Reefer Madness

Reefer Madness is a 1936-1939 American propaganda film revolving around the melodramatic events that ensue when high school students are lured by pushers to try marijuana. It shows how the drug leads to a hit and run accident, manslaughter, suicide, attempted rape, and even to a descent into madness. The film directed by Louis Gasnier and starred a cast composed of mostly unknown bit actors was financed by a church group under the title "Tell Your Children" and was intended to be shown to parents as a morality tale attempting to teach them about the dangers of using this drug.

This Is The Root Of Many Myths!

We should not underestimate how the propaganda film, Reefer Madness has greatly and quietly influenced the views of a whole generation of Americans towards marijuana also known as cannabis. The film strongly promoted the idea that if a person used or tried marijuana even once they would be hooked on it and that it was highly addictive. This has caused society to view marijuana as a gateway drug and fear it will be the pathway to even worse and more dangerous drugs. As a result of this film, we have generated laws throwing a large number of people that have cultivated, sold, possessed and even used marijuana in prison.

Now with prisons across America bursting at the seams we are finally beginning to question the wisdom of these costly policies. Society is changing and the legalization of marijuana by states in a rush to get tax revenue will most likely have ramifications on other social norms and laws.  Expect the debate to spill over into areas such as laws governing the smoking of cigarettes and age limitations on drinking. For years many people have sought the legalization of marijuana or viewed its use as a victimless crime, this is about to become a reality.

With states hungry for tax revenue expect a rush to clear away legal roadblocks to mainstream it into American life and society. Other taboos may also be rolled back as we become more tolerant and open. Even cities are jumping on the bandwagon and leaping in front of action taken by individual states. This will massively muddy the water as conflicting jurisdictions must hash out what is legal and constitutional. The next few years should end the influence of "Reefer Madness" the silly little film that has held our culture hostage and sparked needless fear of a plant that grows everywhere.


Footnote; The trailer for "Reefer Madness" and the entire movie is available on U-Tube for those interested. As always comments are encouraged. If you have time you might also be interested in a post about how Indiana is going against this trend and toughening laws against this drug, or the cost of our war on drugs. The links are below.
              
             http://brucewilds.blogspot.com/2013/07/indiana-marijuana-laws-step-back-in-time.html
             http://brucewilds.blogspot.com/2013/09/war-on-drugs-is-far-too-costly.html

Super Low Interest Rates A Disservice To Housing

I have owned an apartment complex for many years and we are currently experiencing the largest number of vacancies we have ever had. Many houses in the area are empty or under leased. In 2005 and 2006 prior to the housing collapse many people were looking at second homes, for investments or as a vacation getaway, today not only have they shed the extra home many have doubled up with family or friends reducing the need for housing. We are pushing on a string and calling it demand when someone who can barely pay the rent is encouraged by the government to buy a house they can neither afford or maintain. We have a shortage of "qualified" buyers and renters.

I have been busy trying to make sense of the current economy, this is not an easy job. To do so you cannot take what you hear at face value, you must delve below the surface and peel away layer after layer of what is being said. Many of the messages being promoted as common knowledge do not past serious scrutiny. Those of us in the trenches and with our boots on the ground often see things from a different prospective then the economist in their ivory towers, the Washington politicians, Wall Street elite, or the media. As we are told about the new construction of badly needed houses and apartments it seems we may be at that point once again.

Lower interest rates do not necessarily bring the right kind of growth or prosperity, decades of slow growth in Japan is proof of this. Years ago Lee Iacocca who had brought Chrysler back from the brink and made the company once again viable said something to the effect of when you special out all your cars on Monday you have no sales for the rest of the week. You just moved sales forward with no profit. This is one of the sad accomplishments of  the Fed and its low interest rate policies. They have created a false demand that is eating tomorrows lunch today.

When it comes to real estate low interest rates at some point becomes a double edge sword, that effects both the value by making it easier to purchase thus driving up prices, and at the same time allowing more building to take place and increasing the supply. Often we reach or exceed demand, this eventually has a dampening effect on rents and people stop buying it as an "investment". Prices must rise and real estate appreciate more then the natural depreciation from the wear and tear from age or the main driver for owning it vanishes. Oversupply is the bane of real estate and crushes the value of this hard and expensive to maintain commodity.

Like a spoiled child a certain segment of the economy has benefited from the props of low interest rates and an easy money policy. In reality many segments have not, those dependent on interest on their savings have suffered and the same can be said about those forced to compete against these policies. This has the effect of weakening parts of the economy while putting others on easy street. This has distorted markets and created an unlevel playing field. The easy way often does not make society better. Many of the most productive people in the world were driven by a parent that was a tough task master and hardened by adversity. Policies that undercut the real economy are a disservice going forward.

But lets float our attention back to the start of this post. How does the reality of a half empty apartment complex and a slew of empty houses gel with what we hear about soaring rents, the demand for more housing, and more affordable housing? Only those in Washington would be silly enough to think that landlords who had to compete against subsidized housing would be eager to remain in the game or that someone working for a living enjoys paying more for an older apartment then someone on the dole who moves into a brand new unit for a fraction of the cost. By hurting those who have done the right thing the current policies will have long term negitive cost. Everyday we see people move into a new home and leave older neighborhoods thus hollowing out our cities.

Many people find moving easier then repairing and maintaining the homes they have. Low interest rates drive this trend forward. The policy of putting people in older houses that they have no interest or knowledge in how to maintain causes those living around them to flee the visibly decaying area. America has build a lot of housing units over the years, now we must face the fact that they need to be maintained. Policies should be geared to creating jobs by maintaining these units not in making them obsolete. Instead of creating policies to rebuild our cities and housing Washington has doled out low interest money to Wall Street and home builders in an effort to kick-start the economy this has manifested itself in the illusion of growth and rising prices.

Looking behind the curtain we see as a December 20th Bloomberg article titled "Wall Street Unlocks Profits From Distress With Rental Revolution" points out that much of this is being driven by speculative purchases from mega groups. It also leads me to think big business will continue to crowd the average American out of the real estate market. A close look shows many of the future housing starts are multi-family units, these are being built with this cheap money for the markets of tomorrow with little regard for the realities of today. This is a flashing red light warning of danger ahead. America must face its housing problems with long term solutions, this is the wrong kind of growth and encouraging it bodes poorly for the future.

 Footnote; A lot of peripheral issues are clouding reality, including a massive housing bubble forming in Canada and ghost cities being built in China. Below are two other previous articles that may be of interest.
                       http://brucewilds.blogspot.com/2013/01/has-housing-bottomed.html
                       http://brucewilds.blogspot.com/2012/11/what-is-something-worth.html

Euthanasia A Dignified Death

Most people would prefer to live a long life, but not too long. There is nothing wrong with a dignified death after a long life. The mores of America are rapidly changing according to those who only a decade ago thought that gay marriage and gays in the military would never become accepted. Sadly ideas like euthanasia and even discrete breastfeeding in public still drive many Americans crazy. With people living longer and technology's ability to extend a person's life well beyond where they feel it has any "real quality" the issue of euthanasia will not go away.

A big problem with the Universal Health Care model in the United States is that we have a much more death-averse and drug-centric mentality than any other nation working such a system. Americans, generally, expect to receive the latest advances in life-extension therapies and life-enhancing drugs. A completely different ideology will have to be established in the relationship between our population and the medical community for this to function in a cost-effective way. Accepting death as part of the natural order would go a long way in solving many of the problems. I contend that a person of reasonably sound mind should have the right to say, "I have had enough! End my life Now!"

In the United States, with its culture of optimism and religiosity, many people want to postpone dying at any cost often including that of pain. Why religious people tend to feel this way is unclear. For some Christians, dying in pain is welcomed or at least endured because it makes them feeler closer to Christ. Others believe that the decision as to when a person dies is reserved to God, this is the stated basis of the official Catholic position that sees suicide as a mortal sin. But not all Americans feel that way and many people who are suffering acutely, anticipating suffering acutely, or find themselves lonely or depressed may want to die.

Teaching and thinking about death without heavy religious connotations often sheds more insight onto life and strip away illusions of one's immortality. Watching an elderly loved one die in pain from an incurable illness or watching a life cut short without notice can bring many issues into focus. The last few grains in an hourglass always seem to rush by faster, we should never take for granted how many good years we have left. Confronting our own mortality sooner rather than later is conducive to living a better and more balanced life, mortality influences our values and feelings about everyday life.

