Today’s News September 22, 2015

• The Established Order Will Be Challenged

  Submitted by Raymond Matison via The Market Oracle,

  With its recent miniscule 2% devaluation of the Yuan, media pundits noted that China had now also entered into the global currency war.  What this comment implies is that other countries with the ability to issue or print their own currency, including the U.S., have been participating in a currency war by devaluing their own currency as a hoped for means to increase their country exports and thereby stimulate their economies.  As China’s currency has been pegged to the USD, it had recently grown stronger as a byproduct of dollar’s recent dramatic strength.  Accordingly, the peg that China used to tie-in to the dollar’s value had increased the Chinese yuan to a level that was hurting their exports.  The resulting devaluation was China’s attempt to correct partially this unwelcome currency appreciation.

  With FED’s past QE series of money printing, we have been at the forefront attempting to devalue our own currency as a means to improve our exports, reach the FED’s stated goal of increasing inflation which would produce higher GDP figures, allowing government officials to claim that economic growth or recovery is resuming.  Not to be outdone, the European Central Bank has been purchasing weak credits from their banks, in order to make member bank financial solidity ratios appear stronger – which also requires substantially increasing its money supply.  The largest and most outrageous example of intentional destruction in the value of its currency is Japan, which for nearly two decades has been on a mission to devalue its currency in order to stimulate inflation.

  Currency expansion may seem like an ideal, benign solution to a country trying to stimulate its exports, but it does create a financial assault or loss to their trading partners.  For example, China’s recent holding in excess of $1.3 trillion assets (until some recent sales of under $200 billion) from accumulated annual trade surpluses, would lose great value in its assets by the amount of such U.S. devaluation.  If the U.S. were to expand its currency by 10%, China’s Treasury holdings could be reduced by $100 billion – not an insignificant amount.  That is of course why the well known phrase “race to the bottom” stipulates that once one country starts to print currency, other countries, in order to protect themselves against the action of the initiator, have to follow and also devalue their own currency.  We are currently witnesses to a race to the bottom in a continuing global currency war.

  Definition of Currency War.

  Wikipedia defines a currency war as “competitive devaluation where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a country's currency falls so too does the price of exports. Imports to the country become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.”

  It is arguable that currency wars are not only fairly current affairs, but that they last for relatively brief periods of time not extending beyond a few short years – as highlighted by our FED’s recent QE series.  How might our understanding of currency war change if we were to expand slightly the definition of currency war, and by also taking a far longer view – that of going back to the founding of the FED?  How would we appraise the big picture of government and FED policy over the years, and its now fully observable results on the populace?

  Years 1913-1940.

  Some historians have noted that the founding of the FED in 1913, with its ability to create dollars, allowed President Wilson to commit America to participate in what became to be called WWI, which in reality was a European conflict.  Wars are expensive, so having an institution that can “finance“ war makes it economically easier to participate.  In this case, domestic currency accommodation to provide dollars by the FED made it possible for the U.S. to engage in the actual physical war. While currency accommodation for your own government seems detached from a real currency war, the dramatic expansion of money to finance war is a hostile assault on the value of every citizen’s purchasing power and reduction in the value of that currency.

  Some economists posited that it was the FED’s profligacy in expanding currency and credit also during the 1920’s, and their support of low interest rates that created the great stock market rise and consequent conditions for the stock market crash and the Great Depression.  Accordingly, this crash evolved initially from an inability of stock market speculators and other borrowers to repay their loans, thereby requiring sale or liquidation of leveraged stock portfolios.  Thus, the rapid expansion of currency and credit during the 1920’s by the FED was seen as responsible for initiating America’s economic malaise of several decades.  It is a form of a currency war, but one affecting our own citizens.

  Up until the 1930’s citizens were able to convert their gold certificates (paper money) into actual gold coins at any bank – with gold at $20 per ounce.  In 1933, President Roosevelt ordered all gold coins to be turned in for paper currency at their bank, in effect confiscating real money.  After these coins were turned in by trusting citizens of their own government, the price of certificates was devalued such that gold was repriced to $35 per ounce. The necessity for governments to take, confiscate, or steal from one’s own people has a several thousand year old record resulting from a bad habit of governments spending more than they can reasonably take in from taxes.  This is simply a different version of a currency war that one can identify as a short hostile action, one which was directed at the country’s own people. 

  Years 1945-1971.

  After WW2, as U.S. emerged as the world’s greatest military and economic power, at the Bretton Woods Conference in 1945 America established a new currency system which was based on the premise that the U.S. dollar would be backed by gold, become the means of exchange for international trade transactions, and that sovereign nations would be able to exchange their dollars for gold at $35 per ounce at any time.  With many parts of the world in economic and financial shambles after physical war, it is reasonable that a new currency system was desirable.  However, the establishment of this new system could be seen also as a stealth currency battle as it was structured at its outset to be very favorable to America.  For example, the IMF and International Bank for Reconstruction and Development were created, which became instruments of U.S. global financial influence, and some might argue new tools to conduct financial warfare.

  This new currency system worked reasonably well for several decades until President Johnson decided to dispute an old repeatedly proven maxim that a country cannot afford both “butter and guns” for its people.  In the 1960’s President Johnson chose to initiate a war with Vietnam, and felt compelled domestically also to start a “war on poverty”.  Physical wars were becoming increasingly expensive, and required currency printing which the FED readily accommodated.  The War on Poverty cost billions, while the cost of the then new Medicare program also rapidly escalated. The confluence of these expenditures required such a large expansion of our money supply, printing more dollars than its store of gold could support, that foreign nations noticed it and started to convert their dollars increasingly for gold. Eventually America’s store of gold was in a perilous decline such that it lead to the U.S. “defaulting” on its gold exchange policy by closing the gold exchange window to sovereign foreign banks.  The retreat from a promise to redeem paper dollars for gold has all the hallmarks of a hostile currency action, which is easily interpreted as part of a currency war.

  For those who disagree that this latter action was a form of a currency war, let us dwell on the fact that when President Nixon closed the gold window in 1971, he foreclosed the ability of foreign countries to turn their dollars at the promised $35 conversion rate into gold.  As a result, every foreign country that had traded goods with the U.S. and held paper dollars was forced to swallow huge dollar devaluation losses.  The price of gold reached over $150 by 1974 and over $800 by 1980, but since banks tend to hold their gold for long periods of time, it is not unfair to note that the price of gold in 2015 is over $1100 per ounce.  As a result, the long-term loss to foreign dollar holders has been astronomical.  The U.S. won that currency battle, but it has not quite won the war, as more countries became united in finding a means to reduce the influence and dominance of the dollar.

  Abandonment of silver coins and societal change.

  In 1964, our government led a hostile currency action against its people by eliminating silver coins from circulation. As 1965 and subsequent coins did not include silver, the more valuable silver coins quickly disappeared from use with some hoarded by citizens, but most simply were acquired by the Treasury.  The reason this had to be done was due to continued inflation, and the subsequent increase in the price of silver in terms of paper currency.  

  It was a time when gasoline could be purchased for under $0.20 per gallon. While today’s gasoline costs between $2-$3 per gallon, you can still purchase that gasoline at the $0.20 price per gallon – if you convert two silver dimes (coin of the realm at that time) to today’s fiat currency.  Another indication of the loss in the purchasing power of the dollar is shown by the fact that many houses purchased in 1960 for $20,000 could fetch $200,000 before the 2008 real estate meltdown.  In some communities the annual real estate taxes due in 2008 and subsequent years were larger than the actual price of the house paid in 1960.  This also speaks to the issue of citizens owning property free and clear.  Political practice has evolved such that after paying the full market price for real estate, the owner really does not own it.  Rather, after purchase and payment, he gets the privilege to rent it from the government at the current rate of annual taxation. This also speaks volumes about the store of value of fiat currency versus the two hundred fifty year old money as defined in the Constitution.  Indeed there are many economists and financial observers who have calculated that the original dollar issued in 1915 is only now worth only 3 cents.  This result seems to suggest an ongoing, longer currency war being practiced.

  In the 1960’s, a household bread winner was able to provide for his family; however, in the 1970’s and beyond more than one income was often necessary to sustain a household.  The established family pattern was disrupted with notable consequences.  Corporations were happy to have more women join the workforce as their wages generally were lower than those of men, thereby improving corporate profit margins.  Our government was happy to have additional incomes to tax.  Women were happy, because according to the propaganda of the day, they were being liberated from household chores with an ability to “realize their full potential” and pursue a career.  How the tradition for a woman working in the home raising children, and maintaining a job outside the home is liberating, rather than enslavement, has not been explained. The only losers in this evolution were the children – those that form the basis and future of our country.

  It has been established by sociologists that the absence of fathers in many African American homes is the root cause of dysfunctional families manifested through maladjusted and underachieving children in society.  Why should the results be any different in all other families where both the mother and the father are mostly absent?  It is arguable that children’s declining math and reading scores, as well as unsocial behavior and other maladjustments are the result of this destruction of the American family. Such destruction has been accomplished through continued money expansion by the FED, with its consequent loss of purchasing power and loss of real incomes – which rather than giving women the option of working outside the home, required them to do so.  So this currency creation system and policy has dramatically and detrimentally changed the American family, and the country’s future.

  International push-back.

  Later in the 1970’s as money printing, credit creation and inflation were increasing, the U.S. had some difficulty in selling their Treasury securities in global markets, as foreign banks and other financial institutions avoided buying dollar denominated bonds, which forced the Treasury to sell bonds that were denominated in, and had to be repaid in German marks or Swiss francs.  It is clear that foreign institutions had become acutely aware that the U.S. was using its “exorbitant privilege” of a reserve currency in a fashion that shortchanged its international partners and these institutions were expressing their dissatisfaction through market rejection. This action may be seen as growing resistance against a U.S. based currency war.

  As the dollar’s value was falling, the FED was forced by global market pressure to adopt a rigorous program to reduce inflation, thereby increasing the dollar’s value.  Interest rates on U.S. Treasury bonds were raised to unprecedented heights topping out at approximately 15% in 1981, leading countries to invest in these secure high yields, pushing up the dollar’s value.  High interest rates and trade imbalances caused a domestic recession – which was the eventual global market-forced payback to our previous closure of the gold exchange window, and subsequent rapid currency expansion. This episode to improve dollar’s value might be viewed as a temporary “retreat” in terms of our previous currency policy and financial war.
   
  As the dollar subsequently increased in value compared to other country currencies, U.S. exports became increasingly more expensive and corporations started lobbying for government relief and intervention.  Accordingly, the next offensive in our currency war took place with the Park Plaza Accord in 1985 in New York, when the U.S. prevailed over their formerly physically subdued war opponents, Germany and Japan – and had them agree to accept a 25-50% devaluation of the USD. That devaluation allowed U.S. exports to become cheaper and more competitively priced. That was another important currency battle that the U.S. won – and Japan and the Europeans lost. 

  During the 1960’s and 1970’s many countries throughout the world admired the relative prosperity of the U.S. and sought to emulate its financial policies.  Accordingly, they bought into the sales pitch of the IMF and the World Bank and took on large amounts of debt for infrastructure development.  Almost all of these large infrastructure debt programs defaulted, mostly through the decade of the 1980’s, and were restructured to the common detriment of the borrowing country.  It could be argued that this outwardly attractive program for developing countries was in fact another stealth currency battle which the U.S. won in every country that it was tried.  However, such results could not be hidden from the world, as it soon came to be understood for the nonphysical financial war which had been unleashed on unsuspecting developing countries. The IMF and World Bank became discredited among many developing nations of the world. In effect, the U.S. won all of those currency battles, but it embittered borrowers who have not forgotten their usurpation, and whose resistance to dollar hegemony has been steadily growing.

  Credit Growth and Quality of Life.

