Is Switzerland The Ultimate Safe Haven For Liberty And Wealth?

• Is Switzerland The Ultimate Safe Haven For Liberty And Wealth?

  Submitted by Claudio Grass via Acting-Man.com,

  Dangerous Freedom versus Peaceful Slavery

  At Global Gold, I am often asked what we would do if, for example, the US were to come out with a confiscation order. My reply is: We would do nothing whatsoever! Why? Quite simply, because no one in Switzerland has the political power to execute such an order! Even if Swiss politicians were to support such a confiscation order, the Swiss people would likely have the final vote. I am confident that any such confiscation order wouldn’t have any chance to be supported by a majority in Switzerland, especially one concerning assets held outside the banking system such as physical precious metals.

  Even in the highly unlikely case that it would be accepted, the vote would take at least twelve months, thereby giving the persons affected enough time to move their assets elsewhere. In my view this is the main advantage of a direct democracy, it ensures that the people rather than the politicians in power have sovereignty. The federalist structure of Switzerland moreover guarantees that political power is reduced to a minimum. “Confederation Helvetica” might be the old name for Switzerland, but it is just as valid today as it was in the past.

   

  

  Inside the Curia Confedarationis Helveticae (Swiss Parliament building) in Bern

  Photo credit: Sébastien Feval – AFP

  The mainstream press claims that Western countries are democratic, but is a representative democracy a true democracy? I don’t think so! Voting for a party or a politician who decides “on your behalf” without being held accountable is not how democracy should work. Would you give power of attorney, which you cannot cancel for four years, to someone who cannot be held accountable for their actions on your behalf? I wouldn’t!

  American researchers from Princeton University came to the conclusion that the Unites States, the self-proclaimed bringer of democracy to the world, is not the democracy that it claims to be, but rather an oligarchy that is driven by the interests of the elites. I was particularly drawn to an article written by John W. Whitehead of the Rutherford Institute who wrote the following passage:

  “Perhaps the most troubling fact of all is this: we have handed over control of our government and our lives to faceless bureaucrats who view us as little more than cattle to be bred, branded, butchered and sold for profit. If there is to be any hope of restoring our freedoms and reclaiming control over our government, it will rest not with the politicians but with the people themselves. When all is said and done, each American will have to decide for themselves whether they prefer dangerous freedom to peaceful slavery.”

  

  A picture taken during the Athens Polytechnic uprising against the Greek military junta in 1973

  Photo via thecitizen.gr

   

  Switzerland’s Strengths

  Direct democracy is the reason why I feel safer in Switzerland than in any other country and I can honestly say that there is no other country I would rather live in. Although Switzerland is by no means perfect, there is a growing opposition movement that is gaining momentum headed by a few Swiss who have the potential to become true leaders, not rulers.

  They understand that our personal freedom and liberty are at risk and that our country’s legacy embedded in its decentralized political structure is also at risk. In addition to direct democracy in Switzerland, the decentralized system of government not only limits the power of politicians but also restrains the wishes of the masses, because local fiscal responsibility is held at the lowest possible level forcing citizens to balance the benefits and costs of public expenditure. Without these limits on power, government positions only attract power-hungry people.

   

  

  The Swiss Confederacy in the 18^th century. Today there are 26 Cantons and more than 2,000 municipalities, which enjoy a great degree of political autonomy – click to enlarge.

   

  Hans-Hermann Hoppe once wrote:

  “Democracy has nothing to do with freedom. Democracy is a soft variant of communism, and rarely in the history of ideas has it been taken for anything else.”

  In essence, I agree with Hoppe’s statement, however, I am confident that a decentralized and direct democratic state, such as Switzerland, represents an acceptable form of state. The small country of Switzerland has over 2,000 communes, each of which sets its own income tax rate. This creates huge competition between the different communes and gives the population the possibility to “vote with their feet”, i.e. move to a commune a couple of miles away should they be unhappy with the way things are run at their current place of residence.

  In such a system politicians and bureaucrats will have to serve the people because otherwise they will lose the support of taxpayers and their funding! As always, competition is key and the only protection against totalitarianism. I am confident that the majority of the Swiss people understand the beauty of the Swiss form of government. This can for example be seen in the fact that even though various statist and lobbying groups have tried to push Switzerland into the EU several times, today around 70% of the Swiss still don’t want to join the EU!

   

  

  The Swiss have got it right: free trade with the EU is fine, but you can keep the rest, especially your socialist bureaucratic superstate

   

  A Look at a few Recent Developments in Switzerland

  Having said that, Switzerland is of course not a libertarian Utopia and several developments in recent years are worrisome. One topic close to my heart is how at the end of the 1990s Swiss politicians and central bankers decided to get off the gold standard through the back door, while keeping the Swiss people in the dark. Since then, we have seen excessive monetary expansion.

  At the end of the 90s the balance sheet of the Swiss National Bank (SNB) stood at CHF 50 billion, which doubled by 2007 and increased fivefold to CHF 530 billion as of today. Politicians, bureaucrats, big businesses, central banks and the big credit institutions are building an alliance to change the rules for their own benefit and to fit their political agendas.

   

  

  The Swiss monetary base, which represents the vast bulk of the liabilities of the SNB’s balance sheet (consisting of currency and bank reserves). Since 2007 it has exploded into the blue yonder – click to enlarge.

   

  Swiss banking secrecy had enjoyed a long lasting tradition since it was introduced in the 1930s to protect Jewish clients from the Nazis. It was certainly not implemented to hide money for criminal purposes or to circumvent taxes, but to provide privacy to people who really needed it. The wrongdoings of one bank, UBS, were seen as an opportune moment by a number of leftist politicians to follow through on their long-term plan to abolish banking secrecy.

  However, the basic instincts of the Swiss against centralized government are still intact and the public is finally waking up. The fractional reserve banking system is one of the key pillars of our financial system and an initiative is currently underway in Switzerland to take this power away from banking institutions. Although I am critical of this initiative, because it aims to give the SNB more powers, it shows how critical the Swiss are of the status quo.

   

  

  Switzerland’s gold reserves since 1999. In the late 90s, under severe political pressure and the leadership of an increasingly Keynesian central bank board, Switzerland ditched the bulk of its gold reserves at precisely the wrong moment, close to 20 year price lows.

   

  The population is also becoming increasingly skeptical of the Swiss National Bank, often dubbed Switzerland’s largest hedge fund. Although the gold initiative was rejected, it showed that a large part of the population would like to return to a gold standard and, more importantly, it even helped raise a public debate about our current monetary system and that is a key development.

  We also see other positive signs. Voters rejected a new law to increase paid vacation from 4 to 6 weeks per year, a piece of legislation that would have passed with a very high majority in any other European country (if their populations were allowed to vote on such topics). At the same time a new party is collecting signatures to abolish public funding of our governmental propaganda TV and radio stations. There is also an initiative in the pipeline to ensure that Swiss law will stand above international law and thus restore full sovereignty to the nation.

  Conservative and libertarian values opposing a centralized government are on the rise and we have a growing number of blogs and newspapers writing about the libertarian values, tradition and Switzerland’s history. More and more Swiss citizens seem to remember the advantages of a decentralized political system and are finally waking up.

  Pro-freedom parties are gaining seats in the National Council, which will shift the balance of power from a center-left parliament to a more traditional, conservative and freedom oriented parliament. Due to all the reasons mentioned above, I am confident that Switzerland will continue to swim against the tide and remain a bastion of stability and freedom.

   

   

  Château de Chillon on Lake Geneva, Switzerland

  Photo via ilonatishkova.livejournal.com

   

  Do You Want a Cashless Society?

  Jean-Claude Juncker, the 12^th and current President of the European Commission, made a statement that depicts the exact situation we are in:

  “We decide on something, leave it lying around and wait and see what happens. If no one kicks up a fuss, because most people don’t understand what has been decided, we continue step by step until there is no turning back.”

  Although he made this statement with regards to the introduction of the Euro, I believe it also applies to the recent developments, with politicians and banking lobbyists pushing to move toward a cash-free society. The Danish government announced in the beginning of May that it wants to abolish cash. There have been reports that the EU is intending to become cash-free by 2018.

   

  Europe’s chief bureaucrat Jean-Claude Juncker ringing the bell

  Photo credit: DAPD

   

  If this is true, it means that governments will monitor every single transaction and financial privacy (not criminal action) will disappear. Banks are complaining about the overwhelming storage costs for cash, and politicians are using security and the fight against terrorism as a justification to abolish cash altogether.

  But is this really the solution? What are the aims? Aside from having control over every transaction in the country, abolishing cash would give governments complete control over the management of money. In a cashless society, central banks would have unlimited leeway to maneuver and push interests rates even further down.

  This would certainly be a convenient measure for financial institutions, but for us advocates of liberty, this is a clear red flag! Negative interest rates mean there will be increasing expropriation of wealth, higher consumption and more and more borrowing which will take debt to a whole new level.

  Not only that, but as we go digital, the authorities will have full access and control of our accounts and transactions. Privacy will no longer exist. Last March, JP Morgan Chase in the US went so far as to apply a new policy implemented in certain locations, whereby borrowers can no longer make cash payments on credit card balances, mortgages, equity lines and auto loans.

  Not only that, Chase even prohibited storing cash inside safety deposit boxes! Isn’t what I store inside my safety deposit box my own private matter? Some countries like France and Greece have already started to impose cash payment restrictions. Australia is even imposing a compulsory tax on savings! Simply put, paper money is now the obstacle; isn’t that ironic?

  On the other hand of the spectrum we have once again Switzerland. Our parliament recently rejected the suggestion to prohibit cash payments above CHF 100,000, and a bill that was introduced due to pressure from the FATF and the Global Forum failed to pass.

   

   

  The total surveillance future

   

  How Can You Protect Yourself?

  I believe that the best way to protect oneself is to buy (more) physical gold and silver and to move it outside the banking system to a safe jurisdiction such as Switzerland! This is your chance to protect your savings from further undisciplined money printing, from government confiscation and possible bail-ins in the banking sector. One ounce of physical gold will always remain one ounce! In the dangerous world we are living in today, I like to think in terms of gold, the only anchor I know that has survived over thousands of years and the only form of insurance that can definitely provide protection against the uncertain times ahead.

  I would like to conclude by quoting Victor Hugo who once said:

  “You can’t stop an idea whose time has come”

  I believe the time has come for governments to become smaller and have less power.

  

  

  
  
  

  

• Indonesia Just Sank "A Large Chinese Vessel" And 40 Other Fishing Boats In The South China Sea

  According to The China People’s Daily, Indonesia has just sank a large Chinese vessel and 40 other foreign ships caught fishing in The South China Sea. AP confirms that Indonesian authorities blew up and sank the 41 vessels… which seems like something that might just lead to some serious escalation if true…

   

  

   

  *  *  *

  The tweet…

  

   

  And AP’s confirmation…

  Indonesian authorities blew up and sank 41 foreign fishing vessels Wednesday as a warning against poaching in the country’s waters.

   

  The vessels from a variety of countries were blown up in several ports across the archipelago, which has some of the world’s richest fishing grounds.

   

  Navy spokesman First Adm. Manahan Simorangkir said 35 vessels were sunk by the navy and six by the coast guard police.

   

  Fisheries Minister Susi Pudjiastuti said Indonesia has blown up several other boats since the current government took over last year after President Joko “Jokowi” Widodo was elected. Part of his platform was to preserve Indonesia’s oceans to ensure future generations will benefit from its rich waters.

   

  The boats, seized from Chinese, Malaysian, Philippine, Thai and Vietnamese fishermen, were blown up on National Awakening Day, which commemorates the first political movement toward Indonesia’s independence.

  *  *  *

  

  

  
  
  

  

• JPM Warns UK Referendum More Likely In 2016 Than 2017 – The Pros & Cons Of Brexit

  JPMorgan expects U.K. won’t delay the promised in out referendum on EU membership until 2017 but will put the issue to vote in late 2016 instead. Given the ruling Conservatives have only a small majority, any legislation could fail if euro skeptics within the party vote against it, suggesting the party leadership will want to get the issue resolved sooner rather than later. The prospect of a vote could weigh on the economy, again arguing for an earlier vote, so here are the pros and cons of Brexit simplified…

   

  

  via HSBC

  JPMorgan goes on to note that

  Cameron initially said the vote would happen before the end of 2017 to give the govt time to renegotiate with other EU members

   

  Since it seems unlikely Treaty revisions will take place within that timeframe and there’s limited room for the U.K. to secure any deep change, there may be strategic reasons to hold the referendum in late 2016, JPMorgan says

   

  France, traditionally less sympathetic to U.K. concerns than Germany, has presidential elections in early 2017, suggesting there’s little chance of any significant concessions.

