Connect with us

Economy

This Is What World War III With China Might Look Like

Spoiler alert: We probably wouldn’t win.

Published

on

This piece has been adapted and expanded from Alfred W. McCoy’s new book, In the Shadows of the American Century: The Rise and Decline of US Global Power.  It was originally published at TomDispatch.com




For the past 50 years, American leaders have been supremely confident that they could suffer military setbacks in places like Cuba or Vietnam without having their system of global hegemony, backed by the world’s wealthiest economy and finest military, affected. The country was, after all, the planet’s “indispensable nation,” as Secretary of State Madeleine Albright proclaimed in 1998 (and other presidents and politicians have insisted ever since). The United States enjoyed a greater “disparity of power” over its would-be rivals than any empire ever, Yale historian Paul Kennedy announced in 2002. Certainly, it would remain “the sole superpower for decades to come,” Foreign Affairs magazine assured us just last year. During the 2016 campaign, candidate Donald Trump promised his supporters that “we’re gonna win with military.… we are gonna win so much you may even get tired of winning.” In August, while announcing his decision to send more troops to Afghanistan, Trump reassured the nation: “In every generation, we have faced down evil, and we have always prevailed.” In this fast-changing world, only one thing was certain: When it really counted, the United States could never lose.

No longer.

The Trump White House may still be basking in the glow of America’s global supremacy but, just across the Potomac, the Pentagon has formed a more realistic view of its fading military superiority. In June, the Defense Department issued a major report on “Risk Assessment in a Post-Primacy World,” finding that the US military “no longer enjoys an unassailable position versus state competitors,” and “it no longer can…automatically generate consistent and sustained local military superiority at range.” This sober assessment led the Pentagon’s top strategists to “the jarring realization that ‘we can lose.’” Increasingly, Pentagon planners find, the “self-image of a matchless global leader” provides a “flawed foundation for forward-looking defense strategy…under post-primacy conditions.” This Pentagon report also warned that, like Russia, China is “engaged in a deliberate program to demonstrate the limits of US authority”; hence, Beijing’s bid for “Pacific primacy” and its “campaign to expand its control over the South China Sea.”

CHINA’S CHALLENGE

Indeed, military tensions between the two countries have been rising in the western Pacific since the summer of 2010. Just as Washington once used its wartime alliance with Great Britain to appropriate much of that fading empire’s global power after World War II, so Beijing began using profits from its export trade with the United States to fund a military challenge to its dominion over the waterways of Asia and the Pacific.

Some telltale numbers suggest the nature of the future great power competition between Washington and Beijing that could determine the course of the 21st century. In April 2015, for instance, the Department of Agriculture reported that the US economy would grow by nearly 50 percent over the next 15 years, while China’s would expand by 300 percent, equaling or surpassing America’s around 2030.

Similarly, in the critical race for worldwide patents, American leadership in technological innovation is clearly on the wane. In 2008, the United States still held the number two spot behind Japan in patent applications with 232,000. China was, however, closing in fast at 195,000, thanks to a blistering 400 percent increase since 2000. By 2014, China actually took the lead in this critical category with 801,000 patents, nearly half the world’s total, compared to just 285,000 for the Americans.

With supercomputing now critical for everything from code breaking to consumer products, China’s Defense Ministry outpaced the Pentagon for the first time in 2010, launching the world’s fastest supercomputer, the Tianhe-1A. For the next six years, Beijing produced the fastest machine and last year finally won in a way that couldn’t be more crucial: with a supercomputer that had microprocessor chips made in China. By then, it also had the most supercomputers with 167 compared to 165 for the United States and only 29 for Japan.

Over the longer term, the American education system, that critical source of future scientists and innovators, has been falling behind its competitors. In 2012, the Organization for Economic Cooperation and Development tested half a million 15-year-olds worldwide. Those in Shanghai came in first in math and science, while those in Massachusetts, “a strong-performing US state,” placed 20th in science and 27th in math. By 2015, America’s standing had declined to 25th in science and 39th in math.

