Sunday, March 31, 2019

Japan Has Joined The Call For Regulating Killer Robots.


Killer robots from a "Terminator" film Photo: WARNER BROS
Japan has joined with those calling for regulating killer robots. An article in Japan today gives details of how Japan is planning to give its backing to international efforts to regulate the development of lethal weapons controlled by artificial intelligence at a U.N. conference in Geneva. Japan has taken the stand it cannot overlook the development of such autonomous weapons and does not rule out the possibility of working toward a global ban on them. This marks a change in Japan's current policy to a more cautious stand. The government was opposed to the development of so-called killer robots that could kill without human involvement, but until now has merely called for careful discussions as to their future.

Japan's goal to make sure that commercial development of AI would not be hampered has now turned more cautious. With the policy shift, Japan is now hoping it can play a more dynamic role in crafting international rules on what have been called lethal autonomous weapons systems, or LAWS. At the conference of the U.N.'s Convention on Certain Conventional Weapons, it appears Japan will submit documents summarizing its views on LAWS and call for the establishment of a panel of technical experts in the field of AI. Let it be clear, killer robot-drones are no longer the stuff of science fiction. The technology to make such weapons exist today and research is rapidly being pushed forward.

Up until, now it has been some African, European, and Latin American countries have been the most active in seeking a prohibition of AI-equipped weapons while the United States, Russia, and other countries said to be developing them are reluctant. It is only logical that the countries most opposed would be those that know that since they are low on the technology totem-pole have no way of defending themselves and will most likely be the victims of future attacks. This brings together several topics that I have written about in the past including how many large mega-companies have grown to where they have more power than most nations.

The companies dealing with the internet, cloud storage and such are particularly worrisome for democracy in that they have placed themselves in the position where they control the communication networks collecting and storing data on all of us. This puts them in a position to manipulate us in every way in a world where fake-news and propaganda are out of control. This train of thought brings front and center the question of whether mega-global companies are working in the direction of taking over the world and even dominating governments and countries. This could in many ways be considered an extension of the New World Order theme with CEOs pulling the strings.

Not only does it intersects with the question of whether globalism is in our best interest but helps explain how and why governments are becoming more authoritarian. This can be seen in a slew of new programs being unleashed to watch over us and even grade our actions in an effort to make us conform to what has been declared "the greater good." The idea that a world controlled by mega companies would be benevolent and kind ignores the greed and ambitions of those who control them and how little regard they can have for those ranked below them. One article even explored the possibility that China's OROB initiative into Africa might eventually lead to mass killings and genocide if Africa's population growth explodes as predicted.

Circling back to the topic of killer robots, this is a subject I last wrote about in November 2015 when I echoed the concern being raised by many people that feel giving a non-human technology the ability to decide if a human lives or dies is simply morally reprehensible. It puts these weapons on the same level as chemical and nuclear weapons which ironically could be replaced as the most dangerous threat to armies and civilians by AI directed killing machines. Of course, advocates say the weapon could, in fact, become a crucial tool for saving lives by claiming they would be able to go into an area and eliminate "hostile forces" with less collateral damage.

"Slaughterbots" Death In A Small Package (click to play)
Falling into this category are killer drones, however, there is also the growing concern of how drones might become or be used as weapons of mass destruction that would leave humans utterly defenseless. More frightening than anything we have seen yet is the miniature smart drones sometimes known as "Slaughterbotsdepicted in a sensationalistic short film at an event hosted by the Campaign to Stop Killer Robots. The film, which depicts a dystopian near-future menaced by homicidal drones, immediately went viral. With tensions escalating between several nations and the possibility of nuclear conflict on the rise interjecting these less expensive tools for mass murder into the mix would most likely allow those deploying LAWS to move more rapidly to pulling the trigger because they would not have to worry about their troops being put in harm's way.

Again a big problem with a killer robot or any tool of death and destruction is who or what controls these machines. If we look at mega companies an added bonus for these behemoths is they can hide behind the governments they control sucking profits from them but remain aloof and shielded from the evil they inflict. Whether robots function under artificial intelligence, governments, or are directed by people like Jeff Bezos who have been empowered by their position, to such forces the rest of us may rate low on the food chain. This should be a major concern to all of us as the killing ability of these machines continues to be ramped up and also expands into the fear that one day in the future Orwellian governments may deploy robots to keep their people under control.

Many of the people viewed as leaders in the field of artificial intelligence (AI) continue to warn of the potential of creating a system that can go awry even when placed in good hands. A recent article in, The Cut, tells how a clever AI computer hid data from its creator to cheat at its appointed task.  Depending on how paranoid you are, this research from Stanford and Google will be either terrifying or fascinating. It confirms, computers do exactly what they are asked, if not explicitly prevented from doing so, meaning you have to be very specific in what you ask them.

Killer robots that are autonomous may be even worse than those under the control of power-hungry or stupid men. Either scenario moves us in the direction of producing more killing fields across the globe. Hoping such events will occur far away and not affect you or your loved ones is not a practical defense for avoiding the carnage. I noted that at the end of 2016 a matter that merited far more of our attention but has become merely a footnote lost in the noise of daily news is the total destruction of once great cities such as Mosul and Aleppo and how they had been reduced to rubble. It cannot be overstated how photos graphically showing the total devastation and death modern warfare wrecks upon those caught in its path are being ignored.


Footnote;  Your comments are welcome and encouraged. If you have time check out the archives for other posts that may be of interest to you. Three other articles about robots can be found below,
  http://brucewilds.blogspot.com/2013/09/thats-my-robot.html
  http://brucewilds.blogspot.com/2013/04/robot-factories-mean-less-jobs.html
  http://brucewilds.blogspot.com/2015/10/sex-bots-could-make-spouse-obsolete.html

Saturday, March 30, 2019

Mega Global-Companies Dwarf Power Of Many Nations

Names We Know- Do they Have An Agenda?
When the value of Apple and Amazon soared above one trillion dollars they became the first companies to reach this milestone. It is difficult to deny that in our modern world many large companies already have more power than most nations and their power continues to grow at an alarming rate. In the past, it was large oil conglomerates that held the power but today much of it has shifted to technology companies. This power is reflected in companies ability to bend regulations in the area of trade, in some ways, the anti-globalism movement could be viewed as an attempt to halt large companies in their tracks. This is one of the reasons anti-globalist and those wanting more limits of trade have rushed to embrace the use of tariffs.

