Tuesday, January 22, 2019

The Partial Government Shutdown Is An Expensive Farce

Trump's Wall Is Politically Dividing America
The partial Government Shutdown is an expensive farce and an example of unbridled stupidity run amok by a group of well-paid politicians unaccountable to reality. Even those taxpayers annoyed and frustrated by big government who claim they are "pleased to see government shutdown" should garner little joy from the current circus playing out in Washington. Since most government workers will likely be granted retroactive pay for their time off, politicians are stupid or silly if they think paying government workers to stay home over a few billion dollars in a 4.4 trillion dollar budget makes any sense.

In a prior article, I pointed out that by simply calling for the end of the penny the President could pay for his wall. getting rid of the penny would save America billions of dollars. This article, however, is not about how much a worthless penny cost business every year but to point out how Washington has created a lose-lose situation out of an issue that does not merit being elevated to such a level. Being no fan of stupidity I find it hard to applaud any of the parties that have become willing participants or have embraced this charade.

Those we have sent to Washington should get back to work solving real problems instead of just grandstanding and playing to their base, it is little wonder much of the world appears to have lost faith in America's ability to lead when we have allowed the country to be held hostage over such the mundane issue of a wall aimed at reducing illegal immigration. The fact is walls are a barrier and barriers impede easy access. While such a barrier is not the answer or solution to immigration it is a tool that can be used to help limit and direct how people illegally enter the country. It is a bit ironic that American citizens stand in long lines with passports in hand while long parts of our borders go unprotected. The fact is anyone who has traveled knows you can't just walk into any country without any questions asked.

America's Bureaucratic Apparatus Is Broken
A lot more of our political attention should be focused on the broken bureaucratic apparatus that surrounds our current immigration system. Immigration has been an issue for decades and not addressing it in a proper way will not make it go away. A reasonable solution to solving our immigration problems has eluded both Republicans and Democrats time and time again and reduced those caught within the system into being political pawns. The debate over immigration, processing new arrivals and addressing millions of undocumented immigrants, receives plenty of press but much of our immigration problems lurk below the radar.

Tens of billions of dollars are wasted each year on this costly inefficient system according to an article published by the American Action Forum way back in April of 2015. The article explored the cost of a broken immigration system on American business. The fact is that when the American Action Forum (AAF) analyzed the total costs of the immigration system, they found close to $30 billion in annual regulatory compliance costs. It hardly takes a rocket scientist to determine that reducing the number of people "illegally" entering the country would save billions of dollars and allow the system to operate better even in its current poorly crafted form.

Examining paperwork requirements by way of the Office of Information and Regulatory Affairs (OIRA) the AAF found there are 20 requirements dealing specifically with the labor implications of hiring an immigrant worker. Of this, there were seven paperwork burdens that specifically applied to employers. AAF used agency estimates on the amount of time for each requirement, the number of forms, the length of applications, and the number of applicants. When an agency failed to provide a cost for the paperwork burden, AAF used the Department of Labor’s estimate of “Real GDP Per Hour Worked:” $60.59 and assumed $180 per hour as a reasonable cost for an immigration attorney.

Immigration also takes a toll on American employers, these burdens increase the cost of doing business and place a barrier to firms wishing to hire qualified workers. AAF found that a hypothetical firm hiring an immigrant would have to manage up to six federal forms, totaling 118 pages, and at a cost of approximately $2,200 per firm, per hire. Even small businesses in my state, far from the border, is required to confirm a worker is legal to work, this is a bit ridiculous for small firms with only a few workers, all from their own family, and these are people they have known since birth, but that's the law. 

Another article in The New York Times from September of 2016, titled; “The Economic and Fiscal Consequences of Immigration” cites a 509-page National Academy of Sciences Study that reinforces the fact this is a very controversial issue. The report allowed interest groups on both the left and the right to claim it vindicated their positions. America’s Voice, a liberal advocacy group, declared from the pro-immigration side it "confirmed immigrants benefit America." while conservatives calling for more restrictions on immigration read the same report but had a very different interpretation saying it showed "workers and taxpayers lose, businesses benefit.”

Washington should step away from the "emotional" aspects of immigration such as flowery debates about the rights of people and what they "deserve" and focus on the key issues of restoring a functioning government and getting on with real immigration reform. Even those of us who find big government distasteful should be able to see that paying workers to stay home is not a solution to the Deferred Action For Childhood Arrivals (DACA) situation. Also, loading millions of people on buses and deporting them will never happen. At the same time, those wanting more open borders should realize the current situation does not work either.

By assigning Trump's modest request in the overall scheme of thing as a "non-starter" immigration supporters are shooting themselves in the foot. This is akin to an "America first supporter" denying any type of foreign aid in a situation where it will obviously have big benefits for America. In theory, those opposed to Trump should be ecstatic about Trump's offer to extend DACA and protection to some 300,000 immigrants for three years. If immigration advocates are confident their numbers will grow and Trump will not win a second term, they would then have the opportunity to knock the ball out of the park and resolve the whole immigration issue strongly in their favor.

Remember in the overall scheme of things and the amount America spends each year 5.7 billion is peanuts and it is easy to see how America will get a good economic return on money spent on a barrier that works 24/7 year after year. Most taxpayers, if asked, would see this as a far better investment than paying government workers to stay home week after week. It is about time we end this shutdown and allow those we have sent to Washington to get back to work solving real problems instead of just grandstanding and adding to our ills.

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

Monday, January 21, 2019

Yellow Vest Protest Add To Euro-zone Economic Misery

The Yellow Vest Has Become A Symbol Of Unrest
The Euro-zone faces huge social and economic problems before the Brexit issue is even factored in but with so many other events taking place throughout the world this slow boiling pot of trouble often is placed on the back burner where it is ignored and allowed to fester. The social issues tend to play into the economy because when people are unhappy work gets disrupted and productivity drops. This is one of the reasons Daniel Lacalle, Chief Economist at Tressis GestiĆ³n, during a recent interview with CNBC warned that Mario Draghi’s successor at the ECB will face enormous challenges managing the Eurozone’s monetary policy.