But why, you might ask, should anybody care about a bunch of 15-year-olds with backpacks, braces, and attitude? Because by 2030, they will be the mid-career scientists and engineers determining whose computers survive a cyber attack, whose satellites evade a missile strike, and whose economy has the next best thing.

RIVAL SUPERPOWER STRATEGIES

With its growing resources, Beijing has been laying claim to an arc of islands and waters from Korea to Indonesia long dominated by the US Navy. In August 2010, after Washington expressed a “national interest” in the South China Sea and conducted naval exercises there to reinforce the claim, Beijing’s Global Times responded angrily that “the US-China wrestling match over the South China Sea issue has raised the stakes in deciding who the real future ruler of the planet will be.”
Four years later, Beijing escalated its territorial claims to these waters, building a nuclear submarine facility on Hainan Island and accelerating its dredging of seven artificial atolls for military bases in the Spratly Islands. When the Permanent Court of Arbitration at The Hague ruled, in 2016, that these atolls gave China no territorial claim to the surrounding seas, Beijing’s Foreign Ministry dismissed the decision out of hand.

To meet China’s challenge on the high seas, the Pentagon began sending a succession of carrier groups on “freedom of navigation” cruises into the South China Sea. It also started shifting spare air and sea assets to a string of bases from Japan to Australia in a bid to strengthen its strategic position along the Asian littoral. Since the end of World War II, Washington has attempted to control the strategic Eurasian landmass from a network of NATO military bases in Europe and a chain of island bastions in the Pacific. Between the “axial ends” of this vast continent, Washington has, over the past 70 years, built successive layers of military power—air and naval bases during the Cold War and more recently a string of 60 drone bases stretching from Sicily to Guam.

Simultaneously, however, China has conducted what the Pentagon in 2010 called “a comprehensive transformation of its military” meant to prepare the People’s Liberation Army (PLA) “for extended-range power projection.” With the world’s “most active land-based ballistic and cruise missile program,” Beijing can target “its nuclear forces throughout…most of the world, including the continental United States.” Meanwhile, accurate missiles now provide the PLA with the ability “to attack ships, including aircraft carriers, in the western Pacific Ocean.” In emerging military domains, China has begun to contest US dominion over cyberspace and space, with plans to dominate “the information spectrum in all dimensions of the modern battlespace.”

China’s army has by now developed a sophisticated cyberwarfare capacitythrough its Unit 61398 and allied contractors that “increasingly focus…on companies involved in the critical infrastructure of the United States—its electrical power grid, gas lines, and waterworks.” After identifying that unit as responsible for a series of intellectual property thefts, Washington took the unprecedented step, in 2013, of filing criminal charges against five active-duty Chinese cyber officers.

China has already made major technological advances that could prove decisive in any future war with Washington. Instead of competing across the board, Beijing, like many late adopters of technology, has strategically chosen key areas to pursue, particularly orbital satellites, which are a fulcrum for the effective weaponization of space. As early as 2012, China had already launched 14 satellites into “three kinds of orbits” with “more satellites in high orbits and…better anti-shielding capabilities than other systems.” Four years later, Beijing announced that it was on track to “cover the whole globe with a constellation of 35 satellites by 2020,” becoming second only to the United States when it comes to operational satellite systems.

Playing catch-up, China has recently achieved a bold breakthrough in secure communications. In August 2016, three years after the Pentagon abandoned its own attempt at full-scale satellite security, Beijing launchedthe world’s first quantum satellite that transmits photons, believed to be “invulnerable to hacking,” rather than relying on more easily compromised radio waves. According to one scientific report, this new technology will “create a super-secure communications network, potentially linking people anywhere.” China was reportedly planning to launch 20 of the satellites should the technology prove fully successful.

To check China, Washington has been building a new digital defense network of advanced cyberwarfare capabilities and air-space robotics. Between 2010 and 2012, the Pentagon extended drone operations into the exosphere, creating an arena for future warfare unlike anything that has gone before. As early as 2020, if all goes according to plan, the Pentagon will loft a triple-tier shield of unmanned drones reaching from the stratosphere to the exosphere, armed with agile missiles, linked by an expanded satellite system, and operated through robotic controls.