  Between 1964 and 2004 total credit in the U.S. had increased from $1 to $57 billion – a historically unprecedented rise.  A shortage of currency and credit would stifle growth and trade; however, an overabundance of it creates business cycles and economic bubbles which leave retrenchment, default, and business failure in its wake.  The overabundance of currency and credit since the 1960’s, due to the nature of our money creation process through the FED also commensurately increases national debt.  This remarkable increase in currency and credit expansion paid for the greatest economic party, financed by debt, which America has enjoyed since its founding.  However, as debt eventually has to be repaid, we now experience shades of our previous 1920’s decade as it drew to a close with approach of the Great Depression.

  During these decades few people would claim that their quality of life has not improved significantly.  It is true that easy availability of credit made it possible for citizens to purchase a home and cars – items that in the view of most people would be seen as improvement in the quality of life.  However, during these decades we have also witnessed tremendous improvement in technology that has also dramatically improved living conditions.  Abundant availability of food products, improved health care, wide choice of manufactured products including furniture, washing machines, refrigerators, television have improved quality of life.  Their abundance and affordability comes mainly from technological advancement.  Developed commercial air travel, smart cell phones, internet are all technological innovations, improving the quality of life.  The question of whether it was credit availability or technological innovation that has improved quality of life begs to be answered.  It is likely that technological development would have taken place whether or not credit had expanded as rapidly or at all through these decades.  After 2008, and the recent mortgage and automobile loan bubble we are reminded that credit has to be repaid whereas technological improvement just keeps improving the quality of life.

  International Currency War.

  The U.S. has waged successful currency wars in the last several years against our perceived enemies such as Russia, Iran, and Syria – just to name a few.  Such currency wars sometimes are signaled from our policymakers as when it is coupled with sanctions, but often FX transactions can take place creating havoc in a targeted currency without public notice.  The trillions of dollars created by the FED and given to our domestic banks supposedly for strengthening balance sheets can be used for speculation, creating large flows of funds that destabilize foreign currencies and economies.  Exchange rates for currencies are determined by markets.  All markets have been manipulated, so foreign currency exchange rates have been manipulated. In addition, such huge financial war chests can also be used to influence commodity prices such as oil, which can have a devastating effect on countries relying on such exports for their budget revenues. Some huge flows of funds into foreign currencies may simply be speculative, but it also can be manipulative as a stealth currency war.

  More recently China has expressed interest having their currency included in IMF’s currency basket.  Given the size of China’s economy, this should have been offered to them – not something that China has to fight for.  But this request has been deferred in part on the basis that China’s currency is not freely convertible.  Of course everyone understands that including the yuan in IMF’s basket of currencies would decrease the importance of the dollar, would reduce its value, and therefore it is something that needs to be deferred for the U.S. to maintain its dollar hegemony.  China is not depending on IMF’s acquiescence to include it in the currency basket but is hedging by setting up its own system.

  Anyone following potential global currency manipulations of the last decades would understand that making the yuan fully convertible would also open it to those gargantuan flows of hot speculative money, visible in the carry trade, which might affect its currency more than China is capable or desirous of offsetting.  So it is establishing the yuan as fully acceptable in trade by many of its trading partners without exposing its currency to attack.  With its ability to make trade payments in currencies other than the USD they will be better protected from speculative market predations and manipulation.  Since China has established a competing equivalent of the IMF bank, and is close to having an international currency clearing facility comparable to our SWIFT system, longer term China may not even need IMF’s acceptance and inclusion. Countries are coming together in order to obviate the need for the use of the dollar. Therefore countries, which have previously been taken advantage of by our financial and currency policies of the last fifty years, are now becoming more willing in its trade to accept yuans and rubles.  A reduction in the use of dollars in trade, together with loss of admiration of America with our previously held moral high ground will have transformed into loss of empire and reduced citizen wellbeing.  This would be recognized as our losing a major currency battle.

  Domestic Currency War.

  Hostile currency actions, battles, and wars have become increasingly devastating.  They are more powerful than nuclear weapons.  A nuclear bomb will kill hundreds of thousands of people, but a financial war can injure almost all citizens of a country or region.  It is best to compare a financial war to that of the use of a neutron bomb – the buildings remain in place, but the population has been financially killed.

  In the United States two such neutron bombs have been detonated already, but no one has sounded the alarm.  The first neutron bomb was the FED’s reduction of interest rates to near zero, and keeping them there for more than six years.  Note that the damage done to the savings and funding of pension plans is applicable to more than 150 million people in this country.  Everyone is financially maimed.  The second neutron bomb is the expansion of national debt from $8 trillion to more than $18 trillion in less than a decade.  Our politicians verbalize reasons why this increase in debt is absolutely necessary for the health of our economy.  However, this debt ultimately becomes the debt of its citizens, not of the politicians or government which created it.  Citizens were just bystanders, as our politicians, FED and government dropped the neutron bomb on us.  These two neutron bombs have already destroyed a large portion of our middle class, the base of a democratic society.

  This debt bomb detonated in the U.S. but reverberated far beyond our own borders.  These newly created trillions of dollars found themselves in the balance sheets of our banks, and became weapons of destabilization, manipulation, mass destruction in other parts of the world.  The volatility of our markets is the result of too much fiat money in the world, which rushes in and out of selected countries, destabilizing their currencies and economies.

  Think about it.  We have experienced a dramatic rise and fall of currencies during 2015 and recent previous years that clearly are not representative of normal markets.  Also, the dramatic rise and fall in the price of oil in a short period of time can only happen when markets are over-stimulated by speculation and manipulation.  Our bond market has been manipulated for years by a FED policy of low interest rates and by its purchase of a large portion of our Treasury bond issues.  That same policy has caused fiat currency and credit expansion and pushed up our stock market valuation.  These trillions of dollars of slush funds at banks have drastically affected the price of foreign currencies versus the dollar.  They have decimated currencies and economies of our alleged enemies. Yet other countries are mimicking what the US is doing with its money supply, trying to protect their currencies, economies, and dollar reserves. The greatest weapon of terror has turned out to be our rapidly and cancerously growing volume of the U.S. dollar with its concomitant growth of national debt, which has been directed against America’s perceived foreign enemies and our own citizens alike.

  Historical Perspective and Future Consequences.

  Could such financial damage inflicted upon the population really have been accidental, or from faulty policy – or was it the result of the FED currency’s systemic design?
  For currency to be created by the FED, Treasury debt has to be issued.  Thus, this system of money creation requires constant currency expansion, reducing purchasing power over decades which has become a systemic, century-long fleecing of the country’s citizens.  Government and our elected representatives have abetted this financial terrorism against its own citizens, and also engaged in a long-term financial war against other sovereign nations they do not like.

  Taking this long view it appears that our government with its financial institutions in tow, though previously lauded for extending democracy and freedom throughout the world have lost their moral high ground in the eyes of many sovereign foreign countries due to our leading a long-term mercantile currency war.  Those sovereign countries are united ever more cohesively to free themselves from financial repression of a previously one-sided currency war with our reserve dollar the weapon of choice.  Formation of BRICS and the New Development Bank, new international payment settlement system, China led AIIB, AFTA the ASEAN Free Trade Area, Shanghai Cooperation Organization, Pan Asia Gold Exchange, is equivalent of aggrieved sovereign nations building their arsenals and massing their troops in what is to become their counter offensive.  The established order will be challenged.

  While the theoretical attributes of a republic or democracy with a Federal Reserve are many, we can get a more precise evaluation of it by looking at the historical actions of our government over the last century, including current policy trends and its actual results on its citizens. Taking into account the never ending expansion of government, persistent long-term loss of purchasing power in our currency, policies of wealth redistribution, the destruction of a traditional family and the middle class, eagerness in instigating or participation in unnecessary foreign kinetic wars, persistent offensives in a global financial war, it is difficult not to conclude that our own government has been increasingly implementing  policies contrary to our Constitution and the will or benefit of its own people as well as people of other sovereign nations. Regardless of which political party is in power, representation of our citizens has been supplanted by the will of a small elite.  Taking into account strategic actions of government or its actual controlling elite over the last century, one is forced to conclude that “they” have waged a long term nonphysical, highly destructive financial war against its own people. 

  What can we expect to happen in our homeland when finally even the generally uninformed population also understands that governments they have elected for decades, and its FED facilitator or controller, jointly have waged a century-long war on its citizens?  The people of America cannot make a counter offensive similar to those of sovereign nations; however people are uniting in resistance to robber baron policies, as evidenced by the popularity of nonpoliticians currently in candidacy for the office of president. These troops will mass also, it just remains to be seen what form their eventual counter offensive will be. The established order will be challenged.

  

  

  

  

  

• Elderly Japanese Population Hits New Record – Demographic Death-Rattle Continues

  With Abenomics seemingly a total failure (aside from managing to collapse the currency and living standards of the population – worst Misery Index in 33 years) the demographic crisis that Japan faces just got more crisis-er. As Japan's population continues to fall (4th year in a row), what makes the situation worse, as NHKWorld reports, is that there are now a record 33.8 million people over the age of 65 (a record 26.7%), more than double the number under the age of 14 (16.2 million). The ministry says the population will likely continue declining for some time as fewer babies are born and society ages… and as America is beginning to see as retirement dream remain elusive, the number of working elderly increased for 11 years in a row to reach a new record figure of 6.81 million in 2014.

  Population is forecast to keep falling…

  

   

  And, as NHKWorld reports, will continue to get greyer and greyer…

  The number of Japanese aged 65 or older has risen to a new record of about 33.8 million people, or 26.7 percent of the population.

   

  The Internal Affairs Ministry released the estimate ahead of Monday's national holiday, Respect for the Aged Day.

   

  The ministry says about 33.84 million people aged 65 or over were living in Japan as of last Tuesday. That is an increase of 890,000 from the same period last year. Men account for about 14.62 million of the total, and women, 19.21 million.

   

  People in the elderly age bracket now account for a record 26.7 percent of Japan's population — an increase of 0.8 percentage points from last year.

   

  The number of Japanese aged 80 or older has risen by 380,000 from last year to10.02 million, topping 10 million for the first time.

  And finally, as we are beginning to see in America…

  The ministry says the number of working elderly increased for 11 years in a row to reach a new record figure of 6.81 million in 2014.

   

  10.7 percent of Japan's working population aged 15 and over are in the elderly bracket.

  *  *  *

  As we discussed before, there are now more than one in four Japanese citizens will be over the age of 65, up from one in five in 2006 and one in 10 in 1985. The proportion of the population over 65 is expected to swell to 30 percent by 2022 and to 40 percent by 2050, according to government estimates. This will put the country as a whole in the demographic range of the prefectures that experienced the sharpest declines in growth in the decade ended 2009.

  

  Fewer workers and less labor will reduce the potential output of the Japanese economy, which will increase the country’s reliance on imports as retirees continue to spend, inhibiting GDP growth. The rising number of retirees will strain the government’s welfare programs and the country’s pension funds, which have been major buyers of government bonds. Japan already maintains the world’s second-largest debt load in nominal terms and it's growing.

  The government sees this problem and has passed a bill giving private-sector workers the right to remain at their jobs until the age of 65, rather than the current 60.

  

  Japan’s demographics will also likely have an impact on consumer behavior. Japanese consumers older than 65 are less likely to shop for alcohol, clothing, books and electronics compared with younger consumers, according to a McKinsey survey from 2011. The average senior shops for books and clothing 38 and 35 times per year, respectively, compared with 73 and 58 times for people between the ages of 18 and 34. The only item seniors shop for more frequently than younger consumers is food, McKinsey found.

  

  How Japan faces its demographic challenges over the next several decades may provide important lessons for countries such as China, which has a rapidly increasing senior population due largely to the one-child policy. People over 65 account for nearly 10 percent of the population in China — similar to Japan in 1985 — up from 6 percent 20 years ago.