  Source: ValueWalk

  

  

  
  
  

  

• Is Martial Law Justified If ISIS Attacks?

  Submitted by Brandon Smith via Alt-Market.com,

  A group of foreign militants infiltrates the U.S. using student visas, weak borders, bribery and cooperation with drug cartels.

   

  Secret cells integrate within metropolitan areas and blend with the populace. At the precise moment, they activate, unleashing small attacks across the country in coordinated blitzkrieg-style terror campaigns against everything from suburban neighborhoods to public schools to shopping malls, striking fear into the citizenry, which now believes no one is safe, even in the heartland.

   

  With normal law enforcement overwhelmed, the economy on the brink and the populace ready to riot, the military is deployed domestically; curfews, price controls and rationing are initiated; and special operations agents act as infiltrators in order to subdue the terrorist factions.

   

  The loss of common liberties is welcomed by most as safety and security become the paramount motivator.

  A glimpse into the future? Well, perhaps. Actually, it’s the plot narrative to a Chuck Norris movie called “Invasion U.S.A.” The terrorists in that movie were communists from places like Cuba and Venezuela (hey, it was the 80s, and we had no idea that the communists were elitists that had already taken over from within), but the premise is strangely not far from what the government is trying to sell to us as a potential real-life scenario today.

  As Americans, we have been bombarded with propaganda for decades, which conjures rationalizations for domestic military operations. This propaganda always presents us with an all-or-nothing option: relinquish liberty and beat the enemy, or “cling” to the “outdated” Constitution and fall as a society. There never seems to be a third option, an option that does not require the loss of freedoms and allows for security. In the film “Invasion U.S.A.,” I suppose we had Chuck Norris as a third option, which is not a bad third option in the world of cinema; but I’m sorry to say that Chuck alone cannot save us from what is coming in the real America.

  I am highly suspicious of the rhetoric coming out of Washington lately in terms of the ISIS situation. ISIS has apparently secured the Iraqi city of Ramadi and put the government there on the defensive, meaning that despite the recent claims that ISIS leadership has been hit in Syria, the group continues to advance.

  Rumors of potential ISIS attacks on U.S. soil continue to spread from sources like the FBI and the Transportation Security Administration.

  “Former” CIA officials (is there such a thing?) are also getting in on the action, warning in mainstream media outlets that ISIS has the ability to direct at least small-scale attacks on the U.S. today.

  However, the threat of ISIS does not frighten me. It concerns me, but what truly disturbs me is the likely government response if such predictions by alphabet agencies come to pass.

  In my recent article “When The Elites Wage War On America, This Is How They Will Do It,” I examined the tactics behind not only globalization, but also the most probable methods that will be used to secure globalization through the oppression of dissenting voices and groups. Part of that examination included my take on the Jade Helm 15 exercises running from summer into autumn and how they fit directly into the strategies for disrupting insurgencies (revolutions) discussed openly by internationalists in their own symposiums.

  My conclusion given the clear evidence at hand? Jade Helm is definitely NOT meant to prepare troops for foreign operations. The program is admitted to be a primer for military response to “crisis scenarios,” denoting domestic operation. Special forces groups are training with domestic agencies like the FBI and the Drug Enforcement Administration. And they are training and infiltrating completely American environments, which they would not be doing unless they planned to operate in very similar environments. Special forces always train like they fight. Period.

  With at least 45% of Americans concerned that open domestic military exercises are a precursor to greater federal control over states and more than 62% convinced that government power is suffocating individual liberty, it is only a matter of time before the government spin doctors create a semi-believable rationale for such endeavors as Jade Helm. I believe that ISIS could be their perfect rationale.

  As public concern is amplified and evidence indicating that the Department of Defense is lying about the purpose of JH15 is more widely recognized, the DOD may very well admit that the operation is not for training in foreign theaters. Rather, they may argue that JH15 is in fact training designed to protect Americans on American soil from widespread terrorist threats. That is to say, the new spin will be that Jade Helm is meant to save us all from the psychopathic child killing cannibal monstrosity known as ISIS.

  Look at it this way, what better excuse for covert military actions in domestic environments? What better way to justify lying to the American people about Jade Helm goals and directives? What better way to silence the critics and so-called “conspiracy theorists” than for the government to say: “Yes, we lied, but it was to keep the real and honorable purpose of JH15 secret, and to save the public from terrorism, now shut up naysayers and liberty activists, you are putting the whole nation at risk…!”

  Maybe I am connecting dots that are not dots, but it seems to me that the timing of ISIS warnings, the re-ignition of economic downturn in 2014/2015, the global shift away from the dollar, and Jade Helm are not entirely coincidental. Martial Law is not a scenario that can be generated in a vacuum; it needs a primer, a trigger event, if not multiple trigger events.

  If the final trigger event is indeed intended to be a terror campaign on U.S. soil, then questions of the true purpose of Jade Helm will undoubtedly take a back seat to immediate solutions to what amounts to a foreign invasion (at least, that is how it will be painted), and none other than Jade Helm will be presented as that solution.

  The debate over JH15 and programs like it will change. It will become a matter of the “greater good” against a foreign enemy, rather than a government overstep against the rights of the people. How can we possibly question the defense of American soil against terrorists? Isn’t that an undeniable directive of the military? And if we do question such a directive and its value to the American people, are we not “weakening” the resolve and effectiveness of the defense apparatus through negative public opinion? And by extension, would that not make us “domestic enemies” as well?

  In fact, I can easily argue that there is absolutely NO rationale for domestic military operations against ISIS or anyone else, and here’s why.

  ISIS Is A Fabrication

  As I outlined in detail in my article “The Time Is Ripe For A False Flag Attack On American Soil,” the organization known as ISIS has long been a collaborative creation of the U.S. government and its allies. From funding and training in Libya and Jordan, to arming in Syria and Iraq, ISIS is nothing without the Western intelligence apparatus, just as al-Qaida was nothing more than a CIA Frankenstein monster.

  So should Americans be forced to relinquish their freedoms in order to combat an enemy that our own government engineered out of thin air? And beyond that, who represents the greater enemy: ISIS or the lunatic elitists who gave ISIS the tools to commit atrocities?

  Government Is Incapable Of Providing Security

  Some people may argue that the true origins of ISIS are a matter of historical debate that will not solve our immediate problem of rampant terror threats. How can we nitpick where ISIS came from while ISIS is trying to massacre us? Fair enough.

  My rebuttal would be that regardless of where ISIS found its organizational support, the U.S. government and the military apparatus under the direction of a corrupt DOD are incapable of protecting the American people anyway. If ISIS is able to unleash a campaign of attacks that give license to the idea of martial law, then the government has only proven one of two things:

  1)  It is too inept to prevent such events from occurring due to its refusal to secure our borders and despite full-spectrum surveillance of the American people by the NSA.

  2)  It is so evil in its machinations that it has allowed terrorist infiltration in order to further an agenda of greater control.

  Either the government is a bungling bureaucratic mess not capable of keeping anyone safe, or it is a cesspool of tyranny that has no intention of keeping anyone safe. In either case, why should the American people give such an entity even MORE power, when it can’t responsibly handle the considerable power it already has?

  American Civilians Can Provide Their Own Security And Do It Better

  Official martial law may never be declared, but it could nevertheless become a reality. I would present the response to the Boston bombing event as a direct example of militarization of a domestic region without it being called “martial law.” This was, of course, a “federalized” response, rather than a military one. But it was militarization in its nature all the same. The establishment will use all kinds of mislabeling and spin in order to entice the populace to submit to further encroachment of liberties in the name of security.

  The fact is the best defense for the civilian population of America has always been the individual population itself. Terrorists are far more likely to be thwarted tactically and psychologically by a trained, armed, aware and free citizenry than any oppressive federal or military dragnet. Why?  Because the citizenry is the target, and thus, always first on the scene to respond.  Citizens become victims when they wait around passively for government "authorized" responders to save them, instead of adopting the attitude that THEY are responsible for their own defense.  Legally, it is a constitutional mandate that American militias retain authority over domestic defense. And to be clear, the militia is every able-bodied American, not only a certain percentage of Americans the government deems acceptable (which means the National Guard does not qualify as the militia).

  This is the answer to the propaganda of militarization. We do not have to choose between liberty and security. We can have both, and we can provide it for ourselves as our own protectors. Sheepdogs be damned. Each citizen is his first and best line of defense.

  Only when the American people take on the philosophy of self-defense rather than government reliance will we be free of fear from terrorism and free of fear from tyrannical government. It starts with each of you, in your homes, neighborhoods, towns and counties. Citizen organizations for mutual aid and security to counter any threat, regardless of the mask it wears, will be the catalyst for a legitimately free society. In the face of such organization, martial law is not only illegitimate, but entirely unnecessary. ISIS does not matter. It is what we ultimately do about ISIS or similar threats that matters, and martial law is not the answer.

  

  

  
  
  

  

• "Go Now!": China Threatens US Spy Planes In South China Sea

  There’s trouble brewing in The South China Sea, where Beijing has been using “scores of dredgers” to turn reefs into islands in the Spratly archipelago. Atop the new islands, China has been busy building things like cement plants and 10,000 foot airstrips capable of landing fighter jets and surveillance aircraft. 

  China shares contested waters in the area with the Philippines, Vietnam, Malaysia, Brunei and Taiwan, and the US has made it all too clear that China’s reclamation efforts constitute an unacceptable attempt to “use sheer size and muscle to force countries into subordinate positions.” That, along with reports that Washington is looking into options for countering China’s island-building project, set up a contentious scenario that culminated in Beijing advising the US to “refrain from provocative action” in the area. 

  Having thus set the stage, we bring you the following clip which shows what happens when US spy planes come a little too close to China’s newly created military outposts.

  

  

  
  
  

  

• Despite Weaker-Than-Expected PMI, Chinese Stocks Stumble

  Chinese Manufacturing PMI missed expectations, printing a contractrionary 49.1 (against 49.3 expectatons) for the 3rd month in a row. While this was a small pick up from last month’s 48.9 print, it hardly signals ‘success’ for the various easing efforts unleashed upon an all-knowing investing public. After yesterday’s weakness in Chinese stocks, one would think a disappointing PMI was just the ticket to send investors wild with buying in anticipation of more easing, but now, Chinese stocks have erased early modest gains and are fading back...

   

  a 3rd month of contraction in Chinese manufacturing PMI…

  

   

  The result – an odd selloff on bad news…

  

  

  

  
  
  

  

• Militarization Is More Than Tanks & Rifles: It’s a Cultural Disease, Acclimating Citizens To Life In A Police State

  Submitted by John Whitehead via The Rutherford Institute,

  “If we’re training cops as soldiers, giving them equipment like soldiers, dressing them up as soldiers, when are they going to pick up the mentality of soldiers? If you look at the police department, their creed is to protect and to serve. A soldier’s mission is to engage his enemy in close combat and kill him. Do we want police officers to have that mentality? Of course not.”— Arthur Rizer, former civilian police officer and member of the military

  Talk about poor timing. Then again, perhaps it’s brilliant timing.

  Only now—after the Departments of Justice, Homeland Security (DHS) and Defense have passed off billions of dollars worth of military equipment to local police forces, after police agencies have been trained in the fine art of war, after SWAT team raids have swelled in number to more than 80,000 a year, after it has become second nature for local police to look and act like soldiers, after communities have become acclimated to the presence of militarized police patrolling their streets, after Americans have been taught compliance at the end of a police gun or taser, after lower income neighborhoods have been transformed into war zones, after hundreds if not thousands of unarmed Americans have lost their lives at the hands of police who shoot first and ask questions later, after a whole generation of young Americans has learned to march in lockstep with the government’s dictates—only now does President Obama lift a hand to limit the number of military weapons being passed along to local police departments.

  Not all, mind you, just some.

  Talk about too little, too late.

