Category: zerohedge

Krieger Warns The Time For A Massive Anti-War Movement Is Now

Authored by Mike Krieger via Liberty Blitzkrieg blog,

An alleged new ‘chemical incident’ in Syria reminds of a similar series of events we saw last year. We are told to believe that each time the U.S. pulls back from the war on Syria the Syrian government is responding with a ‘chemical attack’ that pulls the U.S. back in.

– From Moon of Alabama article: Syria – Timelines Of ‘Gas Attacks’ Follow A Similar Scheme

If you’re genuinely against U.S. wars for profit, power and empire the current moment represents our best opportunity to push back aggressively and launch a real grassroots anti-war movement. The entrenched forces who’ll stop at nothing to get their war with Iran and Russia going seem to believe that time’s running out. As such, they’re resorting to increasingly comical and preposterous interpretations of “events” to get their conflagration going. The war sales-pitch has become increasingly desperate and nonsensical, which provides us with a window of opportunity to push back.

It’s hard to keep track of the timeline of events these days, but it was just last week that the British foreign office was caught deleting a tweet in which it had falsely claimed it confirmed the nerve agent used in the Skripal poisoning had been produced in Russia.

As The Guardian reported:

Boris Johnson is facing embarrassing questions over his claims that Russia had produced the Salisbury nerve agent after it emerged that the Foreign Office had deleted a tweet blaming Moscow for the attack.

With the foreign secretary already under pressure over his remarks two weeks ago that a Porton Down scientist had been “absolutely categorical” that the novichok had originated in the country, Jeremy Corbyn accused Johnson of “completely exceeding the information he had been given” after the emergence of the deleted tweet.

But Johnson later hit back, accusing the Labour leader of “playing Russia’s game”.

The deletion, immediately seized on by the Russian embassy, has deepened the government’s difficulties after British scientists at the UK’s defence research laboratory announced on Tuesday that they had not established that the nerve agent used to poison Sergei and Yulia Skripal had been made in Russia.

As I noted at the time.

Fortunately for the UK government, Syria’s Bashar al-Assad decided to do something completely suicidal and entirely against his best interests in the immediate aftermath of the Skripal narrative falling apart. How incredibly convenient for those itching to get a war with Iran and Russia going.

So where do things stand? For those of us against imperial war, the current moment offers the best opportunity I can recall to build a real movement. The Syrian (and by extension Iran and Russia) war sales-pitch has become so clownish and desperate a significant percentage of people simply aren’t falling for it.

I’ve been extremely critical on these pages of Trump supporters I call “cheerleaders” who always make excuses for everything Trump does because they’ve become enamored with a cult politician and can’t admit they were wrong about him. The exact same thing happened with Obama’s cheerleaders, and their stubborn refusal to admit the obvious about his imperial, oligarch-coddling policies gave him the space he needed to further entrench the corrupt power structure in American political and economic life. Whether Obama or Trump, it’s always a President’s cult supporters who give them the needed space to push through the worst policies.

Interestingly, this latest push for war with Syria, Iran and Russia finally seems a bit much for many Trump supporters to stomach. I’ve seen considerable evidence that this is the case over the past 24 hours and I hope it continues. The following poll, conducted by Trump’s favorite show Fox and Friends, is particularly revealing.

As of the time of publication, over 120,000 people voted, with 65% against U.S. military action. This is encouraging and highlights how crucial the current moment is to build pressure against another idiotic and disastrous war.

If Trump voters who claim to be anti-war provide Trump with cover to proceed with a neocon foreign policy, then that’s exactly what you’ll get, especially since that’s also what “the Resistance” and the D.C. bipartisan cadre of imperialists want. The only way to make Trump really sweat is if a unified front consisting of his base, the anti-war left, libertarians and others push back aggressively and simultaneously. I think the time is right for such a movement.

The biggest obstacle we face in achieving this end is ourselves since the American public is all too often its own worst enemy. Too much of the U.S. population is so polarized and convinced their team is right about everything, they’ll never unite to protest against something as monumentally significant as imperial war if they feel the “other side” is also against it. This attitude is extremely childish, but it’s also pervasive. The American public’s been so divided and conquered, so tribal and belligerent against those from the other political tribe, we can’t even come together to push back on an issue as existential as regime change war.

We have a great opportunity to do so now, but will we take the bull by the horns and unite, or will we once again be easily fragmented into tribes the moment the media decides to inflame some new wedge issue?

I don’t know the answer, but I do know until Americans from various political ideologies can put other differences aside and unite on an extremely important issue, the public will continue to be easy prey for those who really run the show.

As I noted a few weeks ago:

I’m not naive enough to think an anti-war movement will prevent the next disastrous imperial war, but that doesn’t mean it shouldn’t be a key strategic goal of the citizenry. Unless the American public learns to stop being so tribal, the imperialist oligarchy will continue to do whatever it wants. Forming an anti-war movement capable of crossing ideological lines would be one thing that could truly terrify the entrenched status quo and put them on notice.

Our real power as humans doesn’t come from voting for the latest false prophet who will inevitably betray us. Our real power will be discovered once we’re able to look beyond our differences, when we stop demanding ideological conformity on every issue and come together to oppose something meaningful that clearly goes against the best interests of 99.99% of us. One of those issues is imperial war, and the time to come together is now.

Will we accept the challenge?

*  *  *

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Russia Considers Dropping Dollar & Euro For Oil Trade With Iran And Turkey

Russian Energy Minister Aleksandr Novak says the Kremlin is mulling taking payments for oil in national currencies, particularly with Turkey and Iran – circumventing the U.S. dollar. Novak added that both countries have expressed interest in the idea.

“There is a common understanding that we need to move towards the use of national currencies in our settlements. There is a need for this, as well as the wish of the parties,” said the energy minister.

Novak notes that rearranging their financial relationships to accept the national currencies would require an upgrade to the financial and economic mechanisms which facilitate the oil trade.

“This concerns both Turkey and Iran – we are considering an option of payment in national currencies with them. This requires certain adjustments in the financial, economic and banking sectors.”

For those paying attention, circumventing the U.S. dollar is exactly what both Saddam Hussein and Mummar Gaddafi threatened to do before being regime changed under the guise of humanitarianism. Then again, they didn’t have nukes. 

Iran – which has threatened to restart it’s nuclear enrichment program within days, signed an agreement with Turkey to use local currencies in trade instead of the U.S. dollar and the Euro. The arrangement is aimed at improving economic ties and bilateral trade, while also undermining the West’s primary currencies. 