Before going deeper into that let's look at two very real problems. First, reports are that despite freezing temperatures and rain, tens of thousands of "Yellow Vest" protesters still took to streets across France on Saturday in the tenth consecutive week of anti-government demonstrations. They have ignored attempts by President Emmanuel Macron to channel their anger into a series of town hall debates aimed at stopping the movement. The president's counter-offensive this week with the launch of his "grand national debate" and spending hours in rural France debating with disgruntled mayors is yielding little. The fact is many of those demonstrating are calling for Macron to step-down and we can add his latest scheme to end "the madness" to the pile of failed gimmicks already tried.

Many Europeans Reject A Tighter Union
These protests are not getting a great deal of airtime or coverage, much of the mainstream media has ignored both the size and scope of the protests, independent journalists, select foreign news outlets and others have been documenting the mayhem. This is not the first time we have seen this trend of blacking out news negative to "the state" and it is a reason for lovers of freedom and free-speech to be concerned. This fits into the idea mainstream media's role has become to feed the propaganda loop that plays a huge role in shaping public opinion and in the end continues to erode and ultimately results in the government being able to slowly hack away at our rights for what appears to be "the greater good."

The rally in Paris, as well as those in several other cities, ended in clashes where the police using tear gas and water cannons to dispersed hooded protesters who threw paving stones and bottles. Clashes were also reported in Bordeaux, Toulouse and the western city of Rennes. The only promising sign was that for the second consecutive week there was no evidence of the chaos and destruction seen over several successive weekends in the capital. An estimated 84,000 demonstrators took to the streets on Saturday, including about 7,000 in the French capital. Paris deployed 5,000 police notably around government buildings and the Champs-Elysees shopping area. About 80,000 police fanned out nationwide. Protest turnouts are now being closely watched for signs of possible fatigue in the movement as it enters its third month. According to the Interior Ministry, there were 27,000 protesters across France by early Saturday afternoon, down from 32,000 at the same time the week before.

French police have been criticized for using rubber projectiles that have caused several serious injuries to protesters. At the Invalides, protesters carrying a banner that read "Citizens in danger" marched at the front of the procession and held coffin-shaped boards in memory of those killed. "It's not normal to treat people the way we are being treated. We have injured people every Saturday," said Juliette Rebet, a demonstrator in Paris. While much of France has endured weeks of protests over economic demands by French workers and students that at times descended into violence. The grass-roots protests starting months ago over fuel taxes is a broader revolt against economic problems and the top-down ruler which many of the French is as arrogant and aloof.

Angela Merkel Has Seen Better Days
Another rift is apparent in Germany where Chancellor Angela Merkel, decided years ago, Germany and all of the euro-zone should throw open their arms and welcome in immigrants from war-torn areas. Merkel’s decision rapidly impacted all of Europe with the other countries never being allowed to weigh in. Now, we see that just last November she started offering cash to refugees to return from whence they came, and since then she has stepped up her game, now offering to pay their living expenses for one year if they return home. Billboards are appearing all over Germany making this latest offer yet more than 20,000 refugees have vanished when they were going to be deported.

One take on the current mess in Europe is that the entire refugee crisis was created by Merkel to take eyes off of Germany being viewed as the harsh enforcer of loans structured to hide what Goldman Sachs had instituted in order to get Greece into the Euro-zone. After Chancellor Merkel’s poll numbers collapsed following her refusal to yield to Greece in the debt crisis. Basically, Merkel allowed the Greek people to be strip-mined of their assets to pay for their corrupt politicians. It is said, her own poll people, which she employed to make sure she makes political decisions that keep her popular thought she could use the "open immigration" issue to rapidly change the subject from Greece to Syria.

Those touting this version of the "politics" behind the scene cite a July 2015, Time Magazine article pointing out that Berlin’s role as the enforcer in negotiations over Greece’s debt could cause lasting damage to Germany’s global image and that by welcoming refugees to Germany they could stem the damage. So, it is possible, the watershed event driving the immigrant crisis that has unleashed so much pain and grief upon Europe is rooted in Merkel's efforts to reshape her global image from that of an evil loan shark to the caring Mother Merkel. Simply put, Europe is now paying a huge the price because Merkel was concerned about her polls.

Central Bank Balance Sheets (click to enlarge)
Circling back to the Lacalle interview, he cited the fact the ECB balance sheet is 41% of GDP of the Euro-zone while interest rates are at zero. Calling the situation "insane" Lacalle noted that Draghi’s successor will find it very difficult to justifying injecting more liquidity into the system. This comes at a time when the Eurozone is likely to grow only 1% this year and not 1.6%. as expected. Like many of us that have watched the Euro-zone, he indicated many of their the problems are structural and due to the massive level of government spending, very high taxation, and obviously demographics.

The idea that the next ECB President will be given the task to "normalize" the economy while facing the negative consequences removing the current policy is going to unleash without any real tools will be daunting. The current political climate in both France and Germany will make even more difficult. Thinking Germany will be willing to assume the role of bailing out all the weak sisters of Europe by putting it's government spending at the forefront and spending like a drunken sailor will not work but is akin to asking it to take the same failed path worn bare by countries such as Spain, Italy, France, and Portugal which are still spending way above their means. While the Euro-zone governments have been spending freely southern Europe’s economy hasn’t grown since 2006 when adjusted for inflation but its government debt has ballooned 70%.

Further a dramatic plunge in German industrial activity late last year not only raises the risk that Europe’s largest economy will slip into recession. Recent data shows that production fell for a third month in November posting its worst year-on-year drop since the end of the financial crisis. It appears that weakness is creeping into all parts of the economy from consumer goods to energy, this drop has repercussions for the euro area, where separate numbers on Tuesday showed economic confidence has slipped to its lowest point in almost two years. Just last month Mario Draghi said the 19-nation economy has enough underlying momentum to justify a decision to stop adding monetary stimulus. What next you might ask, the answer is, now we wait.

