Land-Based Eurasian Trade and a “New Silk Road”

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Currently, about 9 out of 10 of trade containers travel by sea to their destination. While trade has been slowing down in the last few years, we can realistically say that there will be a huge flow of manufactured goods from East Asia to Europe and North America for quite some time.

To reach European countries, East Asian shipping companies have been forced to rely on water routes that move through the Red Sea and then traverse through the Suez Canal in Egypt. This has been the norm since the 19th century, and the Suez Canal has remained a strategic area ever since.

China has been testing a shorter route that goes through the Bering Strait, into the arctic, and down into Europe, but this would probably require coordination with Russia’s fleet of icebreaking ships. Until that happens, the following routes are superior:

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While the traditional Suez Canal route does allow ships to avoid the incredibly long trip around Africa, China wants to pursue alternatives that avoid the waterways near the Middle East for a number of reasons.

One of them is the overwhelming presence of the United States Navy in the Mediterranean, Red, and Arabian Seas. The following map shows just US Navy bases, and does not even include Army, Marine Corp., or Air Force bases.

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As you can see, the bases were placed in a manner that allows the US Navy to control both the Suez and the rest of the Mediterranean Sea. And because the United States has – by far – the largest and most advanced Navy in the world, that control would become absolute in times of crisis.

Although us Americans may not realize it, our military aggression is scaring the rest of the world. Since Obama became president, we’ve already managed to bomb SEVEN countries (Afghanistan, Iraq, Syria, Libya, Yemen, Somalia), most of which are along the Suez Canal route. And for all our efforts, we have not managed to create one decent government in the Middle East. Why wouldn’t countries avoid interaction with the United States these days?

One of the the new agendas being pushed by Chinese president Xi Jinping’s is what I like to call “Silk Road 2.0″ – a Eurasian trade network that avoids the US-controlled oceans.

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As you can see, the main trade route includes big US targets like Syria, Iran, and North Korea. This is exactly what the United States does not want to see, because it creates an enormous economic zone with energy independence and trade that is not denominated in US dollars. If you want to talk about a system that could challenge US dollar hegemony, forget about the Euro. A yuan-backed trade network like this would be amazing.

The ancient trade route known as the “Silk Road” existed for a reason: organic market forces dictated it. The only reason it hasn’t been recreated is because of artificial barriers set up by countries, religions, armies, and so on.

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Those reasons still exist today. What changed is China, which has grown into the world’s largest economic superpower by GDP. While the “main” trading route may take a while to establish, alternative routes have already begun to materialize.

For instance, let’s look at the Europe-China block train route that was finished in 2014. It is the world’s longest land route, and links eight countries – one of which the United States is very unfriendly with right now.

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This is one of the few trade routes in the world that the United States government cannot control in any way (at least up to Poland), and both China and Russia are eager to build more connections. For instance, a new high speed railway is being planned to directly link Beijing and Moscow, reducing the travel time from 7 days to 48 hours.

There’s no fighting it – Asia is consolidating, and in the process they are finding ways to circumvent US interference. The world’s largest navy can’t control the world’s largest landmass if the surrounding waters are not being relied upon.

 

Why World War 3 Won’t Happen – In One Chart

Military tension between the west (primarily the USA) and the east (China & Russia) is starting to pick up to a level not seen since the Cold War. Russia and the USA are basically fighting a proxy war in Ukraine, and China continues to develop a proprietary missile specifically designed to obliterate US aircraft carriers. North Korea apparently built some functional nuclear weapons, and threatens to use them against the United States and/or South Korea every other week.

But as unnerving as it all may be, the arms buildup and the worldwide tension may actually save us from any serious conflicts. Check out this chart, and think about how devastating another World War would be given what we have now…

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Except for a handful of psychopaths, nobody is willing to annihilate the human race over a petty political squabble. I’d be willing to bet money on it, because if I actually lost my bet chances are that I was already vaporized in a nuclear holocaust.

Tech Companies on Warpath to Wipe Out Commercial Banking

Gone are the days where consumers have to pay high transaction fees to maintain their bank’s physical presence via brick-and-mortar stores. With new payment/banking platforms like Apple Pay quickly integrating themselves into society, it looks as if commercial banking is the next “chunk” of the financial industry that will be either revolutionized or wiped out.As we talked about last year, this is similar to what happened when efficiency disrupted the brokerage industry at the end of the 20th century.