“Considering that the use of the dollar is banned for Iran and traders are literally using alternative currencies in their transactions, there is no longer any reason to proceed with invoices that use the dollar as the base rate,” said the Foreign Exchange Rules and Policies Affairs director fro the Central Bank of Iran (CBI), Medhi Kasraeipour.

During a November meeting with Russian President Vladimir Putin, Iranian Supreme Leader Ali Khamenei said that the best way to sidestep US sanctions against the two countries would be a joint effort to circumvent the U.S. dollar and conduct bilateral trade – which would “isolate the Americans.” 

Last year, Venezuela stopped accepting U.S. dollars for oil payments in response to sanctions – requiring that imported and exported crude products be paid transacted in Euros. 

The measure is designed to bypass financial sanctions President Donald Trump’s administration leveled against Venezuela’s government last month for jailing political opponents and creating a super body of pro-government delegates that bypasses all institutions. –Fox Business

Venezuelan President Nicolas Maduro said that Venezuela was looking to “free” itself from the U.S. dollar, According to Reuters,

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

Meanwhile, Venezuela’s bolivar has lost nearly all of its value as the country spirals into an economic crisis.

“There’s no way they can get anything under control in Venezuela unless they dollarize,” says Steven Hanke, a professor at Johns Hopkins University who advised the governments of Ecuador and Montenegro when they ditched their currencies for the dollar. “The bolivar is gone already.” –CNN

“Dollarization is a solution, but it’s not the optimal solution,” says Jean Paul Leidenz, senior economist at Ecoanalitica, a Venezuela-based research group. “It’s an extreme measure.”

Historical precedent suggests that dropping the U.S. dollar is ill advised. If the economic hitmen don’t punish countries seeking to circumvent the greenback, other types of hitmen will be sent in to finish the job.

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Beware, The Mother Of All Deflations

Via Raul Ilargi Meijer’s Automatic Earth blog,

Longtime and dear friend of the Automatic Earth, professor Steve Keen, wrote an article recently that everyone should read (that goes for everything Steve writes). It’s hard to select highlights, but I’ll give it a try. Steve explains where our housing markets went off the rails, what (short-sighted) interests politicians have in subverting them, and, something rarely addressed, why housing markets are unlike any other markets (the turnover of existing properties is financed with newly created money)

He then suggests some measures that might counter this subversion, with a twang of It’s a Wonderful Life nostalgia thrown in. That nostalgia, which will be seen by many as outdated and a grave mistake in these ‘modern times’, instead makes a lot of sense. We might even say it’s the only way to get back on our feet. It resides in the idea that money-circulating building societies, rather than money-creating banks should be in charge of the housing market.

Because it’s not supply and demand that rule the market today, it’s available debt (credit). And banks can, and will, always create more debt at the stroke of a keyboard. That is, until they can’t, and then house prices must and will of necessity fall off a cliff. In Steve’s words: “..mortgage credit causes house prices to rise, leading to yet more credit being taken on until, as in 2008, the process breaks down. And it has to break down, because the only way to sustain it is for debt to continue rising faster than income.”

Still, it left me with a big question. But I’ll ask that at the end; here’s Steve first.

The Housing Crisis – There’s Nothing We Can Do… Or Is There?

[..] the UK data is remarkable, even in the context of a worldwide trend to higher levels of leverage. Between 1880 and 1980, private debt in the UK fluctuated as a percentage of GDP, but it never once reached 75% of GDP. But in 1982, both household and corporate debt took off. In 1982, total private debt was equivalent to 61% of GDP, split equally between households and corporations. 25 years later, as the global financial crisis unfolded, private debt was three times larger at 197% of GDP, again split 50:50 between households and corporations.

The key changes to legislation that occurred in 1982 is the UK let banks muscle into the mortgage market that was previously dominated by building societies. This was sold in terms of improving competition in the mortgage market, to the benefit of house buyers: allegedly, mortgage costs would fall. But its most profound impact was something much more insidious: it enabled the creation of credit money to fuel rising house prices, setting off a feedback loop that only ended in 2008.

Building societies don’t create money when they lend, because they lend from a bank account that stores the accumulated savings of their members. There’s no change in bank deposits, which are by far the largest component of the money supply.

However, banks do create money when they lend, because a bank records a loan as their asset when they make an identical entry in the borrower’s account, which enables the property to be bought. This dramatically inflates the price of housing, since, as the politicians themselves acknowledge – housing supply is inflexible, so prices increase far more than supply.

The supply side of the housing market has two main factors: the turnover of the existing stock of housing, and the net change in the number of houses (thanks to demolition of old properties and construction of new ones). The turnover of existing properties is far larger than the construction rate of new ones, and this alone makes housing different to your ordinary market. The demand side of the housing market has one main factor: new mortgages created by the banks.

Monetary demand for housing is therefore predominantly mortgage credit: the annual increase in mortgage debt. This also makes housing very different to ordinary markets, where most demand comes from the turnover of existing money, rather than from newly created money.

We can convert the credit-financed monetary demand for housing into a physical demand for new houses per year by dividing by the price level. This gives us a relationship between the level of mortgage credit and the level of house prices. There is therefore a relationship between the change in mortgage credit and the change in house prices. This relationship is ignored in mainstream politics and mainstream economics. But it is the major determinant of house prices: house prices rise when mortgage credit rises, and they fall when mortgage credit falls. This relationship is obvious even for the UK, where mortgage debt data isn’t systematically collected, and I am therefore forced to use data on total household debt (including credit cards, car loans etc.).

Even then, the correlation is obvious (for the technically minded, the correlation coefficient is 0.6). The US does publish data on mortgage debt, and there the correlation is an even stronger 0.78—and standard econometric tests establish that the causal process runs from mortgage debt to house prices, and not vice versa (the downturn in house prices began earlier in the USA, and was an obvious pre-cursor to the crisis there).

None of this would have happened – at least not in the UK – had mortgage lending remained the province of money-circulating building societies, rather than letting money-creating banks into the market.It’s too late to unscramble that omelette, but there are still things that politicians could do make it less toxic for the public.

The toxicity arises from the fact that the mortgage credit causes house prices to rise, leading to yet more credit being taken on until, as in 2008, the process breaks down.

And it has to break down, because the only way to sustain it is for debt to continue rising faster than income. Once that stops happening, demand evaporates, house prices collapse, and they take the economy down with them. That is no way to run an economy.

Yet far from learning this lesson, politicians continue to allow lending practices that facilitate this toxic feedback between leverage and house prices. A decade after the UK (and the USA, and Spain, and Ireland) suffered property crashes – and economic crises because of them – it takes just a millisecond of Internet searching to find lenders who will provide 100% mortgage finance based on the price of the property.