  China now faces a similar trajectory, as seen in the chart above. Its working-age population—defined as those between ages 15 and 64—is peaking and is set to decline in the years ahead.
   

  

   

  

  

  

  

  

• Ron Paul Rages: Don't Blame America, Blame The Neocon Interventionists For The Syrian Catastrophe

  Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

  Is the current refugee crisis gripping the European Union “all America’s fault”? That is how my critique of US foreign policy was characterized in a recent interview on the Fox Business Channel. I do not blame the host for making this claim, but I think it is important to clarify the point.

  It has become common to discount any criticism of US foreign policy as “blaming America first.” It is a convenient way of avoiding a real discussion. If aggressive US policy in the Middle East – for example in Iraq – results in the creation of terrorist organizations like al-Qaeda in Iraq, is pointing out the unintended consequences of bad policy blaming America? Is it “blaming America” to point out that blowback – like we saw on 9/11 – can be the result of unwise US foreign policy actions like stationing US troops in Saudi Arabia?

  In the Fox interview I pointed out that the current refugee crisis is largely caused by bad US foreign policy actions. The US government decides on regime change for a particular country – in this case, Syria – destabilizes the government, causes social chaos, and destroys the economy, and we are supposed to be surprised that so many people are desperate to leave? Is pointing this out blaming America, or is it blaming that part of the US government that makes such foolish policies?

  Accusing those who criticize US foreign policy of “blaming America” is pretty selective, however. Such accusations are never leveled at those who criticize a US pullback. For example, most neocons argue that the current crisis in Iraq is all Obama’s fault for pulling US troops out of the country. Are they “blaming America first” for the mess? No one ever says that. Just like they never explain why the troops were removed from Iraq: the US demanded complete immunity for troops and contractors and the Iraqi government refused.

  Iraq was not a stable country when the US withdrew its troops anyway. As soon as the US stopped paying the Sunnis not to attack the Iraqi government, they started attacking the Iraqi government. Why? Because the US attack on Iraq led to a government that was closely allied to Iran and the Sunnis could not live with that! It was not the US withdrawal from Iraq that created the current instability but the invasion. The same is true with US regime change policy toward Syria. How many Syrians were streaming out of Syria before US support for Islamist rebels there made the country unlivable? Is pointing out this consequence of bad US policy also blaming America first?

  Last year I was asked by another Fox program whether I was not “blaming America” when I criticized the increasingly confrontational US stand toward Russia. Here’s how I put it then:

  I don't blame America. I am America, you are America. I don't blame you. I blame bad policy. I blame the interventionists. I blame the neoconservatives who preach this stuff, who believe in it like a religion — that they have to promote American goodness even if you have to bomb and kill people.

  In short, I don’t blame America; I blame neocons.

  

  

  

  

  

• PBOC Devalues Yuan, Injects More Liquidity As China's Banking Regulator Admits "Bad Loan Situation Is More Severe Than 2008"

  AsiaPac stocks are opening mixed after the US session gains. Perhaps the biggest news of the evening is, as China's bankiong regulator has been meeting with foreign banks to express concerns over lack of risk control around non-performing loans. As CBRC said, rather stunningly honest for a government entity, "the current situation is more severe than the time in 2008 during the financial crisis." With stocks up while commodities (Zinc) limit-down, PBOC injects another CNY50 bn and devalued the Yuan fix for the 2nd day in a row.

  Yesterday was a good day in Chinese stock land… with dozens of ChiNext stocks limit up…

  

   

  While Shanghai Zinc was limit-down, collapsing to 5 year lows…

  

  And Zinc is falling further…

  • *ZINC DROPS 1.5% TO $1,633/MT IN LONDON, LOWEST SINCE 2010

  We wonder what today will bring given that, as Bloomberg reports, China Banking Regulatory Commission has been meeting senior executives at foreign banks since mid-Aug. to express concerns over deteriorating asset quality in China, Hong Kong’s Apple Daily reports, citing unidentified people.

  • CBRC MET FOREIGN BANKS OVER BAD LOANS IN CHINA: APPLY DAILY
  • CBRC said the current situation is more severe than the time in 2008 during the financial crisis: report
  • CBRC urged foreign banks that aren’t managing risk well enough to increase checks: report
  • CBRC officials mentioned in meetings that those banks should control NPL ratio to not more than 2%: report

  

  Margin debt in China rose for the 3rd time in 4 days…

  • *SHANGHAI MARGIN DEBT RISES THIRD TIME OVER PAST FOUR DAYS

  With short-selling levels on the rise.

  China stocks are opening flat…

  • *FTSE CHINA A50 INDEX FUTURES LITTLE CHANGED IN SINGAPORE

  PBOC injected more liquidity…

  • *PBOC TO INJECT 50B YUAN WITH 7-DAY REVERSE REPOS: TRADER

  And weakened the Yuan for the 2nd day in a row…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3721 AGAINST U.S. DOLLAR

  

   

  *  *  *

  Of course, the big news will be Xi Jinping coming to America.

  The Chinese leader will land in Seattle, visit the White House and address the United Nations for the first time. His words will be parsed by economists, activists and politicians seeking answers from the world's second-biggest economy on where it stands on climate change, monetary policy and cyber espionage to name but a few hot-button issues.

  Here is a quick ranking of what Americans are most worried about when it comes to China:

  

  Charts: Bloomberg

  

  

  

  

  

• The Long Con: Democracy & The Illusion Of Consent

  Submitted by Eric Peters via EricPetersAutos.com,

  Democracy is an incredibly successful long con. It works because of the illusion of consent. People actually believe they are “represented.”

  

   

  And so, they accept impositions that would otherwise be intolerable, if imposed on them by a king or a fuhrer or generalissimo.

  But when the “people” have decided… .

  Except of course, they’ve done no such thing. It is all an illusion, a rhetorical sleight-of-hand that deftly hides the reality that it is not the “people” who decide anything but rather a small handful of individuals who wield vast – almost unlimited – power by claiming to act on their behalf.

  Which is a fine-sounding literary device but as a political actuality it is an atrocity.

  Have you ever consented to anything the government does to you? Been offered the free choice to accept – or decline? And not subject to violent repercussions in the event you do decide to decline? What sort of contract is it that you’re never actually been presented with but which you’re presumed to have signed – and which you are bound by whether you’ve signed – or not?

  It is very odd.

  The courts have ruled that by dint of having applied for permission to travel – that is, having applied for a driver’s license – you gave given your implied consent to, well, pretty much anything the state decides to do to you. Even when in flagrant abuse of your alleged rights, as enumerated in the Constitution’s Bill of Rights.

  Yet few, if any of us, have actually consented to this abrogation of our rights.

  We are simply told that we have, since we submitted (under duress) to the necessity of obtaining a driver’s license, so as to be able to travel semi-freely, under certain terms and conditions.

  Like most political language, “consent of the governed” means (in reality) the opposite of its superficial (and generally accepted) meaning. Of a piece with legislation touting “freedom” and “patriotism.” Most of us understand very well what’s coming in that case.

  We need to learn the same about “consent of the governed.”

  That our consent is irrelevant.

  We’ll do as we’re told – or else.

  Essential to the lie of “consent” is the fraud of “representation.” As in “no taxation without representation” (implying that it’s legitimate to take your money since you’ve said it’s ok to do that… except of course you probably never said any such thing). The concept – always left fuzzy, never closely examined – is that we each give proxy power to another person (the “representative”) who then “represents” our interests.

  It’s a preposterous – and pernicious – concept.

  

   

  No one has your proxy power except when explicitly given.

  Have you given it?

  The claim is that by voting, you’ve done exactly that. Which is nonsense, since you have no choice whatsoever to decline to give your proxy. You are presented with a choice of proxies – in the same way that a condemned man in some states is presented with the choice of lethal injection or the electric chair.

  Your feeble right to vote for the candidates of other people’s choosing is the mechanism by which all your sovereign rights as an individual are vitiated.

  “Representation” makes you believe it’s all ok. Makes you accept the unacceptable.

  Your drop of piss vote in the bucket mingles with oceans of other people’s piss-votes. A “representative” is infused with the combined “voices” of all those people and, via some process beyond the ken of mortal man, transmutes their “will” into concrete action. Which action is infused with moral authority because it echoes the vox populi.

  You are “represented.”

  Nonsense.

  The idea that a congressman transmutes the will of thousands of discrete individuals is actually worse than nonsense.

  It is imbecility.

  Well, those who buy into it are imbeciles, at any rate.

  Most people are unaware of the fact that the German Nazis considered themselves the ultimate democrats (little “d”). That Hitler was not a self-aggrandizing tyrant but merely a sort of conduit for the will of the German national community, the volksgemeinschaft. This is not opinion. It is what the Nazis themselves formally touted. “Hitler,” roared Rudolf Hess at one of the infamous Nuremburg partei rallies – “is Germany, just as Germany is Hitler.”

  One and the same.

  Noteworthy also is the verbiage of the Soviet communists, who spoke of the dictatorship of the proletariat. It wasn’t Lenin and Stalin’s dictatorship. Oh no! They were merely doing what the proletariat – the people – desired. Hence also the German Democratic Republic (the former East Germany) and the People’s Republic of China.

  These are examples of democracy in its extreme, distilled form.

  The “proof” of American democracy continues to wax.

  One hundred years ago, we were at what you might call the hard cider, or the beer and wine stage. We are now at the Jack Daniels stage.

  How much longer before we are at the methanol stage?

  It depends on how much longer the long con that we are “represented” – and have given our “consent” – holds up.

  

  

  

  

  

• The Truth About S&P 500 Earnings: No Growth For 7 Quarters, With A Revenue Recession On Top

  With the global economy sliding into recession, the one strawman repeatedly used by straight-to-CNBC pundits to justify some mythical case for US decoupling has been that US corporate profits are “fine.” Here is the truth.

  As the following table from ISI shows, not only is the US now officially in a revenue recession, with every single quarter in 2015 set to post a decline from the previous year, with even the overly optimistic consensus case of a 4% increase in Q1 2016 revenues unable to regain sales last seen in Q3 2014, but S&P500 expected earnings in Q1 2016 of 119, a 6% increase from the previous year, will barely be back to levels seen in Q3 2014. 

  As ISI summarizes: “Expected Earnings for the S&P Show No Growth For 7 Quarters And Revenue Declining.”

  

  And this with nearly $1 trillion in projected stock buybacks for all of 2015 steadily removing S from the EPS calculation.

  All we can add to the above is that if the USD continues its steady ascent, as it did today despite the Fed not hiking, expect ongoing dollar strength and the resulting commodity weakness to depress both revenues and sales even further, until everyone is forced to admit that the S&P500 is already in both a revenue and profit recession.

  

  

  

  

  

• Putin's Plan: Moscow Handles Syria, U.S. Looks After Iraq

  Russia has now confirmed that it is intervening in the Syrian war on the side of the Assad government; and, as Al-Arabiya's Azeem Ibrahim notes, the response of the U.S. betrays its impotent incredulity. Russia is poised to return to the Middle East, from which it was ejected with the collapse of the USSR. The United States seems to be telling Russia to go ahead, because, as Raghida Dergham explains, it is unwilling to engage – though it is not yet ready to fully retreat.

  Authored by Raghida Dergham, originally posted at Al-Arabiya News,

  At the end of this month, New York will be see several initiatives, talks, understandings, and deals come together under two main themes: terrorism and immigration. Both issues in the minds of world leaders are closely linked to Syria and other crises in the Arab world.

  The U.S. President Barack Obama called for a world summit on terrorism, with ISIS first and foremost in his mind.

  And Russian President Vladimir Putin tasked his foreign minister Sergei Lavrov to chair a ministerial session of the U.N. Security Council titled “Maintenance of International Peace and Security: Settlement of Conflicts in the Middle East and North Africa and Countering the Terrorist Threat in the Region.”

