As the Syrian and Russian governments accuse the United States of trying to invent reasons to launch an attack in the Middle East, an international group of former military and diplomatic leaders is warning of an “unacceptably high” risk of global nuclear war if cooler heads don’t prevail.
In an 11-page report from the Nuclear Crisis Group (NCG) — a subcommittee of Global Zero, an organization that supports the total abolition of nuclear weapons — the former officials make recommendations to governments on ways to de-escalate tensions around the world.
“The Nuclear Crisis Group assesses that the risk of nuclear weapons use, intended or otherwise, is unacceptably high and that all states must take constructive steps to reduce these risks,” NCG asserted. NCG is a committee made up of individuals from 10 different countries, including Russia, China, and the United States.
NCG continued in its overview before getting to the specific recommendations. The group echoed the stance of its mother organization, Global Zero:
“The only way to eliminate fully the risks of nuclear weapons use is through their abolition. To achieve this, states with nuclear capabilities need, at a minimum, to reduce their reliance on nuclear weapons in their national defense plans, cease expansion of their nuclear arsenals, and reduce the number of weapons.”
On the deteriorating situation with North Korea, which NCG considers a primary concern, the group said a true de-escalation of tensions will take some time but that sanctions have clearly failed and that genuine diplomacy is the only avenue:
“To reduce immediate nuclear risks, the United States and North Korea should resume bilateral discussions immediately without preconditions.”
To get both sides to the table, the group suggested an immediate first step is for the U.S. to knock off the military aggression in the region.
Specifically, NCG saidthe United States should “suspend flights of strategic bombers and visits by strategic submarines” and “refrain from provocative military actions that could escalate to nuclear conflict.”
On Russia, NCG again said diplomacy is the answer. The group recommended that the “United States, Russia and NATO states commit not to issue public threats of nuclear first use” and “rapidly launch US-Russia strategic stability talks focusing on potential dangers flowing from existing and potential nuclear deployments, doctrines and modernization programs.”
When it comes to China, NCG found that while its relationship with the U.S. is improving in some areas, true progress has been hindered by a “changing balance of forces” and a “deep-seated lack of trust.”
“China’s growth in power and influence comes into tension with America’s global power and status. If not wisely managed on both sides, an incident in the region runs the serious risk of escalation,” the group wrote in its report.
And if an incident does occur in the region, chances are good it will take place in the South China Sea, where China has built and begun militarizing artificial islands. On that front, NCG recommends that China cease such activity and that all state actors in the region — including the U.S. — should jointly agree to protect shipping lanes and air transit routes and come up with guidelines that would allow all to prosper from trade.
As for the nuclear states of India and Pakistan, NCG found the biggest threat comes from those countries’ lack of security features in their programs. In speaking to Politico about the NCG report, Global Zero co-founder and former nuclear missile officer Bruce Blair said those programs lack the sophistication of those of other nuclear states:
“They lack safety features and the risk they would detonate from an accident is uncomfortably high. They have not developed the safety features that the U.S. and Russia have.”
The report further recommends that all nuclear states adopt no-first-use policies, greatly improve methods of communication to reduce confusion among nations should a crisis erupt, and develop cybersecurity measures to guard against the hacking of nuclear operations.
Just when you thought the bizarre antics of famed ‘Pharma Bro’, Martin Shkreli, couldn’t get any more outrageous, along comes a new book detailing how he was almost “whacked” by members of the Wu-Tang Clan after a twisted scheme, which somehow also involved Bill Murray, went horribly wrong. According to the book, “Once Upon a Time in Shaolin: The Untold Story,” it all started when Shkreli bought Wu-Tang Clan’s infamous record, Once Upon a Time in Shaolin, for $2million.
Wu-Tang fans were outraged at the sale because Shkreli purchased the album for his own personal use and was explicitly prohibited from commercially releasing the record for all to enjoy.
Alas, the sale was apparently just a big scam designed to heighten interest in the record and make even more money. According to exclusive details from the Daily Mail, members of the Wu-Tang Clan had already plotted with Shkreli to stage a fake heist to ‘steal’ back the album, along with a little help from Bill Murray, from Shkreli’s home and then release it publicly. Here is how the original scheme was supposed to play out per the Daily Mail:
It’s claimed Cilvaringz then seized on a fake news story that had gone viral, falsely claiming there was a clause in the contract that allowed the Clan, or, randomly, actor Bill Murray, one attempt to steal back Once Upon a Time in Shaolin.
If the heist was successful, all rights reverted to the seller and the 88-year ban on commercial release was voided.
Cilvaringz, with an eagerly complicit Shkreli, set in motion a plan to make it happen, according to the book.
The robbery would be pulled off by RZA, GZA, Cilvaringz, Raekwon, Ghostface Killah, and Bill Murray, if he could be roped in.
The scheme was later hilariously turned into a musical production, aptly titled ‘Martin Shkreli’s Game: How Bill Murray joined the Wu-Tang Clan’.
Shkreli had planned to live stream the fake break-in of six masked men. But the robbery would fail.
Shkreli would then make his big announcement. If fans were so outraged by the private sale and the Clan was so determined to get the record back, he would sell 36,000 copies at an inflated price over 36 days.
If the sales objective was met, he would then release the album commercially.
Otherwise, the man who had already proved he’s a monster, would destroy it.
Shkreli would make a show of signing an amendment contract exonerating the heist crew of charges before allowing them into his house to repossess the record. And the profits would start rolling in.
But apparently Shkreli became enraged after a meeting with Wu-Tang’s Robert ‘RZA’ Diggs and went rogue in an interview with Hip Hop DX.
But Shkreli went rogue the day before his arrest and delivered a message so inflammatory it called for blood.
In an expletive-laced interview on Hip Hop DX, the biggest hip-hop site in the world, Shkreli ranted: ‘I bought the most expensive album in the history of mankind and f***king RZA is talking s**t behind my back… If I hand you $2million, f**king show me some respect.’
Shkreli told the site about his meeting with RZA at exclusive members club Soho House in Manhattan.
‘Motherf***er came in. He was late. We sat down for maybe 45 minutes at most. The guy is f**king full of himself, talking about how his s**t is the best ever… I’d encourage him to shut the f**k up before he goes a little too far.’
The very public embarrassment was apparently not well received by the Clan or it’s fans who then threatened retaliation…
‘No one had ever dissed RZA or the Clan like that. Ever. There had to be retaliation for this, whether it was through words, fists, or maybe even bullets from a Staten Island crew who wouldn’t let the Clan get dissed by this f**k.
‘There’s an awful lot of motherf**kers who’d be delighted to step to Martin first – no matter what anyone said. Man’s going down.’
Wu-Tang rose from streets of a Staten Island housing project in the 90s to rule hip-hop.
