Mergers Hit Rail Equipment Sector - What Is The Lesson?

brucewilds.blogspot.hk / By: Bruce Wilds

Chinese-Bullet-Trains On Display

Little noticed by many Americans currently obsessed with an emotional debate as to whether it is acceptable for an NFL football player to kneel during the national anthem an important development is taking place in the rail equipment sector. One vision of the future has people across the world zipping from place to place on high-speed trains. Of course, trains are not yet that big of a factor in America but they may become a bigger player in moving people if the sky grows overcrowded. If this is to unfold the market will most likely be controlled by a few well-entrenched big players. Many industry watchers see the writing is already on the wall, "Get Big Or Die" but that may be a simplification of what we are seeing.

According to the South Morning China Post in an article recently published, China Railway Rolling Stock Corp (CRRC), the merged new entity of China’s two largest train makers, on Thursday announced recent contracts worth 12.2 billion yuan (HK$15 billion), alongside another 4.84 billion yuan deal to supply metro trains to Hong Kong. Among the eight newly-announced deals, only one is for export worth about 440 million yuan, according to the statement on the Shanghai Stock Exchange. CRRC has 90 percent of China's domestic market for the production of railway locomotives, bullet trains, passenger trains and metro vehicles.

CRRC Government Supported And Subsidized

No effort is being made to deny that the impetus for the merger of China CNR Corp and CSR Corp in 2015 was the quest for a deeper push into overseas markets. The company aims to more than double the proportion of exports in its revenues to 15 percent from 7 percent last year. Not only does CRRC benefit from China's growing high-speed network but it also gains from China's ambitions to build an international infrastructure backed trade network under its "Road and Belt" initiative. Clearly, CRRC is catching up on technology with Western peers at the same time it keeps costs under control. Proof of its ability to compete is that it has been able to win by a wide margin nine-figure contracts, such as the supply of metro cars to Boston and LA.

Is This Really A Win-Win for America

Back in the 19th century, 30 pupils from China traveled to the United States as part of an educational mission. One of them was 12-year-old Zhan Tianyou, he is now known as the "Father of China's Railways." Nearly 150 years later, Springfield, the home to 154,000 people, and where Zhan Tianyou learned, will be home to a factory that builds rail coaches as part of CRRC's subsidiary in Massachusetts. The $95 million factory is part of a $566.6 million deal with Boston's transit authority, signed in October 2014, to build 284 rail cars that will replace the aging fleet connecting Cambridge to downtown Boston by 2023.

  

CRRC On A Mission To Expand

Another example of just how powerful a tool China's Road and Belt initiative can be is seen when we view the railway line connecting Nairobi with Mombasa in East-Africa. Projects of this type are typically financed, built, and operated by Chinese firms. CRRC is even building joint and developing ventures with Western competitors. CRRC recently formed a consortium with Bombardier that allows it to compete for the renewal of the New York subways where it appears they are currently in the lead to win the contract that should amount to around $1.5 billion dollars.

With this in mind we turn our eyes towards Europe where, according to Bloomberg News, Siemens AG and Alstom SA are expected to sign off on a merger of their rail equipment activities to create a new European champion. This deal has great appeal for the German and French companies’ shareholders but governance, antitrust and cost-cutting could yet disrupt the journey.

The combined entity would control about 14 percent of the 110 billion euro ($130 billion) rail equipment market but the footprint would vary making it bigger in different parts of Europe.

Whether Europe’s antitrust authorities block it may depend on their reaction to the merger that created the new Chinese rolling stock company, CRRC Corp. which dwarfs its international peers.

Again we see the power a company gains when it is supported, subsidized, or given an unfair advantage driven by its government. The bottom-line is that CRRC's internationalization projects are as ambitious as its research highlighting the goal behind the merger of CNR and CSR was to end the competition between the two Chinese companies on foreign contracts. CRRC has won rail contracts as far afield as Chicago and Kenya. China’s Belt and Road initiative will also bring yet more international business its way. Meaning that the Chinese company's size plus access to cheap finance will let it crush rivals unless they take action. Americans would be wise to pay a little more attention to these mergers and what is happening across the world.


The articles linked below are related to the subject above;
    http://brucewilds.blogspot.com/2016/09/chinas-aviation-industry-quickly.html
    http://brucewilds.blogspot.com/2017/02/free-trade-and-fair-trade-are.html
    http://brucewilds.blogspot.com/2015/05/passenger-rail-must-be-redesigned.html

Puerto Rico Update! What You Might Not Know

 brucewilds.blogspot.hk / By: Bruce Wilds

This update about the situation in Puerto Rico delves into the island's financial woes which will impact its ability to recover from recent storm damage. Almost everyone has seen the news that Hurricane Maria battered parts of the Dominican Republic with heavy rain and high winds as it passed off its east coast last week after making a direct hit on Puerto Rico. that caused severe flooding and cut power to almost all the island. The entire island of 3.4 million people was under a flash flood warning early on Thursday as the storm dumped massive amounts of rain on much of Puerto Rico through Friday, according to the U.S. National Hurricane Center. This has put a major damn in peril adding to the crisis the area now faces.

