- ABC/Wapo Effectively Admit To Poll Tampering As Hillary's "Lead" Shrinks To 2-Points
Just yesterday we wrote about the very curious ABC / Wapo poll which seemed to show Hillary’s blow-out 12-point lead from last Sunday get cut in half in a matter of just two days. But the ABC/Wapo enigma continues to grow today as their latest poll shows the presidential race has now tightened to just 2 points, which is within the margin of error. Ironically, these new results do not reflect the latest FBI bombshell as polling was concluded on October 27th and it still includes an 8-point sampling advantage for democrats.
METHODOLOGY – This ABC News/Washington Post poll was conducted by landline and cellular telephone Oct. 24-27, 2016, in English and Spanish, among a random national sample of 1,148 likely voters. Results have a margin of sampling error of 3 points, including the design effect. Partisan divisions are 37-29-29 percent, Democrats-Republicans-independents.
So what happened? For months we have argued that these goal-seeking reports (aka “Polls”) can be easily manufactured to show whatever results are desired by simply “tweaking” the sample pool. WikiLeaks even exposed a handy guide 37-page poll-rigging guide on how to “include ethnic ‘oversamples’ as required” to manufacture the desired poll numbers. But, with today’s latest ABC / Washington Post poll, the real “smoking gun” admission is revealed as the pollsters admit that the narrowing of their polling results are “not mainly about people shifting in their candidate preference” but about how their sample pool was constructed.
“Changes in the poll’s latest four nights compared with the previous four are not mainly about people shifting in their candidate preference, but about changes in who’s intending to vote.”
So that’s how you manufacture inane results like this:
Now, while ABC / Wapo claim that the 10-point swing (in less than a week) was driven by changes in “who’s intending to vote,” we find it quite curious that their own data shows just a 2-point swing in people who said they were “certain to vote” on 10/23, when the poll reflected a 12-point Hillary lead, and 10/27 when the lead had collapsed to just 2 points. So, are we really expected to believe that a 2-point swing in voter intentions somehow translated to a 10-point swing in the poll results? Not likely…something tells us it had a little more to do with including “ethnic ‘oversamples’ as required.”
So, now that ABC / Wapo have effectively declared their own poll utterly useless, the question is what were their motivations for skewing their polling data? We have a couple of ideas:
- Trump is simply experiencing a huge surge in momentum…seems odd to have this kind of surge on minimal news (remember the poll was taken prior to the recent FBI disclosures).
- ABC / Wapo pollsters got a slap on the wrist from the Hillary campaign for getting a bit overzealous on their manufactured 12-point “lead” which could have resulted in lower voter turnout for Hillary.
- ABC / Wapo reviewed early voting stats starting to come in around the country and realized that their polls were in no way reflective of reality and decided they’d rather not lose ALL credibility (though it may be a bit too late for that).
Anyway, those are a couple of our ideas…what say you?
- "We Risk Being Collateral Damage In The Neocon Lust For War"
Submitted by Chris Martenson via PeakProsperity.com,
The winds of change are now swirling so rapidly that it's hard to make sense of what’s happening. And adding to the confusion is an all-out effort by the establishment to convince the masses that, despite the multiplying signs of instability, "everything is fine".
The deceptions surrounding us are now constant and impossible to avoid. How much longer will it take until a critical mass of the populace starts to see through the delusion?
The stock and bond markets are rigged by central banks and their allies to go ever higher, enriching an elite few at the expense of everyone else. The mainstream media over-reports the inconsequential, and under-reports the most important things. It’s truly astonishing what is not being reported on, presumably in an effort to minimize attention on some really important matters (Yemen, Russia’s increasing concerns over western actions, Wikileaks on HRC, etc).
If it all weren’t so serious, it would be humorous because the chicanery is now so over-the-top obvious.
The elites often commit crimes without any consequences. It's so bad, we've seen the architects of wars based on lies get promoted to positions of greater power, now telling new lies on an even grander scale. (In DC, the polite term du jour is “fabrications”. But we’re all friends here, so let's use proper language: lies are lies.)
Meanwhile, whistleblowers end up facing the full weight of the law. And the little people face harsh, draconian consequences for even the most minor of infractions.
As James Howard Kunstler succinctly puts it: Racketeering is ruining us.
If you can make a lot of money doing it, in the US that’s A-OK with the powers that be. Who cares about the collateral damage, as long as Uncle Sam and his cronies get their cut?
The Winds Of Change
But this all is going to come crashing down, because it has to. Not because of a sudden case of enlightenment by the elites, but because of math.
Simple math, too.
While there are lots of sub-equations we could parse through, the parent of them all is this one: Endless exponential growth on a finite planet is impossible.
It’s really that simple. And what’s transpiring now is nothing more complicated than what happens when a culture’s main growth narrative no longer matches the limits of its reality.
Unfortunately, it’s possible to fool people for just long enough into thinking it’s a workable plan. Give something a couple of decades in the sun (cheap, plentiful petroleum, for example) and entire institutions, political and monetary systems and dogmas will be fashioned around it.
This kind of self-delusion is not new for humans. It's no different than if an ancient tribe was luckily blessed with 40 years of dependable rains which they attributed to a specific set of rituals. It’s not too long before correlation becomes confused with causation. And when the expected rains start ceasing to arrive, the rituals get more convoluted and increasingly desperate measures are called for to appease the angry gods.
Eventually, finally, people slowly wake up to the fact that their rituals and the weather never had anything to do with each other. But by then, society has usually torn itself apart, unable to align the contradictions.
This is what’s happening now. The narrative we live by is breaking down, and increasingly, our desperate ruling elites simply don’t know what to do. People are confused and so they want to either return to the past “Make America Great Again!”) or they want to cling to the present (“Stronger Together"…as in don’t rock the boat, preserve the status quo!).
Neither will work of course because the rains have ceased for reasons that have nothing to do with America's elaborate but quirky rituals (the current presidential race being a prime example of such).
And this is why, despite the fact that our true challenges are rooted in the mathematics of resource depletion, our undoing will come when the social fabric tears apart.
Which is why the current unrest escalating all over the globe is so important to track. As we watch less-resourced societies begin to fail in advance, we better understand the nature of the reckoning heading our way.
Among the many conflicts that are boiling over, the one that concerns me the most — by far — is the West's very intentional efforts to demonize Putin specifically, and Russia generally.
The tactics being used are no different from those used to disparage Saddam and his regime right before the invasion of Iraq. We’ve been down this path before; the playbook is literally exactly the same.
Blatantly obvious propaganda is being used, most heavily by the very same (and unrepentant) main stream media outlets that were used the last time around — when we ended up commencing a 'pre-emptive' war based on ginned-up intelligence that turned out to be wholly false. We owe it to ourselves not be so easily led this time around.