…all of which allegedly prompted Shkreli to plot a further escalation involving a video, some AK-47s and a murder threat.
He found out that only the arrest had stopped Pharma Bro from starting a gang war.
Shkreli had got hold of fake AK-47s and planned a video with his posse threatening the lives of the rest of the Clan.
His planned callout to the Clan included lines like, ‘A message to ODB (Ol’ Dirty Bastard). Make some room in heaven, because your brothers are about to join you.’
But, in the last twist of fate in this sordid tale, Shkreli was arrested by the FBI for securities fraud just before being able to record the video, a move which, according to the book, could have sparked a real life gang war and sealed his fate.
All of which could be true…or just another hyped up scheme designed to sell some books…what say you?
There seems to be some confusion among religious columnists as to what constitutes religious freedom and what does not.
In a recent column for Crisis, Thomas Ascik claims that the US Supreme Court's ruling inTrinity Lutheran v. Comer is a victory for "the free exercise of religion."
The ruling essentially states that church organization can now receive government grants for amenities and activities that are not specifically religious activities. In the case of Trinity Lutheran specifically, the church had applied for a government grant to repave its playground with recycled automobile tires.
The state of Missouri denied the grant to the church on the grounds that it was a religious organization. Now SCOTUS has ruled such exclusionary policies are unconstitutional.
That's fine as far as it goes. I have no more of a problem with Trinity Lutheran receiving state funds than with Secular Daycare Brand X receiving them. In both cases, the taxpayers have been ripped off and their money handed over to someone else. The fact that Trinity Lutheran is a church is not the problem in this equation.
But, let's not pretend that getting a government grant has anything to do with the free exercise of religion or religious liberty. In no way did the grant-selection process mean that Trinity Lutheran or its membership was prevented from freely exercising its faith. As a result of the grant going to some other organization, the building was not seized by the state, the members were not silenced, and the church's publications were not censored.
The claim that government grants are equal to freedom here is no more convincing than the claim made by certain feminists that a woman does not enjoy "personal freedom" unless the taxpayers pay for her contraception.
The truth here is that not receiving a government grant for something — whether it be contraception or the repaving of a playground — does not constitute a violation of rights.
On the other hand, when the state seizes money from private parties in the form of tax dollars, it does indeed restrict religious liberty.
For example, every tax dollar collected in taxes from the membership of Trinity Lutheran means one dollar fewer than the members can elect to donate to the church. Every dollar taxed means one dollar less to be spent on bibles, or hymnals, or a soup kitchen run by the church.
This fact illustrates why freedom of religion, like freedom of speech, is just another type of property right. After all, if the members of Trinity Luthern (or any other organization) are free from the impoverishing effects of taxation and regulation, then those very people will be more free to support the religious programs and communications they wish.
This is why Murray Rothbard preferred the precision of property rights to the vague — and thus more easily violated — "human rights" that pertain to speech and religion.
Take, for example, the "human right" of free speech. Freedom of speech is supposed to mean the right of everyone to say whatever he likes. But the neglected question is: Where? Where does a man have this right? He certainly does not have it on property on which he is trespassing. In short, he has this right only either on his own property or on the property of someone who has agreed, as a gift or in a rental contract, to allow him on the premises. In fact, then, there is no such thing as a separate "right to free speech"; there is only a man's property right: the right to do as he wills with his own or to make voluntary agreements with other property owners.
Applied to religion, property rights means that any group of people must be free to exercise their religion freely wherever the owner is willing to let them do it. Anyone who voluntary wishes to take part in a groups religious services must be free to do so and anyone who wishes to read religious materials distributed by the church must be free to accept it or buy it. Churches must be free to donate whatever materials or services they like to whomever they like. Provided the recipient freely accepts it.
Thus, no extra right to exercise religion is necessary when people's property rights are respected.
On the other hand, when church organizations — or anyone else — seeks to tax someone else in order to receive a "grant" then this is the exact opposite of religious liberty. It is nothing more than violating someone else's property to receive a free gift. The tax dollars taken from taxpayers to pay for the repaving of a playground are dollars that could have been used by those taxpayers to support their own religious causes, their own speech, and their own freedoms, all of which also stem from basic property rights.
Obviously, church organizations are no more guilty of this than the myriad of non-religious non-profits that live off taxpayer funds. And, Ascik has a point in noting that the state of Missouri's policies are inequitable. Indeed, if that grant money the Trinity Lutheran seeks ends up going to a militantly secularist organization that teaches people to despise Christians, then the taxpayers of Trinity Lutheran may actually be paying some other organization to attack them.
The answer to this problem isn't to give more grants to Trinity Lutheran, however. The answer is to end the grant program and the taxes that support it.
Real Threats to Religious Liberty
Ascik's final error is in confusing real threats to religious liberty with the fake threat found within Trinity Lutheran v. Comer.
Ascik does identify some:
In … Hosanna Tabor (2012), the Court unanimously held that federal disability law could not interfere in hiring decisions of a Lutheran churchand its school. And in the Hobby Lobby (2014) decision and the remand of the Little Sisters of the Poor case (2016) to the lower courts, the Supreme Court effectively ruled that Christian people must be allowed to live their faith all the time, including in business, not just on Sunday morning.
Ascik is correct there that all of these cases posed real threats to religious liberty. In each case, government regulations placed mandates on religious organizations that either directly violated the exercise of religion or hobbled the ability of a church organization to bring on personnel who reflected the values of the organization. Indeed, in the cases of Hobby Lobby and the Little Sisters, the government placed a direct mandate on a religious organization to pay for activities those organizations viewed as contrary to their religious views.
This is a true violation of the free exercise of religion.
But, in this case too, a simple respect for property rights solves the problem and does not require any special right of "religious freedom." All that is necessary is to allow organization to hire and fire whom they wish, and pay for whatever type of insurance they wish.
Similarly, these organizations could support their own cause by not asking the taxpayers to pay for their playgrounds or for any other free gift.
Developing: The World Trade Center PATH station in Manhattan has been evacuated and the NYPD’s bomb squad has been called into to investigate a “suspicious package” discovered on a PATH train. Authorities were alerted to the situation after Port Authority K-9s got a positive hit on a train. This story is developing.
Two weeks after Deutsche Bank’s whimsical, James Joycean derivatives strategist, Aleksandar Kocic disaggregated the market’s current sweeping complacency regime in a florid stream-of-consciousness report discussed last weekend, and warning that the market’s current “metastability” would lead to “cataclysmic events”, with a crash becomes increasingly more likely the longer price discovery in the market (one not propped up by Federal Reserve) is delayed, in his latest note from this week he takes on a more practical – if just as abstract – target; quantifying complacency, both in a market sense and as a metaphysical concept (long-term readers of Kocic are all too aware that when it comes to fusing markets and philosophy, mostly of the post-modernist bent, nobody even comes close).
