- Financial Market Regulation – Market Transactions Tax (Video)
By EconMatters
We discuss the Financial Transactions Tax in this video. Bernie Sanders has made this issue part of his campaign in order to appeal to redistribution voters, a common liberal ideal in the Democratic Party.
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- Japan Sells 10Y Bond At Negative Yield For First Time Ever
As we detailed earlier, for the first time in the history of crazy, Japan ‘sold’ 10-year government bonds today at a negative yield. Translated into English, this means “investors” agreed to pay the Japanese government 2.4bps per year for the privilege of lending it money for 10 years…
Down from a 7.8bps positive yield at the last auction, the 10Y auction’s average yield was -2.4bps…
Peter Pan(ic) continues as the rest of the JGB curve collapses to fresh record low yields and await the reaction in Japanese bank stocks…
Charts: Bloomberg
- The Two-Party Illusion
Submitted by Jeff Thomas via InternationalMan.com,
“There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil.” – John Adams
The Great Illusion of the two-party system is that it allows the voter a choice – usually between a liberal and a conservative government. The reality is that, whichever party wins the election, the government is, in truth, a totalitarian one. The “choice” is a mere distraction from the true objective.
Recently, an American college student, Justin Snyder, commented on his choice for his country’s next president and his reasons for it. Mister Snyder said, in part,
"I support Hillary Clinton for president … When you add up her knowhow, leadership, and experience, it's clear that Hillary Clinton is a perfect fit to be the commander-in-chief of the largest military the world has ever seen … The thing is, we've been trying the free market thing for centuries. All we have to show for it is a super wealthy class of people who run the country. What we need is someone to represent the common man, and that someone is Hillary Rodham Clinton.”
Mister Snyder has done quite well in absorbing the modern liberal party line, one that both advances itself on the concept of collectivism, yet reverses itself on its position just two generations ago that war is an evil concept, promoted by conservatives in an effort to control the world.
His comments are not unusual, and that’s what makes them significant. He’s a modern, educated, effectively indoctrinated liberal. His political counterpart is a modern, educated, effectively indoctrinated conservative. Together, they comprise the backbone of governmental dominance over a people: different party, same blind acceptance of political party dogma.
John Adams had it right in his 1780 letter to Jonathan Jackson, as quoted above. He understood that the old method of thought control – that of kings ordering their vassals what to believe – had had its day. It had never been fully effective, as the vassal was free to decide whether he believed the king. But, as early as 1780, the future would belong to those politicians who were skilled in giving the public “A” and “B” choices.
People need to believe that they have a choice. Interestingly, though, they seem to be content with only two choices. A skilled politician therefore limits the number of choices to two and, today, this is the way it’s done in most “advanced” countries. Whether it’s Democrat vs. Republican, or Tory vs. Labour, there are two dominant parties. Each is represented by a group of individuals seeking to gain or maintain public office.
Initially, in order to sell the two-party concept to voters, it’s important for each party to have a philosophical identity. These two identities would seem to need to be based on opposing primary principles or ideologies, such as a free market system vs. collectivism, or empire-building warfare vs. a commitment to peace.
The US did, indeed, follow this route in developing its own primary sports teams, the Democrats and the Republicans. And, along the way, it learned that the public can be best manipulated if they are blindly devoted to either one team or the other. (Those in the red T-shirts detest those in the blue, and vice versa.)
Once this blind devotion has been achieved, it becomes possible to dispense with the extreme polarity of principles and ideology. As stated above, only two generations ago, there was a “collectivism and peace” party and a “free market and empire” party in the US. What they had in common, however, was that both required an increasingly larger government to support its objectives.
Today, the US political system has evolved to the point that the principles and ideology are disappearing. Today, Democrats fully accept and even encourage overseas aggression. This has been achieved through the illusion of “terrorism.” Similarly, the Republicans have watered down their commitment to a free market system through the soma of ever-widening entitlements.
No longer is it necessary that the two dogmas are polar opposites. They can only be five degrees apart from each other, yet each team of supporters fully believes his team is morally right and the other team is morally wrong. Meanwhile, they’re both headed toward the same warfare/welfare end. And of course, both teams fully accept the concept that an ever-expanding government role is necessary in achieving these ends.
But how is it possible that the principles and ideologies have been virtually erased? After all, the very idea of principles is that they are not based on popularity, but on inner conviction. Well, truth be told, the great majority of people have no real moral compass at all; no real inner sense of convictions. Their convictions can be manipulated in such a way that the portion of the brain that wishes to deal with convictions can be redirected into areas that are of little consequence.
On the surface of it, this seems like a bold and even radical statement, yet, as we can readily see, as long as never-ending debates are maintained over the less vital issues, such as abortion rights, gay rights, etc., a people can be distracted away from primary principles. Therefore, the government has the ability to create the illusion that a two-party system exists when, in truth, as the caption below states,
“VOTING: It’s deciding which criminal gets to steal everything you have.”
The concept of a government as a body of individuals that are chosen by election to represent the voters is a good one, but it’s not a concept that’s shared by those who are elected. Those who are elected almost unanimously see the concept as one in which the rulers are determined. They have no illusion about representation, although they do understand that they must give the impression to voters that they see themselves as representatives. Rulers seek to rule. All other concerns are secondary.
Over time, those elected will look for every opportunity to increase their own power (both politically and economically). Consequently, the longer a governmental system exists in a given country, the more it will deteriorate toward tyranny.
At some point, there is, in almost every country, a rebellion of some sort that causes a reset – a return to a more democratic structure where a greater level of representation once again takes place. Then the deterioration, inexorably, begins anew. This is why Thomas Jefferson was so fervent that, every so often, a revolution is essential.
It should be pointed out that the US is not alone in this deterioration. In all fairness, many other countries are in a similar state. Increasingly, people in these countries recognise that conditions are becoming tyrannical. Yet, most hold out the hope that the next election will somehow magically result in a return to basic freedoms. This will not be the case. Deterioration is baked in the cake. Regardless of the candidate, regardless of the party, regardless of the country, the outcome will be the same.
But, as stated previously, the deterioration process is a very long one and, at any given time in history, there are countries that are not so far along in the process. A bright future does indeed exist, but it lies not in the hope of a reversal by political leaders. It lies in choosing one’s domicile – one where basic freedoms remain.
- China Faces 15 Trillion Bombshell As Shadow Banking Sector Collapses
We’ve spent more time than most documenting China’s wealth management product problem.
WMPs are part and parcel of Beijing’s sprawling shadow banking complex which, until 2014 that is, helped pump trillions of yuan into China’s economy and shouldered the burden when it came to propping up the most important economy on the planet.
But WMPs are dangerous. In fact, we flagged them as an 8 trillion black swan back in August on the way to asking what would happen if China’s shadow banking sector were to collapse altogether.
This is space that’s running what amounts to an enormous maturity mismatched fraud. Of course the describes the entire fractional reserve banking system, but in the case of China’s WMPs, it’s all on the verge of implosion. Don’t believe us? Just ask anyone who bought into products sold by Fanya Metals’ Shan Jiuliang.
