Monday, October 16, 2017

Beware! Figures Are Often Manipulated To Bury The Truth

Picture Of Nothing, Imagine 200% Less / By: Bruce Wilds

Years ago I picked up an interesting book at a flea market that gave an eye-opening tour through the twist and turns of math abuse and innumeracy. The book "200% of nothing" by A. K. Dewney delves into how percentage pumping and irrational ratios can be used to make and reinforce a point that has little validity. Sadly this practice has become far too common in modern society. Our ability to communicate faster over the years has resulted in more information being showered down upon us and as a result, facts are seldom checked. This has lead to the tongue in cheek comment, "if you saw it on the Internet" it has to be true. In fact, with all the fake news that bombards us on a daily basis, nothing could be farther from the truth. With this in mind it is important we make a solid effort to understand this crucial area of our lives.
The book takes a delightfully witty excursion into how figures are manipulated to sway our opinions and sheds light on the fact that truth can quickly be buried by those who choose to mislead us. A favorite quote of mine that has been attributed to no less then five people goes as follows "There are three kinds of lies; lies, damned lies, and statistics." These abuses are committed and spread by institutions and organizations devoted to skimming and scamming the public, changing opinion, or promoting their goods and agendas. Often they ice the cake by topping off their presentation with beautiful charts and graphs skewed in scale adding to the illusion of truth.

Few People Can Internalize Large Numbers
To my delight, the book makes a point and draws attention to the damage we suffer from not being aware of this manipulation. It also focuses on how many people fail to internalize large numbers or when faced with them become numb to their size and are unable to relate to them. This has become the bain of our relationship with Washington and our government. Politicians pass into law and spend massive and ungodly sums of money with very little idea of what they are doing. In today's world where people are put in positions to make decisions over what to do with large sums of money, innumeracy is an even greater danger than illiteracy. It could be argued that it is even far more common now that reading material is available everywhere. Needless to say the results of not understanding and being able to grasp the reality of the cost and how enormous these programs are can be devastating for those forced to pay for them.

This means that far more attention must be paid to this very important subject in school. For us to intelligently shape our future we must have a sound and basic understanding of numbers, what they represent, and how to relate to them. When math is joined with other disciplines and used in forming projections and predictions if the math is built on any type of false premise it undermines the whole endeavor. An inability to understand the rules of percentages, ratios, statistics and basic math logic is highlighted by the book's author using the rather harmless ad for a light bulb that claims you can save up to 200% of energy cost. He points out the fact is it is impossible to save over 100% of anything.

Footnote;  Your comments are welcome and encouraged. If you have time check out the archives for another post that may be of interest to you. The post below looks at our deficit spending and is an eye-opener.

Thursday, October 12, 2017

City Boast Of Constructing Another Housing Boondogle!

Under the category of, "Whats happening in real estate" the city where I live has announced another incestuous boondoggle to be built using government money in an area where few people want to live. Ironically I found out about this project on the very day that I had just read an article about the 10 most and least expensive cities in America to rent an apartment. Of course, Fort Wayne was on the list of least expensive places to rent and it should be noted that a slew more new apartment projects are already under construction which will pressure rents even lower.

It is easy to argue that the role of government is to provide "necessary services" that the private sector cannot provide and not to go out of their way to compete with the private sector. Below is the article presented in all its politically spun glory and presented on the city's own so-called news link, As you read or scan the piece please note these are not bare bone housing units. Let me be clear, these are not "plain Jane" in nature but an "over the top" effort to build an expensive monument to "affordable housing" that can act as a model for other communities. This is a cutting-edge experiment so inclusive that it even provides an electric car sharing program for residents.


(September 6, 2017) -- BWI, LLC is breaking ground on the first Moving Forward energy-efficient affordable housing and transportation development in Indiana. Posterity Heights in Fort Wayne, Ind. is a multi-phased development designed to provide net-zero housing, electric car sharing, an on-site early childhood learning center, education and job opportunities, healthy food and other amenities for traditional and single parents on a path to self-sustainability. The $42 million development will be built on the 28-acre site of the former McMillen Apartment parcel of land on the city’s southeast side (4209 Plaza Dr., Fort Wayne, IN 46806).
This is the first of six currently planned Moving Forward developments statewide (Indianapolis, Bloomington, Lafayette, two in East Chicago, Ind.). Each development will have its own unique characteristics and different developers.The Moving Forward Program, launched in 2015 by the Indiana Housing and Community Development Authority (IHCDA) and Energy Systems Network (ESN), is designed to create affordable housing that increases quality of life while decreasing the cost of living for low- to moderate income individuals and families.
“It was an honor joining Mayor Tom Henry and our partners at BWI, Joshua’s Hand and Energy Systems Network (ESN) for today’s groundbreaking ceremony,” Lt. Governor Suzanne Crouch, who serves as board chair of IHCDA, said. “With innovative, energy-efficient technology and support services for single mothers, I have no doubt that Posterity Scholar House will be a model for the way affordable housing is done not only in Indiana but nationwide.”
Posterity Heights will include four phases, the first of which is expected to be completed in the summer of 2018. Once completed, the development is expected to create 100 jobs.
“I continue to be encouraged by the progress we’re seeing in southeast Fort Wayne and throughout our community,” Fort Wayne Mayor Tom Henry, said. “The City has been working in partnership with neighborhood leaders to redevelop this property for almost 10 years and I am pleased to see this innovative project get underway. Together with the new homes in Renaissance Pointe, the McMillen Park Community Center, the completion of the Winter Street Urban Farm, construction of new trails and millions of dollars in infrastructure improvements, the Posterity Scholar House will contribute to the ongoing revitalization of this area and offer new opportunities and hope for residents.”
Phase I: Posterity Scholar House – 44 large, 2- and 3-bedroom apartments incorporating 500KW of solar and battery storage to create net-zero energy usage (the creation of enough energy on-site to equal tenant usage). The development couples energy-efficient housing with an electric car sharing program for residents, who will be single parent students enrolled in one of the local universities. The residents will utilize a smart phone App/Web Portal to manage energy usage, reserve transportation and access other amenities.

Phase II: Commercial Retail and Training Center (Posterity Place) – The Housing Life Development and Innovation Resource Center (HLDIRC) will provide a business accelerator and incubator for growing tech businesses. Posterity Place Food and Shops will include a My Market Grocery Store and Lutheran Health Network will lease space for a Federally Qualified Health Center.

Phase III and IV: Posterity Place Rental Townhomes (Posterity Village) and Market Rate Homes (Posterity Point) - Affordable lease-to-own townhomes and market rate homes will be built on the site. Pocket parks will be open to the public and community gardens will also be included.