Hurricane Devastation Adds To Current Bankruptcy Woes!

Maria was the second hurricane to hit Puerto Rico in two weeks following closely on the heels of Hurricane Irma. Large amounts of federal aid began to reach the stricken area on Saturday when the island's main port was opened in the capital allowing 11 ships to bring in 1.6 million gallons of water, 23,000 cots, dozens of generators and food. Dozens of additional shipments are expected in upcoming days and are being welcomed by local officials who praised the Trump administration's response but called for the emergency loosening of rules they blame for condemning the U.S. territory to what they see as second-class status.

The White House said late on Wednesday that  President Trump had declared a major disaster in the U.S. Virgin Islands and ordered federal aid to supplement recovery efforts, Maria was ranked a Category 4 storm, near the top end of the five-step Saffir-Simpson scale, and hit Puerto Rico with sustained winds of up to 155 miles per hour (250 km per hour). Maia was the strongest storm to hit the U.S. territory in nearly 90 years. It should be noted that Puerto Rico is not a state and its massive financial problems are expected to complicate the island's recovery. Currently, Puerto Rico faces the largest municipal debt crisis in U.S. history. Both its government and the public utility have filed for bankruptcy protection amid disputes with creditors.

Some officials predict Puerto Rico could be without power for months after Hurricane Maria and authorities are warning that many investors in the $9 billion of Puerto Rico’s outstanding electric utility bonds are at risk of never seeing their money. The plight of Prepa, Puerto Rico’s main supplier of electricity, was grim even before the storms. Prepa had filed for bankruptcy in July.  Gov. Ricardo Rosselló told CNN on Wednesday night that Puerto Rico’s debt crisis will make recovery very slow and electric power will be one of the toughest things to restore. Pointing to the fact that the power grid is “a little bit old, mishandled and weak,” he told Anderson Cooper.

Power Will Take Time To Restore

Multiple transmission lines sustained massive damage from the storm, said Ricardo Ramos, director of the Puerto Rico Electric Power Authority. Ramos said he hopes to begin launching helicopters by this weekend to begin inspecting the transmission lines. Power knocked out after Hurricane Irma hit two weeks ago was just beginning to be restored before Maria. Power plants were particularly vulnerable to these storms because the island’s heavy debt load, and the utility’s own chronic insolvency, had limited spending on maintenance. Telecommunications throughout the island have also "collapsed" adding urgency to an already dire situation.

While President Trump way back in May tweeted, "No Bailout For Puerto Rico" with the island’s economy in shambles, its coffers depleted, and creditors nipping at its heels, Puerto Rico had little choice but to seek what is essentially bankruptcy relief in federal court. It was the first time in history that an American state or territory had taken such an extraordinary measure. With approximately $123 billion in debt, the total includes about $74 billion in bond debt and $49 billion in unfunded pension obligations. This far exceeds the $18 billion bankruptcy filed by Detroit in 2013. While the court proceedings could eventually make the island solvent for the first time in decades, the immediate impact is very grim.

As government workers are forced to forgo pension money, public health and infrastructure projects will go wanting, and the “brain drain” the island has been suffering as professionals move to the mainland will most likely intensify. Puerto Rico is “unable to provide its citizens effective services” because of the crushing weight of its debt, according to a federal board that has supervised the island’s financial affairs since last year. Knowing that for the last decade, Puerto Rico hasn’t had the funds to repay its creditors or improve its aging infrastructure, let alone deal with the ramifications of a major hurricane sets the stage for some type of dramatic action that will most likely be very costly to the American taxpayer.

The disaster relief system is structured in a way that people are primarily meant to rely on their private insurance. Through FEMA, individuals can only receive a maximum of $33,300 which is often not enough to repair or rebuild many houses. On September 20th, a story in the Wall Street Journal reported only about 50% of houses in the territory are covered by insurance. As to where Puerto Rico will fund repairs for essential public facilities, such as the bankrupt power authority remains in question.

Further complicating matters is that Puerto Rico’s economic history will limit its fundraising options. With all its debt the island has no access to capital markets. Even if it did, willing investors would be hard to find as the expected post-Maria tourism drought will mean that tax revenue is expected to fall. Another issue is that Puerto Rico may find it difficult to appeal to Congress, where, as a U.S. territory, it has no voting power. Additionally, lawmakers have long chastised Puerto Rico for the financial mis-management that led to its bankruptcy. With huge damage numbers of around forty billion dollars of damage are being tossed around fiscal conservatives who currently control the legislative branch could attack any large relief package as part of a bailout.