Sunday, January 20, 2019

Bill To Limit Unneeded Hospital Construction Introduced

Needed Or Not, New Hospitals Are Being Built
A new bill to limit the construction of unneeded hospital building has been introduced in Indiana. The reason this should be important to you is that the new hospital construction continuing across the nation carries with it many harmful side-effects. Sen. John Ruckelshaus, R-Indianapolis, referred to the boom in hospital construction in recent years as a “hospital arms race.” Under a bill before the Indiana legislature, State lawmakers might try to limit hospital construction. Ruckelshaus is worried about hospitals clustering new construction in high-wealth areas and that it will ultimately drive up the cost of health care for Hoosiers.

This is part of the same old story, when money is cheap and funds are readily available, many CEOs, and the board of directors of large, often quasi-government concerns, rush to construct monuments that will stand as a legacy to their greatness. We are talking about "overbuilding" which means facilities sitting half empty and the cost being transferred in some way or form to the community and others. Let me make it clear, this is not a problem just in Indiana but such construction has been on a tear across the nation fueled by low-interest rates, government expansion of healthcare, and demographics. In many ways this speaks volumes as to the economic revival of America post-2008 and Americans have the healthcare bills to prove it.

Hospitals Are Difficult To "Re-purpose"
Another motivation behind much of the "build new" in a high-income area and tear down your old facility is the fact hospitals are interested in drawing "private pay" patients which in turn makes it harder for other hospitals who then are left with most of the low-income patients. This again is not about using healthcare money in the best way but gaming the current system and how it is rigged. It also does not take into consideration the damage it inflicts upon the areas where hospitals are closed. History shows that the loss of these huge employers can devastate a community dropping property values and opening the door for a slew of social ills.

Ruckelshaus has a valid point when he argues that hospitals aren't truly part of the free market system because much of the money that flows through their system is from the government by way of Medicare or Medicaid covering seniors, the poor and people with disabilities. Senate Bill 573 would require projects of more than $10 million to obtain a Certificate of Need from the Indiana State Department of Health. Currently, new projects must go through health and safety checks to be certified as a hospital but don't need a certificate of need. At this time at least two major Fort Wayne projects are in the works that could be affected.

As expected, the hospital association opposes the bill and so will those in the construction trades and suppliers ready to gain from these projects. Indiana used to have a Certificate of Need when federal regulations required it but repealed it in the early 1990s. Brian Tabor, president of the Indiana Hospital Association, said more than 30 states have a certificate process but the trend is moving away from that. He noted Wisconsin has dropped its requirement and New Hampshire repealed its law. Tabor claims “Competition and market forces are at work with hospitals,” he said. “It's service based. The dollars follow the patient.”

Since the bill would affect not just new facilities but also repairs and remodeling costing $10 million or more. Tabor said the bill would create an environment where projects end up being litigated, drawn out and you enter into a realm of very subjective decision-making. He said many of the construction projects around the state are replacement facilities, such as an expansion/renovation project at Cameron Memorial Community Hospital in Angola. Lutheran Health Network also plans a $120 million replacement for St. Joseph Hospital in Fort Wayne. Both of those are in rural or high need areas and aren't the specialized hospitals Ruckelshaus is worried are siphoning all the private pay customers.

In a recent article on this website, it was noted that on a recent long trip I could not help but notice all the new hospitals and healthcare-related buildings lining the interstate in every city along the route. History has proven that government spending can supplement the economy, however, over the long run government spending is a poor substitute for the free market in allocating capital to where it is most effective. Because hospitals and medical buildings are often difficult to "re-purpose" building when new capacity is really not needed results in turning "perfectly adequate" but not so new buildings into structures that have no future other than being be torn down, a wasteful act at best but hinging on something that could be considered morally criminal.

Saturday, January 19, 2019

Davos - The World Economic Forum Merits Our Attention!

Gathering Powerful-brokers And Public Servants?
It is that time of year again when the rich, the powerful, and the so-called "movers and shakers," migrate to Davos for the annual meeting of the World Economic Forum (WEF). This is where the International Organization for Public-Private Cooperation engages the foremost political, business and other leaders of society to shape global, regional and industry agendas. This means thousands of business, political and cultural leaders from all over the world will return to the snowy mountains of Davos, Switzerland from January 22, until the 25th to discuss the latest global issues.

Such a large gathering of those who "call the shots" merits a bit of sound reflection on our part as to the possible ramifications for the world and it is important and prudent that we at least weigh in on what they plan to do with us in coming years. Around 2,500 participants from more than 100 countries, including many heads of state, will attend the event formally known as the 2019 World Economic Forum. This year, the theme is “Globalization 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution.” As in prior years, some of the key issues high on the agenda are involuntary immigration, extreme weather, and climate change, geopolitical conflict, terrorism, sustainable growth, as well as how robotics and other trends will play out and mold the world in coming years.

Davos, Beautiful, Serene, And Very Expensive!
The tiny town of Davos, Switzerland with a population of just over 11,000 sports a very cold below zero average temperature in January and has been the location of this annual event for decades. Aside from tradition, a major factor elevating this beautiful and serene setting to be chosen as the site hosting this event is security, it is far easier to secure a small town wedged between the mountains than a conference center in a big city. This is very important to the 40 heads of states that are attending. Organizers don't release specific information, but it is estimated that around 5,000 of the finest Swiss troops, police and security personnel guard the town.

Switzerland is famously expensive, and this extends to the WEF and Davos. To start we are talking about the ticket which is around $20,000 and that's just the tip of the iceberg. Travel generally cost thousands, and sometimes tens of thousands as private and government jets descend on the area. Then there is the cost of lodging, a night in a medium-range hotel is around $600, but such accommodations will not do for many of those attending the event. When we add to it wining, dining, and essential accessories like snow boots, the total bill can quickly exceed $40,000. To our so-called "public servants" getting invited to an all paid trip to Davos is the golden ring.