  President Putin has effectively declared to the world that Russia intends to fight a war directly against ISIS and similar groups in Syria, while keeping the Syrian regime as a key ally in this war. Russia wants the United States to be a military partner – including of the Syrian regime – in this bid.

  Putin wants to meet with Obama on the sidelines of the 70th session of the General Assembly of the United Nations. Obama is now considering whether the meeting will serve one of the key goals behind the Russian leader’s movements in Syria, namely, diverting attention away from Ukraine. The U.S. president is also considering whether he really wants to be drawn into the Syrian crisis, which he has avoided for years. He might therefore bless Russia’s involvement in the Syrian war against ISIS, as long as Putin does not ask the United States to officially bless the alliance with the Assad regime.

  U.S. ‘doesn’t want Assad to fall’

  It is worth quickly examining what Vitaly Churkin, Russia’s shrewd envoy to the U.N., told the U.S. network CBS about the Russian strategy. He said: “I think this is one thing we share now with the United States, with the U.S. government: They don’t want the Assad government to fall. They don’t want it to fall. They want to fight (ISIS) in a way which is not going to harm the Syrian government.”

  He added: “On the other hand, they don’t want the Syrian government to take advantage of their campaign against [ISIS]. But they don’t want to harm the Syrian government by their action. This is very complex.”

  It is not clear whether what Churkin is saying is based on assumptions or whether it is a fact that the U.S. government does not acknowledge publicly. If this is just a Russian interpretation of U.S. policy, then it is part of its strategy to sell its pitch because it assumes that Washington will not demur. Churkin continues: “To me, it is absolutely clear that… one of the very serious concerns of the American government now is that the Assad regime will fall and [ISIS] will take over Damascus and the United States will be blamed for that.”

  The Russian envoy also said that Russia wants the Assad government to be party in the peace negotiations, and that the United States and all other players “have to work with the government. We are not saying they have to sit at the same table necessarily with Assad, but they are the Syrian government and they need to work with them. They are fighting [ISIS] on the ground.”

  The U.S. ambassador to the United Nations Samantha Power spoke to CNN, criticizing the Russian diplomacy calling for rehabilitating the Assad regime that “gases its people, that barrel bombs its people, that tortures people who it arrests simply for protesting and for claiming their rights – that’s just not going to work.”

  The Syrian president himself may be an obstacle to any U.S.-Russian accords, but an agreement over preserving the regime could be the way out of this impasse. So far, the U.S. position expressed by Barack Obama is that Assad has lost legitimacy and must leave. The U.S. president and his administration omitted this condition many times publicly, but this remains the official position that Obama has not yet explicitly abandoned. On the other hand, and in very clear terms this time, the Russian president has stated that Russian support for the Syrian government will continue politically and increase militarily, being the indispensable ally in the war on terror in Syria.

  Russian diplomacy is going to New York at the end of this month, carrying a comprehensive project for engagement in the Middle East. By contrast, U.S. diplomacy seems reticent and like it is being dragged against its will to discuss crises in the region.

  Common denominator

  This does not mean that the U.S. administration has withdrawn from the Middle East. The results of the visit by Saudi King Salman to Washington is proof of this. However, the distance between engagement and non-withdrawal is important strategically, and Putin’s Russia is resolved to take advantage of the gap to the maximum extent possible.

  The common denominator between the U.S. and Russian priorities today is reducing the Syrian issue to a terrorism issue. Washington has refrained from intervening on Syria through a presidential decision years ago. This non-engagement has practically helped turn the Syrian crisis from a civil uprising to a civil war that has become a magnet for terrorism, with the consent of several players including the Syrian government and Arab, regional, and international governments.

  By contrast, Moscow engaged in Syria directly – together with Iran and Hezbollah – in support of the regime in Damascus. They became parties to the civil war, and helped turn the Syrian issue into an issue of terrorism.

  Today, Moscow and Washington want to defeat ISIS and similar groups in Syria and Iraq. For this reason, they are both carrying the terrorism issue to the United Nations, to mobilize international support.

  The U.S.-led international coalition, which comprises Arab countries, and which has focused on Iraq, does not include Russia and Iran as official members, even though Iran is a secret partner in the war on ISIS in Iraq. This coalition has proven its failure against ISIS, and has failed to factor in the important political elements that are key to success.

  Iran deal

  Washington is responsible for this failure. Indeed, the Obama administration fixated itself on concluding the nuclear deal with Iran, and ignored the requirements for success fearing antagonizing Iran, and even chose to build a secret partnership with Tehran.

  Thus, the Iranian Revolutionary Guards and the commander of the Quds Force Qassem Soleimani were allowed to boast publicly of the secret partnership, losing the United States a lot of credibility that would have helped mobilize the necessary support to defeat ISIS politically and militarily.

  Soleimani has a key link to Russia’s decision to engage on the ground against ISIS and its ilk in Syria. The Russian decision in this direction was made in the wake of Soleimani’s public visit to Moscow, in conjunction with dangerous setbacks for the regime in Damascus that have alarmed Tehran. The Russian-Iranian concern for the fate of the Syrian regime led to a shift in a direction opposite to the one predicted by President Obama, who had claimed Moscow and Tehran were willing to abandon Assad to preserve the regime. Both capitals have instead decided that discussing Assad’s fate is misplaced or premature, and that the developments instead require increasing political and military support for the Assad regime.

  A new phase for Russia

  President Putin’s announcement of this decision and linking it to the war on terrorism ushers in a new phase in the Russian role in Syria. Putin spoke about a regional-international alliance, and is now spoking about an international decision to build a coalition against terrorism. The bottom line is that Russia has decided to fight a war on terrorism in Syria.

  The requirements of the Russian war on terror in Syria, according to the Russian president, include having Moscow in the lead. Putin is practically saying to Obama: You run the war on ISIS in Iraq, and I run the war on ISIS in Syria. This would require Washington to – publicly or tacitly – agree to Russia’s strategy to win that war in partnership with the regime.

  The Russian leadership has decided that Syria is a key guarantor of its interests in the Middle East, and that the Russian-Iranian alliance in Syria is a strategic priority.

  Many considerations are behind this thinking. First, Russia is present on the ground to exercise influence, by turning the port in Tartus to a Russian military base, and the civilian airport in Latakia to a Russian air base.

  Another consideration is the oil and gas reserves off the Syrian coast and its implications for Russian oil and gas interests.

  There is also the consideration related to restoring Russian prestige, after the United States excluded Russia from Iraq and the war on terrorism there, and after NATO “tricked” Russia in Libya.

  Another major consideration for Russia is seeking to prevent Islamists from taking power, as the United States and Britain tried to engineer in Egypt by supporting the Muslim Brotherhood. Russia is seriously worried about Islamist terrorism, and is convinced that its victory in Syria would bring it to Russian soil.

  In order for Russia’s strategy to succeed, Moscow has decided that there should be a political tack focusing on the conflicts of the Middle East, led by Syria. This is what’s behind the diplomatic bid to unify the Syrian opposition, with the real goal being reducing the Syrian National Coalition and preventing it from exclusively representing the Syrian opposition.

  Russia moved to replace the Geneva process with a new one that does away with the fundamental idea in the Geneva I communique, namely, establishing a transitional governing body with executive powers. For this reason, President Putin spoke about Assad’s willingness to share power with the “sound” opposition – as defined by the Russian and Syrian governments.

  Warning Europe against the flow of Syrian refugees, President Putin explicitly linked the issue to terrorism, saying that failure to comply with his proposals, including handing the Syrian issue over to him, would exacerbate the crisis of refugee flocking to the petrified European nations.

  Russia is poised to return to the Middle East, from which it was ejected with the collapse of the USSR. The United States seems to be telling Russia to go ahead, because it is unwilling to engage – though it is not yet ready to fully retreat.

  

  

  

  

  

• "Emerging Markets Are On The Verge Of Liquidation" Top Performing Hedge Fund Manager Warns; "QE4 Is Coming"

  Until recently, John Burbank’s Passport Capital was one of the top 15 performing hedge funds in 2015. Recent events have only led to an even higher YTD P&L making Burbank one of the top performing managers of 2015: the $2.1bn Passport Global fund was up 14.6% at the end of August and the concentrated “special opportunities” fund was up 30.6%. The reason: in recent months Passport placed numerous commodity and emerging market shorts: trades which have generated substantial returns even as the rest of the “hedge” fund peanut gallery blamed either Bridgewater, or – in the case of Bridgewater – blamed the Fed.

  Burbank did not blame anyone, and instead shorted the one company we said in March of 2014 would be the best bet on China’s collapse: Glencore. He has made a killing since, with both GLEN CDS soaring, and its stock price crashing 55% in 2015 alone to all time lows.

  More apropos, having accurately foreseen the current events instead of just levering up on even more beta and praying the BTFDers return and bail out his underwater positions, Burbank’s opinion actually matters as does his outlook on what happens next.

  What he foresees is not pleasant.

  In an interview with the FT,  Burbank said years of QE had caused a misallocation of capital across the world, while the end of QE last year triggered a dollar rally with consequences that were only now beginning to be realized.

  “The wrong people got the capital — emerging markets countries and corporates and a lot of cyclical companies like mining and energy, particularly shale companies — and this is now a major problem for the credit markets,” he said.

  Thank the Fed for that: it was so obvious that 7 years of ZIRP and QE would lead to epic capital misallocation we have been warning about it year after year, most explicitly in April 2012 when we previewed the surge in buybacks and M&A at the expense of capex spending and actual organic growth. Eventually, when enough capital flooded the entire world, even Saudi Arabia had no choice but to directly engage the US shale sector which, ironically, is the main reason why the US is on the verge of a recession.

  Back to Burbank who warns that “the world economy is locked on a course towards an emerging markets crisis and a renewed slowdown in the US, regardless of the Federal Reserve holding off on a rise in rates last week.” He adds “that the Fed would eventually be forced into a fourth round of quantitative easing to shore up the economy.”

  So with commodity prices dead-cat bouncing in mid 2015 only to tumble anew, alongside the S&P which fell after the Fed decision, are emerging markets, whose MSCI EM index is up 9% since the Black Monday lows, out of the woods?

  Not at all: according to Burbank investors are “not recognising the risks… and Passport was not pulling out of its bearish bets.”

  The dollar rally caused by “asynchronous QE” — the early end of money printing in the US relative to Japan and the eurozone — and the economic fallout from a slowing China guaranteed a financial crisis in emerging markets that would rebound on the US, he said.

  Burbank’s conclusion:

  “All of that turmoil around the world will come back and slow down capex and hiring and consumer buying in the US, and that will make the Fed realise they should be easing and not hiking,” he said. “I think we are on the precipice of a liquidation in emerging markets, and this feels the way that the fourth quarter of 1997 felt.“

  But more QE will not only not fix anything, it will only make the EM bubble – currently in its pre-bursting phase – even bigger as it promptly crushes the dollar, which just shows how terrified everyone truly is of just biting the bullet and finally undoing years and decades of central bank-driven capital inefficiencies and the biggest global asset bubble in history. No wonder hedge funders around the globe, both the worthless and the successful ones, are desperate for more Fed generosity.

  Of course, there is what the Fed “should” do, and what it will do. We completely agree that the Fed will ultimately unleash QE4 – we have said it since December 2013 when the Fed first announced the tapering of QE3.

  The only question is with QE4 (and/or NIRP) inevitable, what is the right trade: if the Fed has indeed lost its credibility, more QE4 would be the final nail in the market’s coffin, and lead to a collapse in the dollar and the commencement of helicopter money. To be sure, it may result in a brief spike in stocks, but just like last Thursday, that “briefness” lasted all of 60 minutes. Alternatively, the spike may last, just like in Venezuela – the Caracas stock market has been vertical for years now; sadly the problem is that courtesy of local hyperinflation, there is no economy in which to use the proceeds from selling stocks.

