Europe Has Pneumonia - China Catches A Cold

Stock and commodity markets were not happy at the start of this week when it became clear that Europe's long-anticipated recession is helping to slow the Chinese economy, global commerce's power plant in recent years.
The European Union and China are each other's largest trading partners, if you consider the 27-member EU to be a single entity. (Among individual nations, the United States, Japan and South Korea occupy China's top spots, with Chinese-ruled Hong Kong sitting between Japan and South Korea.) It is not surprising that a downturn in Europe would have significant effects back in China. In fact, what may be most encouraging about the situation is how mild those effects could be, at least if things ago according to the Communist-led government's latest plan.
After several years in which all of the world's major economies and markets seemed to move in violent lockstep, a healthy degree of diversity is creeping into the system. The natural checks and balances of a diversified world economy are trying to reassert themselves.
China is targeting growth of 7.5 percent this year, and plans for growth to average 7 percent annually over the next five years. The previous five-year plan called for annual growth of 8 percent. The country routinely beat the benchmark, notching a 14 percent gain as recently as 2007.
These would be eye-popping numbers in North America or Europe, but until recently, Chinese leaders believed they needed growth of at least 8 percent annually in order to absorb the approximately 10 million workers who joined the labor force each year. Now, China's labor growth has slowed thanks to decades of strict family planning and a rural-to-urban migration that has largely run its course. China is realizing both that it can learn to live with slower growth and that it probably has to, because top export markets in Europe and America are not likely to keep Chinese factories expanding at the accustomed rates.
Europe's economy contracted 0.3 percent in the last quarter of 2011, and the downturn seems likely to continue through at least the first quarter of 2012. This would put Europe in its second recession of the past three years. Fiscal tightening across the continent, combined with ongoing sovereign debt worries, continue to sap consumer demand and business confidence.
Yet the same bleak news that pounded the markets this week points toward stabilization ahead. Slower export demand from Europe and America is prompting the Chinese to stimulate domestic consumption. The Chinese also are allowing their currency to appreciate somewhat faster than in the past. Both of these steps will help keep China's trade in better balance. Increased demand within China would ultimately result in a greater appetite for Chinese purchases of machinery, food products and consumer goods from the slower-growing Western economies.
Another benefit of slower demand is a reduction in upward pressure on a broad spectrum of commodity prices, ranging from oil to copper. Lower prices for physical inputs allow companies to spend more money on capital projects or on an expanded labor force.
Finally, the improving prospects of the world's largest economy, namely ours, provide an additional driver to improve conditions elsewhere. American demand powered the world economy long before China took center stage. Though U.S. growth, at less than 3 percent, is not robust, it is helping to offset the slowdowns in Europe and China. The world should see similar contributions from midrange economies like South Korea and Russia (the latter benefiting from high oil prices) and from some emerging countries. Brazil is struggling with rising prices and wages and slowing Chinese demand for its commodities, but an improving U.S. economy is good news for Brazil as well.
There are plenty of short- and long-term risks to the global economy. A financial blowup in Greece or elsewhere in Europe, another nasty confrontation over American government finances, or a geopolitical crisis in the Middle East or the Pacific could derail business confidence in the U.S., causing us to backslide into the rest of the struggling pack. Longer term, the world is full of dangerous economic imbalances, which range from unfunded pensions and entitlements to aging populations and shrinking labor pools. We will deal with some of these issues for many years, or decades, together with other issues that are not yet even on our radar.
But it's nice to see the current relaxation of the financial contagions that have beset us for the past five years. Europe may have pneumonia, but China has only caught a cold, and we are feeling pretty fit. Things could be better, but we have seen worse.

