Saturday, December 15, 2018

Trump, Is He Guilty And Does America Really Care?

Trump Was A Womanizer But does America Care
If his enemies can't get Trump on this, they will go after him on that. After month after month of back and forth, the question remains in the minds of many Americans as to whether President Trump had a closer relationship with Russia at any point prior to his election than he leads on. This runs directly up against the question of how much it really matters and whether America really cares? With respect for the media, politicians, institutions like the FBI and CIA in the cellar, we are left wondering who to trust but one thing is becoming clearer by the day that all of this is getting long in the tooth.

Now with what we call, new statements and "allegations" of misdoings on another more personal front having to do with Trump's sexual adventures we enter new territory. We can expect the current Washington sideshow to continue unabated with the mainstream media keeping us a "breast" of every salacious detail and even providing us with eye-candy suggestive photos of all lewd, crude, and improper conduct our current Pervert and Chief may have touched on. With everyone all a tither with speculation, the lobbyist should have plenty of time to go about their task of writing legislation which will give those they represent an edge. As for those who sent to Washington at great expense to the taxpayer they should just consider this as another excuse to add to America's dysfunctional political culture.

Circling back around as to how we got here, A big part of the problem is that Hilary Clinton the Democratic presidential candidate that ran against Trump is such a tarnished figure many Americans were left feeling they were forced to chose between the least of two evils. Still, for the lovers of gridlock, all this will go a long way towards allowing Washington not to concentrate on important legislation and reforms or trimming our soaring national deficit. It is a bit reminiscent of the saying, "A bad day fishing is better than a good day working" and guarantees we will see more of the same political grandstanding rather than politicians focusing on crucial issues of the day.

For those unable to meteorically pin the tail on the donkey or in this case, pin guilt on Trump, a man which ironically they also consider an ass, the game has shifted back to crimes of lust and payoffs. With Trump's attorney Michael Cohen now facing three years in prison and the parent company of the National Enquirer, American Media Inc. (AMI), admitting responsibility for its role in a $150,000 "catch-and-kill" hush money payment to a former Playboy Playmate, Karen McDougal, who alleged that she had an affair with Donald Trump in 2006. Under a non-prosecution agreement, AMI admitted that it refused to publish Karen McDougal's claim to prevent it from influencing the election by damaging Trump.

These may or may not be crimes significant enough to merit Trump's ouster unless expanded into the world of technicalities and lies but they have driven the President's enemies into a feeding frenzy. This is a place where who knew what, when, or who said what often rule the day. Again, this brings us back to the question of whether Trump is guilty and does America really care? Then we get to the matter of what is "impeachable behavior" and if those in Washington should begin to move in that direction. The standard for removal from office on impeachment is seen as the conviction of, treason, bribery, or other high crimes and misdemeanors. The truth is even if Trump is cast out of Washington little will changa and our problems will remain.

As far as lies, and lying to the people, neither political party should want to go there. America is not alone when it comes to its rich history of politicians bending the truth whether it is in broken pledges or outright deceit. It is almost as if honesty is in the eye of the beholder and this is where terms like alternative facts come to mind. Two things for sure are that this contentious debate continues to stir the waters and polarize the nation while creating some rather strange alliances. Currently, a full-scale propaganda war rages with many Americans hellbent on convincing the rest of us what is really going on. Just as in the case of Russia's meddling in the election or if Trump colluded with the Russians, by now most people seem to have made up their mind as to whether they are either outraged, simply concerned or take the attitude this is all a big nothing burger or much ado about nothing.

Thursday, December 13, 2018

China's Human Rights Abuse Ignored - Conformity Rules

China Views Uighurs In Western As A Problem
Americans tend to overlook how China treats citizens that do not make an effort to march in step. The U.S. government assesses that since April 2017, Chinese authorities have indefinitely detained at least 800,000 and possibly more than 2 million Uighurs and other members of Muslim minorities in internment camps. A UN panel and human rights group have estimated it is up to a million people while Beijing has a very different take on this and both rejects and denies western criticism of its suspected use of mass detention and heavy surveillance claiming it protects the freedoms of its 55 ethnic minorities of Uighurs in the western region of Xinjiang.

Chinese officials have admitted some citizens guilty of minor offenses were being sent to vocational centers to work. A general consensuses exist that people not charged with crimes can "disappear" in China and their families are left with little or no information as to where they have gone, in the past this has been used to control dissidents, people who oppose official policy, especially that of an authoritarian state, now it is being used to control Uighurs. While China claims Xinjiang faces a threat from Islamist militants and separatists it rejects all accusations of mistreatment and denies mass internment instead it takes the stand these training centers are a preventive measure to combat terrorism. Social stability is viewed as very important to the Chinese government and 22 months without an incident of violent terrorism is enough proof the program has merit in the eyes of officials.

A Chinese delegate from Xinjiang said Chinese authorities are “providing free-of-charge vocational training with a diploma after exams” to those who had been “coerced or lured” by extremist groups. The ruling Communist Party has depicted these "re-education camps" as an attempt to bring the largely Muslim minority into the “modern, civilized” world and to promote what the government calls “ethnic unity,” but in simpler terms the apparent goal is to force detainees to renounce Islam and embrace the Chinese communist party and an effort to fully control the hearts and minds of its population. China has gone so far as claiming Uighur Muslims are grateful to be detained in mass internment camps which make their lives more “colorful.”

Many Uighurs Are Held In "Re-education Camps"
One former inmate of one of the camps was less flattering and said Muslims were forced to denounce Islam and profess loyalty to the party, as well as being made to eat pork and drink alcohol, acts which are forbidden in their religion. Until October 2018, Chinese authorities officially denied the existence of the camps but recently have taken to defending the secret camps. The governor of Xinjiang, Shohrat Zakir, who is also the most senior ethnic Uighur in Xinjiang, claimed the authorities were providing people with lessons on Mandarin, Chinese history and laws which will allow them to better fit in within Society.

More can be learned from a woman who said she was tortured and abused at an internment camp where the Chinese government detained hundreds of thousands of people from religious minorities. In Washington, Mihrigul Tursun, 29, told reporters she was interrogated for four days without sleep, had her hair shaved, was electrocuted and was subjected to an intrusive medical examination following her second arrest in China in 2017. She was arrested three times and each time the treatment grew worse. “I thought that I would rather die than go through this torture and begged them to kill me,” she told journalists at a meeting at the National Press Club.

Since then, reports have noted malnourishment, numerous deaths particularly among the elderly and infirm, and the forced administration of psychiatric drugs. Tursun was raised in China but moved to Egypt to study English, there she met her husband with whom she had triplets. When she traveled back to China to spend time with her family in 2015 she was immediately detained and separated from her infant children. When released three months later she found one of the triplets had died and the other two had developed health problems, she said the children had been operated on. She was arrested for a second time about two years later and she was detained a third-time several months after that. Tursun spent three months in a cramped prison cell with 60 other women, they slept in turns and used the toilet in front of security cameras. Part of their time was spent singing songs praising China’s Communist Party.

Tursun also claims she and other inmates were forced to take unknown medication that made them faint, and a white liquid that caused bleeding in some women and loss of menstruation in others. She said nine women from her cell died during her three months there. One day, Tursun recalled, she was led into a room and placed in a high chair, and her legs and arms were locked in place. “The authorities put a helmet-like thing on my head, and each time I was electrocuted, my whole body would shake violently and I would feel the pain in my veins,” she said and added, “I don’t remember the rest. White foam came out of my mouth, and I began to lose consciousness,” Tursun said. “The last word I heard them saying is that you being an Uighur is a crime.” Tursun was eventually released so that she could take her children to Egypt, when ordered to return to China she contacted U.S. authorities and was able to come to America and settled in Virginia.