Weighing this balance of forces, the RAND Corporation recently released a study, War with China, predicting that by 2025 “China will likely have more, better, and longer-range ballistic missiles and cruise missiles; advanced air defenses; latest generation aircraft; quieter submarines; more and better sensors; and the digital communications, processing power, and C2 [cyber security] necessary to operate an integrated kill chain.”




In the event of all-out war, RAND suggested, the United States might suffer heavy losses to its carriers, submarines, missiles, and aircraft from Chinese strategic forces, while its computer systems and satellites would be degraded thanks to “improved Chinese cyberwar and ASAT [anti-satellite] capabilities.” Even though American forces would counterattack, their “growing vulnerability” means Washington’s victory would not be assured. In such a conflict, the think tank concluded, there might well be no “clear winner.”

Make no mistake about the weight of those words. For the first time, a top strategic think-tank, closely aligned with the US military and long famous for its influential strategic analyses, was seriously contemplating a major war with China that the United States would not win.

WORLD WAR III: SCENARIO 2030

The technology of space and cyberwarfare is so new, so untested, that even the most outlandish scenarios currently concocted by strategic planners may soon be superseded by a reality still hard to conceive. In a 2015 nuclear war exercise, the Air Force Wargaming Institute used sophisticated computer modeling to imagine “a 2030 scenario where the Air Force’s fleet of B-52s…upgraded with…improved standoff weapons” patrol the skies ready to strike. Simultaneously, “shiny new intercontinental ballistic missiles” stand by for launch. Then, in a bold tactical gambit, B-1 bombers with “full Integrated Battle Station (IBS) upgrade” slip through enemy defenses for a devastating nuclear strike. That scenario was no doubt useful for Air Force planners, but said little about the actual future of US global power. Similarly, the RAND War with China study only compared military capacities, without assessing the particular strategies either side might use to its advantage.

I might not have access to the Wargaming Institute’s computer modeling or RAND’s renowned analytical resources, but I can at least carry their work one step further by imagining a future conflict with an unfavorable outcome for the United States. As the globe’s still-dominant power, Washington must spread its defenses across all military domains, making its strength, paradoxically, a source of potential weakness. As the challenger, China has the asymmetric advantage of identifying and exploiting a few strategic flaws in Washington’s otherwise overwhelming military superiority.

For years, prominent Chinese defense intellectuals like Shen Dingli of Fudan University have rejected the idea of countering the US with a big naval build-up and argued instead for “cyberattacks, space weapons, lasers, pulses, and other directed-energy beams.” Instead of rushing to launch aircraft carriers that “will be burned” by lasers fired from space, China should, Shen argued, develop advanced weapons “to make other command systems fail to work.” Although decades away from matching the full might of Washington’s global military, China could, through a combination of cyberwar, space warfare, and supercomputing, find ways to cripple US military communications and thus blind its strategic forces. With that in mind, here’s one possible scenario for World War III:

It’s 11:59 pm on Thanksgiving Thursday in 2030. For months, tensions have been mounting between Chinese and US Navy patrols in the South China Sea. Washington’s attempts to use diplomacy to restrain China have proven an embarrassing failure among long-time allies—with NATO crippled by years of diffident American support, Britain now a third-tier power, Japan functionally neutral, and other international leaders cool to Washington’s concerns after suffering its cyber-surveillance for so long. With the American economy diminished, Washington plays the last card in an increasingly weak hand, deploying six of its remaining eight carrier groups to the Western Pacific.

Instead of intimidating China’s leaders, the move makes them more bellicose. Flying from air bases in the Spratly Islands, their jet fighters soon begin buzzing US Navy ships in the South China Sea, while Chinese frigates play chicken with two of the aircraft carriers on patrol, crossing ever closer to their bows.

Then tragedy strikes. At 4 am on a foggy October night, the massive carrier USS Gerald Ford slices through aging Frigate-536 Xuchang, sinking the Chinese ship with its entire crew of 165. Beijing demands an apology and reparations. When Washington refuses, China’s fury comes fast.