As to who attends this exclusive event the gathering often includes nearly everyone who matters in the world of business. Bill Gates will be there, as will Mary Barra, Satya Nadella, Jack Ma, Eric Schmidt, Sheryl Sandberg and dozens of other CEOs. This will give them face time with the IMF chief Christine Lagarde, with ECB President Mario Draghi and the governors of many national central banks. This year, however, some players will be missing, Donald Trump, Emmanuel Macron and now Theresa May have all decided to skip the conference in order to attend to their respective crises. On Thursday the White House announced the cancellation of American officials attending following an initial scaling back of the US delegation to the gathering due to the government's partial shutdown. Still, as usual, those in attendance will be closely followed by a massive group of journalists hoping for interviews and a moment in the spotlight.

As noted earlier organizers of this premier gala pull out all stops to insure a safe conference.
  • Security includes two surface-to-air missile systems.
  • About 100 of the 2,500 participants get special security coverage.
  • Attendees will be hemmed in by over 46 kilometers of fences.
  • Zurich Airport will contend with about 1,000 additional plane and helicopter takeoffs and landings during the meeting.

The Bash Includes Parties To Cajole And Influence
Each year as this "ultimate extravagant" unfolds I seem to get a pain in my stomach that some might consider envy, but having attended my share of events I consider it more of a sickening feeling related to the over the top self-importance of many attending. It often seems my angst is directed mostly at the politicians and such that have their travel expense picked up by governments. How ironic that we pay the same clowns that create so many of our problems to gather in luxury to discuss their deeds. I find it so interesting that someone flying across the globe on a private aircraft can sit down and discuss their environmental concerns and how each of us must do more to save the planet.

I should add this giant high dollar bash also includes the parties needed to cajole, influence, and build future connections to insure a good spot at the table in coming events. The topics holding the spotlight often are focused on issues related to wealth, whether it has to do with stock price swings, bonds, or commodities. The distribution of societal benefits tends to take a backseat to those at Davos. This year it seems participants are getting a little jittery with several world events such as the increase in yellow vest sales, troubling trade wars, and economic growth slowing in China. As usual many of the people attending have a great deal of interest in keeping the good times rolling whether by pseudo-economics, hocus-pocus, or any other policy that extends the good times.

If I sound cynical it could be because I suspect this gathering in Davos is not for our benefit but more for plutocrats like Facebook's Mark Zuckerberg and Amazon's Jeff Bezos that desire to "break the world" with their ruthless corporate agendas that continue to monopolize political power in the hands of the globalist elite. To counter this already reassuring words are being cast out over the airwaves to us, the minions of the world, to encourage faith in their wisdom. An example from prior years is how IMF chief Christine Lagarde said the Chinese economy is unlikely to see 'hard landing' and it would be in the interest of the world that China returns to a sustained growth path. With such startling and revealing statements it is no wonder she is hailed as such a world renown financial leader.

Oh, what a tangled web those in charge of our fate have woven for us as they rush to sell and bargain away our freedom for power and wealth. Paris is burning, a huge chunk of the US federal government is shut down, Britain is tilted towards an ugly place as the Brexit process slips into chaos, and conflicts abound. The surge in populism sweeping the Western world indicates something is wrong and while the growing backlash may baffle the global elites who see Davos as an opportunity, some of us have come to see Davos, as a notorious rendezvous for the world's elite that always seem to give us the honor of paying for their schemes in some way or form.

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

Footnote; This is an extension of a topic I have written about before, I do not hold in high regard those in Washington and across the world who love power and access to the public purse. It seems they can always come up with a justification for the outlandish and the absurd, to those making the rules, the cost is often not relevant. It is not uncommon to see our public servants, some as low as a mayor or agency head climbing out of a limousine and being wined and dined, as they go about their "fact-finding missions" all paid for by the taxpayer. The article below written years ago looks into whether these people are really public servants or simply part of the "new elite." 

Wednesday, January 16, 2019

China Must Adjust To Some New Realities - But Will It?

Chart Of China’s Debt Mania (click to enlarge)
Since Donald Trump became President, China has been asked to adjust to some new realities and they could not have come at a more inopportune time for the Asian country. After years of rapid expansion China is enduring a slowing economy and because of this China recently made its first major monetary policy easing announcement of 2019, the People’s Bank of China (PBOC), China’s central bank, will cut the amount of money banks are required to hold in reserve by one percentage point.

This move could pump 1.5 trillion yuan or the equivalent of 210 billion U.S. dollars of additional liquidity into the banking system to help arrest its deepening economic slowdown. The PBOC will reduce the required reserve ratio (RRR) by 0.5 of a percentage point on January 15 and again on January 25 in an effort to guarantee that banks have sufficient funds available to lend to private firms and small businesses. This is a move to provide liquidity to the economy at a time when China’s trade surplus and capital inflows are drying up. Now just one week after unveiling the monetary easing in the form of the RRR cut, China has announced even more stimulus in the way of a tax cut, using such a cut to spark a slowing economy is a departure from the infrastructure binges of the past.

For the markets the trade talks continue to be an area of concern and speculation, however, following each bout of optimism that causes the markets to spike higher comes the realization that a real solution is far from being reached, this however, does not mean that China has any intention of altering its current path when it comes to trade. China continues to stall and try to distract the world from their predatory business model that has become more blatant after the global financial crisis of 2008 when China unleashed a massive amount of money and credit into its financial system in an effort to not only keep its economy moving forward but to evolve it into a more consumer-driven model and away from its dependency on exports.

Currently, China is mired in the same quagmire plaguing the rest of the developed world and that is too much debt. The amount of new capital investment required to generate a given unit of GDP growth has more than doubled since 2007, according to Moody’s. This has resulted in a growing inefficiency of credit. Recent data from China shows imports fell 7.6 percent year-on-year in December while analysts had predicted a 5-percent rise. Exports dropped 4.4 percent, again falling far short of the expectations for a 3-percent gain. Since China now accounts for more of total global trade than the United States these numbers are troubling for the global economy. Adding to the growing fears is that Europe just released its worst industrial output numbers in nearly three years.