“Posterity Heights is a transformative development at many levels, from creatively reusing a vacant site in southeast Fort Wayne, to fostering partnerships that are giving single parents a hand up in furthering their education and putting their kids on a path to a sustainable future,” Gary Hobbs, president and CEO of BWI, LLC., said. “We are proud to partner with Pastor Cedric Walker and the team at Joshua’s Hand to offer integrated supportive services to the families who will call the Posterity Scholar House home.”

“Joshua’s Hand has committed itself to the social side of economic development because no economy can grow without growing people, no matter how much money is spent, they’re the most important part of this,” Cedric Walker, CEO, Joshua’s Hand, said.

Posterity Scholar House is funded through a combination of IHCDA low income housing tax credits, HOME funds, the City of Fort Wayne, the Northeast Regional Cities funds, and other private sources, including BWI, LLC, the National Equity Fund, BMO Harris Bank, and Column Financial.

“This is a historic day in the affordable housing industry,” Jacob Sipe, executive director of IHCDA, said. “Not only will this development use a holistic approach to affordable housing development with education, career training and child development, but it will feature a high-tech environment with solar and battery storage as well as electric vehicles with charging stations.”

“We are lowering the combined cost of utility bills and transportation for residents by integrating advanced technologies including renewable solar energy, smart home technology, and electric vehicle car-sharing,” Paul Mitchell, president and CEO of Energy Systems Network (ESN), said. “But this is about
more than energy efficient technologies – this is a way to keep more money in residents’ pockets that they can in turn invest in other areas.”
For more information on Posterity Heights and Posterity Scholar House, visit

About BWI, LLC:
With more than ten years of experience in developing affordable housing opportunities in Indianapolis’ urban core, BWI has a track record of success in putting together public-private partnerships that benefit underserved populations and the overall community. BWI also develops communities where residents have the opportunity to better their lives, which is the model for Posterity Heights.

About Joshua’s Hand: Joshua’s Hand’s mission is to assist the community in helping socioeconomically challenged persons replace the destructive habits that produce impoverished communities with positive, supportive and transformative services that promote self-leadership, hope leading to decent and affordable permanent housing and respectable commercial retail services. For more information, visit

About Indiana Housing and Community Development Authority (IHCDA):
IHCDA, chaired by Lt. Governor Suzanne Crouch, provides housing opportunities, promotes self-sufficiency and strengthens communities in order to build an Indiana with a sustainable quality of life for all Hoosiers in the community of their choice. For more information, visit and
About Energy Systems Network (ESN):
Energy Systems Network (ESN) is an initiative focused on the development of the advanced energy technology sector. ESN’s mission is to leverage our network of global thought leaders to develop integrated energy solutions to increase quality of life for today and tomorrow. Our collective focus is to reduce costs, emissions and waste; influence policy; and advance technological innovation. For more information, visit

I have highlighted several parts of the above text in bold. What you see above is basically a reference to a huge huge number of government arms, boards, entities, quasi-government, nonprofit groups, and people partnering for status and profit. The one thing these self-promoters that feed at the government's tit have in common is they have no problem spending and wasting the taxpayer's money. Bottom-line, if Jacob Sipe, executive director of IHCDA is willing to state, “This is a historic day in the affordable housing industry,” it must be true. Yes, it probably is historic in that it marks the groundbreaking of another boondoggle marking our demise. With projects like this underway in the financially conservative heartland of America, we should all wonder what insane undertakings are taking place in other parts of the country.

Sunday, October 8, 2017

Elon Musk Continues To Dish Out The Old Razzle-Dazzle / By: Bruce Wilds

Lots Of Flash Can Create A Passionate Reaction
Elon Musk's enormous success at PayPal moved Musk into the spotlight making him an icon never far from generating headlines that put him squarely in our view. It seems we can always count on Elon Musk to find some new way to get on the front page of the news and razzle-dazzle us on any given day. Musk reminds me of the silver-tongued defense lawyer Billy Flynn from the movie musical Chicago. The cynic in me makes me dubious of his ability to pull off or complete several of his recent projects but regardless of the fact I'm skeptical he has definitely proven he can razzle dazzle us. It should be noted that Musk appears Teflon coated and he has suffered little fallout from promises and deadlines unkept, failure simply does not stick but seems to run off his back.

It would be unfair not to make an effort to put this into proper context. This all comes after recent news headlines and articles about all the problems Musk must solve before he can take us to Mars. To clarify, I'm not writing about the "Mars" that is located in a borough located in Butler County, Pennsylvania, with a population of 1,699 during the 2010 census, I mean the planet Mars. The problems surrounding travel to Mars, however, did not stop Musk from unveiling his plans last Friday in Adelaide, Australia, where he announced a new rocket that would allow passengers to travel from one continent to another in about 30 minutes. During the presentation, Musk showed a video of images of a rocket taking off in New York and landing in various places around the world, including Tokyo and Shanghai. He said the New York-Shanghai trip could be done in 39 minutes, while a trip from Bangkok to Dubai would take 27 minutes and Tokyo to Delhi would be 30 minutes.

Give 'em the old three ring circus, Stun and stagger 'em!
In some ways this is an extension of his plans for rocket travel to Mars, Musk, the founder and CEO of SpaceX along with the electric luxury car company Tesla said the space flights that would rapidly allow people to travel from one continent to another could help to pay for future missions to Mars and that the cost per seat should be about the same as full fare economy in an aircraft. Currently, SpaceX plans its first trip to Mars in 2022, carrying only cargo with a key mission to find the best source of water on the Red Planet. The first manned mission will follow in 2024. Space X is aiming to start construction on the first spaceship in the next six to nine months. 

These stories follow articles about Musk's plans to build a hydroloop or a "conceptual high-speed transportation system" incorporating reduced-pressure tubes in which pressurized capsules ride on an air cushion driven by linear induction motors and air compressors. A bing search of hydroloop system brings up a link to the https:/the website, which allows people to see just how much travel time they will save when they zip along between their starting point and where they are going at nearly 700 miles an hour. Seriously, the damn thing doesn't even exist and this website has people typing in unrealistic destinations. Latching on to this idea and expanding the hype another website declares that "When it comes to the competition to the build the world’s first hyperloop, Missouri won’t take no for an answer." It seems someone proposed a route linking Kansas City, the college town of Columbia, and St. Louis that didn't make the cut when  Hyperloop One announced the 10 winners of its Global Challenge, an initiative to identify the most promising sites for the world’s first hyperloop route.