State Power, Social Power, and Communities

The more I read, the more I realize the true secret to success in business and life is related to the strength of relationships within a person's community. The myth of rugged isolated individualism, although enduring, is, in truth, only a myth. Economic, educational, even political effectiveness are all improved when people work together. Please don't misunderstand me, I haven't turned to economic communism; however, I can understand better how so many have been drawn into this illogically evil doctrine. Specifically, most people, if given the choice between being alone or in community, will choose community, even if the association is Biblically wrong, thus communism's growth. In fact, a cursory look at organizations as diverse as communism, the mafia, and gangs will exhibit the enduring need for community.
Communities versus Individualism
If community is essential to human beings, then the question is: How do we incorporate community into a society without sacrificing life, liberty, and property? Since liberty cannot exist where the State dictates, the idea of community and freedom precludes State control. Therefore, free communities are a misnomer unless they are voluntary organizations. However, although the non-involvement of the State is essential, it isn't sufficient to create community. The other side of the equation is for people to learn how to work within a community setting. Consequently, the atomistic rugged individualism of American myth must be replaced by men and women who work within a Biblical framework of ordered liberty and love. In other words, the greedy, self-centered capitalist is not a true picture of a free-enterprise Biblical community. In fact, this caricature of American freedoms pinpoints what is plaguing America - the loss of community roots and liberty (Social Power), instead, replaced by today's (State Power) crony capitalism.
Murray Rothbard, the late dean of Austrian Economists, wrote in Conceived in Liberty:
With Albert Jay Nock, the twentieth-century American political philosopher, I see history as centrally a race and conflict between "social power" - the productive consequence of voluntary interactions among men - and state power. In those eras of history when liberty - social power - has managed to race ahead of state power and control, the country and even mankind have flourished. In those eras when state power has managed to catch up with or surpass social power, mankind suffers and declines.
State Power versus Social Power
In sum, wherever State Power flourishes, Social Power declines. Thankfully, however, the reverse is true as well. By standing on the shoulders of both Nock and Rothbard, we see that societies can be organized around two competing philosophical choices:
1. State Power: Top down external discipline and the subsequent loss of liberty endured.
2. Social Power: Bottom up internal discipline and the subsequent ordered liberty enjoyed.
The first option is the real-life history of America since around the Civil War, with State Power moving ahead and Social Power in subsequent decline. Since 1913, however, the battle has become a run-away drubbing with State Powers triumphing in the Federal Reserve Act, the Federal Income Tax amendment, and the democratic election of Senators. In truth, it's hard to fathom a worse mixture of federal legislation (for Social Power) in one year in one country than what occurred in America in that fatal year of 1913. In other words, 1913 wasn't just (to use Oliver DeMille's term) a freedom shift, it was a freedom rout. I look forward to DeMille's book 1913 which elaborates on these fateful events.
The second option is America's (and the West's) best hope for freedom. America needs a community restoration, starting, not from the top down (State Power), but rather, from the bottom up (Social Power), in order to revitalize America. Social Power is fueled by social capital - a sociological concept which refers to the value of social relations and the role of cooperation and confidence to get collective results in any endeavor - to paraphrase Robert Putnam, in is classic Bowling Alone. Putnam explains the key role of social capital, "A society characterized by generalized reciprocity is more efficient than a distrustful society, for the same reason that money is more efficient than barter. If we don't have to balance every exchange instantly, we can get a lot more accomplished. Trustworthiness lubricates life. Frequent interaction among a diverse set of people tends to produce a norm of generalized reciprocity." Furthermore, Putnam argues, "Does social capital have salutary effects on individuals, communities, or even entire nations? Yes, an impressive and growing body of research suggest that civic connections help make us healthy, wealthy, and wise. Living without social capital is not easy, whether one is a villager in southern Italy or a poor person in the American inner city or a well-heeled entrepreneur in a high-tech district." Social capital matters, in other words, both personally, professionally, and politically.
Social Capital: Turning Aspiration into Realities
Putnam goes on to list five specific areas where the trust and understanding inured by social capital helps translate aspirations into realities:
1. Social capital allows citizens to resolve collective problems more easily through improved teamwork.
2. Social capital greases the wheels that allow communities to advance smoothly through improved trust.
3. Social capital helps widen the awareness of fellow citizens that their fates are intertwined through improved understanding.
4. Social capital serves as conduits for the flow of helpful information and resources to accomplish community and individual goals.
5. Social capital improves individual lives through psychological and biological processes. In fact, numerous studies suggest lives that are rich in social capital cope with trauma and illnesses significantly more effectively.
America's Social Capital Decline
Even with social capital's overwhelming advantages, Putnam acknowledges its decline, writing, "Americans have had a growing sense at some visceral level of disintegrating social bonds." He explains further, "More than 80% of Americans said there should be more emphasis on community, even if it puts more demands on individuals." In sum, social capital isn't just the fuel for Social Power - a necessary check on State Power - but it also enhances individual lives through the sense of belonging engendered within communities. Strikingly then, the decline of social capital, not only attacks society's freedoms, but also attacks an individual's well-being. With so much to gain and so much to lose, why aren't more people focused on the restoration of communities throughout America and the West? That question will be the subject of further articles.