A controversial Chinese economist, professor Xiang Songzuo, has argued China's GDP growth could be much weaker than the official data which shows the Chinese economy grew at an annualized rate of 6.7% through the third quarter. Reports are that Chinese censors are not happy about a presentation delivered by an economics professor at Renmin University in Beijing which drew attention when he claimed that a secret government research group had estimated China’s growth in gross domestic product could be as low as 1.67% in 2018. Even those skeptical of the official data dismissed the presentation as unrealistic but despite being scrubbed from Chinese social media and the mainland Internet, the presentation has drawn a great deal of attention on YouTube.

The feeling is that Xiang's warnings are resonating with everyday Chinese consumers struggling with one of the worst-performing stock markets of 2018, a collapsing shadow lending sector, a crackdown on China's vast online peer-2-peer lending infrastructure, and a weakening currency. It seems falling investment cannot be offset by consumption yet there is little reason to invest when things are already overbuilt and debt has hamstrung its economy. When coupled with the overcapacity that developed as the country raced ahead on a wave of easy and cheap money China is in a situation similar to that which America faced in 1929 following a period of rapid growth and credit expansion. Time and time again history has shown that when an economy has overbuilt, over-leveraged, and overreaches a reset occurs.

Shadow Banking May Add Even More To Debt
The chart to the right shows how debt has soared from 150% of GDP in 2008 to around 300% at the end of 2017. Since that time the trend has continued and China has seen a dramatic rise in debt. Few countries have gone on borrowing binges of that magnitude without hitting a crisis. Adding to China's problem is a shadow banking system that is often misunderstood. Part of the issue is that much like the derivatives market shadow banking can be hard to define and how extensive it is can be blurred by this limitation. It is very possible China's debt problem is much larger than indicated because of the large role shadow banking plays in China's economy. Even local governments borrow from the shadow banking system, shadow banking is a slightly sinister name for trusts, leasing and insurance companies and other non-bank financial institutions which perform banking functions without a banking license.

No one really knows how big the shadow banking sector in China is because it is largely unregulated by the banking authority, but shadow loans are estimated to make up 20% of all loans. The shadow banking sector is so large that concerns exist about contagion and a domino series of defaults that might rack the economy as savers lose money. It is reported that 89% of households and 57% of firms have borrowed money from these groups, however, it is not just about size, it is how deep, and where the roots of this system run. Shadow bank loans can charge as much as 24-30% in interest and be for as short a period as just three to five days if someone really is in need of cash.

One shadow banker confessed that he charged interest rates of up to 100% and lent on average 6m yuan per month, which is around one million U.S. dollars. Many people see the shadow banking system as a channel to get money to solve business problems as it's efficient and quick even if the rate is much higher than the banks. These shadow banks have been selling wealth management products (WMPs), which offer returns that far outstrip the official deposit interest rate of 3%. A big problem is these unregulated products are riskier and reminiscent of some of the horrifyingly complicated products sold in the U.S. and Europe before the global financial crisis that started in 2007.

This is not just about writing off a few bad loans, it is important to remember the money fueling these loans come from Chinese savers who have taken on more risk to get a better yield on their savings, when loans go bad they are the losers when the smoke finally settles. One of China's most notorious shadow bankers is now in jail serving a life sentence but this does not help those who loaned this person money because of the high rates he paid. The "investors" become victims and often lose everything they have saved to retire on when a shadow bank goes bust. In some cases, people lend money to someone like their boss to earn more interest than the meager rate offered by the bank. During the global financial crisis the central government launched a spending program, however, rather than provide funding for this it left getting financing for projects up to local governments, the fact that some of them borrowed from the shadow banks is proof of just how extensive shadow banking is.

China’s debt mania, by this I mean madness, craziness, and frenzy is now the largest ever experienced in the postwar emerging world. As the China story unfolds it is clear the scope for a debt meltdown in China remains immense. China's banking sector is the biggest in the world, with assets of over $30 trillion and equivalent to 40% of global GDP. China’s four biggest banks are also the world’s four biggest. Its stock markets, even after the crash, are worth $6 trillion, second only to America’s, and its bond market, at $7.5 trillion, is the world’s third-biggest and growing. Keynes' theory was the government should create demand when the economy starts to contract and reverse when the economy recovered. Increase the debt to stimulate and decrease debt once the economy recovered. It appears China as in the U.S. has only followed half that theory and encouraged debt to stimulate the economy. Do not expect this to end well.

Monday, January 14, 2019

A Sustainable Future For Mankind Should Be Job One!

Sustainability Is Critical To Our Future
We should occasionally take a few moments to reflect on where we are, and where we are going. Over the last few years the threat of nuclear war has increased but even more frightening is the acceptance of such an event as a way of resolving problems. Our days, however, all filled with many other issues that will eventually determine not only our fate but the fate of mankind as well. Only to the most self-centered individuals with no children, family or friends can the issue of creating a sustainable future not be an issue of importance. In many ways, it should be considered "job one" in our rapidly changing world, yet it is almost always put on the back burner and ignored because of both political and economic ramifications.

Sustainability means planning our future in a way that we do not set ourselves up to crash and burn at some future date. Long-term planning is not something politicians excel at or are even good at. Most political systems are geared at getting politicians re-elected and meeting the most pressing needs of today and not tomorrow. Things like profit, greed, and our unquenchable desire for growth are placed in front of longer-term issues and needs. This means that mapping out a logical and sustainable long-term plan requires delving into some rather hefty philosophical questions such as what brings real happiness. We also have to think about what kind of society and world future generations might want to live in and properly recognize the role of the human-animal in the overall scheme of things.

