2010-09-01 Hardy Schloer Interview Englisch

FINANTE SI AFACERI
September 2010
Interview of Hardy F. Schloer, at Schloer Consulting Group
by Mugur Istode for FINANTE SI AFACERI (English Edition, Romania)
MUGUR ISTODE: A simple search on Google results in over
2500 pages of information about you. Each page reveals some
very impressive activities. To name a few, you are one of the
well-known specialists in Artificial Intelligence, an acclaimed
scientist and a visionary thinker in the areas of global economic
and geopolitical development. You are also a successful
international problem-solver in systemic breakdowns. The
Ljubljana Supercomputer Center, which is your computational
backbone, is in performance and size one of the largest in the
world and in terms of real-time live-data processing capabilities
perhaps the largest commercial system in Europe. We also
found out much about your activities with the non-profit
organization “Club of Amsterdam”, especially about your
technology agenda as you described in your reasoned speech
at IBM “The Dawn of the Intelligent Planet.” What would be the
implications of such technology for society?
implemented many important global IT structures, this may not
be very surprising. Nevertheless, the truth is that these two
fields, the systemic consultation and my technology agenda, are
completely interwoven within my consulting company. The
slogan of my company is “Evidence Based Consulting.” That is
a completely new brand of consultancy, one completely different
from that of the past. In the past, global consultancy for most
consulting companies was opinion-based, not evidence-based.
In fact, most consulting companies today still operate from the
memorized knowledge of a few human brains that look at limited
sets of data, read news or other information, make some guess
about how the world should work. They create human-based
assumptions, and give opinions to vital problems. Unfortunately,
this opinion, forged by 19th century business school curriculums,
is very flawed. If you go to Harvard Business School, to Yale, to
Stanford, all the very good business schools from around the
world, they are teaching some methodology for how to look at
the reality. They teach their students how to look at
problems and the underlying information, how to
look at complicated problem dynamics, and then
apply an “out-of-the-can” and static approach on
how to analyze the problem, and how to place the
already outdated results into a pre-conceived world.
This is the prevailing model for nearly any analyst
today. We are different. Initially, we also operate
using a very sizable human-based global ThinkTank, which currently consists of over 1000 people
worldwide. We have access to this resource
anytime and when we first look at a problem, we go
directly to the Think-Tank in order to understand
what the “problem-space” is. This is more of an
interview process, where we develop an accurate
picture of what the issues are, what problem the
input is, and what the problem output is. We want to
learn what the exact problem definition is; what the
unresolved issues are within that problem-space.
Only then do we go to our AI-based technology to
analyze all related data and develop answers to the
problem.
The answers we provide are based on data, on
mathematical principals. They are based on hard scientific
extractions of information from clean and relevant data. We
rarely lean on human opinion. We look at scientifically derived
evidence derived from data collected and developed in real
time. We are doing this for years now. These are the answers
we give to our clients. So it’s strictly evidence. We are neither
opinion based consultants / analysts, nor are we technocrats.
We have created a completely new field, where human creative
thinking and analytical machine intelligence is merged to one
HARDY F. SCHLOER: Before answering this Question, let me
first say something more general.
When people look at our consulting company, or my own
records of what I do, they have generally a problem deciding
how to place me. Some look at me as a systemic problemsolving consultant and an international geopolitical analyst.
Others see me as a technocrat, because of my extensive use of
advanced technologies in my consulting work.
As somebody that is the creator of a new branch in Artificial
Intelligence, maintaining a deep technological focus, and having
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September 2010
single process. That is the definition of our evidence-based
consultancy.
believe or on what information to act upon. They do not
understand the meaning of information. It’s too much to absorb
and to properly digest. So what we need is to actually go back to
NOT be “on” all the time. We need to actually begin to use
powerful analytical technologies to serve us, to tell us what the
risks are, what the opportunities are, and even execute them for
us automatically, so that we have more time to think.
MUGUR ISTODE: What about “The Dawn of the Intelligent
Planet,” what about that theory? Can you tell us more about
this?