Uyghurs Are Often Treated Harshly By China's Government
In a recent article East Asian affairs and Middle East expert Dr. James Dorsey argues that once mass detention allegations became increasingly proven that China is at risk of losing control of the situation. The bid to erase nationalist sentiment and counter militancy in an effort to create an ‘Uyghur Islam with Chinese characteristics could backfire and rekindle the idea of establishing a Muslim state in Xinjiang. History shows that toying with people and their culture can rapidly become a slippery slope. The actions being taken today are reminiscent of failed attempts to undermine Uyghur culture during China's the Cultural Revolution but we most likely will see more of such actions from governments in the future as a new wave of  Orwellian type surveillance expands.

China’s Great Fire Wall which is considered the largest, most extensive and most advanced internet censorship tool in the world censors content for a variety of reasons, often because it’s critical of the Chinese government or contrary to Communist Party policy. It is a key part of this suppression and is designed to wall the country off from free access to the Internet. In doing so, China hopes in Xinjiang to halt cultural exchanges with Central Asia such as political satire that could reinforce Uyghurs’ Turkic and Central Asian identity. Crackdowns such as these and forced assimilation are intended to reduce the risk of a flow of ideas and influences through the "open borders" needed for economic development.

It is seen as the only way China can cement the Xinjiang region into its framework of China’s infrastructure-driven Belt and Road initiatives that span Eurasia. Lessons learnt not only from recent Chinese history but also the experience of others indicate forced assimilation through stepped-up repression and intimidation often fails and creates a rather mean backlash, however, that has yet to be seen and only time will tell. While China is "not our monkey and not our circus" it is still important we recognize what is occurring there so that we do not allow ourselves to slip or be pulled into a similar trap.

Tuesday, December 11, 2018

France And The Euro-zone Continue To Unravel

French Police Clash With Yellow Vest Protesters
It appears France and the Euro-zone are continuing to unravel as violent protesters have taken to the streets and many have engaged with the police directed to beat them into submission. The Yellow Vest protests which have gripped France for a fourth week have brought the country to a halt. This has even forced French President Emmanuel Macron to cancel his two-day trip to Serbia following the widely reported death of an 80-year-old woman trying to close a window in her apartment in the Southern France city of Marseille.  The elderly woman was fatally struck with a tear gas canister fired by police Saturday as demonstrations over fuel tax hikes raged outside her home, the BBC News reported she was taken to the hospital where she later died.

As an estimated 136,000 protesters marched in France yesterday. the BBC reported the Finance Minister Bruno Le Maire described the events taking place as an "economic catastrophe"  and called the situation "a crisis" for both democracy and society. With Paris security forces now deploying armored vehicles in anticipation of more extreme violence, it is difficult to say how long this will last. Adding to the mix and setting the internet abuzz was talk that the Macron administration had even deployed armored vehicles bearing the EU flag, this stoked concerns over whether it was the first sign of a much talked about EU Army. In early November, Macron told France's Europe 1 Radio that Europeans cannot be protected without a "true, European army."

A staggering 1,939 people were arrested on Saturday across France, including a few most likely very interested in getting the incident filmed and recorded to give them street creed as political reformers in coming years. Arrest in Paris alone stood at 1,082 at last count with 264 people injured as the anti-government protests turned ugly and widespread looting and violence marked the day. The 10,000 or so Yellow Vests who took to the streets of Paris on Saturday smashed windows, burned cars and looted shops. Most of the arrested were charged with acts of violence against a person in the custody of the public authority, "possession of explosive products," or "carrying weapons,"

The photo on the left is an example of the type of formidable armored vehicles the Paris security forces are now deploying. The Berliet VXB-170, also known as a "VBRG" is being strategically deployed in parts of Paris most likely to suffer violence or vandalism. It was designed in the 1960s, the 12 ton, 19-foot-long vehicles with 7mm thick armor and are capable of firing tear gas grenades and can also be equipped with a 7.62mm machine gun, and either a 37mm or 40mm grenade launcher.

All this, of course, flows into concerns that the protests could lead to a big drop in tourism. Paris a top travel destination was visited by more than 40 million visitors in 2017, a new record, according to the Paris Tourism Office. One thing that is very clear and that is the damage to the economy has been severe and continues. Before the most recent protest, Mr. Le Maire said, that the restaurant trade had declined by between 20% and 50% and on Friday, the French retail federation told Reuters news agency that retailers had lost about 1bn euros ($1.1bn; £900m) since the protests first began on November 17th. In addition and the authorities in Paris say that riots have caused millions of pounds of damage.

France Now Ranks Most Taxed (click to enlarge)
These protest started when Macron raised diesel taxes to pay for the global warming reduction effort that he campaigned for. Today France has gained the unglamorous title of being the "Most Taxed Nation In The World."  Far-right leader Marine Le Pen has warned that Macron could become the first president to give the order to open fire on his own people in 50 years. She said he should scrap increases in fuel duty, lower gas and electricity prices and end a freeze on the minimum wage and minimum pension. It is difficult to predict what will happen next, these protest could simply run their course and melt away or if a spark is injected into the mix morph into a nationwide violent melee which ultimately forces French President Emmanuel Macron to resign.

It is difficult to appraise just how much the mainstream media is covering this and how they are spinning events but similar to the problems in France unrest is growing in several countries such as Italy and Spain both suffering from weak economies and reeling from the inflow of migrants. Add to this Anglea Merkel's declining power in Germany and now we are hearing reports that even the Dutch are concerned about the Islamization in the Netherlands where there has been several attempted jihadist terrorist attacks in recent months. From the start, the Euro-zone was destined to be tolerated and accepted by its citizens if they could feel and see tangible benefits in their daily lives in exchange for surrendering parts of their own decision-making powers, and the sovereignty of their nations to the new power forming in Brussels. 

The Union is currently made up of 28 countries with Britain on a path to exit and it is important to realize many are hellbent on holding Britain's feet to the fire as a way to discourage other countries from moving in the same direction. Currently, Britain has looming before it a vote on a "dreadful exit package" which some people see as trapping the UK within the EU customs union indefinitely while giving them no say over the rules by which it must abide, this is a package they may reject which would put more pressure on all parties. Bringing all these different cultures and almost as many languages together and unify an area with such diversity has always been considered a challenge, it will be interesting to see whether it can endure the coming storms.

Sunday, December 9, 2018

Pensions Are The Biggest Ponzi Scheme Of Man

Pensions And That Bernie Madoff Thing
At times it is wise to revisit the matter of pensions and how in many ways they are the biggest Ponzi Scheme of modern man. In a week where the stock markets took it on the chin and billions of dollars worth of wealth vanished in the blink of an eye, what better time to look back on what most people view the backbone of our retirement system which is pensions and the paper promises they represent. While much of the mainstream financial media has been telling us that all is well problems continue to grow in the area of pensions.