  So with faith in the Fed and fiat about to evaporate, we only wonder: is Burbank buying GLD… or actual gold.

  

  

  

  

  

• The End Of Magical Thinking: Money Cannot Manufacture Resources

  Submitted by Adam Taggart via PeakProsperity.com,

  Author Kurt Cobb writes frequently on energy and the environment and warns that our current economic policy suffers from a fatal degree of magical thinking: sufficient new resources will emerge if the price is high enough.

  As any fourth grader will tell you, a finite system will not yield unlimited resources. But that perspective is not shared by those controlling the printing presses. And so they print and print and print, yet remain flummoxed when supply (and increasingly, demand for that matter) does not increase the way they expect.

  Is this any way to run an economy? Or a finite planet for that matter?

  Of course, a lot of people have been hearing the hype about the growth in production in the United States for crude oil. That has been happening, but it has been happening with very high cost oil. Now the prices are down and the industry is on its back. They are looking for ways to increase the amount of money they can get for that crude oil. One of those would be to sell this light tight oil, which is oversupplied in the United States to foreign refineries. They cannot do it because of the export ban. I am not sure that is going to help them much because the price of oil has gone down so low as compared to what their costs are.

   

  We have already seen a decline in U.S. output. The prognostication that we were going to be energy independent in oil, and that we were going to become the largest provider of oil to the world, I do not think are going to work out. It shows us that high priced oil leads to low priced oil, which also leads to economic slowdown. That is what we are seeing now. That is the equation that you and I wonder how people do not see that these things are connected, and yet they do not.

   

  I think you put your finger on it: people who run our central banks and run our government policy think that money manufactures resources. If we just put enough money out there, it will call forth the resources. There is a little bit of truth to that, because very cheap finance made it possible for us to lift this $100 barrel oil out of the shale formations of North Dakota, Texas, and other places. That is not endless, and the high price puts pressure on the economy. I think this is where we are going to have problems.

   

  We cannot sustain those high prices in the long run. We have structured an economy for cheap energy and that is not what we have. It has resulted in a slowdown that I think is the beginning of that transformation from a high growth economy to a low growth economy. In fact, we probably already began that in 2008. 

  Click the play button below to listen to Chris' interview with Kurt Cobb (47m:42s):

   

  

  

  

  

  

• Secret Cable Reveals US Plan To Overthrow Assad By Exploiting "Extremist Groups"

  Now that Europe’s worsening refugee crisis and Russia’s stepped up support for the regime of Bashar al-Assad have (finally) focused the world’s attention on Syria’s four-year, bloody civil war, inquiring minds want to know: how did it happen that the country, which is now at risk of becoming a failed state, descend into chaos? 

  Of course when we speak of “inquiring minds” we mean those of the general public which, to this point, has remained largely ignorant of the fact that hundreds of thousands of people are dying in a place that shares a border with the country the US supposedly just got done “liberating.” 

  Generally speaking, the line you’ll get from the mainstream media is that Syria is just one more example of a Mid-East country where the populace finally reached its breaking point with the injustices created by the brutal regime of an evil autocrat. The resultant chaos, the narrative continues, created a breeding ground for terror which explains why Raqqa has become the de facto capital for ISIS, the Western media’s boogeyman par excellence. 

  Not to put too fine a point on it – and this won’t surprise anyone who frequents these pages – but that narrative is pure, unadulterated garbage. The real story (again, generally speaking), is that Syria is pivotal for the existing balance of power – and not only the regional balance of power, but the global balance of power as well. The alliance between Bashar al-Assad’s Syria and Moscow, Tehran, and Hezbollah serves as a kind of counterbalance to cooperation among the US, Saudi Arabia, Qatar, and Turkey (among others). Should the Assad regime be allowed to fall and the West allowed to influence the post-regime political outcome, the scales would tip, Russia would lose its naval base at Tartus, and Iran’s access to Hezbollah, not to mention the scope of its regional influence would be severely constrained. Assad’s move to support the Islamic Pipeline while rejecting the Qatar-Turkey pipeline was a manifestation of the situation described above. 

  But even as the world begins gradually to come around to the idea that the US and the West might well have had a role in supporting many of the rebel groups that are currently fighting for control of Syria, the notion that Washington might have intentionally started the Syrian civil war by provoking Sunni extremists (among other tactics) is still seen by many as too horrific a possibility to take seriously. Unfortunately – as a declassified secret US government document obtained by the public interest law firm Judicial Watch (profiled here) suggested earlier this year – it’s highly likely that the US intentionally destabilized the Assad regime in pursuit of Washington’s geopolitical interests. That deliberate destabilization has now led to hundreds of thousands of deaths and untold human suffering. 

  

  As it turns out, there’s still more evidence available to support the notion that Syria’s civil war was engineered by the Pentagon. In his new book, Julian Assange highlights a cable from acting Deputy Chief of Mission in Syria William Roebuck who was stationed in Damascus from 2004-2006. It’s available in full from Wikileaks and below are what we believe to be the most notable excerpts, presented without further comment.

  *  *  *

  Original Classification:SECRET Current Classification:SECRET

  Handling Restrictions– Not Assigned —

  Character Count:14471

  From:Syria Damascus Markings:– Not Assigned —

  To:Department of the Treasury | Israel Tel Aviv | National Security Council | Secretary of State | The League of Arab States | U.S. Mission to European Union (formerly EC) (Brussels) | United Nations (New York) | United States Central Command | White House

  (S) Summary.  The SARG ends 2006 in a much stronger  position domestically and internationally than it did 2005.  While there may be additional bilateral or multilateral  pressure that can impact Syria, the regime is based on a  small clique that is largely immune to such pressure.  However, Bashar Asad’s growing self-confidence )- and  reliance on this small clique — could lead him to make  mistakes and ill-judged policy decisions through trademark  emotional reactions to challenges, providing us with new  opportunities.  For example, Bashar,s reaction to the  prospect of Hariri tribunal and to publicity for Khaddam and  the National Salvation Front borders on the irrational.  Additionally, Bashar,s reported preoccupation with his image  and how he is perceived internationally is a potential liability in his decision making process.  We believe  Bashar,s weaknesses are in how he chooses to react to  looming issues, both perceived and real, such as a the  conflict between economic reform steps (however limited) and entrenched, corrupt forces, the Kurdish question, and the  potential threat to the regime from the increasing presence  of transiting Islamist extremists.  This cable summarizes our  assessment of these vulnerabilities and suggests that there may be actions, statements, and signals that the USG can send  that will improve the likelihood of such opportunities  arising.  These proposals will need to be fleshed out and  converted into real actions and we need to be ready to move  quickly to take advantage of such opportunities.  Many of our  suggestions underline using Public Diplomacy and more  indirect means to send messages that influence the inner circle.   End Summary. 

  (S) The following provides our summary of potential  vulnerabilities and possible means to exploit them: 

  — THE ALLIANCE WITH TEHRAN: Bashar is walking a fine line in his increasingly strong relations with Iran, seeking necessary support while not completely alienating Syria,s  moderate Sunni Arab neighbors by being perceived as aiding Persian and fundamentalist Shia interests.  Bashar’s decision  to not attend the Talabani ) Ahmadinejad summit in Tehran following FM Moallem,s trip to Iraq can be seen as a manifestation of Bashar’s sensitivity to the Arab optic on  his Iranian alliance. 

  — Possible action: 

  — PLAY ON SUNNI FEARS OF IRANIAN INFLUENCE:  There are fears in Syria that the Iranians are active in both Shia proselytizing and conversion of, mostly poor, Sunnis.  Though often exaggerated, such fears reflect an element of the Sunni community in Syria that is increasingly upset by and focused on the spread of Iranian influence in their country through activities ranging from mosque construction to business. Both the local Egyptian and Saudi missions here, (as well as prominent Syrian Sunni religious leaders), are giving increasing attention to the matter and we should coordinate more closely with their governments on ways to better publicize and focus regional attention on the issue. 

  — Vulnerability: 

  — THE INNER CIRCLE:  At the end of the day, the regime is  dominated by the Asad family and to a lesser degree by Bashar Asad,s maternal family, the Makhlufs, with many family  members believe to be increasingly corrupt. The family, and hangers on, as well as the larger Alawite sect, are not immune to feuds and anti-regime conspiracies, as was evident last year when intimates of various regime pillars (including the Makhloufs) approached us about post-Bashar possibilities. Corruption is a great divider and Bashar’s inner circle is subject to the usual feuds and squabbles related to graft and corruption.  For example, it is generally known that Maher Asad is particularly corrupt and incorrigible.  He has no scruples in his feuds with family members or others.  There is also tremendous fear in the Alawite community about retribution if the Sunni majority ever regains power. 

  — Possible Action: 

  — ADDITIONAL DESIGNATIONS: Targeted sanctions against regime members and their intimates are generally welcomed by most elements of Syrian society.  But the way designations are  applied must exploit fissures and render the inner circle weaker rather than drive its members closer together.  The designation of Shawkat caused him some personal irritation and was the subject of considerable discussion in the business community here. While the public reaction to corruption tends to be muted, continued reminders of corruption in the inner circle have resonance.  We should look for ways to remind the public of our previous designations. 

  — Vulnerability: 

  — THE KURDS:  The most organized and daring political  opposition and civil society groups are among the ethnic  minority Kurds, concentrated in Syria,s northeast, as well  as in communities in Damascus and Aleppo.  This group has  been willing to protest violently in its home territory when  others would dare not.  There are few threats that loom  larger in Bashar,s mind than unrest with the Kurds.  In what is a rare occurrence, our DATT was convoked by Syrian Military Intelligence in May of 2006 to protest what the Syrians believed were US efforts to provide military training and equipment to the Kurds in Syria. 

  — Possible Action: 

  — HIGHLIGHT KURDISH COMPLAINTS: Highlighting Kurdish  complaints in public statements, including publicizing human rights abuses will exacerbate regime,s concerns about the Kurdish population.  Focus on economic hardship in Kurdish areas and the SARG,s long-standing refusal to offer citizenship to some 200,000 stateless Kurds.  This issue would need to be handled carefully, since giving the wrong kind of prominence to Kurdish issues in Syria could be a liability for our efforts at uniting the opposition, given  Syrian (mostly Arab) civil society,s skepticism of Kurdish objectives. 

  — Vulnerability: 

  — Extremist elements increasingly use Syria as a base, while  the SARG has taken some actions against groups stating links to Al-Qaeda.  With the killing of the al-Qaida leader on the border with Lebanon in early December and the increasing terrorist attacks inside Syria culminating in the September 12 attack against the US embassy, the SARG,s policies in Iraq and support for terrorists elsewhere as well can be seen to be coming home to roost. 

  — Possible Actions: 

  — Publicize presence of transiting (or externally focused)  extremist groups in Syria, not limited to mention of Hamas and PIJ.  Publicize Syrian efforts against extremist groups in a way that suggests weakness, signs of instability, and uncontrolled blowback.  The SARG,s argument (usually used after terror attacks in Syria) that it too is a victim of terrorism should be used against it to give greater prominence to increasing signs of instability within Syria. 

  ROEBUCK 

  

  

  

  

  

• 22 Sep – Fed's Bullard: I Would Have Dissented On Rate Hold

  EMOTION MOVING MARKETS NOW: 29/100 FEAR

  PREVIOUS CLOSE: 16/100 EXTREME FEAR

  ONE WEEK AGO: 13/100 EXTREME FEAR

  ONE MONTH AGO: 11/100 EXTREME FEAR

  ONE YEAR AGO: 41/100 FEAR

  Put and Call Options: FEAR During the last five trading days, volume in put options has lagged volume in call options by 25.25% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 20.14. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating fear.

