Category Archives: World View

What’s Important to You?

World is in different place than ever before. That’s true with every generation over the history of time. Ah, but do you know what pitfalls are this time? Have you taken steps to minimize effect of disasters, natural or government induced?

What’s different this time?   Most countries are broke.

So what are most countries doing? And why do you care?

They are relying on printing presses creating a rapidly expanding money supply.  Historically this has happened to many countries at one time or another. We all know the boom bust times in various South American countries.

This time it’s happening at the same time to most industrialized countries at the same time. Think China, Japan, Great Britain, US, India, almost all of Europe and Africa. Governments are increasingly tied to each other in the ways they exchange money and honor currencies.

Japan and China own trillions of the US debt. Countries have huge amounts of actual US dollars. That means re-pegging the value of US dollar won’t work. In past we were tied to gold standard. That would no work in US this time around. Countries that hold trillions of dollars outside the US could still sell the currency for any amount they wanted and US could not stop it.

Back in 2009 US public and private dept was in neighborhood of $55 trillion. That debt had significant impact on US economy. Today, US public and private debt has climbed to $65 trillion. Total US debt is up 150% since 2000. Additionally rest of world has added another $57 trillion in public and private debt.

This is referred to as “hot money” lending. But does it matter? McKinsey points out that debt, around the world, is outpacing economic growth. When economic growth can’t finance all these loans, only governments are willing to step into the breach.

This debt can only be paid off in 3 ways:

-Paid off by the people, businesses, and countries that took on the debt.
-Inflation
-Declaring the debt null and void…destroying relationships with those who provided the money in the first place. This has been used by many countries over the history of the world…but never by a number of countries in a very short period of time. No one knows the effect if several countries started down this path.

Federal Reserve Richmond, VA branch recently reported that 61% of all liabilities in US are now guaranteed by the government, implicitly or explicitly. In 1999 the percentage was 45% (mostly Fannie Mae and Freddie Mac). Today more and more of our financial institutions rely on the government to access credit.

Unfortunately, government guarantees are not shown on any government balance sheet…in US or elsewhere in the world. Governments are relying on massive currency and interest rate manipulation to fund themselves. World has never experienced anything like this by the major economic powers of the world.

Sooner or later this bubble will pop, like many others have over the years. But when?

Nobody knows. But what it means for your personal wealth is known. The biggest threat to your wealth isn’t a stock market crash. Instead it’s from confiscation and/or devaluation by our government. Think Greece last year that took 25% of savings from citizens bank accounts.

In the 1930’s people and companies suffered massive losses. But the actual wealth didn’t disappear. Wealth transferred from creditors to lenders. This time around we will have the above, but will also have major collapse in governments politically. The US government has pledged a large amount of the wealth of the citizens to other people…through all kinds of government programs. We are all familiar with Detroit bankruptcy. That will occur within America and many other countries…within a few years.  What’s a few years? Again, no one knows for sure, but within 10-20 years seems realistic.

Once inflation takes off it can have devastating effects quickly. Think back to the Carter years when inflation in US hit 20%.

US, and most countries of the world can’t sustain government spending that is vastly outstripping tax revenues coming in. Sooner or later the piper has to be paid.

Previously the world would have a 1930’s situation where loans would be called. Difference then and now? Governments were not the primary financiers of the world debt.  Banks and financial institutions had the primary role.  If government can’t pay all the people that have been promised money there will be riots on massive scale.

So what can individuals do?

10,000 doctors every year are refusing to serve Medicare patients. That means many people won’t be able to get doctors appointments. What you can do? Doctors, not participating in Medicare are starting to charge patients monthly fee to see them. In effect doctors are signing up the patients they want to see to give doctors the income they want. These patients at least are assured medical opinions will be available to them. Start understanding medical coverage options in other countries…like Costa Rica or Panama (there are lots of others.) Those two countries have doctors that were educated in US and majority speak English. Last those countries are just few hours away and charge fraction of US doctors and hospitals.