Recent opinion polls show many people want laws changed to allow people to get medical help to die. The word "euthanasia" was first used in a medical context by Francis Bacon in the 17th century, it refers to a painless and peaceful death, during which it was a "physician's responsibility to alleviate the physical sufferings of the body." Physician-assisted suicide is now legal in Belgium, Colombia, Luxembourg, the Netherlands, Switzerland, and several U.S. states (Montana, Oregon, Vermont, and Washington). It is quasi-legal in France and tolerated in a number of countries in which it continues to be illegal. Where euthanasia is allowed checks and balances exist to protect against coercion and decisions made by a person depressed or not of sound mind.

Current government laws conflict with the changing views of many citizens. Some people who want to die commit suicide, but others do not out of fear that their attempt will fail and leave them even worse off than before, or because they lack confidence that they can kill themselves discreetly and painlessly. Suicide also carries a huge social stigma, because of the public character of suicide one cannot dispose of one’s own corpse. People who want to die often shy away from committing suicide because of these issues. Even if one argues that by their inaction they actually are choosing to live many would be far better off if they could deal with their problems in an open way.

In the case of physician-assisted suicide, the "stigma cost" of suicide is reduced or disappears, because if a person who wants to die is allowed to choose a lawful form of medical “treatment,” this signals that suicide is acceptable at least when a physician oversees the act. The religious people whom I mentioned will not be assuaged; but religious people shouldn’t be permitted to impose their sectarian values on others, including both religious and non-religious people, who do not share the abhorrence that some religious people feel toward suicide. Allowing physician-assisted suicide could improve many lives by reducing apprehension about the future and at the same time reduce the suicide rate.

The biography of distinguished federal court of appeals judge Henry Friendly reports that he committed suicide in his 80s because, suffering from a variety of ills that were not disabling and did not prevent him from doing his judicial work, he was afraid that he would become disabled and when that happened be unable to end his life though desperately eager to do so. If able to pre-arrange a painless physician-effected death to occur when he reached a specified stage of disability, he would not have killed himself when he did. Euthanasia is thus an option and a less costly one than killing oneself unaided. To me this is a non-issue, the government should not enter this area of individual autonomy and freedom of choice.


   Footnote; Your comments are welcome and encouraged. If you have time check out the archives for another post that may be of interest. Below is an article that focuses on how the young will be burdened in the future by having to support the older Americans that have been promised so much. Do not be surprised if the young come to embrace euthanasia.
                 http://brucewilds.blogspot.com/2013/03/the-young-will-be-burdened.html

Footnote #2; It appears this issue is becoming more important in China according to the Bloomberg following article.        http://www.bloomberg.com/news/articles/2015-02-11/do-not-resuscitate-china-s-elites-push-for-a-better-way-to-die-i61al0i2

Dangerous World? No Worry, have some pie!

A recent two year budget in Washington has again kicked down the road and delayed the need to make any major reforms. Again we have avoided facing the tough issues. It seems the Republican's new strategy of how to govern the country is becoming clearer every day. It seems they will just try to sneak in the door as "the only other option" when the other worthless bums are tossed out. This clarifies and acts as a reminder that a crisis is often not a crisis. Often it is just a crisis in the making!

A rising issue is becoming income and social inequality, this means the party in power going forward may just be the one that takes the strongest stand against more money flowing into the hands of a small fraction of the top one percent. Whoever wants to win the chance to lead must figure how to give the impression they will corral this top .01 percent while at the same time allowing the middle class and economy the to flourish. With crony capitalist running amuck actually doing this will be easier said than done.

My latest theory after all I have seen and all the frustrations from both the economy and politics is that things will always more or less move forward. This does not mean that they will not take two steps forward and one step back or that the path will always be smooth and straight. To many the world might appear to be in a state of flux and a colossal mess yet we seem to blunder ever forward. Fear not a systematic failure but instead take heart that the sun will come up tomorrow.

Like the dance band on the Titanic that plays as the ship goes down most the people in this world are often oblivious to what is happening around them. This might be considered more proof that those of us proclaiming doom are wrong and that our moronic cries hinge on a heightened sense of fear. Just because you catch someone in a lie does not mean they will stop lying, often the best way to cover a lie is with another, then another, then another.

Escaping our economic morass will most likely take an interesting route going forward. While those in power, the politicians, central bankers, and the infamous one percenters appear to have painted themselves into a corner they also have super powers that allow the constant creation of new exits. Pray tell you might ask. The power of the pointed finger and the placing of blame should never be underestimated for they are indeed magical. So I say to those who see this as a dangerous world, my solution is we should all try to relax and have some pie.


Footnote; Your comments are welcome and encouraged. If you have time check out the archives for other post that may be of interest. Below is an article that list the 10 most crucial problems facing the world, if you have time please take a look.
                http://brucewilds.blogspot.com/2013/11/the-worlds-10-worst-problems.html

The Reason Dismal job Creation Will Continue

Expect dismal job creation to continue, today many forces are coming together that tend to make this the new normal. Over the years as we have become able to produce more with less labor we have seen the fruits of our work improve the lives of many people. Today we enjoy being able to have far more goods and luxury's then at any time in history, but soon we will find ourselves competing with robots for jobs and see many of our options for earning a living swept away. This comes at a time when America looks back at all we have built in recent years and suddenly finds all these things aging and increasingly calling for expensive maintenance.

It does not help that the President and most of Washington lack solid backgrounds in both business and the economy. Obama has displayed this on more then one occasion such as when he validated the job crushing model of "job shifting" by visiting and praising a new Amazon distribution center and by giving kudos to the way Amazon's website works to fill customer needs, this constitutes free advertisement for a damaging business model. While trying to aline himself with big business and what appears on the surface to be a success he cuts away at those that do the real job creation. When we cannibalize and promote one sector of the economy at the expense of another we harm our ability to grow and compete.

Today many people forget that small business is the backbone of America, this is the real job creator and the place where people "with skin in the game" do real work. This is where useful training takes place, where skills are learned and honed. Main Street was built by locally owned family businesses that competed on a level playing field. Giving small business a fair chance has added diversity and strengthened the fabric of our communities.  We need a private sector that builds and maintains things here in America, a private sector developed and grown from small business and "hands on owners" that are rewarded for the risk they take. Real job creation will languish until credit is again given to this key sector of the national economy and the vital resources they provide. 

Over the last several decades a "bigger is better" mentality that often yields huge competitive advantages to larger firms has taken hold. This business model also contains several flaws and is unbalanced.  It tends to suck all the air out of the room killing its competition and using them as its primary fuel for growth. If people do not produce and earn money they cannot consume or pay taxes. It is easy to connect the dots on how this relates to big government and promises made to providing certain benefits to people through what is known as entitlement programs. When things become unbalanced the system can no longer be sustained.

The so called "new economy" risk being no more than a transfer of wealth using a deficit spending government as the conduit. An economy fueled and based on a 52 billion dollar infusion into things like the NSA collecting data on average Americans does little to create sustainable jobs or promote long-term growth. Programs where educational money is spent on providing third grade school children with I-Pads made overseas is not the ticket either. Fact is the whole concept of buying an wireless phone or computer from China then spending on a monthly data plan tend to transfer money into an area that does little to promote a healthy economy.

Many people fail to internalize and consider that the "past cost" of government if not paid results in a carrying cost that is also known as interest on the debt. This can become substantial if allowed to accrual. When it rises beyond a certain point it begins to act as a drag on future growth and the ability to move forward. Often how we view the economy is based on prior performance, if it is not growing each year the momentum is gone. The exploitation of small business through a constant flow of new laws and regulations from Washington comes at a high price that we will be paying for many years.


  Footnote; Your comments are welcome and encouraged. If you have time check out the archives for other post that may be of interest. Below is an article that focuses on how society must allocate the rewards of our labor, and also a post about how robots are replacing workers.
                    http://brucewilds.blogspot.com/2013/04/society-must-better-divide-labor.html
                    http://brucewilds.blogspot.com/2013/04/robot-factories-mean-less-jobs.html

More Budget Woes Unaddressed

As we enter the holiday period more budget woes lay ahead only the times and dates are different. Like the remake of a bad movie we have little to look forward to. They may have changed the backdrop and tried to clean up the worse lines but it is the same old bad movie, again. Washington has done a great job of doing nothing. For every reason to take action now they come up with an argument that delay is the best policy considering the weak economy. Leaving the spending issues unaddressed has become the easiest solution.