Even if Puerto Rico gets the money it needs to rebuild over the next few months, its long-term prospects remain grim. Unlike Houston, which had a flourishing economy when Hurricane Harvey hit, Puerto Rico has been struggling for years. The Commonwealth’s woes can be traced back to 2006 when a tax break for U.S. companies expired. An exodus of jobs soon followed, with the unemployment rate reaching over 12% earlier this year, more than double the overall U.S. figure. As the jobs left, people began to follow. The island’s population has shrunk to about 3.5 million from 3.8 million in 2000.

One thing is certain and that it will be interesting to watch this all unfold as Puerto Rico jostles with other areas like Texas and Florida for hurricane relief from a nation whose generosity is being taxed in more than one way. This additional crisis may actually strain the ability of the federal government to pretend it can cover the cost of every calamity that strikes the nation without casting doubt on the soundness of the dollar. It also does not bode well that a few real states such as Illinois, Connecticut, and New Jersey are also spinning around the bankruptcy drain. These expensive disasters highlight the fact that with money in short supply voicing sympathy is one thing but asking people across the nation to step up and pay the bill a far different animal.


Footnote; Congress sure has its plate full but that does not mean anything will get done. Not dealing with hurricane relief will, however, open lawmakers open to more criticism. The article below looks into the large amounts of money needed to fix this mess.
 http://brucewilds.blogspot.com/2017/09/paying-bill-for-harvey-and-irma-storm.html

Nuclear Proliferation - Duck and Cover! May Not Work

Nuclear Blast Survival 101 - Don't Look At The Light!

 brucewilds.blogspot.hk / By: Bruce Wilds

Recent talk about war with North Korea highlights the problem of nuclear proliferation. Lurking in the back of our minds is the idea someone may someday unleash a nuclear bomb that may kill hundreds of thousands or more people. The way we cope is by realizing if we are lucky the odds favor us and it will land on someone else. The problem with this theory of survival is that a huge number of deaths will come not at the time of detonation but later. The radioactive fallout created as the explosion gathers up tremendous quantities of dust and ocean water and spits them into the atmosphere which then represents a secondary grave risk, especially in the first hours after an attack but one that remains for many years.

In an article recently published by Project Syndicate, Joschka Fischer, German Foreign Minister, and Vice-Chancellor from 1998-2005 writes;
In this new environment, the “rationality of deterrence” maintained by the United States and the Soviet Union during the Cold War has eroded. Now, if nuclear proliferation increases, the threshold for using nuclear weapons will likely fall. 
I agree with Fischer that today a great number of people have come to accept the idea of a "small or limited' nuclear war as acceptable. The reason they feel this way may center around the fact they have not given it enough thought.

"Duck and Cover" Is A Poor Strategy For Survival!

If enough damage is done to the world those surviving will face lives that are greatly diminished in quality. Those of us growing up during the Cold War and during the Cuban missile crisis should remember the U.S. government’s civil defense film titled, Duck and Cover, that was aired in schools. The film, created a year before, was part of the government’s campaign that reiterated the fact that nuclear war could happen at any moment and people needed to prepare themselves – especially children.You can view the film by using the following link, http://www.bing.com/search?q=duck+and+cover&form=U159DF&pc=U159  The fact is the film did little to reassure us because adults also made it very clear that in the case of a nuclear war we should run directly home so that we could "die with our family."

Fischer, who grew up under the shadow of the nuclear threat, points out that a growing problem we face today is the danger from an increasing number of smaller countries ruled by unstable or dictatorial regimes might acquire the nuclear weapons they so badly want. By becoming a nuclear power, such regimes not only ensure their own survival and promote their local or regional geopolitical interests but can even pursue an expansionist agenda. A problem with a limited war is that anyone who feels they can start such a thing may lack the imagination or brains to throttle it back before it expands out of control.

Over the years as we have learned more about these weapons we have become more concerned about the electromagnetic pulse that is likely to knock out electronic systems including phones and computers. We also can expect pile-ups on the freeways as drivers are blinded by the flash of the explosion. In the complicated world of today, it is frightening to imagine the rush for food, water, and gasoline as millions of people attempt to drive out of an area under attack or threat or try to distance themselves and their loved ones from the terror generated by the possibility of a second, follow-up attack.

Ironically, while people know this might happen little real preparation for such an event has taken place. One of the few places to make an effort is Ventura County, located just northwest of Los Angeles, they have taken the unusual step of prepping a 250-page plan on how to respond to the humanitarian crisis that would result from a nuclear attack in Los Angeles. Their efforts even include a truly bizarre and some people might say, frightening public service announcement that instructs folks to shelter in place and cover windows with plastic.