This should not be allowed. Instead, the maximum that lenders can provide should be limited to some multiple of a property’s actual or imputed rental income, so that the income-earning potential of a property is the basis of the lending allowed against it.

Two smaller points first: Steve doesn’t mention the role of ultra-low rates. Which is a huge factor leading the process. Second, he says his proposals will “..transition us from a world in which we treat housing as a speculative asset rather than what it really is, a long-lived consumption good”. I wonder if perhaps we should take this a step further.

We don’t see land as a consumption good either, or water sources. They are assets that belong to a given community. Or should. So shouldn’t buildings be too? A building society (or some local equivalent, It’s a Wonderful Life style) in a community can’t, won’t lend out money to build homes that serve the interests of the owner, but hamper those of the community. But now I sound even more commie than Steve for many, I know.

On to my main point: if you return mortgage lending to money-circulating building societies, rather than money-creating banks, who’s going to create the money? Don’t let’s forget that a huge part of our present money supply comes from those banks, and much of that from the mortgage loans they issue. Steve may well have thought about this (was he afraid to ask?), and I’d be curious to see his views.

Inflation/deflation is a function of money supply x money velocity (MxV). There are multiple ways to define this, and discuss it, but in the end this remains valid.

This is what the US money supply (stock) has done over the past 30-odd years

And here is the Case/Shiller home price index for the US over roughly that period. The correlation is painfully clear. Except maybe for that drop in 2008, but the Fed caught that one. Can’t let the money supply fall off a cliff.

And why can’t we afford to let the money supply fall off a cliff? Because money velocity already has:

How dramatic that fall has been is perhaps even clearer on a shorter time-frame.

We can say that MV = GDP, or we can make it a bit more complex with MV=PT, where P is prices and T is transactions (or national output), and people can say that this is just one of many ways to define inflation, but when you have a drop in velocity as steep as that one, and you combine it with the rise in money supply we saw, the danger should be obvious.

We have made our economies fully dependent on banks creating loans out of thin air. Which is a ridiculous model, and as Steve says: “That is no way to run an economy”, but we still have. And if and when home prices start to fall, and fewer people buy homes, the money supply will first stop rising, and then start falling, and we will have the mother of all deflations.

If you take the MV = GDP formulation, GDP will go down right with the money supply, unless velocity (V) soars. Which it can’t, because people are maxed out on those mortgages. They can’t spend. If you go with MV=PT, then if money supply falls, so will prices. Unless transactions (output) is demolished, but that will just kill off velocity even more. Why many people see inflation in our future is hard to gauge.

We could, presumably, get our central banks to pump ginormous amounts of money into our societies, but where are they going to put it? Not into our banks(!), which wouldn’t create all those loans anymore, as It’s a Wonderful Life takes over that role, taking the banks and their present role down with it.

Because it’s starting to get obvious that the present ‘system’ is set to go down big time, since as Steve put it:the only way to sustain it is for debt to continue rising faster than income, and we all know where that goes, we can advocate a version of controlled demolition, but who would lead that?

The banks are the most powerful party at the table right now, and controlled demolition of what we have today, as sensible as it may be for society at large, is not for them. Which makes this not only a financial problem, but a political one too: where does power reside. Down the line, it doesn’t even seem to matter much who gives out the loans, there will be very few takers.

Let’s just say we’re open to suggestions. But they better be good.

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Coming To America: Chinese Robots Could Soon Take Your Job

A three-year-old Chinese artificial intelligence and robotics maker no one has heard of is quietly preparing to flood its array of robots across North America starting this month.

Automation expansion in the United States happens to be more bad news for the Trump administration, as the collision of demographics, automation, and inequality, as highlighted by Bain & Company’s recent report, will unleash the perfect economic storm for at least a decade — until about 2030. Bain believes “automation will eliminate up to 25% of US jobs by 2030, with the lower-wage tiers getting hit the hardest and earliest.” This will be truly devastating, as it now seems the Chinese will be lending a further hand in the controlled demolition of the United States.

This perfect economic storm Bain speaks off is not too far away, the report detailed. According to the Association for Advancing Automation (A3), 2017 was a “milestone” year for the North American robotics market, as a record number of order units, order revenue, shipment units, and shipment revenue flourished on the continent. What is particularly troubling about the “findings is that purchases of these technologies are coming from industries that have not traditionally been known for using robotics,” said ZDNet. In other words, robots are expanding like mad in North America, turning Bain’s prediction of an automation takeover into a frightening reality.

ZDNet has recently gained knowledge of Geek+ (Beijing Geekplus Technology), a Chinese artificial intelligence and robot maker, who has exited “startup mode” and is now “China’s number one native supplier of logistics automation.”

Founded in 2015, Geek+ has shipped well over 3,000 logistics and sorting robots and developed ten robotic systems for more than thirty supply chain clients. Geek+ has grown into China’s number one supplier of warehousing and logistics robots for Southeast Asia.

From a market standpoint, however, ZDNet indicates that “non-Chinese automation suppliers” should be warned about Geek+ rapid rise to power.

“China is the largest market for industrial automation in the world, so that’s certainly a big deal for a young company. There’s reason to believe this is the inevitable shot across the bow for non-Chinese automation suppliers, which have been cashing in as China scrambles to react to rising wages with more robots. If Geek+ is any indication, native robotics companies are ascendant, which means the Chinese gravy train could be coming to a screeching halt for outsiders.

 

That’s very much by design. Historically, China has lagged behind Asian rivals Japan and South Korea in robotics development. But with Chinese firms spending huge money on automation technology, the central government has sought to spur native development and keep as much of that spending onshore as possible.”

ZDNet further explains how Geek+ is strong evidence that China is preparing to flood the world with robots.

“In 2015, China launched the Made in China 2025 plan, which provides a roadmap for Chinese dominance in several high-tech sectors, including robotics. Bolstered by incentives and government investment, the Chinese robotics market has ballooned ever since. Founded in 2015, Geek+ is a product of that program, and it’s providing strong evidence the 2025 plan is working. Part of the reason Geek+ has flown under the radar is that the company’s leadership, backed by a cheerleading government and substantial funding, has taken dead aim at building market share while spending relatively little effort touting its technology portfolio.”

In the coming days, Geek+ is debuting its latest laser-guided warehouse picking robot at Modex, the largest supply chain expo in North and South America. For Geek Plus, the attendance is part of the company’s global expansion plans, to flood the United States with cheap robots.

Video: Geek Plus Moving System with SLAM Navigation by Geek+

A spokesperson for Geek Plus said the Modex expo is a critical part of the company’s new marketing expansion in the West.

“The main investors in our global operation are US companies,” explained the spokesperson. “We want to showcase our warehouse solutions to the US market at Modex.”

