Prepare For Crisis

How bad could it get? What are prudent steps that you can take now to prepare for the next leg of the crisis

rice paddies of China drained of cheap, docile labor

Foxconn workers are striking again—this time in Chongqing. But you have to look at the map to see why this is an event of extraordinary significance. In a word, these strikes mean that the rice paddies of China have been nearly drained of cheap, docile labor.

So the strikes in Chongqing are of global and potentially epochal significance. It was the two-decades-long flow of quasi-slave labor into the export factories of east China that enabled the major global central banks to go on a money printing rampage like the world has never before seen. The latter was conducted with apparent impunity because during that same period the induction of several hundred million peasants into the world’s factory system caused worldwide prices of consumer goods to fall, even as the money printers were enabling an orgy of credit-fueled spending by American and European households.

Yes, there is an extensive geography west of Chongqing, but here’s what it mostly consists of: mountains, as in the massive Plateau of Tibet; arid lands, culminating in the forbidding expanse of the Gobi Desert; and the factory-less rain forests of southwest China.

In short, there are few rice paddies west of Chongqing to drain because no one lives there. And this means the closing of the world’s cheap labor frontier is at hand.

Indeed, it had been approaching for several years now as Chinese manufacturers desperately migrated westward, attempting to perpetuate a regime of ultra-cheap factory labor. This perverse arrangement is virtually symbolized by Foxconn’s million plus workers in sweatshops throughout China—-factories which keep the likes of Apple, HPQ, Sony, Samsung and all the rest, as well as their American and European customers, in cheap gadgets, cheap electronics and cheap computers. But economically speaking, China’s cheap labor frontier has now it reached its Pacific Ocean equivalent.

So unless Mars is inhabited after all, the last two decades constituted a unique and non-replicable confluence. Accordingly, having used up its reservoir of cheap pre-industrial labor, the world economy is about ready to enter a wholly different era—-one when the massive central bank balance sheet expansion of recent years functions to crush global corporate profits, not just DM factory labor.

Folks, this is how Greenspan, Bernanke, Shirakawa, Trichet, King, Draghi and all the other central bank magicians did it. While they spent years breast-beating about their success in quelling inflation and generating enormous financial wealth effects, while intermittently fretting about “deflation”, their red hot printing presses were generating an altogether more insidious impact deeper down the economic strata.

In the developed world, they fueled household credit binges that were unprecedented. But owing to the vast mobilization of ultra-cheap labor in China and elsewhere in the EM, this credit fueled demand for sneakers, sweaters, furniture, fabrics, flat-screen TVs, computers, tablets, smartphones and the rest of the i-Gadgets did not drive up domestic prices; it was diverted to the booming export factories of east China, Bangladesh etc.

In the developing world markets (DM), on the other hand, the central bank money printers fueled a tsunami of cheap capital, thereby enabling an explosion of factory and infrastructure building and machinery and equipment acquisition. This drastically uneconomic investment boom was financed by yield hungry capital flows from New York, London and Tokyo—abetted by mercantilist currency pegging policies of the People’s Printing Press in China and other EM central banks. After all, the $4 trillion of reserves sitting in the vaults of China’s central bank were not gathered by old fashioned 19th century bankers stocking monetary acorns for a rainy day.

No, it was the handiwork of China’s red capitalist overlords in Beijing.  While clinging to power for dear life, they accidently discovered the magical powers of the state’s printing presses, and that unremitting credit expansion could fuel an orgy of building and construction not seen since the pharaohs built the pyramids.

Stated differently, the inexorable consequence of currency pegging in China and the rest of the EM was an eruption of domestic money supplies and banking systems. When the EM central banks bought dollars to keep their exchanges rates low and their exports high they created vast emissions of yen, yuan, won, ringgit, rupiah and the rest.

That’s how China’s credit market debt outstanding soared from $1 trillion in the year 2000 to $25 trillion at present. And it meant that anything in the realm of manufacturing, mining, international shipping and domestic transportation and infrastructure which could be built was built. That was the consequence of endless cheap capital flowing in from global bond markets and domestic banking systems.

