Category: zerohedge

Authored by Gail Tverberg via Our Finite World blog,

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.

Most people don’t understand how interconnected the world economy is. All they understand is the simple connections that economists make in their models.

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!

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 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.

All of these problems are fairly evident already.

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.

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.

These symptoms seem to be already beginning to happen.

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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."

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Presented with no comment…

 

Source: Townhall.com

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Originally published on DailyKanban.com,

Under Elon Musk’s leadership Tesla’s Model X arrived two years late and subjected the company to six months of self described production hell, only to tie for last place in Consumer Reports’ luxury SUV ratings with a score of 59/100 (Nov 2016). Delays for the falcon winged albatross will allow the Chevy Bolt and second-generation Nissan Leaf to both beat the Model 3 to widespread availability by the end of the year. Tesla’s quality has been poor, the UAW is circling, and Mr. Musk recently tweeted about mixing alcohol and Ambien (zolpidem) — a drug combination not only dangerous in its own right, but that increases the risk of long-term zolpidem addiction. How is this man still Tesla’s CEO?

Yesterday’s Credit, Meet Today’s Criticism

Tesla would not be where it is today without Mr. Musk, who, after agreeing to lead the Series A venture funding round in April 2004, began shaping the company around his singular vision, turning it into one of the world’s most valuable automakers.

What’s more, Tesla’s stock would be nowhere near today’s levels if Mr. Musk had stepped aside as CEO in favor of an industry executive during the development of the Roadster, Model S, or Model X.

But Tesla’s finances and operations would be in better shape, and it would not have needed all of the five capital raises it has sought in the past five years; cash without which the company would have gone bankrupt. And while the company has had ample access to financing, that may not be the case forever; what the market giveth, the market also taketh away.

None the less Tesla the stock has waxed, even as Tesla the company has waned, giving us a business case study worthy of The Picture of Dorian Gray, with shareholders blessing Mr. Musk with all time high share prices, even as he has cursed Tesla with troublesome burdens. Here are three of the heaviest.

 

Toyota Taunting Trouble

Tesla’s biggest missed opportunity came from wasting the chance to learn from Toyota how to efficiently manufacture and design vehicles during their ill fated partnership. Given how much Tesla stood to gain, it was inexcusable for Mr. Musk to have called fuel cells so bullshit when a respectful disagreement would have been sufficient.

For all his recent bluster about “the machine that makes the machine” (Tesla’s only-robots vision was first disclosed on 31 May 2016, about ten days after the UAW publicly expressed interest in organizing the Fremont facility) Mr. Musk appears unaware that Toyota invented that machine seventy years ago. One of the canonical books on the Toyota Production System (TPS) is even titled The Machine That Changed The World.

For more than thirty years Toyota has shown its inner workings to other companies, even auto industry competitors, confident that its competitive advantage lies not in specific work practices but in the continuous improvement-focused culture it has developed.

As a result, every major automaker has long since adopted TPS (under the name of lean production) in full or in part, with Tesla being the lone exception, as is clear from interviews with workers describing a corporate culture where hitting the production numbers is paramount in importance, even if defects sail through, impairing early adopters’ user experience with vehicle flaws and mounting service center wait times.

This bears repeating. Faced with the choice of impressing customers but disappointing Wall Street or impressing Wall Street and disappointing its customers, Tesla has consistently prioritized Wall Street, as evidenced by the production rush at the end of each quarter for the past few years.

As its long time, hands on, nano manager CEO, Mr. Musk is responsible for Tesla’s culture of putting its (end of quarter) customers second; he must also ultimately bear the responsibility for Tesla spurning the chance to learn the craft of quality from the industry’s master, condemning it to tens (and perhaps hundreds) of millions of dollars of otherwise avoidable warranty expenses. This would have saved Mr. Musk and Tesla both the distraction of going on an annual Tour de Finance to refill the company treasury. In this regard, any other choice of CEO would have done better, and Mr. Musk has been sorely below average.

 

The X Factor

While Tesla’s Toyota troubles are ancient history, the Model X has been a more current catastrophe. Let us suppose for a moment that for the Model X, Mr. Musk had stepped back from Tesla in favor of an auto-industry executive; what might have happened?