For years many economists have discounted the implications and disregarded how the greed of these companies have added too many problems in the world. For example, if it is bombs you want, they will gladly make them for you, and while doing this they gain power and add to their profits. This train of thought brings front and center the question of whether mega-global companies are working in the direction of taking over the world and even dominating governments and countries. This is in some ways an extension of the New World Order with CEOs pulling the strings. The power they wield is often masked behind the facade of a figurehead leader but it is very real.

Developments over the last several decades portend a shift in power from country to corporations. The argument can be made that corporations are well on their way to supplant the state as the world's dominant organizational structures in the future. Knowledge is power and this means is not just about large conglomerates that produce products or energy but extends into how internet companies, in particular, have placed themselves in the position where they control the communication networks collecting and storing data on all of us putting them in a position to manipulate us in every way.

This has resulted in a blurring of the lines between business and state that has emerged over the centuries and shaped the world as we know it. By weaponizing the data they have collected as propaganda in a battle for our hearts and minds technology companies may hold an advantage over national government in persuading individuals to align with their interests. This translates into enormous persuasive power and could be the key to providing corporations with a path to ultimately control populations, governments, and even nations. As they have gained power it seems these powerful global entities often lead governments around by the nose placing and have taken to placing people in a position of servitude.

The leaders of many large global companies have quietly cast off their national identities over the years choosing to live as citizens of the world and part of the global elite. CEOs of mega-corporations are often the iconic figures that show up in Davos at the World Economic Forum and set the world's future agenda. In a world where countries struggling to be great and often steal the resources of others to elevate themselves to power, many people with leadership qualities have decided the route of CEO is a superior path to power over becoming a politician where national borders limit their rise. These companies are the powerful behind the curtain with politicians pandering to their wants and needs.

Adding to our woes is the number of these companies feeding at the government tit and profiting greatly from the production of items or services that poorly serve mankind. It was with an Orwellian sleight of hand a few years after the end of World War II the War Department was renamed the Department of Defense. This did not halt the growth of the military industrial complex that had grown into a monolith during the war but gave it a path to justify its expansion after the war. One way to do this has been to find new enemies constantly lurking in the shadows, this we have done. Those profiting from the tools and weapons of destruction have blown away national borders by selling their wares across the world deeming this and that country as an ally.  

They also promote "free trade" which has replaced the idea of fair trade. Companies have long pushed for national borders to vanish as they pursue ever-larger markets and strive to achieve greater supply chain efficiency. Transnational companies have declared, damn the people of our nation, it is about us. This makes it rather ironic that governments across the world have chosen to spend so much time and money spying on their people rather than focusing on watching the actions of the huge global companies and conglomerates that hold power over us all. By doing this they have allowed and often abetted the very companies wishing to supplant their power.

As governments yield to these companies by joining and allowing them to watch and exert control over populations it seems prudent to question whether the power of individual sovereign countries has been supplanted by that of mega companies. Across the world, we find many countries rapidly moving towards more controlling governments with strong authoritarian tendencies. Using tools such as facial recognition every citizen in China is now slated to be watched and their behavior scored in the most ambitious and sophisticated system of social control in history. ABC Australian news ran a piece showing how the Chinese people are justifying this extension of government power. Even more concerning is that this could even be viewed as a coordinated effort to reduce, we the people into mere pawns and less relevant.

The idea that a world controlled by mega companies will be benevolent and kind ignores the greed and ambitions of those who control them and how little regard they can have for those ranked below them. In his novels, Orwell depicted how governments could take on a life of their own and criticized totalitarianism throughout his writings. Totalitarianism, the most extreme and complete form of authoritarianism is a political concept that defines a government which prohibits opposition parties, restricts individual opposition to the state and exercises an extremely high degree of control over public and private life. As an added bonus for these behemoths they can hide behind the governments they control sucking the blood from them but remain aloof and shielded from the evil they inflict. It seems an argument could be made that this is the direction we are moving.



Footnote; In the works is an article explaining why these companies are very content to throw countries under the bus and enslave us for "the greater good."  The article below contends that Apple and Amazon share an ugly truth and that is their strong ties to America's government has in many ways allowed them to create a persona or facade that far outshines reality. This allows each company in its own way to exploit us while masking the huge amount of income they pluck from our government on all levels. 
http://brucewilds.blogspot.com/2017/12/apple-and-amazon-share-ugly-truth-they.html

Sunday, March 24, 2019

Italy Picked Off By China? The Folly Of It All

Historic Memorandum Has Huge Ramifications
The Italian Prime Minister and Chinese President Xi Jinping signed a historic memorandum of understanding Saturday morning in Rome that made Italy the first founding EU  member, and the first G-7 nation, to officially sign on to Beijing's "One Belt, One Road" (OBOR) economic development initiative. This was done as Washington and  Brussels which have expressed concern helplessly looked on. OBOR, one of President Xi Jinping's signature ventures, is viewed by many as China's somewhat dodgy project to re-colonize the world's poorer nations and gain leverage over them by implementing a strategy of extending cheap credit, then seizing assets. An example of this is what occurred with a port in Sri Lanka.

Along with the memorandum, China and Italy inked development deals covering everything from port management, science and technology, e-commerce and even soccer. These so-called deals reported as totaling as much as $20 billion appear to be Italy's motivation. For Italy, this appears an "any port in a storm" situation. Italy struggling with a high level of debt and a stagnating economy has found the EU less than supportive and lacking answers as to how they might kick-start growth. Still, the folly of linking up with China in hopes they will become a lifeline to prosperity comes across as an act of desperation that will not end well.

China Has Printed Money Like Crazy (click to enlarge)
The OBOR project designed to expand China's trade and influence is controversial and could become a massive problem over time. The number of problems with this union are almost too many to count. Italy which has seen its manufacturing sector debased by cheap knockoffs from China and other low wage countries will find little comfort in bringing more of these goods into their market. The high fashion houses located in and around Milan will only face more grief as China exploits Italy and uses it as a backdoor into the broader Euro-zone market. Not only has the IMF warned of the potential of many of China's OBOR funded projects going bust China's history of flexing its predatory business model should leave many Italians very concerned. If you wonder how China will pay for OBOR, it appears to many China watchers that they will simply continue printing money and expanding credit.