Needless to say, the households of Europe and America have at length reached “peak debt”. Spain had a mortgage borrowing binge, for example, that even put Los Vegas and Phoenix to shame. But now the day of reckoning has arrived. Even as the Fed and ECB keep pumping liquidity into the financial markets, they fail to notice that they are not inflating consumer borrowing, just financial asset prices.

Household Leverage Ratio - Click to enlarge

Household Leverage Ratio – Click to enlarge

This means that the world’s ballooning capacity to produce and transport “things and stuff” can no longer be supported by exuberant, credit-fueled household spending from the developed world markets (DM). As China’s building boom comes to an end, for example, it finds itself choking on vast excess capacity to produce rebar for high rises, plate steel for ships and concrete for building highways, bridges, office buildings, factories, warehouses and practically everything else.

Indeed, with more than 2 billion tons of annual production capacity, China’s cement industry is 25X the size of its US counterpart. During 2012 and 2013, in fact, it produced more cement than did the US during the entire 20th century.

But the vast excess industrial capacity of China is only part of the central banks’ handiwork. In generating artificially cheap capital financed by fiat credit, not honest private savings from earned incomes, they also enabled the mining and shipping industries to become equally bloated. Yet the imbalances only worsen as the momentum of prior CapEx completions adds to supply—- even as demand falters.

This year will see nearly record expansion of global iron ore production capacity, for example, just as China’s stock piles soar and new orders plummet. Not surprisingly, iron ore prices have been in free fall since early 2014, and at about $80 per ton today they are already down by 60% from the $200/ton peak of 2012.

And this is not just a problem for iron ore commodity speculators or punters in the mining stocks. Instead, mining CapEx is in the process of taking an staggering plunge. The big three miners—-BHP, Rio Tinto and Vale—collectively spent $60 billion in CapEx during the peak year of 2012. That figure is already down to a run rate of $30 billion and will doubtless plunge to $20 billion or even lower as the cycle plays out.

This means, in turn, that CapEx suppliers like Caterpillar and Joy Global will also hit the skids. So will the German machinery and engineering suppliers like Siemens, as China’s orders for factory equipment, high rise elevators, locomotives, and power generating equipment also subside. And then the shrinkage will travel further up the food chain—–hitting high paid labor in the capital goods industries and the out-sourced vendors who supply, maintain and often mange these plants.

In short, the recent age of madcap central bank money printing brought a twin deformation. Its mobilization of the world’s cheap labor reservoir allowed out-of-control central bankers to pull a monetary Alfred E. Neuman. Why worry? There’s no inflation!

Meanwhile, the middle and lower income households throughout the DMs were being wrangled into debt servitude.

And now monumental excess industrial capacity will cause savage price-cutting as competitors scramble to generate enough volume and cash flow to cover the huge fixed costs and bloated balance sheets that attended the global investment boom.  The obvious victim will be profit margins throughout the world’s resource extraction and industrial production food chain.

So Chongqing may be far away and hard to pronounce. But the workers striking there are actually marking a crucial inflection point. It is one that denotes the world’s central banks have painted themselves into a corner and that the global economic and financial game of the last two decades is about to change. Big time.

Submitted by David Stockman via Contra Corner blog

there is a 20 percent Chance Of Ebola In the US By end of October

“There’s nothing to be optimistic about,” warns the professor who developed the Global Epidemic and Mobility Model to assess outbreaks, “if the number of cases increases and we are not able to start taming the epidemic, then it will be too late. And then it requires an effort that will be impossible to bring on the ground.” As FredHutch reports, the deadly Ebola epidemic raging across West Africa will likely get far worse before it gets better, more than doubling the number of known cases by the end of this month, predicting as many as 10,000 cases of Ebola virus disease could be detected by Sept. 24 – and thousands more after that. “The cat’s already out of the box – way, way out,” as the analysis of global mobility and epidemic patterns shows a rougly 25% chance of Ebola detection in the UK by the end of September and 18% it will turn up in the USA. “I hope to be wrong, he concludes, but “the data points are still aligned with the worst-case scenario.”