The Winds Of War
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.
Now, I'm sensitive to the idea put forth by some that this whole Putin demonization is merely the latest use of a hobgoblin intended to help get HRC elected president.
Obviously if this is true, it goes well beyond HRC herself. In the military industrial complex, there's a vast host of self-interested parties who feast on war and whose paychecks and future prospects depend heavily on it. There even are a few demented souls in the halls of power who believe in war as the best way to project one’s influence. Stew them together and you have a pretty good handle on what DC is all about these days.
So I'm sympathetic to the temptation to think: “Hey, it’s always a safe bet during an election year to try and appear tougher than your opponent…this is all just election year politicking and it will pass and fade after November 8th.”
Here’s why I don’t think that’s accurate. In fact, I think something deeper and more sinister has been set in motion.
The blackballing of Putin and Russia started years ago, in 2013, when Putin managed to convince then-president of Ukraine Yanukovych to back out of the agreement intended to bring Ukraine into the EU fold as the final NATO brick in the wall.
That set-back enraged the neocons in Washington DC mightily and they’ve been rapidly anti-Putin ever since. This neocon grudge has found help and support ever since from the UK, US, and EU press which were also willing partners in selling the fraudulent “evidence” that led to the Iraq war — and Libya, too, and now Yemen and Syria.
As examples, these cartoonish magazine covers (both from 2014) look like they were designed by Intro to Psychology 101 students asked to create a propaganda hit piece:
Heck, there's even potential evidence as far back as 2008: as exemplified by this TIME magazine cover where the "TIME" banner was placed behind Putin’s head in such a way that the peaks of the M gave him "horns". (For fun, see how many example of other leaders you can find where TIME did this — there are precious few. The logo is almost always in front):
So the demonization began a long time ago, well before it’s reasonable to suspect HRCs advance team could start scheming about how to use an anti-Putin stance against Trump, or any other opponent.
But the media has continued to beat the Putin=bad drums, and with increasingly volume. Here are a few more recent examples:
The message: Putin is manipulating us, and anybody who falls for it is a sucker. And if you dare to question the integrity of the US elections, which there is ample evidence that it is vulnerable to fraud & manipulation (listen to our podcast with election integrity analyst Brad Friedman), you are Putin’s patsy.
And here’s my favorite propaganda piece to date because it’s so blatantly over-the-top that it takes on a very special quality of being so bad it’s good. This is The Rocky Horror Picture Show of magazine cover art:
Okay, with all that said, we’ve established that “someone” has had it out for Putin for quite a long time. We might surmise who or what agencies that might be, but such speculation is best reserved for those with greater insights than I happen to have.
I just know propaganda when I see it. And I see it in the examples above, and in the media pervasively today. So where does this lead us?
Well, given the fact that Russia has just undertaken the largest nuclear readiness drill in its history involving its citizens, maybe we should think that Putin and Russia are no longer amused by all this antagonism and are taking it as something more sinister than simple politicking.
Or we should pay attention that Russia recently announced the arrival of its latest nuclear ICBM (nicknamed Satan-2) capable of delivering 15 warheads each.
And let’s not forget the even more recent announcement that a hypersonic glider warhead had been successfully tested, against which our military currently has no defense.
None of those Russian moves are being made in a vacuum of course. They've come only after many repeated provocations by the West, including assembling the largest gathering of military brigade forces on Russia’s borders since WW II. These are the kind of threats, mind you, that would have caused the US to go into an absolute snit long ago were the situation reversed.
The real question is: Why? What’s the plan here, if any exists? Who’s behind all this and why? If we can answer any of these, then perhaps we can assess the risks regular people like us and our loved ones may be facing as potential "collateral damage" of this warmongering.
The So-Called Elites
The “who” has emerged in this election, at least partially. We now have a few names to put to the program, and they're familiar ones.
This is, generally speaking, the same cast of characters that has been agitating for a more belligerent global stance prior to 9/11. Many of these names surfaced on my radar when the Project for a New American Century statement of principles was published in 1997. That document is pretty much all you need to read to understand the last 20 years of US foreign policy.
I mean, if you only had just one document to read on the topic, this one would pretty well sum it all up.
Well, here they all come again. This time right on the front page of the Washington Post, making renewed calls for an even more aggressive and bellicose US military posture. For anybody concerned about conflict with Russia, this is more terrifying than any haunted house you could possibly visit this Halloween:
Washington’s foreign policy elite breaks with Obama over Syrian bloodshed
Oct 20, 2016
There is one corner of Washington where Donald Trump’s scorched-earth presidential campaign is treated as a mere distraction and where bipartisanship reigns. In the rarefied world of the Washington foreign policy establishment, President Obama’s departure from the White House — and the possible return of a more conventional and hawkish Hillary Clinton — is being met with quiet relief.
The Republicans and Democrats who make up the foreign policy elite are laying the groundwork for a more assertive American foreign policy, via a flurry of reports shaped by officials who are likely to play senior roles in a potential Clinton White House.
It is not unusual for Washington’s establishment to launch major studies in the final months of an administration to correct the perceived mistakes of a president or influence his successor. But the bipartisan nature of the recent recommendations, coming at a time when the country has never been more polarized, reflects a remarkable consensus among the foreign policy elite.
This consensus is driven by a broad-based backlash against a president who has repeatedly stressed the dangers of overreach and the need for restraint, especially in the Middle East. “There’s a widespread perception that not being active enough or recognizing the limits of American power has costs,” said Philip Gordon, a senior foreign policy adviser to Obama until 2015. “So the normal swing is to be more interventionist.”
“The American-led international order that has been prevalent since World War II is now under threat,” said Martin Indyk, who oversees a team of top former officials from the administrations of Obama, George W. Bush and Bill Clinton assembled by the Brookings Institution. “The question is how to restore and renovate it.” The Brookings report — a year in the making — is due out in December.
Taken together, the studies and reports call for more-aggressive American action to constrain Iran, rein in the chaos in the Middle East and check Russia in Europe.
The studies, which reflect Clinton’s stated views, break most forcefully with Obama on Syria. Virtually all these efforts, including a report released Wednesday by the liberal Center for American Progress, call for stepped-up military action to deter President Bashar al-Assad’s regime and Russian forces in Syria.
“You can’t pretend you can go to war against Assad and not go to war against the Russians,” said a senior administration official who is involved in Middle East policy and was granted anonymity to discuss internal White House deliberations.
(Source)
There’s a lot to unpack in there. Let’s get started.
The article begins with the disquieting assertion that the presumptive return of a more hawkish Hillary Clinton to the white house is “being met with quiet relief.” You mean the longest stretch of active war in US history hasn't been enough for some of these folks?