Much of the blame for this problematic alliance falls on Brussels and the EU for its failures to deal with worsening conditions within its borders. The U.S. National Security Council was not alone in issuing a direct warning to Italy recently for its coziness with China but was joined by a firestorm of responses from leaders such as Donald Trump, Angela Merkel. Jean-Claude Juncker, the head of the European Commission recently described China as a "competitor, a partner, a rival," terms that indicates the unease and fear at which the EU must feel when they look out at the expanding giant that cranks out products at a cost far below those at which they can compete. Yes, again trade and deficits loom large in the minds of those watching this unfold.

Port In Trieste Gives China New Access
Also, there is the issue of defense, Italy, a key member of NATO has just given a fox the keys to the hen house. Buried within the dozens of agreements signed were two port management deals between China Communications Construction and the ports of Trieste. These ports are located in the northern Adriatic Sea, and Genoa, Italy. While Genoa is a long-established port, the port in Trieste has the most potential for China, the South China Morning Post. reports the port is strategically important for China because it offers a link from the Mediterranean to landlocked countries such as Austria, Hungary, the Czech Republic, Slovakia, and Serbia. All these countries are markets Beijing seeks to reach through OBOR.

Following the signing Chinese media celebrated Italy's decision, and predicted that it wouldn't be the last western power to side with Beijing. All this flies in the face of what the European Union proposed following its review of China policy, it recommended "10 actions" to member states, including requiring reciprocity for market access, it also highlighted national security risks stemming from Chinese investment in "critical assets, technologies, and infrastructure." All in all, this is a big deal, it lends legitimacy to China’s predatory approach to investment that continues to unfold across the world and it even undermines the current trade talks between America and China.  

Consider this article an overview of the folly of all this and recognition that the world is not progressing in an orderly fashion. Still, the ramifications flowing from Italy's deal with China may, in the end, prove to be a deal with the devil that opens the floodgates that washes away much of the EU and breaks the euro. Because of China's ties with Russia, it might even strengthen Putin's ability to push back on NATO. This may also change the face of Italy forever, adding to the influx of immigrants that are now there we will most likely see an influx of Chinese workers. While many of us can sympathize with Italy for the pickle it finds itself in that lead to this turn of events

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Footnote; For more about how Italy got into it current mess see the article linked below.
http://brucewilds.blogspot.com/2018/05/italy-update-how-italy-got-into-its.html

Saturday, March 23, 2019

China's C919 Poses Major threat To Boeing's Dominance

Now Airborne China's C919 Will Be A Major Player
Recently Boeing's reported earnings that smashed expectations and its guidance came in far higher than consensus.  Boeing share price then soared taking out its all-time high as annual sales topped $100 billion for the first time in its 102-year history. Many analysts claimed the American airplane maker was set for even more gains in 2019 after bouncing back from production snarls with its 737 jetliners but with their airplanes falling from the sky everything rapidly changed.

The sales of jetliners are very important because they play into the bigger picture of world trade and trade imbalances and China is a massive battleground for Boeing and Airbus because of the sheer size of their market. China's air travel market is expected to surpass the United States by 2024, according to the International Air Transport Association which estimates that 927 million people will travel to or from China by air in 2025. This compares to the 904 million passengers to and from the United States. Translate that into actual orders, and you’re looking at something on the order of 2,800 new planes with a book value of $329 billion. Boeing has projected it could sell China 6,330 planes worth $950 billion during the next 20 years. Nearly three-quarters of the planes for its civilian airlines will be single-aisle with about 700 widebodies. Boeing wants to sell China as many of those airplanes as it can and beat out its arch-rival, Airbus. 

Unfortunately, Airbus won't be the only rival Boeing has to contend with because China is rapidly pushing its own aviation sector forward. The C919, being built by Chinese state-owned aviation manufacturer Commercial Aircraft Corp of China (COMAC), is a perfect example of Chinese intentions and should send fear into the hearts of Americans. COMAC has spent 11 years and $6.5 billion developing the C919, which is seen as China's answer to the Boeing 737 and Airbus 320.The C-919 has a flight range of up to 3,451 miles (5,555 kilometers), which means it can fly non-stop from Shanghai to Jakarta or from Paris to Montreal and it can fit 158 to 168 seats. This hits right at the heart of its competitors, different models of Boeing 737 can seat 85 to 215 passengers; while an A320 can accommodate 100 to 240 people.

Expect China To Rapidly Ramp Up Production
Politics plays a big role in industry and the Chinese government which has long aspired to play the "plane game" has no qualms admitting its big role in developing the country’s aviation industry. Miao Wei, vice minister of industry and information technology, has been quoted saying the government encourages the development of export-oriented aviation products. Articles that have appeared on this site over the years argue that China is not our friend and that we had better be on our toes. Several of these articles explored how China was ramping up its fledgling aviation industry and how when it hits its stride we can expect cutthroat competition. The article warns that as China's aviation industry takes flight over the next decade America and Boeing may be saying say goodbye to a big chunk of its exports in this field.

An article in USA Today in the fall of 2009 focused on the planned C919, called the "big plane" project, designed to directly challenge U.S. plane-making giant Boeing and European rival Airbus. The article reported the first flight wasn't scheduled until 2014, and the jet wouldn't be available commercially until 2016. But even back then the Chinese manufacturer claimed the twin-engine, narrow-body design of the C919 is superior to its competition the Boeing 737, the best-selling jetliner in the world, and its competitor, the Airbus A320. COMAC is yet to release the price tag of the jet, but a report by China National Radio predicted that it would likely to be sold for around $43 million. This is much cheaper than a Boeing 737 or an Airbus 320 which each cost around $80 million $100 million respectively.

At the end of 2018, the third C919 completed its maiden flight at the Shanghai Pudong International Airport. Footage of the flight released by Chinese state broadcaster China Central Television Station. COMAC said the plane completed 21 test points during the flight but did not reveal more details of the maiden flight, such as the plane's altitude or speed but in May of 2018, the first C919 during its maiden flight reached 10,000 feet with a maximum speed of 170 knots or 196 miles per hour. The first two C919s took to the skies just last year and are undergoing flight tests in order to obtain flying certification. Three other C919s are currently being assembled and are expected to complete their first flights next year.