“Research shows that material handling occupies 75 percent of labor costs, 25 percent of human resources, 55 percent of production space and 87 percent of production time. The main pain points to customers are wasted human resources and rising labor costs. On the other hand, the traditional AGV with fixed transporting track is no longer suitable for this high-demand and changeable market. As we begin to bring our products and services to North America, we really want supply chain business executives and MODEX attendees to visit our booth and see our solutions,” said Geek+ CEO Yong Zheng.

In short, Geek+ is strong evidence that China plans to flood the United States with automation, which by the way, could lead to further job losses — something that Bain & Company has recently warned about in their analysis of the perfect economic storm: Demographics, Automation, and Inequality. As for the Trump administration, this is more bad news for the labor market, as there are some “95 million Americans not in the labor force,” according to the Federal Reserve.

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U.S. Navy Destroyer Armed With Tomahawks Arrives Off Syrian Coast, “Harassed” By Russian Warplanes

As the situation in Syria continues to escalate, guided missile destroyer USS Donald Cook has weighed anchor off Syrian territorial waters, and is reportedly being “harassed” by low-flying Russian warplanes, which have buzzed the “Arleigh Burke” class warship at least four times according to CNN Turk. 

Of note, the Donald Cook has 60 Tomahawk cruise missiles on board.

Via @evacool_f

A Navy source confirmed the deployment with the Washington Examiner, who said that the guided-missile-destroyer had just completed a port call in Cyprus, while the Pentagon reportedly draws up plans for how to deal with the situation. 

U.S. military planners have drawn up more than one option for possible military action against Syria, including a strike similar to last year’s attack in which 59 sea-launched cruise missiles inflicted heavy damage on a Syrian Air Force airfield in Homs.

Pentagon officials, speaking on condition of anonymity, said the options now are similar to those presented to President Trump after last year’s chemical attack in northern Syria that killed and injured hundreds of civilians, including women and children.

But officials said the president could decide to choose a more robust option this time, given that Syrian President Bashar Assad didn’t seem to get the message last time. –Washington Examiner

What is surprising is that according to the latest Stratfor naval map, there was no other major naval support – either amphibious or carrier strike groups – in the vicinity of Syria as of April 5.

The destroyer’s aggressive positioning comes hours after Israel conducted a Monday morning strike on Syria’s T-4 airfield, situated about halfway between Homs (Syria’s third-largest city) and Palmyra (famously the site of ancient ruins). RT reports that two Israeli F-15 jets fired eight guided missiles at the airfield from Lebanese airspace. The jets never entered Syria.

The IDF has long noted the T-4 base for its housing of Iranian and Quds forces with the backing of Syria.

US Defense Secretary Jim Mattis told reports on Monday “I don’t rule out anything right now,” when asked about a potential response – noting Russia’s alleged involvement. 

“The first thing we have to look at is, why are chemical weapons still being used at all when Russia was the framework guarantor of removing all the chemical weapons?” he said. “And so, working with our allies and our partners from NATO to Qatar and elsewhere, we are going to address this issue.”

Last year, the U.S. warned the Kremlin ahead of the strike so that Russia could make sure its planes and personnel in Syria were not in harm’s way.

This time, the Foreign Ministry in Moscow has issued an explicit warning to Washington that any “military intervention” in Syria would be “unacceptable” and would lead to the “most serious consequences.”

The U.S. acted alone in April last year, but this time it could work through a coordinated international response. –Washington Examiner

Britain and France have also hinted at possible military action in Syria – following comments by British Foreign Secretary, who spoke by phone with French Minister for Foreign Affairs, Jean-Yves Le Drian on Monday, saying that there should be “no impunity for those that use such barbaric weapons,” in reference to the gas attack. 

Speaking to reporters at a Monday cabinet meeting, President Trump said he would be making a decision “very quickly, probably by the end of today” about the U.S. response. 

“This is about humanity. We’re talking about humanity, and it can’t be allowed to happen,” Trump said.

Meanwhile, Russia appears to be making preparations for an imminent, US-led attack and according to unconfirmed reports, there have been “intensive flights of Russian aircrafts along the Syrian coast & over Khmeimim base, in addition to the intense flights of military aircrafts belonging to the Assad regime in the sky of Homs. There is great anticipation from Assad and Russia for a possible blow.“

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In Direct Rebuke To US, China Installs Radar Scramblers On Spratly Islands

As we’ve documented again and again (and again and again), China’s military buildup in the Pacific, particularly surrounding the Spratly Islands, a collection of small islands, cays and atolls in the South China Sea, is one of the greatest long-term risks to peace and stability in the US and many of China’s neighbors, who have territorial claims in the region that may conflict with China’s.

While the trade disparity between the US and China has garnered most of the attention in the press since then-candidate Trump began railing against the world’s No. 2 economy during the early days of his campaign, military commanders and other experts have repeatedly warned that a military conflict in the region over the coming decades is looking increasingly unavoidable.

Spratly

Roughly two weeks ago, satellite images showed China had deployed its only aircraft carrier, the Liaoning, for a series of live-fire drills in the South China Sea (the ship was flanked by 40 other warships and submarines) – an unprecedented exercise of naval force that immediately prompted a US response (not to be outdone, the Navy sent three aircraft carrier battle groups to the region to try and check Beijing’s influence).

Those drills took place between March 24 and April 5, and were aimed at improving the Navy’s conflict-readiness – though Beijing insisted they weren’t intentionally targeted at any one country. They followed a series of aerial exercises earlier this year involving Su-35s and H-6s over the South China Sea – another unprecedented escalation. Taken together, these are China’s largest military exercises to date.

Spratly

Improving the People’s Liberation Army’s capacity for US-style joint combat operations – involving all the armed services – is one of the main goals of a four-year military-restructuring plan authorized by Xi Jinping.

Amid all of this, the US has engaged in at least one military escalation of its own: The US has already carried out two “freedom of navigation” – or “freeop” – missions in the area. These exercises entail sending a US destroyer or some other warship to sail within 12 miles of the Spratly Islands. That’s compared with four freeops for all of last year. They’re meant to assert the US’s right to travel freely in the South China Sea, but they’ve reportedly angered Beijing.

Now, in the latest galling assertion of its dominance over the region, the Wall Street Journal has reported that China installed equipment on two Spratley outposts capable of scrambling military communications and radar systems used by US ships – a clear rebuke to the US and China’s neighbors.

Maps

The Chinese leadership is sending a clear message to the US: Despite what you might believe, you don’t have the “freedom” to navigate in the South China Sea. The scrambling technology will strengthen China’s ability to assert its extensive territorial claims in the region, while hindering US military operations in a contested region that includes some of the world’s busiest shipping routes.