I talk with a lot of people in the military who are sick and tired of America's endless wars and their endless rotations with no end in sight and no clear mission. Nobody can articulate what the US is doing in Afghanistan any more (and noting the enormous increase in heroin production is considered impolite).
Next, the article is loaded with “normalizing” words, such as ‘consensus,’ ‘broad-based’ and ‘bipartisan’ to make it seem that a more hawkish stance is really getting back to something we can all agree on. It’s centrist, bipartisan and broad-based after all.
It’s also insane when you combine it with the later part about how these folks want to undo the restraint of Obama and go after Syrian and Russian forces directly.
I’ve said it before and I’ll say it again: Getting into a shooting war with Russia would be a terrible idea. Insane really.
Not least of which is because, even if things don’t go nuclear (which they very well could given where we are in the shredding of the past narratives), then the US will discover that projecting its power all over the world is a heck of a lot harder when your navy is being sunk by the latest next-generation anti-ship missile technology.
Trust me, the petrodollar will get a lot weaker in a skinny minute as soon as American military power is revealed as stoppable.
I have a lot of faith in the training and equipment of the US military. But I also have faith in the power of a swarm of anti-ship hypersonic missiles to do a lot of damage.
The US Presidential Election
I'm on record as saying that I very much distrust the close relationship HRC has with the neocons and her hawkish foreign policy stance. Also, I do trust her readiness and willingness to get the US into more wars.
In the second presidential debate, she came right and said that she supports a no-fly zone over Syria. Quoting a US military general, I've since explained that doing so would meet the definition of an open act of war against Russia.
While there are a lot of issues on the table this election, I'm very much a single-issue voter when it comes to getting into a war with Russia. I want no part of it. I can't imagine any sane American would.
At best, it would be a wildly destructive waste of time, life and money. At worst it ends with an EMP (if we're lucky) or nuclear disaster (if we're not). Instead, we in the West should be confronting our massive overhang of debt, our looming energy predicament, and a host of ecological train wrecks right now — not stuck in the fantasy that global warfare is somehow glorious or 'winnable'.
After the next war, there won’t be any bountiful period of economically-simulative rebuilding that some have wistfully longed for. That takes energy. And in case anybody missed it, the 'high net energy' conventional oil slipped into the rearview mirror almost ten years ago now. There won’t be any super-duper rebuilding after the next big war. Just a massive struggle to get us back to even.
So hey, let’s not do that. OK?
Back to the main point here. The HRC campaign has several very close ties with the neocons who were instrumental in selling the Iraq war. None quite as prominent as Michael Morell:
Clinton Adviser Proposes Attacking Iran to Aid the Saudis in Yemen
Oct 26, 2016
Michael Morell is a former acting director of the CIA and a national security adviser to Hillary Clinton — one who is widely expected to occupy a senior post in her administration.
He is also an opponent of the Iran nuclear agreement, a defender of waterboarding, and an advocate for making Russia “pay a price” in Syria by covertly killing Putin’s soldiers.
On Tuesday, Morell added another title to that résumé: proponent of going to war with Iran, for the sake of securing Saudi Arabia’s influence in Yemen.
“Ships leave Iran on a regular basis carrying arms to the Houthis in Yemen,” Morell said, in remarks to the Center for American Progress, the liberal think tank founded by Clinton campaign chairman John Podesta. “I would have no problem from a policy perspective of having the U.S. Navy boarding their ships, and if there are weapons on them, to turn those ships around.”
Morell did note, per Bloomberg’s Eli Lake, that this policy “raised questions of international maritime law.”
Which is a bit like saying, “Breaking into someone’s home, putting a gun in their face, and demanding they hand over all their weapons raises questions about armed-robbery law.”
(Source)
To me this is not an individual interested in a little Putin-bashing for the sake of votes. This is a guy who's deadly serious about using US power to get into a conflict not just with Russia, but with Iran as well.
Either of these adversaries could lead us into an armed confrontation that could escalate in ways we’d very seriously regret.
Even ‘just’ the shutting of the Strait of Hormuz would be a huge and mortal blow to a world economy saddled with low growth and enormous piles of debt. Iran could accomplish this easily using the mobile, land based missile launchers they currently have in stock.
Sink a couple of Very Large Crude Carriers (VLCCs) and it’s a whole new ball game for world trade.
In case you don’t take Mr. Morell all that seriously, I should remind you that he was the person who personally vetted and scrubbed the presentation that Colin Powell gave to the UN on Iraq’s weapons of mass destruction that led to the final war resolution.
Clearly telling a few, uh, "fabrications" is well within his talent center if/when needed to get the job done. He’s deadly serious about entering a conflict with Russia and Iran and he has Hillary’s ear. Hopefully other more moderate people do as well, but my concern still lies with the fact that some people will hear equal arguments but then make the decision based on how they lean.
Hillary leans hawkish. That’s just a matter of record at this point. As even liberal-leaning Chris Matthews of Hardball said recently, “People don’t change because we swear them into the White House.”
Nope. The best rule of relationships I have is: You'll be disappointed if you are expecting (requiring, or hoping for) them to be different tomorrow than they are today.
Conclusion
While I've focused on the election in this article, it may not even be relevant at all. That is, there may well be a machine running in the background that is larger than any potential candidate or President. It may well be that the careful preparation of propaganda groundwork against Putin that began in 2008 is part of a large plan the public is being intentionally kept in the dark about. Who knows?
But learning how Obama has frustrated the aspirations of the neocons vis-a-vis Syria and Russia tells me that the office of the president does matter, at least to a point.
I was personally horrified by what the US has brought to bear on Iraq, Libya, Syria and Afghanistan. All in the service of Deep State objectives that are anything but obvious.
My growing concern here is that the juggernaut that leads to war has already been untethered and is building up steam. I see it in the propaganda pieces against Russia on an almost daily basis. And I see Russia doing everything it can to both try and get the West to calm down and be reasonable, while getting its own citizens ready in case those efforts fail.
NATO is ramping up the pressure. Western media is faithfully (again) running necon talking points as if they were pearls of wisdom. We are heading back to the future.
Recently, for the very first time in my entire life, I have begun undertaking actual personal preparations for nuclear war.
I absolutely deplore that I feel this is necessary. But a core tenet we live by here at PeakProsperity.com is that when anxiety builds, you need to align your actions with your beliefs. Right now, my beliefs are loudly telling me that the risk of a serious conflict with Russia breaking out are no longer dismissable.
Similarly, I've committed to readers that when something concerns me enough to take action in my own personal life, I'll share it.
In Part 2: My Personal Preparations For Nuclear War, I share the steps I've taken this week as well as additional precautions folks concerned about this topic should consider.
Look, it's crazy were even talking about this. But as this article has shown, there's ample evidence that the pressure between the West and Russia is building. Given the outsized risks involved, making an investment in safety is only prudent. After all: nuclear way is one of those potential scenarios where its far better to be early or overenthusiastic in your precautions, than a day late.
Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
- Social Media Blackout? FBI Emails Are Not 'Trending' On Twitter, Facebook, Buzzfeed, Or Snapchat
They are not known as 'weapons of mass distraction' for nothing…
In the 24 hours since FBI Director Comey dropped perhaps the biggest bombshell of the entire Presidential campaign, sending Democrats (and media) scrambling headless-chicken-like for answers (and blame-scaping), does anyone else find it odd that 'FBI Emails' does not appear to be a hot topic, trending, big deal on any social media?
Snapchat…"Hot"
h/t @CharlieKrik11
Facebook… "Trending"
h/t @MichaelDuncan
Twitter…"Top Moments"
h/t @kierobar
Buzzfeed… "Trending Now"
* * *
As Liberty Blitzkrieg's Mike Krieger recently asked (and answered), why are these things happening in the first place?
Apple claims not to endorse candidates, but their actions suggest otherwise, and some of their executives – including CEO Tim Cook – actively support Clinton’s campaign. Buzzfeed recently obtained an invitation to a private $50,000-per-plate fundraiser Cook is hosting for Clinton with his Apple colleague, Lisa Jackson, at the end of this month.
Apple isn’t the only corporation doing Clinton’s bidding. Wikileaks founder Julian Assange said Clinton made a deal with Google and that the tech giant is “directly engaged” in her campaign. It’s been widely reported Clinton hired Eric Schmidt—chairman of Alphabet, the parent company of Google—to set up a tech company called The Groundwork. Assange claims this was to ensure Clinton had the “engineering talent to win the election.” He also pointed out that many members of Clinton’s staff have worked for Google, and some of her former employees now work at Google.
Of course, I covered Groundwork earlier this year. See: Meet “Groundwork” – Google Chairman Eric Schmidt’s Stealth Startup Working to Make Hillary Clinton President
Twitter is another culprit. The company has gotten a lot of slack for banning conservatives and Trump supporters such as Breitbart’s Milo Yiannopoulos and, most recently, rapper Azealia Banks after she came out in support of Trump. Twitter has provided vague answers as to why conservative voices have been banned while they’ve allowed other users to call for the killing of cops.
Just yesterday, Buzzfeed revealed that the social media giant’s top executive personally protected the President from seeing critical messages last year. “In 2015, then-Twitter CEO Dick Costolo secretly ordered employees to filter out abusive and hateful replies to President Barack Obama.”
The founders of some of the most popular pro-Trump Twitter handles – including @USAforTrump2016 and @WeNeedTrump—insist Twitter is censoring their content. They’ve pointed out that Twitter changes trending hashtags associated with negative tweets about Clinton (which has been reported before). On August 4, shortly after the hashtag “HillaryAccomplishment” began trending, it was taken over by anti-Clinton users, who used it to mention Benghazi or Emailgate. Eric Spracklen, @USAforTrump2016 founder, noticed the hashtag was quickly changed—pluralized to #HillarysAccomplishments.
Many people have pointed out the exact shenanigans described above for other Clinton-related hashtags. In fact, it’s been my self-described progressive friends who have been most up in arms about it.
“They take away the hashtag that has negative tweets for Clinton and replace it with something that doesn’t so the average person doesn’t see what was really trending,” Spracklen said. “This happens every day.”
This new strand, where one cannot even search for alternative viewpoints amid technology companies who stand to benefit from the free-trade policies and eased immigration regulations of a Clinton presidence, represents a dangerous sea change. There’s absolutely no question the digital forums we use every day are censoring conservatives and favoring Clinton. You can’t simply scroll through photos on Instagram, look for a video game in the App Store or do a quick Google search without being fed anti-Trump and pro-Clinton propaganda.
Personally, I’ve definitely noticed a big-time pro-Clinton bias in my Twitter stream on a daily basis, and I don’t follow people/organizations that would define themselves as overtly pro-Clinton. That’s my honest perception, and I don’t have a dog in this fight.
* * *
"Squirrel!"
- HBO Officially Killed The Cable Bundle And ESPN Looks To Be The Biggest Victim
Last April, HBO effectively marked the death of the cable TV bundle when they decided to launch “HBO Now” and sell their content directly to consumers for $15 per month. While other “over-the-top” providers have existed for years, this decision was pivotal because it was the first time that any major content provider decided to break with the traditional cable delivery model and go direct to consumer. Within a year, HBO Now had amassed 1 million subscribers. Meanwhile, Pay TV households collapsed around the same time as “cord cutting” accelerated.
Per the following data from Barclays’ Media and Telecom analyst, Kannan Venkateshwar, the decline of Pay TV households really accelerated in 2Q 15 around the same time that HBO Now was launched.
Meanwhile, the number of broadband-only households also surged.
Now, the biggest beneficiary of the cable TV bundle, ESPN, which exploited it’s “must have” content for decades to negotiate ever higher rates with cable TV providers while forcing those rates down the throats of consumers by insisting its content be included in all of the channel “bundles”, finds itself in the unfamiliar territory of losing millions of subs per year amid surging contents costs. In fact, according to Outkick The Coverage, ESPN lost over 600,000 subscribers in October alone which is worth over $50mm in annual revenue.
Yesterday Nielsen announced its subscriber numbers for November 2016 and those numbers were the worst in the history of ESPN’s existence as a cable company — the worldwide leader in sports lost 621,000 cable subscribers. That’s the most subscribers ESPN has ever lost in a month according to Nielsen estimates and it represents a terrifying and troubling trend for the company, an acceleration of subscriber loss that represents a doubling of the average losses over the past couple of years, when ESPN has been losing in the neighborhood of 300,000 subscribers a month.
These 621,000 lost subscribers in the past month alone lead to a drop in revenue of over $52 million and continue the alarming subscriber decline at ESPN. Couple these subscriber declines with a 24% drop in Monday Night Football ratings this fall, the crown jewel of ESPN programming, and it’s fair to call October of 2016 the worst month in ESPN’s history. But this isn’t just a story about ESPN, the rapid decline in cable subscribers is hitting every channel, sports and otherwise. It just impacts ESPN the most because ESPN costs every cable and satellite subscriber roughly $7 a month, over triple the next most expensive cable channel.
The historical cable TV game goes a little something like this…in any given market there is typically 3-4 subscription TV providers (2 satellite companies, 1 (or more) cable providers and a Telco). Those providers sign multi-year deals to buy content from media companies (e.g. ESPN, Discovery, Time Warner, Viacom, etc. etc) and then bundle them all together and pass the costs of those contracts along to consumers. Every 3-5 years those content contracts come up for renewal and the cable providers (i.e. consumers, since the costs just get passed along) are effectively forced to pay whatever increase ESPN (and others) asks for or risk losing millions of subscribers.