Population Has Soared In Last Two Hundred Years
As the population has soared during the last two hundred years, man has spread out and constructed infrastructure across the planet to support this growth using more natural resources than at any time in history. Already more infrastructure is needed and the repairs required to maintain what we have already built will be staggering. It appears we lack the courage to even discuss these issues in any real way. Do not expect to be guided by politicians, the super wealthy or most business leaders. Few people are willing to come out and say the recently adopted modern model of life based on lifestyles developed in America and western society are unsustainable. The few that mutter these words are often scorned. This could all be considered part of a giant conspiracy of silence but is more likely a head in the sand act of denial, an act that could lead to our demise.

We should remember that for most of his 60,000 years on earth man has been a minor consumer of the earth’s stores of energy. With the discovery of fire, man began to increase his demands and draw on the short-term energy stores that had been accumulated over scores of years or even centuries by woody plants.  Only in the last hundred years with the invention of the internal combustion engine and a huge increase in population has man begun to tap the planet's long-term energy supplies of oil and natural gas at an alarming rate. In merely a blink of an eye, we have shaped a world where our lifestyles revolve around and are dependent on oil and the consumption of energy from fossil fuels. To those naysayers of problems ahead that sight lower birthrates it should be pointed out that longer lifespans mean more people alive at any one time and that statistics showing we must drill deeper and deeper to find fresh pools of oil do not lie.

Jeremy Grantham’s investment firm GMO manages about $110 billion in assets. He also backs the Grantham Institute of Climate Change at London’s Imperial College. He says population growth is a huge “threat to the long-term viability of our species when we reach a population level of 10 billion” because it is “impossible to feed the 10 billion people.” Billionaire Bill Gates says we should cap global population at 8.3 billion at the same time his vaccine and other programs are extending life expectancy. Columbia University’s Earth Institute Director Jeff Sachs says even 5 billion is unsustainable. To stop adding more people our population is tough enough. But how do we eliminate two billion from today’s seven billion total? Voluntary?

War Has Turned Mosul Into Rubble
As the world continues to develop the importance of design and quality are factors that cannot be stressed enough. As the world's population soars we cannot afford the wasteful luxury of constructing buildings that grow obsolete or must be replaced every few decades, buildings should last for centuries. We also cannot afford to bomb and lay waste to whole cities killing and destroying what so many have worked so hard to create. How we use our new skills and the choices we make will determine if mankind blankets the world with Las Vegas style resorts on every corner, fills the skies with glass towers, or constructs homes and shelters suitable for our fellow man.

It concerns me that in developing countries such as China and India that have huge populations of have-nots we are seeing developers follow the same flawed pattern of growth that was pioneered in America. The creation of huge wealth in China has manifested itself in conspicuous consumption as people rush to show they are successful. Poor planning has not promoted a lifestyle of efficiency and social interaction but has encouraged the private automobile with its massive support system of highways and the construction of more high-rise towers. The ability of the planet to sustain our recent lifestyle that is too new to have stood the test of time is very questionable.

“One of the disturbing facts of history is that so many civilizations collapse,” warns Jared Diamond, an environmental anthropologist and author of the classic “Collapse: How Societies Choose to Fail or Succeed.” History shows that many failed civilizations share a sharp curve of decline which is usually totally intertwined with the economy and everyday life. A society’s demise may begin only a decade or two after it reaches its peak population, wealth, and power. Can it be stopped before it’s too late? Don’t bet on it, watching how those in Washington and other capitals avoid dealing with the many real problems we face is not encouraging.

                                                                                 This blog is not written for money
                                                                                 or profit but as a way to share ideas
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 Footnote; The above article is not an endorsement of some kind of "carbon tax" as much as it is a call for better planning and less waste. This post dovetails with many of my recent writings, below are a few related to this subject. Other articles may be found in my blog archive, thanks for reading, your comments are encouraged.
http://E-Waste Disposal Major Failure Of And By Government.html
http://America Did Not Vote For More Death And Destruction!html
http://Mankinds Struggle Viewed Through The Peter Principle.html

Friday, January 11, 2019

Power Of Orwellian State Has Become Almost Irreversible (Part 5)

This Really Was Meant To Be Just A Warning
The insurmountable problem posed by the growing power of Orwellian States and the reason we should all be afraid is that once totalitarianism takes hold it is almost impossible to loosen its grip. Freedom and privacy are often its first victims which add to its resilience as it reaches deep down into the very heart of society and our culture. Not only have we stepped onto the slippery slope toward more government intrusion but many people seem to have flung themselves down this path trading their privacy for promises of a safer world as the government with the help of a complacent media spreads its message this is all "for the greater good." The blatant claims and subliminal messages they put forth have even spread into our schools and universities where government money and power influence the lessons we teach our youth.

Whether it is in your home or workplace private companies working with your government constantly comb through vast amounts of your social media and online shopping data. When we step outside our homes our movements and actions in the physical world are also swept into this dragnet. Currently, the government gathers an enormous collection of information through the video cameras placed on your street and all over your city. This means if you commit a crime, facial recognition algorithms may be able to match video footage of your face to your photo in a national ID database, if not today, soon, and this means it won’t be long before the police are able to show up at the door of anyone that does not march in step.

Cameras Are Rapidly Appearing Everywhere
For an idea at just how fast the noose is tightening around our necks just consider some of the actions we hear are currently or may soon be in the works. Quartz reported in November the DEA now operates a complex network of digital speed-display road signs that covertly scan license plates and the federal government wants to mount covert surveillance cameras inside traffic barrels that sit along America's highways. Chad Marlow, a senior advocacy and policy counsel for the ACLU, told Quartz that cameras in street lights have been proposed under a program called “smart” LED street light system. This would turn every streetlight into a surveillance device and according to emails uncovered by the Project for Government Oversight. When coupled with Amazon aggressive rollout of its  Rekognition facial-recognition software to law enforcement agencies it becomes clear the ability to monitor our every move is being greatly expanded.