At the stroke of midnight on Black Friday, as cyber-shoppers storm the portals of Best Buy for deep discounts on the latest consumer electronics from Bangladesh, Navy personnel staffing the Space Surveillance Telescopeat Exmouth, Western Australia, choke on their coffees as their panoramic screens of the southern sky suddenly blip to black. Thousands of miles away at the US CyberCommand’s operations center in Texas, Air Force technicians detect malicious binaries that, though hacked anonymously into American weapons systems worldwide, show the distinctive digital fingerprints of China’s People’s Liberation Army.

In what historians will later call the “Battle of Binaries,” CyberCom’s supercomputers launch their killer counter-codes. While a few of China’s provincial servers do lose routine administrative data, Beijing’s quantum satellite system, equipped with super-secure photon transmission, proves impervious to hacking. Meanwhile, an armada of bigger, faster supercomputers slaved to Shanghai’s cyberwarfare Unit 61398 blasts back with impenetrable logarithms of unprecedented subtlety and sophistication, slipping into the US satellite system through its antiquated microwave signals.

The first overt strike is one nobody at the Pentagon predicted. Flying at 60,000 feet above the South China Sea, several US carrier-based MQ-25 Stingray drones, infected by Chinese “malware,” suddenly fire all the pods beneath their enormous delta wingspans, sending dozens of lethal missiles plunging harmlessly into the ocean, effectively disarming those formidable weapons.

Determined to fight fire with fire, the White House authorizes a retaliatory strike. Confident their satellite system is impenetrable, Air Force commanders in California transmit robotic codes to a flotilla of X-37B space drones, orbiting 250 miles above the Earth, to launch their Triple Terminator missiles at several of China’s communication satellites. There is zero response.

In near panic, the Navy orders its Zumwalt-class destroyers to fire their RIM-174 killer missiles at seven Chinese satellites in nearby geostationary orbits. The launch codes suddenly prove inoperative.

As Beijing’s viruses spread uncontrollably through the US satellite architecture, the country’s second-rate supercomputers fail to crack the Chinese malware’s devilishly complex code. With stunning speed, GPS signals crucial to the navigation of American ships and aircraft worldwide are compromised.

Across the Pacific, Navy deck officers scramble for their sextants, struggling to recall long-ago navigation classes at Annapolis. Steering by sun and stars, carrier squadrons abandon their stations off the China coast and steam for the safety of Hawaii.

An angry American president orders a retaliatory strike on a secondary Chinese target, Longpo Naval Base on Hainan Island. Within minutes, the commander of Andersen Air Base on Guam launches a battery of super-secret X-51 “Waverider” hypersonic missiles that soar to 70,000 feet and then streak across the Pacific at 4,000 miles per hour—far faster than any Chinese fighter or air-to-air missile. Inside the White House situation room the silence is stifling as everyone counts down the 30 short minutes before the tactical nuclear warheads are to slam into Longpo’s hardened submarine pens, shutting down Chinese naval operations in the South China Sea. Midflight, the missiles suddenly nose-dive into the Pacific.

In a bunker buried deep beneath Tiananmen Square, President Xi Jinping’s handpicked successor, Li Keqiang, even more nationalistic than his mentor, is outraged that Washington would attempt a tactical nuclear strike on Chinese soil. When China’s State Council wavers at the thought of open war, the president quotes the ancient strategist Sun Tzu: “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.” Amid applause and laughter, the vote is unanimous. War it is!

Almost immediately, Beijing escalates from secret cyberattacks to overt acts. Dozens of China’s next-generation SC-19 missiles lift off for strikes on key American communications satellites, scoring a high ratio of kinetic kills on these hulking units. Suddenly, Washington loses secure communications with hundreds of military bases. US fighter squadrons worldwide are grounded. Dozens of F-35 pilots already airborne are blinded as their helmet-mounted avionic displays go black, forcing them down to 10,000 feet for a clear view of the countryside. Without any electronic navigation, they must follow highways and landmarks back to base like bus drivers in the sky.