Back on August 3rd of this year I penned an article saying that America had been lulled with the rest of the world into complacency as we have kicked the can down the road and I continued that as a nation we have yet to feel much pain from the sequester. Not dealing with what we were told was a massive problem has only reinforced the idea that far too much has been made as to the ramifications of an out of control budget going forward.

This time expect the strategy and posturing to be somewhat different, what I'm seeing develop is an "almost surreal" feeling of indifference. Expectations have dropped to such a low level that it appears most Americans no-longer seek a solution but that they only want Washington to do no more harm to the current situation. After some grandstanding and a bit of theatrical outrage both republicans and democrats seem ready to agree to a deal that extends the status quo.


 Footnote; Your comments are welcome and encouraged. If you have time check out the archives for other post that may be of interest. The posts below are my August post on the budget issue that was fast approaching followed by an artical hoping the shutdown would have a positive effect.
               
              http://brucewilds.blogspot.com/2013/08/budget-woes-approching-very-fast.html
              http://brucewilds.blogspot.com/2013/10/government-shutdown.html
            

Iran and the Nuclear Agreement!

After several recent hits the Obama team is hungry for a win. The Iran nuclear negotiations that have finely ended in an agreement will be spun to constitute such a victory. With Kerry saying things like "no deal is better then a bad deal" six world powers reached an interim agreement with Iran on its disputed nuclear program after days of talks in Geneva. American officials said it was the first time in nearly a decade that an international agreement had been reached to halt much of Iran’s nuclear program and ratchet back some elements of it. The goal of the accord, which is to last six months, is to give international negotiators time to pursue a more comprehensive pact and ensure that Iran’s nuclear program could be used only for peaceful purposes.

Shortly after the agreement was signed in the Palace of Nations in Geneva, President Obama, speaking from the State Dining Room in the White House, hailed it as the most “significant and tangible” progress of a diplomatic campaign that began when he took office. In the six-month interim deal, Iran agreed to limit nuclear activities in return for relief  from economic sanctions. The United States agreed to provide up to $7 billion in relief with roughly $4.2 billion coming from oil revenue that has been frozen in foreign banks. President Obama called the agreement "an important first step" but said sanctions can be reapplied if the Iranians violate it. Financially this is a "big deal" for Iran that is desperate for hard currency.

The sanction relief can be accomplished by executive order, allowing the Obama administration to make the deal without Congress where there is strong criticism of any agreement that does not fully dismantle Iran’s nuclear program. Critics point out the fact that the accord would only pause the Iranian program and say it will reward Iran for institutionalizing the status quo. Several U.S. senators, both Democrat and Republican have voiced displeasure with the parameters of the agreement, arguing that the U.S. and its partners are offering too much for something short of a full freeze on uranium enrichment. Those who are skeptical and view this as a weak agreement say Obama has again backed down again.

Mr. Obama attempted to address those concerns insisting that the easing of sanctions could be reversed if Iran failed to reach a final agreement or reneged on the terms of this one. “Nothing will be agreed to unless everything is agreed to,” he said noting the qualms of Israel, Saudi Arabia and other Persian Gulf allies of the United States by saying they “had good reason to be skeptical of Iran’s intentions.” Obama insisted he had a “profound responsibility” to test the possibilities of a diplomatic solution. Administration officials said the deal addresses several of Israel's most serious concerns about Iran's nuclear program including Iran's  growing supply of 20% uranium and the Arak reactor coming online. Israeli Intelligence Minister Yuval Steinitz said there is no reason for celebration insisting the deal is based on "Iranian deception and self-delusion."

Some experts, including a former official who has worked on the Iranian issue for the White House, said it was unlikely that Iran’s supreme leader, Ayatollah Ali Khamenei, would ever close the door on the option to develop nuclear weapons. Only last Wednesday in a speech Iran's supreme leader underlined the position of the old guard and muddied the water with saber rattling rhetoric saying that Iran would never compromise on "red lines." Since then Tehran has publicly reverted to its original stance that the six powers must recognize uranium enrichment as Iran's right, despite strong opposition by Israel and within the U.S. Congress.

This initial six-month agreement is likely to be followed by a series of partial agreements that constrain Iran’s nuclear activities but do not definitively solve the nuclear issues.We must understand that a freeze may not really be a freeze. On the contentious issue of the heavy water reactor Iran is building near Arak, which could produce plutonium and therefore another path to a bomb, Iran agreed not to produce fuel for the plant, install additional reactor components there or put the plant into operation. However Iran is not required to dismantle the facility. To guard against cheating, international monitors would be allowed to visit the Natanz enrichment facility and the underground nuclear enrichment plant at Fordo daily to check film from cameras installed on site.

Iran has insisted on certain sovereign rights to pursue programs within their borders throughout almost a decade of  fruitless negotiations. Last weekend Iran indicated that it was ready to sign a deal that does not expressly rule out that right. Iranian hard-liners are suspicious of talk of nuclear compromise since moderate President Hassan Rouhani took office in September, fearing his team will give not get enough in terms of sanctions relief over the six-months of any first-stage agreement. For the world the bottom-line remains that if  Iran does not halt and reverse its course any agreement means nothing. Iran can ramp up its plans to develop a nuclear bomb at off site locations. In the long-run Iran wins. If current trends continues in the future Iran looks to face a defanged and economically weakened America with less power in the region.


 Footnote; As always your comments are welcome and encouraged. In a separate post I chronicle the 10 most pressing and important problems facing our world, these are increasingly more menacing in that we live in a rapidly changing world that gives us little time and less room to react and set straight the mistakes of our past. As you might expect weapons of mass destruction rates fairly high on the list that can be found below,
                     http://brucewilds.blogspot.com/2013/11/the-worlds-10-worst-problems.html

We are on the path to "Lost Decades"

We are on the path to "Lost Decades" is a thought I found myself pondering the other day while cutting drywall. Doing manual labor has the great benefit of giving one time to think, just remember to measure twice before cutting. Manual labor is generally pure and honest. This is especially true if it is on your own project because you have skin in the game. If you mess up you have the honor of paying the piper in some way or form. Japan is the poster child and living proof that low-interest rates do not guarantee economic growth and prosperity.

Years ago before the "Bernanke has all the answers" era, many of us criticized Japan for failing to own its problems. Many people thought Japan should face up to 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. The country languished and avoided disaster only by the fact that it enjoyed a large trade surplus year after year. Today that trade surplus has vanished but the massive debt remains.

While they claim otherwise, in many ways Bernanke and the Fed have put America on a path that mirrors the same unsuccessful path taken by Japan. A path that avoids real reform and bails out the very people that caused many of our problems. Bernanke has upped the ante by setting the bailout and money printing machines on high and flooding America and the world with QE. By selling other central bankers on this solution he has taken the lead in an experiment that is losing traction. Real momentum seems to ebb shortly after each new wave of stimulus and another fix seems to constantly be needed.

Two key differences between America and Japan must be considered. 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 world's 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 can at any time greatly affect our ability to do business as usual.

As we measure the results of the Bernanke policy 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.


 Footnote; A post outlining how this shift in policy may affect Japan is below. If correct it will have major implications.
                     http://brucewilds.blogspot.com/2014/05/japan-sliding-towards-abyss.html

Footnote #2; As always your comments are welcome and encouraged. In a separate post I chronicle the 10 most pressing and important problems facing our world, these are increasingly more menacing in that we live in a rapidly changing world that gives us little time and less room to react and set straight the mistakes of our past. The link can be found below,
                     http://brucewilds.blogspot.com/2013/11/the-worlds-10-worst-problems.html

China Drowning In Overcapacity And Debt

Chinese Communist Party officials have announced they will pursue significant reforms under the new president and premier during the coming decade. The devil will be in the details as to how these reforms will be implemented. And those are lacking. So far, allowing the market to play a "decisive" role in the economy has emerged as a message in the state media. The details of their new economic policies are lacking but in the coming weeks and months, the official media is expected to divulge more of what is planned by the Chinese leaders. They must quickly address the issue of a glut of new factories recently built but sitting empty for lack of demand

Fast growth tends to mask flaws and weakness within a system, and China has been growing like a weed for years. To make things worse many of the investment decisions were driven by politics and often influenced by corruption. This has created massive overcapacity. Money has been poorly allocated and often shoveled into deep holes like ghost cities and bridges to nowhere. Premier Li Keqiang has pledged to open the economy to market forces and strip power from the government in a process he conceded would be “very painful.” In July, he vowed to curb the overcapacity which the government blames for driving down prices, eroding profits and generating pollution.