Now, there are roughly 100mm pay TV households in the U.S. and, because of the channel “bundling” scam, approximately 90% of them are forced to “buy” ESPN whether they consume sports content or not. Moreover, because ESPN is considered “must have” content they’re able to extract the most value from the cable providers getting roughly $7 per sub per month, or more than double the next highest content provider…tack on a little extra margin for the cable provider and the average consumer is paying $120 per year for ESPN even if they never watch a single minute of sports programming…seems fair, right?
Fortunately for consumers, and not so much for ESPN, the power in the system, courtesy of “over-the-top” content providers like HBO and Netflix, is just starting to shift from the media companies to consumers…which will be disastrous for the historical beneficiaries of the cable bundle. Outkick The Coverage laid out the math on what pay TV sub losses means for ESPN:
A loss of 3 million subscribers would leave ESPN with 86 million subscribers in 2017. That would be down roughly 15 million subscribers in the past five years alone. Given that ESPN makes right at $7 a month from every cable and satellite subscriber a year, that means ESPN’s subscriber revenue would be $7.22 billion in 2017. Toss in an additional $1.8 billion or so in advertising revenue and ESPN’s total revenue would be $9 billion. We don’t know what the costs of running ESPN are — employees, facilities, equipment, and the like have to cost a billion or more — but it’s fair to say that ESPN is probably still making money in 2017. Just nowhere near what they used to make.
But those sports rights costs are going up and those subscriber revenue numbers are going down.
So if we’re very conservative and project that ESPN continues to lose 3 million subscribers a year — well below the rate that they are currently losing subscribers — then the household numbers would look like this over the next five years:
2017: 86 million subscribers
2018: 83 million subscribers
2019: 80 million subscribers
2020: 77 million subscribers
2021: 74 million subscribers
At 74 million subscribers — Outkick’s projection for 2021 based on the past five years of subscriber losses — ESPN would be bringing in just over $6.2 billion a year in yearly subscriber fees at $7 a month. At $8 a month, assuming the subscriber costs per month keeps climbing, that’s $7.1 billion in subscriber revenue. Both of those numbers are less than the yearly rights fees cost.
Uh oh.
But that’s just the short-term incremental impacts. The real question is how many consumers would actually purchase ESPN if the bundle truly disappeared and consumers were given the option to buy all content a la carte (which we suspect is the inevitable end game)? If we assume that 45mm households would be willing to purchase ESPN directly, at their current cost of $7 per month, then that would equate to roughly $3.8BN in revenue per year or about half of their $7.5BN in annual content costs…which we suspect is a slight problem for Disney.
But, like it not, a la carte content purchases are the way of the future. While cable providers used to be incentivized to protect the “channel bundle” the advent of the internet and over-the-top content providers means that their true value offering to consumers is now in their broadband and not the content. Therefore, it’s not terribly surprising that, as Bloomberg points out, new a la carte, streaming TV services are becoming very popular.
AT&T Inc. set a price of $35 a month for a new online-streaming TV service with 100 channels or more, and the company may experiment with “a la carte” programming, giving customers choice on what channels they pay to watch.
DirecTV Now will be priced to compete with two leading online TV providers — Sony’s PlayStation Vue and Dish Network Corp.’s Sling TV. PlayStation Vue starts at $39.99 for 60 channels and runs as high as $54.99 for more than 100 channels. Sling TV begins at $20 for 28 channels and goes as high as $40 for a 48-channel multi-screen package.
The competition for cable-like online services is suddenly fierce. YouTube has been working for months on the paid live-TV streaming service, called Unplugged. Hulu LLC, which is co-owned by Fox, Disney, Comcast Corp. and Time Warner, will introduce its own service in the coming months, and Amazon.com Inc. and Apple Inc. have explored the idea.
Of course, ESPN isn’t the only content company that has benefitted from the forced charity of the American consumer. We suspect the many other cable content providers are also about to face a very turblent transition as well.
- Attorney General Lynch 'Pleads Fifth' On Secret Iran 'Ransom' Payments
Authored by Adam Kredo, originally published via The Washington Free Beacon,
Attorney General Loretta Lynch is declining to comply with an investigation by leading members of Congress about the Obama administration’s secret efforts to send Iran $1.7 billion in cash earlier this year, prompting accusations that Lynch has “pleaded the Fifth” Amendment to avoid incriminating herself over these payments, according to lawmakers and communications exclusively obtained by the Washington Free Beacon.
Sen. Marco Rubio (R., Fla.) and Rep. Mike Pompeo (R., Kan.) initially presented Lynch in October with a series of questions about how the cash payment to Iran was approved and delivered.
In an Oct. 24 response, Assistant Attorney General Peter Kadzik responded on Lynch’s behalf, refusing to answer the questions and informing the lawmakers that they are barred from publicly disclosing any details about the cash payment, which was bound up in a ransom deal aimed at freeing several American hostages from Iran.
The response from the attorney general’s office is “unacceptable” and provides evidence that Lynch has chosen to “essentially plead the fifth and refuse to respond to inquiries regarding [her] role in providing cash to the world’s foremost state sponsor of terrorism,” Rubio and Pompeo wrote on Friday in a follow-up letter to Lynch, according to a copy obtained by the Free Beacon.
The inquiry launched by the lawmakers is just one of several concurrent ongoing congressional probes aimed at unearthing a full accounting of the administration’s secret negotiations with Iran.
“It is frankly unacceptable that your department refuses to answer straightforward questions from the people’s elected representatives in Congress about an important national security issue,” the lawmakers wrote. “Your staff failed to address any of our questions, and instead provided a copy of public testimony and a lecture about the sensitivity of information associated with this issue.”
“As the United States’ chief law enforcement officer, it is outrageous that you would essentially plead the fifth and refuse to respond to inquiries,” they stated. “The actions of your department come at time when Iran continues to hold Americans hostage and unjustly sentence them to prison.”
The lawmakers included a copy of their previous 13 questions and are requesting that Lynch provide answers by Nov. 4.
When asked about Lynch’s efforts to avoid answering questions about the cash payment, Pompeo told the Free Beacon that the Obama administration has blocked Congress at every turn as lawmakers attempt to investigate the payments to Iran.
“Who knew that simple questions regarding Attorney General Lynch’s approval of billions of dollars in payments to Iran could be so controversial that she would refuse to answer them?” Pompeo said. “This has become the Obama administration’s coping mechanism for anything related to the Islamic Republic of Iran – hide information, obfuscate details, and deny answers to Congress and the American people.”
“They know this isn’t a sustainable strategy, however, and I trust they will start to take their professional, and moral, obligations seriously,” the lawmaker added.