On a more positive note, while a global nuclear confrontation is generally viewed as a bad thing, for Ron Hubbard, President of Atlas Survival Shelters in Los Angeles, it has resulted in an economic windfall as a staggering number of Californians and people even as far away as Japan have suddenly turned into doomsday preppers. The company, based in Montebello in eastern Los Angeles, sells shelters priced from $10,000 to $100,000. The shelters are designed to be buried 20 feet below ground and can sustain survivors for up to one year, depending on the size and model. This means they should give you more protection than simply ducking and covering up, that is, of course, providing you can get there in the few minutes you may have.


Footnote; Below are the links to two other articles on the related subject of nuclear war.
 http://brucewilds.blogspot.com/2016/02/nuclear-weapons-putting-issue-in.html
 http://brucewilds.blogspot.com/2017/08/nuclear-war-moves-up-list-of-worlds-10.html

Footnote #2; Seriously, if caught by surprise I have to question how many of us might forget "not to look at the light" or do that "duck and cover" thingy.

How Bad Debt Is Resolved, Hint, It Is Not Good!

 brucewilds.blogspot.hk / By: Bruce Wilds

It is only prudent that we again come back and address the issue of where bad debt goes. This exercise has gained urgency in light of recent information released by the Bank of International Settlements concerning the growth of debt across the globe.  It now appears that the suspicions many of us held for some time are true. Contrary to the previous speculation that emerging markets were deleveraging indications are that not only were the conclusions wrong, but developed nations have been stealthily loading them up with more debt. The reason this was not picked up by many analysts is that it has been accomplished by methods that are off book. We now are finding huge amounts of debt largely hidden from the public eye have accumulated in the form of swaps and forwards.

Debt Hangs Above Us Ready To Explode!

I have written about the subject of debt on a number of occasions because it has many facets. One very important issue is who gets hurt in the end, ultimately, regardless of how it is resolved someone draws or is given the short straw. Writing off bad debt will be a painful process and I don't mean for the debtor, but for the creditor, meaning the person, business, or institution that holds the paper. A debt default generally constitutes an unplanned and involuntary financial adjustment. While it appears much of the financial community is relatively unfazed by the mountains of debt growing throughout the world we as individuals should be concerned as to the many ways it might spillover and affect our lives.

With low-interest rates many companies have borrowed a great deal of money to buy back stock, this has been one of the forces driving the market ever higher. A comment from a reader several months ago highlights this and why it might be a big problem when he wrote;  It is fairly obvious that not all IOU's are deemed as trustworthy, and as trust drains from this over-indebted system, shakiest issuers' debt will lose value fastest. Junk debt is thus a Hindenburg in search of a spark all its own. Wait until corporations discover how difficult it may be to roll over all this share-buyback debt of the last few years.

Artificially low interest rates tend to skew all markets especially the credit and debt markets. This creates a debt explosion that extends into everything including consumer spending and the statistics surrounding their effects on the economy. We should remember debt takes many forms and shapes, it is not contained in auto and student loans. Clever sounding terms like "transitory" are often used to mask growing debt problems and in an effort to brush reality aside. Sometimes a person presenting the case that growing debt is under control will even go so far as asserting some of it is "good debt" or declare the positive effects of more growth outweigh the negatives of loose lending standards.

It should be noted that currently, a great deal of what is being seen as deflation flows from a loop being created from lower interest payments on things like autos, sadly this is a one-off and only goes to mask deeper trends developing under the surface. The fact is debt that cannot be repaid tends to be hidden away and corrupts the true worth of those owed what often amounts to non-collectible sums. Even now we are hearing calls by many people to write off and forgive student debt without any real understanding of the implications such a policy would entail.

Again, I caution those who think this writing off of debt will be an orderly and even process. By that, I'm saying not all debt is created equal. One major difference is whether it is backed by assets or collateral. Many other factors affect the strength or impact of defaults. One example of this is when it becomes payable, some debt is stretched over decades while other obligations are short-term and paid with a balloon payment or all at one time.  Also, debt is computed at different interest rates and this can affect its long-term impact. Another often forgotten issue is whom the debt is owed to and the impact default will have on their ability to honor their current and long-term obligations. I have seen several businesses forced into bankruptcy when a large customer defaults and cannot pay its bills.

The Reality Is We Have Not Deleveraged!

The world of bankruptcy and unpaid debt has become a complicated place where protection for one party can leave another totally exposed. We have seen things like "clawbacks" or the government making an exception and changing the rules as in the case of shafting the bondholders of General Motors during the bailout. Yes, writing off debt can be a slippery slope. Dept that is written off takes something with it when it leaves this world and that is the wealth of someone else! In today's low-interest rate easy money environment it is much easier to hide under-performing assets and the inability to repay debt. Low-Interest rates tend to foster an extend and pretend attitude that becomes apparent and crystal clear only after rates climb and put stress on the system.