The introduction of market forces into the economy by Chinese leaders would be key to achieving necessary "breakthrough" reforms. These involve reforming capital markets, labor in the form of improving social welfare, and land. Basically, the factors of production all need reform and much of it requires raising productivity in order to support growth. This will be no easy task for any economy, much less one where powerful state-owned enterprises dominate the financial sector and key parts of the economy. This is a hard change in direction, for years many of these companies have operated on razor-thin margins and been focused on expansion with the goal of creating jobs.

Currently, a 6.6 trillion dollar spending spree used as stimulus to combat global economic slowdown is coming back to haunt China. This has greatly expanded credit and created huge overcapacity during the past five years. A massive debt crisis now looms in the offing. At stake are trillions of yuan in bank loans that companies producing everything from ships to steel to solar power are struggling to repay as the world’s second-largest economy is in the midst of a major slowdown and the weakest annual growth since 1999. An example of the problems and overcapacity this has created is a company many Americans have never heard of named Rongsheng. This company is seeking a government bailout after accumulating 25 billion yuan ($4.1 billion) in unpaid loans as of June.

Rongsheng has been crushed by over-investment gone bust. After watching its assets jump sevenfold between 2007 and 2012 when government-directed lending led to a shipbuilding boom it is now drowning in debt with loans outstanding to the Export-Import Bank of China and China Development Bank Corp, which is a government-owned bank set up to provide financial support at a low cost to companies and industries endorsed by the state. Rongsheng may post a second consecutive loss of 2 billion yuan this year and a 1.1 billion yuan loss in 2014. The company has let go, 38,000 employees, almost 80 percent of its workers over the past two years.

Rongsheng now relies on its remaining 8,000 workers to build the world’s biggest cargo ships for a Brazilian iron-ore producer and Oman Shipping Co., as well as smaller vessels and oil tankers. Workers in its shipyards, as well as the office staff in its Shanghai office, have had their salaries delayed by as much as two months recently. The company and the banks involved are both are tight lipped about the situation. The problem is Rongsheng is one of many shipbuilders in this situation. The same is true in much of the economy, China has built like demand was unlimited. Industries such as steel and cement also stand out and have been named by the State Council as facing a “serious” glut. China’s economic planners have sought to rein in the steel industry since at least 2004

Gordon Chang, author of "The Coming Collapse of China," said China may only be growing 2 or 3 percent and if you strip out all the construction going into ghost cities and "high-speed rail lines to nowhere," the economy may not be growing at all. China claimed 7.7 percent growth for the first quarter but when you look at electricity, by far the most reliable economic indicator of Chinese economic activity, that grew 2.9 percent in Q1. When you consider that the growth of GDP is historically 85 percent of the growth of electricity, you're talking 2.5 percent (growth)." Many of those loans used to finance the construction of those ghost cities and idle train lines may never get repaid. Instead, banks continue to roll over these loans-many made to state-owned companies.

A huge issue is the risk and wild card China poses going forward, If they were to use foreign exchange reserves to recapitalize the banks this could have nasty unintended consequences. By converting their U.S. Treasury holdings to yuan they could "explosively increase the money supply" and at the same time torpedo their currency. This could unleash inflation creating a major crisis. For some international investors, China uncertainty has been reason to avoid the country's equities altogether. One thing is certain and that is the level of credit growth in China is unsustainable. There is bound to be a significant contraction in credit and most likely in growth. Of course not all China watchers are bearish as I and many expect China to muddle through.


 Footnote; Please feel free to explore the blog archives and as always you comments are encouraged. For more on China see any of the four post below,
                                      http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
                                      http://brucewilds.blogspot.com/2013/04/china-and-corruption.html
                                      http://brucewilds.blogspot.com/2013/02/china-bubble-yes-it-is.html
                                      http://brucewilds.blogspot.com/2012/09/china-made-by-america.html

Footnote #2; Please note you can thank the problems in China for keeping import prices low and all many of the "bargain" prices in stores this holiday season. This has tamped down inflation but for how long?

Central Banks Balance On The Inflation Fence

It appears the central banks of the world have made the crux of their existence a balancing act. You can almost imagine these bankers standing atop a fence. On one side lays a field of inflation and on the other a deep pit of deflation. A new round of easing by central banks to combat a slowdown in growth may again be in the cards but do not be surprised if this time it is less successful. The magic of this policy is losing its luster.


Recently the European Central Bank cut its key rate in a surprise decision some investors say was intended in part to curb the euro after it soared to the strongest since 2011. The same day, Czech policy makers said they were intervening in the currency market for the first time in 11 years to weaken the koruna. New Zealand may delay rate increases to temper its dollar. To top it off Australia warned the Aussie is “uncomfortably high.”

Actions from the central banks is throwing more fuel on the fire causing the currency wars to heat up. This move comes barely two months after the Group of 20 nations pledged to “refrain from competitive devaluation” because of its destabilizing effect. With inflation slowing and the outlook for the economy being downgraded by the International Monetary Fund countries and central banks seem to be revisiting policies that tend to boost competitiveness through weaker currencies.

The polices of lower interest rates and pumping money into the system has not created as much growth as hoped but it has brought with it major market distortions. Money has resisted flowing into the things that would bring a recovery and have flowed into the stock markets, financials, and areas of speculation. Welcome to the world of the "global economy" where open borders dilute efforts to concentrate policies to a specific area. Cross border flows cause such efforts to produce results similar to pouring water into a leaking bucket.

One of the main reasons the stock market has benefited is that it is highly liquid and easy to enter and exit. Unlike real estate that has a high bar of entry with many fees and often taking months or even years to sell,  stocks can be exited in a blink of an eye. This is a big advantage in uncertain times when valuations can change rather quickly. The wild card in this is inflation. Currently velocity (the speed at which money flows through the economy) is very low but if it rapidly increases more money will be chasing the same amount of  goods resulting in more inflation.

The danger is that once inflation takes root it can take on a life of its own and feed on itself creating a hard to control cycle. How the central banks can get off this fence is the issue and if it can be done in a safe manner is yet to be determined. One thing is clear, we cannot remain on this artificial growth path forever. We have seen much of the effect wear off from prior bouts of easing, in the past each wave acted as a tailwind pushing us towards recovery. Now as central banks begin to taper and resume more normal policies many economist fear this will become a major drag on the economy going forward.


 Footnote; As always your comments are welcome and encouraged. In a separate post I chronicle the 10 most pressing and important problems facing our world, these are increasingly more menacing in that we live in a rapidly changing world that gives us little time and less room to react and set straight the mistakes of our past. The link can be found below,
                     http://brucewilds.blogspot.com/2013/11/the-worlds-10-worst-problems.html

  

The Crux of our Economic Woes

The crux of our economic woes lay in the fact that over the last several decades we have created entitlement societies on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. Promises were made on the assumption that those advantages would continue in both Europe and US, and that ever greater prosperity and entitlements would be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about ever more growth.

Now reality has begun to come into focus and it is becoming apparent that this is unsustainable. The entitlements and promises that have piled up have become overwhelming. The populations of the worlds most advanced nations were led to believe the good times would never end, but suddenly their core advantages in technology, capital, and productivity have started to erode. Now they find they are lagging behind several emerging countries. Manufacturing jobs have steadily gone elsewhere, replaced by low skilled service jobs, this has removed the supports from our debt fueled prosperity showing it to be unsustainable and flawed.

While told that we were moving up the value chain in reality the opposite was true. The trends of prior years coupled with debt fueled prosperity and consumption growth led many to believe that their future would be secure. By moving towards "higher value adding activities" we would continue to lead the emerging and developing countries. This has proved false and the economies built on those false assumptions are now crashing down. Merely addressing the symptoms of our malaise as "financial problems", a tactic being tried by  leaders, central banks, and the IMF, will only raise false hope. In the end it will not avert the economic and political upheaval before us.

Debt has repeatedly caused  problems throughout history, but its potential for disrupting our economic system has grown tremendously because new technologies have allowed us to weave and create a framework of  relationships that increase the likely-hood of contagion. This growing web of interdependence leaves us vulnerable to a failure of the very systems on which we have come to depend. This flawed concept has now become the bedrock and foundation of our society. When coupled with the issue of our unsustainable economic and population growth it is clear we are reaching a point where many of the problems we face can no longer be pushed forward.