Pension payouts are often predicated on the idea the money invested in these funds will yield seven to eight percent a year and in today's low-interest rate environment, this has forced funds into ever riskier investments. This translates into buying more stocks at what may be the top of the market or allocating a larger portion of the funds' assets to investing in real estate often located on distant shores. The fact is top rated bonds yield little and sitting on cash is not an option for pension funds. In the U.S. alone, federal, state, and local government pensions are $7 trillion short on the funding they need to pay what they have promised.

The World Economic Forum reports that in 2015, worldwide pensions were underfunded by $70 trillion dollars and a more recent report from may of 2017, reinforces the view of an ugly day of reckoning ahead with the funding gap dwarfing the world GDP. Considering we also have almost $50 trillion of unfunded Social Security obligations you begin to see just how enormous the pot of future promises has grown. Adding to our woes, America’s private pensions also have a big hole to fill, a total of around 1,400 corporate pensions are a combined $553 billion behind in funding and 25% of those funds are expected to go broke in the next decade.

Part of the problem stems from the curse of living longer, not only is the gap driven by longer lifespans and reduced levels of savings. With this in mind, it is important to remember this is the retirement money of teachers, firemen, and working folks which they expected to be prudently placed in conservative and safe investments and are counting on to be there to ease the pain of aging. Needless to say, the math alone is troubling but when coupled with the overwhelming possibility of a major financial dislocation looming in the future a nightmare scenario for pensions drastically increases.

The PBGC America's Pension Net (click to enlarge)
The PBGC America's pension safety net is already under pressure and failing due to the inability of pension funds to meet their future obligations, this is even before considering the corruption and shenanigans government will unleash to solve this ill. One common solution also offered up in the WEC article was to increase contribution rates which translates into forcing current workers to pay more to support retired workers. Another example of the poor solutions being put forth to combat the awful demographics is trying to get people to have more children based on the fact there just aren’t enough young people being born to pay out benefits for retirees.

This problem is being addressed in South Korea, where about 13% of the population is currently of retirement age: 65 or older and where 40% of the population will be over 65 by 2060. South Korea's answer for the problem to this problem has been for the government to spent $113 billion during the past 12 years urging people to have more children. This is a clear example that the pension problem is not only much bigger and more severe than most people are willing to acknowledge but it is global in scope and slashing retirement payments or increasing current contributions will result in political backlash.

In addition to bad economies and investment that blow up in their face, there is also the issue of corruption, those who run the pension funds and have been designated with the power to invest pension funds cannot be totally isolated from their greed or be monitored every second of the day. Where there is money corruption tends to be close by and the last decade has been a bonanza of financial malfeasance and the lack of accountability has extended into the management of pension funds. Prosecutors and regulators have failed miserably in crafting the kind of penalties that could meaningfully deter wrongdoing leaving Americans in the lurch. More than one pension fund manager has been caught with their hand in the cookie jar and this is not expected to change.

Pensions are giant pools of capital responsible for paying out retirement benefits to workers. And right now many pension funds around the world simply don’t have enough assets to cover the retirement obligations they owe to millions of workers. Governments have lulled their populations into a false sense of security based on financial promises they are not going to be able to keep and most likely will exacerbate generational conflict going forward. This is not simply a political problem, it’s an arithmetic problem, for which no real answer exists.

A Very Simplistic View Of Who Saves (click to enlarge)
In the U.S., we have two massive national programs designed to care for the elderly and a slew of other overlapping programs such as Supplemental Security Income, a "means-tested welfare program" also known as SSI and the Supplemental Nutrition Assistance Program aka SNAP which was formerly known as the Food Stamp Program. While Social Security is geared at providing all Americans with a small pension, and Medicare covers medical expenses with all workers paying taxes to fund the benefits we may someday receive many people look towards their pension to make life more comfortable. The chart to the right does a poor job of detailing just how much people have saved.

Unfortunately, the bottom-line is millions of people have been planning their futures based on promises made over decades that have no basis in economic reality. Sadly, those who find themselves living on Social Security benefits alone often find it to be a rather meager existence. While many people move towards retirement thinking it is free, Medicare has deductibles and co-payments that can add up quickly. Both programs were formed hoping that people would have their own savings and other resources to supplement their expenses, unfortunately, the reality is that many Americans work well past 65 just to make ends meet.

Footnote; The PBGC, America's safety net for failed pensions has total assets of about $88 billion and liabilities of $164 billion, this is an indication of how dire the situation is. The article below delves into why in the future many pension payouts will be cut.
Also, a great deal of the crazy ideas we hear should be considered not real solutions but desperate attempts to render the laws of economics moot moving us further into the false state of modern voodoo economics. The article below delves into how these help to perpetuate the false illusion all is well.

Monday, December 3, 2018

America And China Reach A Weak Economic Détente

The Victor Is?
Détente is the easing of strained relations, especially in a political situation, in this case, it is more economical. The "Mother Of All Dinners" or the most important, and much-anticipated dinner date between Trump and Xi in years concluded amid loud applause. The "brief celebrations" by both sides and the idea this has ended the ongoing trade war between America and China with three-month truce is a bit simplistic and rather optimistic. While the US agreed to postpone a planned tariff hike on January first and to keep the rate on existing tariffs at 10% for another 90 days in return for greater purchases of American goods nothing has been resolved.

This temporary ceasefire and what Trump declared an “incredible deal” on Air Force One while heading back to the U.S was based on China agreeing to immediately start purchasing "very substantial" U.S. agricultural, energy, industrial and other products from the U.S. to reduce the trade imbalance. Ironically, the deficit has soared in recent months as Chinese exports soared in an effort to front run announced tariffs and at the same time shunned imports from America. This means the trade deficit will only fall slightly but provides relief to both leaders which face slumping stock markets, aside from preserving the status quo on the current state of the trade war it does nothing to change the fundamental divide that exists.

Despite the lack of material progress this most likely will help to lessen immediate concerns that escalating trade tensions will create a new Cold War. Still, with less than a month left in the year many traders are taking this as the green-light for a strong Santa Claus Rally, both in the U.S. and China where overnight the China Financial Futures Exchange sent a strong hint to investors to get back in the market by cutting margin requirements for stock index trading. It is on these most thorny of issues that there was no real progress during the Trump-Xi dinner.

The reality is that such large and difficult issues seldom if ever turn on a dime but that won't stop politicians from putting lipstick on the pig and parading it out as a real beauty. Wang Yi, China's foreign minister held a briefing in which he said that China and the U.S. had agreed to open markets to each other, with China agreeing to increase U.S. imports as well as addressing its trade imbalance. Wang also said that legitimate U.S. concerns will be resolved as China opens markets and takes additional steps to eliminate all tariffs.

Still, the two sides failed to make any tangible progress on the fundamental divide and core issues separating the world’s biggest economies and a sign the meeting was a bust came in the failure to issue a joint statement laying out the framework for a way forward. China sees the trade talks as an American strategy to thwart its rise as a global power. Rather than making a joint statement each side gave its own readout of the outcome. A gap existed between how America and China interpreted what happened at the G20 with China forgetting to mention the 90-day time frame, while the U.S. didn’t reference the One-China policy regarding Taiwan which is another flashpoint between the nations.

Peripheral issues that were raised and agreed to include that President Xi is open to approving the Qualcomm-NXP deal if it was presented again putting the mega M&A thing back in play. Also, one of Trump’s goals for Xi dinner was to get China to do more to halt the flow of synthetic opioid fentanyl into the U.S. On this issue Xi agreed to designate fentanyl as a controlled substance meaning people selling fentanyl to the United States will be subject to China’s maximum penalty under the law. The White House also emphasized that Xi agreed to continue pushing for a nuclear-free North Korea.