HARDY SCHLOER: What I suggested in a Keynote speech at a
major IBM conference earlier this year is that we need to
go beyond having only governmental and proprietary
intelligence information that is exclusive to a few
decision makers or governments. This information
should become completely open to the world. We need
to develop open data analysis centers all over the planet,
ones that are completely open to anyone that wants to
use them for example in risk management solutions,
consulting solutions, or decision making processes of
any kind.
We can no longer keep vital information analysis
exclusive to only a few. This analysis has to be
completely open to everyone. Obviously this is a process
that will take years to be fully accepted and
implemented. But we need to start doing it today. And
the best way of building it is through companies such mine
because we are actually demonstrating how evidence based
consultations and evidence based risk management, and
evidence based decision making processes can really benefit
humanity. We are demonstrating that we can solve some of the
most fundamental problems, for example in the area of
economics, agriculture, medicine, education, government and
many others, using this methodology. We are showing how we
must move to use technology to serve us, and not to absorb us.
MUGUR ISTODE: Where is the frontier? When can we use
these machines?
HARDY SCHLOER: The frontier is much, much closer than
everyone thinks. Unfortunately, most of people’s observations
and analysis lives in the past, because our memory lags in how
we recognize what today’s reality is. We mostly believe that we
still live in a world that existed 10-20-30 years ago, but the world
from today is usually something much more advanced,
especially technologically, as most would believe. Take for
example the financial industry, and its high-speed algorithmic
trading solutions. We have now well developed technologies
that can read millions of pages of news everyday. Computers
read this news in milliseconds, make an analyzed assumption of
what that the news means, on how to take advantage of the
information, and converted it in an algorithmic feed of
instructions. This happens all still within milliseconds. These
algorithmic feeds are used in real-time by trading institutions.
They trade on the input feeds in near real-time execution speed.
So the actual opportunity space in trading has collapse to about
200 milliseconds at the most. Meanwhile, people are still
reading the newspaper, and they absorb all this slow and raw
information, believing that they actually can trade based on the
information they absorb and make money. But it’s not possible.
None of the readers can consistently make money anymore
simply by reading the newspaper, because the major financial
firms clean up the dinner table long before the newspaperreaders come to eat supper. The only way to consistently make
money in trading today is, to have a massive sophisticated
algorithmic trading computer that costs 10s of millions of Euros,
and executes moneymaking opportunities in milliseconds.
Today we have lots of technology. We are completely absorbed
by it. Look at our cell phones! They have actually completely
taken us over. We are not using them. They are using us. We
are “on” all the time. We are accessible all the time. We have
the PC, we read Internet, and we constantly try to engage in
these technologies and make them useful. For example, here
behind you, there is a screen that runs some economical
information feeds. There’s constantly numbers coming over the
screen. These numbers need to be absorbed by their viewer.
We are supposed to understand what all this means and make
good decisions from it. But the truth is, it is worsening our
decision making process. There are too many inputs, and every
news source is trying to use these inputs to get the most
audience, and create the most impact for their readers.
We have created over the last some 100 years many of these
technologies, and moreover in the last 10 or 20 years, the
Internet; another powerful information medium. We have
created methods for news and information to become louder
and louder to the point that it is almost intrusive. And news
writers have become more and more outrageous in their
statements in order to get a loyal captivated audience among
the growing base of information consumers. And now the
information consumers are confused. They don’t know what to
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Technology has completely transformed the financial industry in
just a matter of very few years. What we have seen in the
financial industry is a first point in case, because the greed is
the highest there, so that is where most of the money for
development has gone. And now all the other areas seem to
follow very quickly. In medicine it’s a similar trend. In fact, after
what we have implemented in the financial industry, we are now
implementing the same
sort of technology in
medicine. In medicine, we
at SCG have now built a
very powerful processing
system that is fully capable
of the complete global
management of all 6 billion
potential
healthcare
records, all new medical
knowledge
that
is
developing everyday, and
full real-time diagnostics
for all participating health
professionals and patients
alike. For example, in
countries with our system
installed, when you walk into a doctor’s office, your medical
record is already in our main computer. Your doctor can then
call it up, add new information, add the data of new tests, and
the system automatically responds in real time to diagnose your
information based on the present moment’s total medical
knowledge available anywhere in the world. Once you are in the
system, we can re-diagnose you every midnight, every single
day, because our medical knowledge changes and expands all
the time. So we could learn for example through constant deeppattern analysis, that if you took a particular medication 10 years
ago, and another medication 5 years ago, you may have a new
and elevated health risk that starts potentially 2 to 5 years from
now. So when the computer discovers such information pattern,
you as a patient should immediately know about that, and be
notified by the system automatically and instantly, without any
further human intervention necessary in the process. So
preventive care needs to become much better. We must push
the frontiers.