This is a very real threat to the Chinese banking sector. The multifarious nature of the space’s liabilities makes it virtually impossible for anyone to assess what the embedded risks are. As we first documented last summer, some 40% of credit risk is carried off balance sheet and that figure might well have grown recently, especially considering mid-tier bank’s propensity to extend new credit through new cateogries of channel loans that are classified as “investments” and “receivables”
In any event, China is desperate to revive the credit impulse and that means keeping the shadow banking space alive. Here’s BofA with more on China’s ticking WMP time bomb:
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Growth rate accelerated. By the end of 2015, WMP balance reached Rmb23.5tr, up 56.46% YoY. Astonishingly, growth rate accelerated last year compared to the year before despite a high base – in 2014, the balance grew from Rmb10.2tr to Rmb15.0tr, up 47.25% YoY. The key drivers of this accelerated growth are joint stock banks whose WMP balance rose from Rmb5.67tr to Rmb9.91tr, up 74.8% YoY; city commercial banks, Rmb1.7tr to Rmb3.07tr, up 80.6% YoY. On the other hand, the big four state-owned enterprise (SOE) banks’ balance rose by a more moderate 53.2% YoY (from Rmb6.47tr to Rmb8.67tr) while foreign banks’ balance declined by 25.6% (from Rmb0.39tr to Rmb0.29tr).
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Liquidity risk is rising. The outstanding balance of open WMPs, of which buyers can subscribe or redeem largely at will, reached Rmb10.32tr, up 96.95% YoY. They accounted for 44% of bank-run WMPs balance as of Dec 2015, up from 35% a year earlier. The increased share of open WMPs adds to the duration mismatch in the shadow banking sector and makes the system more prone to liquidity shock in our view. In 2015, banks issued Rmb158.41tr worth of WMPs, i.e., Rmb13.2tr a month on average. If WMP buyers decide to ‘go on strike’ for whatever reason, a liquidity crunch in the shadow banking sector could quickly develop in our view.
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Implicit guarantee still largely in place. Only Rmb1.37tr worth of open WMPs, representing 13% of the total, are priced based on NAV. Also, the portion of closed WMPs that are priced similarly is tiny. This means that the vast majority of WMPs are still sold with the so-called “expected return”, which is largely viewed as promised return by WMP buyers by our assessment. In 2015, only 44 WMP products, or 0.03% of matured products during the year, caused investors to lose money. This loss ratio appears unusually low in our view. It is interesting to note that most of the 44 products were sold by foreign banks.
- Individual buyers still dominant. As of Dec 2015, individual investors, including high net-worth individual investors, accounted for Rmb13.34tr WMP balance, or 56.6% of the total (institutional investors, 30.6%; inter-banks, 12.8%). They subscribed to Rmb101.49tr of the newly issued WMPs during the year, representing 64.1% of the total. Mood of individual investors are more volatile than institutions in general.
The bottom line is this: if this implodes, it will not only tank the entire Chinese banking system but the global economy as well, as the amount of liabilities here is quite frankly enormous.
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- China's Crowd-Sourced Housing Bubble Goes "Crazy" – $585,000 For A 65 Square Foot 'Apartment'
The price of home price in China’s tier one cities (Beijing, Shanghai, Guangzhou and Shenzhen) started another around of rally in the last couple months, and became “crazy” in Feb as described by the Chinese who form lines to buy the apartments everywhere.
When I saw this online commercial as below, I cannot help asking myself: Really? This place can be sold as a “home” (I thought it’s just a kitchen), and at this price ($9k per sqf)?
The ads is posted on the web site of China’s biggest online real estate agent Lianjia, showing a 6 square meters (65 sft) property which asks for RMB 3.8milion ($585k in total or $9k per sft). Frankly speaking, this place has its good selling points: sitting at a good school zone, close to the subway and not subject to the real estate restriction policy. But really, $9k per sqf?
Maybe you think the tiny kitchen is an isolated case, but let’s look at the following general price data.
Chart 1: Tier 1 cities ended the YoY price decline since June 2015 and enjoyed a strong rally as it did in 2010 and 2013.
Chart 2: Absolute price level of tier 1 cities (Shenzhen, Beijing and Shanghai (RMB/sqm))
Source: Wind, blue line: Shenzhen, red line: Beijing, and blue dot line: Shanghai
The median home price in China’s top 3 tier 1 cities ranges between $0.5k to 0.6k per sqf (RMB 33k to 43k per sqm). Based on Trulia’s data in 2015, the median home sales in NY is $1.5k per sqf and that in San Francisco is $0.95k per sqf. However, the median household income in Shanghai is only $15,400 per year while that in NY/SF is around $59,000/$84160, so the home price to income ratio in China’s tier 1 cities is higher than those in US tier 1 cities.
Chart 3: Price change % of tier 1 cities in the last five years
Source: Wind, from left to right, Shenzhen, Beijing and Shanghai
So will investing in the tier one properties bring you stable income? Let’s take a look at the rent yield.
Chart 4: Tier 1 cities’ rent yield in the last eight years (%)
Source: Wind; Red: Shanghai, Blue: Beijing and Pink: Shenzhen
The trend of rent yield has been declining and now the yield stands at only around 2%. But if we take a look at real yield, it’s another picture
Chart 5: Tier 1 cities’ rent yield minus China 10 yr treasury yield (%)
Source: Wind; Red: Shanghai, Blue: Beijing and Pink: Shenzhen
Apparently, you will have negative real income if you investing in China properties. Your investment return comes from the next buyer/speculator or the people who are stupid enough to pay 20 to 25 times home price to house income (if they really can afford).
You must wonder how the average Chinese people can afford a living place as the home price to income ratio is so high. Yes, you are right, the average Chinese people or even the white collar/professionals are not able to afford the home price in tier 1 cities, but they can “invest” in the property market just like they did in the A share equity market through leverage. For the A share equity market, we can estimate the leverage through the level of “margin debt”. However, there’s no such a metric to estimate the size of the leverage used in the property market. But we can get a remote sense from another perspective. We all know January new RMB loans hit a record high RMB 2.51 trillion, while the deposit of industrial corporate only increased RMB 800 billion. It means that a decent part of the loans did not go into industrial corporate’s bank accounts to support the real economy. Where did it go? Apparently the margin debt in equity market was dropping in Jan, then you know the answer.
In addition to the leverage part, there’re more concerns in the equity part: down payment. For speculator, they like to buy as many as home in the same area so they can “manage” the price through volume control. Right now China’s real estate policy still mandates 25% to 30% down payment when you buy a property, so the equity part itself demands significant cash flows (tier 1 cities’ average home price is around $1.2 million to $1.5 million per unit, so 25% to 30% down payment for 100 units is still a big number in China. Yes, it’s not wrong number, 100 units is a normal case for a group of speculators who will buy the whole apartment complex). Here are two ways how the speculators get around this entry barrier?