The type of domestic reforms sought by the U.S. are extremely difficult for China in that they reflect upon China's reputation as well as the party’s authority and the very structure of the domestic economy. These concerns with China were laid out in a 53-page report issued by Trade Representative Robert Lighthizer’s office about 10 days before the Trump-Xi meeting. Negotiations have long been stuck over U.S. demands for deep structural reforms such as ending forced technology transfers, enforcing intellectual property rights and ending state subsidies for strategic industries. All these feed into China's “Made in China 2025” policy to lead the world in sectors such as artificial intelligence and robotics.

Please note, what we did not see was Xi begging for mercy and begging the U.S. for relief. Buying needed farm goods for a tariff time-out in many ways was a win for China with the immediate beneficiary from the truce being the American farmer, particularly those growing soybeans which Trump needs to win in order to get re-elected in 2020. China has shunned the U.S. bean market leaving farmers with beans coming out of their ears and sagging prices, unfortunately with supplies so large any upturn in price may not be enough to help struggling farmers.

Do not be surprised if this turns out to be the first steps in a very long drawn out dance given the risks to the global economy and the political cost talks may drag out until the end of time. While Xi Jinping hasn’t really defused the Trump bomb it shows that both sides can be pragmatic and he has won another three months before punitive tariffs on $200 billion in goods rise to 25 percent giving Chinese policymakers more time to offset the blow as growth slows. This may mean a burst of buying in the S&P over the next 24 hours pushing the stock index higher, but not much higher as trader concerns should quickly turn back to the Fed which can now revert back to its hawkish bias and resume rising rates well into 2019.

Saturday, December 1, 2018

A False Economy Of Fraud Will Usher In A Hard Landing

A New Hospital On Every Corner A Sign Of Fraud
A false economy of fraud is created by seizing on a few positive numbers that can be spun and hyped to convince people all is well. Whether it is intentional misdirection and a case of economic fraud or people simply getting caught up in wishful thinking does not matter as much as the fact it is the forerunner of disappointment and generally results in a hard landing. recently when I was driving on a long trip I could not help but notice all the new hospitals and healthcare-related buildings lining the interstate in every city along the route, they speak volumes as to the economic revival of America post-2008 and Americans have the healthcare bills to prove it.

Healthcare with the expansion and the construction of huge facilities as well as fracking and drilling for oil reserves with a very short life that temporarily lower energy prices has massively added to Americas GDP quarter after quarter. We may be wowed by these huge expensive new building but on the flip side, it has resulted in the shuttering of many smaller local and rural hospitals and clinic that were adequate to care for patients at a much lower cost. Today many of these massive new hospitals that stand as monuments to Obamacare run far below capacity again confirming that planners with little skin in the game love to overspend the money of others but this extends well past healthcare and into housing, the auto sector, Wall Street, and most sectors or our economy.

An Ugly Chart Of National Debt

When the stock market started to wobble two months ago President Trump increasingly ratcheted up his attacks on Fed Chairman Jerome Powell for"ruining the party" by insisting on raising interest rates. Trump has painted the soaring stock market as proof of his skill in growing the economy and leading us forward. In truth, a flawed tax reform package that benefited the rich by fostering massive stock buybacks coupled with massive deficit spending has created the false illusion of prosperity.  Because of his polarizing political style and claims of economic acumen, Trump more than most Presidents will most likely be judged a success or failure based on his administration's economic results.

From Trump's point of view, there's no good reason why the central bank should not wait another 2-6 years before taking away the punch bowl but the fact is a great number of market participants have already allowed cheap money go to their heads and are cruising for a bruising when reality hits the fan. It is important to remember a false economy lacks sustainability but at the same time generates skewed data which often can be used to foster the feeling that something very positive is really occurring. We saw this in Europe last year when optimism was in full boom but today find the area again struggling and mired in slow growth.

The Infallibility Of The Titanic Was Proven Wrong
Some of how people have interpreted what we have seen happening in the markets remind me of the infamous line that some attribute to a porter in Southampton just before the maiden voyage of the Titanic who stated that "even God couldn't sink this ship." The degree of complacency built into this market from years of investors adopting the mentality that buying any dip would yield huge profits flies in the face of how markets really work. It has been pointed out many times that the economy constructed since the 2008 economic crisis has been built on debt, deficit government spending, and credit expansion based on low-interest rates that bring future consumption forward and increase speculation.

While government spending has proven to supplement the economy, history shows that over the long run government spending is a poor substitute for the free market in allocating capital to where it is most effective. A large part our perception of a booming economy flows from the low unemployment rate issued by the Bureau of Labor statistics which is based on employees "who did any work for pay or profit" during the week being surveyed, this includes part-time workers who are employed for just one hour a week. The unemployment rate also fails to include a large number of Americans who have given up looking or simply chosen not to work in recent years. The speed at which companies such as GM and GE have seemed to pullback should act as a reminder of how rapidly "Now Hiring" signs can be pulled from a window.

Thursday, November 29, 2018

Trump Monkey Hammers Powell Into Slowing Rate Hikes!

Trump Heavily Criticized Powell For Increasing Rates
Trump's position is the Fed should halt rate increases and this is a debate that many investors see as the key to the market's direction. When the stock market started to wobble two months ago President Trump increasingly ratcheted up his attacks on Fed Chairman Jerome Powell for "ruining the party" by insisting on raising interest rates. Trump has painted the soaring stock market as proof of his skill in growing the economy and leading us forward. In truth, a flawed tax reform package that benefited the rich by fostering massive stock buybacks coupled with massive deficit spending has created the false illusion of prosperity. Now the Wall Street Journal, the bulwark of capitalism and the free market has sided with Trump saying the Fed needs to slow down on the rate hikes. The WSJ Editorial Board published an opinion piece on November 15th, 2018, that stated;

     President Trump’s biggest achievement has been the revival of faster U.S. economic 
     growth, but past performance is no guarantee of future results. The White House 
     should be worried about growing economic strains in the rest of the world, and 
     policymakers need to prepare. The U.S. is not an island. 

While the message, "The U.S. is not an island" conflicts with putting America first the WSJ piece is in reaction to President Trump proclaiming the Fed "is making a big mistake with ridiculous rate-hikes," but the problem may not be the Fed as much as Trump tethering himself too closely to the stock market as an indicator of his success. Because of his polarizing political style and claims of economic acumen, Trump more than most Presidents will most likely be judged a success or failure based on his administration's economic results. From Trump's point of view, there's no good reason why the central bank should not wait another 2-6 years before taking away the punch bowl.

The editorial went on to warn how higher rates will put other countries under stress but left unanswered what many of those suffering from a decade of low interest rates on their saving see as the 64 million dollar question, which is, if not now when? The idea that now is not the time to hike rates is of course very popular and solidly endorsed by those who have benefited by feeding at the trough of easy money. The fact is easy money is not a panacea to prosperity and brings with it a slew of bad side-effects such as transferring wealth from savers and forcing them to take on more risk simply to obtain a reasonable return on their money.

Years ago before the "Bernanke has all the answers" era, many of us criticized Japan for failing to own up to its problems. Many people thought Japan should address the mess it had created and do the right thing, broadly accepted was the concept that only by letting its zombie banks and industries fail could Japan clean out the system and move forward. Instead, the Government of Japan ran huge deficits and ran up massive debt. By putting many companies on life support the country languished. For decades Japan avoided disaster only because it enjoyed a large trade surplus, today that trade surplus has vanished but the massive debt remains.