   

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
  

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC)

   

  MEME OF THE DAY – I JUST LOVE MY NEW SWEATER….

   

  UNUSUAL ACTIVITY

  PYPL SEP WEEKLY4 33 CALLS @$1.10

  AMD JAN 3 CALL Activity by offer .. 28754 @$.10 block

  TEVA NOV 67.5 CALL Activity 4500+ @$1.25-1.30

  MHFI President,SPCIQ/SNL Financial P    11,000  A  $ 94.7807

  JGW  .. sc 13d fILED BY TRISHIELD CAPITAL .. 17.4% STAKE

  HOS .. SC13G .. Anchor Bolt Capital .. 6.4%

  More Unusual Activity…

  HEADLINES

   

  Fed’s Lockhart favours 2015 US rate rise

  Fed’s Bullard: I Would Have Dissented On Rate Hold

  US Existing Home Sales Aug: 5.31m (Est 5.50m; Rev Prev 5.58m)

  ECB’s Nowotny: Interest rates to stay low as long as growth is low

  ECB’s Praet: Environment difficult, not out of the woods yet

  ECB’s Linde: QE will continue until inflation targets have been achieved

  EU expects Greek review to happen this Autumn Following Tsipras’ Victory

  BoE’s Cunliffe: Interest Rates Likely To Rise

  Volkswagen Shares Tumble Following Emissions Allegations

  Zurich Insurance Ends Takeover Talks With RSA

  Apple to finalize engineering on first electric car by 2019: sources

  Lennar Tops Expectations as Housing Market Continues to Improve

  Mexico Keeps Rate at Record Low 3% After Fed Waits to Increase

   

  GOVERNMENTS/CENTRAL BANKS

  Fed Lockhart favours 2015 US rate rise –FT

  Fed Bullard: I Would Have Dissented On Rate Hold –CNBC

  ECB Nowotny: Interest rates to stay low as long as growth is low –RTRS

  ECB Praet: Environment difficult, not out of the woods yet –ForexLive

  ECB Linde: ECB programme will continue until inflation targets have been achieved –RTRS

  BoE Cunliffe: Interest Rates Likely To Rise –Chronicle

  Bundesbank: Economic Momentum In Germany Continued Over The Summer –RTRS

  BoC’s Poloz: Lower CAD is cushioning the damage from oil price declines –Globe & Mail

  Tsipras win tests Greece bailout monitors –FT

  EU expects Greek review to happen this Autumn –ForexLive

  Syriza Party Source: Greek Debt Relief Talks At Top Of Tsipras Agenda

  Fitch: Greek Election Broadly Credit Neutral, Risks Still High

  Spanish main parties hold lead ahead of Podemos: Poll –RTRS

  FIXED INCOME

  US bond prices fall on stock gains, Fed officials’ remarks –RTRS

  Greek yields fall after Syriza win; Spain, Portugal underperform –Rtrs

  ECB PSPP: EUR 326.718bln, +EUR 12.249bln (Prev +EUR 13.022bln To EUR 314.469bln)

  ECB CBPP: EUR 118.262bln, +EUR 2.155blnn (Prev +EUR 3.892bln to EUR 116.107bln)

  ECB ABSPP: EUR 12.006bln +EUR 146mln (Prev +EUR 366mln to EUR 11.86bln)

  FX

  USD: Dollar climbs as Fed still seen as first central bank to hike rates –MktWatch

  EUR: EUR/USD hovers below 1.1200 –FXStreet

  MXN: USD/MXN rises to 6-day high as Banxico leaves rates unchanged –FXStreet

  HKMA back in selling HKD 2.3bln to maintain trading band –ForexLive

  ENERGY/COMMODITIES

  US crude futures surge 4%, amid signals of reduced drilling activity –Investing.com

  Oil Speculators Most Bullish on U.S. Crude Price in Two Months –BBG

  Gold retreats from 3-week high as dollar, equities rise –RTRS

  Copper recovers from two-week low, but China doubts persist –RTRS

  EQUITIES

  US Stocks gain, led by financial shares; drugmakers drop –Yahoo

  Biotech selloff dents Wall Street rally –MktWatch

  FTSE 100 ends flat as miners weigh –Proactive Investors

  VW, RSA hammered as Europe ends mostly higher –CNBC

  EARNINGS: Lennar Tops Expectations as Housing Market Continues to Improve –WSJ

  M&A: Zurich Insurance Ends Takeover Talks With RSA –WSJ

  M&A: Dialog Semiconductor to buy US peer Atmel for $4.6bln –RTRS

  M&A: Deutsche Wohnen offers to buy peer LEG Immobilien in $5.2bln deal –RTRS

  AUTOS: Volkswagen Shares Tumble Following Emissions Allegations –WSJ

  AUTOS: Fitch Says Deepening Emission Test Crisis Could Pressure VW Ratings

  TECH: Apple to finalize engineering on its first electric car by 2019, sources say –WSJ

  TECH: Apple cleaning up iOS App Store after first major attack –RTRS

  INDUSTRIALS: Caterpillar Rolling 3-Month Sales To Aug -11% Globally –247 Wall St

  ENERGY: Denbury Resources Suspends Dividend –WSJ

  ENERGY: UK competition watchdog extends energy market probe by six months –RTRS

  CONS GOODS: Tesco Close To Pulling GBP 700mln Data Unit Sale –Sky News

  EMERGING MARKETS

  China Premier Li Says There Is No Basis For More CNY Depreciation –ForexLive

  Britain, China eye stock connect, nuclear and rail deals –RTRS

   

  Mexico Keeps Rate at Record Low 3% After Fed Waits to Increase –BBG

  

  

  

  

  

• Soros, Icahn And Major New Players Rushing Into Gold: "Things Are In The Works As We Speak"

  Submitted by Mac Slavo via SHTFPlan.com,

  The price of gold and silver is set to explode according to one of the most well known CEO’s in the precious metals mining space.

  Keith Neumeyer, the CEO of one of the world’s lowest-cost primary silver producers, says that the negative headlines surrounding history’s most trusted monetary instruments will soon give way and the smart money, including the likes of George Soros and Carl Icahn, is taking massive positions ahead of the breakout.

  Neumeyer, who has created two billion-dollar companies and recently founded the mineral bank investment firm First Mining Finance, argues that the fundamentals are simply too great to ignore.

  It’s really what you pay for stuff that creates value. If you’re buying stuff at the top of the market you’re destroying value. You never really know when the exact top of the market is and you never really know when the bottom of the market is. But, I know we’re around the bottom or are close to the bottom… But I don’t really care because I’m a long-term fundamental investor and I know that we can make a lot of money buying assets at these prices that we’re paying today.

   

  …

   

  I do believe that markets ultimately prevail. I do believe that supply and demand will ultimately prevail. I’m confident that we will see that occur…

   

  The fact there are some very substantial new players coming into the sector and taking positions in gold and silver… I think that’s showing that things will change and I think things are in the works as we speak.

  Neumeyer recently sent an open letter to the Commodity Futures Trading Commission slamming the rampant manipulation of precious metals paper markets, going so far as to call on global producers to withhold silver deliveries in an effort to bring balance to markets.

  As he notes in his interview, that prices of silver are currently trading at around $15 per ounce is counter-intuitive given that demand today is significantly more than it was at the height of silver’s rise to nearly $50 in recent years. Moreover, the price at which mining companies are able to acquire precious metals assets in the ground has collapsed significantly from just a few years ago:

  Generally speaking the average price that a mining company would pay for gold ounces that are drilled in the ground is about $50 an ounce. That number did go over $100 and there were some transactions that went through in the 2011 time frame that were much higher.

   

  But I am just using generally speaking over the last thirty years… $50 is the normal one that we use as mining companies in the industry… so if we’re buying ounces today at $10 an ounce… and it’s actually lower that that… we’re paying $7 to $9 an ounce… that’s five times less than a normal market.

   

  …

   

  The silver market is extremely tight. Unfortunately you don’t see it in the price.

   

  When silver was $45-$50 per ounce the demand was a little bit less than it is today. That’s a surprising statement. The demand today at $15 silver is greater than it was at that $45-$50 silver.

   

  It goes to my earlier point about headline news and the hate on the mining sector, the hate on resources, the hate on metals… That’s what is causing prices to be where they are today.

   

  I do believe that the street will wise up to that supply and demand fundamentals story and see that silver is actually a strategic metal.

  The question, of course, is when? When will prices of silver and gold finally respond to widespread global demand?

  While we can’t time the markets, if we take Neumeyer’s advice it doesn’t really matter. The long-term fundamentals are strong and the manipulation is clearly evident.

  I think the supply/demand fundamentals for silver are the best of any metal. Of course gold is interesting because of the money printing that’s going on by governments. That’s why I am very much focused with First Mining on buying gold assets.

   

  I think gold is going to start moving in the next six to eighteen months and I think gold will be driving the rest of the metals much higher.

   

  I do believe that silver will outperform gold. The ratio currently is 75-to-1. I wouldn’t be at all surprised to see the ratio go down to 20-to-1.

   

  …It’s not that inconceivable and that’s going to put silver in triple-digit categories.

  The reality is that silver paper markets trade about one billion ounces daily. The entire yearly production of silver is about 800 million ounces. At some point that disconnect will be revealed for the sham it really is.

  When that day comes we can expect gold and silver to rise precipitously as mainstream financial pundits look on with bewilderment.

  

  

  

  

  

• British General Threatens Military Coup If Corbyn Elected

  Late last week we brought you a collection of vivid images from a military coup in the West African nation of Burkina Faso where forces aligned with former President Blaise Compaoré arrested the acting President and Prime Minister ahead of democratic elections planned for October. 

  To be sure, most observers would argue that the idea of military coups like the one described above occurring with any sort of regularity in the context of the developed world is far-fetched at best, but a growing disaffection with what many see as endemic corruption and ineptitude has not only served to catapult two dark horse presidential candidates to the top of the polls in the US but apparently has some Americans convinced that a military takeover might be preferable to the current system of governance as the following poll (which admittedly suffers from selection bias) from YouGov shows:

  

  Well, don’t look now but the ascension of Jeremy Corbyn to the head of Britain’s Labour party has led at least one senior serving general to predict that a Corbyn government would face the very real possibility of a military “mutiny”. Here’s more from The Independent:

  The unnamed general said members of the armed forces would begin directly and publicly challenging the labour leader if he tried to scrap Trident, pull out of Nato or announce “any plans to emasculate and shrink the size of the armed forces.”

   

  He told the Sunday Times: “The Army just wouldn’t stand for it. The general staff would not allow a prime minister to jeopardise the security of this country and I think people would use whatever means possible, fair or foul to prevent that. You can’t put a maverick in charge of a country’s security.

   

  “There would be mass resignations at all levels and you would face the very real prospect of an event which would effectively be a mutiny.”

   

  The general, who served in Northern Ireland during the Troubles, said he and many soldiers were sickened by Mr Corbyn’s refusal to condemn the IRA, which killed 730 troops and injured 7,000 more during the conflict.

   

  His shadow chancellor, John McDonnell, was forced to apologise when it was revealed he had called for IRA members, including hunger striker Bobby Sands, to be honoured by the British government.

   

  The general said: “Many soldiers are disgusted by the comments of Corbyn and John McDonnell [about] the IRA — men who have not only murdered British soldiers but also hundreds of members of their own community.”

  Meanwhile, the Ministry of Defense is not happy, and neither, apparently, are Corbyn’s political opponents who seemingly would prefer to live with a Corbyn government than see Britain relegated to the status of a mid-20th century South American banana republic. Here’s The Independent again:

  “You can’t have serving officers effectively threatening a coup against an elected government,” they said. “This general seems to have forgotten that we live in a democracy.” A Ministry of Defence source said it was unacceptable for a serving officer to make political comments about a potential “future government”.