Via FredHutch,

The next three weeks will be crucial to determining whether the Ebola outbreak is tamed or rages out of control, the experts agreed.

WHO officials have predicted as many as 20,000 cases of Ebola and laid out a “road map” for the outbreak response that calls for stopping the outbreak within six to nine months. But that’s only if a “massive” global response is implemented.

The scenario modeled in the new paper suggests that the actual number of cases could far exceed the WHO estimate – and far sooner. Vespignani said he and his colleagues are calibrating the model every couple of weeks to see whether there’s any change. So far, the answer is no.

“The data points are still aligned with the worst-case scenario,” Vespignani said. “It’s a bad feeling. I hope to be wrong.”

That’s a sentiment echoed by Longini, who said that he and other disease modelers are dismayed by what they see.

“There’s nothing to be optimistic about,” he said. “It’s frustrating. It feels like there should be a more concentrated international effort to help these countries.”

The latest counts Monday from the Centers for Disease Control and Prevention, which include WHO and Ministry of Health reports, put the total at 4,061 cases and 2,107 deaths.

The deadly Ebola epidemic raging across West Africa will likely get far worse before it gets better, more than doubling the number of known cases by the end of this month.

That’s the word from disease modelers at Northeastern University and the Fred Hutchinson Cancer Research Center, who predict as many as 10,000 cases of Ebola virus disease could be detected by Sept. 24 – and thousands more after that.

“The epidemic just continues to spread without any end in sight,” said Dr. Ira Longini, a biostatistician at the the University of Florida and an affiliated member of Fred Hutch’s Vaccine and Infectious Disease and Public Health Sciences divisions. “The cat’s already out of the box – way, way out.”

It’s only a matter of time, they add, before the virus could start spreading to other places, including previously unaffected countries in Africa and developed nations like the United Kingdom — and the U.S., according to a paper published Sept. 2 in the journal PLOS Currents Outbreaks.

There’s a roughly 25 percent chance Ebola will be detected in the United Kingdom– and as much as an 18 percent chance it will turn up in the U.S. – by the end of September, the analysis of global mobility and epidemic patterns shows. The new paper includes the top 16 countries where Ebola is most likely to spread.

Though concerning, a spread to Western nations is not the biggest threat. At most, there would be a cluster of a few cases imported to the U.S., probably through air travel.

“We are at a crucial point,” Vespiginani said. “If the number of cases increases and we are not able to start taming the epidemic, then it will be too late. And then it requires an effort that will be impossible to bring on the ground.”

Ebola: Act Now or regret it

The Ebola epidemic in West Africa is getting surprisingly little mainstream media coverage – Wired has a look at the growth trend in infections – The Mathematics of Ebola Trigger Stark Warnings: Act Now or Regret It.

The Ebola epidemic in Africa has continued to expand since I last wrote about it, and as of a week ago, has accounted for more than 4,200 cases and 2,200 deaths in five countries: Guinea, Liberia, Nigeria, Senegal and Sierra Leone. That is extraordinary: Since the virus was discovered, no Ebola outbreak’s toll has risen above several hundred cases. This now truly is a type of epidemic that the world has never seen before. In light of that, several articles were published recently that are very worth reading.

You can see how that could quickly get out of hand, and in fact, that is what the researchers predict. Here is their stop-you-in-your-tracks assessment:

In a worst-case hypothetical scenario, should the outbreak continue with recent trends, the case burden could gain an additional 77,181 to 277,124 cases by the end of 2014.

Nishiura-curves

Criminalizing Americans for Government Profit

Submitted By Doug French, Contributing Editor — Casey Research

Forget protecting and serving; we’re all potential bad guys in the eyes of the law that looks to jail us, fine us, and seize our property for profit. Retired LAPD Deputy Chief of Police Stephen Downing told FoxNews Latino, “The federal government has turned policing into policing for profit.”