Midflight on regular patrols around the Eurasian landmass, two-dozen RQ-180 surveillance drones suddenly become unresponsive to satellite-transmitted commands. They fly aimlessly toward the horizon, crashing when their fuel is exhausted. With surprising speed, the United States loses control of what its Air Force has long called the “ultimate high ground.”




With intelligence flooding the Kremlin about crippled American capacity, Moscow, still a close Chinese ally, sends a dozen Severodvinsk-class nuclear submarines beyond the Arctic Circle bound for permanent, provocative patrols between New York and Newport News. Simultaneously, a half-dozen Grigorovich-class missile frigates from Russia’s Black Sea fleet, escorted by an undisclosed number of attack submarines, steam for the western Mediterranean to shadow the US Sixth fleet.

Within a matter of hours, Washington’s strategic grip on the axial ends of Eurasia—the keystone to its global dominion for the past 85 years—is broken. In quick succession, the building blocks in the fragile architecture of US global power start to fall.

Every weapon begets its own nemesis. Just as musketeers upended mounted knights, tanks smashed trench works, and dive bombers sank battleships, so China’s superior cybercapability had blinded America’s communication satellites that were the sinews of its once-formidable military apparatus, giving Beijing a stunning victory in this war of robotic militaries. Without a single combat casualty on either side, the superpower that had dominated the planet for nearly a century is defeated in World War III.

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

Continue Reading

Economy

How The Elite Dominate The World

Did you know that 8 men now have as much wealth as the poorest 3.6 billion people living on the planet combined?

Published

on

Throughout human history, those in the ruling class have found various ways to force those under them to work for their economic benefit.  But in our day and age, we are willingly enslaving ourselves.  The borrower is the servant of the lender, and there has never been more debt in our world than there is right now.  According to the Institute of International Finance, global debt has hit the 217 trillion dollar mark, although other estimates would put this number far higher.  Of course everyone knows that our planet is drowning in debt, but most people never stop to consider who owns all of this debt.  This unprecedented debt bubble represents that greatest transfer of wealth in human history, and those that are being enriched are the extremely wealthy elitists at the very, very top of the food chain.

Did you know that 8 men now have as much wealth as the poorest 3.6 billion people living on the planet combined?

Every year, the gap between the planet’s ultra-wealthy and the poor just becomes greater and greater.  This is something that I have written about frequently, and the “financialization” of the global economy is playing a major role in this trend.

The entire global financial system is based on debt, and this debt-based system endlessly funnels the wealth of the world to the very, very top of the pyramid.

It has been said that Albert Einstein once made the following statement

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Whether he actually made that statement or not, the reality of the matter is that it is quite true.  By getting all of the rest of us deep into debt, the elite can just sit back and slowly but surely become even wealthier over time.  Meanwhile, as the rest of us work endless hours to “pay our bills”, the truth is that we are spending our best years working to enrich someone else.

Much has been written about the men and women that control the world.  Whether you wish to call them “the elite”, “the establishment” or “the globalists”, the truth is that most of us understand who they are.  And how they control all of us is not some sort of giant conspiracy.  Ultimately, it is actually very simple.  Money is a form of social control, and by getting the rest of us into as much debt as possible they are able to get all of us to work for their economic benefit.

It starts at a very early age.  We greatly encourage our young people to go to college, and we tell them to not even worry about what it will cost.  We assure them that there will be great jobs available for them once they finish school and that they will have no problem paying off the student loans that they will accumulate.

Well, over the past 10 years student loan debt in the United States “has grown 250 percent” and is now sitting at an absolutely staggering grand total of 1.4 trillion dollars.  Millions of our young people are already entering the “real world” financially crippled, and many of them will literally spend decades paying off those debts.

But that is just the beginning.

In order to get around in our society, virtually all of us need at least one vehicle, and auto loans are very easy to get these days.  I remember when auto loans were only made for four or five years at the most, but in 2017 it is quite common to find loans on new vehicles that stretch out for six or seven years.