Missouri's proposal lost out because of an apparent lack of support from state officials and local business leaders. But they claim that has changed with the announcement of the Missouri Hyperloop Coalition, a partnership of public and private interests with the goal of raising $1.5 million to fund a feasibility study for the project. From a logistical perspective, they claim their hyperloop proposal was one of, if not the strongest in the United States. The 250-mile route running along Interstate 70 between Kansas City and St. Louis takes nearly four hours to drive the hyperloop would cut that to 25 minutes. Andrew Smith of the St. Louis Regional Chamber has been one of the key architects of the Missouri Hyperloop Coalition declined to give a precise timeline for when the feasibility study would happen, but he said the coalition is optimistic they will be able to raise the $1.5 million from the Missouri business community in the near future.

Give 'em the old hocus pocus!
Some of us critical of Musk not only point out how much of his money-losing ventures are supported and propped up by government subsidies, but that whenever, Musk is in trouble he goes into a dance, anything to distract or take eyes off the past promises he has failed to carry out. Like the proverbial snake oil salesman hyping the miraculous powers of his product and making outlandish claims accompanied by a tremendous amount of razzle-dazzle Musk tends to over promise. Snake oil products were said to have originated in China and many people believed that if you rubbed snake oil on your sore joints, then you would gain relief. Since the products didn't work as soon as they were sold the salesman would leave the area in haste.

With his plate more than full of tasks that would stress any other mortal Elon Musk has announced that Tesla is again postponing the electric truck event that was initially moved from the end of September to October 26, it has now been switched to November 16 which will allow it to focuses on Model 3 production and Puerto Rico. The CEO went on a quick Twitterstorm about the Model 3 on Oct 6th where he stated that Tesla is still in “production hell” when it comes to the Model 3. Even with this acknowledgment, the CEO seemed to not outright announce any delay in the delivery timelines for the regular customer deliveries. Of course, Tesla shares continued to shake off the bad news even with Goldman Sachs rating Tesla a sell with a six-month price target of $210, which represents downside of about 40% compared with Tuesday prices.“We continue to maintain our more cautious Model 3 ramp, which is far below company target,” they said.

Musk spoke for Tesla a while back saying it aimed to build 1,500 of the Model 3 in September, with plans to dial that up to 5,000 by the end of the year and 10,000 a week by the end of 2018, however, they only managed to finish 260, with only 220 of them reaching their new owners. The company blamed the shortage on "production bottlenecks" but failed to reveal, at least according to sources quoted by the Wall Street Journal (paywall), is that production went on at a much lower rate partly because a special area of the plant was assigned to hand assembly where workers put various pieces together manually. Tesla was supposed to use these initial months as an extended testing period, but the idea was to test the production cycle as well as the vehicle. With the former failing to perform, that means we might be looking at further delays in the promised ramp-up. It borders on insanity that since less than one vehicle in five thousand is a Tesla that the company is valued only second to Toyota as the most valuable car manufacture in the world. Many Americans have never seen a Tesla driven down the street.

Adding to the show Musk has created which many admirers find "so splendiferous" it now comes out that the governor of Puerto Rico has signaled his support for Elon Musk’s plan to use solar to restore power to the hurricane-stricken island. On Friday, Governor Ricardo Rossello made plans over Twitter to speak with the Tesla CEO further, describing the idea as potentially turning into the company’s “flagship project.” This is just one day after Musk outlined an idea to restore power to the island. Some parts of the Island were expected to spend the next four to six months without energy after Hurricane Maria. While Tesla has already shipped some Powerwall batteries to the island Musk’s plan to use solar to get all of Puerto Rico back online is far more ambitious. On Thursday Musk put out on Twitter that “The Tesla team has done this for many smaller islands around the world, but there is no scalability limit, so it can be done for Puerto Rico too,” he continued, “Such a decision would be in the hands of the PR govt, PUC, any commercial stakeholders and, most importantly, the people of PR.”

Click Here And Learn The Secret Of "Razzle-Dazzling"
Please forgive me for not filling this article full of artist renditions of Musk's visions that give them far more credence than they might deserve. Struggling not to be overwhelmed by the trove of information available on Elon Musk and his ambitious plans I return to my original premise and how earlier I compared him to the silver-tongued defense lawyer Billy Flynn from the movie musical Chicago. One final thought, god help us if Musk continues to tap into the government and taxpayers to fund his projects that are not profitable to anyone other than Musk and those buying stock in his over the top ventures.

Footnote; My apologies to any Elon Musk fans I may have offended. Below are several other posts concerning both Musk and Tesla.

Saturday, October 7, 2017

Local Tax Sale Prices Soar As Buyers Search For Yield / By: Bruce Wilds

Buyers Seeking Yield Are Throwing Caution To The Wind
This week the county where I live had its annual tax sale. Basically this consist of an auction type sale of all the properties that owners had failed to pay property taxes on or those that had fallen delinquent. One thing is very clear, the combination of too much money chasing too few properties is creating a bubble in this market. People entering this area of investing would be well to remember a fair degree of risk is involved when a person bids on such properties. When you are the high bidder you must immediately pay the amount you bid then wait for a year while the current owner has total ownership rights to the property. During that time if the owner brings the taxes current including penalties and interest they get to keep the property and the buyer or bidder gets a hefty amount of interest on what amounts to a loan.

While prices have soared at local tax sales several issues exist relating to the learning curve that new bidders may be unaware of, most of this deals with the risk they may be overlooking in their enthusiasm for a good return on their investment. Increasing the risk is the fact that seminars are being held telling people this is a fast and easy way to increase the yield they receive on investments and that if the person is unable or simply does not redeem the property they may get a very valuable property for a fraction of what it is worth on the open market. Unfortunately, this means you will be bidding against people coming from a seminar or investment workshop loaded with fresh knowledge and are so eager to "get a bargain" that they go plum crazy when it comes to price.

Are You Moving That House? Wait, Please Bring It Back
While I will not argue that a buyer may get lucky and pick up a gem for below market price it is just as possible they may get far more than they bargained for in the way of grief. This was very apparent during the recent sale that I left because of the sky-high bidding that was obvious from the get-go. I consider this proof that QE and low-interest rates are driving people into a frenzy in search of higher yield and in doing so they have tossed caution to the wind. Speculators now go from town to town with a slew of money both their own and that of investors placing high risks loans in a market they know little about and have had little time to research. This means many of these people really have no idea what they are buying and they often forget just how much prices can vary in different areas, even within a city location is everything.