The Chief Designer of the ARJ21, Wu Guanghui, says that COMAC has turned to new, lightweight carbon composites in place of steel for the plane's construction to gain the 12% to 15% in fuel efficiency. Boeing, which is the pioneer in composite design, has had difficulty in bringing its first composite plane, the 787 Dreamliner, to market, however, once a company pioneers the way we find those following in their footsteps have an easier path. Boeing and Airbus have delayed plans to build more fuel-efficient, narrow-body planes to replace the 737 and A320 because it cost billions to create a new plane and adding composites won't contribute enough fuel-efficiency savings to justify the move. Price isn't the sole factor for airlines in buying a plane, overall quality, reliability, maintenance, and readily available replacement parts, as well as the pilot and mechanic training that manufacturers provide, are also important.

Building commercial aircraft has never been a consistently profitable business, manufactures risk several billions of dollars every time they try to develop a new type of aircraft. The Communist government, however, is playing by a different set of economic rules and using the C919 as a springboard to develop a nationwide aviation industry involving more than 200 companies, 36 universities and hundreds of thousands of personnel. Some free trade optimist claim China's airline industry has become a private-sector industry and ignore the government's influence saying, just because the C919 will be made in China doesn't mean all the Chinese carriers will stop buying 737s and A320s to buy only C919s. They also claim it will be decades before the Chinese will be able to produce anything close to the numbers of planes that the Chinese market will demand.

This is not China's first jet, at the end of 2015, COMAC delivered its first new "Advanced Regional Jet for the 21st Century," dubbed ARJ21. The buyer, Chengdu Airlines contracted to buy 30 of these new planes and across China, more than 300 orders from various airlines and airplane-leasing firms have been placed. The ARJ21 is tailor-made for the Chinese regional market, it is capable of carrying as many as 90 passengers on trips as far as 1,300 miles allowing it to make direct flights to just about any point in the country. Currently the plane is built with about 50% U.S.supplied parts, including avionics from the well-respected Rockwell Collins and engines from General Electric. The ARJ21 is the result of a trade delegation led by President Obama back in 2009. This does not impact Boeing which doesn't play in the 90 passengers and below market but it directly competes with models from Brazil’s Embraer and Canada’s Bombardier.

So where is this going? China is investing big in this vision with its State media touting the "advanced technologies" that will be used throughout the plane, from new avionics to the plane's frame partially made of light composite materials. COMAC is also developing a wide-body plane, the C929, in cooperation with Russia's United Aircraft Corp. Another company, Avic, is currently working on China’s first helicopter factory. The bottom-line is that it would be incredibly naive to underestimate China's resolve in rapidly becoming a player in a field that will move it up the manufacturing food chain. Expect competition in this field to rapidly intensify as new Russian and Brazilian jets also hit the market.

With China's experience of building cities from scratch and government-backed financing, why build just one factory when you can build twenty? This means we should not expect China's aviation industry to grow organically but to be engineered by an aggressive government with a mission. All this is part of a plan to take China a huge step closer to its trillion-dollar aviation dream of replacing all 6,000 to 6,800 of its western aircraft will its own planes. This translates into a cost of around $1 trillion dollars, with most of the replacements expected to be this single-aisle made-in-China jet. This makes China's C919 a big deal.

Friday, March 22, 2019

India Tightens Noose On E-retailers And We Should Too!

India Understands Importance Of Brick And Mortar
India has tightened the noose on E-retailers and America should too. According to Quartz India, the country's new foreign direct investment (FDI) rules for the e-commerce industry could result in a massive set back for existing players. This means companies such as Amazon and Flipkart may lose up to 40% of their revenues. by 2020 due to the tightening of FDI norms, according to CRISIL Ratings. Anuj Sethi, senior director at CRISIL said, “The impact on e-retailers would be largely in the electronics and apparel segments, which account for a bulk of their revenues.”

Near the end of December, the Narendra Modi government announced several restrictive changes in its FDI policy for online retailers. The new rules are aimed at safeguarding the interests of offline retailers were first floated in 2016 and include restricting e-commerce companies from entering into exclusive deals to sell at deep discounts. The new policy also bars them from procuring over 25% of the inventory from a single vendor, especially from sellers in which the companies own a stake. Launching products exclusively on their websites and apps has been a major money spinner for online retailers, but the practice has left small traders and sellers upset because they could not match the deep discounts that online companies offered.

The top two e-commerce companies in India, Amazon and Flipkart account for about 70% of the online retail industry revenue generate and about half of their sales through group companies. this means following the new restrictions on equity ownership in sellers, e-retailers will need to make changes in their supply chain and may be forced to rapidly alter business model in several ways. It is reported that Amazon and Walmart-owned Flipkart will not be compliant with the new FDI rules by the deadline and have urged the government for an extension of the deadline by at least six months.

The government’s move to tighten FDI rules for e-commerce companies comes after sellers listed on e-commerce marketplaces complained to the Competition Commission of India that Flipkart and Amazon were indulging in predatory pricing and deep discounting, destroying the business of smaller vendors. The rock-bottom prices offered by online retailers have taken a toll on brick and mortar stores. Between fiscals 2014 and 2018, e-retail in India grew at 40% a year. Still, this does not mean anyone is writing off the e-commerce industry and the long-term growth potential for Indian e-retail companies continues to remain strong due to increasing internet penetration, and the convenience of online shopping, and the growing purchasing power of households.

As stated earlier, America also needs to investigate ways to level the playing field and protect brick and mortar retailers that provide jobs and are so important to the fabric of communities. By far the worst abuser of the current e-commerce system is Amazon which has developed strong ties with the government and has even incorporated a complacent United States Postal Service in expanding their advantage over businesses by delivering Amazon packages at a discount and even on Sunday. To make matters worse state and local governments have put special packages together with incentives aimed at luring Amazon to build in their areas oblivious to the damage it will cause in coming years.

Prices are important to consumers but so are jobs, and removing the advantages e-retailers have comes down to achieving a balance between what is best for communities in the long run and giving consumers good value. While people hate new taxes something has to be done and while an online transaction fee can be seen as a tax its goal is to be "revenue neutral" taking pressure off communities need to raise local taxes on real estate and such. The revenue from such a fee would be sent to local governments in the area where the sale originated or goods are shipped, to offset lost tax revenue from retail closings. Still, rather than getting stuck on the details of something that will most likely never happen we should instead think about what kind of community and world we wish to live in and how best to preserve the nature and quality of the life we seek.