   

  Even some Conservatives expressed disquiet. The right-wing Tory MEP Daniel Hannan described the general as an “idiot”. “We’re not Bolivia for God’s sake,” he said. 

  Of course the thing about military coups is that they don’t, by definition, depend upon whether politicians think they are “idiotic”, which is why, in a world where polls in developed markets seem to suggest that voters’ sentiments are beginning to shift towards the far ends of the political spectrum (see Greece, Spain, the US, Britain, and Portugal for instance), one certainly wonders what might happen if, in a desperate attempt to bring about real “change”, voters make a “mistake” that the army decides needs be corrected outside of the ballot box…

  

  

  

  

  

• Bonds Baumgartner'd As Bullard Bounce Bruised By Hillary Bursting Biotech Bubble

  Stocks love the smell of Bullard in the morning…

   

  And then Hillary struck… the pretty Biotechs

   

  China opened weaker but was rescued…

  

   

  But US Futures show the moves better than cash today… As Bullard's chatter (because FF futures didn't budge) talked stocks up before Hillary spoiled the party…

  

   

  Which left cash indices swinging around…Small Caps closed red on the day as Nasdaq was rescued from red…

  

   

  NOTE – S&P 500 closed exactly where it opened… (and only Dow and Trannies closed higher from the open)

  

   

  Post-FOMC, Gold and The Long Bond remain bid, stocks lower…

  

   

  Some context within Dow Futures suggests this dip may not be over…

  

   

  As Hillary crushed Biotech hopes and dreams…

  

   

  This was The Biotech ETF's biggest plunge since April 2014 (testing the 200DMA – $74.47)…

  

   

  The other stock story was AAPL (and TSLA) as iCar chatter picked up (for 2019)…

  

   

  Late in the day, VIX was smashed to the lows of the day… but just look at the lack of excitment in stocks…

  

   

  Treasury yields were smashed higher… as volatility remains extreme

  

   

  Credit markets did not get the message…

  

   

  And remain in deep red warning territory…

  

   

  Bonds & Stocks decoupled with USDJPY running the show…

  

   

  The US Dollar was well bid today from the open in Europe to the close in Europe (sold during Asia and flat after Europe closed)…

  

   

  Gold slipped modestly on the day (notably less than the USD would imply) with Silver and Copper flat…

  

   

  As Crude erupted again (supposedly on OPEC comments of $80 oil by 2020)…

  

   

  And Texas' other famous produce is tumbling…

  

   

  Charts: Bloomberg

  Bonus Chart: Is Hillary just following Bill's lead?

  HillaryCare 2.0? There is family history w/ biotech/pharma industry $XBI $IBB $BTK $DRG $XPH $PJP $SPY pic.twitter.com/BNsGZipVlh

  — Dana Lyons (@JLyonsFundMgmt) September 21, 2015

  

  

  

  

• Destroying Dimon's Delusionary View Of Economic Realities

  Submitted by Lance Roberts via STA Wealth Management,

  Over the weekend, I read an interesting article by Lucinda Shen at Business Insider discussing a recent interview between JPMorgan's CEO, Jamie Dimon, and NBC's Chuck Todd. According to Dimon:

  "Amerca has the best hand ever dealt right now."

  That is a pretty bold statement overall, but he does back it up with some statements of fact. However, for those "facts" to support such a sweeping statement of "greatness," they must be put into some context of previous economic cycles. Therefore, let's take a look at his points in a bit more depth.

  "The U.S. economy has been growing at 2-2.5% for six or seven years, while that's not great, it's quite good."

  The problem is, as shown in the long-term chart of economic growth below, it is the lowest average rate of economic growth in history. 

  

  Importantly, notice that since 1980, when the primary shift from a manufacturing to a service-based economy began, economic growth rates have been on the decline. 

  While Mr. Dimon may suggest that such a low economic growth rate is "good enough," it is not strong enough to foster higher rates or wage growth or economic prosperity for roughly 80% of American's. This was shown in the most recent Federal Reserve study on consumer finances. 

  Since 2007, the media value of financial assets for families with holdings has DECLINED with the exception of those in the top decile that includes "some folks" like Jamie Dimon.

  

  Median before-tax incomes have also fallen from nearly $52,000 annually to roughly $47,000 currently.

  

  And, most importantly, families that own equity in a business (small businesses generate the bulk of all job creation) has plunged.

  

  This last point is the most critical as it relates to Jamie Dimon's comments regarding employment:

  "We've added 10 million jobs since the 'Great Recession.'"

  While that statement is true, it is worth noting that there is a huge difference between "quantity" and "quality." There is no arguing that employment in the U.S. has grown since the end of the "financial crisis," however the jobs created have been primarily located at the lower end of the wage scale. We know this simply by looking at average wage growth for the 80% of population that are not "Supervisors."

  

  Furthermore, while "creating 10-million jobs" since the end of the recession sounds like a strong accomplishment it was not sufficient enough to absorb the increase in the population. In other words, for every job created there are more individuals actually "needing" a job.

  

  With roughly 94-million individuals not counted as part of the "official labor force," the downward pressure on wage growth due to the increasing demand for available jobs remains a pervasive force. Of course, since individuals must produce first in order to consume, the expectations for stronger future growth rates are likely to be disappointed in an economy which is almost 70% based on consumption.  

  America Has Been Better

  Jamie Dimon then goes on to support his thesis of "American exceptionalism" by stating:

  "Make a list of everything important, rule of law, low corruption, unbelievable innovation, entrepreneurship … the deepest capital markets — I'm not talking about banks. I'm talking about venture capital, private equity, companies, individuals, the best science, technology, engineering, math the world has. In fact, we train 40% of them [to] go back overseas."

  As I have stated many times on daily radio broadcast, the "rule of law" and "low corruption" are two of the most important determinants of a country's economic prosperity. If businesses do not have faith in a fair and equitable backdrop in which to conduct business, they conduct business elsewhere. This is why 3rd world countries that are rife with corruption and ruled by dictators fail to succeed economically.

  The problem is that America has slipped in these crucial ranks in recent years as noted by the most recently available data America ranks:

  • 19th in National Satisfaction
  • 14th in Education
  • 3rd in Global Competitiveness
  • 46th in Freedom of the Press
  • 26th in Child Well-being
  • 24th in Literacy
  • 19th in Perceived Honesty
  • 24th in Freedom from Corruption
  • 10th in Economic Freedom
  • 125th for GDP Growth per Capita
  • 12th in Entrepreneurship

  But for Jamie Dimon the U.S. does rank #1 in the number of "super-rich," an elite club of which he is a member.

  Of course, for the banks, Wall Street, private equity funds and all variations of capital markets, it has been an "economic nirvana." The massive infusions of capital by the Federal Reserve have flooded the financial system driving asset prices higher and forcing a misallocation of capital into increasingly risky assets. While the U.S. may indeed be "number one" for financial engineering in all forms, it is rooted in a deeply artificial foundation that will eventually disintegrate into the next financial crisis.

  But while financial engineering and venture capital may be juicing the profitability and wealth of a vastly small number of the total population, it is not driving the entrepreneurship needed to spark real economic growth. As noted by Gallup:

  "The U.S. now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than America does.…and this is our single most serious economic problem…for the first time in 35 years, American business deaths now outnumber business births.

   

  Let's run some numbers. You will often hear from otherwise credible sources that there are 26 million businesses in America. This is misleading; 20 million of these reported 'businesses' are inactive companies that have no sales, profits, customers or workers. The only number that is useful and instructive is the number of current operating businesses with one or more employees.

   

  There are only 6 million businesses in the United States with one or more employees. Of those, 3.8 million have four or fewer employees.

   

  Next, there are about a million companies with five to nine employees, 600,000 businesses with 10 to 19 employees, and 500,000 companies with 20 to 99 employees. There are 90,000 businesses with 100 to 499 employees. And there are just 18,000 with 500 employees or more, and that figure includes about a thousand companies with 10,000 employees or more. Altogether, that is America, Inc."

  As you can see, almost 80% of all businesses have fewer than 10-employees. This is why economic growth has failed to spark as financial engineering, and monetary interventions, have had little or no impact on the vast majority of American businesses. However, tighter lending standards, increased healthcare costs, increased regulations and higher taxes DO HAVE a large impact on the profitability and sustainability of America, Inc. Therefore, it is not surprising that entrepreneurship and business equity ownership remain on the decline.

  

  Furthermore, if this is indeed the case, then the BLS is likely overstating the very job growth that Mr. Dimon is pointing to as evidence of American exceptionalism. 

  Do not misunderstand me. I believe that America is the greatest country in the world. I have lived and worked in numerous countries during my life. and I will always call America my home.

  For the top 20% of the population that have money actually invested, or directly benefit from surging asset prices like Mr. Dimon, life is great. However, for the vast majority of American's, the job competition is high, wages growth is stagnant and making "ends meet" is a daily challenge. 

  While Mr. Dimon's view of America is certainly uplifting, it is a bit delusional. But of course, give any person a billion dollars and they will likely become just as detached from economic realities. 

  As Jim Clifton, CEO of Gallup, sums up:

  "The more we execute on our leadership's erroneous belief in innovation, the more our engine stalls out — and the more people rightly worry about economic issues.

   

  Because we have misdiagnosed the cause and effect of economic growth, we have misdiagnosed the cause and effect of job creation. To get back on track, we need to quit pinning everything on innovation, and we need to start focusing on the almighty entrepreneurs and business builders."

  Does America have "greatest hand ever dealt." The data certainly doesn't suggest such. However, that can change. We just have to stop hoping that we can magically cure a debt problem by adding more debt and then shuffling it between Central Banks.

   

  

  

  

  

  

• The "Economissed" Track Record Revisited: Last Month, 82% Of "Experts" Expected A September Fed Hike

  Last month, when economists were still banging their heads against the wall trying to determine if the turmoil unfolding in China’s equity markets would play a role in the Fed’s decision making come September 16/17, we took a look at how forecasters have fared when it comes to accurately predicting the timing of “liftoff.” 

  By way of introduction, we said the following: 

  Economics (like sociology and political science and astrology) isn’t a real science. It’s a pseudo-science. And as is the case with other pseudo-sciences, it’s flat out impossible to discover laws and immutable truths, no matter what anyone told you in your undergrad economics course. The economist’s job description looks something like this: make predictions that are almost never right and then make up any reason you want to explain away the fact that you were wrong. These explanations run the gamut from intentional obfuscation via opaque statistical tinkering (“residual seasonality”) to comically absurd attempts to turn common sense into an excuse for poor outcomes (“snow in the winter”). 

  Economists’ collective inability to accurately forecast economic outcomes is exacerbated when they try to predict what other economists think about said economic outcomes or, as we put it previously, “when ‘forecasters’ are surveyed on the timing of a Fed hike (or cut) what you get is one group of economists trying to guess at what another group of economists mistakenly thinks about the direction of the economy. We might call this ‘stupidity squared.’”

  Now that the Fed has officially admitted that “data dependency” is at least to some extent a myth, meaning the market is, as Deutsche Bank amusingly put it over the weekend, “now observing itself from another angle as an observer of the observer of the observers,” it’s worth taking another look at the following graph from WSJ:

  

  Note that in the August survey (so just one month out) around 82% of economists were sure that “liftoff” would come at the September meeting. 

  We close with the following chart from The New York Times which largely speaks for itself:

  

  

  

  

  

  

• What The Charts Say: BofA's Three Most Bullish And Bearish Stock Charts

  Earlier today, BofA chief technician Stephen Suttmeier (who has so far done a far more admirable job of reading the chartist tea leaves than his predecessors, Stolper 2.0 MacNeil Curry who quietly left the bank) pounded the table for the second day in a row why all rallies should be sold.