With many of these buyers not being real estate savvy and lacking the time to even drive by the property as well as an inability to do the due diligence required they often find that they wind up buying a pig in a poke. These properties can suffer from a number of problems such as pollution issues, flooding or sewer problems, and any property put on the sales block because of unpaid taxes often has a great deal of deferred maintenance. It is important to remember the owner of these properties receives all monies bid in excess of the minimum bid if they do not redeem the property, this means if only 1,500 dollars of tax and penalties are owed on a house and it sells for 40,000 dollars at the tax sale the owner whether the person living in the house or even the mortgage holder has a claim on the overage. If the property has enough issues do not be surprised if they take the money and run.

The flaw in bidding too much is that you may not get your ten to fifteen percent interest as promised but may indeed get the property and rather than a gem it might turn out to be a lump of coal, this can be even more of a problem for buyers from outside the area who can live hundreds or even thousands of miles away. Using the example above the property owner behind roughly a thousand dollars in taxes sees five hundred dollars of penalties and auction fees added on thinks they will be given a full year to come up with the money plus fifteen percent of fifteen hundred dollars which is another two hundred twenty-five dollars bringing the total to seventeen hundred and fifty.

Many Properties Are Trashed And In Very Bad Condition
Owners of property that are struggling to pay taxes often have bad credit and other financial problems leaving them stretched to the limit, with this in mind many who cannot come up with a thousand dollars have little ability to raise a great deal more. Fifteen percent of the forty thousand dollars used as an example above comes to six thousand dollars, which would bring the amount needed to redeem the property to seventy-five hundred dollars, this is an amount totally out of their reach for many of these people but that does not mean they will go gently into the night. Anyone thinking a person having a property taken from them will turn it over clean swept and in good condition may be proven a bit over-optimistic.

 As I stated earlier in this article the current owner has total ownership rights to the property and a year to redeem the property. If it is rented this means they can squirrel away the rents, if empty they can remove or sell off key components of the building such as the heating and cooling system. During that time while a bidder waits for a Tax deed to be granted some rather ugly events can take place. If a fire occurs if insured by the current owner he or she would receive the money and most likely not repair the property if they were about to lose it. In some cases, a house or building is condemned and demolished by the government and a lien for the cost put on the property meaning the bidder would get an empty lot and a rather large bill.

Thursday, October 5, 2017

Economic Transition, Reflection Upon Natural Progression / By: Bruce Wilds

In the Beginning, Everything Is New
The goal of this piece is to focus on the natural progression that takes place as an economy matures. When it comes to how we might view a developed country versus one that is in its early stages of economic development it might be helpful to think of a country in the early stages of development as a newly planned development on the edge of town. In the early stages of development, a great deal of money is spent on building the infrastructure necessary for the planned community, this includes roads, bridges, utility lines, and moving dirt. All this may go on for many years as homes and commercial buildings are constructed, all this creates jobs and new investment opportunities.

At Some Point, Focus Moves Towards Repair And Restore
At a certain stage of development, we reach a tipping point and a change takes place in the nature of how we spend our resources. As developments mature over time a larger percentage of outlays are spent on things like maintenance, updating, and upgrading existing buildings and infrastructure as needed, windows and roofs weathered by nature are replaced and parking lots repaved and sealed. Rather than pouring money into strictly new construction, we find as an economy matures its rhythm changes and the focus should become sustaining what has been created to maximize our prior investment and extend its use.

During the early 1900s just after the automobile became popular among the masses garages began to appear in cities. In the neighborhoods being built at the time garages were constructed for one car and fairly narrow to accommodate the cars of the time. When cars became larger and families started owning more than one automobile these garages were no longer was adequate and had to be enlarged. This example is used to highlight the fact that as lifestyles change neighborhoods change and evolve to better fit our needs and desires. Over time with each new invention, we alter our homes and the economy as well as a way of adapting to the new realities life fosters upon us.

In a perfect world, we would see developed areas not only continue to be maintained but steadily evolve and move forward. Because construction tends to reflect the lifestyles of those living during the planning and building phase, this means we should always be upgrading while preserving the best characters unique to the era in which buildings were conceived. When it comes to buildings this means adding insulation and replacing electrical panels when it comes to the economy it means finding new ways to manufacture and deliver goods. Unfortunately, the shift from a growth economy to one that is sustainable over time is very difficult to make and for many economies, it creates a slew of social as well as economic problems.

Much of mankind has adopted mantras such as "move forward or die" and "newer is better" these often prove to be short-sighted and discount what those before us have brought to the table. Failure to recognize this economic transition and reflect upon the natural progression of society ushers in conflicts and even war as politicians wrangle to produce the ever-growing growth demanded by a majority of voters. This shortsightedness could help explain why here in America we never hear politicians on the national scene call for conservation unless it is during an emergency. Consumers conserving, reducing waste, and any talk of government austerity usually conflicts with the goals of lobbyist hell-bent on creating growth at any cost.

War Is Wasteful And Disrupts The Natural Progression
The idea that the way to grow is to increase our population is flawed. Simply adding mouths to feed and efforts to merely add new workers to replace those retiring creates additional demand but is flawed and shortsighted because it ignores the problem of exploding population growth across the world. Just getting bigger is not always better and we must recognize even trees do not grow to the sky. At some point, we must face reality. War is often the byproduct of such growth and war has proven to be a poor answer to creating a better world. The bottom-line is we should focus on a transition towards a future that is sustainable over the long-term.

The world of tomorrow will create many new challenges as automation reduces the need for workers and we struggle with creating jobs that make people feel useful and allow us to live lives that have a purpose. When discussing such things it is easy to extend the conversation to things like income inequality and even a more interesting issues. What do people deserve from society merely because they are born? Do individuals have an obligation to give back to society and not simply take and make demands upon it? These are questions we will continue to grapple with going forward and most likely the correct answer is embedded in reflection and thought.

Tuesday, October 3, 2017

Decades Of Economic Perspective Hold Great Value / By: Bruce Wilds

Only Over Many Years Do We Gain True Perspective
As a person who cares about and is concerned about the economy, I find it very disturbing that so many people have forgotten or never taken the time to learn recent financial history. By recent, I'm referring to the last fifty to one hundred years. As we go back further it could be argued that the relevance and lessons we have learned weaken from changing times and because we now live in a considerably different world. This brings me around to a topic I often raise about how those without a long-term view or outlook of the economy wander about with what might be called "blind spots" where they totally miss possible scenarios as to how the world might react to unfolding events. I always marvel when I hear some young expert telling people how to invest by cranking out the wisdom they picked up in school only last year.