While we offer readers a TL/DR, Cliff Notes recap at the end of this post for those with little patience for parallels between existentialist, information overload and the decay of the VXX, we urge following Kocic’ narrative, if for no other reason than to comprehend to what abstract levels of market intellectualization the current phase of market “breakage” – courtesy of central banks of course – has prompted such otherwise dry commentary as cross-asset derivative analysis.
We start with Kocic’s definition of “complacency”, which the DB explains “carries a negative connotation — there is something narcissistic about it. It implies unhealthy inward-looking perspective: One imagines of being in a better position than he really is, missing an opportunity to improve. When used in the market context complacency implies a state of comfort that is out of sync with perceived levels of risk. It is almost always identified with shortsightedness, a mistake associated with overlooking the long-term consequences. In the same way a boxer who drops his guard runs a risk of being knocked out, complacent markets are facing a potentially painful encounter with reality.”
With this brief detour into the fusion of trading and philosophy out of the way, Kocic then proceeds to do something nobody else has done before: quantify market complacency.
To do that, Kocic notes that at first one has to define the frame of reference of complacency. “Relative to what” should complacency – a conditional category that both reflects the absence of risk aversion and also is synonymous with taking on an unhealthy amount of risk – be quantified?
“In the same way risk aversion requires comparison of two independent measures of risk, complacency is defined relative to a perceived level of (unrealized) risk.”
As frequently happens in finance, Kocic uses a coin toss thought experiment to lay out the problem:
Consider a coin toss as an example. The physical probability between heads and tails is 50/50. However, any bets that involve coin toss as a decision instrument will always overweight probabilities of unfavorable outcomes. For example, if the payout of the gamble is $10 for the heads and $0 for the tails, no one would pay $5 (the expected value = 50% * $10 + 50%* $0) to play, but less than that, say $4. So, the actual price is evaluated as an expected value with 60/40 probability assignment (40%*$10 +60%*$0 = $4). This is the essence of risk aversion. Because the actual risk involved in a coin toss can be accurately determined, reweighting of probabilities which incorporate risk preferences can be measured precisely and quantified. The price of risk aversion is $1, the risk premium that is the difference between the expected price of $5 and the $4 at which it is traded.
Kocic then explains that he approaches the problem of quantifying complacency in the same way as we did for the risk premium in the coin toss example by comparing the two different measures of economic uncertainties: Economic policy uncertainty (EPU) index and VIX (implied S&P volatility).
Regular readers are familiar with the Economic Policy Uncertainty index which is constructed by counting the frequency of articles in ten leading US newspapers that contain three of the target terms: economy, uncertainty; and one or more of Congress, deficit, Federal Reserve, legislation, regulation or White House. These numbers are then properly normalized by their means and standard deviations of occurrence and combined into an aggregate index. As such, EPU is completely market independent (in the same way the mechanics of a coin toss is relative to any particular gamble).
And, as an alternative measure of risk, one that reflects the market prices, Kocic chooses the VIX, or simple equity volatility. The history of the two measures of uncertainty is shown in the Figure.
This is where things get interesting, because as the chart above shows, until 2012, for the most part both levels and spikes tend to be coordinated across two measures.
Intuitively, when VIX is in tune with EPU, the market is acknowledging the levels of risk through the prices. However, when VIX is low and EPU high, markets are complacent – they are underpricing risk. Spikes across different events are summarized in the Table (chronologically, from left to right).
While the two indices track each other well until 2011, that’s when something broke, or a Kocic puts it:
After 2011, the two measures of risk decouple with VIX consistently low despite growing uncertainty. The breakdown is structural, and it is visible across all market sectors, not only equities.
Having qualified complacency, the derivatives strategist then quantifies it:
In order to quantify market complacency, we compare the two measures in the following way. We regress EPU onto VIX until 2011 und treat the residuals as the measure of complacency. The two Figures show the EPU index overlaid with the regression scaled VIX and the residuals.
The visualization of the divergence between the VIX and the EPU, or what Kocic defines as “complacency”, is shown below:
This is where things get even more interesting, because by this measure, “it appears that the markets have made a structural shift towards higher levels of complacency in the last six years.” Here, Kocic reverts back to his old, cautious self, warning that this decoupling will end in tears. This is how he frames it:
Current levels of complacency are alarming. This is what everyone is talking about. Despite growing uncertainties and tensions, the market volatility refuses to rise. Persistence of low volatility is increasing the penalty for potential dissent and reinforces one sided positioning. As a consequence, the risk of disorderly unwind is growing. And the longer this regime continues, the lower the threshold of painful unwind. Currently, VIX at 15% is perceived as a problem although before the crises it had traded above 20% most of the time. Similar observations hold for rates gamma, currently around 60bp, compared to pre-crisis averages around 100bp.
Going back to our cleansing forest fire analogy (or rather lack thereof) we brought up last week, in which as Austrian economics posits it is imperative to burn the dry kindling in the forest periodically to avoid a conflagration, Kocic observes that sometime in 2012 the markets broke and it was as if “they lost their capacity to deal with uncertainty.”
But why? “Have the markets changed, or was it actual uncertainty that is different now? Is it our risk appetites or the “coin” that are different?”
At this point Kocic makes two key observations: one reason behind this decoupling between risk assets and uncertainty is that the market has been lulled into a quasi permanent sense of confidence thanks to central bankers, or as Kocic puts it, the “abnormalization of market volatility and turbocomplacency.” He explains:
The 2008 financial crisis represents a turning point in the way the markets have been pricing risk aversion, for the simple reason that during that episode the tail risk had been realized.
As a consequence, fear has gotten a new dimension. In the past, fear has always been treated as a sign of incompleteness, something one has to outgrow. After the crisis, fear has emerged as a new cognitive principle. And, as much as the Central Banks have tried (and succeeded) to reduce volatility, they did so by growing their balance sheet and, in that process, raised some red flags — after all, it was the excessive leverage of the households and banks balance sheet that led to the financial crisis. The warning sign about the tail risk became louder, so much so that tail risk became a buzz word of the second decade.
While Central Banks reassured the markets of their intent to do whatever it takes to support risk assets, their balance sheet growth and risk of future unwind remained persistent topic in media. They were perceived as a source of (latent) systemic risk; everyone wanted to play in that space and the street was eager to source it. At the same time, backed by the Central Banks’, risk assets became positively convex and continue to gain in value as well as their stability. The post-2012 rise in EPU and divergence from the declining VIX was the result of these developments.
But it’s not just central bankers: according to the DB strategist, as time progressed, traders simply learned to start drowning out negative news, information and developments. Call it the market’s “fake news” development, or as Kocic puts it: “Semiotic inflation: Informational overload and disappearance through proliferation.”
