Financial, Economic and Social Mood Update (September 4, 2016)
The Dow Jones 30 Industrial Index and the S&P 500 Index both made new record nominal highs on August 15, 2016. The global bond market is on the cusp of what will likely be its most massive crash in recorded history – interest rates and yields are at artificially low levels (about 30 percent of global sovereign debt is actually trading at negative yields) and the next major historical wave should take interest rates in the industrialized world beyond levels last seen in 1981 and 1982 – in other words, well into double digits.
The largest monetary investment in recorded human history is now actively being led from Mainland China. The Chinese refer to this as the “Silk Road” and/or as the “One Belt, one Road” project. The money committed thus far equals US $1.4 TRILLION, involving 64 member countries (mostly in East Asia, South Asia, Central Asia, the former USSR, and in Europe) with 40 percent of world GDP and 60 percent of the global human population. China is busy building roads, high speed rail networks, deep water shipping ports, and transportation pipelines for crude oil and natural gas which lead from 63 other countries into China. China itself already ranks number one in population (19 percent of the world total) and number one in PPP GDP (18 percent of the world total ahead of either the EU or the USA). China is the number one manufacturing nation in the world – fully half of all physical goods produced in the world today come from Mainland China. All of this is the fruit of the change in Chinese leadership which took place in 1976. China’s next major geopolitical goal is to change or to replace the Bretton Woods system which made the US Dollar the number one global reserve currency since 1944.
Previous monthly financial update blogs have discussed the massive social & economic changes underway and the even bigger changes in store for our near future. One of the topics previously discussed is that of global real property prices, and the importance of debt financing. One should recall that the priciest markets in the world actually rely far less upon debt financing compared to relatively weak markets, and that many of the weakest real estate markets can now be found in the interior states of the USA, in Central America and in Central Africa.
Positive changes and negative changes continually take place all over the world – the “real world” is in a perpetual state of flux. The negative changes in store for the USA are primarily due to the absolutely massive level of US Dollar indebtedness, which includes conventional debt, unfunded liabilities and contingent liabilities. The European Union (28 member countries including the UK) and Japan are the two other parts of the world which have relatively serious debt problems – albeit nothing compared to the debt problems of the USA.
Consider the following figures which have been published by the IMF (International Monetary Fund). Per capita GDP (nominal Dollars in 2015): EU = $18,412, USA = $17,968, China = $11,385, Japan = $4,116, India = $2,183 and Russia = $1,179. Per capita GDP (PPP Dollars in 2013): EU = $34,563, USA = $53,001, China = $11,868, Japan = $36,654, India = $5,450 and Russia = $24,298.
The per capita GDP figures which really stand out are those for Japan and for Russia – the fortunes of both countries have fallen dramatically. Japan was the first major economy to experience a financial bubble, a financial crash, a human demographic implosion and an ongoing economic deflation which is still not over. Japan’s most serious problem is a chronic lack of population growth – they have far too many older people and far too few births. Russia experienced economic bankruptcy due to 74 years of totalitarian communist rule which ended in 1991, and they lost much of the old Tsarist Russian Empire due to the collapse of the former Soviet Union in 1991. The “core” territory of the ethnic Russian people is actually confined to “European Russia.” The native peoples of Siberia are in fact very closely related to the Native American peoples of Alaska and the Western Hemisphere – they are basically Asian in race. The various peoples of Central Asia are mostly Asian, Turkic and Muslim. The various peoples west and south of European Russia are related to the Finns (Finns, Estonians & Karelians), the Baltic peoples (Latvians & Lithuanians), western Slavs (Poles, White Russians and Ukrainians), the peoples of the Caucasus Mountains and even some Muslims (such as the Tatars, the Chechens and the Azerbaijanis). Since 1991, both the EU and NATO have advanced geographically at the expense of the former Soviet Union – this has been a deliberate policy directed from Washington, Rome and Brussels. The economic sanctions imposed upon Russia by much of the western world are in response to Russian counter-moves in places such as Crimea, the eastern Ukraine, Moldova (Transnistria), Georgia (South Ossetia and Abkhazia), and Azerbaijan (Nagorno-Karabakh).
The American led policy of isolating Russia has had negative social effects as well. Society in Russia, the former Soviet Union and even in parts of Eastern Europe is far less advanced, far less progressive and far less tolerant compared to societies in Central Europe, Western Europe, Southern Europe, Scandinavia, the British Isles, North America, Latin America, the Caribbean, Southern Africa, Australia, New Zealand, Oceania, and East Asia. Societies in the former eastern Bloc and in Muslim world are marked by uncomfortably high levels of old ethnic hatreds, national hatreds, racial hatreds, religious hatreds, gender group hatreds and economic “ism” intolerance (the latter emanating from decades of totalitarian communist, socialist, and Marxist-Leninist domination).