Over time as interest rates have fallen over the decades how we view the economy has changed. It seems only the people who were directly affected by the sky-high interest rates of the early 1980s remember and internalize their impact. It is often only from a historical point of view that we can gain a real appreciation and be truly aware of how damaging high-interest rates can be. They increase the carrying charge on many items, commodities, and items that sit idle or underutilized. High rates caused by inflation bring about a rapid revaluation of assets. Soaring valuations, stretched and distorted markets untethered to financial reality are not all that uncommon, however, history shows that sooner or later gravity overcomes their momentum and they come crashing to the ground with a thud. 

An example I have used before has to do with William Simon (1927 – 2000) was a businessman and a philanthropist. He became the Secretary of the Treasury on May 8, 1974, during the Nixon administration and was reappointed by President Ford and served until 1977. Years ago I wrote a piece titled, "A Time For Action, 1980?" where I detailed some of the thoughts expressed way back then in the book "A Time For Action" written in 1980 William Simon after his time as Secretary of the Treasury. At the time he was "frightened and angry" and the book was his way of sounding the trumpet about how America was heading down a dangerous path.

Picking up a copy of the book that I had read decades ago caused me to reflect on and evaluate the events that brought us to today. As often the future is unpredictable, looking back, it is hard to imagine how we have made it this long without finding long-term solutions and addressing the concerns that Simon wrote about so many years ago. Back then it was about billions of dollars of debt, today it is about trillions of dollars. This causes me to think that something has gone very wrong.

Do Not Underestimate The Importance Of The 1980 Reset
By the end of the 1970s, inflation started to soar. Only by taking interest rates to nosebleed levels was then Fed Chairman Paul Volcker able to bring inflation back under control. Paul Volcker, a Democrat was appointed as Federal Reserve chairman by President Carter and reappointed by President Reagan. Volcker is widely credited with ending the stagflation crisis where inflation peaked at 13.5% in 1981. He did this by raising the fed funds rate which averaged 11.2% in 1979 to 20% in June of 1981.  This caused the prime rate to hit 21.5% and slammed the economy into a brick wall, surprisingly it bounced back rather well. It must be noted this also had a profound on how we felt about money and debt while effecting and shaping the level of interest rates for decades

Interest Rates Today Are Ready To Fall Off The Chart!
This action and the increased interest rates in following years is credited by many to have caused  Congress and the President to eventually balance the budget and bring back some sense of fiscal integrity and price stability to America.  As the debt from the Vietnam war and soaring oil prices became institutionalized we moved on. Interest rates slowly dropped and the budget came under control. In recent years spending has again started to grow and at the same time taxes have been cut. This has slowly occurred over years and been ingrained in the system.  I'm sorry to say the path that Fed Chairman Paul Volcker set right decades ago has again become unsustainable and many people will be shocked when this reality hits.

At some point, it might be wise to take a moment and ask, where will this end, and just as importantly, how? We should remember trees don't grow to the sky and that black swans do not announce their arrival. In the end what bothers me most is that the numbers simply no longer work. It is time we consider the Fed and our government as one and Washington's failure to respond to the needs of the average American has been a big part of what created a pathway for Donald Trump's rise to power and his being elected as President as well as some of what is fueling the backlash against globalism. Ironically, the national debt has not been a big issue to many voters who I chose to accept the idea it will not yield huge negative economic ramifications.

As of late the ways and metrics used for years to determine value have been chucked out the window and been replaced by momentum and technical systems and if they don't work "don't fight the Fed", has become the rallying call driving us forward. Another watershed event is the general acceptance by many economists of what many people call Modern Monetary Theory or MMT. Also known as neo-chartalism, MMT is an economic theory that details the procedures and consequences of using government-issued tokens and our current units of fiat money. Newly acquired tools like derivatives and currency swaps are supposed to allow us to print and control growth going forward thus manipulating our problems away.

Do not underestimate the value of insight gained from decades of economic perspective. It tells us the economy of today is far different from the way things have always been. Today many Americans feel just as frightened and angry as former Secretary of the Treasury Simon did back in 1980. Since then America has kicked the can down the road, failing time and time again to face the tough decisions, and failing as well to take action. Part of the problem is the amount of debt has grown so large that we can no longer imagine or put a face on it. To those of us who envision the day of reckoning may soon be upon us, how it arrives is the question. One thing we can bank on is that when it arrives the majority of people will be caught totally off guard. Mark my words, cause, and effect remain a reality of life whether we are prepared or not!

Sunday, October 1, 2017

Sovereign Borders And Self-Rule Again An Issue

Hundreds Of Thousands Died In America's Civil War
The issues of sovereign borders and self-rule seldom fail to garner a great deal of attention. The monikers cast upon those taking up the cause of leading their homelands towards self-rule are generally cruel such as traitors, rebels, or even terrorist, but on occasion, these people are seen as freedom fighters. It is ironic that in a time where Presidents seem to pander and anguish over every American life lost to violence that Abraham Lincoln who oversaw  the death of over 620,000 soldiers that died during the civil war is seen by many as our greatest President. What is the value of keeping any nation together against the will of its people?

What is happening in Ukraine and the unrest in many areas of the world brings into focus the many conflicts that develop when a region decides to change governments often outside the recognized democratic system of voting. In some cases, even after an overwhelming vote such as in Crimea, the whole process is called into question. Unfortunately, the American civil war did little to resolve the issue of whether people had the right to secede or withdraw formally from membership in a federal union, an alliance, or a political or religious organization. The American civil war did little to resolve whether people had the right to secede or withdraw formally from membership in a federal union, an alliance, or a political or religious organization and certainly should not be used as a template for a solution. The bottom-line is that it is usually the politicians that refuse to give up control and this will not change.

Marchers Fill The Streets Calling For Self-rule
Several recent votes in areas across the world have shown the debate on self-rule is alive and well. One of the events rekindling the debate of sovereign borders was a vote in northern Iraq where over 90% of Kurds are said to have voted to separate from the country and form their own nation. Sometimes people seek to go their own way because they feel oppressed or because of cultural differences. At other times it is in an effort to assert more control over their own lives and destiny. When these votes occur it is not uncommon to see a great deal of passion unleashed by those on both sides of the issue.

In Spain, the Catalans appear ready to exercise their will. While they live well, in the prosperous heart of Europe many Catalans have grown to adulthood believing that they were, simply, not Spanish. Their desire for independence or self-rule is not the result of any external threat, war or by an economic collapse but driven by deep grievances that go to the bone. The need to break away from Spain traces all the way back to 1714, when Philip V of Spain captured Barcelona during the War of Spanish Succession, bringing an end to the Catalan principality. The reawakened political movements, both in Catalonia and in Madrid have magnified the partisan media on both sides and resulted in the Spanish government’s blunt, reflexive clampdown on those supporting the Catalan referendum.