  Looking at the S&P chart, Suttmeier said “the daily NYSE McClellan Oscillator got more overbought last week than it was at the highs in July. In our view, this suggests “dislocation” rather than “capitulation” and we continue to see the risk of retest/undercut of the lows.”

  

   

  Perhaps he is right (the last thing we need is another contra-fade indicator to replace Stolper 2.0: we already have Gartman) but what about those who avoid indices and would rather trade single names?

  BofA has some ideas there too.

  Looking entirely at the charts (so no fundamentals at all here, but in a market where the only things that matter is what Goldman tells the Fed to say, and when Virtu’s HFT algos launch a momentum ignition program that is probably not that bad) Suttmeier highlights the charts of three stocks “that have improved and show potential for upside breakouts in an uncertain market: NLSN, PCLN, and CRM.”

  Nielson Holdings PLC (NLSN)

  NLSN builds a bullish triangle base from July 2014 and with recent relative breakouts vs. the S&P 500, the stock has begun to show leadership. The relative breakouts are a potential leading indicator for NLSN. A sustained move above the $49 area is the technical catalyst that completes the base and favor upside to $58. The chart structure remains bullish while above $44.00-42.80.

  

  Priceline (PCLN)

  PCLN is building a bullish head and shoulders continuation pattern and has begun to emerge as leadership vs. the S&P 500. A sustained push above $1375-1395 is the technical catalyst that completes the head and shoulders and favors a stronger rally toward $1750-1775. Holding above 1174-1103 maintains the bullish setup for PCLN.

  

  Salesforce.com (CRM)

  CRM is breaking out relative to the S&P 500 to show leadership in an uncertain market. The absolute price pattern is a consolidation within an uptrend and we think that CRM is set up for a breakout and upside into the $80-85 area. Holding $70-66 keeps the potential in place for an upside breakout above $73.00-74.50 that would confirm the bullish pattern and upside potential into the low $80s.

  

  * * *

  Not feeling the bullish vibe? Then here are three stocks which BofA believes have bearish setups:

  “Below we highlight the charts of three BofAML Underperform-rated stocks that have bearish setups with deeper downside risk: GPS, SNDK, and URI. The Gap (GPS)”

  The GAP(GPS)

  GPS shows absolute and relative weakness. The 2-year top remains in place with risk below nearby support at $30 toward the $25-23 area. The pattern remains firmly bearish with the top breakdown intact while below the $33-36 area.

  

  SanDisk (SNDK)

  SNDK stalled at the falling 50-day moving average and downtrend line from late May. While below the $54-57 area, the downtrend remains intact and the risk for SNDK is lower with the August low at $44.28 and projected channel support near $40-38.

  

  United Rentals (URI)

  URI is breaking down within an absolute and relative downtrend vs. the S&P 500. The stock stalled near the falling 50-day moving average and is completing a potential bear flag that favors a deeper decline with the August low/falling near $57-55 and the pattern projection near $44-43. Holding below the $74.92-76.84 downside gap and the big breakdown point near $81 is keeping the bears in control on URI.

  

  * * *

  It goes without saying that all of the above trades are the functional equivalent of playing roulette in a rigged casino (a casino where the HFTs win 100% of the time). Which is why the best “strategy” may be a test: a pair trade going long the “longs” and short the “shorts” – if it is profitable, great. If not, then we may have a potential Stolper 3.0 on our horizon.

  

  

  

  

• Mandatory Breathalyzers Could Soon Be In Every Car If Feds Have Their Way

  Submitted by John Vibes via TheAntiMedia.org,

  The National Highway Traffic Safety Administration (NHTSA) and the Alliance of Automobile Manufacturers is currently working on a plan to put alcohol detection systems in every vehicle. The plan, called Driver Alcohol Detection System for Safety (DADSS), is still in its early stages, and they have not yet decided exactly how it will be implemented.

  Some have suggested a system similar to Interlock, the breath system that people are required to install in their cars after they get a DUI. The device prevents the vehicle from starting unless the driver is able to breathe into the device to prove  they are not under the influence of alcohol. However, less complicated equipment is being devised, like sensors that test the alcohol level in the breath of the driver as they sit in the driver’s seat or a touch system that would detect alcohol levels through the skin.

  This technology will not just be used for DUI cases, though. The NHTSA is actually hoping to implement this in every vehicle on the road. As it wrote in one of its recent reports:

  “While government regulations play an important role in ensuring vehicle safety, voluntary approaches to the design and implementation of vehicle safety systems are increasing in importance as vehicle manufacturers deploy safety systems well in advance of, and even in the absence of, government regulations requiring them. This paper provides an overview of regulatory and non-regulatory approaches to vehicle technology development and deployment, and will describe a new, innovative public/private partnership underway to develop an in-vehicle alcohol detection system.”

  The report went on to indicate that these devices would be mandatory:

  “In recognition that many alcohol-impaired drivers have not been convicted of DWI, an effort is underway to develop advanced invehicle technologies that could be fitted in vehicles of all drivers to measure driver blood alcohol concentration non-invasively. The Automotive Coalition for Traffic Safety (ACTS, a group funded by vehicle manufacturers) and the National Highway Traffic Safety Administration (NHTSA) have commenced a 5- year cooperative agreement entitled Driver Alcohol Detection System for Safety (DADSS) to explore the feasibility of, and the public policy challenges associated with, widespread use of invehicle alcohol detection technology to prevent alcohol-impaired driving.”

  They are calling this technology “non-invasive” but it tests the content of your blood every time you get into your vehicle, which by its very nature is extremely invasive.

  As it stands right now, the way  the state deals with drunk driving is tyrannical and infringes upon everyone’s rights – even people like myself, who hardly ever drink. Economist Jeffrey Tucker wrote an article on this subject and discussed the problems with the status quo while offering some solutions, as well. In his article, he said:

  “Laws against drunk driving have vastly expanded police power and done nothing to stop the practice. The best prevention against unsafe driving from drinking has been provided privately: friends, services offered by bars and restaurants, community interest groups, etc. This is the humane and rational way societies deal with social risks. The police have only messed up this process by adding a coercive element that targets liberty rather than crime.

   

  And we can see where this is heading. Texting is now illegal in most places. So is talking on the phone. Maybe talking itself should be illegal. Some communities are talking about banning eating. All of this is a distraction from the real issue.”

  As Radley Balko has said:

  “If our ultimate goals are to reduce driver impairment and maximize highway safety, we should be punishing reckless driving. It shouldn’t matter if it’s caused by alcohol, sleep deprivation, prescription medication, text messaging, or road rage. If lawmakers want to stick it to dangerous drivers who threaten everyone else on the road, they can dial up the civil and criminal liability for reckless driving, especially in cases that result in injury or property damage.

   

  Doing away with the specific charge of drunk driving sounds radical at first blush, but it would put the focus back on impairment, where it belongs. It might repair some of the civil-liberties damage done by the invasive powers the government says it needs to catch and convict drunk drivers. If the offense were reckless driving rather than drunk driving, for example, repeated swerving over the median line would be enough to justify the charge. There would be no need for a cop to jam a needle in your arm alongside a busy highway.

   

  Scrapping the DWI offense in favor of better enforcement of reckless driving laws would also bring some logical consistency to our laws, which treat a driver with a BAC of 0.08 much more harshly than, say, a driver distracted by his kids or a cell phone call, despite similar levels of impairment. The punishable act should be violating road rules or causing an accident, not the factors that led to those offenses. Singling out alcohol impairment for extra punishment isn’t about making the roads safer. It’s about a lingering hostility toward demon rum.”

  There is no doubt that drunk driving should be discouraged and that solutions to prevent people from driving drunk should be explored. However, it is entirely possible to do this without violating anyone’s rights in the process.

  

  

  

  

  

• Kremlin Calls For "Action" After Russian Embassy In Syria Hit By Mortar Fire

  On Sunday we highlighted comments from Secretary of State John Kerry which seemed to indicate that Washington’s strategy is Syria may have officially unraveled. Speaking in London on Saturday, Kerry said the following: 

  “For the last year and a half we have said Assad has to go, but how long and what the modality is …that’s a decision that has to be made in the context of the Geneva process and negotiation. It doesn’t have to be on day one or month one … there is a process by which all the parties have to come together and reach an understanding of how this can best be achieved.” 

  That, we said, “might fairly be described as the most conciliatory language yet,” as it relates to Washington’s vision for Syria’s political future.

  We also noted that it now appears as though Russia and Iran will end up determining Assad’s fate which, if you know anything about Tehran’s relationship with Assad and about regional powerbrokers, should not come as a surprise. Indeed, the surprise is that the US, Saudi Arabia, and Qatar ever thought the effort to oust Assad had any chance of going smoothly in the first place. 

  On Monday, the Syria news flow continues unabated.

  Israeli Prime Minister Benjamin Netanyahu made his planned trip to Moscow to discuss how Russian and Israeli forces can avoid an “accidental” confrontation in the skies above Syria. That’s the headline anyway. Of course Netanyahu’s primary concern here is that sophisticated Russian weaponry will find its way into the hands of Hezbollah. Here’s Reuters: 

  A rapid Russian build-up in Syria, which regional sources have said includes warplanes and anti-aircraft systems, worries Israel, whose jets have on occasion bombed the neighboring Arab country to foil suspected handovers of advanced arms to Assad’s Lebanese guerrilla allies Hezbollah.

   

  
  

   

  Israel is also concerned that top-of-the-line Russian military hardware now being deployed could benefit Hezbollah and one day be turned against the Jewish state.

   

  “Our policy is to do everything to stop weapons from being sent to Hezbollah,” Netanyahu said.

  Note that this is not some far-fetched scenario. In fact, it’s more likely than not that arms will ultimately be funneled to Hezbollah if not directly by the Russians or Assad, then almost certainly by the Quds Force whose presence in Syria is seen as a “rumor” in the mainstream media even as it’s so well known in regional intelligence circles as to be considered par for the proverbial course. And make no mistake, Netanyahu is also well aware of the fact that Tehran is effectively angling to make Russia a de facto member of its existing axis of power that includes Syria and Lebanon and will ultimately include Iraq given Iran’s control of the Shiite militias and heavy influence in Baghdad political circles:

  The Netanyahu ex-adviser said Israel worried that Russia’s reinforcement of Assad in the conflict, now in its fifth year, could effectively create an axis between its long-standing enemies, Hezbollah and Iran, and Moscow.

  And speaking of Russian arms, here’s what US officials have confirmed is in Syria as of now: 28 combat aircraft including 12 Su-25s, 12 Su-24s & 4 Flankers (Su-27s or Su-30s), up to 20 helicopters split of Mi-24 Hind attack & Mi-15 Hip transport copters, and up to 9 tanks.

  Meanwhile, the Pentagon also says Russia has begun drone flights (via Reuters):

  Russia has started flying drone aircraft on surveillance missions in Syria, two U.S. officials said on Monday, in what appeared to be Moscow’s first military air operations inside the country since staging a rapid buildup at a Syrian air base.

  Finally, with all of the above in mind, we close with the following rather ominous bit from Tass and a tweet from AFP which seems to portend imminent escalation:

  The Russian embassy in Damascus has come under mortar fire, the Russian Foreign Ministry said Monday.

  The ministry said Moscow condemns the “criminal attack” on the Russian diplomatic mission.

   

  “At 09:00 a.m. on September 20, a mortar shell hit the territory of the Russian embassy in Damascus. The shell was driven deep into the earth and made no damage,” the ministry said. “We condemn the criminal attack on the Russian diplomatic representation in Damascus.”

  #BREAKING Russia calls for ‘action’ after shell hits Damascus embassy compound

  — Agence France-Presse (@AFP) September 21, 2015

  

  

  

  

  

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