The total amount of auto loan debt in the United States has now surpassed a trillion dollars, and this very dangerous bubble just continues to grow.

If you want to own a home, that is going to mean even more debt.  In the old days, mortgages were commonly 10 years in length, but now 30 years is the standard.

By the way, do you know where the term “mortgage” originally comes from?

If you go all the way back to the Latin, it actually means “death pledge”.

And now that most mortgages are for 30 years, many will continue making payments until they literally drop dead.

Sadly, most Americans don’t even realize how much they are enriching those that are holding their mortgages.  For example, if you have a 30 year mortgage on a $300,000 home at 3.92 percent, you will end up making total payments of $510,640.

Credit card debt is even more insidious.  Interest rates on credit card debt are often in the high double digits, and some consumers actually end up paying back several times as much as they originally borrowed.

According to the Federal Reserve, total credit card debt in the United States has also now surpassed the trillion dollar mark, and we are about to enter the time of year when Americans use their credit cards the most frequently.

Overall, U.S. consumers are now nearly 13 trillion dollars in debt.

As borrowers, we are servants of the lenders, and most of us don’t even consciously understand what has been done to us.

In Part I, I have focused on individual debt obligations, but tomorrow in Part II I am going to talk about how the elite use government debt to corporately enslave us.  All over the planet, national governments are drowning in debt, and this didn’t happen by accident.  The elite love to get governments into debt because it is a way to systematically transfer tremendous amounts of wealth from our pockets to their pockets.  This year alone, the U.S. government will pay somewhere around half a trillion dollars just in interest on the national debt.  That represents a whole lot of tax dollars that we aren’t getting any benefit from, and those on the receiving end are just becoming wealthier and wealthier.

In Part II we will also talk about how our debt-based system is literally designed to create a government debt spiral.  Once you understand this, the way that you view potential solutions completely changes.  If we ever want to get government debt “under control”, we have got to do away with this current system that was intended to enslave us by those that created it.

We spend so much time on the symptoms, but if we ever want permanent solutions we need to start addressing the root causes of our problems.  Debt is a tool of enslavement, and the fact that humanity is now more than 200 trillion dollars in debt should deeply alarm all of us.

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

Continue Reading

Economy

Look Out Tesla, Apple’s On Your Six!

Shares of Apple moved lower after the company unveiled its newest models of the iPhone.

Published

on

I’ve got a confession to make… I’m a horrible dad.

You see, this week, I sent my 13-year old daughter to school without her iPhone.

I know, I know. That’s considered cruel and unusual punishment these days.

But when it was time to get in the car for school, Rebekah was checking her Instagram feed instead of getting ready to go. So I took her phone for the day.

According to Rebekah, that’s a big problem for a middle-schooler. “How am I supposed to communicate with my friends?!” (Heaven forbid she actually talks to them in person.)

As you can probably tell from my sarcasm, I think Rebekah’s perspective is a little off when it comes to her iPhone. Similarly, I think Apple’s investors also have a skewed perspective when it comes to the new iPhone models and the company’s long-term direction.

Fortunately, that skewed perspective sets up a great opportunity for income investors…

Apple’s Multi-Generational Iconic Brand

Shares of Apple moved lower after the company unveiled its newest models of the iPhone.

Apple’s iPhone 8 — along with the 10-year anniversary model “X” (pronounced “iPhone ten”) failed to inspire investors. Essentially, there weren’t enough surprise features for customers to get excited about.

I’m not sure I disagree with them…

You won’t find me standing in line to pay $1,000 for the newest iPhone. Honestly, the iPhone 5 or 6 has all the features I could ever really want in a phone. My kids have older models of the iPhone and they work perfectly fine for keeping in touch with each other and snapping pictures of little brother snuggling with the kittens.

But just because Apple got a cold reception to its latest products doesn’t mean the company is in trouble. Far from it!

You see, Apple will still sell plenty of its newest phones — and rack up billions in cash from these sales — for two reasons.