The Movie Braveheart Centers On Freedom And Self-rule
The aim of this article is to examine some of the issues concerning self-rule and how the world reacts when people go in search of what they see as "freedom". We must understand that being recognized as legitimate by other governments is one of the first hurdles newly formed groups face. After that consider operating and running a government is expensive and requires a bit of experience. A lack of expertise is also a major stumbling block to long-term success. The leaders of change or a revolution often do not possess the skills to progress through this next level. The problem of corruption does not automatically vanish with regime change.

In June of 2013, I wrote an article about Scotland and the issues involved in its leaving the UK. It pointed out that such an event would affect the British currency when voters in Scotland moved towards a decision as to whether to separate from the UK and opted for independence in a referendum. What an independent Scotland might do about a currency was up in the air. Another matter was whether the newly formed independent country would depart "Scot free" or would inherit part of the massive national debt owed by the UK. To clarify, in our modern world setting up your own independent nation is a formidable and complicated endeavor.

Clouding these debates we often see matters such as whether to print a new currency or nationalize existing banks, both cause concerns of future economic stability. Another problem and question I tried to highlight in that article was the danger that if the UK Government was agreeable to allowing Scotland to go their merry way, Wales and Northern Ireland might also be inspired to move towards independence. At the time I noted it might also encourage similar movements in Catalonia, Belgium, Northern League in Italy, Basques, Cornish, and among the Poles. During a movement for independence relationships are often strained and even when they are turned back that does not mean the issue is dead.

What we are talking about comes down to governance and the right of people to choose under whose rule they want to live. Sometimes it is about one group of people forcing their will upon another. Ethnic pride, taxation, persecution, and sometimes simply the desire for more autonomy lead the move towards independence. While the idea of living in a smaller country may have some benefits it can often muck up the works and result in expensive bureaucratic duplication. It is difficult for a small country to function in our modern world and meet all the legal benchmarks required by their larger brethren. Currency, passports and documentation, conflicts over enforcing laws with other countries, and other problems quickly surface.

Borders are a creation of man and not visible to the birds flying above. Much bloodshed and many wars could be avoided if the issues of regime change or borders could be handled in a more rational and constructive way, but do not expect this to happen. Borders and political control is a problem that haunts man since before the written word. A few years back it was President Obama talking about the legal sanctity of sovereign borders, but this was at a time he wanted them honored. The truth is this is an argument of convenience masking deeper issues. When it comes down to it we are just pawns in this sad power game. If you doubt this just ask some of the many people displaced from their homes in Syria.

Wednesday, September 27, 2017

Mergers Hit Rail Equipment Sector - What Is The Lesson? / By: Bruce Wilds

Chinese-Bullet-Trains On Display
Little noticed by many Americans currently obsessed with an emotional debate as to whether it is acceptable for an NFL football player to kneel during the national anthem an important development is taking place in the rail equipment sector. One vision of the future has people across the world zipping from place to place on high-speed trains. Of course, trains are not yet that big of a factor in America but they may become a bigger player in moving people if the sky grows overcrowded. If this is to unfold the market will most likely be controlled by a few well-entrenched big players. Many industry watchers see the writing is already on the wall, "Get Big Or Die" but that may be a simplification of what we are seeing.

According to the South Morning China Post in an article recently published, China Railway Rolling Stock Corp (CRRC), the merged new entity of China’s two largest train makers, on Thursday announced recent contracts worth 12.2 billion yuan (HK$15 billion), alongside another 4.84 billion yuan deal to supply metro trains to Hong Kong. Among the eight newly-announced deals, only one is for export worth about 440 million yuan, according to the statement on the Shanghai Stock Exchange. CRRC has 90 percent of China's domestic market for the production of railway locomotives, bullet trains, passenger trains and metro vehicles.
Whether Europe’s antitrust authorities block it may depend on their reaction to the merger that created the new Chinese rolling stock company, CRRC Corp. which dwarfs its international peers.

Again we see the power a company gains when it is supported, subsidized, or given an unfair advantage driven by its government. The bottom-line is that CRRC's internationalization projects are as ambitious as its research highlighting the goal behind the merger of CNR and CSR was to end the competition between the two Chinese companies on foreign contracts. CRRC has won rail contracts as far afield as Chicago and Kenya. China’s Belt and Road initiative will also bring yet more international business its way. Meaning that the Chinese company's size plus access to cheap finance will let it crush rivals unless they take action. Americans would be wise to pay a little more attention to these mergers and what is happening across the world.

The articles linked below are related to the subject above;

Sunday, September 24, 2017

Puerto Rico Update! What You Might Not Know / By: Bruce Wilds

This update about the situation in Puerto Rico delves into the island's financial woes which will impact its ability to recover from recent storm damage. Almost everyone has seen the news that Hurricane Maria battered parts of the Dominican Republic with heavy rain and high winds as it passed off its east coast last week after making a direct hit on Puerto Rico. that caused severe flooding and cut power to almost all the island. The entire island of 3.4 million people was under a flash flood warning early on Thursday as the storm dumped massive amounts of rain on much of Puerto Rico through Friday, according to the U.S. National Hurricane Center. This has put a major damn in peril adding to the crisis the area now faces.

Hurricane Devastation Adds To Current Bankruptcy Woes!
Maria was the second hurricane to hit Puerto Rico in two weeks following closely on the heels of Hurricane Irma. Large amounts of federal aid began to reach the stricken area on Saturday when the island's main port was opened in the capital allowing 11 ships to bring in 1.6 million gallons of water, 23,000 cots, dozens of generators and food. Dozens of additional shipments are expected in upcoming days and are being welcomed by local officials who praised the Trump administration's response but called for the emergency loosening of rules they blame for condemning the U.S. territory to what they see as second-class status.

The White House said late on Wednesday that  President Trump had declared a major disaster in the U.S. Virgin Islands and ordered federal aid to supplement recovery efforts, Maria was ranked a Category 4 storm, near the top end of the five-step Saffir-Simpson scale, and hit Puerto Rico with sustained winds of up to 155 miles per hour (250 km per hour). Maia was the strongest storm to hit the U.S. territory in nearly 90 years. It should be noted that Puerto Rico is not a state and its massive financial problems are expected to complicate the island's recovery. Currently, Puerto Rico faces the largest municipal debt crisis in U.S. history. Both its government and the public utility have filed for bankruptcy protection amid disputes with creditors.