2018 store closures
2018 Retail Store Closings (click here to enlarge)
The ugly reality that store closures are set to accelerate is a cancer on America. Large retailers as a group are collectively set to lock the doors for the last time at thousands of stores this year. Across America stand a sea of empty and under-leased buildings that once housed thriving businesses that provided Americans with jobs. The damage Amazon is inflicting upon America when combined with the true nature of our so-called recovery spells big trouble in the future. As we take a closer look at what is driving the economy forward we find auto sales, student loans, and our ballooning national deficit. Today roughly a third of those buying cars are taking out sub-prime loans stretched out far longer than ever before and sadly, many young people are facing huge student debt that will affect their disposable income for years to come. Then there is the issue of massive deficit spending, this alone acts as a giant stimulus package but comes with massive negative ramification.

Local businesses, both large and small are often viewed as the bedrock of our communities and with the closing of each one, a little bit of us goes with them. The brick and mortar stores suffer several expenses not fostered upon online companies. Whether it is the cost of maintaining landscaping, ensuring safe ingress and egress or providing a parking lot for customers these costs rapidly add up. Staffing for longer hours for the convenience of customers often results in being open when foot traffic would indicate a store should be closed and even dealing with security and shoplifters is another expensive burden.

Adding to there problems, stores such as Target and Macy’s have even had to face a slew of dishonest shoppers trying to sneak defectives products purchased online back as exchanges and trading them for a fresh unbroken product. The fact is the assault on our brick and mortar retailers coming mainly from Amazon with it engulf and devour strategy comes at a great cost and will be levied in many forms such as reduced property taxes for local communities. We can also expect a slew of empty buildings blighting our landscape and driving down property values across the nation. With many traditional brick-and-mortar retailers having very heavy debt loads and looking at nearly $1 trillion of debt coming due over the next 3 to 5 years if the economy turns south this might only be the tip of the iceberg as retailers default on loans and bonds as well.

Washington lawmakers have shown little interest in addressing the issue of how online shopping plays into the overall economy other than initially granting it some rather large advantages. The fact is store closures are set to accelerate, this comes with a hidden cost to society that the average person fails to internalize. An "Online Transaction Fee" could go a long way to level the playing field between online retailers and brick and mortar stores. A charge on all online purchases of just a few percentage points would add a bit of competitive fairness to retailing while halting the demise of many of the brick and mortar stores that line the streets of American communities. 

While like most Americans I'm not a lover of any kind of tax, but an online transaction fee may be needed to halt the damage flowing from this shift in how consumers shop. It could make the difference of whether many small businesses across America remain in operation. These businesses pay a massive amount of real estate taxes which flows directly into the support of local police and fire departments as well as maintaining our roads. Not only are these stores where we go when we need something really fast or that has to fit just right but they also employ our friends and neighbors. As a final argument as to why we should support local stores, it should be noted that "we the people" will suffer and be forced to pony up more dollars in local real estate taxes as their contributions drop and local services are cut.

Monday, March 18, 2019

Tesla's Cars Are Just Not That Good!

Tesla's Quality Is A Problem
Simply put, "Tesla's Cars Are Just Not That good!" There I said it, someone had to. While many people have tried to put Elon Musk on a pedestal the factors that brought him to where he is today seem to be on the wane. The recent unveiling of Tesla's new Model Y was considered by many as an event aimed at distracting analysts and the company's critics from its cash balances but the fact that the car won't be delivered to customers until the fall of 2020, has instead become a cause for concern. Beside the fact the car has no "Wow factor," several analysts and some in the media, such as Bloomberg's Dana Hull, rushed to point out this is later than some analysts expected.

Of course, Musk predicts the Model Y will sell better than the Model S, Model X and Model 3 combined saying, the crossover will have “the functionality of an SUV, but ride like a sports car.” The long-range version of the Model Y, with a battery range of about 300 miles, will have a starting price of $47,000. A less-expensive standard-range model will be available in spring 2021 for about $39,000. Some Tesla watchers speculate the new model could further weigh on current Model 3 demand as some consumers may decide to wait a little longer so they can purchase a Tesla crossover vehicle. This comes as the introduction of a cheaper Model 3 could also dent Tesla’s overall margins.

Tesla Appears On A Mission To Self-destruct
This is being taken by many as a sign that Tesla is increasingly becoming "liquidity-constrained." The company is slated to start taking pre-orders, at $2,500 per car, more than twice the $1,000 it asked to reserve a Model 3 but few people are predicting a huge rush to pony up cash for Tesla's new vehicle. The Model Y was originally supposed to be an add-on product with the Model 3 which was expected by now to be rolling out at 10,000 units a week. The fact is Tesla has been plagued by production problems resulting in quality issues at the same time that demand doesn't seem to be where it needs to be in order to handle even that many cars. This translates into confusion with Tesla currently losing money, cutting jobs, and closing stores.

While his vision and what many people still see as "top-notch" engineering had merit, Musk has failed to execute his mission to build a quality vehicle. This has been particularly true when it comes to the lower end of the price spectrum. Mass producing an automobile is no easy or small task. Many large experienced companies have failed to stay competitive in this cut-throat industry where any misstep has massive ramifications. One of the biggest problems Tesla faces is that it is poorly managed and seems to be making up its business plan on the fly and missing deadlines. This means broken promises to those buying their cars.

High-profile Tesla Crashes Have Been Noticed
Circling back to the crux of this article which is Tesla simply has not been able to produce a constantly quality product, articles of high-profile Tesla crashes do little to improve the company's image. The tales of owners being jerked around when it comes to having their cars serviced also detract from the brand and as time goes by more and more of these are surfacing. Fickle consumers, when asked to spend a great deal of money on a product, have little tolerance for a product straight off the production line that is chalked full of flaws and defects.

Government subsidies may have caused buyers to be a little bit more forgiving in the past but as they end and competition picks up those who have supported Elon Musk and Tesla seem to be leaving in droves. With over 100 different electric cars expected to hit the market by 2025, Tesla's problems are about to become overwhelming. Many of these "Tesla crushers" are just months away from hitting showrooms. These new introductions into the rather small electric car market add to the long list of the problems nibbling away at Tesla's credibility and affecting future sales.

Ironically up until now, Musk's greatest strength may have been that so many investors doubt his ability to perform. This means that a slew of impatient clowns have shorted Tesla stock in search of quick profits. Like Musk, these bearish investors have continually shot themselves in the foot at every opportunity. They do this by constantly finding reasons to rush to the exits in short covering panics that invariably brings the share price back up. Each time this happens Musk rushes to claim the stock price as proof all is well, however, after his run-ins with the SEC this also may be about to end. Over time it is likely both Elon Musk and the value of Tesla will continue to dwindle, decline and diminish.