Japan's GDP Has Been Basically Flat! (click to enlarge)
While they claim otherwise, in many ways the Fed has put America and the world on a path that mirrors the same fruitless road taken by Japan. This path has avoided real reform and bails out the very people that caused many of our problems. Bernanke upped the ante by keeping alive those that were failing and setting on high the bailout and money printing machines. He flooded America and the world with QE by selling other central bankers on this solution and taking the lead in an experiment that is losing traction. Looking back it is now clear that real momentum seems to ebb shortly after each new wave of stimulus and another fix seems to constantly be needed.

Two key differences exist when we view America and Japan, first America does not enjoy a huge trade surplus to offset our deficit spending. This means we are putting ourselves deeper and deeper into the hole and our debt has ballooned. For years Japan offset the government deficit with money coming in from foreign trade. The other very important difference is the American dollar is the worlds reserve currency. Changes in the value of the dollar are thus magnified in importance and do not just affect America but the whole world. All the people and countries that hold dollars are affected and can at any time greatly alter our ability to do business as usual.

In the future, as we look back and measure the results of Bernanke's policies it seems they may not be much different than those achieved by Japan over the last few decades. In many ways, our course is very similar to the one that Japan embarked on and is now being blamed and labeled as the reason Japan remains mired in slow growth and deflation. Bernanke has endorsed and encouraged Japan to step on the gas and print more money until they lower the value of the yen and force inflation to set them on a path forward. This is akin to a doctor telling a patient to double or triple his dosage when the medicine does not work. The policymakers in Japan should be careful what they wish for as they may find they have stepped onto a very slippery slope.

Recent statements by Chairman Powell were interpreted as his moving to a more dovish stance on Wednesday and this sent markets soaring with the Dow Jones Industrial Average surging more than 600 points. Investors took his words to suggest the Fed might slow the future pace of interest rate hikes when he said rates are now just slightly below what he considers a "neutral" level. Whether it was to appease the President or because weakness is working its way into the economy this will certainly shift more pressure and responsibility on Trump should things turn south.

Wednesday, November 28, 2018

Ukraine Still Could Be Where All Hell Breaks Loose

Tensions Are Rapidly Heating Up
The incident between Russia and several Ukrainian ships which resulted in the seizure of the Ukrainian ships and naval personnel has brought Ukraine back into the news and been used as an excuse by Ukrainian President Petro Poroshenko to impose martial law over the country for the next 30 days. In addition, Ukraine has called up its reservists and deployed all available troops to join the mobilization in response to warnings and rumors about an imminent Russian invasion. Addressing fears of heightened tensions between Kiev and Moscow, the 53-year-old said this did not mean a declaration of war against Russia leaving some cynics thinking this may all be a fabricated crisis aimed at bolstering and galvanizing support for the unpopular leader just before the national election. At this point Ukraine plans to honor the Minsk Agreements they inked with Russia and pro-Russian separatists in southeastern Ukraine that were designed to stop a war that claimed more than 10,000 lives since 2014, has displaced over a million people, and destroyed countless lives.

The crisis is the result of self-righteousness President Obama edging Ukraine down a path towards revolution in an effort to upstage Vladimir Putin. Its difficult to say if the double standards exhibited by the White House or what appears to be a total lack of self-awareness by U.S. officials is the most surprising part of the unfolding Ukraine saga. While the warmongers in Washington continue to charge Putin and Russia with violating Ukraine's sovereignty and territorial integrity that breached international law, do not forget all this comes after the infamous "Fuck the EU" comment by then Assistant Secretary of State Victoria Nuland in the run-up to Ukraine's revolution. The comment revealed the extent to which Washington was recklessly maneuvering to undermine Ukraine's elected pro-Russian President Viktor Yanukovych by backing the Kiev street protesters' demands. 

What this boils down to is that American companies want to sell and supply Europe with Liquid Natural Gas (LNG) and seems willing to start a war to make it happen. Whether it is for profit or to minimize the threat of natural gas shipments to Europe being cutoff and used as a key weapon in Russia’s political arsenal we cannot ignore the idea, more is at play here than just doing the "right thing". Many people in the "Tin Foil Hat" community have gone so far as to indicate they feel that America and elements of the CIA were involved or had a part in the overthrow of the former corrupt Ukraine government and its replacement with another corrupt but more pro Europe regime. At the time even America's Vice President, Joe Biden, saw his son join the board of a private Ukrainian oil and natural gas company. One thing is clear, not only those involved in selling energy to Europe will profit from this but also the military-industrial complex stands to gain.

The odds of U.S. LNG significantly displacing Russian natural gas shipped by pipeline are slim. Piped gas sells at a large discount to LNG, which must be cooled to liquid form, shipped overseas and turned back into its gaseous form. Poland recently received its first shipment of U.S. LNG last month from what is currently the only export facility in the lower 48 states. While LNG trade between the United States and Europe would help Trump in his bid to reduce the U.S. trade deficit it also stands to improve energy security among the European countries by giving them an alternative to Russian gas. Everyone must concede it is not a cure-all, Russia can easily cut prices and adjust terms to maintain its dominant position in the European gas market and European countries are likely to continue buying most of their gas from the lowest cost supplier.

It has not been Russia that has taken the lead in promoting violence in Ukraine but those in Kiev who insist on holding the fractured and bankrupt country together by force. Ukraine is both dysfunctional and bankrupt, this means without outside funding disguised as "aid" from America and the IMF a resolution would sooner by reached. Much of this so-called aid is stolen by those in power and the rest goes towards weapons and waging war. Looking back at what has happened in Ukraine during the last few years of the Obama administration and now that baton has been picked up by the warmongers surrounding Trump we find the money pouring into western Ukraine is funding the war against their brothers in the East and promising death to those who don't want to be under their control.

It is a very important starting point to remember Ukraine was and is a failed state and the fact that Washington is trying to repaint that picture by pointing blame on Russia ignores reality. While few of us focus on it, corruption is a great evil across much of the world, according to the UN one trillion dollars a year is paid in bribes and over two and a half trillion dollars are stolen annually through corruption. Sadly, Ukraine is in many ways the poster  child of corruption and an example of how hard it is to fight in a country where it has taken root and the ruling elite line their pockets with the money flowing in to support the people.

America Wants To Sell The Euro-zone LNG
In reality America has few military options in Russia's backyard unless it has the backing of an enthusiastic NATO but Europe has every reason to be unexcited about what could become a long bloody and expensive conflict. If an actual ground attack does occur the Russians are unlikely to rollover as other armies have upon Americas approach. It could even mean that Europe would face fuel shortages and a massive spike in the price of natural gas. Many EU countries receive around 30% of the natural gas they burn from Russia according to the U.S. Energy Department, this has given Putin a great deal of leverage. As the days of summer past and we move towards fall the thought of a long cold winter time appears on the side of Putin.

To his credit Putin has sat back and allowed violence to fester while he holds the trophy of a bloodless Russia annexation of Crimea which puts a spotlight on the irony that for all the self-righteous huffing and puffing in Washington over Crimea we do not see death and destruction resembling what multiple U.S. led invasions and interventions into several countries in the Mideast has generated. It does not help America's image that many Europeans look upon America as a financial blackmailer that has lost its moral compass and find Trump overbearing. Actions such as backing the Saudis in Yemen and the expanded use of drones while continuing to flout international law by refusing to join or recognize the International Criminal Court developed in 1045 has made few friends for America in the international community.