Timelines and testing are both very important in the auto industry, so the Model X would have largely been on-time, arriving perhaps in 2014; to reduce quality risks, it might have shared 70% of its parts with the Model S, instead of having 70% new parts; the falcon wing doors would certainly have been cancelled (saving time and money) and a more pragmatic design would have helped it outsell its sedan cousin (as most crossovers do), generating billions of dollars of revenue and hundreds of millions of gross profits to fund Model 3 development. Finally and most importantly, the 3 would have soundly beaten the Chevrolet Bolt to market.

The scenario above has a major flaw of course in that it did not happen, and a Mr. Musk fan might propose that the auto executive would have steered the Model X into even worse delays and still lower ratings than actually occurred. So let us reverse the exercise.

This time, let us suppose that Mr. Musk had stepped back in favor of a new product architect (Mr. Hugh) and a new CEO (Mr. Briss) and that the Model X development proceeded as it did in real life.

Would Mr. Musk have defended the product architect if Mr. Hugh’s insistence on vanity doors and seats had delayed more than billions of dollars of revenue, or would Mr. Hugh have been fired?

Would Mr. Musk have stood up for a CEO under whose watch these cost overruns, delays and then production hell occurred, or would the Board of Directors have shown Mr. Briss the door long before the first very-belated Model X rolled off the production line?

Given how the Model X turned out, if Mr. Musk were any other person on the planet, would he still be employed by the company? There have been recent calls to reform Tesla’s governance – given the above, would Mr. Musk have survived the cross examination of an independent Board? If so, how badly would he have to underperform to be relieved of his duties? If the Model 3 ramps up late, receives tepid reviews and only one-half of the 500,000 reservations convert to sales, would that still be acceptable? The heartworm of the problem is that until now, Mr. Musk has gotten what he wanted, but what Mr. Musk wants may not be what Tesla needs.

As we all know Mr. Musk has kept both his jobs, which is still more remarkable, considering that the Model S and Roadster were also late. Not only that, Mr. Musk received full credit for his Model X milestone stock awards, which were based on the delivery of an alpha vehicle, beta vehicle and the beginning of production (see page 29 at this link). Neither timeline nor manufacturing quality nor Consumer Reports ratings nor workplace safety were factors in these incentives, so is it any wonder Mr. Musk’s focus was elsewhere? An impartial Martian might conclude the Model X was a company endangering catastrophe for Tesla, but based on his stock awards, Mr. Musk performed flawlessly.

It is true that market capitalization milestones also need to be reached for Musk to receive his stock grants, and this has created perverse incentives; why else would Tesla sacrifice product quality (and new customers’ experience) at the end of each quarter, just to keep Wall Street happy by beating production projections?

Focusing overly on the stock price would also explain Tesla’s preference for splashy announcements and undertakings – generally quietly withdrawn or scaled back at a later date – when more mundane investments would do far more to strengthen the company. Hyping “the machine that makes the machine” probably increased Tesla’s market capitalization far, far more than reading The Machine That Changed The World, but learning from The Machine That Changed The World would improve Tesla’s operations far, far more than talking up “the machine that makes the machine”.

The skeptical view of the Model X is that the drawn out fiasco has cost Tesla its early lead in electric vehicles. Indefensible design choices causing high rework rates during production hell almost certainly meant lots of overtime, leading to fatigue, leading to higher injury rates, leading to conversations between Fremont workers and the UAW. There is a straight line between Mr. Musk’s terrible Model X design choices and the unionization efforts at the Fremont facility, and what is more, being both product architect and CEO, he is doubly culpable for the labor unrest. Can Tesla afford to give him another chance? Should it?

Residential solar is so bullshit

Mr. Musk’s comment about fuel cells being so bullshit came when he explained that fuel cells are about one-third as efficient as batteries at turning zero emission electricity into forward motion, which is true. Every dollar spent on renewable electricity gets you three times as far on a battery electric vehicle. So why waste time on fuel cells? They’re bullshit.

As it is, solar power comes in two main flavors: residential and utility scale. Mr. Musk was the chair of SolarCity, the world’s leading residential solar installer, which achieved segment-leading costs slightly under $3/watt at a time when utility scale solar projects were coming in a bit above $1/watt. Every dollar spent on utility scale solar projects got you almost three times as much renewable electricity. So why waste time on residential solar? It must be bullshit, right?

Whether or not Musk cared about the hypocrisy of dismissing fuel cells while chairing a residential solar company, he regularly dominates the news cycle, keeping Tesla in the public eye, and supporting interest in the stock; President Donald Trump is not the only outrageously outspoken, Twitter happy, model marrying Wharton Business School graduate to generate millions in unpaid publicity for his endeavours. I would like to credit the Twitter user @eriz35 for pointing out those similarities and others.