Saturday, March 16, 2019

Hyperinflation Seldom Occurs But Can With Rapid Speed

 A Wheelbarrow Of Money Can Be Worth Little
Life is full of facts we don't know or have simply forgotten. In a comment, a writer recently encouraged the curious to search "hyperinflation during the Weimar Republic." Some of what I discovered was surprising. Germany had come out of the first World War with most of its industrial power intact, the speed at which inflation suddenly destroyed the currency dovetails with some of my thoughts on currency trading today. It confirmed that inflation can stem from a growing lack of faith in a currency, or all currencies, rather than just a lack of available goods. As inflation takes root the goods available for sale often contracts as sellers retreat from the market awaiting higher prices which creates a self-feeding loop.

Hyperinflation Hit At A Startling Pace
It was amazing how quickly inflation took root in Germany during the 1920s, we must consider how fast it could happen now that we live in an age of instant communication. History shows the German currency was relatively stable at about 60 Marks per US Dollar during the first half of 1921. But the demands in May 1921 for reparations in gold or foreign currency to be paid in annual installments of 2 billion gold-marks plus 26 percent of the value of Germany's exports was crushing. The first payment was paid when due in June 1921. That was the beginning of an increasingly rapid devaluation of the Mark which fell by November 1921 to approximately 330 Marks per US Dollar. The total reparations demanded was 132 billion gold-marks which were far more than the total German gold and foreign exchange.

In August 1921, Germany began to buy foreign currency with Marks, this increased the decline, the lower the mark sank in international markets, the more marks were required to buy the foreign currency demanded by the Reparations Commission. During the first half of 1922, the Mark stabilized at about 320 Marks per Dollar because of international reparations conferences, including one organized by U.S. investment banker J. P. Morgan. After these meetings produced no workable solution, the inflation shifted to hyperinflation and the Mark fell to 8000 Marks per Dollar by December 1922. The cost of living index increased more than 15 times in just six months.

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In today's world, many people have developed a false belief in financial stability because of claims by central bankers they have "controlled" inflation to where the economy will grow at a managed pace. A recent article on this site explored how the manageable inflation goal of 2%. has become the "holy-grail" of central bankers but this target central banks have deemed optimum is not economically valid and is "based only on their opinion" of what conditions will best allow the economy to flourish. For a long time, the ECB and other central banks have claimed deflation drives or allows their QE policy to remain and is central to their ability to stimulate. The moment inflation begins to take root and become solidly entrenched to where it becomes a self-feeding loop the flexibility of central bank policy is lost.

What makes this debate over future inflation very relevant is that the average American has witnessed in the last 30 years, a growing gap between government reporting of inflation, as measured by the consumer price index (CPI), and the actual cost of living. What the central bankers have conveniently brushed aside is that the formula that generates the numbers governments pump out was skewed in the 1990s when political Washington moved to change the nature of the CPI in an effort to reduce the federal deficit so nobody in Congress would have to register a vote that would harm the image of Social Security. For proof as to the real cost of inflation just look at the surging replacement cost resulting from recent storms and natural disasters. I contend that inflation would be much greater if more money had flowed into tangible goods rather than paper investments and promises over the last several decades and this has masked the rate central banks have debased our currency.

It might be wise not to become too trusting or complacent to the idea that inflation can be contained at 2% especially while deficits explode, debt builds, and central banks continue to stimulate the economy by printing money or that the economy looks good for the next year or so. In the past, I have put forth the theory that inflation could rule the day even if central banks are unable to keep the wheels on the bus and the economy suddenly collapses which is in truth beyond their control. If inflation does not become the flavor of the day it is also very possible the future may unleash, its sister, the powerful force known as stagflation.  which is also a threat to the average citizen and will devastate those improperly invested for its arrival.

The mindset of investors and of the "money people" often shifts into overdrive when opportunities for speculation arise. The distortion caused by easy money from Federal Reserve policy coupled with political and social compassion for affordable housing, medical care, has obvious implications as debt and promises continue to rise. Most economists agree the Central Banks are not in a position to tighten the money supply at this time. Remember, so many of the things we invest in such as pensions and stocks are merely paper promises but hard assets are rare. A word of caution, while hyperinflation does not often occur, when it hits, and the speed at which it can hit is a massive game changer that can make bonds and many other investments nearly worthless.

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Footnote; This is the first of a two-part series, the next part will be published within a few days.

Thursday, March 14, 2019

Passenger Rail Needs Huge Makeover To Be Competitive


We Must Reinvent Trains As People Movers
Railroads must be redesigned if they are going to be economical people movers. The fact is we need to totally rethink what is needed to efficiently transport people, the wide heavy tracks and stout passenger cars we use are overkill. A much lighter and smaller style pod would work, it could even be equipped with an undercarriage that would move the wheels in or out to adapt to a narrow "public transportation" or the wider standard rail tracks now in use. Some of the things I have seen over recent years are cause for concern and proof that regulators are still too involved and poor decisions are being made as to the direction and future development of this important national resource which should be an alternative to flying. 

To anybody that has given the subject much thought, it is perfectly clear mass transit in America is broken and to make things worse the system is a big money loser. Passenger railroads must be redesigned or "Reinvented." Railroads have much to be desired when it comes to efficiently moving people. While rails are viewed and hailed as an energy efficient way to move freight they could also be a great way to move people, but to do so we need to take a fresh look at what is really required and what is not. Most likely it will mean doing a lot of retrofitting the parts of the current rail system that could still be used. Sadly, the future of rail travel is only elevated to making headlines or being discussed when Amtrak has an accident or when Elon Musk refers to it in one of his futuristic rants.

During the last 250 years, the train industry transformed itself from its simple beginnings into one of the most influential transport industries in the world. That period of time was marked with countless train designs of all types and sizes. By the beginning of the Civil War in 1861, there were 30,000 miles (more than 21,000 of them in the North), and lobbyists were clamoring for a transcontinental system across the nation. The number of railroad miles continued to climb until hitting its peak in 1916. That year there was more than 250,000 miles of track—enough to reach the moon from Earth. Over 1 million people worked for the railroads back then and the train was the main way to travel and move freight on land.