In the Oct. 24 letter to Rubio and Pompeo, Assistant Attorney General Kadzik warned the lawmakers against disclosing to the public any information about the cash payment.
Details about the deal are unclassified, but are being kept under lock and key in a secure facility on Capitol Hill, the Free Beacon first disclosed. Lawmakers and staffers who have clearance to view the documents are forced to relinquish their cellular devices and are barred from taking any notes about what they see.
“Please note that these documents contain sensitive information that is not appropriate for public release,” Kadzik wrote to the lawmakers. “Disclosure of this information beyond members of the House and Senate and staff who are able to view them could adversely affect the diplomatic relations of the United States, including with key allies, as well as the State Department’s ability to defend [legal] claims against the United States [by Iran] that are still being litigated at the Hague Tribunal.”
“The public release of any portion of these documents, or the information contained therein, is not authorized by the transmittal of these documents or by this communication,” Kadzik wrote.
Congressional sources have told the Free Beacon that this is another part of the effort to hide details about these secret negotiations with Iran from the American public.
One senior congressional source familiar with both the secret documents and the inquiry into them told the Free Beacon that the details of the negotiations are so damning that the administration’s best strategy is to ignore lawmakers’ requests for more information.
“Every Obama administration official and department involved in the Iran Deal appear to be running for cover,” the source said. “Like we feared, the [Iran deal] is turning out to be a disaster and Iran is emboldened in its aggression. Evidently Attorney General Lynch and the Department of Justice have decided ‘refusal to cooperate’ is their best strategy. But this is dangerous and ultimately won’t protect them from anything.”
- China's Blowing Out TED-Spread Has Traders Bracing For A Cash Shortage
This past July, we lamented that as a result of the now implemented money market reform which sent Libor soaring, Wall Street had lost one of its most dependable, forward-looking crisis indicators: the TED-Spread (the difference between LIBOR and 3 month TSYs), something which Bloomberg also figured out last week.
Specifically, we said that “now the regulatory intervention is set to pressure what have traditionally been reliable metrics indicative of funding stress and systemic risk, among them swap spreads, the TED-Spread and the FRA-OIS spread, the market is about to lose the last metric indicative of underlying tensions. After all, with central bank intervention having broken all conventional signalling pathways, including equities, corporate bonds, Treasuries, and VIX, there will no longer be any reliable sources hinting at fundamental risk in the market, certainly for the short-term and perhaps over an indefinite amount of time.”
However, one place where the TED spread – ironically – is still a valid indicator of liquidity concerns, is oddly enough China. And it is in China where traders in the local interest-rate swap market are bracing for a cash shortage as a result of the blowout in the premium for the 1-year swap rate over the 1-year sovereign bond yield to 52 basis points, the widest since July 2015.
As Bloomberg reminds us, this is China’s version of the familiar TED spread, which in the US is (or rather was) a gauge of stress that compares funding costs for banks and the government.
“This is a signal in the market that swap traders are readying for tighter liquidity as the government tries to prevent a property bubble,” said Iris Pang, senior economist for Greater China at Natixis Asia Ltd. in Hong Kong. “Further tightness may be very limited because the PBOC doesn’t want to put financial stress on the market.
The good news: it is still well below the 140 basis points reached during the trust finance crackdown of early 2014. The bad news is that as reported last week, China has just launched a new crackdown, this time on on the infamous Wealth-Managemnt Products, shadow banking conduits which amount to just under $1.9 trillion in products, the immediate result of which has been the recent 10% surge in bitcoin. Which means that should absent another liquidity injections elsewhere, the drought is set to get far worse.
The recent, sharp move in the swap spread is the result of market concerns that the government is seeking to crackdown on the local housing bubble:
The fixed cost to receive the seven-day repurchase rate for a year climbed to an 18-month high on concern the People’s Bank of China will tighten its purse strings after property prices surged 40 percent in Shanghai last month from a year earlier. The one-year swap rate reached 2.73 percent on Friday in Shanghai, matching the highest level since April 2015, while the seven-day repo rate reached a one-month high on Thursday. The one-year sovereign yield was at 2.19 percent, heading for a third annual decline.
Making matters worse, China Securities Journal reported on its front page that finance companies need to prepare for “tight days” as monetary policy shifts to focus on deleveraging.
The “good” news from this upcoming liquidity shortage, is that China’s government bond yields, already near all time lows, are set to drop even further, as bond investors – who assume the market’s reaction to a Chinese growth slowdown is similar to that in the US – are preparing to benefit from the slower economic growth that may result. “Any decline in real estate activity is likely to dent growth in the world’s second-largest economy, providing a tailwind for government bonds”, according to ING and DBS.
And while it is all connected, the liquidity shortage, the drop in yields, and the rising swap spreads, the cash squeeze also reflects the flight from a weakening yuan. While China’s SAFE reported that 44.7 billion in yuan payments left the nation last month, up from August’s outflow of $27.7 billion, Goldman’s calculation was nearly double that, or some $78 billion in September outflows. As a result of the return of China’s banking sector bogeyman, which as we reported last week just hit a staggering 200 trillion yuan…
… the Chinese currency continued to slide this past week, bringing its drop against the dollar to 4.2% YTD, the most among 11 Asian currencies tracked by Bloomberg.
How should one trade this reacceleration in Chinese capital outflows, Yuan devaluation and overall economic deterioration? One way, as Kyle Bass has done, is to short the Yuan outright, and in size. Another, as we did last September, and as Corriente’s MarK Hart discussed in February, is simply to go long bitcoin – a trade that has returned over 200% in just over a year.
Of course, one doesn’t have to trade it at all: sitting back and watching events unfold may be just as satisfactory.
- The US Navy – Screwing The Taxpayers, And Defense Innovators
Submitted by Duane via Free Market Shooter blog,
Self-made millionaire Gregory Sancoff has spent a decade and $19 million building a highly unusual stealth boat. Called Ghost, it’s designed to be faster, more stable, and more fuel-efficient than anything currently in the U.S. Navy’s fleet, he says. “It’s such a smooth ride, you can sit there and drink your coffee going through six-foot swells,” he proudly told Bloomberg Businessweek in 2014.
But there’s a problem: The Pentagon doesn’t want Sancoff’s boat—and also won’t let him sell it abroad.
Source: The Feds Won’t Buy this $19 Million Stealth Boat – Or Let It Be Sold Abroad | Bloomberg
A little background is necessary here – Gregory Sancoff is a self-made millionaire who spent some of his own fortune building a stealth boat for the U.S. Navy. The Navy has chosen not to purchase Sancoff’s “Ghost” boat. That is fine… except, the Navy has deemed the technology too classified to allow him to sell it anywhere else. How does this make any sense, if he developed the boat all on his own, without any government funding or assistance?