A US official confirmed to WSJ that “China has deployed military jamming equipment to its Spratley Island outposts.” Furthermore, the equipment was likely installed during the last 90 days.

The U.S. assessment is supported by a photo taken last month by the commercial satellite company DigitalGlobe and provided to The Wall Street Journal. It shows a suspected jammer system with its antenna extended on Mischief Reef, one of seven Spratly outcrops where China has built fortified artificial islands since 2014, moving sand onto rocks and reefs and paving them over with concrete.

China’s Defense Ministry didn’t respond to a request for comment.

The US’s biggest concern regarding China’s Spratleys presence is that building outposts on the islands is allowing it to control crucial trade routs, consolidate its claims to the South China Sea, reduce the US’s capability to defend Taiwan and enable the People’s Liberation Army to launch an attack or counterattack with little or no warning.

Beijing claims “indisputable” sovereignty over all South China Sea islands and their adjacent waters and demarcates its claims with a U-shaped line stretching from the Chinese coast almost as far south as Malaysia.

China says its island-building is for defensive purposes only, but the activity has stirred fears that it could use the outposts to enforce territorial claims that overlap with those of Brunei, Malaysia, Taiwan and Vietnam, as well as the Philippines, which is a U.S. treaty ally. In the last year or so, China has tried to smooth relations with other claimants while continuing work on the islands.

Three of its outposts in the Spratlys—Fiery Cross Reef, Mischief Reef and Subi Reef—now feature 10,000-foot runways, hangars for fighter planes, ammunition bunkers, barracks and deep-water piers for ships.

While Chinese military personnel are at the Spratly outposts and Chinese ships dock there, China has yet to station ground units or fighter planes on the artificial islands, U.S. officials say. Nor have surface-to-air missiles or antiship cruise missiles been deployed in the Spratlys, though spots to install such weapons have been prepared, U.S. officials said.

But China’s ability to quickly shift military assets to the outposts is a serious concern for the Pentagon since it could enable China to control vital trade routes, exclude other claimants from disputed areas and interfere with the U.S. military’s plans to defend Taiwan.

“China has built a massive infrastructure specifically—and solely—to support advanced military capabilities that can deploy to the bases on short notice,” Adm. Harry Harris, the head of the U.S. Pacific Command, told the Senate Armed Services Committee last month.

According to U.S. intelligence, the new jamming equipment was deployed within the past 90 days on Fiery Cross Reef and Mischief Reef.

China has been building up its military presence in the area since Beijing deployed HQ-9 surface-to-air missiles and J-11B jet fighters in the disputed Paracel Islands back in 2016. Those islands are about 500 miles north of the Spratlys. Recently, Beijing established a Southern Theater Command to supervise Chinese forces responsible for controlling the South China Sea.

But aside from bulking up its military forces, China’s escalation in the region has served a political purpose as well.

Timothy R. Heath, a senior analyst at the Rand Corporation, said that while the main purpose of the exercise was to improve the readiness of China’s forces, it was also sending a political message.

“To Chinese domestic audiences, Beijing is signaling strength and readiness to defend the country’s interests, which may bolster nationalist support for the government,” Mr. Heath said. “To the region and the United States, Beijing is signaling that it has been acting with restraint, but that it is willing to meet confrontational policies with its own confrontational policies.”

Maj. Gen. Jin Yinan of China’s National Defense University said the South China Sea drills weren’t connected to the recent U.S. deployment of three aircraft carriers to the region. The USS Theodore Roosevelt arrived in Singapore last Monday. The USS Carl Vinson visited Vietnam last month and did joint exercises with Japan in the South China Sea. The USS Ronald Reagan is currently based in Japan.

“Even if all three carriers came to the South China Sea, what about it?” Gen. Jin told state-run China National Radio. U.S. carrier operations in the area gave China a chance to study their operations and their radar and other electronic signals, he said.

“What else can you do apart from a show of strength? Can you attack me? Do you dare to open fire?” he said.

Given all this, the fallout from another yuan devaluation appears inconsequentially mild.

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What Makes AI Dangerous?

Authored by Per Bylund via The Mises Institute,

So I watched “Do you trust this computer?”, a film that “explores the promises and perils” of artificial intelligence.

While it notes both the good and the bad, it has an obvious focus on how AI might bring about “the end of the world as we know it” (TEOTWAWKI.) That is, if it is left unregulated.

It’s strange, however, that the examples of TEOTWAWKI AI were “autonomous weapons” and “fake news,” the latter because of how it can provide a path for a minority-supported dictator to “take over.” While I understand (and fear) both, the examples have one thing in common – but it is not AI.

That one thing is the State.

Only States’ militaries and groups looking to take over a State have any interest in “killer robots.” They’re also developed by/for those groups.

The fake news and “undue influence” issue is also about the power over the State.

Neither weapons nor fake news require AI.

Yet, in some strange twist, the film makers make it an AI problem. Worse: they end the film indicating that the main problem is that AI is “unregulated.”

But this is completely illogical: with the State as the problem’s common denominator *and* the solution?

Instead, we’re led to believe that it is problematic that Google tracks our web searches and Facebook knows our friends and beliefs (“because autonomous weapons”?). While I agree that it is ugly, neither company is making a claim over life and death. In fact, they operate under the harshest regulation there is: the market. Because they are making investments to make money, and money can only be made in one of two ways: through offering something that people want and are willing to pay for (Oppenheimer’s “economic” means), or through simply taking it from people against their will (“political” means). Companies operate according to the former, which means they are subject to the mercy of consumers. The State operate according to the latter.

No, I’m not saying the ability to play on people’s emotions, deceive them through “fake” information, etc is unproblematic. I’m saying the film completely misses the elephant in the room – and suggests it is the solution.

The logic is based on wishful thinking, if not ideology; a refusal to see what’s obviously there.

The solution is simply not a solution: if the State would “regulate” how Google and FB use AI to sift through the data and feed people what they want to hear, what makes anyone think this applies also to the DOD or NSA and their data, which are *not* collected from consumers voluntarily but in secret. And the latter are much more likely to work on autonomous weapons. The film even states this is the case, yet seems to skip over that problem.

To illustrate the difference between Oppenheimer’s economic and political means, consider two recent trust crises.

The Cambridge Analytical debacle caused Facebook to immediately change their business as the owners lost billions when the company’s value plummeted. That value is based on people’s willingness to use the web site and its apps, to continue sharing content. The #DeleteFacebook hashtag harmed the owners. Then compare with what was revealed by Snowden: that the State spies on everyone. The data are collected in part from companies that are both forced to comply with requests and legally obligated not to say anything about it. Yes, the leak stirred up a lot of emotion, but what happened to the “deep state” surveillance? Probably nothing. Except maybe some new routines and, probably more money to control leaks.