On its own, Mr. Musk’s recent championing of Tesla’s upscale residential solar roof would not be worrisome, because everyone deserves hobbies. Unfortunately it is not on its own, as Mr. Musk’s non automotive time commitments now include Tesla’s solar and energy storage businesses, The Boring Company, OpenAI, Neuralink, involvement in the Hyperloop community, a full-time CEO role at SpaceX, his role as Tesla’s product architect, alcohol and Ambien™  enhanced tweeting, and a growing repertoire of celebrity appearances.

However hard driving a workaholic Mr. Musk may claim to be, he is definitely spending less time as an auto company CEO than his competition is doing, and it takes an egregious amount of hubris to believe one can run an car company as a part time CEO against focused global titans with full time CEO’s who are willing and able to wage wars of attrition. One must hope that Tesla can weather the storm when it comes, because to this point its finances have not been planned with prudence in mind.

 

Mr. Musk Must Set Tesla Free

Without Mr. Musk, Tesla would not be where it is today; Eberhard and Tarpenning might have floundered for years without funding, and only Nissan would have released an electric vehicle outside California. (One suspects that Jeff Bezos would have eventually stepped in, much as he did with space exploration firm Blue Origin and nuclear startup General Fusion.) Mr. Musk benefited Tesla tremendously in its early years.

His recent record, however, has been unimpressive, unsatisfactory, and in the case of the Model X, unacceptable. His obsessive pursuit of a falcon winged white whale has shipwrecked Tesla’s electric car leadership – a lucky fluke for GM and Nissan, who will take aggressive advantage. Even BMW has taken advantage of the delay to announce the unveiling of an all electric series 3 in September. A mania for moonshots has ramped up Tesla’s financial commitments, five capital raises have not been sufficient to put the company on firm financial footing, and Mr. Musk likely spends fewer hours per week tending Tesla than do his auto CEO peers with their firms.

In short, Elon Musk has gone from Tesla’s greatest asset to its biggest liability, from the one whose zeal pushed it forward, to the one whose self same zeal is now holding it back (in all aspects except for the stock price).

For Tesla to become self funding and sustainable, it needs a pragmatic CEO who under promises and over delivers, and who can reshape the company into an efficient, modern automotive manufacturer. That CEO will need the freedom to make possibly unpopular decisions without interference or mixed messaging from its iconic principal shareholder, and that will not happen unless Mr. Musk is willing to step away and relinquish control; willing to be ignored by his CEO, overruled by an independent Board, and sidelined at new product announcements.

This is the familiar experience of every parent who knows that for their kids to grow, they need to learn to let them go; as dear as it is to his heart, and as eager as he is to help it succeed, if Mr. Musk truly loves Tesla, he must set it free.

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The writing has been on the wall for months, but German lawmakers have now passed a controversial law under which Facebook, Twitter, and other social media companies could face fines of up to €50 million ($57 million) for failing to remove hate speech.

As AP reports, the measure approved is designed to enforce the country’s existing limits on speech, including the long-standing ban on Holocaust denial. Among other things, it would fine social networking sites if they persistently fail to remove illegal content within a week, including defamatory “fake news.”

“Freedom of speech ends where the criminal law begins,” said Justice Minister Heiko Maas, who was the driving force behind the bill.

Under the law, social media companies would face steep fines for failing to remove “obviously illegal” content — including hate speech, defamation, and incitements to violence — within 24 hours. They would face an initial fine of €5 million, which could rise to €50 million. Web companies would have up to one week to decide on cases that are less clear cut.

Aside from the hefty fine for companies, the law also provides for fines of up to 5 million euros for the person each company designates to deal with the complaints procedure if it doesn’t meet requirements.

Social networks also have to publish a report every six months detailing how many complaints they received and how they dealt with them.

Maas said official figures showed the number of hate crimes in Germany increased by over 300 percent in the last two years.

But human rights experts and the companies affected warn that the law risks privatising the process of censorship and could have a chilling effect on free speech.

“This law as it stands now will not improve efforts to tackle this important societal problem,” Facebook said in a statement.

 

“We feel that the lack of scrutiny and consultation do not do justice to the importance of the subject. We will continue to do everything we can to ensure safety for the people on our platform,” the company said, noting that it is hiring 3,000 additional staff on top of 4,500 already working to review posts.