- The real estate agents provide margin for the down payment. To boost the transactions and earn the commission, the agents provide 50% to 70% lending of the down payment part and make sure the buyers have enough money to finish the transaction. In reality, the buyer may only pay 10% down payment (agents lend him 70% of the 30% down payment requirement) to buy a home. The speculator’s leverage is loosened from 1:3 to 1:10 through this down payment leverage. Right now, the buyer not only owns money to the banks but also the agents. But it does not matter in a quick and steep upward market, as the speculators will turn over their inventory quickly and make a fortune of it. All they need is big enough equity to leverage the bubble. How big is the size of down payment leverage? From the public information of three top agents (Lianjia, 5i5j, and Fang), we know that they provided this kind of down payment leverage for transactions with the value of around RMB 500 billion.
- Some small individual speculators use “crowdfunding” to make the down payment. Per Wiki, crowdfundingis the practice of funding a project or venture by raising monetary contributions from a large number of people, today often performed via internet-mediated registries. Crowdfunding is popular in the tech space, but in China, speculators use it to fund their bets in the property market. Ironically, they use Wechat as the internet platform to organize the crowdfunding. In these days, as long as you walk into any Starbucks in Shanghai, you will hear people discussing crowdfunding their “real estate investments”. The problem is, it’s difficult to define ownership in a crowdfunding support down payment, because it’s impossible to put 100 or 200 people’s names under a property’s ownership.
Anyway, the current crazy bubble in China’s tier 1 cities smells the same as the A share bubble which was boosted by the margin debt in the last two years.
We know it will end badly when the margin debt bubble is pierced.
* * *
Shortly after completing this note, Bloomberg runs the following headline:
China State Media Warns of Home Price Surge in Top Cities
Some developers and real estate agents created illusion of massive demand for homes that led to purchases by panic buyers, according to a commentary from Xinhua written by reporter Zheng Juntian on Monday.
More than 30% buyers of homes in Shenzhen city made purchases as investment, Xinhua cites data from unidentified researcher
Local govts should prevent home prices from rising overly fast and avoid speculative demand buying homes with financial leverage
So having herded people into the stock market and blown them up; and then back into housing (easing mortgage restrictions etc.), the authorities will now proceed to yell "bubble" in a crowded (and over-levered) 'theater' of real estate. We sense the social unrest building as we speak.
- Japan Braces For A "Turbulent, Volatile" 10-Year Auction With First Ever Negative Yield On Deck
Two days after Japanese yields plummeted on January 29, when the BOJ unexpectedly stunned the world by announcing negative interest rates, the Japanese government sold 10 Year Bonds at what was then a near record low yield of 0.078% in an auction which carried a 0.3% coupon. Since then things have only gotten more… deflationary, and as can be seen on the chart below, as of this moment the 10Y JGB is yielding a record-0.055%
And since Japan is set to issue JPY2.4 trillion ($21 billion) in 10 year notes in a few hours, it means that for the first time ever, the Japanese government will be paid to actually “sell” 10Y paper – bonds which will have a negative yield at issue.
This won’t be the first time Japan has sold NIRP paper: as Bloomberg writes, over the past month Japanese government bonds of as long as five years in maturity sold at a negative yields, however tonight is only the first time when the entire curve through the 10 Year mark will be submerged below the X-axis.
However, where things may get tricky, is that as BBG adds demand at 10-year note auctions has declined this year as yields continued their slide, even with the central bank having the scope to buy every new bond issued as part of its stimulus program. In other words, bidders have no choice and if they want the “safety” of government backstopped collateral, they will have to pay Abe for the privilege of giving him their money for the next decade.
“There are concerns about who would actually buy 10-year bonds with negative yields,” said Shuichi Ohsaki, the chief Japan rates strategist at Bank of America Merrill Lynch. “Even if you wanted to participate in the BOJ trade, you would have to hold onto the bond until it becomes eligible for the BOJ operation. And with the increase in volatility, it’s a tough one to trade.”
Where things get even more complicated is that in China the concept of a yield curve is practically non-existent: as the chart below shows, the JGB yield curve was the flattest on record at the end of last week, under pressure from the BOJ’s bond purchases, with the premium offered by 10-year securities over two-year notes narrowing to just 11.5 basis points.
That’s not all: if DB’s Makoto Yamashita is right, tonight’s auction may be quite “turbulent”:
“We expect the10y JGB auction on the 1st to be a new issue with a 0.1% coupon, but auction yields are likely to go into negative territory. We do not expect the bank sector to buy, and demand from dealers and foreign investors is unlikely to provide sufficient support. We expect the auction to be turbulent given investors are also unlikely to short futures and the possibility of a tail. “
Then again, Japan hasn’t had a functioning, free or efficient bond market in a decades. This is the same market which none other than SocGen’s Albert Edwards recently fell in love with because Japan’s 10Y bond is the only asset class which, as we reported last week, has not had a losing year since 2007.
While Edwards was “all in” 10Y JGBs, we – and certainly Kyle Bass – are less euphoric. As we said:
Yes, Japanese bonds have generated positive returns for the past 9 years, but all it takes is just one moment of sheer central bank stupidity, or outright insanity, to destroy everything. The BOJ had just such a moment one month ago when it launched NIRP. What if the next moment is its last?
What is the next moment is in a few hours?
Who knows: perhaps the combination of a manipulated, rigged bond “market”, one which is entirely dominated by the BOJ, with an unprecedented event like the first ever negative yield on a 10Y JGB in history, is precisely the catalyst that will not only snap Japan’s unbroken treasury record, but finally end the farce that is Japan’s centrally-planned, well… everything, and result in the Bank of Japan finally losing control.
While we don’t think tonight’s auction will be the catalyst just yet, keep an eye on the auction results when the come in. Just in case.
- Workers At Tesla's Gigafactory Stage Mass Walk Out Protesting Out Of State Employees
All is not well in the non-GAAP paradise known as Tesla’s Gigafactory, where labor tensions are suddenly running high.
According to Bloomberg, at least 100 workers at the construction site for Tesla’s massive (and taxpayer subsidized) battery factory near Reno, Nevada, walked off the job Monday to protest use of workers from other states, a union official said.
It used to be that workers were upset when foreigners were brought in; now it’s workers from out of state.
Local labor leaders are upset that Tesla contractor Brycon Corp. is bringing in workers from Arizona and New Mexico, said Todd Koch (no relation to the billionaire family by the same name) president of the Building and Construction Trades Council of Northern Nevada.
The escalation in interstate labor tensions mirrors the fragmentation of Europe, where with an imminent collapse of the Schengen customs union, members of the neighboring EU countries will soon revolt when working side by side. Perhaps it only makes sense that with globalization now running in reverse, and with Europe falling apart at the seams, that the US will follow suit by defederalizing.
The local union’s the soundbites certainly indicate that “out-of-state workers are clearly not welcome.”
“It’s a slap in the face to Nevada workers to walk through the parking lot at the job site and see all these license plates from Arizona and New Mexico,” Koch said in an interview. Those who walked out were among the hundreds on the site, he said.