When it comes to complacency, the reference point analogous to the coin toss is not exact and not known ex-ante; it is based on perception not on actual levels of risk. In this way, complacency is an implicit judgment about the quality of information that reports the danger.
When information becomes a commodity, it takes very little time for it to lose its value. Unlike other (physical) commodities whose price is driven by diminishing supply, information markets are exact opposite — their essence is captured by diminishing demand. On one side, there is nothing to slow down its supply – it costs nothing to produce it. On the other, demand for information is biologically constrained by our capacity to absorb a limited amount of it. So, sooner or later, we have to reach a state of semiotic inflation where more information buys less meaning. The rate at which we reach this point depends only on the efficiency of the media. It is safe to say that in the last decade, especially the last five years, we have witnessed an accelerated approach to the state of super- fluid information flows.
This is when the positive feedback begins. When we operate under informational overload, we tend to defend ourselves by filtering excess information. It means that we are deliberately underplaying the importance of its content and implicitly questioning credibility of its sources. This can be perceived by those who observe us (our parents, guardians, parole officers, risk managers…) as troubling. And the more we ignore their warnings, the more they will be warning us. This is an example of disappearance due to proliferation: Filtering of the information forces its proliferation which is further ignored (we can’t absorb any more) and its production further reinforced until it is completely ignored and, therefore, invisible.
Think of the above as a thought experiment in which the boy repeatedly cries wolf, because he indeed sees a wolf, yet every time the wolf gets too close, central bankers “print” some ultrasound whistles and scare it away. Meanwhile, like in the story, any future warnings by the wolf boy are ignored even as the wolf gets hungrier and angrier, and one day nothing will be able to chase it away.
Which brings us to Kocic’s conclusion, which fuses his philosophical observations with what has become the most poignant chart of the new normal market – that showing the recent moves in the VXX and XIV::
“complacency and semiotic inflation have become two sides of the same coin. The abnormalization of market volatility is a function of both capitulation under informational overload and the moral hazard created by punitive costs of tail risk hedging in the carry trade environment. Nothing illustrates this better than the performance of the long (VXX) and short (XIV) VIX ETFs”
And, if Kocic is correct, nothing will better define the mean reversion of this abnormal market volatility regime than the explosion of volatility as a result of nearly a decade of pent up “abnormalization” and the traders’ realization that just because bad news was ignored since 2012, it never actually went away, but was simply swept under the carpet by panicking central bankers.
* * *
Finally, as promised earlier, here is the Cliff Notes version of the above:
Deutsche Bank has constructed a Complacency Index by comparing the existing Economic Policy Uncertainty Index with market implied volatility.
According to that measure, the markets have undergone a structural shift to a new phase of heightened complacency after 2012 where the underlying uncertainty remains continuously ignored and underpriced.
These effects become considerably more pronounced in the past 18 months with the complacency index rising by more than twice.
Deutsche Bank believes that this is a function of both capitulation under the informational overload and the moral hazard created by punitive costs of tail risk hedging in the carry trade environment.
This type of environment leads to misallocation of capital and buildup of one sided positioning and tail risk.
On 17th July 2017, India will elect a new President through a vote of the elected representatives. The two real choices are between Ram Nath Kovind and Meira Kumar. Afraid of looking completely ignorant, I asked a few people who Kovind is. No-one knew of him and people only vaguely remembered Ms. Kumar.
Adults and juveniles have been arrested in different parts of India for celebrating Pakistan’s victory over India in a recently held cricket match. They have been charged with sedition, a charge that has serious legal ramifications and can potentially send these people to prison for life. With the British gone for 70 years, India’s laws and institutions have lost all mooring to their rational anchors.
India will get a complete nobody as its next President. Both candidates are from the Indian province of Bihar. If it were a country, Bihar with its 119 million inhabitants would be the 12th most populated in the world. With a GDP of USD 420 per capita, it would also be among the world’s ten poorest countries.
A scene from a slum in Patna, Bihar’s capital.
Kovind is from the “lower caste” and is the choice of the Indian Prime Minister, Narendra Modi, who would like to make up for recent atrocities against the “lower caste”. While he is a nobody with hardly any public credentials and a yes-man to the system, Kovind is sympathetic to the cause of Hindu fanatics and has their support.
Why pull a passionate street fighter and rabble-rouser out of the street and place him in a position where he might compete with Modi for visibility? In a dystopia, being a nobody, having no personality, being a yes-man, having no passion for either money or a being a competitor for public visibility are “strengths” and qualifications.
The position of the Indian president is similar to that of the British Queen. It is a symbolic, but constitutionally crucial position. If the prime minister decides to impose martial law, he needs the president’s signature. With Kovind’s appointment, Modi will have installed the last yes-man he needed at the top of India’s institutions.
As I have suggested repeatedly in my earlier articles in this series, India is very rapidly moving towards becoming a police state, that will have Hindu fanaticism as its core identity.
The opposition party had to play the same game of chess to counter Modi’s move. So they picked another “lower caste” person from Bihar. She is another nobody, with no personality or spine except as a yes-woman to her backers.
To a populace not anchored to reason, if one votes for Hinduism, one will go for Kovind; and if one is pseudo-secular and wants to look pro-women, one will vote for Kumar. Kovind will very likely win for no other reason than the fact that Modi and his party BJP have higher support than Kumar.
Ram Nath Kovind, on the right, the next likely President of India, bowing and taking blessings from Yogi Adityanath, the Hindu fanatic Chief Minister of the Indian province of Uttar Pradesh
Cash is Back
I know many wealthy and so-called educated people who have never used a bank card. Many simply won’t trust a machine. Most are incapable of learning how to use the cards. With people tired of corrupt, untrustworthy and unpredictable banks and payment portals incapable of providing reliable services, cash is coming back with a vengeance.
The economy, however, continues to be stagnant. Businesses continue to fail. If not for economic reasons, businessmen have grown tired of corrupt and rapacious bureaucrats and an extremely uncertain regulatory regime. Look at an Indian businessman and you will see an unhealthy, tired, soulless person.
Even today, vegetables sell for half as much as they normally do. Are poor people going hungry? Do not expect news on this in the media, which must toe the line of the Indian government.
If food is so cheap, does it not indicate that poor people are unable to buy? Are they going hungry? Moreover, if farmers continue to suffer and cannot profit from their produce, what effect will that have on the future food supplies? [Ed. note: the collapse in food prices was originally triggered by the government’s overnight cash ban]
Money — even in fiat currency form — is the blood of the system. Once the blood flow was stopped, even if it is fully revived later, clots will have appeared and organs will have failed. That is happening in India today. Job growth was already stagnant, but the situation is much worse now, making India’s so-called demographic asset, which never was an asset, a massive liability.