Which is more problematic, the “economic” means that are subject to consumers’ trust (and, really, whim), or the “political” means not subject to insight, oversight, or at all accountable because it is secret and because we pay for it whether or not we wish?

Add to this how the latter is interested in and aims for both autonomous weapons and to keep/claim the power of the State. It’s pretty obvious that neither is a utopian perfect solution, but one clearly has a built-in control mechanism because it is based on value, the other does not – and is even based on being done in complete secrecy and at our expense (involuntarily). Yet the latter is somehow in the film treated as the (“only”?) solution. That perhaps makes for a good play on people’s confirmation bias, because we’ve learned in school and want to believe that the State “is us.” Fine, but that’s not us spying on us and producing autonomous weapons. In fact, it would be hard to believe a political decision to “stop developing” such weapons. Who really believes they wouldn’t continue despite saying the very opposite?

The fact is, there is no downside to simply lying and pretending. Whereas, if severe, companies can be wiped out overnight if people don’t trust them – their value is gone. So the logic in the film simply doesn’t work; it doesn’t make sense. One cannot help thinking, if this is the state of human intelligence, our ability to logically draw conclusions from the data available to us, then making machines that think on “our level” can’t be all that difficult. And it cannot be hard for machines to recognize real patterns and draw conclusions that follow.

But perhaps I shouldn’t be surprised that the film makers misunderstand economics on a fundamental level:  they point to automation as a huge problem – because it creates more value for us at lesser cost. We’ll be relieved of jobs. Oh no. Think about that this Monday morning.

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Iran Warns U.S. Would “Regret” Pulling Out of Nuclear Deal Soon After Doing So

Iranian President Hassan Rouhani has threatened that the United States would “regret it” and suffer consequences of pulling out of the nuclear deal “less than a week“ after doing so if the US follows through on a plan it is considering to impose stricter sanctions on Iran by May 12.

At a conference to mark National Nuclear Technology Day in Tehran, Rouhani escalated the tone of his rhetoric toward the United States as President Trump ramps up rhetoric of his own, amid growing expectations that the deal won’t make it through Trump’s first term in office. 

“We will not be the first to violate the accord but they should definitely know that they will regret it if they violate it,” Rouhani told a conference to mark National Nuclear Technology Day in Tehran.

“We are much more prepared than they think, and they will see that if they violate this accord, within a week, less than a week, they will see the result.”

Iran has come out and stood firm on their position not to alter the accord that was put into place in 2015 between Iran and China, the U.S., U.K., Russia, France and Germany.

Iran makes the point that all other parties involved have agreed that Iran has held up their end of the bargain and that the United States would ultimately be the party that looks foolish in a situation where they try to impose stricter sanctions in violation of the initial agreement.

Rouhani dismissed the threat, saying: “It’s been 15 months since this gentleman who came to power in America has been making claims and there have been many ups and downs in his remarks and his behaviour.

“(But) the foundations of the JCPOA (nuclear deal) have been so strong that during these 15 months of pressure… the structure has remained solid.”

The other partners to the agreement — Britain, France, Germany, China, Russia and the EU — all agree that Iran has stuck by its commitments, as does the International Atomic Energy Association which is tasked with inspecting Iran’s compliance.

“Even if one day (the US) can harm the JCPOA, we will be the winner in the public opinion of the world as the nation that stuck by its commitments,” Rouhani said.

“If they withdraw, it would mean that they are not committed to their words.”

President Trump has long been making the Iran nuclear deal a cornerstone of his foreign policy. He ran his campaign referring to this deal repeatedly as one of the worst deals the United States has ever entered into and repeatedly calling our leaders at the time “stupid“ for putting it in place in the first place.

Back in January, we wrote about  the most recent extension of the deal and stated that, at the time, the deal looked like it was going to stay in place, but also noted that “Trump does have a tendency to change his mind.” In that article, we explored potential consequences if the deal were to be pulled, including:

Iran resuming its enrichment of uranium – even seeking to make up for lost time – the country’s atomic energy agency has said, according to Russia Today.

“If the suspension (of sanctions) is not continued it’s a violation of the [Iran nuclear deal] and the Islamic Republic of Iran will, of course, take the necessary actions,” Atomic Energy Organization of Iran spokesman Behrouz Kamalvandi told state TV, as quoted by Reuters.

Trump has called the nuclear agreement the “worst deal ever negotiated,” and has stressed that he could cancel US participation in it “at any time,” eve refusing to certify Tehran’s compliance with the deal in October. But Tillerson has been trying to work with Congress to resolve concerns about the INARA – the Iran Nuclear Agreement Review Act – that cleared the way for the US to sign on to the deal.

That will be coupled with diplomacy with European government on addressing these concerns.

Now it again looks as though volatility surrounding the deal could be on the rise.

As volatility rises in one part of the globe for the Trump administration, it ebbs in others. While this comes at the same time as trade war fears with China are breaking out, it was also reported over the weekend that North Korea may be open to denuclearization as an option with their upcoming meeting with President Trump.

If President Trump continues to push the narrative that the Iran deal needs to be upended and changed, it adds Iran to the list of countries (that already includes Russia, North Korea and China) whose political homeostasis with the United States could be in jeopardy. Can the White House continue to juggle all of these geopolitical balls at the same time? 

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Forget The Trade War, China Has Even Bigger Problems Domestically

Authored by Marshall Auerback via CreditWritedowns.com,

China’s debt build-up has provoked increasing concern amongst Beijing’s policy makers. The resultant excess capacity exports deflation to the rest of the world. This creates pressures for China’s competitors which could engender a tougher response in line with that of Trump. How China deals with these constraints is the big question for their economy.

The transformation of China’s economy, both in terms of GDP growth rate and poverty reduction since it started its transition to the market system in the late 1970s, has arguably been the biggest macroeconomic event of the past half-century. The model that has characterized the country’s high output growth rates has followed in the footsteps of the Asian “tigers“: first, its high growth rates of capital accumulation, driven by high investment-output ratios; second, a marked outward orientation through export-led growth policies; and third, the pursuit of industrialization (in particular the production and export of manufacturing goods), a key ingredient for fast growth and development. By almost every metric, China has advanced from economic backwater to the world’s second-largest GDP (and by some measures, is now the largest economy).