Some officials predict Puerto Rico could be without power for months after Hurricane Maria and authorities are warning that many investors in the $9 billion of Puerto Rico’s outstanding electric utility bonds are at risk of never seeing their money. The plight of Prepa, Puerto Rico’s main supplier of electricity, was grim even before the storms. Prepa had filed for bankruptcy in July.  Gov. Ricardo Rossell√≥ told CNN on Wednesday night that Puerto Rico’s debt crisis will make recovery very slow and electric power will be one of the toughest things to restore. Pointing to the fact that the power grid is “a little bit old, mishandled and weak,” he told Anderson Cooper.

Power Will Take Time To Restore
Multiple transmission lines sustained massive damage from the storm, said Ricardo Ramos, director of the Puerto Rico Electric Power Authority. Ramos said he hopes to begin launching helicopters by this weekend to begin inspecting the transmission lines. Power knocked out after Hurricane Irma hit two weeks ago was just beginning to be restored before Maria. Power plants were particularly vulnerable to these storms because the island’s heavy debt load, and the utility’s own chronic insolvency, had limited spending on maintenance. Telecommunications throughout the island have also "collapsed" adding urgency to an already dire situation.

While President Trump way back in May tweeted, "No Bailout For Puerto Rico" with the island’s economy in shambles, its coffers depleted, and creditors nipping at its heels, Puerto Rico had little choice but to seek what is essentially bankruptcy relief in federal court. It was the first time in history that an American state or territory had taken such an extraordinary measure. With approximately $123 billion in debt, the total includes about $74 billion in bond debt and $49 billion in unfunded pension obligations. This far exceeds the $18 billion bankruptcy filed by Detroit in 2013. While the court proceedings could eventually make the island solvent for the first time in decades, the immediate impact is very grim.

As government workers are forced to forgo pension money, public health and infrastructure projects will go wanting, and the “brain drain” the island has been suffering as professionals move to the mainland will most likely intensify. Puerto Rico is “unable to provide its citizens effective services” because of the crushing weight of its debt, according to a federal board that has supervised the island’s financial affairs since last year. Knowing that for the last decade, Puerto Rico hasn’t had the funds to repay its creditors or improve its aging infrastructure, let alone deal with the ramifications of a major hurricane sets the stage for some type of dramatic action that will most likely be very costly to the American taxpayer.

The disaster relief system is structured in a way that people are primarily meant to rely on their private insurance. Through FEMA, individuals can only receive a maximum of $33,300 which is often not enough to repair or rebuild many houses. On September 20th, a story in the Wall Street Journal reported only about 50% of houses in the territory are covered by insurance. As to where Puerto Rico will fund repairs for essential public facilities, such as the bankrupt power authority remains in question.

Further complicating matters is that Puerto Rico’s economic history will limit its fundraising options. With all its debt the island has no access to capital markets. Even if it did, willing investors would be hard to find as the expected post-Maria tourism drought will mean that tax revenue is expected to fall. Another issue is that Puerto Rico may find it difficult to appeal to Congress, where, as a U.S. territory, it has no voting power. Additionally, lawmakers have long chastised Puerto Rico for the financial mis-management that led to its bankruptcy. With huge damage numbers of around forty billion dollars of damage are being tossed around fiscal conservatives who currently control the legislative branch could attack any large relief package as part of a bailout.

Even if Puerto Rico gets the money it needs to rebuild over the next few months, its long-term prospects remain grim. Unlike Houston, which had a flourishing economy when Hurricane Harvey hit, Puerto Rico has been struggling for years. The Commonwealth’s woes can be traced back to 2006 when a tax break for U.S. companies expired. An exodus of jobs soon followed, with the unemployment rate reaching over 12% earlier this year, more than double the overall U.S. figure. As the jobs left, people began to follow. The island’s population has shrunk to about 3.5 million from 3.8 million in 2000.

One thing is certain and that it will be interesting to watch this all unfold as Puerto Rico jostles with other areas like Texas and Florida for hurricane relief from a nation whose generosity is being taxed in more than one way. This additional crisis may actually strain the ability of the federal government to pretend it can cover the cost of every calamity that strikes the nation without casting doubt on the soundness of the dollar. It also does not bode well that a few real states such as Illinois, Connecticut, and New Jersey are also spinning around the bankruptcy drain. These expensive disasters highlight the fact that with money in short supply voicing sympathy is one thing but asking people across the nation to step up and pay the bill a far different animal.

Footnote; Congress sure has its plate full but that does not mean anything will get done. Not dealing with hurricane relief will, however, open lawmakers open to more criticism. The article below looks into the large amounts of money needed to fix this mess.

Nuclear Proliferation - Duck and Cover! May Not Work

Nuclear Blast Survival 101 - Don't Look At The Light! / By: Bruce Wilds

Recent talk about war with North Korea highlights the problem of nuclear proliferation. Lurking in the back of our minds is the idea someone may someday unleash a nuclear bomb that may kill hundreds of thousands or more people. The way we cope is by realizing if we are lucky the odds favor us and it will land on someone else. The problem with this theory of survival is that a huge number of deaths will come not at the time of detonation but later. The radioactive fallout created as the explosion gathers up tremendous quantities of dust and ocean water and spits them into the atmosphere which then represents a secondary grave risk, especially in the first hours after an attack but one that remains for many years.

In an article recently published by Project Syndicate, Joschka Fischer, German Foreign Minister, and Vice-Chancellor from 1998-2005 writes;
In this new environment, the “rationality of deterrence” maintained by the United States and the Soviet Union during the Cold War has eroded. Now, if nuclear proliferation increases, the threshold for using nuclear weapons will likely fall. 
I agree with Fischer that today a great number of people have come to accept the idea of a "small or limited' nuclear war as acceptable. The reason they feel this way may center around the fact they have not given it enough thought.
"Duck and Cover" Is A Poor Strategy For Survival!
If enough damage is done to the world those surviving will face lives that are greatly diminished in quality. Those of us growing up during the Cold War and during the Cuban missile crisis should remember the U.S. government’s civil defense film titled, Duck and Cover, that was aired in schools. The film, created a year before, was part of the government’s campaign that reiterated the fact that nuclear war could happen at any moment and people needed to prepare themselves – especially children.You can view the film by using the following link,  The fact is the film did little to reassure us because adults also made it very clear that in the case of a nuclear war we should run directly home so that we could "die with our family."

Fischer, who grew up under the shadow of the nuclear threat, points out that a growing problem we face today is the danger from an increasing number of smaller countries ruled by unstable or dictatorial regimes might acquire the nuclear weapons they so badly want. By becoming a nuclear power, such regimes not only ensure their own survival and promote their local or regional geopolitical interests but can even pursue an expansionist agenda. A problem with a limited war is that anyone who feels they can start such a thing may lack the imagination or brains to throttle it back before it expands out of control.