industry wants to succeed, this is what modern consulting work
must evolve into, in order to guide its clients into a safe future.
Today’s consulting work of most consulting companies is still
arranged around 19th century business school ideas; simplistic;
too isolated in its approach; not real-time and often without
context. They are only dealing with simplistic facts and numbers.
The science of economics today is simply applied to counting
money. But that is not how
economics as a science
can possibly be effective.
Soon we are going into a
much deeper economic
crisis and we need to have
much more sophisticated
models in order to
understand this crisis
before it comes, and to
understand what all the
input elements of this new
crisis are. We need multidimensional
real-time
models so that such
information
can
be
proactively
analyzed.
Giving smart explanations after a crisis is already here will not
help us at all. We must be able to arrive at the explanations
before the crisis comes, to know why and from where it is
coming.
MUGUR ISTODE: You talk about the models. How you do see
the next evolution? I refer here to the financial markets. For
example, how do you see the evolution of the major foreign
currencies? I refer here to Euros, Dollars and the Pound. Can
you create a model to give us a view of the future?
HARDY SCHLOER: If I understand you correctly; what you
would like to know is, what our models reveal in terms of what
the future would bring in terms of monetary developments. So
obviously everyone right now talks about the crisis, and many
think that the crisis is now over and the world is going back to
normal. Unfortunately the truth is that this was not even yet the
real crisis. That was only a very soft preview of something that
it’s yet to come. The real crisis will start somewhere late 2012
and will last at least until 2015, maybe longer. So, why is that? It
is because we have seen only the first opening-act of the
complete systemic failure of our central banking and monetary
system. The root-problem is first of all, how we create money!
Next is risk management in other economic areas, and
administrative decision making processes. When we begin to
build very sophisticated technological composite models that are
powered by these new Artificial Intelligence systems we have
developed for all this years, then we can also build very good
models of the real world inside a computer. There you can also
perform sophisticated “what-if” analysis. You can now evaluate
what would be, if I implement “this” policy, or if I make “that”
decision. We can successfully test these proposed facts in the
model inside the computer, and see how the model reacts to our
proposed changes and inductions of new scenarios.
Unfortunately, consulting companies of today do not use these
complex supercomputer-driven composite models. But if this
Secondly, the problem how we use money, how we regulate the
global fractional reserve banking policies, and how we export
these ill-conceived banking practices from the western systems
into every corner of the world, and so poisoning the whole global
banking system. It is like a systemic cancer. Current financial
central-bank models require the creation of a constantly
expanding flow of debt-based money to fuel expanding
economies in order to further grow the secondary money supply.
We must grow the economic activity, or we go into recession
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with all its consequences. Of course we all know, and this is not
new to anyone that understands modern monetary systems, that
bankruptcy and inflation is irreversibly built into the system. So,
therefore we will grow until we are so saturated, to the point
where any further growth is impossible, and the system must
finally implode. However, this is just the basic problem. What
has happened as a result of this methodology, and due to the
hyper over-expansion of wealth in the world over the last 50 to
60 years, we have also created new and dangerous financial
instruments that satisfied on one hand the greed for monetary
domination of the wealthy over the poor, but on the other hand,
they put the whole system at risk of total loss at greatly
accelerated pace. The financial instruments I am talking about
are called derivatives, and they are basically pieces of paper
that have huge numbers written on them, but they have
absolutely no underlying value. In 1998 Bill Clinton deregulated
these instruments in the USA under the pressure of Mr. Paulson
at the Federal Reserve and others in power at the time. The rest
of the world followed with the same relaxed regulations, and
sometimes even failed to regulate them at all, without ever
considering the enormous consequences this act had on the
entire financial system. I said in December of 1998, that it would
take no more then a decade, before this will cause a collapse in
the financial system, and I was right.
financial bailout programs. In the US, in Germany, England,
France, everywhere, the central banks had to come to the
rescue to the tune of trillions of dollars. These bailout actions
were mostly financed by 2, 3 and 5-year treasury notes. Very
few were financed with 10-year notes. The refinancing or
repayment of these notes will fall mostly into the 2012 – 2015
window.