  Months after the White House defended a federal program that distributed $18 billion worth of military equipment to local police, Obama has announced that he will ban the federal government from providing local police departments with tracked armored vehicles, weaponized aircraft and vehicles, bayonets, grenade launchers, camouflage uniforms and large-caliber firearms.

  Obama also indicated that less heavy-duty equipment (armored vehicles, tactical vehicles, riot gear and specialized firearms and ammunition) will reportedly be subject to more regulations such as local government approval, and police being required to undergo more training and collect data on the equipment’s use. Perhaps hoping to sweeten the deal, the Obama administration is also offering $163 million in taxpayer-funded grants to “incentivize police departments to adopt the report’s recommendations.”

  While this is a grossly overdue first step of sorts, it is nevertheless a first step from an administration that has been utterly complicit in accelerating the transformation of America’s police forces into extensions of the military. Indeed, as investigative journalist Radley Balko points out, while the Obama administration has said all the right things about the need to scale back on a battlefield mindset, it has done all the wrong things to perpetuate the problem:

  • distributed equipment designed for use on the battlefield to local police departments,
  • provided private grants to communities to incentivize SWAT team raids,
  • redefined “community policing” to reflect aggressive police tactics and funding a nationwide COPS (Community Oriented Policing Services) program that has contributed to dramatic rise in SWAT teams,
  • encouraged the distribution of DHS anti-terror grants and the growth of “contractors that now cater to police agencies looking to cash DHS checks in exchange for battle-grade gear,”
  • ramped up the use of military-style raids to crack down on immigration laws and target “medical marijuana growers, shops, and dispensaries in states that have legalized the drug,”
  • defended as “reasonable” aggressive, militaristic police tactics in cases where police raided a guitar shop in defense of an obscure environmental law, raided a home looking for a woman who had defaulted on her student loans, and terrorized young children during a raid on the wrong house based on a mistaken license plate,
  • and ushered in an era of outright highway robbery in which asset forfeiture laws have been used to swindle Americans out of cash, cars, houses, or other property that government agents can “accuse” of being connected to a crime.

  It remains to be seen whether this overture on Obama’s part, coming in the midst of heightened tensions between the nation’s police forces and the populace they’re supposed to protect, opens the door to actual reform or is merely a political gambit to appease the masses all the while further acclimating the populace to life in a police state.

  Certainly, on its face, it does nothing to ease the misery of the police state that has been foisted upon us. In fact, Obama’s belated gesture of concern does little to roll back the deadly menace of overzealous police agencies corrupted by money, power and institutional immunity. And it certainly fails to recognize the terrible toll that has been inflicted on our communities, our fragile ecosystem of a democracy, and our freedoms as a result of the government’s determination to bring the war home.

  Will the young black man guilty of nothing more than running away from brutish police officers be any safer in the wake of Obama’s edict? It’s unlikely.

  Will the old man reaching for his cane have a lesser chance of being shot? It’s doubtful.

  Will the little girl asleep under her princess blanket live to see adulthood when a SWAT team crashes through her door? I wouldn’t count on it.

  It’s a safe bet that our little worlds will be no safer following Obama’s pronouncement and the release of his “Task Force on 21st Century Policing” report. In fact, there is a very good chance that life in the American police state will become even more perilous.

  Among the report’s 50-page list of recommendations is a call for more police officer boots on the ground, training for police “on the importance of de-escalation of force,” and “positive non-enforcement activities” in high-crime communities to promote trust in the police such as sending an ice cream truck across the city.

  Curiously, nowhere in the entire 120-page report is there a mention of the Fourth Amendment, which demands that the government respect citizen privacy and bodily integrity. The Constitution is referenced once, in the Appendix, in relation to Obama’s authority as president. And while the word “constitutional” is used 15 times within the body of the report, its use provides little assurance that the Obama administration actually understands the clear prohibitions against government overreach as enshrined in the U.S. Constitution.

  For instance, in the section of the report on the use of technology and social media, the report notes: “Though all constitutional guidelines must be maintained in the performance of law enforcement duties, the legal framework (warrants, etc.) should continue to protect law enforcement access to data obtained from cell phones, social media, GPS, and other sources, allowing officers to detect, prevent, or respond to crime.”

  Translation: as I document in my book Battlefield America: The War on the American People, the new face of policing in America is about to shift from waging its war on the American people using primarily the weapons of the battlefield to the evermore-sophisticated technology of the battlefield where government surveillance of our everyday activities will be even more invasive.

  This emphasis on technology, surveillance and social media is nothing new. In much the same way the federal government used taxpayer-funded grants to “gift” local police agencies with military weapons and equipment, it is also funding the distribution of technology aimed at making it easier for police to monitor, track and spy on Americans. For instance, license plate readers, stingray devices and fusion centers are all funded by grants from the DHS. Funding for drones at the state and local levels also comes from the federal government, which in turn accesses the data acquired by the drones for its own uses.

  If you’re noticing a pattern here, it is one in which the federal government is not merely transforming local police agencies into extensions of itself but is in fact federalizing them, turning them into a national police force that answers not to “we the people” but to the Commander in Chief. Yet the American police force is not supposed to be a branch of the military, nor is it a private security force for the reigning political faction. It is supposed to be an aggregation of the countless local civilian units that exist for a sole purpose: to serve and protect the citizens of each and every American community.

  So where does that leave us?

  There’s certainly no harm in embarking on a national dialogue on the dangers of militarized police, but if that’s all it amounts to—words that sound good on paper and in the press but do little to actually respect our rights and restore our freedoms—then we’re just playing at politics with no intention of actually bringing about reform.

  Despite the Obama Administration’s lofty claims of wanting to “ensure that public safety becomes more than the absence of crime, that it must also include the presence of justice,” this is the reality we must contend with right now:

  Americans still have no real protection against police abuse. Americans still have no right to self-defense in the face of SWAT teams mistakenly crashing through our doors, or police officers who shoot faster than they can reason. Americans are still no longer innocent until proven guilty. Americans still don’t have a right to private property. Americans are still powerless in the face of militarized police. Americans still don’t have a right to bodily integrity. Americans still don’t have a right to the expectation of privacy. Americans are still being acclimated to a police state through the steady use and sight of military drills domestically, a heavy militarized police presence in public places and in the schools, and a taxpayer-funded propaganda campaign aimed at reassuring the public that the police are our “friends.” And to top it all off, Americans still can’t rely on the courts, Congress or the White House to mete out justice when our rights are violated by police.

  To sum it all up: the problems we’re grappling with have been building for more than 40 years. They’re not going to go away overnight, and they certainly will not be resolved by a report that instructs the police to simply adopt different tactics to accomplish the same results—i.e., maintain the government’s power, control and wealth at all costs.

  This is the sad reality of life in the American police state.

  

  

  
  
  

  

• Guatemala Central Bank Chief Arrested

  Spot the banana republic(s):

  • In one country, several of the world’s largest banks settle as petty criminals for rigging the world’s largest market and defrauding countless investors. Some get a wristslap. Others, those who have been caught previously manipulating virtually every other market, get probation and promise never to manipulate again despite promising just that a few years ago. Nobody is arrested. Nobody goes to prison.
  • In another country, a member of a central bank’s executive committee tells a select group of hedge fund millionaires precisely what market moving thing said central bank will do, giving them a 10 hours headstart over the general public to put on the appropriate trades. Hedge funders make millions thanks to the leak defrauding countless investors who do not have the material, market-moving information; central bank blames “internal procedural error.” Nobody is arrested. Nobody goes to prison.
  • In a third country, the central bank governor is arrested in a bribery probe that also targeted a former presidential aide. The president says “Nobody is above the law. I’m the first one to regret that these situations are occurring and the first to demand that justice is served.”

  * * *

  We are talking about today’s record-breaking FX rigging settlement, yesterday’s premeditated leak by ECB’s Benoit Coeure to hedge funds at the Brevan Howard Centre for Financial Analysis, and ironically, the arrest of Guatemala’s central bank governor hours ago.

  From Reuters:

  Guatemala’s central bank governor was arrested on Wednesday in a bribery probe that also targeted a former aide of President Otto Perez, who has faced mounting pressure since his vice president quit two weeks ago over a separate graft scandal.

  The Guatemalan attorney general’s office said it had arrested central bank chief Julio Suarez, and issued an arrest warrant for Juan de Dios Rodriguez, Perez’s former personal secretary and head of the Guatemalan Social Security Institute.

   

  The office said Suarez, who has a seat on the institute’s board, had been arrested along with 14 others over a $14.5 million medical services contract awarded by the institute. The charges include fraud, influence trafficking and charging illegal commission, prosecutors said.

   

  Ivan Velasquez of the International Commission against Impunity in Guatemala (CICIG), a United Nations-backed group working with prosecutor’s on the case, said investigations that began last year found that the contract was rigged in favor of a pharmaceutical company. “We have very coherent evidence to show that the members of the tendering board took illegal steps,” Velasquez said.

   

  According to the investigators, taped phone conversations showed that the company, identified by the prosecutor’s office as the Guatemalan unit of Mexico’s Pisa, paid bribes to officials from the institute to win a dialysis contract. A Pisa spokesman declined to comment.

   

  The central bank said in a statement that Suarez had its full support and that it would continue to operate as normal. The Social Security Institute was not available to comment.

   

  President Perez said he welcomed the investigation.

   

  “Nobody is above the law,” Perez said in a televised address. “I’m the first one to regret that these situations are occurring and the first to demand that justice is served.”

  We are confident that Goldman already has a spare partner or two on their way to take over for Suarez. After all, let no crisis or central bank arrest go to waste.

  We are, however, confused: just which is the banana republic?

  

  

  
  
  

  

• Putin Pans Ukraine's Debt Moratorium As "De Facto Default", Threatens Court

  In exactly a month, Ukraine will owe Russia a $75 million debt coupon payment. Finance Minister Anton Siluanov told reporters in Moscow today that “if they miss the payment, we will use our right to go to court.” Then it got serious, as Vladimir Putin instructed Russian Prime Minister Dmitry Medvedev to assume control of Ukraine’s repayment of its $3-billion debt in Eurobonds that Russia bought in 2013, slamming Ukraine’s bill allowing them to impose a moratorium on foreign debt repayments as a de facto announcement of default. As one market participant warned, “I would wait until after June 20 to go forward with” any moratorium, as “if Russia takes Ukraine to court, that might be an incentive for other creditors to go down the same route.”

  
  

  As we previously noted, on Tuesday, Ukraine’s parliament adopted a bill allowing Ukraine to freeze repayments of its foreign debt. As RT notes,

  Experts agree that Tuesday vote meant a technical default for the country and would impede Ukraine’s ability to raise private investment from the EU and the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB), a European source told TASS on Wednesday.

   

  “Suspension of debt payments not coordinated with creditors results in a technical default, and in the case of Ukraine, it threatens to undermine Kiev’s ability to attract private investment through EU programs,“ the source said.

   

  As part of the underpinning of Kiev’s bailout plan, the International Monetary Fund said in March that Russia would not receive the $3 billion bond repayment from Ukraine this year.

  IMF is looking for cooperation from creditors to accept a restructuring on Kiev’s debt. That includes Russia.

  “It is rather clear that the IMF is assuming that Russia’s $3 billion bond is included in this year’s $5.2 billion financing from a ‘debt operation’,” said Charles Blitzer of Blitzer Consulting and a former IMF staff member.

  The IMF is avoiding the term ‘restructuring’ replacing it with ‘debt operation’.

  Vladimir Putin is unimpressed, as Sputnik reports, blasting that Ukraine’s bill allowing to impose a moratorium on foreign debt repayments is a de facto announcement of default…

  “This de facto announcement of a looming default demonstrates that the level of responsibility and professionalism [of the country’s leadership] appears to be low, despite the fact that the country is being ran from the outside.”

  The bill, which is yet to be signed into law by the country’s president, can be applied to Ukraine’s payments on the $3-billion Eurobond issue bought by Russia in late 2013. However,

  The Russian bond is governed by English law and any disputes related to it would be settled in an English court, according the bond prospectus.

   

  The bond has a covenant allowing the holder to demand its money back if Ukraine’s public debt tops 60 percent of economic output, which the IMF said took place last year.

   

  “At the request of our Ukrainian partners and the IMF, we are not using this right as we do not want to aggravate the already difficult economic situation of our partners and neighbors,” Russian President Vladimir Putin said at a government meeting in Moscow on Wednesday.