Above is only one example. Many people have majority of their wealth tied up in value of their homes. What happens in major downturn when housing prices drop? In 2009 housing values dropped by over 50% in some markets. For most Americans that means there houses are worth far less than they paid. What can you do? Work to eliminate as much debt as possible, especially credit card debt and auto loans. If you can, pay off your house…or go to 15 year mortgage. Objective is to reduce debt so you can cover any remaining debt in a down turn.

Wages have remained flat in US for many years. How many? Depends whose figures you want to use. Assuredly since at least late 1990’s. Differences in years typically depends on rate of inflation that is applied.

To minimize this, acquire the things you need if times get tough. For some that’s food storage, for others it’s cash, or other products and supplies that are important to them.  If there’s run at supermarkets toilet paper becomes pretty valuable. Natural disasters have cleared the shelves of supermarkets many times. The economy doesn’t have to tank to cause major disruptions. People who have taken, even just a few steps, to prepare for emergencies that would affect them sleep better.

Most people live day-to-day. They assume things won’t happen. They listen and believe the media. Remember, no government cares much about their citizens. We are each just a number. Any of us that think differently aren’t thinking.

U.S. Dollar Is Gaining Like It’s the 1980s. Is That Good or Bad?

Read interesting article on Bloomberg over the weekend, written by Chikako Mogi and Shigeki Nozawa.

We know the dollar is strong, but the global financial markets are lacking a cohesive direction.

1985 US Treasury Secretary Jim Baker introduced the Plaza Accord. By persuading Japan, Germany, France and UK to join in a coordinated plan to weaken the dollar. The dollar was to strong, which adversely affected US exports.

Then and Now

In 1980’s US had the leadership and strength of purpose to develop the Plaza Accord which benefited the US and the rest of the world. Today, while the Fed is in a position to raise rates, it is hesitant to do so. Makoto Utsumi was minister at Japanese embassy at time of Plaza Accord (and now chairman of global advisory board for Tokai Tokyo Financial Holdings Inc.) Today, “The common understanding for the need for policy cooperation shared at the Plaza Accord is lost and it’s not clear where the true leadership is in each country or in the world.”

International Monetary Fund reports that global imbalances were hindering global growth. There is a Group of 20 foreign countries which meets to address slowing Chinese economy. Their meeting ended without any concrete policy on how to proceed. There is serious lack of coordination or agreement on how to proceed to avoid an economic disruption.

Why? The Plaza Accord came about because of long established relationships between treasury officials of various countries. Those relationships take years to develop and don’t exist in the world today.

It’s understandable that the G-20 meetings lack agreed upon decisions. Getting 20 countries headed in the same economic direction is like herding cats. There are just to many countries involved to expect agreement.

That leaves it up to the G-7 countries. This group of countries  has worked together in the past to return currency markets to an orderly balance. But it is expecting a lot that the G-7 countries can accomplish what they did in the past. 30 years ago they controlled 50% of world’s GDP. Today they only control 34%.

So What Should We Expect?

-The Fed to keep interest rates low longer than expected. That does not mean the Fed won’t raise rates within next few months…but it is unlikely Fed will raise rates much. Fed goal is to protect US economy.

-Unfortunately, there does not appear to be the leadership necessary to coordinate a world wide economic policy that can benefit majority.

-That means, in the US, we can expect the stock market to continue the current trend of ups and downs.

-Fed in the past had plan and policy telegraphed well in advance. That enable companies and countries to plan 2-3 years ahead…instead of current 2-3 months.

Most important take away for all of us?

Two points

-In all things people, companies, and countries, need to be looking ahead 2-3 years.  We all need to be evaluating short-term in relation to longer term plans, except in dire emergencies.  Is it hard to do? Not really. Only question is if we are disciplined enough.

-The importance of establishing  long term relationships. Personally and in business.

 

Here is link to entire article on Bloomberg. .

Theodore Roosevelt’s Ideas on Immigration

Theodore Roosevelt’s ideas on Immigrants and being an AMERICAN in 1907.