Americans should also be aware that our current policy drives Russia towards the East and into the open arms of China creating more problems long-term than it solves short-term, this borders on the edge of insanity. Years ago Russia announced what many have called the "Holy Grail" of energy deals with China that has geopolitical implications for the whole world by binding the two nations in a commodity-backed axis.  Efforts by the United states and Europe to isolate Russia has caused Moscow to look eastward for new business such as energy deals, military contracts, and political alliances.  While Russia's economy is rather small it still has the ability to drive a wedge between its former G20 allies particularly in the EU.

When it comes down to it we and the people of Ukraine are just pawns in a sad power game similar to the one that displaced millions of people from their homes in Syria. Flooding the country with weapons and using the people of Ukraine as pawns in this high stakes game violates all standards of human decency.The war in Ukraine has not developed organically but appears to be the product of meddling. Mercenaries and money from America appear to be backing and propping up Kiev with America acting as the "champion" for this failed bankrupt country.  The best way for the West and Kiev to prove they are on the right path is by letting the eastern part of the country seceded and then making Kiev a center of economic and democratic success.

Ukraine has the potential to become the worst east-west crisis since the end of the Cold War, remember Putin is an unredeemed Cold War throwback and one tough cookie and he is prepared for the crisis to get very ugly.  Similar battles elsewhere on Russia's periphery, in Georgia, Moldova, Armenia, Nagorno-Karabakh and maybe Belarus and the Baltic states have hardened Putin. Whatever they think in Washington, and whatever the financial markets say, it's working for him with polls showing his popularity remains strong at home. One of these days western leaders will learn to stop under-estimating him, and recognize Russia's leader as the canny, dangerous, and unyielding opponent he is.

Saturday, November 17, 2018

Strongly Linked China And Japan Are The Storm's Center

China And Japan As Part Of Global GDP (click to enlarge)
The IMF, the World Bank, and the United Nations all rank China and Japan as the second and third largest economies on the planet, together they are responsible for around 21% of global GDP. Cutting to the chase, much of what is happening in the markets is all about China and Japan which are strongly linked economically. Just over a year ago as China ending its 19th National Congress where the theme was all about a "new era" for China and how the country was about to take "center stage in the world" some of us noted all was not well. Those seeing flaws in the Chinese economy found it difficult to ignore that China's central bank had warned extreme credit creation and trouble in the shadow banking system could lead to a full-blown financial crisis. Even with this warning the People's Bank Of China continued pumping out liquidity knowing that if they stopped the whole system might seize up and cease to function, on the other hand, such actions only create more problems going forward.

So much for the assumption that many people hold that this particular kind of crisis cannot develop in a state-run financial system like China's where the banks are under Communist Party control. Wake up folks, you are delusional if you think any financial system or banking system is not under similar control. Whether it is the Fed or the BOJ politics do matter and those in charge of such institutions do not put the general public first. As for the title of this piece. "Strongly Linked China And Japan Are The Storm's Center" it should be noted that Japan was added because they currently lead the way in a new central bank experiment to ignore debt and print their way to glory by using the money they print to purchase equities. By doing so Japan is in effect nationalizing companies and transferring ownership from the private to the public sector.

A matter that has not garnered enough attention is how economic problems that develop in China will spill over and directly impact Japan. The Japanese economy is very vulnerable to a negative feedback loop that could have strong ramifications on its economy. While a strong distrust possibly even a dislike between the people and cultures exists, years ago the two countries joined together in an effort to maximize profiting from exporting to America. Over the years this relationship has morphed into an almost full-blown interdependence. This has intensified as China and Japan became major trading partners with Japanese direct investments surging and Japanese technology playing a critical role in the development and competitiveness of China’s global supply chains. In some ways, the two have become joined at the hip.

China Plays A Corrupt Game That Will Not End Well
Returning to the subject of China, today China faces a possible Minsky Moment, the tipping point when credit cycles break and euphoric booms collapse under their own weight. Asset speculation and property bubbles may have finally reached the point where they pose a “systemic financial risk” made worse by the plethora of wealth management products, trusts, and off-books lending taking place throughout the country. Corporate debt has reached disturbingly high levels and local governments are using tricks to evade credit curbs. This is why it may be appropriate to ask if China is about to follow in the footsteps of Japan and embark on a "lost decade" of its own.

With this being stated, we should not underestimate the strong bonds between China and Japan or the amount of corruption that runs through the Chinese economy. We should also remember it is not in the interest of Japan to see the yen strengthen because of the impact it has on their ability to export. In the same way that many people overestimated the strength of the Soviet Union prior to its fall in December of 1991 or the Japanese economy from 1986 to 1991, today people tend to exaggerate the strength of China. When Japan slipped from grace the real estate and stock market prices which were greatly inflated before its massive bubble burst in early 1992 crashed causing the "lost decades" and the problems that still haunt them today. I contend we do the same with China's economy, it seems Americans tend to supersize anything they can conjure up as a challenge to their supremacy.

While most Americans are familiar with the saying, "anything that happens in Vegas stays in Vegas" it has become very apparent that in our global economy things that happen in China do not stay in China and the same can be said of Japan.. This is obvious from the huge amount of wealth fleeing China over the last few years. While this has been downplayed by many economists that are busy with charts searching for what they call growth, the money flowing across porous borders has become very obvious to those of us that watched as house prices soared in Vancouver and most of Australia. Note both China and Japan have been busy supporting zombie companies and not allowing them to fail in an effort to convince the world all is well. These countries are strongly linked and both very big players in the global economy, also both have taken an unsustainable path forward, when either fails the other will be pressured so, look out below!

Footnote; Dept defaults can be quite ugly and have huge ramifications on the economy. Below is the link to first part of a three-part series that explores such an occurrence.
 https://A Minsky Moment Is When The Debt Pyramid Collapses .html

Wednesday, November 14, 2018

Robots Not Just For Industry - A Consumer Market Awaits

A Massive Consumer Market Exists For Robots
Occasionally it is fun and interesting to roll out a piece on an offbeat subject like artificial intelligence or robots. Just over five years ago an article that I stumbled across started me thinking about the implications of robots going mainstream. Yes, I'm looking down the road at a time in the future that is getting closer with each passing day. It will not be long before a person decides to walk down the street with his metal companion or worker beside him or in tow. Whether it is to carry things, do work, provide personal protection as a bodyguard, or because you just want to attract attention and turn heads this will happen. Questions immediately begin to surface and problems arise when you are told at the mall that you can't bring that "thing" in here.

The article I referred to was written by Arik Hesseldahl on Sept 21, 2013, and posted on the website, All Things D. It explores the idea of building your own robot, what would you have it do? If you're the type who’s into building stuff and coding, it told how you would soon get your chance to answer that question for real, courtesy of an interesting project coming from the labs of chip-maker Intel. The company’s futurist, Brian David Johnson was recently in New York at the Maker Faire to let folks get a look at Jimmy, an open source robot assembled from parts fabricated on a 3-D printer. He also showed off a non-working model of Jimmy on CBS’s Saturday Morning today.