Kids in PrisonCops are tracking down cash, rather than crime. Downing told Fox that departments now direct police assets to generate cash, instead of investigating murders and rapes. And there are plenty of abstruse laws to trip up even the most careful citizen. The American Bar Association task force reported that the body of federal criminal law is “so large… that there is no conveniently accessible, complete list of federal crimes.”

Columbia law professor John Coffee estimates the federal government has the criminal process at its disposal to enforce as many as 300,000 federal regulations. In his introduction to One Nation Under Arrest, Edwin Meese III writes, “It is only a slight exaggeration to say that potentially everything you do each day is subject to criminal law: driving, shopping, gardening, and even, yes, eating.”

In an interview with the Wall Street Journal, James L. Buckley, one of the very few men to have served in all three branches of government, noted that the US Code, the entire body of federal statutory law, has gone from one volume before the New Deal to 33 or 34 volumes by the 2012 edition, which is still being printed.

But that’s only the tip of the regulatory iceberg. “There are now 235 volumes of regulations that occupy…17 feet of shelf space of six-point or seven-point type,” says Buckley. He points out, “You can find yourself in jail for violating a statute you would never have any reason to know existed.”

The slide into the morass of incomprehensible rules began with the Supreme Court ruling multiple times that convictions need not be supported by criminal intent or a guilty mind. Clueless Americans can now be fined and jailed for activities they have no idea are unlawful, and eager regulators are quick to entrap honest people to achieve goals set to justify government’s existence.

Take for instance the Financial Industry Regulatory Authority, or FINRA®, which has a target on small stock brokerage firms. At Freedom Fest in Las Vegas a few weeks ago, I spoke with two brokers who complained about the FINRA cops. One who owns his own firm but is being forced to leave the business, because FINRA’s proposed fine for ticky-tacky paperwork irregularities is more than what his firm is worth.

Another gentlemen who works for a larger firm told me FINRA regulators do not respond to complaints as much as creating complaints to respond to. He related stories of regulators cold calling brokerage clients, who get rattled when a government gumshoe grills them over the phone.

Eventually the customer gives the regulator enough of a reason to pursue the customer’s firm, and the next day, FINRA storms in, announces that a complaint has been filed, and demands reams of paperwork. When the broker reasonably asks, “Who complained? Let me take care of it.” The FINRA cops refuse to tell him and begin their investigation in search of assessing a fat fine.

“I’ve been fighting with FINRA for years. In some ways it’s like an organized crime group,” said John Busacca, founder of the Securities Industry Professional Association, told the New York Post. “It’s like paying protection money in Bensonhurst.”

Busacca believes large firms get a pass from FINRA, while FINRA focuses on harassing small firms.

The Post’s John Crudele points out that a couple years ago, there were more than 6,000 small independent brokerage firms. Now the number is around 4,100, “and there’s been a big drop-off in just the last few months.”

Of course, FINRA claims it “regulates all firms equally, regardless of size, and investigates problematic conduct where it is found.” But an owner of an independent broker told the Post, “It’s the old story. The big guys get to skate. To look tough, [FINRA] beats up the little guy.”

That broker didn’t want to be named, because he’s been harassed by FINRA for months already, has been made to comply with regulations outside of FINRA’s authority, and doesn’t want to be targeted for more punishment. He’s heard similar stories from other firms his size. “He believes it’s either a vendetta against small firms, or just plain ignorance of the rules on the part of FINRA representatives,” writes Crudele.

FINRA’s heavy-handedness has a lot to do with the agency’s attempt to seize oversight of America’s investment advisors from the Securities and Exchange Commission (SEC).

What’s telling, in the words of Mark Eizweig, writing for Investment News, is that “this regulator eats what it kills.” These fines are what keep the agency in business, as “the number of disciplinary actions has been rising at a rapid clip, up 43% from 2008, to 1,535 in 2013.” Eizweig explains, “FINRA thereby has an incentive to pile on one rule after another, because each new regulation is a kind of regulatory tripwire that affords FINRA more opportunity to ring the cash register.”