Google also joined in on the fray with the introduction of the Google Wallet platform, which only requires a Gmail account to use.

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Google Wallet is similar to Paypal in that it facilitates basic financial transactions, but there are two key differences. One is that Google Wallet cards or app screens can be used in retail outlets that accept MasterCard. The other is that money can be sent via Gmail in an email, meaning that the sender can have everything in one place. This is something that the likes of Apple and eBay (the owner of PayPal) can’t compete with yet, which is why I just started using GWallet myself.

But the competition between these platforms is not what matters. What matters is that these ebanking / epayment systems will be ubiquitous in a few years, and that more and more people will keep their money away from institutions that charge maintenance fees that create no value for the consumer. When the time is right, the transaction middlemen (Visa, MasterCard) will also be squeezed out by  vendors who are sick and tired of having these companies cut into their profit margins.

Because Google Wallet can handle transactions of up to $10,000, the system also paves the way for Google to set up its own auction network with Gmail functionality. It’s just a theory, but I wouldn’t be surprised if it were already in the works.

“…but how do they make money?” You might ask.

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Google Wallet probably wont’ generate income, but it is a powerful method for Google to mine financial transaction data from its users. Google can watch your purchases, identify trends, and “figure you out” if you use your wallet consistently. So instead of money, you are basically using your personal information as a currency when you use Google or any of the other big tech platforms.

Although it may seem a bit abstract and weird at first, I think it’s something we have to get used to as the developed world transitions into post-scarcity. Personally, I’m already over the fact that all the YouTube cat videos I’ve ever watched are stored in a database somewhere in California under my name.

To me, this new wave of disruption in commercial banking demonstrates how quickly we are progressing towards this zero marginal cost (aka post-scarcity) world where goods and services are so abundant that they cost virtually nothing to obtain. Anyone who has been paying attention to young adults knows that they’re doing everything they can to support this trend, and that they’re looking for technological disruption of the banking industry in particular.

And no, this does not mean that they want banks to “provide more and/or better services for higher fees.” It means “cut costs, increase efficiency, and lower your fees if you want to keep me.” Financial institutions who understand this are intelligently giving up on the upsell in favor of an undercutting strategy.

So from here on out, the commercial banking industry is just a race to the bottom. The winner earns $0 but collects more money than everyone else along the way.

To Save Euro, Germany Ready To Cut Out Greece

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Germany – de facto monarch of the Eurozone and the European Central Bank – is now crafting its plans to kick Greece out of the Eurozone.

While the international currency market would surely experience some volatility in the event of a Greek exit from the Eurozone, I think it would be a long-term win for the Eurozone and the Euro. Although it is not the biggest sovereign debt bubble in Europe by absolute size (Italy wins that prize), it seems to be the most “ripe” given that public debt in Greece is equal to an astounding 175% of the country’s GDP. It is a ticking time bomb, and one really bad month in the international bond markets could easily trigger the explosion.

“What does this mean, and why?” You might ask.

Let’s use a hypothetical. Imagine a person who makes $50,000 per year that has $87,500 in debt. Despite his salary, the person’s annual income is actually negative $1,050 due to his expenses. To make his debt payments each year, he is forced to use a credit card that charges him 9.25% per year. That guy is Greece.

Luckily, that person has a very successful brother (Germany) who is willing to lend him some money under the condition that he cuts his expenses. The problem is that Greece’s salary shrinks when he shrinks his expenses, so he refuses to cut certain expenses and continues to ask for money (begrudgingly) to pay his ever-growing debts. Making matters worse, Greece’s horrendous credit score also negatively impacts Germany’s otherwise flawless credit report.

Does it still surprise you that Germany wants to cut off financial ties with Greece?

Now that Germany is “confident” that a Greece exit from the Eurozone can be done, it seems that there is enough political will to finally detach Greece from Europe’s economic union. This ensures that when the Greek debt bomb “detonates,” the Euro (and confidence in it) will be completely insulated. The European Central Bank will also be able to allocate more resources to the real problem – Italy’s debt bomb.

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