Alternative Energy
As said in the recent past, alternative (non-fossil fuel) energy is making major advances across the globe. Both Norway (population 5 million) and the Netherlands (population 17 million) have proposed legislation which will prohibit selling new motor vehicles powered by either gasoline or diesel engines starting in 2025, with the same prohibition extending to the shipping industry in 2030. Norway already has the highest percentage of new motor vehicles being plug-in (entirely electric or hybrid electric) compared to any other country in the world (28 percent of the new car market during the first 7 months of 2016).
The Auto Industry
As mentioned in previous financial updates as well, the global motor vehicle industry is 66.4 percent Asian – in other words, annual unit production from companies based in Asia or owned by Asian interests. It is 22.2 percent European and 11.4 percent American. The main groups in the Americas are General Motors and Ford Motor, with the remainder being mostly motorcycle manufacturers from Latin America.
The largest groups based in Europe are Volkswagen, Fiat-Chrysler, PSA Peugeot, Renault, BMW, Solex (a French motorized cycle manufacturer), Daimler, Piaggio, AvtoVaz (Lada), Minsk Motorcycles, GAZ, UAZ, Triumph Motorcycles, IMZ-Ural Motorcycles, ZAZ, KRAZ, PAZ, Clews Competition Motorcycles, TVR Motors, MAZ, and the Norton Motorcycle Company. None of the European companies ranking after Daimler A.G. have a global presence.
Volkswagen A.G. is profitable, but the company remains vulnerable to the continued fallout from the diesel emissions scandal which it inflicted upon itself. Thus far, the company has reached a compensation agreement with the government of the E.U. member states (with the exclusion of the U.K.), the U.S. federal government and roughly 36 U.S. state governments. Most new VW vehicles have been banned from sale in South Korea. VW is still in negotiations with the governments of Australia and Canada.
The Volkswagen Group diesel emissions scandal and the global momentum behind “alternative energy” (i.e. all forms of energy other than fossil fuel energy, the latter being crude oil, natural gas and coal) highlight the predicament of the worldwide motor vehicle industry. Companies on all continents are increasing investment in plug-in electric, hybrid electric, hydrogen fuel cell, ethanol, grain alcohol and partial zero emission gasoline technologies. All of this is extremely expensive, which will provide more than ample incentive for companies to merge. Companies will require greater critical mass (size) to remain competitive and profitable.
The US Presidential Election of November 2016
In spite of almost unified opposition from the media, from the political establishment (of both major political parties), and from Wall Street, Donald J. Trump has finally started to chip away at the opinion poll lead of Hillary Rodham-Clinton. As of this morning, he was trailing her by an average of 3.4 percentage points among all national polls in a 4 way race (Democratic = Clinton, Republican = Trump, Libertarian = Johnson and Green = Stein). Clinton remains plagued by her e-mail scandal (related primarily but not exclusively to the Benghazi debacle), the Clinton Foundation ($239 million net worth and $10 million of annual income), and her health (rumors of brain damage, problems with balance, and respiratory problems). As discussed previously, the Democratic Party platform calls for the most massive increase in the size of the socialist welfare state in American history – far larger than universal Obama healthcare – this includes 12 weeks of annual employer-paid medical leave, a higher minimum wage, Social Security (lowering the age to 52), Medicare (lowering the age to 55), a carbon tax on the crude oil / natural gas / coal industries, and higher education (to be entirely funded by taxpayers). There is no way that the existing welfare state can last, and certainly no way that the proposed expansion can endure. At this point, the USA is headed down the same road as that experienced by Venezuela – a road of political and economic ruin for what was once one of the most prosperous countries in Latin America (Caracas used to be the number one banking & finance center in Latin America).
If Donald J. Trump can overcome the polls and win the US national election, he will have the massive task of trying to work with the Congress to overcome the burdens of the welfare state (debt), political corruption and of a highly interventionist foreign policy – all of which have effectively bankrupted the United States. The Senate will likely turn Democratic in November, whereas the House will likely remain Republican. To run a government which actually functions, Mr. Trump will have to take a cue from the two candidates running on the Libertarian Party ticket in 2016. Both Gary Johnson (New Mexico) and William Weld (Massachusetts) are successful former Libertarian Republican Governors from overwhelmingly Democratic states. In both cases, these men worked with overwhelmingly Democratic state legislatures to make government work well. This is what is truly important in the world of “public service” – party labels need to fall by the wayside, and people need to work with each other for the common good.