“It’s no wonder that FINRA is regarded less as a consultative partner in helping broker-dealers adopt policies and procedures to protect investors, and more as an aggressive bounty hunter with an agenda to levy fines,” writes Eizweig.

Without big legal departments to withstand FINRA assaults, small broker-dealers are throwing in the towel. How many small firms can spend $55,000 in filing fees, creating 50,000 PDFs to comply with FINRA’s advertising rules?

FINRA is not interested in allowing customers to take investment risk for reward, or keeping up with economic cycles or trends. The agency claims its agenda is to “protect customers,” whether they need or want protection or not. FINRA’s agenda is a protection racket generating funds to feed FINRA employees and their families.

If this all sounds outrageous, FINRA is only a small part of a growing trend. For instance, don’t drive through Tennessee with lots of cash. A routine traffic stop can turn into highway robbery. A New Jersey insurance adjuster was carrying $22,000 with him to make an auto purchase when he was stopped for speeding by Officer Larry Bates.

Officer Bates seized the 22 grand, figuring anyone passing through the state with that much cash is up to no good. The local news channel pointed out to Officer Bates that he had no proof the cash was being used for no good. But Bates countered with, “And he couldn’t prove it was legitimate.”

The New Jersey man, George Reby, was not arrested, but his cash was. “No, it’s not illegal to carry cash,” Bates said. “Again, it’s what the cash is being used for to facilitate or what it is being utilized for.”

It took Reby four months to get his money back, in the form of a check, even with the help of TV coverage.

Civil forfeiture turns the bedrock principle that Americans are innocent until proven guilty on its head. As the Institute for Justice (IJ) points out in its report Policing for Profit, “With civil forfeiture, your property is guilty until you prove it innocent.”

So while law enforcement personnel are climbing the ladder to bureaucratic success by taking people’s property, the IJ found that 80% of persons whose property was seized were never charged with a crime. There are only eight states that bar the use of forfeiture proceeds by law enforcement, while in 26 states, 100% of forfeiture proceeds are distributed to law enforcement.

Speaking in Orwellian tones like “protecting the public” and “making you safe,” law enforcement and regulators are, in reality, stealing from the citizenry in broad daylight, with much of the booboisie cheering it on, believing they’re made safer by this thuggery.

For those wondering why there’s been no “recover” in this recovery, it is this overcriminalization that keeps people from starting businesses and creating jobs, fearing they could unwittingly end up behind bars or financially ruined by their or their employees’ seemingly innocent actions.

Where to live in the 21st century

Five scientists (John. W. Day, M. Moerschbaecher, David Pimentel, Charles Hall, A. Yá˜nez-Arancibia) have written an interesting article about the best and worst places in the in the future United States based on sustainability when you take into account:

  • climate change
  • energy reserves
  • population
  • sea-level rise
  • extreme weather

Below are a few interesting excerpts from this 16 page paper.

Best places to live

WhereToBe-Day2013-good-places-greenest

The greener the better — unless there are too many people (circles indicate large cities).

where-to-be-day-2013-best-is-underperforming-now

Move to an Underperforming Region (and away from a Megaregion): Many areas rich in natural resources often have high poverty rates, perhaps due to “the resource curse”, usually applied internationally to countries rich in fossil fuels, agriculture, forestry and fisheries, but financially poor with stratified social classes. We believe this concept can be applied to states. You can see above that most underperforming counties are rural. These are regions that have not kept pace with national trends over the last 3 decades in terms of population, employment, and wages. Note that with the exception of the Great Lakes megaregion, the underperforming regions are outside of the 11 megaregions. These underperforming areas generally have high natural resources and agricultural production.

Worst Places to Be

where-to-be-day-2013-WORST-PLACES

Several areas of the U.S. will have compromised sustainability in the 21st century. These include the southern Great Plains, the Southwest, the southern half of California, the Gulf and Atlantic coasts, especially southern Louisiana and Southern Florida, and areas of dense population such as south Florida and the Northeast.

where-to-be-day-2013-not-in-megaregions