Domino effects continue to work their way up the food chain. Formal and big businesses are beginning to show signs of stagnation. Members of the salaried middle class are losing their jobs, but they have so far failed to connect the dots and continue to support Modi.
The Digital Economy will Fail
In my last update on the demonetization fiasco, I explained why India’s attempts to go digital will fail. The Indian government’s attempt to force people to use banks and the plastic-card will fail. The attempt to enforce use of the national ID card will fail.
The reason is simple. If this digital technology actually made life in India easier, it would have been adopted without having to be brutally enforced by the government.
Big Brother has truly arrived – in India of all places. As the Hindustan Times reports, India’s government inter alia brazenly asserts that “privacy is not a fundamental right”. The cards are mandatory for all citizens, and since almost everything has to be linked to them (including bank accounts), no-one can afford not to apply for a card. As the Hindustan Times correctly notes: “Aadhar marks a fundamental shift in citizen-state relations: from ‘We the People’ to ‘We the Government’. If the rampant misuse of electronic surveillance powers and willful ignorance of the law by the state is any precedent, the future looks bleak”. [PT]
Indian e-commerce companies will fail. In my last update I wrote about a ticket that I paid for online but never received. After more than 10 weeks, no-one knows where the money is and I must send someone to the bank every day to follow up on it.
The national ID card, Aadhar, is now virtually compulsory. All your bank accounts, tax returns, utilities services, etc. must be linked to it, or you will find your accounts frozen and “services” (passport, driving license, etc.) provided by government monopolies will be denied to you.
There is no law that allows the government enforce such a requirement, and in the past India’s Supreme Court instructed the government that any such enforcement would be unlawful. But then the court suddenly went quiet, a sign that institutions are now toeing Modi’s line.
For now, data is getting leaked and fake Aadhar cards have already started to circulate. Dirt poor people who have no food or clothes are now expected to know what “phishing” is — cases of fraud are on the rise.
Aadhar adds nothing useful to the lives of Indians, but it is certainly a useful tool for the evolving police state. As I have said in earlier articles, an Indian police state will probably be more akin to Zimbabwe than Nazi Germany.
Revamping the Tax System
India is completely changing its indirect tax system. A GST system will be implemented on 1st July 2017. This was originally planned to replace a plethora of national and provincial taxes, and was an attempt to streamline the flow of transactions and to remove taxes-on-taxes.
With a mere week left for the GST to roll in, not only businesses don’t know how it works, people in working for the government haven’t a clue either. There are already seven different rates, depending not only on the the types of products, but also the prices of those products.
The documentation requirements will be massive, even for small businesses, with more than forty tax returns required every year. There will be all kinds of complexities associated with the movement of goods within a company and time limit on claims for input taxes on inventory. In-house documentation must be completed every evening, in case the tax authorities decide to pay a visit.
The GST system being rolled out is much more complex than the system that exists today. The horrific problems that demonetization created since November 2016 will likely look like a walk in the park compared to what comes after the GST is implemented. I have never seen Indian small businesses this scared.
Early experiments in setting government priorities [PT]
Even if the system were perfectly designed, there is simply an utter lack of skills in India; the human resources to administer this system don’t exist. There is failure written all over this scam scheme. The only safety valve are bribes, which will almost certainly increase.
While India is going through a lot of changes, astute readers may wonder how any of these changes are supposed to positively affect society. Why did India never focus on skills development, education and training, poverty alleviation, or the reduction of tyranny?
None of the above means that those suffering — which by now includes pretty much everyone, from the poorest to the richest — have turned against Modi. Quite to the contrary, Modi’s support base continues to increase relentlessly.
He has won one by-election after another. One must understand the core issues at play so as to avoid cognitive dissonance and confusion. Let’s untangle this mystery.
A Muslim woman is ruthlessly beaten up and forced to say words in praise of Hindu gods
Cows have become the symbol of Hindu fanatics. Lynchings of Muslims and people from the “lower castes” are becoming a daily event, as the genie of lawlessness is now out in the open and proliferating
The West and the Rest
India and many similarly poor and backward nations remain beyond comprehension until the reasons for the divide between them and the developed world is understood. Despite Europe interacting with India for the last 300 years or more, 50% of India’s citizens still don’t even have toilets. A similar number of people has still not discovered the concept of the wheel. Why?
Lead piping was already in use in the Roman empire 2,000 years ago. Lead and plastic piping to carry water supplies is now enormously cheaper, so why does a large proportion of the world still not have it? If nothing else, why can’t they at least transport water on simple wheels?
Rural open air public relief facility for those still lacking sanitation [PT]
Indian railways and the post office are pretty much exactly the way the British left them, except that their quality has fallen enormously. If one tries to compare railway maps of India in 1947, when the country became independent, with those of today, one will struggle to detect much positive change.
Since the British left in 1947, Indian institutions have frittered away, have become corrupted and corroded. It feels as if there was not only a failure to maintain them, but as if an effort was made to systematically destroy them.
Institutions of the rule of law and governance mostly no longer exist. During British colonial rule, members of India’s middle class at least emulated certain Western values, even if they failed to understand the underlying principles. There is now nothing to emulate or look up to.
Let’s get to the core issues at hand, to appreciate how entrenched and almost intractable this problem is and why without the British to run it, India will continue to degrade.
What distinguishes societies of Europe (and their offshoots) from those of most of the poor, backward world is the conspicuous lack of the concept of reason in the latter. Anyone interested in understanding development economics, international relations or diplomacy must understand this to start to connect the dots and to understand why the world works the way it does.
Without the glue of rationality, financial and intellectual capital does not accumulate. Whatever financial capital exists has a strong tendency to get frittered away. In a very small way, intellectual enlightenment was starting to blossom in India under British administration.
In the absence of the lubricant of reason that the British provided, the concept of ideas has ossified and has degenerated into fanaticism and the rationalization of superstitions.
The true cow connoisseur looks beyond milk to other liquids provided by the sacred bovines [PT]
The individual suffers from tyranny and the encroaching police state, but he more than enables tyranny through his own beliefs, ideas and actions. He can neither see the consequences of his actions and ideas, nor reflect on the reasons for his predicament.
Moral instincts are absent in such a dog-eat-dog society mostly run on base instincts. Such a society that cannot self-reflect lacks empathy and is dominated by envy in public matters. Christian missionaries and the colonial British infused India with the concept of reason to some extent, but despite hundreds of years of work they achieved only a very small positive change. Even this is now being undone.
Once one thinks this predicament of India through — the prevalence of irrationality — one realizes that India’s problems are so entrenched, they may not be solved in a millennium (using this word without any exaggeration). Assuming someone rational somehow gets to lead the country, that is.
