Generational Dynamics World View News

[John]

** 3-Mar-2019 Canada's planned extradition of Huawei exec raises tensions

Canada announced on Friday that it will go ahead with hearings on the
extradition of Huawei exec Meng Wanzhou to the United States, based on
a series of harsh indictments that the US Dept. of Justice laid out in
January. The charges went far beyond theft of intellectual property
when a multi-year investigation revealed massive international bank
fraud by Huawei in order to violate US sanctions against Iran. As CFO
of Huawei, Meng is charged with masterminding this bank fraud.

• Meng Wanzhou with her lawyer

Canada's Dept. of Justice explained the decision: "Canada is a country
governed by the rule of law. The decision on whether to issue an
Authority to Proceed was made by Department of Justice ... officials
who are part of a non-partisan public service."

However, China's Foreign Ministry issued a furious response:

"The Chinese side deplores and firmly opposes the Canadian side's
obstinately moving forward the so-called judicial process of
extradition against Ms. Meng Wanzhou and has lodged stern
representations.

China's position on the case of Meng Wanzhou is clear-cut and
firm. The US and Canada have abused their bilateral extradition
agreement and arbitrarily taken compulsory measures on a Chinese
citizen, which constitutes a serious violation of the legal rights
and interests of the Chinese citizen. This is a severe political
incident. We once again urge the US side to immediately withdraw
the arrest warrant and extradition request for Ms. Meng Wanzhou
and urge the Canadian side to immediately release Ms. Meng Wanzhou
and ensure that she returns to China safe and sound."

China's use of the phrase "legal rights" has to be interpreted. China
is contemptuous of international law, as illustrated by its illegal
activities in Xinjiang Province, where it is conducting genocide and
ethnic cleansing of Muslim Uighurs and Kazakhs, and its illegal
activities in the South China Sea, where it is pursuing a massive
military buildup in violation of a United Nations court decision
declaring China's activities to be illegal.

So China's view is that international law does not apply to China, and
of course neither do Canadian or American law. The only law that
applies to China is Chinese law. And in this case, the relevant
Chinese law is the 2017 National Intelligence Law which, among other
things, requires Huawei and other companies to cooperate with the
military in gathering intelligence, and also promises to proect anyone
who does so. Article 7 of the law says:

> "All organizations and citizens shall, in accordance with the law,
> support, cooperate with, and collaborate in national intelligence
> work, and guard the secrecy of national intelligence work they are
> aware of. The state will protect individuals and organizations
> that support, cooperate with, and collaborate in national
> intelligence work."

So when China refers to "legal rights," it means according to Chinese
law. Since Meng's crimes -- stealing intellectual property and
international bank fraud -- were made in collaboration with China's
military, they're perfectly legal in Chinese law. Furthermore, the
same law requires China's military to "protect" Meng for cooperating
with the military.

China has already jailed two Canadian citizens in retaliation, and
they may take some other steps to "protect" Meng. What the Chinese
Communist Party (CCP) officials, who are pursuing some of the
stupidest policies in the history of the world, do not understand is
that by arresting Canadian citizens in retaliation, they're making it
impossible for Canada to release Meng under any circumstances, since
any such act would be seen as giving in to Chinese extortion.

Canada will now proceed to the extradition hearing. Apparently, the
court proceedings could go on for several months, especially if Meng
appeals, and so this situation is far from over.

It's believed that Canada will almost certainly grant the extradition
request. Whenever that happens, China may then decide to retaliate
against the United States, in order to "protect" Meng.

Politically, this issue is being tied in with Huawei's international
public relations campaign to convince anyone who will listen that
Huawei has not installed "backdoors" into its devices to allow China's
military to spy on them and control them.

As I've said in the past, I've spent a part of my career as a senior
software engineer developing chip-level operating system software for
embedded systems, so I know exactly how any chip or any electronic
device can be turned into a tool for espionage. Furthermore, I can
tell you that not only is it doable, it's not even particularly
difficult for someone with the right skills.