Because of QE and low-interest rates, we have seen increased speculation and with it the creation of leverage or carry trades that multiply risk. This also tends to move demand forward and cause an increase in the improper allocation of capital, both of these actions have a way of causing problems that linger for years. Another issue is that across the globe after 2008 the central banks and governments of the world have played a giant game of "hide the debt," much of it has been disguised by transferring obligations from the banks and individuals onto the backs of the general population by growing what is termed as government debt. The problem is massive debt still hangs above our heads as a Hindenburg in search of a spark.

 It is important to consider how this will all play out or shakedown, this is yet to be determined but the ramifications remain powerful. Often unpaid debt shifts the pain or obligation to another party and acts as a wealth transfer, usually, this is not a voluntary act unless the note is being forgiven by the holder. I see bad debts on the rise and the effect to both the economy and the lives of many will be massive and undeniable in coming years. It will show its ugly side by pensions being cut, inflation edging higher, or simply lowering our overall standard of living. The fact is some way, shape, or form the piper must be paid and we will be reminded that there is no such thing as a free lunch.

Paying Bill For Harvey And Irma Storm Damage

As Expected, Mobile-homes Suffered Much Damage

In life, we are faced with many choices and one of those has to do with where we choose to live. Across the globe, people have matriculated towards the water and the coastline is often considered prime real estate. This often makes it the most valuable and sought-after land on the planet. With the choice to live on or near the coast comes certain risks and dangers, however, if where a large number of people have chosen to live is any indication most people agree it is worth the risk. If you choose to live in "Paradise" you should be responsible for the cost of doing so by paying the taxes and fees associated with such a lifestyle.

Tiny Ships Were Tossed, As Expected!

In just a matter of weeks, America has witnessed both the major flood damage of Hurricane Harvey upon Texas and the toll Hurricane Irma took on Florida. After Hurricane Irma overwhelmed the Florida Keys, a long ribbon of low-lying islands linked by bridges, with 15-foot storm surges and 130 mph winds, federal officials' first assessment of the damage suggests that nearly a quarter of the homes on the island were destroyed. “Basically every house in the Keys was impacted in some way or another,” Federal Emergency Management Agency Administrator, Brock Long, said at a news conference. This emphasis the fact that while not every home is beyond repair it appears few if any escaped some form of damage. All in all, this has been a difficult time for those living in these areas.

Not seeking to appear cold-hearted I'm forced to admit that as a person living a great distance from Paradise I have a problem getting stuck with the bill for massive hurricane damage. Unlike certain natural disasters that are very unpredictable, hurricanes can affect a wide and massive area, but we know which areas are prone to such a storm and warning is sounded days before the event. I argue, aid is one thing but footing the bill for rebuilding an area prone to the ravages of these storms is well beyond the call of duty. When we look beyond not just rebuilding but towards rebuilding better and upgrading aging infrastructure to lessen the impact of future storms I certainly must scream foul.

A Word To The Wise, Move Your Car To High Ground!

This is not saying the infrastructure does not need to be upgraded but that it should be funded by those in the region that harvest the benefits of such an investment. Another reason I get unexcited about the idea of paying for much of this damage is that a great deal of it is the result of poor planning. One such example of poor planning is to place a mobile-home in the probable path of such storms and to think it will go unmoved or unscathed. While you might be kind and not call such a notion "stupid" I argue that you are tempting fate or rolling the dice to place such a structure full of your most precious belongings in the likely path of a hurricane without taking insurance for such an occurrence.

The issue of flood insurance deserves its own article because of the complexity of the subject, however, these storms highlight the need for reforming NFIP, the National Flood Insurance Program and represent another growing political crisis for lawmakers that has been years in the making. “We need to make sure that the flood insurance program is solvent now — it's already working on borrowed money. Make it solvent, make it affordable so people can buy it,” said Rep. Ted Poe, a Republican whose home state of Texas is slowly rebuilding from the devastation of Hurricane Harvey last month.

It must be noted that more than half of the homeowners in Hurricane Irma’s direct path lack flood insurance, according to a recent study by The Associated Press. The fact is many people don't buy this insurance because they feel it is too expensive. Rep. Brian Babin (R-Texas) said, Congress is sending legislation to the White House that would extend the NFIP through Dec. 8. This is important because the program is $25 billion in debt, and its borrowing authority may be exceeded by claims from Hurricane Harvey, let along Hurricane Irma. This means and so I must underline it, the National Flood Insurance Program is already a money loser which makes it difficult to reduce the cost to those seeking coverage.