What will happen at some point in time is that no one out there
in the world will want to buy this papers any more. This is for two
reasons. One, Asia, which has been buying our debts for a very
long time, is currently dumping Dollar, Euro and Pound
denominated assets everywhere they can. And they are not in
the mood to acquire much more of our debt papers in the future,
except for making minimum purchases that serve only to
support the value of the paper they already own. This will
continue until they have little by little, dumped most of these
assets in every corner of the world, wherever they can use it for
trade-offs. China is going today into Africa and buying up
everything they can, dumping Dollar Pound and Euro
denominated financial papers and currencies, just to get out of
western money and get into something more tangible that will
survive the potential collapse of these elusive assets in the
future. The second problem here is that Asia is on the verge of
conversion from an export society into a self-consumption
society. That means Asia no longer has the necessity to buy the
west’s papers anymore just to stay on the “good” side. They
know that due to the demographical contractions in the west,
there is a declining need for their products there, so the west
becomes less and less important for their own future economical
development. They do not need to please the west anymore;
they can do without it.
Naturally, this is not a process that happens from one day to the
next, but over some time of a decade. However, it will
accelerate within this time-window of 2012-2015. The trend
toward self-consumption in Asia has been exploding for some
time. There are more Ferraris in China then in the USA. They
are adding cell-phones to the market on a monthly basis, at a
rate that exceeds all those that currently exist in the entire UK.
The economies of Asia are completely changing, and their
interest in buying and financing western debts is reducing very
fast. But there is another dimension that makes this even worse.
It is the socio-economic demographic scenario of Europe and
the US. Let me first talk about the demographic changes of
Europe. In Europe we have a medium age, depending on what
statistical data you want to look at, that rangers from about 34
years to 46 years old. For the last 40 to 50 years, procreation
has literally come to a near halt, and we will see in those coming
decades an enormous exodus of working and taxpaying people
into the pool of retirement. In fact, in this decade, the tax paying
base will shrink exponentially, and will shrink even more so in
the next decade. The problem here is not only the reduction in
tax revenue to expect, along with the concurrent expansion of
social costs, but the problem also is that with this demographic
Today we have a derivative bubble to absorb of more then1.16
quadrillion Dollars. When I say that number I understand that it
is a number normally only used in astronomy, but not in
economics. Nevertheless, this is the enormous amount of
unabsorbed “fake money” that they keep pushing in front of us,
which somehow must be reconciled and absorbed into the “real”
economic monetary process, without collapsing the real
monetary value of real money. And that is not possible. Why it’s
not possible? Because of the relentless greed of the financial
industry, which pushed this number now higher than all the real
money that exists on the entire planet. This however is only one
aspect of the problem. Therefore, let’s reflect further on this
problem, because it is a complex one, with many additional
elements and dynamics that must be carefully considered here.
Resonantly, we have had to react, due to our real estate
defaults and the other more systemic problems, with extensive
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September 2010
scenario there are individual groups with certain behavior
signatures that will make an additional impact to adversely effect
economic development. When there is an aging society trend,
the majority of people who tend to buy speculative assets
convert into those who must sell such assets to secure their
retirement. And in unstable economic times, the trend of selling
assets reaches further into even the medium and low age
ranges. Accumulated assets of previous decades end up with
no buyers.
talked about the frontiers of technology. Today, in order to
profitably trade financial markets, you need to be in the 100millisecond space in order to make any money at all. The
fantastic transparency that technology creates has already
resulted into a dramatic oscillation of market prices, across all
financial markets since 2007. Volatility is at historic record
levels. Soon this combination of time-opportunity compression
should collapse most financial markets from the inside out,
because the time-opportunity-space is eroding to absolutely
nothing.