‘In the first place, we should insist that if the immigrant who comes here in good faith becomes an American and assimilates himself to us, he shall be treated on an exact equality with everyone else, for it is an outrage to discriminate against any such man because of creed, or birthplace, or origin. But this is predicated upon the person’s becoming in every facet an American, and nothing but an American…There can be no divided allegiance here. Any man who says he is an American, but something else also, isn’t an American at all. We have room for but one flag, the American flag… We have room for but one language here, and that is the English language.. And we have room for but one sole loyalty and that is a loyalty to the American people.’
Theodore Roosevelt 1907

Recent article on immigration on LinkedIn got me thinking about  immigration issues around the world. Immigrants trying to force their way into Europe, but not anywhere in Europe, to the countries with the best jobs. Syrians and other immigrants from Africa just trying to get out. Closer to home,  illegal immigrants coming across from Mexico, many with criminal past or criminal intents. Many from  other countries that are just using Mexico as a conduit into US.

Countries are trying a “one size fits all” approach to immigration. It’s not working.
Appears there are 3 immigrant issues:

-Those desperate to save their own lives and lives of their children from despots. These people, for most part, would take any jobs, and probably do anything to assimilate into the country they go to. These groups are from all walks of life, uneducated and unskilled to highly educated and highly skilled.

-Very selfish immigrants looking to improve their lives who demand that country they immigrate to meet their demands and adapt to their cultures. They don’t expect or want to learn language of their host country, may not want to adapt their religious practices to the customs of their host country, and some want to bring their own legal system with them instead of adapting to their host country.

-Immigrants looking for hand outs from country they move to. Without any real interest in the country they are immigrating to and without any intent of adapting to assimilate.

Foreign governments also are taking three approaches

-There are despotic governments that are just trying to eliminate certain ethnic types to “purify” their country. For political and/or religious grounds.

-Countries where the government simply can’t function well enough to take care of all the population. Some are well meaning. Most of these countries, are just struggling to stay in power and are spending lot of their economic resources trying to “keep the lid on” internal uprisings.

-Still other governments are interested in exporting the criminal element in their societies. Or exporting terrorism.

Countries facing a large influx of immigrants need 3 approaches as well. One immigration policy doesn’t fit all situations.

-Immigrants fleeing for their lives need to be assimilated. Those immigrants also need to be carefully screened to assure they are not criminals in their own countries or terrorists or religious extremists unwilling to adapt to host country. These immigrants must be willing to learn the language of their host country, agree to follow the host countries laws, and agree to take the jobs that are suitable for them. They need to be disbursed within a country, that means they can’t form mini cultures within their host country. That also means the host countries have to work hard to enable the people to assimilate as painlessly as possible.

-Immigrants looking for free ride, or to impose their culture in their host country need to be deported back to their country of origin. That means countries need to adopt standards that let them deport people for up to several years. Most immigrants are smart enough to tell host country anything the host country wants to hear, to get in. Agenda of these immigrants may not surface for months or years. When those agendas come out the immigrants must be dealt with.

-Immigrants that foment unrest in their host countries need to be dealt with very harshly. At very least they need to be deported and not allowed to visit the host country…ever again. If, after deportation, they sneak back in, they need to be dealt with using strong corporal punishment. They have already demonstrated their country of origin can’t keep them in. They have already demonstrated they don’t care about their host country.

No country is rich enough to accept all immigrants who want to come.

Each country needs to come to grips with this. As rich as world thinks US is, we can’t assimilate millions of immigrants who don’t speak English, when majority lack education or skills to perform jobs we need done. Majority of immigrants need at least a few years to adapt to their host country. Countries of the world, including US, don’t have the financial reserves to accommodate all the people who want to immigrate. Most countries are already facing financial difficulties taking care of their own citizens who need help. Each country has an obligation to take care of their own citizens before helping others.That’s harsh, but it is an economic fact of life.

Politicians of the world, wake up. The world is way to complex. Countries can no longer afford “one size fits all” policies.

 

 

South China Sea-Why Should We Care Part 3

Last two days we talked about  what China is doing in South China Sea and how it parallels what America did in our early days. About a new type of warfare that is already being tested and has proven effective. Today let’s look at how that can tie up your bank accounts, credit cards, close ATM’s,etc.  Americans have not experienced many of problems that beset most other countries. That has conditioned American’s to be much more complacent than citizens in most countries. Last simple steps to protect yourself.