When we consider that every time the federal government passes a bill and spends money each billion dollars spent represents roughly three dollars that must be raised from every man, woman, and child in America. This means anything in the way of an expensive "pork-filled" flood relief bill will rapidly become painful for taxpayers. Remember many people pay no taxes which means this "assessment" falls only upon those that do. If Washington in its wisdom is generous to the tune of a three hundred fifty billion dollar relief bill for both storms together it represents over one thousand dollars coming from everyone living in America to aid those affected areas in rebuilding. To many people this is unaffordable.

Most people draw a sharp distinction between living on the coast of Florida and within the Houston area, and they should.  The latter is more associated with the image of a working town, however, both are at near sea-level and prone to flooding. While it may be politically incorrect to say it, people in these areas have a responsibility to do everything in their power to take the steps that will minimize their loss. God helps those who help themselves, this is why it was not surprising that mainstream media interviews during Harvey were often with the same people who were victims of Hurricane Katrina even though only twenty-five to forty thousand of these former New Orleans residents reside in the greater Houston area of close to seven million people. Bottom-line when it comes to sending help, absolutely, but as for taking responsibility for rebuilding either area, not my monkey, not my circus.

Former BIS Chief - "System Dangerously Unanchored"

Former BIS Chief - "System Dangerously Unanchored"

Former chief economist of the Bank for International Settlements, William White, told Bloomberg TV recently that "the system is dangerously unanchored." This is not the first time White has issued a warning that global financial markets were not on sound footing. Underlining his grave concern the former chairman of the Economic and Development Review Committee at OECD, stated the current situation "looks very similar to 2008," He then added that OECD sees "more dangers" today than in 2007. Even as stock markets across the world continue to set new records and make all time new highs we should see this as an acknowledgment all is not well.

White voiced his concerns such as prices being very high, in particular for high-yield assets and equities, VIX at very low levels, and house prices are rising strongly. What stood out in my mind was his indication that central banks cannot or will not be able to solve what might be seen as a growing "liquidity problem." The idea that we have too much debt and we have a debt resolution or insolvency problem that only governments can address is a huge reason for concern as governments have a poor history when it comes to addressing such issues in a fair manner. It is no small matter deciding how to handle an avalanche of bankruptcies and defaults.

It should be noted that White has voiced many of these concerns for some time, in January of 2016 the Telegraph reported White said, "The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians." He then made it clear a major task awaiting the global authorities is how to manage debt write-offs - and therefore a massive reordering of winners and losers in society - without setting off a political storm.

Global Debt Has Grown Much Faster Than GDP

During that interview, White pointed out that Europe's creditors are likely to face some of the biggest haircuts. European banks have already admitted to $1 trillion of non-performing loans and are heavily exposed to emerging markets. This indicates they are almost certainly rolling over other bad debts that have never been disclosed. I must again reiterate that situation has yet to be addressed and that the European banking system will most likely have to be recapitalized on a scale yet unimagined. The new "bail-in" rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.

White said stimulus from quantitative easing and zero rates by the big central banks after the Lehman crisis have been leaking out across Asia and emerging markets. This has stoked credit bubbles and a surge in dollar borrowing that is difficult to control in a world of free capital flows. The bottom-line is that even more countries have now been drawn into debt. Combined public and private debt has surged to all-time highs in both emerging markets and for those in the OECD since the top of the last credit cycle in 2007. QE and easy money policies by the US Federal Reserve and its peers have had the effect of bringing spending forward from the future in what is known as "inter-temporal smoothing," this has become a toxic addiction over time and no longer has the traction it once had. In the end, the future catches up with you. This makes it easy to argue that central banks have only postponed the inevitable by continuing to print money and expanding the monetary base.

Among the slew of issues currently facing the global economy White noted:

• India’s debt problems, these go back a long way and include governance issues including those at state-owned banks.
• China’s debt situation that is rapidly growing and credit expansion that indicates maybe some of these loans won’t be repaid or serviced.
• Central banks printing money is not the solution to growing liquidity problems  
• The world needs more fiscal expansion, structural reforms, and also have to look closely at debt write-off and to recapitalize some financial institutions.
• The mix of income that goes to capital versus labor in many countries needs to be addressed
• Central bank tightening is inevitable yet problematic 

The warnings from White should carry a special gravitas since Mr. White was one of the very few voices in the central banking fraternity who stated loudly and clearly between 2005 and 2008 that the financial system and global economy had become compromised. Like many of those who have witnessed debt exploding, I agree that governments have failed to address or make the necessary structural reforms which would lead to a more sustainable economy. I like many economy watchers find it disingenuous that after years of pursuing an unorthodox policy of monetary expansion which has distorted markets and failed to produce real growth that central banks may soon start pointing fingers. Clearly, during times when hope was high and central banks claimed they had the answers such blame games took a backseat to their arrogance and hubris.