Denying these problems will result in creating a precarious situation that requires a massive shift in future lifestyles over a very short and painful time-frame. The failure for countries to address their long term debt problems coupled with the number of  growing people nearing retirement with little in the way of saving bodes poorly for the economy going forward. Big changes in Medicare that are occurring under the radar also should raise concern. If and when a deep hit to the system takes place we could suffer the triple threat, and as confidence falls the credibility, and the competence of those in charge will be called into question. If this happens the fabric of society may be severely challenged.



Footnote; As always your comments are welcome and encouraged. In a separate post I chronicle the 10 most pressing and important problems facing our world, these are increasingly more menacing in that we live in a rapidly changing world that gives us little time and less room to react and set straight the mistakes of our past. The link can be found below,
                     http://brucewilds.blogspot.com/2013/11/the-worlds-10-worst-problems.html
                           

USPS and Amazon another unholy alliance.

I scream foul! Why has the USPS made a special deal with Amazon to do Sunday deliveries in two cities? This is wrong on several counts. The first and biggest reason is that the USPS is an extension of the US Government and a money losing one at that. Another problem is this hurts all the smaller mom and pop businesses and brick and mortar stores in a community. This makes government an alliance to a company built on exploiting those who provide jobs to us on the most basic level. Before government decides to embark on such a mission a debate should occur as to the values we hold dear.

Amazon has used every trick of self promotion to propel itself forward. Few details have been made available on this "special deal" but this small development and non game changer once again gave the illusion that Amazon was rolling forward with the full blessing of the American government and a mandate of society. This is not the case, Amazon for years has used a money losing USPS as the final  leg of many of their rural deliveries while at the same time gaining from an unlevel playing field resulting from not charging sales tax in many areas. Note, Amazon is not a big job creator, it is a job"shifter" and often it is shifting people into low paying and uninteresting jobs where they will someday be replaced by robots.

While this arrangement may add revenue to the postal service it still is not the job of the government to compete with private delivery companies such as UPS and Fed-X. Claims that the USPS makes money on these deliveries offsetting other loses does not justify such intrusion by government into the private sector. This is more proof that President Obama does not understand business and basic economics. Attacking other parts of the economy cannot fix a USPS that cannot even drop something as unnecessary as Saturday delivery. We should be fixing the imbalances within the post office by cutting wasteful services and adjusting prices rather then by expanding into the private sector.

Do not be surprised if some type of legal action is taken to roll back this kind of government subsidized competition. In the city where I live with some 250,000 other people city government in their wisdom has leased out some surplus office space for a fraction of current rates. I recently saw a tenant move from one of my buildings to this city subsidized space, this means I lose income while my property taxes have increased to pay their rent. This is not the way to help an economy grow and remain healthy, again do not think of this as a victory for freedom and commerce, if it were the USPS would not be involved.



Footnote; Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged. Below are links to tho other articles related to this subject,

     http://brucewilds.blogspot.com/2013/01/amazon-is-not-our-friend.html
     http://www.marketwatch.com/story/10-things-amazon-wont-tell-you-2012-06-26
     http://brucewilds.blogspot.com/2012/04/gutless-senate-avoids-postal-service.html

Obamacare Starts Out looking Very Ugly

What has been described as a nightmare and a train wreak continues to develop before our eyes. The latest furor broke out this week concerning the millions of Americans who currently have health coverage under individual or small group plans, many started getting notices from insurance companies that the new Obamacare regulations mean that their current plans are being dropped. The focus appears to be on easing the impact for a specific group: people whose policies have been canceled and who don't qualify for tax credits to offset higher premiums. Seeking damage control the administration has countered with spin, and babble. Adding to the roll-out woes a Federal US appeals court last week ruled that the Obamacare birth control mandate is unconstitutional.

A president can't just pick up the phone and order the Treasury to cut checks for people suffering from insurance premium sticker shock. Adjustments to subsidies would have to be authorized by law and no easy fix is in sight that would not be "budget busting" and halt Obamacare in its tracks. President Barack Obama says he'll do everything he can to help people coping with health insurance cancellations, but legally and practically his options appear limited. That means the latest political problem engulfing Obama's health care overhaul will not be resolved quickly, cleanly or completely. White House deputy spokesman Josh Earnest said Friday that the president has asked his team to look at administrative fixes to help people whose plans are being canceled as a result of new federal coverage rules. Many people see this as a fig leaf and more babble to soften calm the anger over what they see as a flat out lie from the mouth of the President.

As this unwinds several things are becoming crystal clear, last week hundreds of thousands of cancellation letters went out to people who had been assured over a dozen times by the president that "If you like your health care plan, you'll be able to keep your health care plan. Period." The cancellations lay bare the reality of Obamacare and are irrefutable evidence that President Obama's repeated you-keep-your-coverage claim was false. Washington Post fact-checker Glenn Kessler gave the president's claim four Pinocchios. Noses don't come any longer. Obama, in an NBC interview Thursday, said "I am sorry" to people who are losing coverage and had relied on his assurances that if they liked their plan, they could keep it. This doesn't help if you are one of the  many now forced to pay hundreds more each month for coverage.

The new White House spin is that the canceled plans were substandard and the new mandatory, often costlier, plans will be better once the exchange website works, that is. Secretary Sebelius apologized for the faulty website, but not for mass cancellations. A recent speech in Boston by the President drew comparisons between the Massachusetts law and the problem-plagued Affordable Care Act. During his speech, Obama acknowledged the problems with Obamacare and apologized for his clunky rollout. “There’s no denying it, right now the website is too slow, too many people have gotten stuck and I’m not happy about it,” Obama said. Talking about the troubled launch of Obamacare he cited the slow start of Massachusetts healthcare law that Mitt Romney as governor, signed in 2006.

Romney, who as the GOP's 2012 presidential nominee ran in part on repealing ObamaCare, emerged from his post-election private life to counter the White House message and distance himself from the Obamacare feasco. “In the years since the Massachusetts health care law went into effect nothing has changed my view that a plan crafted to fit the unique circumstances of a single state should not be grafted onto the entire country,” he tweeted. “Health reform is best crafted by states with bipartisan support and input from its employers, as we did, without raising taxes, and by carefully phasing it in to avoid the type of disruptions we are seeing nationally.”

The White House needs 7 million healthy young people to join the health care exchanges within the first year of the law to keep premiums low for everyone under the Affordable Care Act. Many people see this botched roll-out of the Affordable Care Act or ‘Obamacare’ as an opening for Republicans to win over Hispanic “millennials” that make up 20 percent of those age18-to-29. They are this generation’s largest minority and as a whole their families are the most uninsured in the United States. In fact, one-third of the nation’s 48 million uninsured are Latinos. After more than a month of inoperable exchange websites, hundreds of thousands of people getting booted off their current health insurance plans and a congressional grilling of Health and Human Services Secretary Kathleen Sebelius, many are starting to see this goal as unreachable.

Currently this law designed to cover the uninsured is throwing far more people off their insurance than it can possibly be signing up on the nonfunctioning insurance exchanges. Indeed, most of the 19 million people with individual insurance will have to find new and likely more expensive coverage. And that doesn't even include the additional millions who are sure to lose their employer-provided coverage. That's a lot of people. Perhaps Obama didn't know. maybe he was as surprised by this as he claims to have been by the IRS scandal, The Associated Press and James Rosen phone logs, the failure of the Obamacare website, the premeditation of the Benghazi attacks, and the tapping of the German Chancellor's phone.

"We canceled your plan because it was substandard" followed by "we have a better idea"  can be translated into: Sure, you liked your policy, but you don't know what you need. What you really need is what our experts have determined must be in every plan. So a couple in their 60s must buy maternity care, a teetotaler substance abuse treatment, and a healthy 28-year-old with perfectly appropriate catastrophic insurance must pay for coverage for which he has no use.  Fact is these required bells and whistles aren't there as voter-pleasing freebies. The planners knew all along that by forcing insurance buyers to overpay for stuff they don't need, that money can subsidize other people. The light of day is showing Obamacare is not about healthcare, it is a massive transfer of wealth through  hidden taxes, penalties, mandates and coverage requirements that yield a surplus of overpayments.


  Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the articles below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,
                     http://brucewilds.blogspot.com/2013/11/flaws-in-big-government-concept.html
                     http://brucewilds.blogspot.com/2013/06/obamacare-means-partime-work.html

The Worlds 10 Worst Problems

Below is a list of the worlds ten most crucial problems counted down from "least to most crucial"  The world must begin to address these many problems with long term solutions. Most of these are issues that center on our sustainability. Sadly, politicians do not deal well with such things leaving us without direction. As we look at the human condition we can let fate take us where it may choose or we can take control of our future by proper planning and by guiding it as best we can.

Here is the current list, please remember the position a problem holds on this list can shift from time to time as events take place, but expect most of them to remain on the list. Unless a black swan event such as a meteor heads our way this is what you have. Some problems have been grouped with the collateral issues associated with them, this may include the current "buzz words" used to describe their importance. Different people would group these issues in a variety of other ways and move about their priority. As always your comments are welcome.         

10.   Demographics of an aging population;   As the population grows older euthanasia and the quality of life will become an issue. This must be handled in a fair, honest, humane, and compassionate way.

9.  We must create an environment that allows and encourages people to develop fulfilling lives;  This means improving the educational system and having an opportunity to find fulfilling work, seek happiness and express their individuality. It also means ending corruption and extending equal protection and fairness under the law.

8.   Hunger and starvation;    Gross malnutrition makes life unbearable, many people still only go through the motions of being alive. People that are starving cannot learn and take a role in society. Starvation and meeting basic sanitation must be addressed.

7.   Income inequality and economic stability;   The uber-rich should not become exempt from all common woes and untouchable. The uber-rich and politically elite should not comprise a special class who are immune and able to ignore the rules of society. This problem extends to fairly handling the worlds economic systems and currencies. Without a solid way to exchange goods and services other world support systems will suffer or fail.

6.   Mans inability to take control of his future;   The masses have been lulled into complacency, in many ways we are all slaves, this is not a new role for man. But we can think and should make an effort to do so, we must push our chosen leaders to do the right thing and make long-term plans that are sustainable. We must shape our future and the values of the society in which we live.

5.   Strife between religions and tribes must end;   We need to develop a new tolerance that allows man to live in peace. A safe place to live for a person and their family is one of mans most basic needs. The political elite must not be held harmless for the grief and death they cause over large swatches of mankind. War crimes cannot be tolerated.

4.    Weapons of war and mass destruction;   This not only includes nuclear bombs and chemical weapons but drones and the killer robots now being developed. One big mistake or going down the wrong path in developing new weapons could change life as we know it!

 3.    Wasting our natural resources by not conserving and the continued destruction of our environment;   I contend that many of the "green solutions" being proposed such as ethanol fuel are not a solution at all and just ways  for business to profit. A solutions is not truly green unless the environmental cost of "maintaining" it is very low.

 2.    Pollution and the resulting climate change it may bring;   This is showing up in oceans that are sick and being depleted of life. This also may result in rising oceans, and crop failures. Either scenario will mean massive suffering across the world and could tear the social fabric and alter our day to day lives.

 1.    Over population;   This is the overriding problem facing Earth and the most difficult to address. If the problem of over population is not addressed all the other problems on this list will most likely become much greater.

While people and their families go about life each day having children and doing the things we all associate with our day to day existence most people concede that something is wrong with a world where many people lack even basic sanitation and watch their children die before the age of five. I'm not saying we should give everything away or that we must bring all the people of the world up to an American standard of living. It is not our responsibility to do so and probably impossible.

In my book Advancing Time I highlight and bring focus to the massive changes that have taken place over the last two hundred and fifty years. History viewed in the framework of  man's time of Earth forms the crux of my perspective. The oldest fully developed humans based on DNA research supports the theory that Africa was the area  man first inhabited between 200,000 and 140,000 years ago. In 1800 the worlds population was around 900 million, by 1900 it had soared to 1.6 billion, since then it has exploded to over 7 billion.          

When you chronicle the journey from the beginning of man to our current state it becomes clear that the world has never before experienced such rapid change. This perspective helps us make sense of our fast changing chaotic world while illuminating and clarifying the responsibilities society faces. It is important we recognize this ever quickening pace of change and keep in mind that if these problems are not addresses there may be no future for mankind or it may be much shorter and difficult then many people expect.

All A Twitter In The Greed And Stupidity Loop

This market is all a twitter as we continue in a "greed and stupidity loop." The loop can be explained as follows, stocks are rising so why get out, not getting out is causing the stocks to rise. Yes we are indeed experiencing a double down and let it ride mentality. I don't have to explain the greed part, a perfect example is how Twitter ratcheted upward its IPO price over the last few weeks from the mid teens to $26. People continue to enter the stock market at these nose bleed heights and often at super high multiples in an effort to make money in an economy where few opportunities exist.

The stupidity part is more interesting to explore, many people have noted the disconnect between Wall Street and the economy yet the market continues to punch out new record highs. The stupidity is that many investors discount the risk or are oblivious to how vulnerable they are to a rapid and massive loss. From a low of under $30 just a year ago Tesla stock surged to a high of around $180. Yesterday the stock of Tesla Motors plunged 14.5% to close at $151 after trading as high as $180 on Tuesday. Anyone highly leveraged and trading on margin would have been toast following a day in hell.

While people continue to tout the stock market as the place to be in this low interest rate environment where few options exist, it is a dangerous place. Placing your money safely in a bank means you can watch it slowly be nibbled away by inflation. Ben Bernanke and the Federal Reserve have made the manipulated and distorted stock market ground zero in the war to convince us all is well. The idea is that a soaring market will bolster pension funds, support housing prices, and generate a wealth effect is flawed, instead it only creates a bubble. Fact is if QE or the massive government deficit spending that props up our economy is removed it will collapse.

The entitlement societies that have developed over the last several decades were created on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. They were built on the assumption that those advantages would continue in both Europe and US, and that ever greater prosperity and entitlements would be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about ever more growth. Now reality has raised its ugly head and it is becoming apparent that this is unsustainable and major structural adjustments must be made.

The entitlements and promises that have piled up have become overwhelming. While the populations of Europe and America were led to believe the good times would never end, their core advantages in technology, capital, and productivity started to erode, and  to lag behind the emerging countries. Manufacturing jobs have steadily gone elsewhere, replaced by low skilled service jobs, this has removed the supports from our debt fueled prosperity showing it to be unsustainable. It might be best to avoid the greed and stupidity loop.


 Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,
                      http://brucewilds.blogspot.com/2013/07/markets-more-lies-and-munipulation.html

Euro-zone Economy Flat At Best!

Eurozone business activity lost momentum at the start of the fourth quarter, as companies on the whole continued to cut jobs. These recent  figures suggest any recovery remains flat at best. Eurostat, the EU's statistics agency, said retail sales in the 17-nation bloc fell 0.6% in September from August. Howard Archer, chief economist at Global Insight, said: "September's relapse in retail sales fuels suspicion that consumers across the Eurozone will likely remain pretty cautious in their spending in the near term." Retail sales fell back sharply in Portugal dropping by 6.2% month-on-month, Spain saw a 2.5% month-on-month fall during September.

Data firm Markit said Wednesday its composite Purchasing Managers' Index, a monthly gauge of activity across manufacturing and services, edged down to 51.9 in October from 52.2 in September. A reading above 50 indicates growth. Wednesday's figure marks a slight upward revision for October, but still represents a slowdown from prior months. While still above the 50-point mark that separates growth from contraction this is not a strong pick up following months upon months of contraction. It seems companies received fewer new orders than in previous months and have continued to cut jobs, employment balance has been below 50 for the 22nd straight month.

The decline in employment was slightly faster than in September. Record levels of unemployment are among the Eurozone's biggest economic problems and threaten to undermine its economic recovery by exacerbating  weak domestic demand. Often these workers have little in the way of savings after years of harsh times, this means that the burden of caring for them will be transferred to society. If to many people shift into this category the region will slowly wear down through attrition. The alternative to working and producing is to use up your savings or be sustained by the government, family, or friends.

A day after this post first appeared the European Central Bank (ECB) cut its benchmark interest rate to a record low of 0.25%, down from 0.5%. This surprised many analyst. ECB president Mario Draghi confirmed the decision to cut rates reflected an outlook of low inflation and economic weakness. Inflation in the Eurozone fell to 0.7% in October, prices in Greece one of those worst hit by the economic crisis have not risen since July and some economists are also worried about deflation in Spain. The ECB's target is to keep inflation just below 2%. Following the rate cut announcement Draghi said the bank expected to see "a prolonged period of low inflation followed by a gradual upward movement towards inflation rates of below but close to 2%", he said the Eurozone was seeing "weaker than expected economic activity".