Automobiles, trucks, and airplanes coupled with bad government rules took passengers and freight from the rails in the 1950s and 1960s as better roads and the interstate system was built. Many railroads went out of business or merged. In 1971 the federal government created Amtrak to take over from the railways what had become a massive money-losing passenger service. During the 80s the government changed many rules related to trains and the whole railroad business began to grow again. Currently, railroads carry about 40% of all freight, more than any other mode of transportation.

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I'm not a big fan of Elon Musk, I admit
when he unveiled his idea for the Hyperloop in August of 2013 it created quite a stir.  The Tesla Motors and SpaceX CEO dropped a 57-page alpha white paper on us. With his predictable flair Musk noted he didn’t really have the time to build or give us such a revolutionary transit system that would shoot pods full of people around the country in above-ground tubes at 800 mph. The reason this is important is that it was one of the few moments in America when people discussed an alternative way to move people about. For futurist and those who enjoy picking apart complicated plans, it was a godsend.

Years ago the abilities of trains were limited by many factors that no longer apply today. Improvements in materials and advancements in technology have cast the door wide open to rethinking the whole people moving process. In doing so the 80/20 rule leaps out at me if we can meet 80% of our objectives and achieve the bulk of what we want for 20% of the cost why complicate things. I contend the alternative to our current passenger trains neither be so drastically different or as expensive as the Hyperloop plan. Also, in the background of this debate the KISS principle screams out to be heard, "Keep It Simple Stupid" is the voice of reason in a situation like this.  

We must remember that bigger is not always better, and everything does not need to be ramped up and put into operation by tomorrow afternoon. When it comes to creating or changing something like the existing passenger rail system several big factors come to mind such as trying to utilize current rails and routes. Today even trying to run new rails and procuring new easements or corridors is cost prohibiting in areas of high population. This would mean adapting any system we develop to utilizing existing routes and most likely in a way that would coexist and not interfere with other forms of transport.

We Need To Think About Lighter Passenger Movers
We must overcome the existing definition or idea of what most people think a passenger train must be. New people transports need not be limited to using only one style or rail width but could adapt and mechanically adjust to narrower or different tracks in much the same ways as cars now go from two to four-wheel drive. Lighter cars would also not need the heavy duty roadbed or rails needed to hold up under hundreds of tons of weight that are placed upon current tracks. In addition to using existing tracks additional light duty and thus less costly tracks could be run where necessary. One place where right of way issues are not a big factor might be within the current confines of the Interstate Highway corridors.

Passenger cars do not need to be as high as those for moving freight which would greatly reduce their center of gravity nor for that matter would they need to be as wide. They could also be equipped with a system that wrapped around a lip on the track making it impossible to derail. The lighter weight people mover could sport its own motor or drive system allowing it to move without being pulled by an expensive and heavy conventional locomotive. It does not require a great deal of horsepower to get a much lighter weight car moving and once rolling little to maintain or achieve greater speeds. If each car has its own drive system it allows far more flexibility in scheduling and cars no longer have to be bunched together allowing for more departing times.

Features such as GPS would tell us exactly where cars are and adjust their travel while security cameras would assure passenger safety. The idea of smaller, lighter and faster people movers translates into much smaller tunnels and lighter weight rails and guides that cost much less. even the idea of standardizing the cars and simply modifying how they actually attach to the rails would reduce cost. It is important to acknowledge that what works in one city or region may not work in another as an article on the failed bus systems in my city points out that many mass transport systems are money bleeding nightmares with few riders.

A contest to create a prototype that would meet our needs or stir a conversation as to what a new modern passenger system should do might go a long way to move this debate forward. The speed and time of travel from point to point is a big factor in developing a system, but it is important to remember that at some point you are paying a lot of money to save only a small amount of time. Remember currently a great deal of time is already spent in getting to airports miles from our city centers and going through security checks for relativity short flights. When put in the proper context it seems a system to move people at a reasonable cost between "city centers" at an average speed of  125 miles an hour or more would eliminate the need for most smaller airports and be a superior alternative for many trips.

Those of us who have traveled across Europe on its trains often praise the system without looking at the economics that support it. We should be aware of both the cost and the overall benefits to society when it comes to planning such a system that would have such a large impact on how our culture develops. A well planned train system has the potential to influence future development on a scale similar to how the interstate highway system has changed life in America. The fact is a totally new passenger rail design could be introduced by private companies renting time on current tracks. Sadly, it is likely such ideas will be blocked by old laws on the books and a federal government busy debating such important issues as what constitutes a hate crime.

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Monday, March 11, 2019

Euro-zone Banking Deception Continues Unabated

Source: ECB, Federal Reserve Bank of St. Louis.
To say the Euro-zone banking system deception is continuing understates the size of the fraud occurring before our eyes. In many ways, it has been allowed to continue only because other central banks and financial institutions fear that shining a spotlight upon it would undermine world currency markets and bring about a collapse in confidence that light really does exist at the end of the tunnel. The chart to the right speaks volumes as to the size of this charade.

A huge problem before the region is envisioning exactly from where its next economic renaissance might flow. The source certainly won't be from a well tuned and responsive political system or because of its growing ability to produce goods for a fraction of the cost of competing nations. Unfortunately for the Euro-zone, much of its problem can be viewed as one of "stagnation." Figures show that as of 2017 not a single European company ranked among the top fifteen technology companies in the world. It was mainly North American and Chinese companies that are driving the world forward. Still, more troubling is that of the top 50 global technology companies, only four are European and even those are slowing losing their edge.

Challenged and crippled by political instability, cursed by a lack of political cohesion and strikes, many countries within the zone are struggling just to continue functioning on a day to day basis yet move forward economically. In France Marcon remains under attack from the yellow vest movement which has now disrupted business and impacted tourism for several months. In Italy where its massive national debt adds to the unfolding political drama, many issues remain unsettled. Also, there is the issue of Brexit and the possibility the United Kingdom (UK) may just walk from an unbending European Union and simply let the chips fall where they may.

All this raises the question of not if but when the value of the euro will begin to show the stress which has been masked-over and greatly ignored until now. I tend to agree with John Mauldin, chairman of Mauldin Economics, he thinks the flashpoint for the next crisis is likely to be in Europe, with much of the focus on Italy. The choice of Europe is whether to put a lot of bad debt on the balance sheet of the European Central Bank or deal with defaults and the contagion that flows from them. If not addressed the Euro-zone breaks apart and we’re going to get a 50% valuation collapse. “Greece,” he said, “is a rounding error. Italy is not" The bottom-line is Brussels and Germany are going to have to continue buying Italy's debt. It seems that until now, a program known as "Target 2" has been the salvation of the euro and responsible for preventing countries from collapsing.