This "backdoor" could not be detected by tests, because the chip would
work normally until a backdoor is activated by receiving, say, a
secret 1024-bit code. Then it will execute commands sent to it by
Chinese engineers. Thus, the Chinese are then in control of any
devices with Huawei chips, and it cannot be detected until it's too
late.

The National Intelligence Law, quoted above, requires Huawei to
cooperate with the military. Since nobody has gone to jail for
violating this law, we have to assume, since installing backdoors is
easy and undetectable, that they have in fact been installed. Based
on my experience in developing embedded software, and on my extensive
research on China, I am 100% certain of this.



--- Sources:

--- Canada allows extradition hearings against Huawei executive Meng
https://www.theglobeandmail.com/politic ... tive-meng/
(Globe and Mail, Canada, 1-Mar-2019)

--- Huawei / Meng Wanzhou / Foreign Ministry Spokesperson Lu Kang's Remarks
https://www.fmprc.gov.cn/mfa_eng/xwfw_6 ... 2402.shtml
(China, Foreign Ministry, 1-Mar)

--- Wanzhou extradition a ‘serious political incident’, China tells Canada
https://www.scmp.com/news/china/diploma ... hina-tells
(South China Morning Post, China)


--- Sorry Beijing, the SNC-Lavalin affair is not your ace card in the Meng case
https://www.macleans.ca/news/canada/sor ... meng-case/
(Macleans, Canada)

--- China calls ‘bunk’ on Huawei threat as Canada’s decision on Meng Wanzhou looms
https://www.scmp.com/news/china/diploma ... ng-wanzhou
(South China Morning Post, China)

--- Related:

** 16-Feb-2019 Canada's arrest of Huawei's Meng Wanzhou requires military response from China
http://gdxforum.com/forum/viewtopic.php ... 077#p44077


** 8-Dec-18 World View -- Arrest of Meng Wanzhou of China's Huawei has increasingly serious implications
** http://www.generationaldynamics.com/pg/ ... tm#e181208


** 19-Feb-2019 Huawei founder Ren Zhengfei makes laughable claims about not spying
http://gdxforum.com/forum/viewtopic.php ... 130#p44130

** 12-Jan-19 World View -- China's economy destabilizes as Huawei introduces cheap smartphone
** http://www.generationaldynamics.com/pg/ ... tm#e190112


** 12-Dec-18 World View -- China jails Canadian journalist Michael Kovrig in apparent retaliation for Canada arrest of Meng Wanzhou
** http://www.generationaldynamics.com/pg/ ... tm#e181212


** 8-Dec-18 World View -- Arrest of Meng Wanzhou of China's Huawei has increasingly serious implications
** http://www.generationaldynamics.com/pg/ ... tm#e181208

[John]

** 3-March-2019 The Macroeconomic charts that dare not be shown

Following up on a discussion in the Financial Topics thread:

If you watch CNBC or Bloomberg TV, then you've seen thousands of
charts, graphing all kinds of obscure stuff. But they never show a
historical chart of price/earings ratios, which is what stock
valuations are all about. They talk about stock valuations
constantly, but amazingly, a historical stock valuation (P/E ratio)
chart is forbidden, a chart that dare not be shown.

I haven't updated the following chart since 2015, but it shows the
situation:



The blue line shows the historic average, around 13.9. The P/E ratio
has been above the historic average, sometimes way above, since the
1990s. By the Law of Mean Reversion, it will have to fall an
equivalent amount below the historic average to maintain the long-term
average. It fell to the 5-6 range three times in the last century, in
1917, in 1949, and in 1980. That's going to happen again with
absolute certainty, and that means that the Dow Jones Industrial
Average will fall below 3000, from its current level of 26000.

This would have happened starting with the financial crisis in 2008,
if it hadn't been for something that I certainly didn't anticipate.
The Federal Reserve joined with other central banks around the world,
including the UK, the EU and China, to flood the banking system with
printed money by means of quantitative easing and near-zero or even
negative interest rates of government bonds. This tsunami of printed
money has been made available to banks, hedge funds, and high-end
investors, though rarely to ordinary people. It's permitted high-end
investors to sell stocks back and forth between each other, creating a
Ponzi scheme that's been artificially boosting stock prices. Stock
prices now are far into bubble territory, and bear no relation to the
actual value of the underlying business, as they used to do before the
1990s bubble.