September is the final month of the third quarter, so this retail data could impact on official quarterly GDP figures. Markit gives detailed figures for five countries, Germany, France, Italy, Spain and Ireland account for the bulk of euro-zone economic output. All showed growth in business activity in October, with the weakest rates in France and Spain. After massive help from the ECB in the way of loans and super low interest rates the euro-zone has emerged from an 18-month recession in the second quarter with growth of 0.3%, but recent data has also pointed to a slowdown in the pace of even this weak growth. A stronger Euro over the past several months has not helped exports thus further dampening hope of a recovery.

Long ago EU leaders agreed to create a banking union as a way of breaking the so-called doom loop. This is the vicious circle in which states go so deeply into debt to support failing banks, that it forces a country to seek a bailout or risk causing it to leave the euro zone. An agreement to create a banking union has been hard to put into practice, in principle a standard process for winding down troubled banks would be a key component of this. Resistance to a massive transfer of wealth from those who hold bonds and other such debt continues as they talk, and talk, and talk. The fact that the Euro was built on a flawed foundation continues to haunt the the EU, expect things to remain flat at best for as long as the eye can see.


  Footnote;  Your comments are welcome and encouraged. If you have time check out the archives for other post that may be of interest to you. My two other articles about Europe can be found below,
                         http://brucewilds.blogspot.com/2013/06/ecb-scheme-under-court-scrutiny.html
                         http://brucewilds.blogspot.com/2013/05/slovenia.html

Flaws in the Big Government Concept

Big Government Has Not Solved Our Problems

The large number of government programs that have failed to carry out their duties and the dim view many Americans have towards Washington may be starting to take its toll on those who think big government is the answer. The Democratic Party has long been thought of as the party of "big government"  filled with believers that government can solve and is the answer to curing many of our woes. Sadly cost and reality are quickly beginning to show the flaws in this theory, the government is far better at providing access of citizens and good at passing popular laws, but the private sector tends to be more efficient and better at controlling costs.

The way in which an increasingly-better educated world population faces and deals with growing governments will determine the future of the Planet Earth. The saying "be careful what you wish for" may again be proven true as those wanting more government intervention begin to recognize the limits of government and bureaucracy while at the same time seeing the true financial cost it imposes. The reality of ever-larger government has manifest itself in more scandals as departments overreach such as with the IRS and NSA or failures to accomplish a task such as putting together a working and functioning Healthcare website. We must remember that government is often not constrained by the power of the purse to strive for efficiency, where business fails when it does not meet its goals of providing a good service or product at a reasonable cost government muddles on.

Over the last two centuries the United States government has been steadily moving away from Adam Smith’s idea of limited government and towards the view of Abraham Lincoln that the purpose of government should be to do for the people, whatever they needed done, but could not do for themselves or could not do as well for themselves as individuals.  At a time when the Country was young and adding state after state one might make the case that larger Government was appropriate.  As more and more citizens earned the right to vote and become better educated, they have been encouraged to look at the government, as their government. This has greatly changed the viewpoint of the functions of government and has resulted in large increases in its activities. The role of the government in America has changed at all levels.

Sadly the open-ended theme of larger Government is generally a mechanism to in some way transfer wealth. Mandates often unfunded are fostered upon business organizations and private citizens. It is the nature of bureaucracy to expand.  A new proactive movement of “cuteness” cloaked in a veil of flexibility and diversity allows politicians and bureaucrats use terms like "Private Public Partnership" to experiment without the personal financial risk that a businessman must take. The problem is that they are being creative on our dime. The use of sun-set legislation is underused or the bar set too low when it comes to extending and renewing government bodies.  The best time to kill a monster is while it is small.

Shifting demographics are quickly weakening the Republican Party, if they do not adopt a more populist message and a big tent policy soon they will continue to lose power. This could have a very negative impact on America going forward. The polarization we see today may be mild compared to what we see in ten years if a large segment of the population feels its voice is unheard. If the checks and balances in our system fail anger will grow as more Americans begin to feel even more left out in the cold. Ironically the best friend of the Republican party has become big government and the Democratic party that has been seen as most likely to promote it as a cure to our woes.

Governments must be of the people, for the people and honor rational law. With freedom comes responsibility, people must control their own governments. Once established and settled it is often difficult to change the way a nation chooses its leaders. This is true in America where the system strongly discourages a third party and even things like an illogical electoral college that serves no purpose heavily influences our Presidential elections. This means small passionate groups of people can often skew results as their voices are amplified beyond reason, at the same time the value of other voters is diminished.

Many factors flow into how a government is chosen. A one vote one person system does not differentiate between the social or economic status of the voter, and while on the surface this would appear fair it could be argued that it has some flaws. Today in a society geared to pander to political correctness the idea of questioning a person's competence to vote would draw massive outrage and give rise to protest. Another factor is the role of money in politics and how it and lobbyist can corrupt the system by buying influence and favors. In many ways like in a pot of stew, these ingredients are thrown into the mix and allowed to simmer and commingle till a result is had.

A couple thoughts or ideas that I wish would be looked at to improve our system will never be considered because of the entrenched interest of the elites within the system block change. I like the idea of runoff elections where voters are allowed to choose their "two" favorite candidates. This lessens the chance of getting stuck with someone unpopular because a third party spoiler has skewed results. I like limiting and qualifying voters, removing the "stupid" or allowing voters with more skin in the game such as landowners, the employed, or those who pay taxes to have more voice. I understand that doing something to earn the right to vote or prove you have a vested interest in society other than "just being here" is completely foreign to America.

Add to my wish list of "crazy" ideas the following. Eliminate the dreadful electoral college and the distortion it causes, it is mind-boggling as to how much this has skewed the political landscape. Next, I would like to see a reduction by half the number of members in both the House and Senate while at the same time placing term limits upon them. Limit all laws to under five pages even if this makes them less comprehensive, when laws become overly complicated they become impossible to follow. Last but not least, move toward more national referendums and votes, if American Idol can do it, so can we. In the future elections should also be held this way as long as proper verification can be confirmed.

Polls show that a majority of Americans feel we are moving in the wrong direction. At the same time this does not indicate exactly what they think is the proper direction. It often takes courage to make the difficult and unpopular political and economic decisions that will cause pain but benefit society in the long run. A political system that encourages sidestepping these issues to pander to the masses in exchange for remaining in power pays a tremendous price that can stay hidden for only so long. This is a trap America has slipped into, getting out of this will prove quite difficult. I seriously question whether we have the fortitude to take the necessary steps required.


 Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,
              http://brucewilds.blogspot.com/2012/12/government-includes-quasi-government.html

Footnote #2; Thursday was a landmark day in political Washington as Democrats made the decision to employ the "nuclear option." This opens a potential Pandora’s Box that may very well lead to a future of majority-only votes in the Senate. The implications are hard to overstate. Yet this move is being ignored by most Americans.

Drones, Killer Robots, and Ugly Possibilities!

Drones, killer robots, and ugly possibilities is a continuation of a subject I have written about before. Blame it on an imagination gone wild or a distrust of those with too much power. Unfortunately, more recent revelations about the American government spying on us, our friends, and the leaders of our allies across the world does little to calm my concerns. We must take note that technology is quickly blurring the line between drones and robots at the same time that the killing power of these machines is being ramped up, we should be afraid! To say these machines have the potential to become formidable and a danger in the wrong hands is an understatement.

Several reports over the last two weeks detailing cases of  U.S. armed drones killing civilians and how the U.S. has expanded their use is causing worldwide outrage. Reports from the United Nations, Human Rights Watch, and Amnesty International, and the lack of transparency on the use of drones from Washington recently resulted in a debate at the UN. A movement has emerged to get ahead of another potential problem by establishing an international ban on fully autonomous lethal weapons dubbed “killer robots,” it’s a technology that can kill targets (humans) without any human input. Whereas drones today have someone somewhere remotely determining where and when to fire, a fully autonomous air, land, or sea weapon could make the decisions on its own.