Houston Unemployment and a Booming Texas Economy

The unemployment rate in Houston is at 10 percent as of December 2011 according to the US Bureau of Labor Statistics, 2 percent higher than the national average. This is shocking, considering Texas is leading the nation in government job growth. About four years ago, government stimulus was supplied in hopes of restoring economies to get them growing again. The fact is, there has not actually been growth. Most states have either stayed the same or gotten worse when it comes to unemployment. Recently it has also just been announced that Texas has returned to the labor rate they were at before the recession started. Not many states can say that.
It's hard to tell where Houston stands when it comes to job growth. News headlines are reading both "Houston Unemployment Rate Inches Higher" as well as "Houston Unemployment Rate Continues to Drop" making it almost impossible to determine what is actually happening in Houston's economy, but it may be safe to assume that Houston will follow the trend of the rest of the state, which is continuing to improve. According to the Texas Work Force Commission, Texas saw their civilian labor force add 21,000 people.
Did you know that two out of three people filing for bankruptcy have lost their job? And that 91 percent of people filing for bankruptcy have suffered either a job loss, a medical illness or have undergone a divorce? This should typically mean that when unemployment drops, so will the number of people filing for bankruptcy. Things are looking up for the lone-star state, and with the way the economy has been growing among countless other states that are either stagnating or getting worse, Texans can be assured that their situation is not dire.
If you live in the Houston area and are one of the many people facing unemployment, be encouraged that the Texas economy is growing. If you are facing the realities of unemployment now and don't have time to wait for the economy to make a turnaround, then you have options you may not even be aware of. No one financial situation is like any other. You may be able to afford an alternative payment plan but you may not. Some debt cannot be taken care of completely by filing for bankruptcy, but many of those include debts that must be paid as a result of a crime, spousal/child support and student loans for example.

The Federal Reserve Should Discount the Amount of Money We Owe By the Trade Deficit Figures

One of the problems with borrowing money for deficit spending by our government is the reality that it is the citizens who are burdened with the cost of paying the money back with interest. The previous business cycles of our economy were much more predictable before our economy became so global. Today, the business cycle is out of whack, along with our deficit spending, borrowing, trade deficits, and money creation theory and allocation. We need to make some changes - we need to make them quick. Okay so, I'd like to talk to you about this for a moment if I might.
We need to make a deal with the Federal Reserve that we should be discounted the amount of money that we have borrowed and now owe, and be forgiven for any interest payments - the amount of money we are losing in trade deficit outflows. When that money comes back, and when the trade flows return the other way, then it can be owed, but we should not be paying interest or principal on money borrowed which is no longer running around in circulation in our economy.
In a perfect world those who have the money flowing in would have to adjust on their side. Pinning the interest and money creation to the flow is more apropos in the global economy. Although this is a working theory of mine in progress, I would submit to you that we are causing a terrible situation and will continue with runaway budget deficits if we keep playing the game as we are - worse it's not a zero sum game, and could easily turn out to be a lose-lose as China for instance recipient of those trade flows paints itself into an economic corner.
Likewise, with huge trade deficit issues we are inflating the rest of the world, and some of that money is coming back, but it is being used to buy up our infrastructure, our biggest corporations, and in essence our money that we paid for is being used to dissolve and erode our national strength. That is a dangerous thing, and it's not good for anyone, especially any American. Worse, we are giving our strength away to less-than-ethical folks in other nations who are corrupt, and are taking advantage of us - yes, I know, they are human, what do you expect. Understood, but we need to pay attention to the flows of currency, capital, and wealth.
We need a new formula, and whereas our money creation theory works fine in an encapsulated an enclosed economy with minimal oversight, it doesn't work so well when pitted against the rest of the world in a global free-flowing market with scoundrels and cheaters, those who refuse to play the Western win-win style trade deals which could actually open up the world for free and fair trade around this pale blue dot. It is quite evident that other nations are more corrupt than we, and are busy destroying their own economies, there is nothing we can do about that, but we can do something to fix our system using a better formula for our nation's economy and within our price system.
Please consider all this on an intellectual level, because it is not my intent to redesign the whole world, just to help everyone realize that what we are doing, currently isn't working, and since it isn't working, the American taxpayer, and their children and future generation should not be economically enslaved, because they had nothing to do with the poor management involved in the present period. Americans should be free, and not be economically enslaved. Please consider all this and think on it.