   

  “However, I would like to understand what our partners plan to do.”

  And so far, as Bloomberg notes, Ukraine has failed to bring Russia to the table as it begins negotiating with creditors to reduce its $23 billion of international debt.

  Russia says the $3 billion bond that comes due in December shouldn’t be included in the restructuring because it was bought from the regime of former Ukrainian President Viktor Yanukovych as part of a government aid agreement.

   

  Failure to cut a deal risks future tranches of a $17.5 billion International Monetary Fund loan that Ukraine needs after a conflict with pro-Russian separatists pushed it into the worst recession since 2009.

  “Our goal is to find an outcome that is acceptable for the Russian Federation,” Putin said during a meeting with government members.

  *  *  *

  In conclusion this is far from over…

  “If Russia takes Ukraine to court, that might be an incentive for other creditors to go down the same route,” Jakob Christensen, an economist at Exotix Partners LLP in London, said by phone on Wednesday. “I would wait until after June 20 to go forward with” any moratorium, he said.

   

  Furthermore, as we have noted previously, Ukraine’s biggest creditor is Franklin Templeton, which along with three other companies owns $8.9 billion of the nation’s debt (where a knife-catching bond manager was exposed as a glorified BTFD’er).

  The nation’s debt levels are “unsustainable” and there is “no alternative” for creditors but to accept maturity extensions, coupon reductions and principal writedowns on their holdings, Ukraine’s American Finance Minister Natalie Jaresko said on Tuesday.

  “I wouldn’t assume that Ukraine is not willing to default on the Russia bond,” Anna Gelpern, a Georgetown University law professor and fellow at the Peterson Institute for International Economics, said by phone on Tuesday. “They’ve said that they want to restructure them on the same terms as everybody else.”

  

  

  
  
  

  

• 4 Factors Signaling Volatility Will Return With A Vengeance

  Submitted by Nomi Prins via PeakProsperity.com,

  No one could have predicted the sheer scope of global monetary policy bolstering the private banking and trading system. Yet, here we were – ensconced in the seventh year of capital markets being buoyed by coordinated government and central bank strategies. It’s Keynesianism for Wall Street. The unprecedented nature of this international effort has provided an illusion of stability, albeit reliant on artificial stimulus to the private sector in the form of cheap money, tempered currency rates (except the dollar – so far) and multi-trillion dollar bond buying programs. It is the most expensive, blatant aid for major financial players ever conceived and executed. But the facade is fading. Even those sustaining this madness, like the IMF, are issuing warnings about increasing volatility.

  We are repeatedly told these tactics benefit broader populations and economies. Yet by design, they encourage hoarding, or more crafty speculative behavior, on the part of big financial firms (in the guise of obeying slightly adjusted capital rules) and their corporate clients (that largely use cheap funds to buy their own stock.) While politicians, central banks and multinational government-funded entities opine on “remaining” structural weaknesses of certain individual countries, they congratulate themselves on having staved off more acute crises.  All without exhibiting the slightest bit of irony. 

  When cheap funds stop flowing, and “hot” money shifts its attentions, as it invariably and inevitably does, volatility escalates as it is doing now. This usually signals a downturn, but not before nail-biting ups and downs in the process.

  These four risk factors individually, or collectively, drive rapid price fluctuations. Individually, they fuel market volatility. Concurrently, they can wreak far greater havoc:

  1. Central Bank Policies
  2. Credit Default Risk
  3. Geo-Political Maneuvering
  4. Financial Industry Manipulation And Crime

  Events that in isolation don’t impact markets severely can coalesce with more negative results. This is important to understand when prioritizing personal investment decisions. In this two-part report, I will outline driving forces behind today’s volatility and provide suggestions as to what you can do to protect yourself, and even thrive, going forward.

  Take Central Banks First

  Two weeks ago, stock and bond markets dipped when Federal Reserve Chair Janet Yellen announced, “equity market valuations at this point generally are quite high."  She admitted,  “There are potential dangers." She saw no bubble. The Fed continues to claim its policies have fostered sustainable – if slow – growth for the mainstream economy.

  This wasn’t the first time Yellen has said as much. It won’t be the last. In November 2013, she saw no equity or real estate bubble, either. In July 2014, at an IMF lecture, she said the Fed wouldn’t raise rates just to burst bubbles, rather when the US has a healthy job market with stable prices.  She has assumed Ben Bernanke’s mantras in this regard.

  Each time she speaks, the media enters interpretation overdrive and markets react similarly. They drop initially, then rebound to slightly lower levels than before. The pattern is becoming increasingly pronounced, though, as is the associated volatility.

  Recent volatility spikes underscore the fragility of markets inhaling cheap money due to the global central bank policies that began with the US Federal Reserve, and spread to the European Central Bank, the Bank of Japan and the People’s Bank of China.  The IMF has recently stated that, despite rising volatility, a dose of “QE-Plus” may be needed.

  Since the beginning of 2015, the stock market has fluctuated between new highs and turning negative for the year. Movements are mostly linked to the rate hike timing guessing game, amidst a roster of other commonly circulated “threats” from Grexit to erratic oil price behavior. Associated speculation is marked by lengthy media debates about what the word ‘patience’ means regarding Fed talk on rate hikes and smatterings of the realization that artificially stimulated markets don’t promote real long-term growth.

  Growing Credit Risk

  Yellen also mentioned "compression of spreads on high-yield debt, which certainly looks like a reach for yield type of behavior.” Obviously.  When high-grade debt interest rates are low, the only place to grab yield is in riskier securities. A credit bubble develops. This awareness has not been met with deterrent policy though, leaving the propensity of compressed spreads (and credit default spreads) to blow out (widen) from these levels.

  The Fed’s goalposts on rate hikes keep changing. Globalization of low to negative interest rates and dampening of currency exchange rates relative to the dollar has helped keep US rate policy where it is, though the Fed doesn’t say this. The Fed’s zero-interest-rate and QE policy has propped markets, encouraged corporate share buybacks, caused yield seekers to buy riskier securities, and provided banks incentives to leverage it all.

  Yellen isn’t wrong in her diagnosis; she’s just ignoring the Fed’s role in it. So is every other central bank and multinational entity. They offer liquidity crack and then wonder why junkies multiply. The Fed missed the last bubble and is missing this one. Meanwhile, the rate-hike guessing game increases market volatility.

  From Geo-Politics to Manipulation

  Excessive speculation also provokes volatility, especially as enacted by the major market players that control the narrative and the trading volume. This occurs with stocks, bonds, and commodities.  Often such moves rely on geo-political tensions as a cover.

  When the US and its Euro-friends slapped economic sanctions on Russia over its actions in the Ukraine, the fallout was used to explain weaker market days.  Oil price drops were partially attributed to Middle East tensions, ostensibly because OPEC didn't agree to withhold production. They were also used to explain Russian economic weakness, allowing the Obama administration to gloat about the success of its sanctions.

  Energy volatility, widely reported as oil price movements, can impair household budgets and the overall economy. When oil prices are elevated, associated household costs rise. When they drop, media stories about resultant layoffs can dampen markets and household investments in them. To the extent that prices are manipulated in either direction by financial players and not end-producers or users, they cause excessive volatility.

  Big banks don’t care about any of this. They have the capital and global agility to leverage whatever situation arises. If Russia is weak, head to Latin America. If US hedge funds force Argentina into technical default, press Obama to lift sanctions and head to Cuba. It’s a merry-go-round of institutional speculation followed by volatility and decline.

  Financial firms, including banks, hedge funds and less regulated players, exert tremendous power through leveraging capital, trading positions and public predictions. They can hype up prices to attract money into their market of choice and quickly reverse course, aided by a media eager to follow the story-du-jour for page-views or ratings.

  The power of the large trading players to move prices remains vast. The Big Six US banks control 97% of all trading assets in the US banking system and 95% of all derivatives. Thirty Globally Systemically Important Banks (GSIB’s) control 40% of lending and 52% of assets worldwide. As volatility rises, ongoing concentration in these still-too-big-to-fail entities that can manipulate financial markets, produces triple digit stock market swings that capture headlines and stoke people’s fears.

  Subsidization for the elite banking class can’t last forever. But it has already overstayed its welcome many times over, so predicting a specific end date is not easy (though I’m going with mid-2016, when the ECB will be done with this round of bond-buying.) In the interim, rising volatility signals an unraveling of current polices that can’t be ignored.

  The uncertainty surrounding the inevitability, if not the exact timing, of multiple and possibly overlapping volatility drivers is itself a source of volatility. For the average person, these signs can be scary. Taking steps to avoid the circus as much as possible, such as extracting money from the markets, securing personal assets, and waiting out the swings, can be a source of emotional comfort and future financial stability.

  In Part 2: Protecting Yourself In The Coming Era Of Volatility, we look closer at the factors mostly likely to trigger market gyrations, as well as steps investors should be considering to safeguard capital in a coming age that promises turbulence and unpredictability.

  Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

  

  

  
  
  

  

• In India, Gold Is Not Only Money But Now Pays Interest

  Despite Bernanke's previous protestations that "gold is not money… it is tradition," it appears the Indian government – having come to the rapid realization that any attempts to thwart the use of gold as a monetary equivalent merely forced the people to hoard the precious metal in ever larger amounts and ever more shadow, un-regulated, ways – now has a very different opinion.

  In an effort to mobilise 20,000 tonnes of unproductive gold owned by Indian households into cash, Reuters reports that – after unveiling the gold monetisation scheme on Feb 28th, India's FinMin Arun Jaitley released bank guidelines overnight on interest rates, reserve and liquidity ratios. The scheme "allows gold to become a dynamic, fungible asset in the hands of gold savers."

  As we previously noted – before India went full gold-curb-tard when the finance minister said "demand for gold must be moderated" – this chart from 2012 shows the staggering eightfold increase in India's gold loans "which monetize the idle gold in the country", in just four short years.

   

  

   

  And now, as Reuters reports, India could allow individuals deposit a minimum of 30 grams of gold with banks in return for interest payments to help monetise large quantities of the metal lying with households, a step that is aimed at cutting expensive imports.

  Banks could treat gold deposits as part of their cash reserve ratio (CRR) or statutory liquidity ratio (SLR), the finance ministry said in its guidelines released on Tuesday to seek opinions about its gold monetisation scheme. It said the stakeholders could respond to its suggestions by June 2.

   

  The SLR is the minimum amount of bonds that banks must have, while the CRR is the share of deposits they have to compulsory keep with the central bank.

   

  "Both directionally and in terms of content, this draft reflects a practical approach," said Somasundaram PR, managing director of World Gold Council's India operations.

   

  "Once the incentive framework falls into place to the satisfaction of the banks, customers and others, we will own a uniquely Indian scheme that allows gold to become a dynamic, fungible asset in the hands of gold savers."

   

  Indians' penchant for gold spans centuries and is rooted in the Hindu religion, with the Diwali festival being one of the biggest annual buying seasons. Gold also forms part of dowries and it is an instrument of financial security for 70 percent of India's rural population.

  The government is trying to convince households, who sometimes have little faith in financial institutions, to break the tradition and hand over gold passed down the generations.

  Under the scheme, customers' will have to deposit gold for at least a year and banks may pay the interest after 30 or 60 days of the opening of the gold savings account, the proposal said.

   

  Both the interest and the principal payable to depositors are likely to be valued in gold and the gains will be tax-free, it said.

   

  "Lower threshold for deposits and tax exemptions will make the scheme attractive for households," said a Mumbai-based dealer with a bullion importing bank.

   

  But the biggest challenge would be to set up collection centres that can accept gold, the dealer said.

  *  *  *

  We are reminded of the RBI's 2012 report on Gold loans and imports… whose purpose is to isolate the attractiveness of gold to the general population, and most importantly, prevent it, is that gold demand must be limited as the only control a collapsing central-bank based statist system has is in controlling "money" that is infinitely dilutable and can inflate away debt, not the type that actually has value, and that a central bank can't create out of thin binary air. Hence the report's conclusion:

  Summing-up:

   

  There is a need to moderate the demand for gold imports, as ensuring external sector’s stability is critical. But, it is necessary to recognise that demand for gold is not strictly amenable to policy changes and also is price inelastic due to varied reasons. What is critical is to ensure provision of real returns to investors through various financial savings products. What is also relevant is the need for banks to introduce new gold-backed financial products that may reduce or postpone the demand for gold imports. The Working Group believes that providing real rate of return to investors through alternative instruments holds the key to reducing the excessive  demand for gold. Meanwhile, there is also a need to increase monetisation of idle gold stocks in the economy for productive purposes.