What Can You Do to Protect Your Assets?

In Greece banks have frozen accounts for the last two weeks. People have not had access to the funds in their own accounts. Many business are shut down. Greek version of Silicon Valley can’t do anything. Their data centers are in cloud in US. Credit card transactions are stopped. Their businesses have been shut down.

An, but that could never happen in US. Don’t be so sure.

Most international financial transactions rely on SWIFT communications.  SWIFT stands for Society for Worldwide Interbank Financial Transactions. If that’s hacked, banks all over the world would not be able to do business. Best move on their part is to freeze assets of customers until situation is resolved. No credit card transactions, no withdrawals, etc.

The Above has Already Happened.

USA used Swift sanctions on Iran. It had and has, very negative effect on Iran’s economy. US Senate recently called for the use of Swift sanctions on Russia. Putin has said if we do, he would consider it an act of war and respond accordingly.

This is the next form of war. Any country can engage in it. Doesn’t require troops or massive arms. Pretty cheap warfare compared to traditional alternative. With countries already starting to use this what should citizens do?

Don’t Become Collateral Damage

What would you do if your bank account was frozen tomorrow? If your credit cards are not accepted? Your investments are frozen. You can’t sell stocks, bonds, treasuries, etc. You may or may not be able to access your safety deposit box.

All it would take for this to happen is an attack on US SWIFT transactions, Mastercard, Visa, Fedwire, etc. All the security breaches through out the world indicate government backed and financed hackers are getting more sophisticated. Several major banks have been hacked…but most have not heard about it.

How Do You Protect Yourself & Your Family?

Have some assets in physical form that can’t be attacked electronically when normal assets are frozen. Normally we think of gold and silver, but stamps and coins fit as well as land, buildings, etc.

Americans are more complacent than citizens in other countries. We’ve watched looting with minor civil disturbances. What is likely to happen when there is a major natural disruption in major city or state (think water in California). If just one major bank had to shut down for a few days it would spill over and impact almost all other banks in US.

When is this likely to happen?

No one knows. Unfortunately we won’t know until it has happened. Government didn’t know when it was going to be hacked and have detailed information on millions of employees compromised. No need to go overboard, but above are simple steps each of us can take.

Remember Boy Scout motto: Be prepared.

Of course there are many more steps to be taken to protect your family. Purpose of these articles is to show how government actions can have immediate, direct impact on our lives. How each of us responds and steps we take are up to us individually.

Information for this series came from Jim Rickard’s Strategic Intelligence Newsletter (AgoraFinancial.com) Jim is expert  currency manipulations and how they can be used to disrupt economy for specific countries or groups of countries.

South China Sea-Why Should We Care Part 2

Yesterday’s post talked about the similarities between America’s expansion west and the role China is taking in the South China Sea. Currently 6 countries claim the same area.  To improve legitimacy of their claim to the South China Sea, China has moved in militarily,  by creating new islands,  populating them, and establishing military presence.

Traditional War is Unlikely, but…

New type of warfare is evolving. It is likely to be a financial war.

Say what? Read interesting article by Jim RIckards in Strategic Intelligence, July 2015 edition. (AgoraFinancial.com) Turns out Pentagon has run couple of financial war games to learn how to fight a financial war and how to react if another country engages in financial war on US. (As China, Russia, and India have already done through electronic disruptions of trade.)

Latest war game, was in May 2015, on VE Day. (70th anniversary of victory in Europe.) It considered impact of disruptions to financial payments system, cyber attacks on banks, trade sanctions, and disruptions to the stock exchanges. Hmm, there have been some of those this year already.

Objective of those kinds of attacks is to interrupt supply chains and dry up imports, with emphasis on energy imports. Easiest way to accomplish that is by disrupting payment transactions between banks and  between countries.

Have You been Hearing much about this?