Didn’t We Say So
Until recently the mainstream media in the West mostly presented a glorious picture of India. They supported demonetization, the implementation of GST and the national ID-card. Multicultural in their worldview, they believed that institutions that work in the West must also work in poor, backward societies.
In its 24th June 2017 edition, the Economist finally woke up to the problems and the systemic risks posed by rise in Hindu fanaticism and India’s prime minister Narendra Modi. Some of my readers have asked me if they have been in discussion with me. Alas, no, for if they had been they would also have woken up to the fact that Modi is merely a symptom of India’s problems. The real problem is much deeper, more entrenched, and largely unsolvable.
The real problem of India is Indians and their culture. Once one wakes up to the entrenched problem of Indian culture, with its deep roots in irrationality, tribalism and superstitions, one realizes that the situation will likely continue to deteriorate, and may even lead to civil war and India’s disintegration. An irrational culture left to its own devices invariably reverts back to its medieval past.
Trump’s True Friend?
With Indian institutions falling apart, Modi and Kovind stand no chance of staying in command for too long. Given their irrationality, they cannot see the massive risks they are creating against their own power and privilege.
As I write this in the last week of June 2017, Modi is on his way to Washington. In a tweet Trump has called Modi “a true friend.” Trump’s brand of “conservatism” may have US economic interests in mind and an understanding of the threat that immigration poses, but Modi’s “conservatism” has a totally different meaning: It is only about narrow-minded Hindu nationalism and tyranny.
Whether it likes it or not, the US will eventually get sucked in, as India continues to become more fanatic and hence more unstable – and eventually starts to fragment. Trump would do well to ignore Modi, to prevent Modi from marketing his welcome in the US in India as US support for his fanaticism.
Modi has no interest in India’s economy. Instinctively he is a bully and a tyrant. His dictatorial nature is becoming a catalyst hastening India’s downfall.
A greyhound racing track in Jacksonville, Florida, Bestbet Orange Park, and a trainer are in some serious trouble today after 12 dogs were found to be “coked up” during recent races, a discovery described as the “the largest greyhound drug case in American history.” Here is more from FirstCoast News:
First Coast News obtained records from the state Department of Business and Professional Regulation. They show at least 12 dogs in the care of trainer Charles McClellan tested positive for cocaine, for a total of 18 cases in 4 months. The state requires the winner of each greyhound race, as well as another randomly chosen dog, to be drug tested after races. Urine tests conducted by the University of Florida College on Medicine Racing Laboratory came back positive for BZE. McClellan is cited for a Class 1 drug violation for each positive test.
Bestbet officials declined requests for an interview. Through spokesperson Michael?Munz, the track released this statement:
“Bestbet Orange Park completely supports the swift action taken by the state in this matter and as always, fully cooperated with state officials as they conducted their random and routine tests. Bestbet Orange Park maintains a zero-tolerance policy for any trainer or staff member that does anything which puts one of the dog’s health at risk. In this instance, the process carried out by the state of Florida and the regulators was carefully followed under state law. The bottom line is, the system worked.”
Of course, greyhound activists aren’t as convinced that “the system worked.”
“This is the largest greyhound drug case in American history,” says Carey Theil, Executive Director of GREY2K USA in Arlington, Mass., a non-profit that opposes greyhound racing and monitors dog tracks around the country. “This is staggering.”
Carey Theil disagrees. “The track tells the public the dogs are ‘well taken care of at our facility: We’re making sure everything is fine.’ So they can’t have 18 greyhound cocaine violations and say, ‘oh, sorry, it’s not our responsibility.'”
According to Dr. Robert Aguiar, a veterinarian at First Coast No More Homeless Pets, cocaine has the potential to be fatal for a racing dog.
“These animals can go into heat stroke after the race and can collapse because their temperatures can reach 105 degrees,” he says.
And while veterinarians say there is no “conclusive” evidence that cocaine can help dogs win, the experience of Flicka, a dog which posted her two fastest times out of 169 races while ‘keyed up’, would seem to suggest that trainers may be ahead of the veterinarian science on this one.
Dr. Scott Stanley, a toxicologist with UC Davis School of Veterinary Medicine, says that while cocaine is a stimulant, there has been no evidence to support the claim that cocaine can help a greyhound win a race.
“There are no studies performed by reliable research investigators,” he said.
Theil says that while studies about cocaine in dogs may not be conclusive, he sees anecdotal evidence.
“We know the two fastest races of Flicka’s career were races which she tested positive for cocaine,” he says. “Let me be clear: She has 169 official races in her career. The two fastest times of her career are the two races in which she tested positive for cocaine. That’s incredibly disturbing.”
Meanwhile, video footage of Flicka’s latest race would suggest she had a little extra ‘pep in her step’ coming out of the gates…
Recently, a Spanish group called “Ecologist in Action” asked me to give them a presentation on what kind of financial crisis we should expect. They wanted to know when it would be and how it would take place.
The answer I had for the group is that we should expect financial collapse quite soon–perhaps as soon as the next few months. Our problem is energy related, but not in the way that most Peak Oil groups describe the problem. It is much more related to the election of President Trump and to the Brexit vote.
I have talked about this subject in various forms before, but not since 2016 energy production and consumption data became available. Most of the slides in this presentation use new BP data, through 2016. A copy of the presentation can be found at this link: The Next Financial Crisis.
Slide 1
Most people don’t understand how interconnected the world economy is. All they understand is the simple connections that economists make in their models.
Slide 2
Energy is essential to the economy, because energy is what makes objects move, and what provides heat for cooking food and for industrial processes. Energy comes in many forms, including sunlight, human energy, animal energy, and fossil fuels. In today’s world, energy in the form of electricity or petroleum makes possible the many things we think of as technology.
In Slide 2, I illustrate the economy as hollow because we keep adding new layers of the economy on top of the old layers. As new layers (including new products, laws, and consumers) are added, old ones are removed. This is why we can’t necessarily use a prior energy approach. For example, if cars can no longer be used, it would be difficult to transition back to horses. This happens partly because there are few horses today. Also, we do not have the facilities in cities to “park” the horses and to handle the manure, if everyone were to commute using horses. We would have a stinky mess!
Slide 3
In the past, many local civilizations have grown for a while, and then collapsed. In general, after a group finds a way to produce more food (for example, cuts down trees so that citizens have more area to farm) or finds another way to otherwise increase productivity (such as adding irrigation), growth at first continues for a number of generations–until the population reaches the new carrying capacity of the land. Often resources start to degrade as well–for example, soil erosion may become a problem.