Since 2015 we have been again witnessed capital fleeing to the north as a result of Draghi starting QE in 2015 and the Bundesbank starting to buy back bonds on the market. The Italian central bank is dependent on the ECB and has to buy Italian government bonds. German investors have to exchange these bonds for euros in Italy and transfer the money via Target 2 to their German bank. The growing differences in the Target 2 balance sheet are the result of the Germans, who own the Italian bonds dissolving them in Italy and transferring the money to Germany. Italians have also added to the capital flight as they liquidate their bonds and send their money abroad. This translates into enormously huge debt claims on the German side that are not covered by any securities.

If Italy or Spain withdraw from the Euro-zone, the Germans will be left holding worthless paper. This has not generated much unrest in Germany only because the Germany people have great confidence in the Bundesbank. At a press conference on 26 July 2017, Draghi said about Target 2: “It has nothing to do with the movement of capital from country to country” and the clearing balances cannot be overdrawn as long as no one leaves the Euro-zone. This translates into, Italy must not leave the Euro-zone! Italy's debt amounts to 2.3 trillion euros and its liabilities in Target 2 rose in June 2018 to 481 billion euros from 164.5 billion euros in 2015. This means that Banca d’Italia owes the Bundesbank almost half a trillion euros!

To be perfectly clear, there are many German economists who criticize Target 2 and see it as a check that cannot be cashed. This coupled with the slowing of the Euro-zone economy means the ECB appears once again to be on auto-pilot as Draghi recently announced a new round of long-term loans to banks and promised interest rates won’t be lifted from record lows until 2020. The ECB is safe for now hiding in plain sight even as the ECB president prepares to leave office in October after spending his entire eight-year tenure crisis-fighting. Still, if the Fed moves even a bit higher all bets are off. Weakness in the euro almost certainly will result in a stronger dollar which could be the catalyst for the emerging market crisis to spread to the rest of the developed world and evolve into a global deleveraging event. Again it is difficult to ignore the fact the euro remains very vulnerable.

                                                                                   This blog is not written for money
                                                                                 or profit but as a way to share ideas
                                                                                 and thoughts. If you liked this post
                                                                                 feel free  to E-mail it to a friend
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Friday, March 8, 2019

Economic End Game Set To Be Very Ugly!

Edvard Munch, The Scream
Sooner or later all great Ponzi schemes must come to an end. When the markets finally succumb to the fact that current economic policies have failed all will collapse and the "end-game" will have arrived. Following the financial Armageddon and I do mean following, as by "several" months, central banks will be forced to unleash such a massive amount of new currency into the system to combat a scourge of deflation that it will stagger the mind. This will in effect clear the deck of deadwood through hyperinflation and pave the way forward to introduce a new or a "batch of new" currencies. Call it a "re-alignment" if you wish, but in reality, it will be the recognition that our path was an unsustainable illusion and that a new start will be deemed the best path out of the legal morass that contagion and collapse has rendered. The debts that are not written off will become a moot point in that most will be devalued and paid off in worthless paper. The issue will not be what is fair but how to get from here to there with the least damage to the institutions and wealth those in power seek to protect.

We must recognize that we are but pawns in the giant game known as the global economy. Please excuse the tone of this article, it is rooted in the idea that on occasion it is good to vent or say what is on our mind. Sometimes we have to simply concede things are what they are and find solace in the thought that things could be far worse. You can expect promises to be rewritten and broken. Rules will change as we go through the wash. Most people will see their assets rinsed away as society is put through the wringer. For example, expect the cost of living adjustment on social security to be modified reducing payments to the elderly. Adding to the woes of retirees is that many pensions will be forced to reduce payouts and break promises as the returns on their investment fail to meet expectations. Many of the guarantees and paper promises granted over the past decades will prove to be less valuable than the paper they are printed on.

Venezuela Stands As Another Recent Example
Recent revelations showing the Fed has been in collusion with Goldman Sachs and complicit in allowing them to do damn well as they please garnered little attention. The scheme to transfer wealth to the large banks is intact and most Americans know something is wrong but are too busy with their day to day existence to react. Eyebrows should be raised over the revolving door between large financial institutions and government that allows former employees with connections and strong ties to policies to flow freely back and forth between the two and the conflict it raises. It is not illogical to consider this growing wave of crony capitalism will soon sweep us off our feet. This is something that has inflicted pain upon people throughout history and closely related to what we know as government corruption.

With big business increasingly exerting its power over small enterprises it is not surprising that many people feel trapped in a world where their options are rapidly vanishing. In many ways, those in control have paved over economic reality masking and covering a multitude of sins against the laws of supply and demand. It is impossible to deny this has also taken its toll on "true price discovery" that allows our economic system to adjust and properly function. As pawns in this game, we can either choose to sacrifice ourselves or fight. In this case, fighting means to undertake a strategy that protects what we can of the life we have created within the power we have been granted. The fact you are reading and thinking about this subject puts you in a far better position than the masses who see before them blue skies and unicorns grazing upon a hill.

Make no mistake, we cannot and should not look for a white knight to come riding in to save the day, no such leader exists to lead us out of the economy hell we have created. Predictions of  "lost decades" are not uncommon as we recover and struggle to find a path forward. Here in America, the political system we have created often ask a majority of voters to cast their ballot for the candidate they "hate the least" or in more politically correct terms the "least of two evils".  Adding to our woes is the constant reminder that even if we garner up the enthusiasm to go to the polls rather than disengaging from the process the poorly crafted electoral college will soon strip us of any illusion that all votes are created equal.

As the global economy moves forward it is difficult to ignore that it is constructed on a weak foundation of imbalances, lies, and excesses. We only need to look towards China with its ghost cities and the fact its massive factories continue to crank out far more steel than is needed. Across the world, debt has exploded as wages stagnate. Countries have borrowed against the future by running up huge deficits. Good jobs based on creating and doing a real task that can be economically justified are in short supply. The situation has become dire and the numbers do not work, borrowing money to merely pay the interest on past debt and NIRP is not a prescription that leads to economic nirvana and bliss. The option to what you have just read is a war so nasty and devastating it will make the above look like a walk in a rose garden.