Of course not. Our media, government and politicians (both sides of the aisle) have no interest in sharing how the world is changing and how our role in it is changing. Media doesn’t want to talk about real issues. They are complex and don’t fit into sound bites. They also are not popular. Likewise politicians don’t want to talk about them. Not good issues to attract voter interest. Only offering more freebies gets attention from majority of voters.

Even if government were willing to talk about real issues and our responses to them, how do they do it? Response to issues above is very complex. Like Iran, they involve lots of negotiations, starts and stops, and changes in direction. People like to have issue explained and then clear, simple solution laid out.

Tomorrow: Simple Steps to Protect You

 

South China Sea-Why Should We Care Part 1

Currently China, Philippines, Vietnam, Taiwan, Brunei and Malaysia all have overlapping claims to the South China Sea

Why Should We Care?

South China Sea is believed to be rich in oil and natural gas reserves. Products all those countries, as well as the rest of the world, need. So why does this involve USA? We have lots of oil and natural gas reserves. USA also has military treaties with Philippines and Taiwan.  Those likely will involve US, it’s only a matter of time. But with different results than traditional conflicts have had. Results that can have direct impact on you and I.

China is trying to usurp claims by other countries by going into area, populating it and building military installations. They are even creating new islands , using sunken ships, reefs, and landfill. Then putting military bases on those islands.

They are taking a page out of America’s play book. Isn’t that how we moved west in early days of America?  Britain and Russia both had claims on the Oregon-Washington areas. Purpose of wagon trains was to establish population in area and establish our sovereignty there. Belief was Russia and Great Britain would not go to war with America over the area. Turned out to be true and area was eventually ceded to America.

All nations above have disputes over various island groups. Best known are the Spratly Islands. There is ongoing saber rattling among those nations. If it goes further the US will likely get drawn into area. US will have same problem as Russia and Great Britain did. We are long way from that part of world. China is right there. China is betting that the US won’t go to war over the area. What’s different? During expansion of America we dealt with Russia and Great Britain directly. South China Sea area is much more complex. We would have to deal through variety of countries.

Sounds like the Iran nuclear negotiations all over again…and we know how those are turning out, relative to enforcing nuclear inspections…and return of American prisoners held by Iran.

Tomorrow: Role new type of warfare will have on citizens.

The Case for Optimism

David Eifrig had excellent article in Income Intelligence Jan. 15, 2015. Seems more meaningful 6 months later, given investment markets.

David made two key observations. First, focus on facts, not fears. Second, we are living in a great time in global history.

Yet investors are not happy. Ignore the  media, fear sells so that’s their concentration.

David pointed out that US added more than 3 MM jobs in 2014. The most since 1999.

We hear a lot about the middle east, but keep perspective. We are living in the least violent period in the history of the world. There is also more democracy and freedom in the world than ever before. Look at the world picture, not a regional picture. Last economic freedom is at an all time high.

What’s Going On in Europe? Part 2

Yesterday we talked about the objective of the European Union, economic integration and encouraging various countries to think of themselves as Europeans as well as their specific nationality.  The challenges that todays political atmosphere present for different parts of Europe are undermining both objectives.

Russia is Impacting, and Being Impacted by the Crisis in Europe.

After the Soviet Union collapsed it took decade or two for Russia to figure out how to rebuild itself and re-establish centralized control. That centralized control has always been key for Russia to control the vast geographic areas. That included buffer countries heavily influenced by Russia.

A lot is made of Putin. It it had not been Putin it would have been someone else. Russia had  to reinvent itself.  Russia has always needed a strong leader who understood the historical role of centralized government in Russia.

Russia started to re-assert itself visibly with the war with Georgia. Then America’s sub-prime crisis happened. That started gradual fragmentation of the unity in Europe. All of a sudden the divergence in interests between various western European countries was magnified. Nationalism roared back.

While this is going on, the tier 2 countries in Eastern Europe continued to be supported by US through involvement with NATO. Russia has viewed Poland, the Czech Republic, Slovakia, Hungary, Romania, Bulgaria and so extent Belarus and Ukraine as a buffer from Western Europe. Strategically very important, the last 2 world wars Germany and their allies attacked Russia through one or more of these countries. US and NATO involvement in these countries is very unsettling to Russia.