Construction work at the $5 billion, 10-million-square-foot factory has been proceeding ahead of schedule. Tesla said in an e-mailed statement that the nonunion contractor involved in the dispute Monday, which it didn’t identify by name, is using more than 50 percent Nevada workers and that more than 75 percent of the factory workforce is residents of that state. Tesla didn’t say how the walkout is affecting work at the site.
Of course, the only reason for that is because otherwise the generous subsidies provided to Elon Musk by Nevada taxpayers would be voided. As a reminder, in September 2014, Musk and Nevada Governor Brian Sandoval announced a deal that included as much as $1.25 billion in tax breaks over 20 years and a requirement that half the so-called gigafactory’s expected 6,500 permanent positions go to Nevada residents.
It said nothing about where the other 3,250 should come from, although it appears that to local labor unions, anything short of 100% “local” is increasingly unacceptable. Furthermore, it is unclear just what sparked the workers’ anger if indeed at least 75% of the Gigafactory’s worker are local.
“Today’s activity stems from the local Carpenters Union protesting against one of the third-party construction contractors that Tesla is using,” the automaker said. “Their issue is not with how Tesla treats its workers.”
And Tesla will continue treating it workers well as long as it is ultimately taxpayers who foot their paycheck. Once that changes, pink slips will galore, for both in and out of state workers alike.
In the meantime, we can’t wait to see what happens if Uber’s Gigafactorians stage a Megastrike.
Finally, while we would like to take Musk at his word, one wonders what the real reason for this quasi-labor strike truly is and if next quarter Tesla, whose GAAP vs non-GAAP revenue and EPS looks something like this..
… won’t include a “strike-adjusted” non-cash flow metric to go with the rest of its income statement gibberish.
- Law Professor Slams Summers: "Cash Is The Currency Of Freedom"
By Glenn Harlan Reyonds, aka Instapundit, a University of Tennessee law professor, originally posted on USA Today
Cash Is The Currency Of Freedom
As Fed inflates away dollar’s value, government gains more control to manipulate taxpayers and savers
Former Treasury secretary Larry Summers wants to get rid of the $100 bill. But I think he has it exactly backward. I think we need to restore the $500 and $1000 bills. And the reason is that people like Larry Summers have done a horrible job.
Summers wrote recently in The Washington Post that the $100 bill needs to go. The reason, he says, is that it’s a favorite of criminals, along with the 500 euro note, which is likely to be discontinued. The New York Times editorialized in agreement, writing: “Getting rid of big bills will make it harder for criminals to do business and make it easier for law enforcement to detect illicit activity. … There is no need for large-denomination currency. Britain’s top bill is the 50-pound note ($72), which has been perfectly sufficient. The United States stopped distributing $500, $1,000, $5,000 and $10,000 bills in 1969. There are now so many ways to pay for things, and eliminating big bills should create few problems.”
Reading this got me to thinking: What is a $100 bill worth now, compared to 1969? According to the U.S. Inflation Calculator online, a $100 bill today has the equivalent purchasing power of $15.49 in 1969 dollars. Likewise, in 1969, a $100 bill had the equivalent purchasing power of $645.55 in today’s dollars.
So even if we brought back the discontinued $500 bill, it wouldn’t have the purchasing power today that a $100 bill had in 1969, when larger denominations were discontinued. And carrying around a $100 bill today is basically like carrying around a $20 in 1969.
And although inflation isn’t running very high at the moment, this trend will only continue. If the next few decades are like the last few, paper money in current denominations will become basically useless.
Of course, as CATO Institute analyst Daniel J. Mitchell writes, to our ruling class this isn’t a bug, but a feature. Governments want to get rid of cash for two reasons. First, it gives them more control over citizens: They justify it in the name of fighting terrorists and organized crime, but what they really care about is making sure that nobody escapes their scrutiny, for purposes of taxes, regulation and political finagling. Second, if you’re stuck putting your money in a bank, they can force you to spend it (and thus “stimulate” the economy) by subjecting you to negative interest rates, in which money that just sits in the bank shrinks away, providing an incentive to spend.
The Federal Reserve and various other financial regulatory bodies were sold politically in no small part as protections against inflation. But inflation has run rampant. According to the inflation calculator, today’s $100 bill is worth only as much as $4.18 in 1913, the year the Federal Reserve was established. When you realize that inflation helps debtors and that governments are the world’s biggest debtors, this makes a certain amount of sense — for them.
But at a time when, almost no matter where you look in the world, the parts of it controlled by the experts and technocrats (like Larry Summers) seem to be doing badly, it seems reasonable to ask: Why give them still more control over the economy? What reason is there to think that they’ll use that control fairly, or even competently? Their track record isn’t very impressive.
Cash has a lot of virtues. One of them is that it allows people to engage in voluntary transactions without the knowledge or permission of anyone else. Governments call this suspicious, but the rest of us call it something else: Freedom.
Glenn Harlan Reynolds, a University of Tennessee law professor, is the author of The New School: How the Information Age Will Save American Education from Itself, and a member of USA TODAY’s Board of Contributors.
- Exporting Death & Destruction
Nothing says Nobel Peace Prize like being the world's largest (by a long way) exporter of arms…
The US was by far the top arms exporter in 2011-15, with a 33 per cent share of the global market. Exports from the US have increased 27 per cent in the last five years.
As The Independent reports, the number of major weapons switching hands around the world was up 14 per cent in the last five years, compared to the five years before that.
The Stockholm International Peace Research Institute, an independent resource on global security, has released a study that shows that India is the world's largest importer of arms.
The chart above shows that Asia was the main importer of weapons in the last five years, as the region races to arm itself ahead of its regional rivals: China and Pakistan. The high levels of Indian imports are also the result of its small domestic arms industry, which means it has to buy weapons from overseas.
Russia is the biggest supplier of arms to India, ahead of the US. But US imports there are growing. They were 11 times higher in 2011-2015 than 2006-2010.
Leaving us with one big (quite scary) question – why is India suddenly preparing for war?
- "The GOP Is On The Verge Of A Meltdown": Senior Republicans Threaten To Vote For Hillary
With Donald Trump set for a yuuge victory in tomorrow's Super Tuesday slugfest – oddsmakers see 80% chance of Trump being the nominee – tensions are mounting dramatically within the Republican establishment. As The FT reports, many mainstream Republicans believe Mr Trump would struggle to beat Hillary Clinton and are urgently rallying around their man Rubio with some senior Republicans saying privately that they might consider voting for Mrs Clinton if Mr Trump were to end up as their party nominee as one conservative commentator exclaimed "we are on the verge of a real meltdown in the Republican party."
Trump's lead in the polls over his GOP nominee 'peers' continues to grow…
As The FT reports, while Mr Rubio and Mr Trump ramp up their attacks on each other ahead of the March 1 primaries, Republican grandees and lawmakers are turning to the Florida senator as they become increasingly worried that the property tycoon could lock up the GOP presidential nomination within three weeks.