Footnote; We cannot underestimate the importance currencies play in a stable economy. Wild swings in the value of a currency have a major impact on the wealth of those holding it. The article below delves into some of what we are seeing play out currently in the market.
  http://brucewilds.blogspot.com/2017/03/currencies-are-trading-in-false-paradigm.html

The Allure Of Illusions - Five Favorite Financial Myths

The reality of "Facts" Blow Myths Apart!

Have you ever wondered why so many people find magic alluring? It seems many of us are drawn to a good illusion and this proves true for most people in their daily life as well. The problem is whether simply too lazy to question what they see or lacking the imagination to pull back the curtain to reveal the truth they often choose to accept what is presented to them as reality rather than go to the effort to seek more. A myth is often defined as any invented story, idea, or concept, an imaginary or fictitious thing, or an unproved or false collective belief that is used to justify a social institution. The entertainment industry has flourished as society seeks any diversion to pull our attention away from the sharp edges of reality and into the soft comfort of escape. This may be the result of past experiences where we have learned, we can't handle the truth! 

In some ways, it could be said that our culture has become obsessed with avoiding what is real. The crux of this article is about some of our society's favorite myths that feed directly into the economy and how we feel about our financial security. While it could be argued these have more to do with how we feel about life it cannot be denied that most people make many of their financial decisions based on the assumption the below statements are true. As a society, we rapidly choose to embrace and often choose not to question them because of the discomfort it would undoubtedly create. Sure many other myths exist or you can slice and dice them in other ways but the five below are very common and should be enough to remind you and even shed a bit of light upon the fact we are vulnerable at any time to having reality raise its' ugly head.

Believing Myths Is A Head In Sand Approach

Government is for the people and by the people - Seriously? After the dog and pony show, we experienced during the last presidential primary all illusions of that should have been erased. It left us with choosing the least of two evils. After all the talk about "we the people" the fact is the average "person" is far removed from the power to decide important issues.

Financial planning means you only have to start saving a little money each year to guarantee an easy retirement.  - The fact is life is a casino where our future is tenuous at best. Much of our circumstances and lives revolve around money and the number of options it gives us when we possess it. I intentionally used the term "casino" to conjure up the image of financial fortune. Which you can lose in a blink of an eye if things go against you. This myth includes things such as the promises made by the government and others such as pension plans and financial institutions will indeed be honored.

You have rights and that we are not slaves - I defer to a few lines from a blog by Gerry Spence who has spent his lifetime representing and protecting victims of the legal system from what he calls The New Slave Master: big corporations and big government. In his blog, Spence wrote; The Moneyed Master has closed its doors against the people and sits on its money like an old hen on rotten eggs. The people will not prevail. With its endless propaganda the Moneyed Master has caused its slaves to believe they are free.

Your life will progress and move along pretty much as you have planned - When you think back over the years of your life if you are like most people things have not unfolded as you had planned. You may not be in the occupation you trained for or with your true love. Throughout our life watershed events occur that we have little control over, this holds true when it comes to your finances as well. Things such as having an investment or pension plan go south can be very unsettling. The thought that things could be worse does not mean they will become so, this is a reason to count your blessings. 

Those in charge or above you care about you and will protect you -  Well of this we can hope but more than one person has been sliced and diced by the people he or she trusted most. History shows when push comes to shove it is not uncommon for a person to look out for the person they treasure the most and that is often him or her self. Politicians and those in power tend to throw people under the bus rather than rise up and take responsibility for the problems they create.

My apologies if this post has been a downer or seems overly negative, however, it is what it is and it was written for a reason. Best stated by a comment I read on another site, these myths add up to where "This is not a can of worms but a warehouse stacked with pallets of cans of worms."  Because of how believing the above myths can impact our lives it is important we recognize their existence. This is not to say that we cannot by making good and reasonable choices eliminate much of the risk we encounter by just getting out of bed each morning. Developing the habit of pressing on and forward to complete solid and reasonable goals is the best medicine to combat a deck that is often stacked against us. Be careful out there!



Footnote; Most investors think that even if things go downhill fast that they will be smart enough to get out of the markets. After the debacle in 2008 where they saw the market take nasty and violent swings they learned a few things, this time, they figure they will get out early.
A scenario exists where the market falls like a flash crash on steroids and investors are trapped. Circuit breakers have been put in place to arrest panic style moves but if trade is halted, and the market simply does not reopen for days or even weeks suddenly it is a new game. As remote as this might seem the article below explores this possibility and the far-reaching ramifications.
 http://brucewilds.blogspot.com/2016/08/flash-crash-on-steroids-makes.html

Walmart Gave, Target Gave, Amazon Gouged!