   

  As of now, there appears to be no close substitute to wean away investors’ attention from gold. Investors’ awareness and education is important, in this context, to channel the investment to gold-backed financial products. Banks and NBFCs may continue to deliver gold jewellery loans, which monetises the idle gold in the country. The gold loan market has grown well in recent years. It is time for consolidation of the operations of the gold loan NBFCs. The gold loans NBFCs need to transform themselves into institutions free of complaints, have proper documentation and auction procedures, with rationalised interest rate structure and have a branch network that is fully safe and secure. Gold loans NBFCs’ linkage with formal financial institutions may be reduced gradually. Such transformation ensures the gold loans NBFCs’ future growth more robust, besides making them a contributing segment to the financial inclusion process.

  One can almost feel the panic.

  *  *  *

  In short it proves that in India, gold is the only real money, and is the only fallback option in a country where inflation is still rampant, and where even simple peasants prefer to keep their wealth not in the local paper currency, which has been losing its value aggressively in recent years, but in the shiny metal. Must be "tradition."

  * * *Full details of India's Gold monetization scheme below…

  Draft Gold Monetization Scheme

  What this means for the supply and demand dynamics of not paper, but real physical gold, we leave to our readers to decipher… or ask blogger Ben (if he's not too busy at his new hedge fund).

  

  

  
  
  

  

• "This Divergence Is At The Root Of Most American Economic Problems"

  Some critical observations on changes in the US economy over the past two generations, which are certainly not for the benefit of the American middle-class worker, courtesy of the Economic Policy Institute.

  Unpaid Productivity

  Since 1979, hourly pay for the vast majority of American workers has not only lagged behind growth at the very top of the distribution and thus behind average wage growth, but has also diverged from economy-wide productivity, as shown in Figure M. This divergence is at the root of numerous American economic challenges (Bivens et al. 2014).

  

  Labor productivity is a measure of the value of goods and services produced in the economy in an average hour of work. It rises steadily over time (except possibly during some recessionary years) as technology, capital intensity, and the educational attainment of the U.S. workforce increase. When labor markets are tight and/or policy provides bargaining power to workers through labor market institutions such as a protected right to unionize and robust minimum wages, productivity increases usually generate corresponding wage increases. From 1948 to 1979, this combination of healthy labor markets and institutional support of workers’ bargaining power was sufficient to keep wage growth for the majority of U.S. workers tracking productivity growth. Over this period, net productivity (productivity after accounting for depreciation of capital) grew by 108.1 percent, and the compensation of nonsupervisory production workers (who comprise roughly 80 percent of the private-sector workforce) grew by a comparable 93.4 percent. Thus, the typical worker shared in the economic spoils of increased productivity.

  However, between 1979 and 2013, there was a marked decoupling of productivity and typical workers’ compensation. Over this span, productivity grew 63.5 percent, while hourly compensation of production and nonsupervisory workers grew just 7.7 percent. Productivity thus grew eight times faster than typical worker compensation, which means the prosperity created over this time period did not result in broad-based wage gains.

  * * *

  So where did the prosperity come from, and who did it go to?

  As noted above, wage growth from the 1940s to the early 1970s almost exclusively benefited the “90%” bucket of American workers. In other words, this is how the great American middle class was born. And, as both charts above and below shows, ever since the 1980s, the only group that has benefited from the increase in US labor productivity in the form of skyrocketing income growth, is the “1%.”

  We don’t know what may have caused this dramatic divergence in the 1970s… but we have a good idea, one which we showed three months ago.

  

  In retrospect, we find it so very ironic that gold is allegedly (if one listens to the media of course) one of the most hated substances among “respected” economists, and yet it is the destruction of the gold standard that enabled the serf-ization of US society, which has culminated with a record class disparity between the rich and poor unseen at any one time in human history, surpassing the Gilded Age, and going all the way back to the French revolution.

  

  

  
  
  

  

• Our Social Depression

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  This erosion of opportunities to complete life's stages and core dramas is rarely recognized, much less addressed.

  The consequences of economic stagnation are not limited to finance: stagnation is causing a social depression. We can best understand this social depression by examining how the natural stages of human life are being disrupted.

  Confucian thought views life as a developmental process with seven stages, each roughly corresponding to a decade: childhood, young adulthood (16-30), age of independence (30-39), age of mental independence (40-49), age of spiritual maturity (50-59), age of acceptance (60-69), and age of unification (70 – end of life).

  Each stage has various tasks, goals and duties, which establish the foundation for the next stage.

  I see each stage as centered on a core human drama: for the teenager, establishing an identity and life that is independent of parents; for the young adult, finding a mate and establishing a career; for the middle-aged, navigating the challenges of raising children and establishing some measure of financial security; for those in late middle-age, helping offspring reach independent adulthood and caring for aging parents; early old age, seeking fulfillment now that life's primary duties have been accomplished and managing one's health; and old age, the passage of accepting mortality and the loss of vitality.

  The End of Secure Work and the diminishing returns of financialization are disrupting these core human dramas and frustrating those who are unable to proceed to the next stage of life:

  1. Teenagers are being pressured to focus their lives on achieving a conventional financial success (see "Training for Discontent" in From Left Field) that is becoming harder to achieve.

   

  2. Young adults without secure full-time careers cannot afford marriage or children, so they extend the self-absorption of late adolescence into middle age.

   

  3. The middle-aged are finding financial security elusive or out of reach as they struggle to fund their young adult children, aging parents and their own retirement.

   

  4. Increasing longevity is pressuring the late-middle-aged's stage of fulfillment, as elderly parents may require care even as their children reach their own retirement (65-70).

  The financial pressures generated by the demise of financialization and the End of Secure Work are not just disrupting each stage; they are disrupting essential financial balances between the young, the middle-aged and the old.

  The elderly, protected by generous social welfare benefits paid by current taxpayers, also benefit from the soaring value of assets such as real estate and stocks. Meanwhile, financialization's asset bubbles have pushed housing beyond the reach of most young people.

  Downsizing, lay-offs, low-paying replacement work and poor decisions to buy houses near the peak of the prior bubble have left many of the middle-aged with high fixed costs and a stagnant or increasingly insecure income.

  The stresses of trying to make enough money to afford what was once assumed to be a birthright–a "middle class" lifestyle–is taking a heavy toll on the mental and physical health of the middle-aged, leaving many of them too tired for any fulfilling activities and easy prey for destructive self-medication.

  This erosion of opportunities to complete life's stages and core dramas is rarely recognized, much less addressed. We are constantly bombarded with messages to innovate, keep up, be fulfilled, etc.–essentially impossible demands for those with multiple generational and/or business duties.

  When I talk about the Mobile Creative class, I'm not talking about a finance-centric definition of success or a path to join the top 5% in Corporate America and the government. The herd is chasing those dwindling slots, too, guaranteeing frustration and failure for the 95% who won't secure one of those slots. That is the essence of our social depression.

  What we're discussing is a way of living that places a premium on independent thinking, maintaining very low fixed costs, establishing a healthy honesty with oneself and one's associates and customers, the ability to make realistic assessments of oneself, one's successes, failures and errors, and a focus on challenges, opportunities, risks, adaptability, flexibility and experimentation, all with a goal of building one's own human, social and physical capital–the foundations not just of well-being but of any meaningful measure of wealth.

  

  

  
  
  

  

• China Bails Out Brazil In $50 Billion Regional Power Grab

  In early April, we asked if the $3.5 billion in financing the Chinese Development Bank provided to heavily indebted Petrobras was indicative of how China intends to invest once the Beijing-led Asian Infrastructure Investment Bank is officially up and running. We also noted how interesting (and ironic given how we’ve characterized the AIIB), it is that Beijing is investing in Washington’s backyard, effectively slighting the original Monroe Doctrine even as China tacitly implements its own take on an official policy of regional influence and control. 

  Three weeks later, we documented Xi Jinping’s historic trip to Pakistan where the Chinese President pledged to invest $46 billion in a variety of infrastructure projects including the long-delayed Iran-Pakistan natural gas pipeline as part of Beijing’s ambitious (to say the list) Silk Road initiative. As a reminder, the $46 billion is 53% more than the US has invested in Pakistan in 13 years and six times as much as what Washington promised under a recent program which the New York Times called a “dramatic failure.” 

  It’s against this backdrop that Chinese Premier Li Keqiang is touring Brazil, Colombia, Peru and Chile, and as Bloomberg notes, “China’s interest in Latin American isn’t just about oil and agriculture anymore.” It sure isn’t, because in a set of agreements worth as much as $54 billion, Beijing has just effectively bailed out AIIB member Brazil, further entrenching China into the economic and political future of Latin America in the process. 

  Via Reuters:

  Chinese Premier Li Keqiang came to the rescue of Brazil’s slumping economy on Tuesday with trade, finance and investment deals worth tens of billions of dollars in energy, mining, aviation and the upgrade of dilapidated infrastructure.

   

  On his first official trip to Latin America, Li saw a raft of agreements signed, ranging from a $1 billion purchase of passenger jets made by Brazil’s Embraer to the lifting of an import ban on Brazilian beef and a long-discussed plan to build a railroad over the Andes to the Pacific.

   

  “A new road to Asia will open for Brasil, reducing distances and costs, a road that will take us directly to the ports of Peru and, across the Pacific Ocean, China,” President Dilma Rousseff said, inviting Chinese companies to build it. Brazil and China agreed to study the feasibility of the rail link that would allow Brazilian exports to avoid the Panama Canal.

   

  Li put the value of Tuesday’s agreements at $27 billion, while Rousseff said they totaled $53 billion, a ballpark figure that aides said included past and future funding.

   

  The injection of capital from China could not come at a better time for Brazil, which is sliding into recession following the end of a commodity boom last decade that was fueled by voracious Chinese demand for its main exports, iron ore and soybeans…

   

  The two leaders announced that the Industrial and Commercial Bank of China Ltd (ICBC), the world’s largest bank by assets, will set up a $50 billion fund with Caixa Econômica Federal, Brazil’s largest mortgage lender, to invest in infrastructure projects in the South American country.

   

  The fund was another sign of China flexing its financial might in Latin America, a region that used to be dominated by the United States but where China lent more than the World Bank and the Inter-American Development Bank combined last year.

  

  
  

  Here’s more from The Latin Times on the massive cross-mountain rail undertaking:

  Peru, Brazil and China are moving forward on a transcontinental railway that will cut across the Andes and connect port cities in the Pacific and Atlantic coasts of South America. The agreement was announced during a four-country Latin American tour by Chinese Premier Li Keqiang. The mega rail project will cost an estimated $10 billion dollars. Technical studies are now underway and specific timelines are expected to be revealed in the coming months. The railway is expected to reduce the cost of exporting agricultural goods from Brazil to China, and bring new business to Peruvian ports.

   

  Brazilian grain is a top item on China’s wish list, as are iron and other raw minerals. Agricultural goods like corn and soy currently leave Brazil by boat heading south down the Atlantic coast, rounding the southern tip of Argentina, and heading back up the Pacific coast on it’s way to China. An overland route would shave off a few days from the trip, and lower transport costs by an estimated $30 per ton. That might not seem like much for a $10 billion dollar project, but Brazil exports millions of tons of grain to China each year.

  And a bit more color from FT:

  International rail contracts are a political priority for Beijing, which sees exports as a solution to China’s burdensome overcapacity in steel, rail, construction and engineering services as the economy slows. Chinese-built rail projects have been proposed for Thailand, Indonesia and central Asia.

   

  A rail programme fits Beijing’s preference for government-to-government infrastructure deals that can be allocated to state-owned companies, which remain wary of complex Latin American tax and labour laws. China engineered a merger in its two state-owned rail companies late last year to prevent them from undercutting each other in international tenders.

   

  The concept of a trans-Andes rail link is ambitious, with cost estimates ranging from $4.5bn to $10bn for a northern link through the Amazon. That route is almost certain to face opposition from environmental and indigenous rights groups as it would cross primary forests. A longer alternative through Peru’s southern deserts would have to include Bolivia but would justify large port investments in the south of Peru.