They fear that a victory for Mr Trump could fatally fracture the party and prevent them from winning the White House in November.
Many mainstream Republicans believe Mr Trump would struggle to beat Hillary Clinton, the clear Democratic frontrunner after her resounding victory over Bernie Sanders in South Carolina on Saturday, given the comments he has made about Hispanics, Muslims, women, disabled people and people who have criticised his campaign.
But, as the following chart shows, it's far too close to call…
The FT goes on to note that Mr Trump on Sunday issued a thinly-veiled warning that he would consider running as an independent.
“The Republican Establishment has been pushing for lightweight Senator Marco Rubio to say anything to “hit” Trump. I signed the pledge-careful,” he tweeted, a reference to a pledge that all candidates signed to back the party’s eventual nominee.
As panic is setting in within The GOP…
“We are on the verge of a real meltdown in the Republican party,” Hugh Hewitt, the influential conservative radio talk-show host told ABC television on Sunday.
Some senior Republicans have said privately that they might consider voting for Mrs Clinton if Mr Trump were to end up as their party nominee. “You’ll see a lot of Republicans do that,” Christine Whitman, the former New Jersey governor who previously compared Mr Trump to Hitler, told the New Jersey Star-Ledger.
“We don’t want to. But I know I won’t vote for Trump.”
But none other than Rupert Murdoch chimed in at the craziness and infighting…
Both "establishment" Republicans and Trump need to cool it and close ranks to fight real enemy. Trump, Rubio, Kasich could all win general.
— Rupert Murdoch (@rupertmurdoch) February 28, 2016
And now the neocons are declaring war on Trump (as The Intercept notes)…
Donald Trump’s runaway success in the GOP primaries so far is setting off alarm bells among neoconservatives who are worried he will not pursue the same bellicose foreign policy that has dominated Republican thinking for decades.
Neoconservative historian Robert Kagan — one of the prime intellectual backers of the Iraq war and an advocate for Syrian intervention — announced in the Washington Post last week that if Trump secures the nomination “the only choice will be to vote for Hillary Clinton.”
Max Boot, an unrepentant supporter of the Iraq war, wrote in the Weekly Standard that a “Trump presidency would represent the death knell of America as a great power,” citing, among other things, Trump’s objection to a large American troop presence in South Korea.
Trump has done much to trigger the scorn of neocon pundits. He denounced the Iraq war as a mistake based on Bush administration lies, just prior to scoring a sizable victory in the South Carolina GOP primary. In last week’s contentious GOP presidential debate, he defended the concept of neutrality in the Israeli-Palestinian conflict, which is utterly taboo on the neocon right. “It serves no purpose to say you have a good guy and a bad guy,” he said, pledging to take a neutral position in negotiating peace.
With Trump’s ascendancy, it’s possible that the parties will re-orient their views on war and peace, with Trump moving the GOP to a more dovish direction and Clinton moving the Democrats towards greater support for war.
- Get Shorty? PBOC Strengthens Yuan, Erases All RRR-Cut Swing
For the first time in six days, PBOC decided to strengthen the Yuan fix (+0.1% to 6.5385). This sent offshore Yuan surging back to pre-RRR-Cut levels, ensuring that (for the very short-term) speculators don’t get any ideas about piling into a Yuan short (again). This action followed the suspension of China’s Open Market Operations (due to lack of interest from traders).
Following this morning’s surprise RRR Cut, The PBOC decides now is the time to strengthen Yuan…
- *PBOC RAISES YUAN FIXING BY 0.1% TO 6.5385/USD
- *PBOC RAISES YUAN FIXING FIRST TIME IN SIX DAYS
Wiping out the Yuan swing from today…
Let’s see how long this holds.
PBOC’s Chen had some comments on the matter (just don’t tell the Japanese)
- *YUAN DEPRECIATION HAS LIMITED IMPACT ON HELPING EXPORTERS: CHEN
- *YUAN DEPRECIATION WILL INCREASE PROCESSING TRADE COSTS: CHEN
- *NOT MUCH ROOM FOR YUAN DEPRECIATION: PBOC’S CHEN
- *NO BASIS FOR CONTINUED YUAN DEPRECIATION: CHEN
In other words – Don’t short it, or else!
- The Long History of Government Meddling In The American Marketplace
Submitted by Mike Holly via The Mises Institute,
Although the causes of economic crises recurring throughout US history and often spreading worldwide can’t be proven using empirical means, oppressive government regulations favoring special interests in relevant industries have preceded every crisis.
Typically, cronyism involves support of politicians in exchange for regulations denying others the freedom to compete with the moneyed interests (e.g., monopolies). Less competition leads to higher costs and lower quality. It reduces economic growth, jobs, wages, innovation, and productivity. Attempts to control economic growth through government spending and/or manipulating interest rates (e.g., stimulate growth with low rates) generally leads to more severe crises.
None of these things are recent phenomena, but can be found again and again throughout American history.
Mercantilism
After the Revolutionary War, when the agrarian economy was beginning to industrialize, politicians pursued British-style mercantilism, including colonialism, against natives and regulations blocking competition in banking and manufacturing. Financial panics and depressions resulted under a national bank in 1792 and from 1819–21 and state-regulated banks from 1837–43 and 1857–59.
The Civil War was a dispute between Republicans representing manufacturers in the North that blocked free trade with import tariffs against Europe, and Democrats representing agricultural plantations in the South that refused to replace slavery with mechanization using the North’s high-cost goods.
Monopolization
The “Gilded Age of Capitalism” shifted the economy from agriculture to industry led by “robber barons” who lobbied mostly Republicans. The government helped create railroad monopolies with low-interest loans, land grants, and special frontier privileges. The railroads formed a conglomerate that monopolized much of the rest of the economy by favoring large over small customers (e.g., Rockefeller’s Standard Oil over farmers), large suppliers (e.g., Carnegie Steel), and big banks (e.g., J.P. Morgan).
Both railroads and banking (with both national and state banks) were implicated in the severe financial panics from 1873–78 and 1893–97, occurring during the Long Depression of 1873–96, and another panic in 1901. Banking regulation led to the panic in 1907.
During the Progressive Era, the US used regulation to form many of today’s monopolies. From 1906 to 1910, Republicans led efforts to create state-regulated electricity and natural gas utility monopolies, and the Seven Sisters oil and physician oligopolies. In 1913, Democrats sanctioned the telephone monopoly and founded the Federal Reserve banking monopoly (i.e., which regulates the banks). After World War I, the Fed raised interest rates which led to the depression of 1920–21, which bankrupted many companies and led to manufacturing oligopolies, including in the automotive industry.
Thanks to these new frontiers in a regulated economy, by the 1920s, only 200 corporations controlled over half of all US industry and the richest 1 percent of the population owned 40 percent of the nation's wealth. As in recent times, the Fed responded by providing easy credit at low interest rates, which led to increased consumer and business debt, uneconomic and risky investments, and inflated assets, including stock prices (further increasing wealth disparity). After the Fed tried to raise interest rates, the result was the Great Stock Market Crash of 1929.