Irma Has Obliterated Entire Islands

When things get tough that is when you find out who your friends are. In a heartwarming commercial, Walmart paints a picture of America coming together supporting those who are seeing their lives washed away by Hurricane Harvey. The eyes of a nation are now turning towards Florida where Hurricane Irma is bearing down with category 5 winds and companies like Walmart and Target are queuing up to give back to the communities that support their stores.

Meanwhile, Amazon.com is taking heat for increasing prices on basic supplies ahead of the hurricane’s landfall in Florida. The fact they jumped the cost of water has drawn the most ire. Kate Taylor of Business Insider reports, customers took to Twitter to share screenshots of water from various brands — for example, Aquafina and Nestlé — priced roughly between $20 and $25 per case. Usually, the same cases of water sell for between $4 and $8, this means that the screenshots demonstrate Amazon is gouging customers for about 500 to 625 percent.

Amazon is a self-promoting hype machine that is far from transparent and while politicians fall over themselves to be in its shadow it is not our friend. Because of its massive advertising budget and other ties to Amazon, we find the media often seems to be in bed with Amazon and fall all over themselves to portray the company as both the flavor of the day and the future of commerce.  This means you seldom hear anything bad about the retail behemoth turning the articles put before us into nothing more than free advertising. These so-called "news articles" are often spun to place Amazon in the most flattering light, however, for more about this under reported story about price gouging see below.

1. News about Amazon Hurricane Gouging

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   Amazon Is Removing $100 Packs of Water After Being Accused of Hurricane Irma …

   Time · 1 day ago

   Amazon is removing excessively priced bottled water from its marketplace after being accused of price gouging, as thousands of Americans prepare for the deadly Hurricane Irma to make landfall …

   Amazon is under fire for reported Hurricane Irma price gouging, with 'life-sustaining necessities' selling for wildly inflated prices

   Business Insider · 1 day ago

   Amazon is under fire for reportedly inflating prices as Floridians prepare for Hurricane Irma. With local grocery stores selling out of basics such as water and other …

   

   Amazon Shoppers Complain of Price-Gouging During Hurricane Irma

   Yahoo News · 5 hours ago

   As Hurricane Irma barrels down on Florida, residents are complaining that some Amazon sellers are jacking up the price of emergency supplies prior to the disaster. …

2. Videos of amazon hurricane gouging

   bing.com/videos

   
   

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   Amazon Price Gouging During Irma?

   Dailymotion

   
   

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   Amazon Accused Of Gouging Hurricane Victims

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   Price Gouging Hurricane Irma & Toys R us filing for Bankruptcy??

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   NEW

   
   

   Amazon Is Removing $100 Packs of Water After Being Accused of Hurricane Irma Price Gouging

   TIME

   See more videos of amazon hurricane gouging

3. Amazon faces complaints of price gouging ahead of Irma ...

   CBS News2 days ago

   Amazon (AMZN) may be in hot water with consumers over the price of water. Some are reporting sharply higher prices for bottled water on Amazon as Hurricane Irma ...

4. Amazon is under fire for reported Hurricane Irma price ...

   https://finance.yahoo.com/news/amazon-under-fire-reported...

   Amazon is under fire for reported Hurricane Irma price gouging, with 'life-sustaining necessities' selling for wildly inflated prices

5. Amazon Is Accused Of Serious Price Gouging As Hurricane ...

   delish.com · 17 hours ago

   Sep 07, 2017 · People Are Accusing Amazon Of Price Gouging As Hurricane Irma Approaches. The site is closely monitoring and removing any listings that "substantially ...

6. Amazon Shoppers Complain of Price-Gouging During Hurricane ...

   FORTUNE23 hours ago

   Sep 07, 2017 · As media reports of Irma price gouging began to surface, Amazon initially denied any price spikes were taking place.

7. Amazon under fire for reported hurricane price gouging

   World Net Daily15 hours ago

   (AOL News) Amazon is under fire for reportedly inflating prices as Floridians prepare for Hurricane Irma. With local grocery stores selling out of basics such as ...

8. Amazon accused of price gouging those in the destruction ...

   https://www.newstarget.com/2017-09-07-amazon-accused-of-price...

   Sep 07, 2017 · As Florida prepares for Hurricane Irma and local stores run out of supplies, the prices of essentials like bottled water have been rising sharply on Amazon ...

9. Amazon Accused Of Gouging Hurricane Victims - Speed Wealthy

   https://speedwealthy.com/money/amazon-accused-of-gouging-hurricane...

   Amazon Accused Of Gouging Hurricane Victims - Speed Wealthy , Learn how to make money from home! Be your own boss and start work for your future today! Check our ...

10. Amazon Accused Of Gouging Hurricane Victims - YouTube

    https://www.youtube.com/watch?v=knzOL2TwALk

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