Robots Will Have A Huge Impact On Our Culture
Once assembled, Jimmy — or whatever you choose to name it — would be as readily programmable as a smartphone. You could also download and install apps that other people develop as easily as you would install them on an iPhone or Android device. Johnson said the plan is to create a kit that would be available for purchase for less than $1,000 and that he hopes to get the whole cost down to under $500. He was also giving away copies of a book called “21st Century Robot” that contains the open source files for printing the robot parts.

Over the last five years, robots have come a long way and tremendous progress is being made to bring them to the point where they are more than an oddity or futuristic thing of science fiction. With all this in mind I predict that in a year or two a home robot will be the "go to" Christmas gift. This makes it very important we begin to consider and imagine some of the ways our culture will begin to change when robots start to appear on the streets of our cities in the same way wireless phones have, this is the only way we can begin to prepare ourselves for what is about to unfold. Most likely robot ownership will become a huge status symbol and people may soon choose to buy a robot and finance it the same way they purchase a car. When you begin to see how man has linked himself to machines and even given them personalities and gender traits we begin to move into the area of a robot companion. In the 1999 Austin Powers movie "The Spy Who Shagged Me" a humanoid fembot appears, this gives new meaning to the term sex doll and probably has been the source of more than a few fantasies.  

Depending on the price the most sophisticated robots may become a toy and tool only for the wealthy which could cause mass envy and resentment especially if it begins to displace a number of workers by eliminating or taking their jobs. A robot has the potential to assume the role of a servant or slave without many of the negative problems humans tend to bring to the job. Many of these issues will be sorted out and defined by new laws and regulations dealing with matters such as liability if a robot hurts someone or damages  property. Some of these issues are already surfacing when it comes to driverless cars recently being operated in different areas as accidents occur. We must remember robots can come in many sizes and forms with a variety of capabilities thus often making them hard to define.

Is It Really Possible To Totally Tame A Metal Beast?
At this point everyone expects more robots to appear in our factories, in public spaces, and even in our homes. Artist, coder, and designer Madeline Gannon has gone to great lengths to explore how to increase the bonds between humans and robots so they can better relate to each other. Gannon uses a lot of metaphors when thinking about how we might engage with non-humanoid autonomous machines and trying to understand body language as a means of communicating with robots. Gannon recognizes that we have a lot of one-sided relationships that add meaning to our lives such as our pets, for example, they don’t have great ways of communicating with us, yet they’ve transcended from being wild creatures in nature to being domesticated and able to add meaning to our lives.

She is not saying that animalistic robots are the way to this future but sees it’s a narrative and dimension to explore and finds that people tend to think about our relationships with robots as a unitary thing but recognizes that for different types of robots we may want more. While we don’t want robots to be our masters she argues we also don’t want them to be our slaves, right now those are the two dominant narratives. With this in mind, Gannon wants to interface with machines and robots having them augment our lives rather than replacing us. This is why Gannon wants an interface with machines that grants us access to their superhuman strength, abilities, and precision in a way that augments us rather than simply replaces us. She also sees a danger when there’s a disconnect between the behavior and personality the robot is projecting and its agenda or motivation. This means designing cute robots, which is a very effective way to win us over and gain our trust, could be used to spy on us or even turn into killing machines.

As we extend this idea of private robot ownership in the near future imagine how as the capabilities of robots increase they could become multi-functional and fill many needs. Think of the children's toy transformers and how a robot could extend limbs and thus change size. Imagine if a robot would have pegs on his legs and when it leaned over you could step on and ride it like a Segway, this could replace the car in many urban settings.  As robots take our jobs and displace our relationships society may transform in ways we never imagined, this has the potential to become very interesting with a variety of hybrid robots even displacing dogs as mans best friend. Yes, we are looking at the face of a strange new world.

Footnote; The article below expands on the idea of where robots entering our lives might take society.

Saturday, November 10, 2018

Russia Driven Into China's Arms By Bad American Policy

China And Russia Now Hold Joint Military Exercises
It is difficult to understand why any country would adopt a foreign policy so stupid it results in driving its chief adversaries into each other's arms but that is exactly what America has done. The clowns directing such things could not have devised a more self-defeating pathway to take us down if they had made it their goal. While there is much blame to lay about we must place a great deal of it at the feet of the Obama administration.  Putin, when challenged, ran over Obama and showed the world who ran the show in both Syria and Ukraine. We can thank Obama's misguided policies and all the anti-Russian talk flowing out of America for this. Much of what we see today grows out of Putin's mid-2012 response to Obama. 

Simply put, Putin is a thorn in the side of America's deep state and the pro "New World Order" forces. He stands as a shield against the Western progressive vision of what mankind’s future ought to be and rejects the New World Order agenda established at the Cold War’s end by the United States. By putting "Russia first" he defies progressives and speaks for those millions of Europeans who wish to restore their national identities and recapture their lost sovereignty from the supranational European Union. When pressed Putin is non-apologetic in reminding the world Russia has a huge nuclear arsenal and will use it if necessary.

Our deep state's relentless effort to destroy Putin has failed and instead elevated his position as a power broker. Over the years we have seen Putin reach out and establish relationships and bonds with many countries in reaction to the constant barrage and attacks from the warmongers of the deep state, however, the biggest and most concerning should be the growing bond between China and Russia which is based on logic and reciprocity. Russia which borders China has vast natural resources and China has become a low-cost producer of consumer goods searching for a market so the potential for trade is massive and a big win-win for both the economy of China and Russia. 

The irony of what is happening should not be lost nor the cost America has incurred underestimated as a result of our poorly crafted policies. While many Americans cringe when they think about the billions of dollars of consumer goods we import from China every month what makes it even more bizarre is that China is an American made product. Decades ago America started down a perilous path to build China into a world power,  a  pathological fear of  Russia and the Kremlin’s atheism caused America to seek a counterbalance in the region. Central to the American effort was offering the prospect of economic incentives to China, we combined this with a hard-line military response to communist aggression.

China Is An American Created Export Machine
In America's arrogance and efforts to control the world, we greatly underestimated the Chinese leader's ability to bend our goals to fit their needs. We also did not consider how such an underdeveloped nation would be able to retain an anti-American or shall we call it a China first attitude as they took advantage of a system where they reinvested their profits and bought our debt thus giving them influence and sway over our future policies. Few Americans ever though China would rapidly to challenge America economically and worse yet gain massive influence across the world.

Back in the 1970s when MAD (mutually assured destruction) and the communists' stated goal of global domination defined much of international politics the US foreign policy initiative aimed at splitting China from the USSR was an obvious choice.  While China and the Soviet Union regarded one another as strategic adversaries during the Cold War, our main enemy was Russia, so increasing the divide by strengthening our ties with China by helping develop their economy made sense. For straightforward geopolitical reasons America went down this path, but the path became a slippery slope, a slide greased by greed and short-term self-interest. Those who let this nightmare get out of hand should have been forewarned, "be careful what you wish for."

To support China’s economic growth and over 1.3 billion people an export machine has developed with unintended consequences. Absorbing the products created by China's export agenda has resulted in a decline and stagnation in the output of many industrialized countries. Because of low production cost, and little regulation, jobs, and work began to be shifted and "outsourced" to China. Disloyal multinationals are now shipping their products great distances from China to the same infrastructure that they have abandoned and left with excess capacity. The point is many people underestimate or have simply forgotten just how much America has added to China's growth curve or how China's rapid growth mask many weaknesses within its system. Poorly built ghost cities are a monument to China's flawed rapid growth which when not subsidized by America is not sustainable and may end rather abruptly.