Make Way for the Mega Cargo Container Ships - What Does It Mean?

Last year, I listened to a rather enlightening speech by a professor at the University of Riverside in CA who explained the changes at the Los Angeles and Long Beach Ports and how that affected jobs, rail traffic, pollution, and how all this was effected by global trade with China. It's a big complicated and comprehensive set of challenges in logistics and economics. Not surprisingly, as free-markets economies always are, and throw in the global trade issues, and it becomes very obvious really quickly that everything affects everything else, and linear decision making won't work.
Perhaps, this is why I am so intrigued by it all and why our think tank often addresses the flows of our civilization. Now then, at stake are vast fortunes, billion dollar companies, and the flow of all we know. Okay so, let's talk.
In fact, there was a rather telling story in the Journal of Commerce on March 5, 2012 titled; "Mega-Ship Trend Comes with Consequences," by Peter T. Leach, Senior Editor. The article noted amongst other things that; "Analyst predicts container industry will shrink to seven to 10 carriers by mid-2020s," which sounds about right to me, as I too have been discussing the global trade slow down, mega-ship capacity, and the reality that there will be winners and losers in this game.
These shipping companies must go for volume, invest in mega-cargo ships, consolidate, or face the Tsunami of bankruptcy and forced consolidation. The article also had an interesting quote from Lars Jensen; "The container industry will shrink to seven to 10 carriers by the mid-2020s, it may be eight, it may be 10, but there will be fewer players," who is also expecting more orders for 10,000 plus container ships, and a revitalization of big news consolidations soon, and really accelerating by 2015.
Now then, I'd like to address some more predictions that I'd like to add to this in light of my on-going scrutiny and ever present radar scanning of this industry. I believe all these issues and the others I've made will also cause the following concerns as the industry evolves and the competition adapts:
Smaller Shippers May Not Be Able to Compete on Global Trade Routes
The economies of scale will no longer be there for companies running smaller vessels across the Atlantic or Pacific or across the top of the world. The profit margins will not be there for the new price points. These smaller vessels will be forced into smaller routes, island hopping, or special orders, still, most are too big for that, and too small to compete with the global mega-ships. Also trade is opening up and larger shipments, ports, and shipping points are upgrading simultaneously, nearly everywhere around the world. This is a good thing for humanity but not so great for the smaller companies with the smaller ships.
Massive Industry Consolidation and Big News Bankruptcies
Some of the smaller routes will still be needed, but without the larger routes and big money maximum capacity routes available due to ship size and cost per container, these companies will not be able to stand alone. Some of these ships will be parked, mothballed, or cut up for scrap. The rest will end up being upgraded and used for spur routes for the bigger global shippers with big bucks and volume pricing.
Challenges for Ports and Shipping Schedules
Ports will have to upgrade or they will get bypassed by rail as the mega ships off-load at ports that can take the additional traffic and volume. Meanwhile, ports which are minimally upgraded will experience traffic jams, and angry communities and neighbors until maximum efficiency is reached to handle the new mega-ship volumes coming in at a much higher frequency. Some smaller ports will die or fall off the proverbial economic cliff and then decay while larger ports will expand and evolve - competing for this new volume paradigm.
There is an interesting paper on this worth reading, a thesis from Martijn Streng from Eramus University in Rotterdam titled; "The consequences of megaships," published in May - July 2011, which I believe sets the record straight and tells of the future evolution of the industry. Indeed, with the opening of the new larger Panama Canal locks it also has big implications for rail companies in the US, Canada, Mexico, and South America. The global shipping routes are changing, and as the Northern route opens up and the ice clears, these changes will favor the mega ships, and the companies which own them even more.
Indeed, I hope you will please consider all this and think on it when discussing anything to do with transportation, global trade, pollution, diplomacy, politics, jobs, ship-building, corporate mergers, and micro and macro economics.