In an interview with Breitbart London, the CEO of Index on Censorship, Jodie Ginsburg, said:

"Hate speech laws are already too broad and ambiguous in much of Europe. This agreement fails to properly define what 'illegal hate speech' is and does not provide sufficient safeguards for freedom of expression.

 

"It devolves power once again to unelected corporations to determine what amounts to hate speech and police it — a move that is guaranteed to stifle free speech in the mistaken belief this will make us all safer. It won't. It will simply drive unpalatable ideas and opinions underground where they are harder to police — or to challenge.

 

"There have been precedents of content removal for unpopular or offensive viewpoints and this agreement risks amplifying the phenomenon of deleting controversial — yet legal — content via misuse or abuse of the notification processes."

A coalition of free speech organizations, European Digital Rights and Access Now, announced their decision not to take part in future discussions with the European Commission, saying that "we do not have confidence in the ill-considered 'code of conduct' that was agreed." A statement warned:

"In short, the 'code of conduct' downgrades the law to a second-class status, behind the 'leading role' of private companies that are being asked to arbitrarily implement their terms of service. This process, established outside an accountable democratic framework, exploits unclear liability rules for online companies. It also creates serious risks for freedom of expression, as legal — but controversial — content may well be deleted as a result of this voluntary and unaccountable take-down mechanism.

 

"This means that this 'agreement' between only a handful of companies and the European Commission is likely in breach of the EU Charter of Fundamental Rights (under which restrictions on fundamental rights should be provided for by law), and will, in practical terms, overturn case law of the European Court of Human Rights on the defense of legal speech."

Writing for Gatestone Institute, British commentator Douglas Murray noted that this assault on "racist" speech "appears to include anything critical of the EU's current catastrophic immigration policy." He wrote:

"By deciding that 'xenophobic' comment in reaction to the crisis is also 'racist,' Facebook has made the view of the majority of the European people (who, it must be stressed, are opposed to Chancellor Merkel's policies) into 'racist' views, and so is condemning the majority of Europeans as 'racist.' This is a policy that will do its part in pushing Europe into a disastrous future.

Janice Atkinson, an independent MEP for the South East England region, summed it up this way: "It's Orwellian. Anyone who has read 1984 sees its very re-enactment live."

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Authored by Chris Martenson via PeakProsperity.com,

 

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While Bob Woodward is more stoic in his public discussion of the predicament this nation finds itself in (lambasting the 'fake news' media rather than directing his ire at the body politik), his partner in un-crime, legendary Watergate reporter Carl Bernstein, called the Trump administration a "malignant presidency" on Saturday, and suggested that the wrongdoings committed by the White House were unprecedented.

Journalism legend Carl Bernstein on President Trump: "We have never been in a malignant presidency like this before" https://t.co/847szAUDhk http://pic.twitter.com/OBPUajeqzf

— CNN Politics (@CNNPolitics) July 1, 2017

Speaking on CNN, The Hill reports that Bernstein warned that the Trump administration is "not functioning," and appears to hint at a 'soft coup' amid the nation's deep state…

"We are in the midst of a malignant presidency," Bernstein said. "That malignancy is known to the military leaders of the country, it's known to the Republican leadership in Congress who recognize it, and it's known to the intelligence community."

 

"The presidency of Donald Trump is not functioning," he continued. "It's really not functioning because the character and capabilities of this president are called into grave question in a way that those that know him are raising serious concerns about."

While Bob Woodward warned the "smug" media against "hyperventilating" over Trump, Bernstein suggested Trump was the "greatest journalistic challenge of the modern era."

"To report on a malignant presidency, what it means, and where it's going," he said. "This president is not in control of the presidency in a way that it is functioning."

 

"That has got our leaders worried, they are worried about his character, they are worried about his temperament," Bernstein said.

 

"We are in foreign territory. We have never been in a malignant presidency like this before."

As a reminder, Woodward previously warned that it’s not in the interest of either the Trump White House or the media to war with each other.

"I think everyone has accelerated this work. The other question to ask, is there any justification for Trump and people like — in his White House responding this way? And the only justification I can think of, which really isn’t a justification, but it accounts for emotional spasm of, my God, this is enemy of the people, I know that reporters have talked to people in the Trump house, — Trump White House about very sensitive intelligence operations, that we find out about in the press. And I think Trump is horrified that this is out there. And these are not necessarily things that are going to be published, but Trump is a newcomer saying, my God how do reporters know about these things? And so it’s — we’ve got to stop it.” 