We talk earlier about these complex economic composite
models, so now it gets even more complicated. As a result of
these factors, financial speculation, as we know it is
disappearing. Financial speculation can only exist in an
environment where there are information blackouts, where one
can trade on some set of speculative intelligence that is very
hard to attain and develop.
So, now back to our economic expectations, these expected
and intensely increasing financial market oscillations feeds right
into the 2012-2015-time window. So expect the following
scenarios: One: enormous and increasing volatility in all
markets, followed by a hyperinflation and collapse of western
currencies. And when I talk about collapse of currencies, as a
reference we are looking at a scenario that is somewhere
between the inflation of Brazil in
the 1980’s, and the inflation of
Germany in the 1920’s. It is
going to be very dramatic. And
that scenario will be true for the
Euro, the British Pound and the
Dollar.
What do we mean with this? Let us
look at the simple example from the
1950s or 1960’s where we had all
this billionaires that were becoming
rich due to financial arbitrate
activities. For example, financial
companies had a trader in Hong
Kong in the gold trading pit, and a
trader in New York in the gold
trading and they were connected by
a telephone. When there was for a
moment, a small price difference
between the Hong Kong and the
New York market, they would
communicate with one another to
simultaneously execute massive
buys on one side and massive sells on the other side. They just
swapped positions, closed them, and as a result made a lot of
money in the process using timely information that was only
available to them and conveyed over the telephone. They took
advantage of the intelligence made exclusively available to
them.
Now lets talk about the USA. I
said before that in reference to
demographic
developments,
there are special considerations
for the US. There we have a
different type of problem. In the
US we currently have a very
pronounced and fundamentally
different social group structure, which is influencing the country,
with the white protestant segment setting the tone of leadership.
This group has dominated American politics and social
influences for the last 230 years. But in the next 15 years, every
single year you will see one, two, or tree states in the US
changing from a white majority to a Black and Hispanic majority.
What are considered today’s minorities will be the majorities of
tomorrow. This is important because each social group has
completely different economic behaviors. Psychologically, each
group is totally different. Members of Hispanic society invest
different, trade different, and have different geopolitical
orientations than their white Anglo-Saxon protestant
counterparts. Looking at the current socio-economic orientations
of the Hispanic community, we can expect a swift erosion of
east-west / west-east relationships. They care less about
Europe or Asia but care more about their Hispanic brothers in
the south. So you will have a complete change of geopolitical
perceptions that will swing from a strong east-west orientation
into new north-south orientation. This will have a dramatic
impact on what is important to the country as a whole. The
commercial interconnectivity and the local monetary systems
will go through significant changes and repositioning. As a result
In fact 300 years ago, they say that modern investment banking
started as an intelligence organization built by a French banking
family. The banks then, as they are now, were well-funded
intelligence organizations that provided their traders with the
speculative edge to capitalize on the fluctuations of stocks,
currencies and all kinds of other financial products, converting
that intelligence into profit. However, today, with the new
intelligence technologies developed over the past few years, all
of these speculative opportunities are going away. The arbitrate
billionaires of the 60s are long retired or broke, if they tried to
stay in the arbitrate business because electronic computerfeeds have created so much transparency in the market that it
has become impossible for a human trader to compete with
simply an old-fashion phone on the trading-floor. Remember
what I said right at the beginning on this interview, when we
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of this change, the US will fall back into a much more isolationist
position, similar to that of the 40’s, the 30’s. This will completely
change the mindset of the whole region. The US will be less
focused on regaining global financial domination and more
focused on social issues located domestically and to the south.
Additionally, the US will face very severe social tensions in the
future between the black and Hispanic communities. Today
these social tensions are kept relatively in check by the white
protestant media as I said before; they influence the tone of the
whole countries mind set. This potential social unrest is currently
ignored, suppressed, and perhaps managed by a more or less
successful methodology. But with the white social groups losing
their majority in the next decade or two, these social conflicts,
especially that between Hispanics and blacks, will no longer be
successfully managed. In geopolitical terms, the US will be
ignored much more than they are confronted in the future. The
US generally likes confrontation, because that attention makes
them the protagonist. A future where there US does not
maintain its protagonist role will be a completely new experience
for them, one which will require adjustment. Basically, the US
will become more and more isolated from the outside world in
the next decades.