The current value of the S&P 500 Price Earnings ratio, as of Friday,
March 1, is 20.77, far above the historical average of 13.9.
http://www.wsj.com/mdc/public/page/2_3021-peyield.html

The second chart that dare not be shown is the Velocity of Money.
Long-time readers will recall that I first started writing about
inflation in 2003. Almost everyone was predicting inflation or even
hyperinflation. I said that inflation was impossible because we were
entering a period of deflation, like the 1930s.

I got into one argument after another with people, especially in this
forum. This was particularly true after quantitative easing began in
2009. People would say that all this money is being printed, so there
would have to be inflation.

That's wrong. Inflation depends on two factors -- the amount of money
in the economy and the velocity of money. If the Fed prints money and
it sits in a bank, then it won't contribute to inflation. In order to
be inflationary, it has to be used to purchase things or to hire
people and pay them salaries. Velocity of money represents how much
money is actually being used, rather than just sitting in bank
accounts.

The following chart hasn't been updated since 2017, but it shows the
situation:



The velocity of money has been falling almost steadily since the late
1990s, and has come to almost its lowest point in history. If you
want to play around with this chart on the St. Louis Fed web site,
then use this URL:

https://fred.stlouisfed.org/graph/?cate ... _id=366117

You'll see that the velocity of money began to level off in Q3 2017.
This possibly reflects a greater public willingness to spend money as
a result of the Trump tax cut. However, there is some data that the
public spending rate has slowed in December, and so the Velocity of
Money may be starting to fall again.


Both of these charts are economics 1.01, and yet of all the thousands
of different charts that are shown every day, these are never shown,
because they disprove the common narrative. What I don't know is how
many of the "experts" know that what they're saying is crap, versus
how many of them actually believe that the crap they're saying is
true.

[Navigator]

John,

I totally agree with you on the Infation/Deflation topic.

Here is what I wrote about it:

Hyper Inflation or Deflation

As deficits and stock market speculation reach all time high levels, we are inevitably headed towards a financial crisis. This time the national banks will be unable to do much of anything, as they have already lowered interest rates to zero (or even below) and have printed as much money as the dared (through euphemistically named programs like “quantitative easing”.

When the inevitable crash comes, the financial crisis can develop in one of two ways, Hyperinflation or Deflation. Hyperinflation is frequently seen. The examples are Zimbabwe today and Wiemar Germany. Hyperinflation results when the national bank or government just prints money and starts paying everyone with it. Inflation goes sky high (100% per MONTH), and pretty soon, people either need wheelbarrows full of cash or banknotes denominated in billions to buy a loaf of bread. Deflation is when the value of money goes in the other direction. Prices go down, but so too do salaries, which go down faster. What goes up dramatically is unemployment, as people put off purchasing, and, more importantly, banks stop lending. The best known example of deflation is the American Great Depression.

If Hyperinflation happens, you are best positioned if you have a LOT of debt. In fact, the more you borrowed to buy things like land, equipment, and precious metals the better. This is because you can pay off the debts with almost worthless money. If I borrowed $10,000 from a bank and owe it back in a year, and hyperinflation of 100% per month happens, I can pay that loan back with the equivalent of $2.50 (because $2.50 inflated 100%, or doubled every month, ends up being a bit more than $10,000 in a year). So Hyperinflation eliminates debts. Of course it eliminates savings too, but few have savings today. Most individuals, just like governments, are deeply in debt.

If Deflation happens, you are best positioned if you have a lot of savings, especially cash or precious metals. As deflation plays out, what costs a lot today becomes very cheap over time. The ability to buy things is even more enhanced for people with available funds, as others will be desperate to convert their property (especially real estate) into currency, as banks will stop lending.

Personally I believe that Deflation is the most likely result of the upcoming financial crisis. I believe this for two main reasons. First is that the amount of debt dwarfs the amount of currency and credit in the financial system (see the video in the first post on the “Economic” page of this site). Maybe even more importantly, Hyperinflation would destroy the banks, as people would pay off debts in worthless money. The banks are much more powerful than individuals, and they are going to protect themselves through laws and regulations. The best recent example of this is when lawmakers changed the rules so that people can no longer declare bankruptcy to clear student loans.