Nationalization
During the 1930s, the crash led to the Great Depression, the worst financial crisis in US history, and then spread from the world’s largest economy globally, albeit with less severity abroad. Democrats, led by President Roosevelt (FDR) and supported by bankers, agriculture, oil, and labor, tried to redistribute wealth by limiting competition through government takeovers, including trucking, airline, and housing industries, and restricting the supply of food and oil. This led to continued global depression and World War II, which was financed with debt.
Finally, the post-war boom or “Golden Age of Capitalism” saw a dismantling of wartime regulations and growing opportunities especially in manufacturing (like China today). During global rebuilding, the US became the world’s economic leader with about 4 percent annual growth, even with increasing interest rates, decreasing debt, and high taxes. Although wealth disparity was historically low, Democrats increased regulation of necessities, leading to today’s high costs.
FDR had taken money from taxpayers to subsidize home loans at low interest rates including guarantees from the Federal Housing Administration (FHA) since 1934, and securitization by the Fannie Mae secondary mortgage monopoly since 1938 (and Democrats added Freddie Mac to form a duopoly in 1970). After the war, the subsidies led to unsustainable demand for more expensive and larger homes, urban sprawl, and a shortage of affordable housing.
FDR had also taken money from taxpayers to subsidize favored farm crops, which discouraged alternative crops. After 1946, Democrats increased subsidies leading to inflated prices for farmland. Since 1973, the US has subsidized food overproduction leading to dumped exports that retard agricultural and economic development in the developing world and uneconomical bio-fuels protected by tariffs against Brazilian ethanol (until 2012). FDR had led support for the nationalization of oil industries (e.g., Mexico), and military spending to defend dictators in oil-rich countries (e.g., Saudi Arabia).
In 1965, Democrats led nationalization of about half of health care purchasing through Medicare and Medicaid. These programs, and later Obamacare, subsidized increased demand while the supply of doctors and hospitals has been restricted. The resulting health care crisis led to skyrocketing costs nearly triple those of other developed countries.
Psuedo-Deregulation
The dreaded stagflation of the 1970s is considered tied for the second worst financial crisis in US history. The Fed responded to inflation by raising interest rates, leading to the Great Recession of the early 1980s, which led to the Savings and Loan Crisis, and spread as the Latin American Debt Crisis. Since then, the Fed has been lowering rates overall.
Meanwhile, politicians claimed to be trying to increase cost efficiency through privatization of public industries, and foster competition through partial deregulation of private industries. Worldwide, politicians allowed the monopolists to write the rules, including preferential bargain sales to cronies, which led to even nastier deregulated monopolies.
Deregulation was limited mainly to common carrier industries, including airlines in 1978, trucking in 1980, telecommunications in 1996, and electricity and natural gas utilities during the 1990s, and also banking in 1999. For example, states allowed utilities to design rigged trading schemes, gain preferential access to transport lines, and sell assets to affiliates for pennies on the dollar. Deregulation declined after manipulations led to the California Energy Crisis of 2000.
Corporatism
After the energy crises and bursting of the internet bubble in 2000, big business Republicans and big government Democrats practiced corporatism. The US House Budget Committee explains: “In too many areas of the economy — especially energy, housing, finance, and health care — free enterprise has given way to government control in partnership with a few large or politically well-connected companies.”
In 2003, regulations led to increased ethanol production from corn, but after that led to the 2007–08 Food Crisis, growth was stopped by mandates that the fuel be made from expensive-to-process cellulose.
Meanwhile, George W. Bush promoted home loans securitized through the Fannie and Freddie duopoly and the Fed’s big banks, while encouraging the Fed to lower interest rates, leading to a bubble in home ownership and prices. Soon after the Fed started raising rates, the bubble burst leading to the 2007–09 Subprime Mortgage Crisis, 2007–08 Financial Crisis (considered tied for the second worst financial crisis in US history), 2008–10 Automotive Crisis, and 2008–12 Global Recession.
In 2010, Dodd Frank gave politicians more oversight over the Fed’s big banks, increasing influence peddling, and risks of crises. The Fed has been loaning trillions of dollars at low interest rates to the big banks. Lower rates can encourage financial engineering, like mergers, which allow bankers and corporate executives to bleed profits from large corporations, who receive preferential tax treatment, especially abroad. Since 1998, the financial sector has spent over $6 billion lobbying Congress.
The Bank for International Settlements, or so-called “bank of central bankers,” warns another global debt crisis is coming, and the debt-trap is now even worse than before 2007. The US has led many nations to continue to lower interest rates and accumulating private and public debt. Now, a slowing economy could make the debt toxic and lead to a financial crisis that would be hastened as the Fed raises rates. The Bank warns: “It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills.”
Obamacare could allow bureaucracies to control patient treatments and prices, while lobbied by the industry. Since 1998, medical interests have spent over $6 billion lobbying Congress.
The Free Market Solution
Today, there is no party that favors true privatization or free markets. Republicans favor monopolization, while claiming support for free markets and blaming the Democrat’s high taxes and regulations for crises. Democrats favor nationalization, while blaming non-existent free markets for crises. Meanwhile, many Americans appear to be embracing the regulatory nationalism of crony capitalist Donald Trump or the democratic socialism of Bernie Sanders.
The solution, however, is simply to take as much power as possible out of the control of corruptible politicians and their special interest supporters.
- The Agriculture Space – The Meats (Video)
By EconMatters
We look at Live Cattle, Feeder Cattle, Lean Hogs, and Class III Milk Futures Markets in this video. We can learn the value of the technicals in analyzing these historically technically driven markets in this video.
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- China PMIs Plunge, Economists Demand Stimulus To "Prevent Economy Falling Off A Cliff"
So, after $1 trillion in new credit, numerous RRR cuts, a devalued currency (great for exporters, right?), and the domestic exuberance of a housing bubble, China's economy (manufacturing and non-manufacturing) collapsed to cycle lows (weakest since Dec 08) in February. Of course, this plunge after January's bounce is all being blamed on the Lunar New Year… and in fact, according to The NBS, manufacturing confidence is increasing (seriously that's what they said!)
- *CHINA MANUFACTURING PMI AT 49.0 IN FEB. (49.4 EXP.)
- *CHINA NON-MANUFACTURING PMI AT 52.7 IN FEB.
Does this look like "confidence" to you?
So to be clear – China Services PMI went from the highest since June 2014 to the lowest since Dec 2008 in one month.
It appears a trillion dollars doesn't go as far as it used to.
One can't help but wonder, following these comments from PBOC's Chen…
- *WE HOPE TO COMMUNICATE CANDIDLY WITH FED: PBOC'S CHEN
- *CHINA, U.S. CENTRAL BANKS SHOULD IMPROVE COORDINATION: CHEN
- *STRONG DOLLAR CYCLE MAY TRIGGER CRISIS IN EMERGING MKT: CHEN
Whether this is some Fed-targeted dumping of bad data to allow turmoil and force The Fed to relent.