It sounds like the stuff of sci-fi, but the technology is well within reach given existing weaponry. The U.S. Navy’s X-47B, a Northrop Grumman-developed drone, has taken off and landed on an aircraft carrier entirely on its own, it would only be a short step to add missiles to its weapons bay. The unmanned plane is capable of supersonic twists and turns with a G-force that no human being could manage, and could take autonomous armed combat to a whole new level. In South Korea, several years ago a Samsung subsidiary designed a stationary robot sentry that sits along the demilitarized zone and can identify and fire at a target on its own. It’s linked up with a human operator for now.

SWORDS, a previous generation of
weaponized robots had its combat
duties curtailed when it moved
without being given a command.
(Photo: QinetiQ)

Some critics say giving a non-human technology the ability to decide if a human lives or dies is simply morally reprehensible and puts these weapons on the same level as chemical and nuclear weapons. There are just too many issues and variables that make this unacceptable. What if a killer robot malfunctions and begins firing at random? What if it’s hacked? How quickly will the technology proliferate, to rival states and to non-state actors like extremist militants? And who exactly is held legally accountable when a killer robot attacks? So far some 272 computer science experts from 37 countries have signed onto support a ban on development of autonomous robot weapons technology.

Concern is growing about the potential of robots to undermine human responsibility in decisions to use force thus obscuring accountability for the consequences. In Britain a recent article in the Guardian says a "The Stop the Killer Robots" campaign will be launched in April of 2014 at the House of Commons, it will include many of the groups that successfully campaigned to have international action taken against cluster bombs and landmines. They hope to get a similar global treaty against autonomous weapons. Still, the U.S. military is slow to rule out development of technology in this area. Last year, days after Human Rights Watch released a report calling for a ban, the Department of Defense issued an ambiguous directive on autonomous weapons that restricts but does not rule out their use in the field for the time being.

This appears to be America's only government policy on the technology, and, unsurprisingly, few countries have formal policies on the issue. Of course, advocates say the weapon could, in fact, become a crucial tool for saving lives. “While a preemptive ban may seem like the safest path, it is unnecessary and dangerous,” wrote law professors Matthew Waxman and Kenneth Anderson, both members of the Hoover Institution Task Force on National Security and Law. They continued, "It is quite possible that autonomous machine decision-making may, at least in some contexts, reduce risks to civilians by making targeting decisions more precise and firing decisions more controlled."

A preemptive weapons ban is not unprecedented. In 1995, parties to the UN’s Convention on Conventional Weapons added a protocol banning blinding lasers. Leading up to that ban, the U.S. was against it but after considering the potential for mass proliferation the U.S. changed its stance and helped generate support for the measure. For now, the U.S. says it doesn’t support an international ban on this technology but U.N. representatives met over the potential threat of automated weapons earlier this week, and France, which chairs the next meeting of the CCW has pledged to put the topic of killer robots on the agenda. The U.S. will be in attendance.     

The web site --- http://www.wired.com/dangerroom/2013/10/weaponized-military-robots/ ---goes even further when describing the advancements of these killer robots with automatic rifles and says they could be on the battlefield in the next 5 years. An October 18th article by Allen McDuffee says Robots armed with automatic weapons, anti-tank missiles, and even grenade launchers are marching, er, rolling ever closer to the battlefield now that they’ve shown they can actually hit what they’re supposed to.

Four robotics companies  HDT Robotics, iRobot, Northrop Grumman and QinetiQ recently ran their machine gun-armed robots through a live-fire demo at Fort Benning in what has been dubbed the "Robotic Rodeo". The point was to give the brass a chance to see just how viable such systems are. The Army, which issued a favorable assessment of the technology last week, doesn’t see our armed robotic overlords as weapons taking the place of boots on the ground, but rather as combatants working alongside troops in the field.

“They’re not just tools, but members of the squad. That’s the goal,” Lt. Col. Willie Smith, chief of Unmanned Ground Vehicles at Fort Benning said. Senior Army officers attending the rodeo appeared satisfied with the robots after seeing them accurately hit targets 500 feet away, and they hope to see battle ‘bots in action within five years. “We were hoping to see how they remotely control lethal weapons,” said Smith. “We were pleased with what we saw here. The technology is getting to be where it needs to be.” This isn’t the first time the Pentagon has played with weaponized robots, but earlier experiments proved such machines weren’t ready for primetime after some of them moved without commands.

Northrop Grumman’s CaMEL (Carry-all Mechanized Equipment Landrover) was among the armed robots on display, it can be fitted with automatic weapons, anti-tank missiles, and grenade launchers. It can run for more than 20 hours on 3.5 gallons of fuel and carry a load of 1,000 pounds. It also can produce power to charge batteries or power other systems and a hybrid engine allows the armed robot to operate very quietly on the battlefield and travel farther to provide firepower where it’s needed. “CaMEL is a multifunction platform that can quickly transform from supporting troops to protecting troops as an armed wingman, increasing the firepower of dismounted platoon and company maneuver units,” said Phil Coker of Northrop Grumman in a statement.

So what happened to Asimov's 3 Laws of Robotics? All science-fiction readers will remember these were the laws that were to be built into all machines that would keep them from ever harming a human being. It is possible that Asimov's 3 Laws of Robotics have been overridden by Forest Gump's Law of  "Stupid Is As Stupid Does!" A half crazed lunatic might even praise a killer robot for its performance and not hesitating when ordered to kill and slaughter unarmed women and children. No need to worry about PTS or all the costly issues and problems human soldiers present, with killer robots it all becomes about killing!


  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. My two 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

Amazon Not The Answer!

Sometimes people and investors just seem to get lost in the hype and spin. Amazon specializes in hype and not profits! When the stock of a company that earns no profit trades above $350 a share we are there. The combination of a market disconnected with Main Street coupled with a Federal Reserve that is afraid to taper because it will show just how weak the economy is plays a massive role in this story. Like Tesla Motors the stock of Amazon defies logic, but has been propelled forward by an environment of cheap and easy money. Add to this blowing shorts out of the market and momentum trading and you arrive at a bubble ready to burst.

For years Wal-Mart took the heat for being a monster that raced across America destroying small businesses and our way of life. Wal-Mart sold cheap China make goods that lowered the cost of living with the hidden cost of ending thousands of jobs at distribution companies and manufactures that were unable to compete. Now Amazon comes at us with a image packaged as much friendlier and sporting a logo on their boxes that comes across almost as a smiley face with claims they are a kinder disruption. Great self-promotion can only mask the truth for so long. Beware Amazon is far from transparent.

It is hard to see why Amazon has any fans when you consider how they abuse and exploit the brick and mortar stores that line streets throughout America. These are the stores that employ our family members, support little league teams in the community, and add value to our lives. These stores build or lease space, buy supplies from the other local businesses, and pay both sales and real-estate taxes. While Amazon sends out the signal that their customers are smart, forward thinking, and upscale they exploit America and have an evil side, this is a side we should and must recognize.

Putting the spin and hype aside more signs continue to revel that Amazon is not your friend but still the Juggernaut rolls on. Three more signs that Amazon is not your friend occurred in October 2013. First more labor problems continue in Germany. The other two highlighted with a positive spin in a press conference where Bezos talked about 1,382 newly deployed Kiva robots, in Amazon’s warehouses a sign of future intentions to limit "job creation"? Add to this Bezos referring to Amazon's victory over IBM in a  legal battle to service the cloud computing needs of the Central Intelligence Agency. We can only assume this has to be in relationship to Amazon's role in collecting more data and spying on the American people.

Words like "evolving" are used to describe Amazon's business model, a better word might be undefined. Regardless Amazon rolls on. Pointing towards gaining synergy as they continue to buy companies, some unproven. The revenues from these companies add to their growth but still no profits exist. Does this growth mask a weakness at their core? If they are indeed a distribution company their stock should be trading at around 18 times earnings. When you look for a P/E ratio on Amazon you find NA because the company makes no money. Another key weakness is that new competition can now cheaply and easily replicate the most profitable parts of Amazon and cherry pick much of their future potential. The bigger they are, the harder they fall, it is only a question of time.


Footnote; Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged. Below are links to a few articles related to this subject,

           http://brucewilds.blogspot.com/2013/05/tesla-motors-and-elon-musk.html
           http://brucewilds.blogspot.com/2013/11/usps-and-amazon-another-unholy-alliance.html

The following MarketWatch article may also be of interest,

            http://www.marketwatch.com/story/10-things-amazon-wont-tell-you-2012-06-26