At this point, growth flattens out, and wage disparity and growing debt become greater problems. Eventually, unless the group can find a way of increasing the amount of food and other needed goods produced each year (such as finding a way to get food and other materials from territories in other parts of the world, or conquering another local civilization and taking their land), the civilization is headed for collapse. We recently have tried globalization, with exports from China, India, and other Asian nations fueling world economic growth.
At some point, the efforts to keep growing the economy to match rising population become unsuccessful, and collapse sets in. One of the reasons for collapse is that the government cannot collect enough taxes. This happens because with growing wage disparity, many of the workers cannot afford to pay much in taxes. Another problem is greater susceptibility to epidemics, because after-tax income of many workers is not sufficient to afford an adequate diet.
Slide 4
A recent partial collapse of a local civilization was the collapse of the Soviet Union in 1991. When this happened, the government of the Soviet Union disappeared, but the governments of the individual states within the Soviet Union remained. The reason I call this a partial collapse is because the rest of the world was still functioning, so nearly all of the population remained, and the cutback in fuel consumption was just partial. Eventually, the individual member countries were able to function on their own.
Notice that after the Soviet Union collapsed, the consumption of coal, oil and gas collapsed at the same time, over a period of years. Oil and coal use have not come back to anywhere near their earlier level. While the Soviet Union had been a major manufacturer and a leader in space technology, it lost those roles and never regained them. Many types of relatively high-paying jobs have been lost, leading to lower energy consumption.
Slide 5
As nearly as I can tell, one of the major contributing factors to the collapse of the Soviet Union was low oil prices. The Soviet Union was an oil exporter. As oil prices fell, the government could not collect sufficient taxes. This was a major contributing factor to collapse. The collapse from low oil prices did not happen immediately–it took several years after the drop in oil prices. There was a 10-year gap between the highest oil price (1981) and collapse (1991), and a 5-year gap after oil prices dropped to the low 1986 price level.
Slide 6
Venezuela is often in the news because of its inability to afford to import enough food for its population. Slide 3 shows that on an inflation-adjusted basis, world oil prices hit a high point first in 2008, and again in 2011. Since 2011, oil prices slid slowly for a while, then began to slide more quickly in 2014. It is now nine years since the 2008 peak. It is six years since the 2011 peak, and about three years since the big drop in prices began.
One of the reasons for Venezuela’s problems is that with low oil prices, the country has been unable to collect sufficient tax revenue. Also, the value of the currency has dropped, making it difficult for Venezuela to afford food and other products on international markets.
Note that in both Slides 4 and 6, I am showing the amount of energy consumed in the countries shown. The amount consumed represents the amount of energy products that individual citizens, plus businesses, plus the government,can afford. This is why, in both Slides 4 and 6, the quantity of all types of energy products tends to decline at the same time. Affordability affects many types of energy products at once.
Slide 7
Oil importing countries can have troubles when oil prices rise, similar to the problems that oil exporting countries have when oil prices fall. Greece’s energy consumption peaked in 2007. One of Greece’s major products is tourism, and the cost of tourism depends on the price of oil. When the price of oil was high, it adversely affected tourism. Exported goods also became expensive in the world market. Once oil prices dropped (as they have done, especially since 2014), tourism tended to rebound and the financial situation became less dire. But total energy consumption still has still tended to decline (top “stacked” chart on Slide 7), indicating that the country is not yet doing well.
Slide 8
Spain follows a pattern similar to Greece’s. By the mid-2000s, high oil prices made Spain less competitive in the world market, leading to falling job opportunities and less energy consumption. Since 2014, very low oil prices have allowed tourism to rebound. Oil consumption has also rebounded a bit. But Spain is still far below its peak in energy consumption in 2007 (top chart on Slide 8), indicating that job opportunities and spending by its citizens are still low.
Slide 9
We hear much about rising manufacturing in the Far East. This has been made possible by the availability of both inexpensive coal supplies and inexpensive labor. India is an example of a country where manufacturing has risen in recent years. Slide 9 shows how rapidly energy consumption–especially coal–has risen in India.
Slide 10
China’s energy consumption grew very rapidly after it joined the World Trade Organization in 2001. In 2013, however, China’s coal consumption hit a peak and began to decline. One major contributor was the fact that the cheap-to-consume coal that was available nearby had already been extracted. The severe problems that China has had with pollution from coal may also have played a role.
It might be noted that the charts I am showing (from Mazamascience) do not include renewable energy (including wind and solar, plus burned garbage and other “renewables”) used to produce electricity. (The charts do include ethanol and other biofuels within the “oil” category, however.) The omission of wind and solar does not appear to make a material difference, however. Figure 1 shows a chart I made for China, comparing three totals:
(1) Opt. total (Optimistic total) – Totals on the basis BP computes wind and solar. Intermittent wind and solar electricity is assumed to be equivalent to high quality electricity, available 24/7/365, produced by fossil fuel electricity-generating stations.
(2) Likely totals – Wind and solar are assumed to replace only the fuel that creates high quality electricity. The amount of backup generating capacity required is virtually unchanged. More long distance transmission is needed; other enhancements are also needed to bring the electricity up to grid-quality. The credits given for wind and solar are only 38% as much as those given in the BP methodology.
(3) From chart – Mazamascience totals, omitting renewable sources of electricity, other than hydroelectric.
Figure 1. China energy consumption based on BP Statistical Review of World Energy 2017.
It is clear from Figure 1 that adding electricity from renewables (primarily wind and solar) does not make much difference for China, no matter how wind and solar are counted. If they are counted in a realistic manner, they truly add little to China’s energy use. This is also true for the world in total.
Slide 11
If we look at the major parts of world energy consumption, we see that oil (including biofuels) is the largest. Recently, it seems to be growing slightly more quickly than other energy consumption, perhaps because of the low oil price. World coal consumption has been declining since 2014. If coal is historically the least expensive fuel, this is likely a problem. I have not shown a chart with total world energy consumption. It is still growing, but it is growing less rapidly than world population.
Slide 12 – Note: Energy growth includes all types of energy. This includes wind and solar, using wind and solar counted using the optimistic BP approach.
Economists have given the false idea that amount of energy consumption is unimportant. It is true that individual countries can experience lower consumption of energy products, if they begin outsourcing major manufacturing to other countries as they did after the Kyoto Protocol was signed in 1997. But it doesn’t change the world’s need for growing energy consumption, if the world economy is to grow. The growth in world energy consumption (blue line) tends to be a little lower than the growth in GDP (red line), because of efficiency gains over time.
If we look closely at Slide 12, we can see that drops in energy consumption tend to precede drops in world GDP; rises in energy consumption tend to precede rises in world GDP. This order of events strongly suggests that rising energy consumption is a major cause of world GDP growth.