Russia's Big Bet On China's Demand For Natural Gas
Circling back to the crux of this article which centers on how we have caused Sino-Russian relations, the international relationship between China and Russia, which dramatically improved after the dissolution of the Soviet Union and the establishment of the Russian Federation in 1991, to grow cozy and warm. Not only are the two countries politically aligned but they also have complementary economies, China with its insatiable appetite for the raw materials which Russia has in abundance and is thrilled to exchange for badly needed consumer goods. Because of this bilateral trade, has soared, at the end of 2017, it stood at $80 billion, an increase of 30 percent year-on-year, with an aim to reach $200 billion by 2024,

Below is a list of some of the most obvious ways the relationship between China and Russia has been transformed in recent years:
  • China has now become Russia’s single biggest trade partner.
  • Since 2015 Russia has been China's top supplier of crude oil, displacing Saudi Arabia by almost doubling its capacity to pipe crude oil to China, to about 600,000 barrels per day.
  • China and Russia have increased coordination at the U.N. Security Council.
  • Regional coordination in Asia with Russia supplying the engines for Chinese-Pakistani fighter jets has resulted in worrying India which is seeing Russia move into the Chinese orbit and less neutral
  • What is viewed as The Shanghai Cooperation Organization has substantially increased
  • The relationship between Vladimir Putin and Xi Jinping, who meet each other with increased regularity has grown much closer.
  • Joint military exercises between the two have become routine and this year Russia supplied China with its most advanced S-400 air defense system as well as Sukhoi SU-35 fighter aircraft
  • Increased willingness on the part of Russia to thwart Washington's argument that China is a threat to Moscow's aims in the East.
Much of this trade will be based on energy for consumer goods with the Power of Siberia pipeline and other planned projects making natural gas a huge component. The new "Power of Siberia" natural gas pipeline set to start pumping 38 billion cubic meters (1.3 trillion cubic feet) of natural gas per year to northern China in December 2019. Chinese investment and energy purchases have made it easier for Russia to resist economic pressure over Ukraine and Crimea. To top this off Russian sales of oil, missile defense systems, and jets are changing U.S. calculations in the Pacific and raising the potential cost of any future showdown between America and China. The non-conflicting interests of Europe and China as two very independent destinations for gas and oil have given Russian Energy Minister Alexander Novak more freedom and power in plotting a course forward.

There is a bottom-line here and it is that those inside our government have and are continuing to poison the well. The policy Obama employed backfired only enhancing Putin's image while causing Putin to turn Eastward and expand economic ties with our enemies. This did not quiet his detractors but caused them to create even more outlandish narratives about Russian aggression including how they interfered in our election and pressuring Trump to go down the same path. Too many Americans who remember how Obama threatened the UK just before the Brexit vote by threatening that if passed America would send Britain to the end of the line when it came to trade such claims ring of hypocrisy but even acknowledging this has not caused America to alter its destructive path.

Footnote; Many Americans don't really know very much about Russia and most of what they have been told has been filtered through a national security apparatus entrenched in a cold war mindset. The fact is Russia's economy is rather small and while over the years they produce and export a lot of weapons their military is not well funded. More on Russia today in the article below.
 http://Russia Tod

Thursday, November 8, 2018

When Debts Collape In Default! - Part Three

World Debt Has Grown Faster Than Wealth
The surge in government debt in many ways has been a transfer of debt from the individual to the public where many people controlling such matters feel it is more benign and abstract. The focus of this final installment of three articles exploring how globally debt has become unsustainable and is poised to collapse in upon itself focuses on "debt to tangible wealth" and the relationship between the two. The chart to the right shows how debt has soared compared to total wealth over the decades, however, more important is what is revealed when we look closer at what exactly constitutes wealth and how much of it is tangible or real and not simply made up of a promise based on paper.

These so-called paper promises include holdings in currencies, bonds, future income based on a pension payout, and much, much more. A place that displays how debt has exploded and gives credence that a storm is coming is a visit to the National Debt Clock. For those who have never experienced its enlightening and sometimes ugly secrets, this is a site well worth taking the time to study and explore. Especially intriguing are the much-underused features across the top that allow a viewer to move around in time as well as from country to country which gives a viewer a great deal of insight as to just how rapidly the debt of countries has grown during the last few decades. 

American Debt Has Soared
Born in 1928, Allen Meltzer, recently passed away but while little known by the masses he was viewed by many economists as America’s foremost expert in monetary policy. For over 25 years he was the chair of the Shadow Open Market Committee, a group that meets regularly to discuss the policy of the Federal Reserve. Meltzer was a professor of political economy at Carnegie Mellon University and a visiting fellow at Stanford University's Hoover Institution recognized for his wisdom and achievements in economics and the author of the three-volume “A History of the Federal Reserve.” Before his death his mood was troubled “We’re in the biggest mess we’ve been in since the 1930s,” he was quoted as saying but also his view of our path forward was also grim, “We’ve never had a more problematic future.” In 2013, I wrote an article about Meltzer and why he stated "It Will All End Badly" based on the idea that debt was being used as an economic crutch.

This thought has been echoed many times by Peter Schiff a well known financial commentator. Schiff says printing money is to the economy what taking drugs is to a drug addict. In the short term it makes the economy feel good, but in the long run, it is much worse off. Schiff contends what was once the "long run" or "distant future" may be getting very near. Such warnings have been heard for decades, in his book "A Time For Action" written in 1980 William Simon, a former Secretary of the Treasury tells how he was "frightened and angry" sighting the growing national debt as a major problem and sounded the trumpet about how he saw that the country was heading down the wrong path.  Back then it was about billions of dollars of debt, today it is about trillions of dollars.

Looking back, it is hard to imagine how we have made it this long without addressing the concerns that Simon wrote about so many years ago. Had it not been for the sky-high interest rate environment ushered in by Fed chairman Paul Volcker at the start of 1980 that crushed inflation the story might have unfolded quite differently. The high interest rates acted as a reset of the global economic system that lasted for decades. That barrier to spending has now been brushed aside. By manipulating interest rates lower and expanding the money supply central banks have fostered an environment that has encouraged people to pursue riskier assets and investments while bringing forward future purchases. As interest rates rise, as they are, will, and must, the value of these risky investments will decline, and these investors will be hurt. Making things worse is the fact that interest payments on the public debt will rise increasing the already massive budget. This is already playing out in some sectors of the economy where prices have been rising rapidly and major distortions exist within the marketplace.

Growth In Tangible Assets Has Not Kept Pace
At some point collapsing debt and dropping faith in fiat currency will intersect creating an interesting place. History shows that when inflation begins to exceed the rate of interest paid, people start altering their buying habits which can create a self-driving feedback loop. I contend slow growth coupled with a lack of really good options as to where people can safely store their wealth will drive the value of real and tangible assets through the roof. During the next financial crisis we may not see a widespread domino effect in the banking system leading to contagion but massive losses in financial markets will result from defaults on debt. While it is difficult to predict the form a financial crisis will take a fall in the value of paper assets and global stagnation while the value of tangible assets rise in relative value will most likely result in a painful reality for many people.

Footnote; Below are the links to part one and two of this series.

Footnote #2; This post dovetails with many of my writings, for more on some of the subjects mentioned above see the articles below.