How do you begin to fight or turn back a force that has even incorporated and leveraged the ever-present smartphone as an ultra-powerful surveillance device? By developing programs to organize phone data so that it provides real-time intelligence on every citizen, and using it to guide and influence our actions the power of the state has been deeply enhanced. Ironically, the poorest and most disfranchised Americans have lined up and enrolled in programs that allow themselves and their friends to be monitored by signing up for free "Obamaphones." Since social unrest often boils up from the bottom their reliance on these devices has become an Achilles heel to their ability to secretly plot a course of resistance.

Freedom Lost!
The coming together of these new technologies in the hands of the wrong person translates into the ability to immediately and totally destroy any individual. When this power is placed in the hands of an Orwellian State the implications for society are huge going forward. The control over the individual will become complete as we move towards being a cashless economy where we will be unable to buy food, may at any moment have our ability to message others cut, and will be forced to rely on autonomous vehicles to deliver us to our destinations. Such a lack of control over our lives constitutes their total control over us making us powerless pawns and slaves with little choice but to do their bidding or perish.

An example of how this is playing out can be seen in a USA Today article published recently entitled “Delta says USA’s ‘first biometric terminal’ is ready to go at the Atlanta airport” touting the event as wonderful news and a great step forward. Chad Newton, CEO of the Wayne County Airport Authority in charge of the Detroit airport, where another Biometric Terminal is being set up said;
“It is a great honor for Detroit Metropolitan Airport to become one of the nation’s first biometric terminals.  We look forward to partnering with Delta, CBP[,] and TSA to provide passengers with the option to utilize facial recognition throughout their entire travel process.”
We should ask what he means by “partnering?” Especially “partnering” with CBP (that’s Customs and Border Patrol) and TSA (that’s the Transportation Security Authority). How does one “partner” with them? The answer is that for fun and profit corporations happily accept their role in the construction of the cage and we the people enter it gladly and submissively to save a bit of time and because it is "for the greater good." It should be noted a wall at the border and tighter passport controls while keeping people out also keeps us in, this is also a form of control as our ability to travel is curtailed our desire to do so is also being diminished as we are told of the dangers lurking for those traveling abroad. Slowly but surely, what could be viewed as a forced isolation policy is slowly unfolding and those traveling is becoming limited to those with capital and wealth or having a government agenda.

It has become clear that in the wrong hands benevolent plans can easily be put to malevolent purposes. History shows that well-intentioned laws and programs can be perverted, corrupted or used to advance illegitimate purposes once profit and power are added to the equation. The war on terror, the war on drugs, the war on illegal immigration, asset forfeiture schemes, road safety schemes, school safety schemes, and eminent domain all rooted as legitimate responses to pressing concerns and have since become weapons of compliance and control in the police state’s hands. The recent wave of "red flag gun laws", which allow the police to remove guns from people suspected of being threats is another example of such a law and add to the government’s power to control the populace.

State Controlled Robots Could Do Mass Killings
With digital surveillance networks being implemented by governments throughout the world increases their ability to blackmail or fraudulently construct a solid case of wrongdoing against any individual. Fake photos, falsified records or simply hasten a fatal accident are all tools of totalitarian regimes. When we couple this with the growing ability of an Orwellian State to employ and utilize robots to carry out missions distasteful to humans the groundwork is laid for mass genocide. History reveals many incidents of genocide but the efficiency of automating such killings increases the likelihood of many more.

The chance of such carnage is greatly increased by our massive defense budget which diverts a huge amount of our nation's wealth to keep the patriotic war machines growing while propaganda keeps us on a continual war-footing, using threats created or imagined to accomplish this. Much of the damage being done is masked under the buzzword “bipartisan” which is used to conjure up the illusion that whatever agenda it’s being applied to must have some deep universal truth to it if it allows such wildly divergent ideologies to set aside their differences in order to advance it. In truth it usually means Democrat neocons and Republican neocons coming together in order to inflict new horrors upon us.

America’s two mainstream political parties agree furiously with one another on war, neoliberalism, Orwellian surveillance, and every other agenda which increases the power and profit of the plutocratic class which owns them both. While the plutocrat-owned mass media plays up the differences between Democrats and Republicans to hysterical proportions the sad reality is both have sold away our freedom for power and wealth. This translates into a situation where we, the common folk, find we are increasingly "guilty until proven innocent" as the government’s questionable acquisition and use of biometrics and DNA to identify individuals and data obtained through surveillance is manipulated to “solve” crimes.

This means that in a situation where government takes control over your life it is very important to have friends in very high places, however, in reality very few of us do. If you are fortunate to have such a friend, generally, you can only knock on their door so many times before they grow tired of you and usually, there are limits to just how much they can do to protect you. Again I ask, how do you begin to fight or turn back a force such as this? The trend is clear and the bottom-line is that in coming years we will most likely find the line between "bettering society" and "controlling society" will be drawn by them, not us.

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

Footnote; This subject has grown so overpowering I found it a bit challenging to muddle through this series in an orderly and consistent way. I have struggled to contain this in a five-part series that slowly expanded from only three. The material I came upon would easily fill several books. Below are the links to the other four part of the series in the order they were published.
 https://Liberals And Conservatives Both Buy Into Orwellian Trend (Part-1).html
 https://"Surveillance Justified" Expands Grip Of Orwellian State (Part 2).html
 https://Propaganda Convinces Us It Is All For the Greater good (Part 3).html
 https://Orwellian Government Employing Robots Raises Concern (Part 4).html

Sunday, January 6, 2019

Wealth Is Directly Linked To Current Relative Value

It does not matter how much money someone has if it will not buy anything, its value only becomes evident when it is converted into goods or services. When it comes to wealth the concept of relative value is more important than most of us have come to believe but being aware of the link may prove very important to preserving your wealth and "buying power" in the future. History has shown time and time again that after we deviate from the so-called norm things tend to revert back to what has been established as a baseline. This is important because we exist in a world where the state of real value is always dependent on, or determined by a commodity or an item's relationship to something else as well as supply and demand. With the world economy strongly linked to fiat currencies, we should be very very cautious as the values of these un-backed currencies shift.