   

  

  Via Folha

  As is abundantly clear from the above, China is very serious about taking an opportunistic approach when it comes to expanding China’s influence in regions Beijing views as strategic. In Pakistan, China has an interest not only in bridging trade routes, but in facilitating the flow of Iranian gas and combating the spread of extremism along its western border. Now, Beijing is set to seize upon the commodities bust and invest in Latin America while conditions are ripe in order to both facilitate trade (China needs to do anything it can to combat decelerating economic growth) and cement Beijing’s regional power grab in what is supposed to be Washington’s strongest sphere of influence. 

  The US’ waning influence is now on full display in its own backyard.

  *  *  *

  Press release and full list of new agreements between China and Brazil (note the underlined projects):

  Steeped in close coordination and fluid that marks relations between China and Brazil. Thus it can be defined the visit of Prime Minister of China,  Li Keqiang, to Brazil, when he signed with President Dilma Rousseff a Joint Action Plan between the two countries in the period 2015-2021. 

  During the visit of the Chinese delegation, on Tuesday (19), have signed a total of 35 agreements covering infrastructure segments, manufacturing, trade, strategic planning, infrastructure, transport, agriculture, energy, mining, science and technology, trade, among others. Also, joint statements on the results of the Prime Minister’s visit and climate change were held.

  “The Joint Action Plan 2015-2021, which I signed with the Prime Minister inaugurates a higher stage in our relationship. It is expressed in the various agreements in multiple government and business agreements signed today, especially in the areas of investment and trade ” said President Dilma Rousseff…

  Brazil and China have important bilateral investment flows. Trade between the two countries reached US $ 77.9 billion in 2014, with Brazilian surplus of $ 3.3 billion. On the Brazilian side, the highlights are the aviation, banking, machinery, auto parts and agribusiness. It has been noted, too, diversification of Chinese investment in Brazil for energy, electronics, automotive and banking.

  According to José Alfredo Graça Lima, political undersecretary-general of the Foreign Ministry, “bilateral relations between Brazil and China point to a new type of cooperation between the two countries, with much more focus on investments in increasing production capacity, with Chinese contribution in technology for different areas. “

  35 agreements signed between the Brazilian and Chinese governments on Tuesday (19):

  FOREIGN AFFAIRS

  • Joint action plan between the Government of the Federative Republic of Brazil and the Government of the PRC (2015 – 2021)
  • Memorandum of Understanding for implementation of projects to promote investment and creation of business opportunities between the two countries.

  COMMUNICATIONS

  • Memorandum of Understanding on remote sensing, telecommunications and information technology
  • Collaboration agreement for funding and Project Free Wifi 4G operation
  • Agreement between Vivo and Huawei on the Tech City Project to expand the coverage and signal in the downtown area of ??Rio de Janeiro and Porto Maravilha region
  • Agreement on joint center of innovation in the mobile area
  • Memorandum of understanding on strategic cooperation fixed and mobile solutions

  PLANNING, BUDGET AND MANAGEMENT

  • Framework Agreement for the development of investment and cooperation in capacity area and the early harvest program of investments and cooperation in capacity area between Brazil and China

  TRANSPORT

  • Memorandum of Understanding on feasibility studies for the Transcontinental Railway Project
  • Framework Agreement on financing the purchase of 40 Embraer aircraft
  • Operating lease financing agreement for the Blue Airlines

  SCIENCE AND TECHNOLOGY

  • Additional Protocol on research and joint production of satellite earth resources China-Brazil (CBERS) 04a
  • Scientific cooperation agreement
  • Memorandum of Understanding on providing training in information technology to scholars of Science Without Borders program

  AGRICULTURE AND LIVESTOCK

  • Health and quarantine protocol requirement on the export of beef from Brazil to China
  • Cooperation agreement on animal health and quarantine
  • Framework Agreement for trilateral cooperation between the government of Mato Grosso do Sul state, the China Development Bank and the China BBCA group on corn and soybean processing

  SPORTS

  • Memorandum of Understanding for cooperation in the sport of table tennis and badminton modalities

  ENERGY

  • Memorandum of Understanding on cooperation in the nuclear technology field
  • Conclusion of agreement EDPR shares transfer to the Three Gorges Group on wind power project
  • Memorandum of Understanding on cooperation in promoting trade and investment for the construction of photovoltaic solar panels

  PETROBRAS

  • Framework Agreement for cooperation for the Petrobras project financing worth US $ 5 billion
  • Framework Agreement for cooperation for the Petrobras project financing worth US $ 2 billion
  • Cooperation Agreement for the creation of long-term relationship

  FOREIGN TRADE

  • Memorandum of global financial cooperation between the Valley and ICBC to offer financial services worth $ 4 billion
  • Contract of purchase and sale of Banco BBM SA shares by the China Communications Bank
  • Cooperation agreement for preferential partnerships and access to the Brazilian capital market

  INFRASTRUCTURE

  • Charter agreement between Vale and Cosco
  • Memorandum of Understanding aiming at the creation of the Polo Car of Jacarei / SP
  • Cooperation Agreement for the steel complex facility in Maranhao
  • Financing memorandum about purchasing project of 14 tonnage of iron ore ships of 400 000 tonnes
  • Financing memorandum about purchasing project of 10 tonnage of iron ore ships of 400 000 tonnes
  • Memorandum of Understanding for the acquisition of four ships of Class large ore carriers
  • Framework Agreement between China Merchants Shipping and Vale for shipping iron ore

  ENVIRONMENT

  • Memorandum of Understanding for private partnership with a view to preparing project within the Amazon integration program to renew and expand the current Amazon Protection System (SIPAM)

  

  

  
  
  

  

• The Illusion Of Democracy

  Distract, deny, democracy…

   

  

  Source: Jesse

  Which reminded us of this perennial note…

  The past several weeks have made one thing crystal-clear: Our country faces unmitigated disaster if the Other Side wins.

  No reasonably intelligent person can deny this. All you have to do is look at the way the Other Side has been running its campaign. Instead of focusing on the big issues that are important to the American People, it has fired a relentlessly negative barrage of distortions, misrepresentations, and flat-out lies.

  Just look at the Other Side’s latest commercial, which take a perfectly reasonable statement by the candidate for My Side completely out of context to make it seem as if he is saying something nefarious. This just shows you how desperate the Other Side is and how willing it is to mislead the American People.

  The Other Side also has been hammering away at My Side to release certain documents that have nothing to do with anything, and making all sorts of outrageous accusations about what might be in them. Meanwhile, the Other Side has stonewalled perfectly reasonable requests to release its own documents that would expose some very embarrassing details if anybody ever found out what was in them. This just shows you what a bunch of hypocrites they are.

  Naturally, the media won’t report any of this. Major newspapers and cable networks jump all over anything they think will make My Side look bad. Yet they completely ignore critically important and incredibly relevant information that would be devastating to the Other Side if it could ever be verified.

  I will admit the candidates for My Side do make occasional blunders. These usually happen at the end of exhausting 19-hour days and are perfectly understandable. Our leaders are only human, after all. Nevertheless, the Other Side inevitably makes a big fat deal out of these trivial gaffes, while completely ignoring its own candidates’ incredibly thoughtless and stupid remarks – remarks that reveal the Other Side’s true nature, which is genuinely frightening.

  My Side has produced a visionary program that will get the economy moving, put the American People back to work, strengthen national security, return fiscal integrity to Washington, and restore our standing in the international community. What does the Other Side have to offer? Nothing but the same old disproven, discredited policies that got us into our current mess in the first place.

  Don’t take my word for it, though. I recently read about an analysis by an independent, nonpartisan organization that supports My Side. It proves beyond the shadow of a doubt that everything I have been saying about the Other Side was true all along. Of course, the Other Side refuses to acknowledge any of this. It is too busy cranking out so-called studies by so-called experts who are actually  nothing but partisan hacks. This just shows you that the Other Side lives in its own little echo chamber and refuses to listen to anyone who has not already drunk its Kool-Aid.

  Let’s face it: The Other Side is held hostage by a radical, failed ideology. I have been doing some research on the Internet, and I have learned this ideology was developed by a very obscure but nonetheless profoundly influential writer with a strange-sounding name who enjoyed brief celebrity several decades ago. If you look carefully, you can trace nearly all the Other Side’s policies for the past half-century back to the writings of this one person.

  To be sure, the Other Side also has been influenced by its powerful supporters. These include a reclusive billionaire who has funded a number of organizations far outside the political mainstream; several politicians who have said outrageous things over the years; and an alarmingly large number of completely clueless ordinary Americans who are being used as tools and don’t even know it.

  These people are really pathetic, too. The other day I saw a YouTube video in which My Side sent an investigator and a cameraman to a rally being held by the Other Side, where the investigator proceeded to ask some real zingers. It was hilarious! First off, the people at the rally wore T-shirts with all kinds of lame messages that they actually thought were really clever. Plus, many of the people who were interviewed were overweight, sweaty, flushed, and generally not very attractive. But what was really funny was how stupid they were. There is no way anyone could watch that video and not come away convinced the people on My Side are smarter, and that My Side is therefore right about everything.

  Besides, it’s clear that the people on the Other Side are driven by mindless anger – unlike My Side, which is filled with passionate idealism and righteous indignation. That indignation, I hasten to add, is entirely justified. I have read several articles in publications that support My Side that expose what a truly dangerous group the Other Side is, and how thoroughly committed it is to imposing its radical, failed agenda on the rest of us.

  That is why I believe [2016] is, without a doubt, the defining election of our lifetime. The difference between My Side and the Other Side could not be greater. That is why it absolutely must win [in 2016].

  

  

  
  
  

  

• The Student Loan Write-offs Have Begun: 78,000 Students File For Debt Discharge After Corinthian Closures

  When Corinthian Colleges abruptly shuttered its remaining campuses late last month we asked if for-profit colleges will be the next multi-billion dollar taxpayer-sponsored bailout. That may have seemed like a bit of hyperbole on our part but in fact it was not, because as we explained then, students left out in the cold by Corinthian owed some $200 million in federal student loans and when the government forces an institution to close its doors (which is effectively what happened with Corinthian), students can apply to have their debt discharged. 

  Because Corinthian is a for-profit institution, students won’t have a particularly easy time transferring their credits (meaning they would have to start over at another school if they wanted to complete their degrees), we said that more likely than not, the government (i.e. taxpayers) would end up eating the cost of forgiving their debt. 

  Fast forward three weeks and sure enough, the government is scrambling to figure out what to do after Secretary of Education Arne Duncan received a group request from 78,000 students requesting loan forgiveness. 

  Via Reuters:

  The bankruptcy of Corinthian Colleges Inc, one of the biggest for-profit college chains, has set off a scramble to find a way to wipe away billions of dollars of student loans for those who attended its campuses.

   

  More than 50 consumer and labor organizations sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian schools.

   

  The groups, including the National Consumer Law Center, said the Department of Education had the authority because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.

   

  Corinthian settled allegations about misrepresenting job placements with the California attorney general in 2007.

   

  NCLC lawyer Robyn Smith said there was no precedent for the department to cancel student debt in the way the groups were urging.

   

  “Unfortunately, they haven’t used this authority before,” she said.

   

  The Department of Education said it had not decided how any debt relief would work.

  Well Department of Education, allow us to tell you how the debt “relief” will work. You will end up being forced to write it off because you closed down the school.

  And while your decision to shutter the college was likely the right move given the for-profit industry’s reputation for absurdly predatory recruiting practices, you have no one to blame but yourself for allowing these institutions to live off of billions in federal loans for years (while their CEOs pulled in millions in compensation), when you likely knew that in the end, they would have to be closed down once Congress got wind of how they went about luring students. 

  The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with tens of billions of loans they now know can be legally discharged. Note that we have not used the term “canceled”, because as we like to remind readers, liabilities are never “canceled”, they are simply written off by the person for whom they are an asset.

  Finally, it’s worth noting that nearly every student displaced by a for-profit closure will have student loans because when tuition is double that charged by public institutions, taking out loans is the only option for 88% of attendees. In other words, when the government finally goes all-in on its for-profit crackdown, not only will every student have debt, but the outstanding amount will be about 36% larger than that carried by graduates of public schools. 

  So yes, this could indeed wind up being a multi-billion dollar taxpayer sponsored bailout, and the first $200 million writedown is just around the corner.