But in spite of signs of renewed economic activity in March, the country’s debt build-up has provoked increasing concern amongst Beijing’s policy makers, as it points to an underlying long-term financial fragility, particularly if trade war pressures intensify. Just last October during the Communist Party Plenary, Zhou Xiaochuan, then head of the country’s central bank, warned of a “Minsky moment“:

“When there are too many pro-cyclical factors in an economy, cyclical fluctuations will be amplified. If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky Moment’. That’s what we should particularly defend against.”

To elaborate on Zhou’s statement, the economist Hyman Minsky described how once the debt “disease” goes metastatic, there will come a “Minsky moment” (a term originally coined by economist Paul McCulley) when euphoria gives way to concern and then to panic liquidation and credit revulsion. When that dynamic is in full flower, policy makers are powerless to avert it, no matter how much they want to bring the punchbowl back. Governor Zhou’s public warning was no doubt in response to recent rapid increase of debt which, according to Professor L. Randall Wray, “increased from 162 percent to 260 percent of GDP between 2008 and 2016,” and remains “a topic of discussion, if not deep concern.”

It may seem odd to warn of a Chinese slowdown, given the recent renewed surge in exports and the corresponding rise in both the manufacturing and non-manufacturing purchasing managing indices (both the manufacturing and service gauges remain above 50, and therefore indicative of robust economic activity). But these gains ought to be viewed against the backdrop of a more hostile external environment for Chinese manufactured goods. Discussing the recently imposed tariffs on steel and aluminum, the New York Times reported that Trump has already provided brief exemptions to “Canada, Mexico, the European Union, Australia, Argentina, Brazil and South Korea” (countries that “account for more than half of the $29 billion in steel sold to the United States in 2017”), which reinforces the idea that it is largely China that remains the major target of Trump’s economic nationalists.

In that context, China’s ramped-up production in March could well be interpreted as an effort to evade the tariffs by exporting products into the U.S. under the wire, suggested economist Raymond Yeung of the ANZ group. If so, that could provoke further aggressive responses from Trump’s trade hawks, especially if it results in an expansion of the bilateral trade surplus with the U.S. Adding to the pressures, Reuters reports that “Top Trump administration officials are asking China to cut tariffs on imported cars, allow foreign majority ownership of financial services firms and buy more U.S.-made semiconductors in negotiations to avoid plans to slap tariffs on a host of Chinese goods and a potential trade war.”

But how serious are these threats? Are they simply a case of “smoke and mirrors,” as the economist Dani Rodrik has suggested? China itself appears to be taking the risk of a trade war seriously, imposing retaliatory tariffs of up to 25 percent on 128 food imports from the U.S., an understandable negotiating posture given its position as a major creditor nation. But the very fact of its creditor status might presage problems for Beijing. If anything, history has shown that it is trade surplus nations, not debtors, that tend to be the biggest casualties of trade wars, as this account of America’s ill-fated Smoot-Hawley tariff imposition illustrates:

“World War I… made America the world’s creditor. The center of the financial world moved from London to New York, and billions of dollars were owed to large U.S. banks. The Smoot-Hawley Tariff threw inter-allied war-debt repayment relations into limbo by shutting down world trade. An international moratorium on debtor repayments to the United States froze billions in foreign assets, thus weakening the financial solvency of the American banks. Specifically, over $2 billion worth of German loans were obstructed by Germany’s inability to acquire dollars through trade to repay its debts. This same scenario played out in many other countries as well.”

China today occupies a creditor position comparable to the U.S. in the 1930s. Trump was certainly exaggerating when he suggested that “trade wars are good and easy to win.” But the U.S. is a largely self-sufficient economy; China is not—which is what Trump was implicitly highlighting when he made his comments (albeit, typically oversimplified and ignoring the fact that the U.S. itself still has quasi-bubbleized assets and very high levels of indebtedness).

Even if the trade war threat turns out to be more talk than action, there are other ways in which Beijing might risk a Minsky-style deflation. There is a very old idea from business cycle theory prior to the Second World War that private sector over-investment can become so unsustainably high that even without a fiscal/monetary shock, there could be a fall in autonomous investment. Once that begins, accelerator multiplier dynamics can lead to a cumulative economic contraction even if interest rates plummet and monetary conditions ease.

There are grounds for thinking this is an idea whose time has come again. Though fixed investment is very low in the U.S., it is not so globally, especially in China, which has a condition of over-investment that is historically unprecedented. A decline in global autonomous investment that threatens accelerator and multiplier dynamics should follow.

Some would argue that the global capex overinvestment problem is purely a product of low interest rates, but in China’s case, it is also a product of their economic model. Although the reforms undertaken over the past few decades have given China the appearance of a market economy, it is not in many important aspects, notably in regards to the allocation of capital, which is not market-determined.

In essence, China’s economy is a historical blending of three distinct strands:

First is the old Communist, command-style economy, which, on the most conservative measure, accounts for at least one-third of China’s GDP (and possibly higher, according to some studies). This sector is comprised largely of the old “white elephants,” the state-owned enterprises (SOEs).

Second is the East Asian model, whereby the government directs investment into particular areas via the aegis of private companies, but with considerable state backing. This “dirigisme” is a variant of the old Japanese “MITI administrative model,” wherein the government essentially targets priority sectors (such as agricultural products, high-speed rail, aerospace, semiconductors, robotics, AI, and civil aviation). You can see evidence of this “state-directed capitalism” in the country’s recently published “Made in China 2025” document, an explicit policy of import substitution designed to make the country largely self-sufficient in a broad range of industries by 2025. (Import substitution is a red flag for trade hawks, especially as many of Beijing’s newly designated priority sectors are areas currently dominated by the U.S., and seeking to expand exports into China.)

Essentially, here the Chinese state often acts as “loss leader” as it tries to develop national champions, mobilizing the financial resources of large oligopolistic conglomerates to enable them to make long-term investments in research. (As an aside, this used to be a model embraced by the U.S. until the anti-government attitudes of recent decades took hold; the private sector was thought to be unable to make sufficient large-scale R&D investments because no single company on its own would have the resources/longevity to exploit the potential financial returns.) China has already done this in areas such as solar power, and it is one of the reasons why global solar costs have fallen so precipitously over the past decade (as well as contributing to the bankruptcy of Solyndra here in the U.S. back in 2011).

Third, and finally, is China’s “wild west capitalism,” which has been manifested in areas such as property speculation, “wealth management products,” the shadow banking system, and the country’s comparatively young capital markets (including a newly established oil futures market). Odd that despite the Asian Financial Crisis of 1997/98 and the global meltdown of 2008 (both products of global financial liberalization), China persists in expanding this “third leg,” given the challenges the country has experienced attempting to curb its speculative excesses, while simultaneously seeking to restructure the state sector.