The data deluge continued to get worse as Caixin/Markit reported:
- *CHINA FEB. CAIXIN MANUFACTURING PMI 48; EST. 48.4 (5 MONTH LOWS)
“The Caixin China General Manufacturing PMI for February is 48, down 0.4 points from the previous month. The index readings for all key categories including output, new orders and employment signalled that conditions worsened, in line with signs that the economy’s road to stability remains bumpy."
Staff numbers declined at the sharpest rate since January 2009 during February. Companies that recorded lower headcounts widely commented on company downsizing policies as part of cost-cutting initiatives, along with the non-replacement of voluntary leavers. Despite lower employment, manufacturers were able to work through outstanding business during February. Though marginal, it was the first reduction in the level of work-in-hand since April 2015.
The government needs to press ahead with reforms, while adopting moderate stimulus policies and strengthening support of the economy in other ways to prevent it from falling off a cliff.”
- Aussie Housing Bubble Bursts – Building Approvals Crash Most In 4 Years
Having admitted to entirely 'cooking the books' with its jobs data, it appears Australian authorities are going full kitchen-sink and 'allowing' all the dismally honest data out to the market (we assume in some desperate PR need to justify their next monetary policy experiment). Building Approvals fell 7.5% MoM in January, crashing 15.5% YoY (5 standard deviations below expectations) – the biggest drop since April 2012 (and the 3rd month in a row of declines).
Sudden collapse…
This was below the lowest economist's estimate and was in fact a 5-sigma miss…
So why come clean now about the state of the housing bubble? As we noted when RBA admitted its fudged jobs data,
Simple: weakness in commodity prices "is far greater than people had been expecting,” Fraser said in earlier remarks to the panel. Australia is now "swimming against the tide" because of uncertainties in the global economy, he added.
Translation: "we need more easing, and to do that, the economy has to go from strong to crap."
And with the Australian economy suddenly desperate for lower rates from the RBA, one can ignore the propaganda lies, and focus once again on the far uglier truth.
- Systemic "Fragility" Surges
With "significant" financial stress pervading the markets, it is hardly surprising that systemic risk concerns are rising rapidly. What we have been experiencing in markets this year, as BofA's FX team notes, is the impact of multiple shocks, at a time when central banks cannot come to the rescue, in a market that has been addicted to the central bank policy put. This leave cross-asset correlation soaring as shocks become larger leaving market fragility increasing.
With plenty of Tail risks lurking…
This year has been challenging for financial markets as potential tail risks seemingly rear their ugly heads every time there is any semblance of stability. We continue to expect that volatility could rise from any of the following events. Although these risks are not our base case, their possibilities must still be considered. Even if the probability of each of them materializing may be small, the probability that at least once of them materializes is higher.
1. China financial instability – the rapid debt growth over the past several years could destabilize the financial system if improperly managed.
2. Central bank policy exhaustion – the ineffectiveness of negative interest rate policy may be a sign that the market has become desensitized to monetary stimulus. Thus, central banks may become constrained in their ability to smooth volatility.
3. Credit cycle turning and US recession – deteriorating conditions in the credit market could create a credit crunch and lead to debt deflation. The Treasury curve may already be signaling a recession and the Fed could implement negative rates if the US economy weakens significantly. Furthermore, EPS growth is declining.
4. Brexit – an exit by the UK may have negative consequences for both confidence and growth throughout Europe.
"Significant Stress" has been reached…
And shocks are becoming larger and/or market fragility increasing…
The correlation of cross-asset volatility is increasing, suggesting instability in one market tends to bleed over to other markets.
This is concerning, as it implies that shocks are getting stronger and/or the global financial system is becoming more sensitive to them.
Indeed, rising correlations have coincided with every major crisis in the past two decades.
- Ron Paul Warns "First They Come For The iPhones…"
Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,
The FBI tells us that its demand for a back door into the iPhone is all about fighting terrorism, and that it is essential to break in just this one time to find out more about the San Bernardino attack last December. But the truth is they had long sought a way to break Apple’s iPhone encryption and, like 9/11 and the PATRIOT Act, a mass murder provided just the pretext needed. After all, they say, if we are going to be protected from terrorism we have to give up a little of our privacy and liberty. Never mind that government spying on us has not prevented one terrorist attack.
Apple has so far stood up to a federal government's demand that it force its employees to write a computer program to break into its own product. No doubt Apple CEO Tim Cook understands the damage it would do to his company for the world to know that the US government has a key to supposedly secure iPhones. But the principles at stake are even higher. We have a fundamental right to privacy. We have a fundamental right to go about our daily life without the threat of government surveillance of our activities. We are not East Germany.
Let’s not forget that this new, more secure iPhone was developed partly in response to Ed Snowden’s revelations that the federal government was illegally spying on us. The federal government was caught breaking the law but instead of ending its illegal spying is demanding that private companies make it easier for it to continue.
Last week we also learned that Congress is planning to join the fight against Apple — and us. Members are rushing to set up yet another governmental commission to study how our privacy can be violated for false promises of security. Of course they won’t put it that way, but we can be sure that will be the result. Some in Congress are seeking to pass legislation regulating how companies can or cannot encrypt their products. This will suppress the development of new technology and will have a chilling effect on our right to be protected from an intrusive government. Any legislation Congress writes limiting encryption will likely be unconstitutional, but unfortunately Congress seldom heeds the Constitution anyway.
When FBI Director James Comey demanded a back door into the San Bernardino shooter’s iPhone, he promised that it was only for this one, extraordinary situation. “The San Bernardino litigation isn’t about trying to set a precedent or send any kind of message,” he said in a statement last week. Testifying before Congress just days later, however, he quickly changed course, telling the Members of the House Intelligence Committee that the court order and Apple’s appeals, “will be instructive for other courts.” Does anyone really believe this will not be considered a precedent-setting case? Does anyone really believe the government will not use this technology again and again, with lower and lower thresholds?
According to press reports, Manhattan district attorney Cyrus Vance, Jr. has 175 iPhones with passcodes that the City of New York wants to access. We can be sure that is only the beginning.
We should support Apple’s refusal to bow to the FBI’s dangerous demands, and we should join forces to defend of our precious liberties without compromise. If the people lead, the leaders will follow.
- "This Is Pretty Freaking Nuts": Vancouver Home Sells For $735,000 Above Asking Price
In Canada, an interesting paradox is visible.
On the one hand, the country’s oil patch is dying a slow death in Alberta, where the worst 12 months for job losses in 34 years is contributing to rising property crime, higher food bank usage, and a rash of unsold condos and empty office space in Calgary.
On the other hand, if you were to take a look at real estate in Vancouver and Ontario you’d think you were looking at home prices for an economy that’s thriving.
In fact, prices in Vancouver have reached nosebleed levels. In January for instance, the average selling price of detached homes was an astronomical $1.82 million.
