Power 780 cluster has four processor cards for between 16 and 64 cores running at 3.8 GHz, depending on if you buy one to four nodes.

If you happen to have a workload, like an OLTP system, that would do better having fewer cores running at a higher speed, you flip a switch in the microcode, reboot the system, and when it starts up you run in TurboCore mode. In this mode, the cores run at 4.1 GHz, but only half of them turn on. Those remaining cores in the system have access to both memory controllers on the Power7 chips and its full 32 MB of embedded DRAM L3 cache memory. For database workloads, TurboCore mode can boost performance by 20 per cent over MaxCore mode on the same physical machine.

IBM is not publishing pricing information on the machines yet, but Handy says that the memory price cuts that IBM made on Power6 and Power6+ systems back in November, where it cut DDR2 memory tags by between 28 and 70 per cent, were in fact setting the prices on older memory to the same level as IBM expected to charge for DDR3 memory on the Power7-based servers.

As for the systems themselves, IBM's plan is to hold prices roughly the same as the prior Power6 and Power6+ systems and give customers the extra performance. "This is very aggressive price/performance for us, and we are striking while the iron is hot," Handy says.

All of the Power7 machines announced today can support the current AIX 6.1 release as well as the earlier AIX 5.3 release. Customers using i/OS are going to have to move up to the i 6.1.1 interim release that was announced last quarter, and to fully exploit the Power7 feature set, they will have to wait to see i 7.1 later this year. (The word on the street is that i 7.1 will be available in the third week of April, but IBM did not confirm this).

Red Hat Enterprise Linux is not supported on these Power7 machines, which is a bit odd, but apparently IBM and Red Hat are working on it. Novell's SUSE Linux Enterprise Server 10 SP3 and 11 will run on the machines today. IBM plans to start shipping the Power 750 and 755 servers on February 19, The larger Power 770 and 780 machines will ship on March 16. ®