You and I will face financial ruin long before the banks do. They will see to this under almost any scenario. Even if Hyperinflation happens, the banks will change the rules so that you can no longer pay them back in currency. Instead, your loans and debts will be pegged to some non-inflating asset, like gold. So they will say, you borrowed the equivalent of so many ounces of gold way back when, and that is all that they will accept in payment. So no paying off your mortgage years later with what’s in your wallet. Instead, people will become “debt slaves” once a financial crisis hits. They will be unable to pay back their debts, and like a lot of students, they won’t be able to get rid of them through bankruptcy, as this won’t be allowed.

A financial crisis is going to happen, and when it does, it will happen faster than you or I can respond. This is because of computer trading. You will not be able to get your money out of stocks. You won’t be able to sell your real estate because almost everyone will be trying to do the same thing. And the banks will make sure that YOU will have to pay your debts.

What to Do

First off, you must get out of debt. Get out of the worst of it (like credit card debt) as fast as you can. STOP spending on credit. Stop borrowing for things that you want but don’t fundamentally need.

Save what you can. Precious metals are one of the few assets that will retain their value through a financial crisis. But even here you have to be careful. During the Great Depression, the American Government made it illegal to own gold. They made people turn it over to them. The same thing can happen again, as the legal precedent has already been established.

[John]

How's your wife?

[Navigator]

John,

Thank you for asking. She is fully recovered. After numerous procedures, she is cancer free and back to full activity. She is a concert musician and instrument professor, and she is fully engaged with her work and students. She makes the world a more beautiful place by being in it.

[John]

** 4-Mar-2019 Tesla's SpaceX Dragon spacecraft docks with International Space Station

The Dragon spacecraft, developed by Tesla's SpaceX, docked
autonomously with the International Space Station. Believe it
or not, there was no crew on Dragon, except for a mechanized
dummy called Ripley.

NASA retired the space shuttle program in 2011, and since then America
has had no way to send astronauts to the ISS, and had to pay Russia to
do it for Nasa. So the Dragon is the first American spacecraft since
2011 able to carry passengers to and from the ISS, once all the
testing is completed.

What I'd like to focus on is the choice of the name "Dragon"
for the spacecraft. Elon Musk said it was named after
Puff the Magic Dragon:

> Was originally called Puff the Magic Dragon, as people said I was
> high if though it could work, so I named it after their insult. —
> Elon Musk (@elonmusk) June 17, 2018
> https://twitter.com/elonmusk/status/100 ... wsrc%5Etfw

However, whether intentional or not, the choice of the name
"Dragon" could be an attempt to show up China, to say
that "we're far ahead of you."

The Dragon is an integral part of Chinese history and Chinese
chauvinism. In November, 2017, China's president Xi Jinping explained
to Donald Trump, how a "Chinese person" should be defined: a Chinese
person, according to Xi, is someone who is a "descendant of the dragon
with black hair and yellow skin."

The phrase is part of a hit song in China in the 1980s:

> Descendants of the Dragon
>
> Music and Lyrics by Hou Dejian
>
> In the Far East there is a river,
> its name is the Yangtze River
> In the Far East there is a river,
> its name is the Yellow River
>
> Although I’ve never seen the beauty of the Yangtze,
> in my dreams I miraculously travel the Yangtze’s waters
> Although I’ve never heard the strength of the Yellow River,
> the rushing and surging waters are in my dreams
>
> In the Ancient East there is a dragon,
> her name is China
> In the Ancient East there is a people,
> they are all the heirs of the dragon
>
> I grew up under the claw of the dragon,
> after I grew up I became an heir of the dragon
> Black eyes, black hair, yellow skin,
> forever and ever an heir of the dragon
>
> One hundred years ago on a tranquil night,
> in the deep of the night before enormous changes
> Gun and cannon fire destroyed the tranquil night,
> surrounded on all sides by the appeasers’ swords
>
> How many years have gone by with the gunshots still ringing out,
> how many years followed by how many years
> Mighty dragon, mighty dragon open your eyes,
> forever and ever open your eyes

This became a popular song in China in the 1980s, almost 100 years
after the Sino-Japanese war of 1894-95, in which China was deeply
humiliated, and is looking for revenge today.