One: The iPhone is still a status symbol for young and old alike.

A recent survey from investment research firm Piper Jaffray found that 82% of U.S. teenagers expect their next phone be an iPhone. This was the highest percentage recorded since the company started its semi-annual survey.1

Older adults are not much different, with 79% stating that they want the latest edition of the iPhone.

Despite the lackluster reviews on Apple’s latest models, the newest iPhone is still one of the hottest status symbols in our ever-more materialistic society.

The second reason is that blue chip companies will still keep their employees outfitted with the latest technology.

My little brother works for one of the big four accounting firms. This week, I dropped by his house to watch some Monday Night Football, and found him showing off his new piece of hardware. It seems his firm has already issued the iPhone 8 to all its staff accountants.

As long as Apple remains the standard for consumer technology, you can bet that corporate America will continue to issue its products to employees. This is just one of the ways companies are vying for qualified employees — a resource that is growing more scarce by the day!

Apple’s “Next Big Thing”

If you’re an investor in Apple, you now find yourself in an enviable position of either having a “good” investment today, or possibly a “great” investment in the near future.

That’s because today, Apple is pulling in cash by the truckload thanks to its existing suite of products. At last count, Apple was sitting on $261.5 billion in cash, much of it will likely be freed up to pay to investors once congress passes a new tax plan.2

Apple’s cash balance grew by 13% year over year during the second quarter. And that rate of growth should accelerate in the third and fourth quarters of this year thanks to new sales of the iPhone 8 and iPhone X.

So just with today’s business the way it is, Apple is a “good” opportunity for income investors. (And that’s putting it modestly).

But what happens when Apple launches its “next big thing?”

And more importantly, what will that “next big thing” be??

I can tell you that Apple’s CEO Tim Cook isn’t content to sit back and sell iPhones until consumer tastes change. No, he’s got much bigger plans ahead.

In fact, Tim Cook has gone on the record stating that his company is focusing on autonomous systems… Which sounds a like self-driving cars and other equipment to me.

Think about the possibilities!

This summer, our own Davis Ruzicka wrote an intriguing article about what could happen if Apple bought Ford Motor (NYSE:F).

It’s not as farfetched as it might sound!

Can you imagine the buzz around the iCar or iTruck launch? Not to mention the cash that Apple will generate from blockbuster sales of the ultimate vehicle status symbol.

(Look out Tesla!)

Now I’m not suggesting you invest in Apple just because the company might step into the auto market. That’s a possibility but not something I would bet on.

But I do think the stock is an excellent investment right now, thanks to the company’s huge cash balance and reliable, growing dividend.

Just with its standard international business today, Apple is a solid investment. (And you’re getting a nice discount to buy shares thanks to the pullback following the release of the iPhone 8 and iPhone X.)

Looking forward, Apple could be a great investment if it comes out with a new blockbuster product that people want. And if and when that happens, shares will move sharply higher while Apple’s dividend grows at the same time.

So if you’re not already invested in AAPL, consider adding some shares to your retirement account today. At the very least, you’ll own a steady income generating investment. But I expect much more than that from Apple over the next few years.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
Twitter ❘ Facebook ❘ Email

1American teenagers, just like their parents, crave this status symbol more than ever, MarketWatch
2Apple cash pile hits new record of $261.5 billion, CNBC, Anita Balakrishnan

Ed. Note: One of the best ways to protect your wealth against a falling market is to lock in legally guaranteed income payments. This way, regardless of what the market does, and regardless of where the Fed sets rates, you can tell your company, “Forget you! Pay ME!!” Find out how to lock in these legally guaranteed payments here.

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

Continue Reading

Economy

The Craziest Mortgage Scheme I’ve Ever Seen

The Great Financial Crisis happened because Wall Street was financing homes for people who couldn’t afford them.

Published

on

The Great Financial Crisis happened because Wall Street was financing homes for people who couldn’t afford them.