  

  

  
  
  

  

• The Fed Has Created A "Clockwork Orange" Market

  Via Scotiabank's Guy Haselmann,

  As an 18-year old college freshman taking ‘Pysch 101’, I watched the highly-disturbing Stanley Kubrick film-version of A Clockwork Orange.  The story takes place in a dystopian futuristic London and exposes the extreme battle of good versus evil.

   

  After the sociopathic and violent gang leader Alex was captured, the government decided to deploy a modern behavioral modification method to reform him.  This experimental treatment was  highly-controversial.

   

  The government’s idea was to use the cruelest members of society to control everyone else.  While well intentioned, the unintended consequences were poorly understood.

  Extracting out the violence, I can’t help but notice the symbolic similarities of the motif-ridden story with the 2008 financial market fallout and subsequent attempts at economic rehabilitation.  Leading up to 2008, unsavory behavior of both borrowers and lenders conspired with lax rules to provide the conditions for the crisis to manifest.  Today, there are daily articles about how restrictive regulations are stifling banks and market-makers and causing a deleterious impact on market liquidity.  The intention of regulators is to deter risk taking in the banking system with the goal of preventing a similar banking-style crisis from ever re-occurring.

  The film forces the viewer to weight the values and danger of both individual liberty and state control.  It forces us to consider how much liberty we are willing to give up for order, and how much order we are willing to give up for liberty.  The central idea of the film has to do with the freedom of the individual to make free choices, but free choice becomes problematic when it undermines the safety and stability of society. It reminds me of the markets price discovery mechanisms (or lack thereof).

  Bond rates and stocks are in the midst of the greatest detachment of prices from economic reality in history.  Even during the Great Depression of the 1930’s, when unemployment was 25% and there was confirmed deflation, the US 10-year rate never traded below 2.00% yield.  How then is it possible that the US 10-year note traded below 2.0% last month with the US economy near full-employment and inflation relatively stable near 1.5%?

  • The answer to the question is that price levels have become influenced by regulatory rules and central bank hoarding.  They are also a function of shifts in investor behavior to the ‘respondent conditioning’ of central bank policies that foster moral hazard and risk seeking activity.  

  By promising to ‘do whatever it takes’, central banks have conditioned investors to buy the dip and over-weigh the riskiest assets.   Despite the Fed being possibly out of fire power, the ‘classical conditioning’ response remains strong.  However, it can wear off.   In the movie, Alex was actually ‘cured of the cure’; he had so much of the ‘medicine’ that it eventually became ineffective.  In the end, the experiment failed:  the state replaced Alex’s violence with its own; he was freed; and eventually the original problem resurfaced in a different form.

  • This seems analogous to the Fed trying to eradicate systemic risk in the banking system.  Yet, in the process, the Fed has fomented large asset price inflation; compromised market liquidity; and as Richard Fisher says, “the Fed is now the largest hedge fund in the world”. 

  Prior to being ‘cured of the cure’, side-effects materialized or became counter-productive to the process (as they were in experiments by B.F. Skinner or Ivan Pavlov).  For global central banks, the long term problems of financial repression are clear. Any policy that punishes savers and frugality, and rewards borrowers and profligacy is not prudent in the long-run.  Moral hazard and reduced investor discipline results from debt monetization.  It also reduces incentives for politicians to control public finances.

  Any process that is unsustainable will eventually end.  Ever-growing reliability on debt-driven consumption and increases in levels of entitlements in order to drive economic growth, boost living standards, or manage inequality concerns, is untenable and a ruinous direction.  Even Keynes said that a government should borrow money to close the GDP gap and get the economy back on track, but once it is back on track, the borrowed money should be paid back.  Seven years into this crisis, the level of debt in major economies has increased.

  There is no “free lunch”.  At some point the underlying issues will have to be addressed with the correct policy tools.  The end to political polarization in Washington may require a financial crisis.  QE4 will never happen as it would compromise the Fed’s independence, so the next financial burden will require a congressional response.

  Regardless, at this point, Fed policies and its $4.5 trillion balance sheet have reached their practical limit and may have even become a source of systemic risk and market uncertainty.  In this light, it is time to pull back.  I suspect the Fed will hike rates no later than the July FOMC meeting.

  “What is it going to be then, eh? – Anthony Burgess, A Clockwork Orange

  

  

  
  
  

  

• If Your Doctor Drives The Following Cars, He Is Probably A Criminal

  If your doctor drives any, and certainly all of the cars listed below, there is a virtually 100% certainty said doctor is a criminal…

  

  … just like the above noted “Doctor” Xiulu Ruan, M.D., who is a doctor only by title: his real descrption is “legal” drug dealer, one who provides pain medication to drug addicted junkies for a (high) fee, and who is a favorite brand ambassador of such “legal’ drug makers as Insys Therapeutics, maker of the Subsys 400 microgram Fentanyl anti-pain spray.

  “Dr.” Ruan, together with his business partner John Patrick Couch, M.D, were arrested earlier today on drug and fraud charges (full indictment pdf here) as part of an FBI and DEA raid of Physicians’ Pain Specialists of Alabama Pain Center on Springhill Avenue and Airport Boulevard in Mobile. The practice, together with the adjacent pharmacy, C&R Pharmacy, was all part of a wildly profitably pain drug distribution ring.

  The cars listed above, and which have now been confiscated by the state of Alabama, are what Ruan purchased with the spoils of fraudulently selling pain drugs to starved junkies, all under legal pretenses (the Pain Specialists website notes that on 4/18/2013, “Xiulu Ruan, MD, a fellowship trained physician, has broken his own world record of having 7 medical board/subspecialty board certifications.”), and then padding his reimbursement demands from benefits programs.

  Turns out Ruan’s 7 ‘record’ certifications were not enough and now he is assured of spending lenghty time in prison.

  Why?

  According to the charging document, Ruan and Couch, “conspired with each other and with others… to knowingly, willfully, and unlawfully distribute and dispense, and cause to be distributed and dispensed, Schedule II controlled substances including but not limited to: Oxycodone, Oxymorphone, Hydromorphone, Morphine, Fenantul, and Methadone, outside the usual course of professional practice and not for a legitimate medial purpose.”

  But for a perfectly legitimate business purpose: to make “tons of money”, by first getting patients hooked to pain medications, and then stuffing them full of near lethal doses of said drugs, all of which the “doctors” would then get reimbursement for, while making both themselves and the manufacturing company millions of dollars:

  According to the Grand Jury charge, “the objective of the conspiracy was to unlawfully increase the amount of reimbursement received from healthcare benefits programs.”

  But that’s just the tip of the iceberg.

  The real crime in question lies not so much with “doctors” Ruan and Couch who were merely low-level drug distributors, but with drug manufacturing and wholesale companies, particularly such as the abovementioned Insys makes of Subsys, which is the topic of a recent investigative piece by the Boyd Roddy of the Southern Investigative Reporting Foundation titled “Insys Therapeutics and The New “Killing It.”

  This is what Roddy had to say about INSY, a $2 billion market cap company, whose story provides a good glimpse into just how biotech companies have shortcutted their way to blockbuster stardom in the last few years:

  Insys Therapeutics is doing pretty darn well. The company has had a remarkable level of financial success and its soaring stock price has made it a darling on Wall Street.

   

  But that level of growth ought to warrant a raised eyebrow; going to over $222 million sales from about $15.5 million in just two years without inventing something like a better search engine is no mean feat. Fentanyl, after all, has been around for many years and while Subsys is the only spray version available, several of Insys’s competitors are well-established and better capitalized, with sales forces that reach all 50 states.

   

  While details on the particulars of the breakthrough pain medication market are hard to find, or at least details that aren’t self-serving management estimates, veteran sales staff from Insys and other pharmaceutical companies put its growth prospects at roughly 10% a year. If that’s true, and the company is selling to oncologists then growth possibilities for Insys should be a function of that plus whatever they can take away from its larger competitors. Many companies would be happy for those odds.

   

  But Insys grew north of 100%, implying that whatever organic growth they are getting is being aided by a whole lot of doctors who have grown profoundly fond of an expensive drug that brings an acre of governmental red-tape with it and that one of the largest pharmacy benefit managers will no longer touch.

   

  The question then becomes “How?” and “Why?”

   

  A SIRF investigation into Insys reveals that this growth has come at a remarkable price: Food and Drug Administration data shows that Subsys is proving lethal to a growing number of patients, many of whom, like Carolyn Markland, are taking it for so-called off-label indications, such as headaches and back pain.

  For more answers of what really takes place every day in the corrupt underbelly of America’s healthcare industry, the linked 4,100-word piece is a must read for anyone with even a passing interest in not only said industry, but for a spoiler alert, one need to only look at this table of the highest reimbursed doctors doctors for the 2013-2014 period under TRICARE, the U.S. military’s primary health insurance plan, one which represents 9.5 million people or 3% of the US population.

  

   

  So, here’s to you, Doctor Charlatan Xiulu Ruan: we hope prescribing millions in overpriced, potentially deadly pain medication to US army vets was worth it, and that the 13 sports cars you purchased on their hurting backs will either keep you warm at night, and keeps Bubba away during those long nights at the Talladega Federal Correctional Institution.

  Source: US Indictment against John Patrick Couch and Xiulu Ruan

  

  

  
  
  

  

• Ray Dalio Slams Buffett For Being "Wrong On Gold", Says "Social Disruption" Is Inevitable

  Given the recent resurgence of precious metals and the looming ‘endgame’ of Federal Reserve faith, we thought dusting off the following 160 seconds of uncomfortable truth from Bridgewater’s Ray Dalio was worthwhile…

  “we’re beyond the point of being able to successfully manage this… and I worry about another leg down in the economy causing social disruption… Hitler came to power in 1933 because of the social tension between the factions.“

   

  “Gold should be a part of everybody’s portfolio to some degree because… it is the alternative money.

   

  Warren Buffett is making a big mistake.”

  Dalio explains…

  

  

  
  
  

  

Digest powered by RSS Digest

• Welcome To New Britain – Europe's 21st Century 'Balkans'

  “When you have anti-English, pro-European nationalists in Scotland and anti-European, pro-British nationalists in England, spiced up with a few anti-English, pro-European nationalists in Wales and of course, the anti-each-other, pro-whatever your having yourself, British and Irish nationalists in that blissfully incoherent chunk of Ulster – Northern Ireland, you know you’re not in the old UK." Welcome to new Britain, Europe’s 21st century version of the Balkans!

   

  

   

  Via Punk Economics:

   

  h/t ValueWalk

  

  

  
  
  

  

• Are They About To Confiscate Money From Bank Accounts In Greece Just Like They Did In Cyprus?

  Submitted by Michael Snyder via The Economic Collapse blog,

  Do you remember what happened when Cyprus decided to defy the EU?  In the end, the entire banking system of the nation collapsed and money was confiscated from private bank accounts.  Well, the nation of Greece is now approaching a similar endgame.  At this point, the Greek government has not received any money from the EU or the IMF since August 2014.  As you can imagine, that means that Greek government accounts are just about bone dry.

  The new Greek government continues to insist that it will never “violate its anti-austerity mandate”, but the screws are tightening.  Right now the unemployment rate in Greece is over 25 percent and the banking system is on the verge of collapse.  It isn’t going to take much to set off a panic, and when it does happen there are already rumors that the EU plans to confiscate money from private bank accounts just like they did in Cyprus.

  Throughout this entire multi-year crisis, things have never been this dire for the Greek government.  In fact, Greece came this close to defaulting on a loan payment to the IMF back on May 12th.  And with essentially no money remaining at all, the Greek government is supposed to make several large payments in the weeks ahead…

  Athens barely made its latest payment (May 12) to the International Monetary Fund (IMF), and it managed to do so only when the government discovered that it could use a reserve account it wasn’t aware of, according to the Greek media.

   

  Kathimerini, a Greek daily newspaper, reports that Prime Minister Alexis Tsipras wrote to the IMF’s Christine Lagarde warning that Greece would not be able to make that May payment, worth €762 million ($871 million, £554.2 million).

   

  Pension and civil-servant pay packets are due at the end of the month, and based on this news Athens may struggle to pay them. Even if it does manage that, on June 5 the country owes another €305 million to the IMF.