German-born theoretical physicist, Albert Einstein's definition of relativity is based solidly on the relationships or values determined by the laws of nature. Often we find the qualities of relativity extend to other parts of our lives and the universe as well such as economics. While mankind has developed certain ways to temporarily mask and confuse the truth, be assured that certain relationships should be considered the norm, history has shown time and time again that after we deviate from the so-called norm things tend to revert back to what has been established as a baseline. This is important because we exist in a world where the state of real value is always dependent on, or determined by a commodity or an item's relationship to something else such as supply or demand.

It is important to remember the global currency system world leaders have created is fairly closed and value shifts back and forth between the four major currencies that dominate the system with little ability to escape.  The key issue here is the term "escape" in that wealth flowing into these "paper symbols of wealth also known as fiat money" often finds resistance into converting back into tangible assets. This results in wealth flowing into these "paper symbols of wealth" and when it does it tends to remain their far longer than it should because of the negatives of investing in tangible assets. These include drawbacks such as high "entry or exit" fees, costly maintenance or the risk such real-world assets will be damaged and ravaged by time or trends. This is why we find that money or currencies have become the way most people tend to place a value on tangible items.

Factors Influencing Where To Place Wealth
When we talk about tangible items we are referring to the touchable, material, or the physical and real world that surrounds us. An issue that should not slip by unnoticed is that both debt and a number of paper assets has grown massively over recent decades and especially in recent years. The material world of tangible items by its nature has been far more restrained in its growth, in short, the amount of tangible goods has not matched the growth of paper assets. This is key to understanding the true risk of inflation going forward!

Currencies have become a major danger zone going forward, it is important to consider just four currencies make up the bulk of world reserve holdings so it is logical to look for a relationship between them to determine relative value. Assuming all other factors remain the same we then find that if the central banks controlling these currencies move in lockstep their values to each other should remain "relatively" constant moving within certain limits. Overall that has been the case even if a person were to argue otherwise and point to moves occurring over years. A generally accepted fact is a great deal of the value of "cash" is derived from a very important quality which is frequently forgotten, having cash which is relatively stable compared to many commodities and tangible assets translates into liquidity and flexibility to exploit opportunities. This means the holder of cash has an effective option to purchase more volatile assets if and when they become cheap. Thus, a willingness to hold cash has often been the simplest way to take advantage of markets in flux.

Four Major Currencies Dominate The System

The benefit of a currency system that accommodates trade easily allowing the exchange of goods and services has come to outweigh reality and truth in value discovery. As pointed out above, holding tangible assets has drawbacks which most people find difficult, confining, or somewhat limiting. The fact that tangible assets carry the negative attribute or quality of having to be insured, maintained, or at risk of being denigrated by time or trends tends to reinforce the illusion currencies and paper assets are more desirable and stable than they really are. Remember that fiat currencies do not have any intrinsic worth or extrinsic backing but are held aloft by faith their respective central bank or nation will control their value.

In many ways, currency can be considered a commodity and problems develop when governments and central banks overreach and break the link of trust and faith between their currency and its users. Central banks don't want us to see they have designed and put in place a false market that is more or less "fixed within limits" and not a rapidly "self-adjusting" system. All is well until it becomes clear to the masses they have been deceiving as to the real value of our currency. When the bond of faith is broken major conflict arises and central banks are punished as their fiat money is shunned and drops in value. The "master key" to our currency system is stability. Those in power have created the myth the currency balance can be maintained and that no currency of a developed nation can fail but history shows this not to be true.

All this is important because the "perceived value" of money and currencies holds great sway over what something is worth and its value. Recent claims that a false economy has disrupted the forces of true price discovery make this very important if you believe we will eventually convert or return to the norms of the past. I continue to believe the primary reason that inflation is not more prevalent is that society is pouring such a large percentage of wealth into intangible products or goods, this is because physical assets are often difficult to protect and oversee. This imbalance is a red flag that a readjustment period may soon occur. If faith drops in these intangible "promises" and wealth suddenly shifts into tangible goods seeking a safe haven inflation could soar.

Fiat Currency Growth Has Surged (click to enlarge)
Many economists question the ability of Modern Economic Theory to control the cycles of boom and bust and worry about the massive debt being accumulated by governments as well as the rate that central banks have expanded the money supply. Those touting a deflationary scenario tend to focus on the idea the forces of defaults would massively depress prices and result in many promises left unfilled. In fact what we may see develop is a battle of these two forces which creates difficulty in predicting how an economic crisis will play out but leaves massive inflation as a distinct possibility.

As we have seen from the economic crisis of 2008 and following many other unsettling developments legal actions can continue to drag on for years. While the legal system ponders solutions chaos can assault markets. Major disruptions can result from major shifts in value and even more so in the world today where derivatives lurk just out of sight waiting to wreak havoc on our far too fragile economic system. One fact remains front and center and that is unstable currency markets can be a precursor to massive shifts in value and a sudden drop in confidence. It is logical to think that in such a situation many of the super-rich insiders will again be the big winners.

Feeding into this mix are opinions such as Jeremy Grantham's recent take on bubbles and his thoughts that we may only revert partway to what we consider the norm and that may be over many years. While he does not rule out the possibility the market may move upward, overall his view of what lies ahead is not all that jolly as he concedes that 15% to 25% bear markets can always occur. He also states that the probable "mean-reverting" paths he envisions will not bode well for pension funds at others looking out towards a 20-year horizon. While I value Grantham's opinion It is possible he is forced to understates the risk before us because of the constraints put upon him as a pillar of the old-school establishment.
                                                                                         This blog is not written for money
                                                                                         or profit but as a way to share ideas
                                                                                         and thoughts. If you liked this post
                                                                                         feel free  to E-mail it to a friend
                                                                                         using  this link. E-mail to a friend