Over the years as we have learned more about these weapons we have become more concerned about the electromagnetic pulse that is likely to knock out electronic systems including phones and computers. We also can expect pile-ups on the freeways as drivers are blinded by the flash of the explosion. In the complicated world of today, it is frightening to imagine the rush for food, water, and gasoline as millions of people attempt to drive out of an area under attack or threat or try to distance themselves and their loved ones from the terror generated by the possibility of a second, follow-up attack.

Ironically, while people know this might happen little real preparation for such an event has taken place. One of the few places to make an effort is Ventura County, located just northwest of Los Angeles, they have taken the unusual step of prepping a 250-page plan on how to respond to the humanitarian crisis that would result from a nuclear attack in Los Angeles. Their efforts even include a truly bizarre and some people might say, frightening public service announcement that instructs folks to shelter in place and cover windows with plastic.

On a more positive note, while a global nuclear confrontation is generally viewed as a bad thing, for Ron Hubbard, President of Atlas Survival Shelters in Los Angeles, it has resulted in an economic windfall as a staggering number of Californians and people even as far away as Japan have suddenly turned into doomsday preppers. The company, based in Montebello in eastern Los Angeles, sells shelters priced from $10,000 to $100,000. The shelters are designed to be buried 20 feet below ground and can sustain survivors for up to one year, depending on the size and model. This means they should give you more protection than simply ducking and covering up, that is, of course, providing you can get there in the few minutes you may have.

Footnote; Below are the links to two other articles on the related subject of nuclear war.

Footnote #2; Seriously, if caught by surprise I have to question how many of us might forget "not to look at the light" or do that "duck and cover" thingy.

Thursday, September 21, 2017

How Bad Debt Is Resolved, Hint, It Is Not Good! / By: Bruce Wilds

It is only prudent that we again come back and address the issue of where bad debt goes. This exercise has gained urgency in light of recent information released by the Bank of International Settlements concerning the growth of debt across the globe.  It now appears that the suspicions many of us held for some time are true. Contrary to the previous speculation that emerging markets were deleveraging indications are that not only were the conclusions wrong, but developed nations have been stealthily loading them up with more debt. The reason this was not picked up by many analysts is that it has been accomplished by methods that are off book. We now are finding huge amounts of debt largely hidden from the public eye have accumulated in the form of swaps and forwards.

Debt Hangs Above Us Ready To Explode!
I have written about the subject of debt on a number of occasions because it has many facets. One very important issue is who gets hurt in the end, ultimately, regardless of how it is resolved someone draws or is given the short straw. Writing off bad debt will be a painful process and I don't mean for the debtor, but for the creditor, meaning the person, business, or institution that holds the paper. A debt default generally constitutes an unplanned and involuntary financial adjustment. While it appears much of the financial community is relatively unfazed by the mountains of debt growing throughout the world we as individuals should be concerned as to the many ways it might spillover and affect our lives.

With low-interest rates many companies have borrowed a great deal of money to buy back stock, this has been one of the forces driving the market ever higher. A comment from a reader several months ago highlights this and why it might be a big problem when he wrote;  It is fairly obvious that not all IOU's are deemed as trustworthy, and as trust drains from this over-indebted system, shakiest issuers' debt will lose value fastest. Junk debt is thus a Hindenburg in search of a spark all its own. Wait until corporations discover how difficult it may be to roll over all this share-buyback debt of the last few years.

Artificially low interest rates tend to skew all markets especially the credit and debt markets. This creates a debt explosion that extends into everything including consumer spending and the statistics surrounding their effects on the economy. We should remember debt takes many forms and shapes, it is not contained in auto and student loans. Clever sounding terms like "transitory" are often used to mask growing debt problems and in an effort to brush reality aside. Sometimes a person presenting the case that growing debt is under control will even go so far as asserting some of it is "good debt" or declare the positive effects of more growth outweigh the negatives of loose lending standards.

It should be noted that currently, a great deal of what is being seen as deflation flows from a loop being created from lower interest payments on things like autos, sadly this is a one-off and only goes to mask deeper trends developing under the surface. The fact is debt that cannot be repaid tends to be hidden away and corrupts the true worth of those owed what often amounts to non-collectible sums. Even now we are hearing calls by many people to write off and forgive student debt without any real understanding of the implications such a policy would entail.

Again, I caution those who think this writing off of debt will be an orderly and even process. By that, I'm saying not all debt is created equal. One major difference is whether it is backed by assets or collateral. Many other factors affect the strength or impact of defaults. One example of this is when it becomes payable, some debt is stretched over decades while other obligations are short-term and paid with a balloon payment or all at one time.  Also, debt is computed at different interest rates and this can affect its long-term impact. Another often forgotten issue is whom the debt is owed to and the impact default will have on their ability to honor their current and long-term obligations. I have seen several businesses forced into bankruptcy when a large customer defaults and cannot pay its bills.

The Reality Is We Have Not Deleveraged!
The world of bankruptcy and unpaid debt has become a complicated place where protection for one party can leave another totally exposed. We have seen things like "clawbacks" or the government making an exception and changing the rules as in the case of shafting the bondholders of General Motors during the bailout. Yes, writing off debt can be a slippery slope. Dept that is written off takes something with it when it leaves this world and that is the wealth of someone else! In today's low-interest rate easy money environment it is much easier to hide under-performing assets and the inability to repay debt. Low-Interest rates tend to foster an extend and pretend attitude that becomes apparent and crystal clear only after rates climb and put stress on the system.

Because of QE and low-interest rates, we have seen increased speculation and with it the creation of leverage or carry trades that multiply risk. This also tends to move demand forward and cause an increase in the improper allocation of capital, both of these actions have a way of causing problems that linger for years. Another issue is that across the globe after 2008 the central banks and governments of the world have played a giant game of "hide the debt," much of it has been disguised by transferring obligations from the banks and individuals onto the backs of the general population by growing what is termed as government debt. The problem is massive debt still hangs above our heads as a Hindenburg in search of a spark.

 It is important to consider how this will all play out or shakedown, this is yet to be determined but the ramifications remain powerful. Often unpaid debt shifts the pain or obligation to another party and acts as a wealth transfer, usually, this is not a voluntary act unless the note is being forgiven by the holder. I see bad debts on the rise and the effect to both the economy and the lives of many will be massive and undeniable in coming years. It will show its ugly side by pensions being cut, inflation edging higher, or simply lowering our overall standard of living. The fact is some way, shape, or form the piper must be paid and we will be reminded that there is no such thing as a free lunch.