While above was occurring, Germany grew to the fourth largest economy in the world. That meant they are the giant in Europe. Whatever Germany does impacts rest of Europe. Germany needs Europe for their exports.

When economic crisis occur either the creditors or the debtors have to bear the burden. Germany is the creditor and Southern Europe the debtor. Germany can dictate austerity to other countries. Of course, financial institutions agreed with Germany.

Result? Europe was pulled in four directions. Germanic Europe, Mediterranean Europe, Europe’s eastern frontier, and northern Europe. While Germanic Europe is the economic engine that drives Europe. Without exports, heavily to rest of Europe, Germany’s economy slides into decline. Germany is not strong militarily, so it must reach out to others, including Russia. Russia isn’t the solution, but it can be part of the solution.

Southern Europe is just trying to escape massive austerity. Tough to do when Europe as a whole is not experiencing any real economic growth. That means that Southern Europe has to figure out whether it’s better to default on their debt or to continue trying to pay it. Germany isn’t forcing the hand, but things are coming to a head anyway. Germany wants a continuation of free trade but neither the German government nor the German people want to absorb the debt of Southern Europe. That means only alternative Southern Europe has is to reconsider whether free trade is worth it.

Insights for above from Stratfor Global Intelligence, Geopolitical Weekly May 26, 2015. Outstanding analysis on current political events and trends and what their implications are. Detailed information at Stratfor.com

What’s Going On in Europe? Part 1

The European Union is destabilizing. Initia Objective was two-fold.

1. Economic integration so it could better compete globally.

2.  And equally important. To get people in different countries to think of themselves as Europeans. Something more than being  just Germans, French, Italians, Spanish, etc. Result would a common culture to diminish the danger of conflicts between individual European countries.

Great goals.  But… economies go in cycles. With many economies in Europe not all countries are affected by the same cycle in the same ways or even at the same time.. Economic integration was to raise the prosperity through-out Europe.

Western European countries are close to rivers and oceans. Eastern Europe, including Russia and belt of countries between Russia and Western Europe, is relatively land locked, or has waters that are frozen part of year. That means relying in land transportation which is more expensive. Result: Eastern Europe is poorer.

Then there are geographics. Between Russia and Western Europe lie countries that historically have been under rule or sway of either Russia or one of the Western European countries. Typically Germany in last 100+ years. These border countries divide themselves into two tiers. Farthest east is Belarus, Ukraine and parts of the Balkans. The second tier is Poland, the Czech Republic, Slovakia, Hungary, Romania and Bulgaria.

After collapse of Soviet Union NATO absorbed the second tier, which then expanded to include Belarus and the Ukraine. Russia always used the second tier to provide a protective buffer. Historically most attacks on Russia came through one or more of the second tier countries. Over time European Union has become more prominent than NATO in the region.

Insights for above from Stratfor Global Intelligence, Geopolitical Weekly May 26, 2015. Outstanding analysis on current political events and trends and what their implications are. Detailed information at Stratfor.com

 

Currency Wars-Does It Matter?

We hear lot of talk about all the currency wars with many countries throughout the world using quantitive easing. Why do they do it? It’s an attempt by countries to make exporting their products easier .

Who are some of the countries that are debasing their currencies?

India, Poland,  Romania, Australia, Israel, Canada, China, Switzerland, Peru, Egypt, Turkey,  etc.  Countries representing all sections of the world.  Many counties have social programs their tax base can no longer support. Sure seems like everyone is doing it.

Debasing the currency adversely affects people on fixed incomes the most. Also people who heavily invest in government bonds. When countries print additional money, there is always the likelihood that value of their bonds will drop.

US started quantitative easing,  then EU joined in, followed quickly by other countries.

Right now the world is balancing between inflationary and deflationary forces. The world historically likes inflation in the 2-4% range. Then when a countries economy gets in trouble they can print money which drives down inflation. Last several years, attempts by countries to inflate their currencies have not worked. Now that quantitative easing has driven interest rates to almost zero, one of the main ways countries can balance their economies has been taken away from them.