Apparently, this all happened because he patented his invention, and tried to sell it to the Navy. The Navy was initially interested, but also served him with secrecy orders, and later placed his firm under watch of International Traffic in Arms Regulations (ITAR). Though you would think he would have some legal recourse here, such action is made extremely difficult, as he is not a large-scale defense firm such as Lockheed, and does not have the same legal resources at his disposal.
The outlook for Juliet isn’t great. Last year, the U.S. patent office issued 95 secrecy orders—one for every 6,628 applications, as Joshua Brustein wrote in June. Most of those inventions were developed by large companies, specifically for the military or other government agencies. But as Brustein points out, the orders “are a different sort of ordeal for private inventors, about a dozen of whom file patent applications that are made secret by government mandate each year.” Inventors who break gag orders can lose their patent rights, or face fines or incarceration. And while some secrecy orders are reversed each year, others date back as far as the 1940s.
If Sancoff’s boat contains such sensitive technology that it cannot be sold abroad, why doesn’t the US Navy just buy his prototype from him? They won’t need to contract his firm to build a fleet, but they can purchase the technology for use in other DARPA projects. $19 million is but a drop in the bucket of the Navy’s ~$380 billion dollar budget, after all.
Apparently, $19 million is too much to spare for a stealth boat, when you’ve already wasted $23 billion building three stealth destroyers, that have been watered down from their own original plans, and don’t even have close-in air defenses.
The Zumwalt class stealth destroyer was originally contracted in the 1990’s to eventually replace the Navy’s aging Arleigh Burke class destroyers. Similar to so many monstrous defense projects, the Zumwalt was plagued with delays, cost overruns, and subsequent cost cutting measures that led to a far less capable destroyer than was originally planned, and the buy was correspondingly cut from 32 copies to just three. With questionable self-defense capabilities, this destroyer cannot be deployed to any hotspot without external support, as a ship with similar defenses was recently destroyed by very unsophisticated weapons. Originally expect to run at ~$300 million a copy, the smaller buy and higher costs pushed the cost of the remaining three to about $8 billion apiece.
So, just to clarify – the US Navy can afford to waste $23 billion on a stealth destroyer of questionable efficacy, but can’t afford to spend less than 0.001% of that cost on a stealth boat prototype, even if solely for the sake of using the technology in future designs. Is it any wonder why even our unpopular Congressional leaders are telling the military to stop buying equipment it doesn’t need? Perhaps the DoD should be more supportive of innovators who spend their own dime to develop new technologies, instead of screwing them over every step of the way, and instead choosing to continue wasting taxpayer dollars on flawed designs?
The defense procurement process is beyond flawed; it is in need of a complete overhaul. The Pentagon needs to focus on building out more prototypes, and testing them in the field before committing to buying large numbers of untested designs. Smaller defense projects with room for expansion will leave the DoD more nimble, and more able to quickly adapt to new challenges posed by differing adversaries with increasingly differing tactics. And, one of the best ways to do that is to encourage innovators like Sancoff, who are willing to invest their own resources to build prototypes, not discourage them.
But look on the bright side – the DoD won’t spend $19 million on a stealth boat prototype, instead choosing to waste $23 billion on three neutered stealth destroyers… but at least its not a $1.5 TRILLION dollar project that is “too big to fail”, so it must proceed in its screwing of the taxpayer.
- Economist Predicts Rising Obamacare Costs Will Lead To Riots
Now that it is widely accepted by everyone except the president in denial, that Obamacare is an epic debacle, one which boosts GDP because it is fundamentally a tax that counts toward healthcare expenditures yet takes away from other discretionary spending leading to a downtrend in overall US consumption, most also have an opinion on how it unwinds. However, few are as gloomy as economist Chris Butler of Butler, Lanz and Wagler, who discussed the rising cost of health insurance plans rising next year under the Affordable Care Act, and said he expects riots as the populace begins to expresses outrage upon learning many will be priced out of health care options.
Butler told Chris Stigall on Talk Radio 1210 WPHT to expect more public demonstrations of anger as prices move upward.
Cited by CBS Philadelphia, Butler said that “right now, I think you do have to say that A, it’s failing and that B, I think next year, you’re going to have a bunch of people that don’t get the subsidies that make the premiums a little bit more affordable that are just going to riot because it’s just too expensive for most people if you don’t qualify for subsidies.”
Butler said he still objects to court rulings siding with the government requiring individuals to purchase insurance or pay a penalty. In that case, he will be even angrier to learn that according to Obamacare architect Jonathan Gruber, the “solution” to prevent millions of Americans opting to pay penalties instead of be enrolled, is to hike the penalty even more.
“You can go back to the Supreme Court decision on this. I’m still shocked that we are being told that our constitution says that it is allowable to force to people to buy something. When I hear people talk about forcing them, not only to buy something, but to make the penalty stiffer if they don’t, I just get queasy.”
Butler told WPHT there could be simple solutions to lower costs and cites buying plans across state lines as an example.
“Do you know what New Jersey is anticipating, their’s is considerably less, as I recall, than Pennsylvania, yet we are not allowed to cross state borders to buy insurance. There are a lot of states, by the way, that have big cities on borders that are actually going to have huge increases but they border on a state that is quite reasonable in its growth in premium costs. We talked about that while all of this was being discussed back in 2010, some of the quick fixes you could make that would have a difference to our healthcare system, that was one of them, allow people to buy insurance across state lines to help equalize some of this stuff.”
Well, according to many the US is on the verge of full-blown rioting and even civil war on any given day: might as well throw in one more catalyst that will unleash chaos. After all, as Krugman said in March, “The important point about war from macroeconomic point of view is that it was a very large fiscal stimulus”
- The Vexed Question Of The Dollar
Submitted by Alasdair Macleod via GoldMoney.com,
There is little doubt that the rapid expansion of both dollar-denominated debt and monetary quantities since the financial crisis will lead us into a currency crisis.
We just don’t know when, and the dollar is not alone. All the major paper currencies have been massively inflated in recent years. With the dollar acting as the world’s reserve currency, where the dollar goes, so do all the other fiat monies. Until that cataclysmic event, we watch currencies behave in increasingly unexpected, seemingly irrational ways. The fundamentals for Japan are not good, yet the yen remains the strongest currency of the big four. The Eurozone risks a systemic collapse, overwhelmed by political and financial headwinds, yet the euro’s exchange rate has proved relatively impervious to this deep uncertainty. The British economy is strongest, yet sterling is the weakest of the four majors.
If nothing else, today’s foreign exchanges are evidence that subjectivity triumphs over macroeconomic thinking. Mackay’s Extraordinary Popular Delusions and the Madness of Crowds beats computer modelling every time. Furthermore, any official attempt to establish a rate for the dollar has to address two separate questions: the value of the dollar relative to other currencies, and its purchasing power for goods and services.