 

“[I]t’s not in our interest, the media’s interest to have a war with the Trump White House. It’s not in Trump’s interest to have this war.”

Sadly, it appears it's too late to get this toothpaste back in the tube (for both sides).

via http://ift.tt/2sBaHLQ Tyler Durden

Authored by Mike Shedlock via MishTalk.com,

Total capitulation by Governor Bruce Rauner is in the works. The taxoholics wore him down.

In the emergency session, Rauner has agreed to hike the personal income tax rate to 4.95% from the current 3.75%. The corporate income tax rate will rise to 7% from the current 5.25% rate.

For what? Nothing. Reforms are non-existent.

Another Deadline Come and Gone

Illinois failed to approve a budget today and thus heads into its third fiscal year without one.

A vote has been scheduled for Sunday.

I do not expect your opinion will matter, but in the slim chance I am wrong, Please Email Your Representative voicing displeasure of the tax hike.

The preceding link will find your rep based on your address.

Rule of Nothing

A zombified Rauner has capitulated in every way but the final signing.

Tax hikes have been agreed to with no reforms in return.

The Rule of Nothing is clearly in play.

Rule of Nothing

 

In any given political situation, the best outcome one can reasonably expect generally happens when politicians do nothing.

 

Implied corollary#1: When politicians attempt to fix any problem, they are highly likely to make matters worse.

 

Corollary #2: Politicians almost never do nothing. It’s why we have a messed up healthcare system, education system, public pension system, etc..

Taxoholics Win Again

Chicago schools will not get fixed. The hikes will not shore up pension plans.

Within one month of tax hikes, public unions will ask for more money. And people will leave the state. So will corporations.

Rauner pledged 44 reforms. He is 0-44 on his pledges.

The property tax freeze currently under debate has so many holes it is as useful as a bucket with no bottom.

Trading tax hikes for nothing is a horrible deal. Nonetheless, the taxohalics won again.

More business flight and human capital flight is the guaranteed outcome. Doing nothing at all would have been a far better outcome.

via http://ift.tt/2tEKLnq Tyler Durden

Just when you thought American politics couldn’t get much more surreal, this happened:

#FraudNewsCNN #FNN http://pic.twitter.com/WYUnHjjUjg

— Donald J. Trump (@realDonaldTrump) July 2, 2017

 

Of course, this latest “big league” video came after Trump launched yet another tweet storm last night blasting the media.

….the 2016 election with interviews, speeches and social media. I had to beat #FakeNews, and did. We will continue to WIN!

— Donald J. Trump (@realDonaldTrump) July 1, 2017

I am thinking about changing the name #FakeNews CNN to #FraudNewsCNN!

— Donald J. Trump (@realDonaldTrump) July 1, 2017

My use of social media is not Presidential – it’s MODERN DAY PRESIDENTIAL. Make America Great Again!

— Donald J. Trump (@realDonaldTrump) July 1, 2017

 

Meanwhile, CNN seems to have been triggered…

 

…which means that Trump’s plan worked.

“The President in no way form or fashion has ever promoted or encouraged violence. If anything, quite the contrary.” – @SHSanders45 6/29/17

— CNN Communications (@CNNPR) July 2, 2017

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Authored by Bill Bonner via InternationalMan.com,

“Elizabeth,” I asked this morning as my wife climbed out of the pool. “How would you describe that sea turtle we saw on the beach?”

Pausing for a moment, she replied, “Rotating its slow and majestic flippers, it ground its way slowly and inexorably toward China…”

The sea turtle was headed east. Whether China was its destination or not, I don’t know. I only know that it was about to leave the Latin America isthmus, from the west coast of Nicaragua, and put out to sea when a muscular, brown young man picked it up and carried it back up on the beach. He and his friends had dug a big hole in the sand where the turtle was placed.

At night, we often see the dim light of flashlights along the beach. “It’s the locals looking for turtle eggs,” Manuel explained. “It’s illegal to take them, but…” Manuel shrugged his shoulders.

Sea turtles are protected by international convention. But here in the wilds of Nicaragua, they still end up in the soup from time to time.

Not the Same America

This is America, too… but it is not the same America. It is the New World… but not as new as the world north of the Rio Grande. Here, the Old World has not yet been snuffed out. It survives in a semitropical paradise.