We don’t have very good evaluations of GDP amounts for 2015 and 2016. For example, recent world GDP estimates seem to accept without question the very high estimates of economic growth given by China, even though their growth in energy consumption is very much lower in 2014 through 2017. Thus, world economic growth may already be lower than reported amounts.
Slide 13
Most people are not aware of the extreme “power” given by energy products. For example, it is possible for a human to deliver a package, by walking and carrying the package in his hands. Another approach would be to deliver the package using a truck, operated by some form of petroleum. One estimate is that a single gallon of gasoline is equivalent to 500 hours of human labor.
“Energy consumption per capita” is calculated as world energy consumption divided by world population. If this amount is growing, an economy is in some sense becoming more capable of producing goods and services, and thus is becoming wealthier. Workers are likely becoming more productive, because the additional energy per capita allows the use of more and larger machines (including computers) to leverage human labor. The additional productivity allows wages to rise.
With higher incomes, workers can afford to buy an increasing amount of goods and services. Businesses can expand to serve the growing population, and the increasingly wealthy customers. Taxes can rise, so it is possible for governments to provide the services that citizens desire, such as healthcare and pensions. When energy consumption growth per capita turns negative–even slightly so–these abilities start to disappear. This is the problem we are starting to encounter.
Slide 14 – Note: Energy percentage increases include all energy sources shown by BP. Wind and solar are included using BP’s optimistic approach for counting intermittent renewables, so growth rates for recent years are slightly overstated.
We can look back over the years and see when energy consumption rose and fell. The earliest period shown, 1968 to 1972, had the highest annual growth in energy consumption–over 3% per year–back when oil prices were under $20 per barrel, and thus were quite affordable. (See Slide 5 for a history of inflation-adjusted price levels.) Once prices spiked in the 1973-1974 period, much of the world entered recession, and energy consumption per capita barely rose.
A second drop in consumption (and recession) occurred in the late 1970s and early 1980s, when easy-to-adopt changes were made to cut oil usage and increase efficiency. These included
(a) Closing many electricity-generating plants using oil, and replacing them with other generation.
(b) Replacing many home heating systems operating with oil with systems using other fuels, often more efficiently.
(c) Changing many industrial processes to be powered by electricity instead of burning oil.
(d) Making cars smaller and more fuel-efficient.
Another big drop in world per capita energy consumption occurred with the partial collapse of the Soviet Union in 1991. This was a somewhat local drop in energy consumption, allowing the rest of the world to continue to grow in its use of energy.
The Asian Financial Crisis in 1997 was, in some sense, another localized crisis that allowed energy consumption to continue to grow in the rest of the world.
Most people remember the Great Recession in the 2007-2009 period, when world per capita growth in energy consumption briefly became negative. Recent data suggests that we are almost in the same adverse situation now, in terms of growth in world per capita energy consumption, as we were then.
Slide 15
What happens when growth in world per capita energy consumption slows and starts to fall? I have listed some of the problems in Slide 15. We start seeing problems with low wages, particularly for people with low-skilled jobs, and the type of political problems we have been experiencing recently.
Part of the problem is that countries with a high-priced mix of energy products start to find their goods and services uncompetitive in the world marketplace. Thus, demand for goods and services from these countries starts to fall. Greece and Spain are examples of countries using a lot of oil in their energy mix. As a result, they became less competitive in the world market when oil prices rose. China and India were favored because they had a less-expensive energy mix, favoring coal.
Slide 16
Slide 16 shows the kinds of comments we have been hearing in recent years, as prices have recently bounced up and down. It is becoming increasingly clear that no price of oil is now satisfactory for all participants in the economy. Prices are either too high for consumers, or too low for the producers. In fact, prices can be unsatisfactory for both consumers and producers at the same time.
On Slide 16, oil prices show considerable volatility. This happens because it is difficult to keep supply and demand exactly balanced; there are many factors determining needed price level, including both the amount consumers can afford and the costs of producers. The bouncing of prices up and down on Slide 16 is to a significant extent in response to interest rate changes, and resulting changes in currency relativities and debt growth.
We are now reaching a point where no interest rate works for all members of the economy. If interest rates are low, pension plans cannot meet their obligations. If interest rates are high, monthly payments for homes and cars become unaffordable for customers. Also, high interest rates tend to raise needed tax levels for governments.
Slide 17
All of these problems are fairly evident already.
Slide 18
The low level of energy consumption growth is of considerable concern. It is this low growth in energy consumption that we would expect to lead to low wage growth worldwide, especially for the non-elite workers. Our economy needs more rapid growth in energy consumption to provide enough tax revenue for all of our governments and intergovernmental organizations, and to keep the world economy growing quickly enough to prevent large debt defaults.
Slide 19
Economists have confused matters for a long time by their belief that energy prices can and will rise arbitrarily high in inflation-adjusted terms–for example $300 per barrel for oil. If such high prices were really possible, we could extract all of the oil that we have the technical capacity to extract. High-cost renewables would become economically feasible as well.
In fact, affordability is the key issue. When the world economy is stimulated by more debt, only a small part of this additional debt makes its way back to the wages of non-elite workers. With greater global competition in wages, the wages of these workers tend to stay low. The limited demand of these workers tends to keep commodity prices, especially oil prices, from rising very high, for very long.
It is affordability that limits our ability to grow endlessly. While it is possible to argue that more debt might help raise the wages of non-elite workers in a particular country, if one country adds more debt, other currencies around the world can be expected to rebalance. As a result, there would be no real benefit, unless all countries together could add more debt. Even this would be of questionable value, because the whole effort relates to getting oil and other commodity prices to rise to an adequate level for producers; we have already seen that there is no price level that is satisfactory for both producers and consumers.
Slide 20
These symptoms seem to be already beginning to happen.
Despite President Trump's ever-optimistic overtures that something 'great' will happen with the GOP healthcare reform bill, Senator Rand Paul is dropping some painful truth bombs this morning on Fox News, warning "I don't think we're getting anywhere with the bill we have."
Senate Republicans decided last week to delay a vote on their healthcare bill after it became clear it lacked the votes for passage. But, as The Hill reports, Paul, who has been a vocal critic of the Senate's healthcare bill, does not see any light at the end of this tunnel…
"We're at an impasse," he said. "So right now this bill, which is not a repeal, has become the kitchen sink.
"The bill is just being lit up like a Christmas tree full of billion-dollar ornaments," he added.
Paul suggested that the ObamaCare repeal and replace bills be separated.
"Let's do clean repeal like we've promised," he said.
"You can have a simultaneous bill or a concurrent bill that they can call replace."
Paul said he wants repeal to work.
"And the way you do it is you separate it into two bills and you do it concurrently," he said.
When asked whether he thinks the Senate should work through its August recess to get the healthcare bill done, Paul said, "I'd rather get it done even before that."