Here’s what that look likes like in chart form:
The madness has caused all sorts of abberations including the following listing which, outside of Silicon Valley anyway, represents what is perhaps the most absurd example of “greater fool” speculation since the Tulip Bubble:
That listing eventually sold for more than $100,000 above the asking price despite the fact that it’s clearly a rundown shack but as is always the case when dealing with speculative bubbles, things will invariably get frothier-er as evidenced by the fact that the home shown below just sold for a whopping $735,000 above the asking price, setting a new record.
“The house at 3555 West 1st Avenue was built in 1912, is 3,400 square feet and sits on a standard 33 x 120 foot lot without a view,” Vancity Buzz notes. “The selling price of $4.23 million is about $1.6 million above the lot’s assessed property value.”
For his part, real estate agent Brandan Price is incredulous. “For it to go over $4 million is remarkable. I had five offers,” he said. “These were local buyers just looking to make a shift who wanted to move into this area.”
“They were willing to sacrifice lot size to move into this area.”
Maybe, but things seem to be getting out of hand and part of the “problem” may indeed be demand from investors attempting to find a home for capital they’ve moved out of China. As Thomas Davidoff with UBC’s Sauder School of Business told Vancity Buzz: “These prices are getting pretty freaking nuts in my opinion.”
“As a proposition for someone who’s going to live in that house and what you’re getting for four million plus – that is a ridiculous joke and that is not something that’s going to work for people who just make a living in Vancouver,” Davidoff says.
Sorry Thomas, but you’re going to have to get used to it, because as long as the market expects a 30% yuan deval, Vancouver real estate is going to keep getting more “attractive”. Or, in other words, the Canadian real estate market is going to continue to be one of the world’s most attractive money laundering vehicles.
- It's Not Just The GOP – The Democratic Party Is Also Imploding
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Whichever side emerges victorious, both Republicans and Democrats should face up to a much bigger truth: Neither party as currently constituted has a real future. Fewer and fewer Americans identify as either Republican or Democratic according to Gallup, and both parties are at recent or all-time lows when it comes to approval ratings. Just 39 percent give Democrats a favorable rating and just 33 percent do the same for Republicans. Not coincidentally, each party has also recently had a clear shot at implementing its vision of the good society. If you want to drive down your adversary’s approval rating, just give him the reins of power for a few years.
– From the post: Thoughts on Election Day: Relax—Both Parties Are Going Extinct
Political pundits throughout the land are tripping over each other to compose the latest bland, uninsightful screed proclaiming the death of the Republican Party. This makes sense, because the primary purpose of a political pundit is to state the obvious years after it’s already become established fact to everyone actually paying attention.
Yes, of course, Trump winning the GOP nomination marks the end of the party as we know it. After all, some neocons are already publicly and actively throwing their support behind Hillary. While this undoubtably represents a major political turning point in U.S. history, many pundits have yet to appreciate that the exact same thing is happening within the Democratic Party. It’s just not completely obvious yet.
While it might sound strange, a coronation of Hillary Clinton in the Democratic primary will mark the end of the party as we know it. There’s been a lot written about the “Sanders surge,” and much of it has revolved around Hillary Clinton’s extreme personal weakness as a candidate. While this is indisputable, it’s also a convenient way for the status quo to exempt itself from fault and discount genuine grassroots anger. I’m of the view that Sanders’ support is more about people liking him than them disliking Hillary, particularly when it comes to registered Democrats. He’s not merely seen as the “least bad choice.” People really do like him.
The Sanders appeal is twofold. He is seen as unusually honest and consistent for someone who’s held elected office for much of his life, plus he advocates a refreshingly anti-establishment view on core issues that matter to an increasing number of Americans. These include militarism, Wall Street bailouts, a two-tiered justice system, the prohibitive cost of college education, healthcare insecurity and a “rigged economy.” While Hillary is being forced to pay lip service to these issues, everybody knows she doesn’t mean a word of it. She means it less than Obama meant it in 2008, and Obama really didn’t mean it.
Hillary is the embodiment of a sick and detested status quo. She stands for nothing, is nothing, and a vote for her all but guarantees both murder abroad and oligarchy at home. I think a large number of Bernie Sanders supporters understand this and won’t be going off silently into that quiet voting booth to commit ethical self-sacrifice despite the terrifying prospects of a Trump presidency. I think they’ll stay home, but they won’t sit there passively. They’ll be seething inside, and many will renounce the Democratic party forever. Many rank and file Republicans already came to such a conclusion years ago, which is precisely why the nomination was wide open for a man like Trump to capture. Democrats will do the same, and before you know it, political pundits will be tripping over each other to write about the death of the Democratic Party.
It’s not just the grassroots either. This civil war is has now gone all the way to the top, as evidenced by this weekend’s very public endorsement of Bernie Sanders by Rep. Tulsi Gabbard of Hawaii. Before I get into the significance of this move, let’s recap what happened.
From Quartz:
A rising star within the Democratic ranks, Rep. Tulsi Gabbard of Hawaii, cut herself off from the party’s establishment by resigning from her post as vice-chairman of the Democratic National Committee and endorsing Bernie Sanders for president.
Her position with the DNC required her to stay neutral in the primaries, but she said that “the stakes are too high.” She announced her decision on Sunday on NBC’s “Meet the Press,” and made a video where she explained her reasoning.
Gabbard, an Iraq war veteran, said she knows the cost of war firsthand. “I know how important it is that our commander-in-chief has the sound judgment required to know when to use America’s military power—and when not to use that power.”
In her endorsement for Sanders, she said America needs a president “who will not waste precious lives and money on interventionist wars of regime change,” presumably referring to the war in Iraq and strategy in Libya, led by then-secretary of state Hillary Clinton, both of which she has criticized in the past. Although generally hawkish in her foreign policy views, she is opting for the Vermont senator as a candidate who “will usher in a new era of peace and prosperity.”
Now watch the video:
The importance of this move cannot be understated. In no uncertain terms, this gesture publicly exposes the weakness of the “Clinton brand.” She clearly isn’t afraid of Hillary or of any repercussions from the Democratic Party elite, a fact that is underscored by the fact she came out with her endorsement after he got pummeled in South Carolina.
But let’s take a step back and think about this in the even bigger picture. You don’t get to Congress by being a political imbecile. On the surface, this move looks like career suicide, particularly since Hillary is probably about to clinch the nomination. Recall, Rep. Gabbard didn’t merely endorse Sanders after a bruising loss in South Carolina, she stepped down from her official position with the DNC to do so. This isn’t merely a statement, it’s the equivalent of dropping a neutron bomb on the Democratic establishment. So why did she do it?
While I think she genuinely agrees with Sanders on key issues, the reasons she came out so aggressively is because she sees the writing on the wall. She’s playing the long game, and in the long game, Hillary Clinton represents a discredited and failed status quo, while Sanders represents a push toward paradigm level change that will define the future.
In summary, I believe this marks the beginning of an all out civil war within the Democratic party. A war that won’t be over until someone successfully does to the Democratic Party what Trump did to the GOP.
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