HARDY SCHLOER: Let me answer to this question in two
steps. I was just a few days ago in Uzbekistan, giving a
presentation to Deputy Prime Minister Ganiev about energy. I
presented them with a picture that is a “continuous night”
satellite image of the world. The image shows all the lights that
are turned on across the planet during periods of darkness. And
you can clearly see, where there is light, there is energy, and
were there is energy there is economic prosperity. This simple
picture is very revealing. Energy equates with economic
progress. Easy access to affordable energy is absolutely
fundamental in modern community development. In the future
we will go from centralized energy production, to very localized
energy sources because the communities have the greatest
interest in their own clean energy production. The expanding
dependency on carbon production is not sustainable. If in China
everyone had as many cars as the average German or US
citizen, this planet would end up in a poisoned cloud of pollution.
And China is developing fast, and so is India. So we know, that
under the existing energy production strategies, our current
global energy production is unsustainable. Is clear that we must
move towards localized renewable energy production. This
means mostly wind and hydro energy, as these sources are
already today very competitive in production costs.
MUGUR ISTODE: In the future, if you have a substantial
amount of money, in what currency do you trust?
MUGUR ISTODE: And what about solar energy?
HARDY SCHLOER: Today I maybe trust in Turkish Liras the
most. I am not alone with this analysis. I found several fund
managers, one of them managing many billions of Dollars, who
are currently reducing their holdings in Dollars, Euro and
Pounds and buying Turkish Liras.
HARDY SCHLOER: Solar obviously is an important element.
The problem is that solar-voltaic energy is already pretty much
the peak of the development curve. It may get 3-4% more
effective in the next few years. At this point we will have
achieved the full potential of solar voltaic energy. Obviously we
want to look into technologies that still have a lot of room for
efficiency and low-cost development. It is very important to
mention within this context, that we must not only focus on
energy production, but focus on energy efficiency. And here we
know, and Italy has already demonstrated this convincingly, that
smart-grid technologies are a most important element in the
overall energy policy of any modern country. It seems that it is
an initial big investment, but the future payoff of such investment
is simply fantastic. You can reduce consumption by 15% to 40%
of current energy consumption through the application of these
new technologies. Given the fact that we will see a dramatic
increase in electric cars, because electric car technologies have
really evolved recently, we will also see a fast expansion of
energy demand in the next years. If you look at the latest model
of Tesla, it is an electric car that is very fast, comfortable,
luxurious, and practical. It can go about 300 miles with one
charge of energy and is refueled, or I should say recharged in
only 45 minutes. And that is only the beginning of the
development curve. There are many new developments in this
area, so you should see in the next 10 to 15 years a very broad
and rapid conversion to electric cars globally.
MUGUR ISTODE: Why Turkish Liras?
HARDY SCHLOER: For one, Turkey is not part of the EU yet,
and probably France and Germany will do the greatest favor for
Turkey by not letting them join the EU at all. This will benefit
Turkey greatly in its future progress. Of all the G20 countries,
Turkey has the lowest public debt. It also has excellent
demographics with a medium age of about 22 years. It is a
highly productive and an industrious manufacturing society.
Currently it is becoming more and more energy independent
due to heavy investments in domestic energy production such
as hydropower and other renewable energies. So there are
incredible transformations happening in Turkey that many
casual observers cannot see at first glance. Many outsiders
view Turkey as it was 20-30 years ago. But let’s not forget one
thing. Turkey went in the ranking of industrial nations from
number 26 to number 16 in only 10 years, and even during the
crisis they moved from number 16 to number 15 in terms of
world economies. So Turkey is a truly fast evolving society with
few downsides.
MUGUR ISTODE: I saw your website and read about your
interesting solutions involving renewable energy. Do you think
this is the future for the planet?
MUGUR ISTODE: Thank you very much for this interview.
HARDY SCHLOER: You’re very welcome.
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