Leading up to the GFC, there was a voracious appetite from investors for “AAA”-rated mortgage debt. So lenders would make lots of loans to subprime borrowers and sell them to Wall Street. Wall Street would pool them together and one of the major ratings agencies (like Moody’s or Standard & Poor’s) would stamp the steaming pile of garbage with AAA.

AAA by Moody’s definition means the investment “should survive the equivalent of the U.S. Great Depression.” In other words, it’s rock solid.

The reasoning was that one subprime mortgage was risky. But if you bundled thousands together, you get AAA… Because they couldn’t all go bad at once. And, hey, you can’t lose money in real estate.

The rating agencies weren’t as dumb as they appeared, though… Investigations following the crisis showed lots of incriminating emails, like this one from a Standard & Poor’s exec:

“Lord help our fucking scam . . . this has to be the stupidest place I have worked at.”

Like everyone else, they played along because they wanted to make money.

To generate enough mortgages to meet demand, lenders would do anything…

– Sell a house for no money down

– Offer a teaser rate (which temporarily reduces monthly payments, then jumps to market rates)

– And even offer to pay part of your mortgage for a couple months (most small lenders could sell a loan to Wall Street in a month or two, erasing their liability. If the origination payment was more than cash out of pocket, they still came out ahead).

They called the worst of the subprime loans “NINJAs” as in “No income, No job, No assets.”

When they couldn’t actually write enough mortgages to meet demand, Wall Street got creative. They started bundling together bundles of mortgages, something called a CDO-Squared. Then they created synthetic CDOs, which were just derivatives of subprime mortgages and even other CDOs (essentially a way for people to gamble on the mortgage market without actual mortgages).

As we all know, it ended in disaster… because the people who took out the mortgages they couldn’t afford to buy overpriced homes stopped paying. And the CDOs, CDOs-squared and synthetic CDOs (which had been spread around the world) went bust.

Remember, it all started with selling people homes they couldn’t afford. Which brings me to today…

There’s a record high $1.4 trillion of student debt in the US. And millennials are struggling to pay off those balances.

The National Association of Realtors polled 2,000 millennials between the ages of 22-35 about student debt and homeownership… Only 20% of those surveyed owned a home… Of the 8 in 10 that didn’t own, 83% of them said student debt was the reason. And 84% said they’d have to delay a home purchase for years (seven years being the median response).

And that’s all bad for the home-selling business. Once again, the lenders are getting creative…

Miami-based homebuilder, Lennar Homes, recently announced it would pay a big chunk of a student loan for any borrower buying a home from them.

Through its subsidiary Eagle Home Mortgage, the company will make a payment to a buyer’s student loans of as much as 3% of the purchase price, up to $13,000.

Debt has become such a keystone of our society, that the only way we can afford something is to swap one type of debt they can’t afford with another type of debt.

A recent study by the Pew Charitable Trust showed 41% of US households have less than $2,000 in savings – a full one-third have zero savings (including 1 in 10 families with over $100,000 in income). Another study showed 70% of Americans have less than $1,000 in savings.

The point is, America is broke… A single, surprise expense like a flat tire or a doctor’s visit would wipe most people out.

And it’s only getting worse.

Back in August, I calculated the average household account at Bank of America (which has $592 billion in consumer deposits from 46 million households)… It’s only $12,870 per household… And that includes savings, investments, retirement… EVERYTHING.

Also keep in mind, that’s the average… So accountholders with huge balances skew the numbers higher.

It’s no wonder Americans have $1.021 trillion in credit card debt – the most in history.

Auto loans are also at a record high $1.2 trillion.

And let’s not forget the US government, which is in the hole more than $20 trillion. The US’ debt is now 104% of GDP… And total debt has grown 48% since 2010.

The liability side of the balance sheet keeps expanding. Meanwhile assets and productivity aren’t keeping up.

But people continue buying homes, cars, TVs and college educations by taking on more and more debt… And now, by swapping one type of debt for another.

Wealth is built on savings and production. Not on playing tricks with paper and going deeper into debt.

I can’t tell when this house of cards falls. But rest assured, it will come tumbling down.

Will you be ready when it does?

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

Continue Reading
Advertisement

Trending