In any case, the challenge for China is clear: If policy makers move too aggressively in countering any one of these vulnerabilities, they risk setting in motion a huge debt deflation dynamic. This is especially dangerous, given that overall capital expenditure in China is still in excess of 40 percent of GDP. By way of comparison during Japan’s bubble years, capex as a percentage of GDP got as high as 32 percent, and that was considered bubble-like territory, while U.S. capital expenditure as a percentage of GDP has typically stood around 15-17 percent.

So China’s policy makers have a fine line to tread. In essence, they have been using the old command economy to arrest any incipient debt deflation dynamics in the free market segment. The problem is that the command economy is home to all of the white elephants, notably construction, heavy machinery, bulk chemicals, steel, coal, and shipbuilding, all of which contribute significantly to global overcapacity. As Jianguang Shen, chief Asia economist at Mizuho Securities Asia, notes:

“SOE reform, debt, overcapacity and ‘zombie companies’ are all deeply connected issues. For private companies in overcapacity industries, after several years of losses there’s no way to continue. The owner will shut them down or sell them off, but at SOEs they can keep getting bank loans or government support.”

Shutting down these companies would create mass unemployment. So the government keeps them going, via subsidies, bailouts, and low interest rate loans. Excess capacity, therefore, gets dumped on China’s trading partners, thereby imparting an ongoing deflationary bias to the global economy, while China builds up global champions at home, which will ultimately squeeze out foreign competition.

This is in effect what Trump is seeking to counter right now via his latest salvo against China. But will the threat of more tariffs prove effective against Beijing? Bear in mind that China’s political imperatives are considerably different than those of the U.S. In the U.S. (as well as most other western democracies), if a governing party screws up, it can be voted out of office. In China, the entire political legitimacy of the Communist Party is tied up with the country’s economic prosperity. They miscalculate, and the party risks losing its monopoly on power, party members get arrested, and probably a few are shot as well. There are limits to political liberalization.

Shutting down excess capacity in the state-owned enterprises in response to tariff threats, then, would likely risk a severe economic downturn in China. It would create the prospect of mass layoffs, heightening domestic turmoil, while simultaneously undermining the political standing of the ruling party. To avert this outcome, we should therefore expect that China’s policy makers will respond as they always have: continuing to guide financing to all of these white elephants, effectively exporting deflation to the rest of the world and risking a trade backlash. Hardly ideal, but understandable, given the competing domestic political imperatives. For all of today’s market chatter about “creeping inflation” in the U.S., then, this will likely prove ephemeral if China continues to dump much of its excess capacity on the rest of the world to offset the political fallout from tackling its own domestic bubbles. The resultant pressures China’s competitors will face could engender a tougher response in line with that of Trump, which is what appears to be happening right now. So while today’s political machinations may well appear to be nothing more than a high-stakes game of poker bluffs, the longer-term dynamics suggest that it could well herald the start of a dangerous dynamic in which China and the rest of the world are fated “to live in interesting times,” as the apocryphal Chinese curse exhorts.

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Crisis: Debt-Ridden Millennials “Hitting Pause Button On Major Life Events”

Millennials – the generational demographic cohort following Generation X, born between the early 1980s and mid-90s – outnumber Generation X and the Baby boomers.

Millennials have been referred to as “echo boomers” due to an acceleration in birth rates starting in the boom years of the early 1980s via interest rate suppression, which continued into the late 90s before the unraveling of the Dot-com bubble. This generation is now coming of age and will be a majority of the labor force by mid-2020s. Their influence in American society is starting to be realized, although it is leaving a negative mark on the economy as one thing is obvious: Millennials and debt go hand-in-hand.

According to NBC News/GenForward survey, the most common form of debt for 18-to 34-year-old Americans is credit card debt. Approximately, 75 percent of the millennial cohort have financial obligations, and they are ‘pausing major life events’ because they are too broke, the report noted.

A quarter of millennials have racked up over $30,000 in bills, including 11 percent who have over $100,000 in debt. Shockingly, only 22 percent of millennials are debt free.

As a result of all this madness, savings is not hip with the millennials, which has limited their economic mobility and left many unprepared for the next financial disaster.

In a Central Bank boom/bust economy, each generation throughout the past century has experienced some form of deleveraging.

What happens next, well, you guessed it — millennials could be the next generation to feel the wrath of natural selection through a deleveraging period, as it all depends on when the next recession strikes. The survey confirms that millennials have the weakest balance sheet, with credit cards playing an even more significant role than pesky student loans.

In a period of wage stagnation along with nearing the latter stages of the second longest economic expansion in U.S. history, credit card debt is the most significant liability on the millennials’ balance sheet. Meanwhile, as the homeownership rate for millennials has rapidly declined, only 20 percent said they have a mortgage or home loan.

The survey indicates that millennials with college degrees tend to utilize credit more often than those without college degrees. Shockingly, nearly 50 percent of all African-American millennials have student loan debt.

“Millennials with college degrees are more likely to have credit card debt (56 percent) than those without college degrees (40 percent). But they are also more likely to make more money — 56 percent of millennials with college degrees make over $50,000 a year compared with 31 percent of millennials without college degrees. Forty-nine percent of African-American millennials have student loan debt — more than any other racial subgroup.”

When it comes to savings, 30 percent of millennials have less than $1,000 in their personal savings accounts, and only 1 percent have over $100,000 saved. About 24 percent of millennials have no savings at all.

“Sixty-two percent of millennials owe more in debt, overall, than they have in a personal savings account. Only about a quarter (24 percent) have more money in their savings account than they owe in debt.”

Two-thirds of millennials said they would have trouble paying an unexpected expense greater than $1,000. The survey added, “African-America and Latino millennials would have a harder time coming up with the money than other racial subgroups.”

Here is the bombshell: “a majority of millennials have hit pause on major life events because of what they owe,” stated the survey. Nearly 34 percent of all millennials are holding off on buying their first home, and about 31 percent are delaying savings for retirement. The report even said debt has “affected millennials’ family structure.” Fourteen percent of millennials have postponed getting married due to high debt levels, and what should be a national crisis: 16 percent have delayed having children.

Somehow, the survey concludes: “millennials overall remain optimistic about the future.” Perhaps, that is because this generation like all the other generations before, tend to live outside their means through the use of credit and are trapped in the mindless propaganda of a never-ending party.

“Even with a lot of debt relative to savings, millennials overall remain optimistic about the future. A majority (58 percent) are optimistic about things like finding and keeping a good job, paying off student loan debt, and being able to afford the lifestyle they want.”

In short, the heavily indebted millennial could soon experience a period of deleveraging, as their balance sheets are extremely weak with no savings to cushion the fall. The party is nearing an end, and the millennial generation will be holding the bag.

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