The chart below indicates how the dollar has behaved against other currencies over the last five years, both on a trade weighted and on a predefined currency basis (DXY).
It should be noted that the dollar has risen on both these measures by roughly 18% since early 2014. At the same time, the Chinese yuan has fallen against the dollar by about 12%, so it has actually risen slightly against the DXY basket as a whole, particularly against the euro component, where it has gained 12% since early 2014. This matters, because far from devaluing, which is what we are routinely told by dollar-centric analysts, the yuan has been relatively stable over time against a basket of currencies. It has been weak against the dollar and yen, but strong against both the euro and sterling.
We should look at this from the Fed’s Federal Open Market Committee’s point of view. America runs a record trade deficit with China, and the only major economies where China’s terms of trade have improved are with the US, excepting Japan. Therefore, the Fed is bound to be very sensitive to the dollar’s exchange rate with China’s yuan. Furthermore, on two occasions when the Fed had signalled it was going to raise the Fed Funds Rate, it backed off when the Chinese lowered the rate at which it had pegged the yuan to the dollar. Chinese devaluation against the dollar is obviously a prime concern for the Fed.
The situation becomes better understood when the Peoples Bank’s position is taken into account. The bank has been selling US Treasury stock in large quantities, stockpiling commodities and oil with the proceeds, though it has been diversifying into Japanese Government bonds as well. China’s dollars have been welcomed by markets, which are short of both quality collateral and raw currency. However, China’s supply of both has failed to stop the dollar rising against the yuan. Furthermore, China isn’t the only Asian and Middle Eastern state selling American paper, so the demand from other international players on the buy side has been immense, enough to determine the underlying direction of the dollar’s exchange rate.
The situation is being exploited by the Peoples Bank. In effect, the Peoples Bank is in a position to dictate Fed policy by adjusting the rate at which it is prepared to supply dollars into the market. So long as the dollar remains fundamentally strong, it only has to slow the pace of Treasury and dollar sales for the dollar to rise, and therefore the Fed’s planned interest rate rises to be deferred. This is not understood properly by western commentators, who erroneously think China is being forced to defend a declining yuan. Nothing could be further from the truth. It will be interesting to see whether this happens again ahead of the December FOMC meeting, when for the umpteenth time we have been promised a rise in the Fed Funds Rate.
A major consideration behind China’s foreign exchange policy is the outlook for the euro. The Eurozone represents a market as large as the US, with the added importance of being tagged onto the Asian continent. There can be little doubt that China sees her own long-term future being aligned more with Europe than America, despite Europe’s current troubles. It is, if you like, a situation that is primarily of strategic importance. Europe’s economy will need rescuing at some stage, and is therefore a future opportunity for China’s intervention.
That plan is for the long term, and becomes increasingly valid the deeper the hole the Eurozone digs for itself. A disintegration of the EU would also be beneficial for Chinese ambitions. Meanwhile, in the short-term the euro has broken a crucial trend-line against the dollar, having completed a continuation head-and-shoulders pattern, targeting the 1.0600 area, which is the previous low seen in March and November 2015. This is our second chart.
Neither the Peoples Bank nor the Fed need to be chart experts to see what’s happening. Brexit was very bad news for the euro, because it is a racing certainty that the event will turn out to be just the start of a new round of political and economic trouble for the Eurozone. The Italian economy in particular is imploding, with a non-performing loan problem that is roughly 40% of private sector GDP.
So China can for the moment steer a course for the yuan between the euro’s devaluation and the dollar’s rise. The Fed sees in euro weakness an increase of currency-induced deflation for the US economy, and a loss of competitiveness for US exports. Chinese exporters are obvious beneficiaries as well, so the blame for deflation will be on China’s foreign exchange machinations.
Anyway, China probably cares less than she ever did about the long-term consequences of her actions on the US economy. China has been selling her US Treasuries and reducing her dollar exposure to add to her stockpiles of raw materials and oil. She wants to keep her over-indebted businesses trading by maintaining a favourable exchange rate with the dollar, particularly given the developing train wreck that’s the Eurozone. And there’s not a lot the Fed can do about it.
Gold and commodities
The principal driver for the gold price is the prospect of monetary inflation transmuting into price inflation, and the inability of central banks to respond to this threat by raising interest rates sufficiently to control the balance of consumer preferences between goods and holding money.
We are, of course, measuring gold in dollars, because the latter is the reserve currency for all the others. But, as stated above, there are two exchange considerations, the first being the dollar against other currencies, and the second the dollar against a basket of commodities. And here, we should note that over the long-term, the prices of commodities measured in gold are considerably more stable than the prices of commodities measured in fiat currencies.
China has behaved as if she is thoroughly aware of gold’s pricing attributes, and has a deliberate policy of dominating the market for bullion. This is very different from the US’s domination of gold paper markets. Not only has China invested in unprofitable gold mines to become the largest producer at about 450 tonnes annually, but the state monopolises China’s refining capacity. She also imports doré for refining from other countries, and without doubt since 1983 has accumulated substantial quantities of bullion not included in monetary reserves. Furthermore, it is the only country that has encouraged its population, through television and other media, to accumulate physical gold. Make no mistake, for the last thirty-three years, the Chinese government has made a credible attempt to gain ultimate control over the physical gold market, and to extend gold’s protection to her own citizens.
China does not manipulate the gold price. Instead, as described earlier, she is manipulating the dollar by regulating the exchange rate and by discouraging the Fed from raising interest rates. It is a temporary balancing act that only continues so long as desperate banks and their indebted borrowers continue to scramble for dollars, and China knows it. The Fed, for the moment, appears to be powerless to manage economic outcomes and is firmly trapped by China’s currency management, with interest rates stuck at the lower bound. And to make it worse, the weak euro, against which the dollar index (DXY) is very heavily weighted (57%!), threatens to force the DXY index even higher. The result, inevitably, is that monetary policy cannot be used to address future price inflation, which virtually guarantees there will be a higher gold price in 2017 and beyond.
This is why, despite American wishful thinking, gold remains at the centre of the financial system. It is central partly because China’s ensures it is, and it is also China’s ultimate money for commodity and trade purposes.
China most likely has enough gold to fully compensate for her reserve losses from the destruction of the dollar and the other fiat currencies on her reserve book. She is deliberately selling down her dollar exposure anyway, while she can. Lest we forget, communist economists in China were taught that capitalism destroys itself. For them, there is no clearer proof than the performance of the US economy and the dollar, and they do not intend to get caught up in its demise. Understand this, and you understand all.
While the monetary role of gold in the future has yet to be determined by China, and it will be China or the markets that make the decision, for the moment it can be regarded as the ultimate insurance against global currency failure.
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