But the object of our attention today is neither the Old World nor the new one – but the ever-changing, never fully explored idea of America.

“Proud to be an American,” says one bumper sticker. “One nation – indivisible,” says another. America was, of course, founded on the opposite principle… the idea that people were free to separate themselves from a parent government whenever they felt they had come of age. But no fraud, no matter how stupendous, is so obvious as to be detected by the average American. That is America’s great strength… or its most serious weakness.

After September 11, so many people bought flags that the shops ran short. Old Glory festooned nearly every porch and bridge. Patriotism swelled in every heart.

Europeans, coming back to the Old Country, reported that they had never seen anything like it. A Frenchman takes his country for granted. He is born into it, just as he is born into his religion. He may be proud of La Belle France the way he is proud of his cheese. But he is not fool enough to claim credit for either one. He just feels lucky to have them for his own.

What Makes America Different?

America, by contrast, is a nation of people who chose to become Americans. Even the oldest family tree in the New World has immigrants at its roots. And where did its government, its courts, its businesses, and its saloons come from?

They were all invented by us. Having chosen the country… and made it what it is… Americans feel more responsibility for what it has become than the citizens of most other nations. And they take more pride in it, too.

But what is it? What has it become? What makes America different from any other nation? Why should we care more about it than about, say, Lithuania or Chad?

Pressed for an answer, most Americans would reply, “Because America is a free country.” What else can be said of the place? Its land mass is as varied as the earth itself. Inhabiting the sands of Tucson as well as the steppes of Alaska, Americans could as well be called a desert race as an arctic one.

Its religions are equally diverse – from moss-backed Episcopalians of the Virginia tidewater to the Holy Rollers of East Texas to the Muslims of East Harlem.

Nor does blood itself give the country any mark of distinction. The individual American has more in common genetically with the people his people come from than with his fellow Americans. In a DNA test, your correspondent is more likely to be mistaken for an IRA hitman than a Baltimore drug dealer.

America never was a nation in the usual sense of the word. Though there are plenty of exceptions – especially among the made-up nations of former European colonies – nations are usually composed of groups of people who share common blood, culture, and language.

Americans mostly speak English. But they might just as well speak Spanish. And at the debut of the republic, the Founding Fathers narrowly avoided declaring German the official language… at least that is the legend.

A Frenchman has to speak French. A German has to speak the language of the Vaterland. But an American could speak anything. And often does.

Be What You Want to Be

Nor is there even a common history. The average immigrant didn’t arrive until the early 20th century. By then, America’s history was already three centuries old. The average citizen missed the whole thing.

Neither blood, history, religion, language – what else is left? Only an idea: that you could come to America and be whatever you wanted to be. You might have been a bogtrotter in Ireland or a baron in Silesia; in America, you were free to become whatever you could make of yourself.

“Give me liberty or give me death,” said Patrick Henry, raising the rhetorical stakes and praying no one would call him on it. Yet the average man at the time lived in near-perfect freedom.

There were few books and few laws on them. And fewer people to enforce them. Henry, if he wanted to do so, could have merely crossed the Blue Ridge west of Charlottesville and never seen another government agent again.

Taxation With Representation

Thomas Jefferson complained, in the Declaration of Independence, that Britain had “erected a multitude of New Offices, and set hither swarms of Officers to harass our people, and eat out their substance.”

Yet the swarms of officers sent by King George III would have barely filled a midsize regional office of the IRS or city zoning department today.

Likewise, the Founding Fathers kvetched about taxation without representation. But history has shown that representation only makes taxation worse. Kings, emperors, and tyrants must keep tax rates low… Otherwise, the people rise in rebellion.

It is Democrats that really eat out the substance of the people: The illusion of self-government lets them get away with it. Tax rates were only an average of 3% under the tyranny of King George III. One of the blessings of democracy is average tax rates that are 10 times as high.

“Americans today,” wrote Rose Wilder Lane in 1936, after the Lincoln administration had annihilated the principle of self-government… but before the Roosevelt team had finished its work, “are the most reckless and lawless of peoples… We are also the most imaginative, the most temperamental, the most infinitely varied.”

But by the end of the 20th century, Americans were required to wear seat belts and ate low-fat yogurt without a gun to their heads. The recklessness seems to have been bred out of them. And the variety, too. North, south, east, and west, people all wear the same clothes and cherish the same decrepit ideas as if they were religious relics.

And why not? It’s a free country.

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