So, whether he intended to or not, Elon Musk is using the spacecraft
name Dragon to tell the Chinese "We're a better dragon than you are."

---- Sources:

--- Astronauts Welcome SpaceX's Crew Dragon to Space Station (Ripley and Earth, Too!)
https://www.space.com/astronauts-welcom ... ation.html
(Space.com)


--- SpaceX’s Crew Dragon flawlessly docks with space station in spectacular orbital debut
https://www.teslarati.com/spacex-crew-d ... n-arrival/
(Teslarati)

[John]

** 4-Mar-2010 High drama: Juan Guaidó returns to Caracas, Venezuela

If you can get to a tv showing the BBC World News, the would-be
president Juan Guaidó has just arrived in Caracas, amidst huge
crowds, from a visit to Colombia.

It's high drama. Guaidó is returning in defiance of Nicolás Maduro,
who had forbidden Guaidó from leaving the country. Thus, Guaidó could
now be arrested.

What will Maduro do? Enquiring minds want to know.

[Burner Prime]

** 4-Mar-2010 High drama: Juan Guaidó returns to Caracas, Venezuela

What will Maduro do? Enquiring minds want to know.

[quote ='DW.com'']
The United States warned Monday of a "swift response" if Guaido was subjected to any threats or violence. "@jguaido's safe return to Venezuela is of the highest importance to the US," Vice President Mike Pence tweeted as Guaido arrived in Caracas. [/quote]

Is Trump planning to bomb Maduro's forces? What is this "swift response", toothless sanctions? Special Forces?

https://www.dw.com/en/venezuelas-juan-g ... a-47756678

[Truth hurts]

** 4-Mar-2010 High drama: Juan Guaidó returns to Caracas, Venezuela

What will Maduro do? Enquiring minds want to know.

[quote ='DW.com'']
The United States warned Monday of a "swift response" if Guaido was subjected to any threats or violence. "@jguaido's safe return to Venezuela is of the highest importance to the US," Vice President Mike Pence tweeted as Guaido arrived in Caracas.

Is Trump planning to bomb Maduro's forces? What is this "swift response", toothless sanctions? Special Forces?

https://www.dw.com/en/venezuelas-juan-g ... a-47756678[/quote]

America toppling Maduro would be a mistake. Why? Because Latinos would resent it. They are nations of sore losers and morons. When Maduro is removed, the Latinos will take out their broken down guitars and sing (badly) idiotic songs about their 'Jefe' and how wonderful he was. Having lived in Latin America, I can tell you truthfully, these people are stupid. They will never take responsibility for any of their mistakes and they default response to any problem is to blame America.

Latin America is nothing but a chain of dumpsters fires.

Let the chinks exterminate them. Because I really don't care.

[shoshin]

call me crazy, but I've been thinking about Trump & Putin.

You no doubt have heard about the Presidential Daily Briefing in which Trump went off-topic and said that North Korea did NOT have the capability to launch a missile to reach the US mainland...because Putin told him so! This has been portrayed as yet another example of Putin's hold over Trump, and Trump's lack of confidence in our own intelligence community, but I wonder...

Russia does share a border with NK, so they would have reasonable "on-the-ground" spying capabilities, in addition to satellites etc. So, what has Russia to gain from this statement?
Possibilities:
(1) Putin is lying. (what does that get him? My admittedly weak game theory chops don't show this as profitable path.)

(2) Putin is telling the truth. (He doesn't want Trump to launch a nuclear attack on NK? He wants him to see that NK is actually in a much weaker bargaining positioin that it projects? Maybe he wants Trump to invade NK and rid Russia of that nagging irritant on its far eastern coast?)

(3)Putin is either lying or telling the truth, the point is to sow doubt in Trump's mind about the US intelligence community.

I favor (3), but let me know what you think.