   

  In the two weeks following June 5 there are another three payments, bringing the June total to the IMF to over €1.5 billion.

  The Germans and the other financial hawks in the EU are counting on these looming payment deadlines to force Greece into a deal.

  Meanwhile, Greek banks also find themselves in very hot water.  Many of them are almost totally out of collateral, and without outside intervention some of them could start collapsing within weeks.  The following comes from Bloomberg…

  Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors.

   

  As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more and more emergency liquidity every week. In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say.

   

  “The point where collateral is exhausted is likely to be near,” JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients May 15. “Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June.”

  If no agreement is reached, by this time next month Greece could be plunging into a Cyprus-style crisis or worse.

  And if that does happen, there are already rumblings that a “Cyprus-style solution” will be imposed.  Just consider what James Turk recently told King World News…

  The troika of the EU, ECB and IMF have not yet pulled the plug on the Greek banks, but the following quote in the Financial Times from this weekend should be a warning to anyone who still has money on deposit in that country: “The idea of a “Cyprus-like” presentation to Greek authorities has gained traction among some eurozone finance ministers, according to one official involved in the talks.”

   

  The ECB is up to its eyeballs swimming in unpayable Greek debt that it holds. The ECB is not going to take a loss on this Greek paper on its books. Because Greece does not have the financial capacity to repay what is now about €112 billion of credit exposure to Greece on the ECB’s books, the ECB has only two alternatives.

   

  It can push the €112 billion of Greek debt it holds to the national central banks of the Eurozone and on to the backs of the taxpayers in those countries, which it politically untenable. Or it can confiscate depositor money in Greek banks, like it did in Cyprus and as the FT has now reported.

  Needless to say, such a move would be likely to set off financial panic all over Europe.

  Could we actually see such a thing?

  Well, let’s recall that back in April we already saw the Greek government forcibly grab “idle” cash from the bank accounts of regional governments and pension funds.  The following is from a Bloomberg report about that event…

  Running out of other options, Greek Prime Minister Alexis Tsipras ordered local governments and central government entities to move their cash balances to the central bank for investment in short-term state debt.

   

  The decree to confiscate reserves held in commercial banks and transfer them to the Bank of Greece could raise as much as 2 billion euros ($2.15 billion), according to two people familiar with the decision. The money is needed to pay salaries and pensions at the end of the month, the people said.

   

  “It is a politically and institutionally unacceptable decision,” Giorgos Patoulis, mayor of the city of Marousi and president of the Central Union of Municipalities and Communities of Greece, said in a statement on Monday.“No government to date has dared to touch the money of municipalities.”

  Grabbing cash from the bank accounts of private citizens is just one step farther.

  And what happened in Cyprus just a couple of years ago is still fresh in the minds of most Greeks.  That is why so many of them have been pulling money out of the banks in recent weeks.  The following comes from Wolf Richter…

  Greeks remember very well what happened in Cyprus in 2013, when local banks were given a big thumbs-up from Europe to help themselves to their depositors’ accounts. Cyprus and Greece are very closely tied, and many Greeks consider the island a “sister-nation.”

   

  What little trust remained in banks in Greece died that day. People have been nervously looking for signs something similar may happen again in their home country.

   

  And they resolved to act at the first sign of danger: banks cannot confiscate money you have under your mattress. Cash can be hidden away.

  Let’s certainly hope that what happened in Cyprus does not happen in Greece.

  But right now, both sides are counting on the other side to fold.

  The Germans believe that at some point the economic and financial pain will become so immense that it will force the new Greek government to give in to their demands.

  The Greeks believe that the threat of a full blown European financial crisis will cause the Germans to back down at the last moment.

  So what if they are both wrong?

  What if both sides are fully prepared to stand their ground and take us over the cliff and into disaster?

  For a long time I have been warning that a great financial crisis is coming to Europe.

  This could be the spark that sets it off.

  

  

  
  
  

  

• No, You Can't Go Back To The USSR!

  Submitted by Dmitry Orlov via Club Orlov blog,

  One of the fake stories kept alive by certain American politicians, with the help of western media, is that Vladimir Putin (who, they vacuously claim, is a dictator and a tyrant) wants to reconstitute the USSR, with the annexation of Crimea as the first step.

  Instead of listening to their gossip, let's lay out the facts.

  The USSR was officially dissolved on December 26, 1991 by declaration ?142-H of the Supreme Soviet. It acknowledged the independence of the 15 Soviet republics, and in the place of the USSR created a Commonwealth of Independent States, which hasn't amounted to much.

  In the west, there was much rejoicing, and everyone assumed that in the east everyone was rejoicing as well. Well, that's a funny thing, actually, because a union-wide referendum held on March 17, 1991, produced a stunning result: with over 80% turnout, of the 185,647,355 people who voted 113,512,812 voted to preserve the USSR. That's 77.85%—not exactly a slim majority. Their wishes were disregarded.

  Was this public sentiment temporary, borne of fear in the face of uncertainty? And if it were to persist, it would surely be a purely Russian thing, because the populations of all these other Independent States, having tasted freedom, would never consider rejoining Russia. Well, that's another funny thing: in September of 2011, fully two decades after the referendum, Ukrainian sociologists found out that 30% of the people there wished for a return to a Soviet-style planned economy (stunningly, 17% of these were young people with no experience of life in the USSR) and only 22% wished for some sort of European-style democracy. The wish for a return to Soviet-style central planning is telling: it shows just how miserable a failure the Ukraine's experiment with instituting a western-style market economy had become. But, again, their wishes were disregarded.

  This would seem to indicate that Putin's presumptuously postulated project of reconstituting the USSR would have plenty of popular support, would it not? What he said on the subject, when asked directly (in December of 2010) is this: “He who doesn't regret the collapse of the USSR doesn't have a heart; he who wants to see it reborn doesn't have a brain.” Last I checked, Putin does have a brain; ergo, no USSR 2.0 is forthcoming.

  Interestingly, he went on to say a few more words on the subject. He said that the USSR had a competitive advantage as a unified market and a free trade zone. This one element of the USSR is now embodied in the Customs Union, of which Russia, Belarus, Kazakhstan and several smaller countries are members, and it appears to be a success.

  The Ukraine—with over 40 million inhabitants, a major piece—refused to join while continuing to trade mostly with Customs Union members. This strategy has turned out to be, to put it mildly, disadvantageous, with Ukrainian economy now in rapid collapse, having declined over 17% in just the first quarter of this year. Thus, while the theory of competitive advantage may or may not be valid, the converse competitive disadvantage of *not* joining the Customs Union is there for all to see.

  * * *

  To be sure, many aspects of the old USSR have been happily consigned to oblivion. Among them:

  • The communist ideology: the Communist Party no longer has a monopoly on power.
  • The bloc mentality: the Warsaw Pact evaporated, leaving NATO behind as the one hand clapping. The new system is a multipolar one.
  • Central planning: replaced with a market economy
  • Economic isolationism: replaced with an export-driven economy based on trade agreements with numerous nations around the world
  • Authoritarian governance: replaced with authoritative governance, in which leaders derive their authority from their popularity, which is based on their performance in office, whereas previously the General Secretary of the CPSU was a bit like the Pope—infallible by definition.

  These are all positive changes, and very few people regret that they have occurred, or wish for a return to status quo ante.

  There are many other aspects of the old USSR which have been degraded, sometimes severely, but nevertheless remain in place. Among them are public health and public education.

  The USSR had a system of socialized medicine that excelled at some things and was mediocre in others. The shift to privatized medicine has been a success in some ways, but is very hard on those who cannot afford the care or the medications. The educational system is still very good at all levels, but here too there has been significant degradation, bemoaned by many observers.

  The USSR invested heavily in science and culture, and much has been lost during the difficult years of the 1990s—something that many people regret very much. The USSR led the world in basic scientific research, probing into matters that did not have any commercial applications, simply because they were scientifically interesting and led to publishable results. The US led the world in product design, something that Soviet engineers were happy to simply copy much of the time, to save time and effort. Since they were not attempting to export into the western consumer market, a slight lag in time to market was of no consequence to them.

  On the other hand, Americans have always had trouble wrapping their heads around the idea of financing scientific research that had absolutely no conceivable commercial applications. In addition, the anti-intellectualism prevalent in American culture caused a proliferation of other sorts of “scientists”: political scientists, social scientists, food scientists… a certificate in “janitorial science” wouldn't be too much of a stretch.

  Basic science is the premier transnational intellectual endeavor of the human species in modern times, and the damage done to Soviet science has caused significant damage to the pursuit of scientific knowledge throughout the world, and a diminution in the stature of the scientific endeavor. Now even in Russia scientists are forced to chase after grant money by pursuing avenues of research that lead to patentable gizmos and gadgets.

  One of the things that has been retained is the living arrangement. Over the seven decades of the USSR's existence, there took place a thorough transformation from an agrarian population dispersed across the countryside to an industrialized population concentrated in major cities. The people went from being log cabin-dwellers to apartment-dwellers. Following the dissolution of the USSR, the housing stock was privatized, and now many families own their residences free and clear. The ability to live rent-free provides them with a very large competitive advantage compared to families in high-rent, debt-ridden countries such as the US.

  Along with apartment buildings built in dense, walkable clusters went a system of public transportation. This, too, has remained largely intact, and in many cities has been expanded and modernized. This, again, provides numerous benefits to the population, and gives them an advantage vis à vis people in car-dependent countries, where the people spend much of their life stuck in traffic, and where the elderly, who are too old to drive safely, are often forced to choose between being stuck in their homes and taking their lives (and those of others) in their own hands behind the wheel.

  * * *

  When something is said to have collapsed, people often assume that it has simply ceased to exist. But the effects of collapse depend on the nature of the thing that collapses. When a hydroelectric dam collapses, it ceases to produce electricity, plus it destroys lots of things downstream from it, plus it may disrupt access to water. When a school collapses, it may kill some schoolchildren, and some teachers, but it doesn't necessarily destroy the knowledge that was being imparted. And when a mausoleum collapses, only its description changes: it can then be described as “ruined.”

  Some collapses are common, others not. Economies, especially bubble economies, collapse all the time. Empires collapse with great regularity. Civilizations are said to collapse, but do they really? A civilization can be viewed as a functioning apparatus, but doing so seems to confuse a set of principles with the entity that embodies them. Civilizational principles can be quite durable: the Roman empire was gone for a thousand years when Europe once again became capable of large-scale social organization, but, sure enough, the Europeans dusted off the old Roman legal codes and principles of organization, and started applying them. In the meantime, in the colleges and universities, Latin had remained the language of learned discourse, in absence of any surviving Latins being present to teach LSL classes. It would appear that civilizations don't really collapse; they just become quescent. New developments may spark them back to life, or they may eventually be supplanted—by another civilization.

  The USSR is gone as a political entity, but as a civilizational entity it appears to be holding its own, though it lacks a name. The two-part name—Soviet, plus “Soyuz” (Union)—fell apart. The word “Soviet,” used as an adjective, applies only to the past. As a noun, it means “council,” having originated from the revolutionary workers' councils, and this is still used, although cautiously: “to help with council” is, to a Russian, to only pretend to help. But the term “Soyuz” lives on; it is the name of the only spaceship that can still ferry passengers to the International Space Station; the new Customs Union is a Customs Soyuz. And Russian children still grow up in the Soyuz, in a manner of speaking, thanks to Soyuzmultfilm, the Soviet-era studio that produced excellent children's animated films, which are still hugely popular and are now available on Youtube.

  Let us think of the Soyuz—as a civilization, rather than of the USSR—which was a political empire. A major effort was made to supplant it with western civilization, through the introduction of market economics and a flood of western imports, both material and cultural. Western civilizational principles dominated for a time, among them such western innovations as granting equal status to homosexual practices, disregarding the role of ethnicity in political organization, and the abnegation of economic and political sovereignty to the imperial center in Washington, DC. All of these were, for a time, masticated thoroughly. Then they were rather forcefully spat out, everywhere in the former USSR except for a few sorry basket cases, the Ukraine foremost among them. But everywhere else, once the full fiasco of western values became clear to all, previous civilizational principles came roaring back to life.

  Perhaps foremost among them is social conservatism. The Russian Federation has two major religions: Orthodox Christianity and Islam, and a great deal of effort goes into maintaining their mutual compatibility, so that religion does not become a divisive factor. Introducing constructs that are alien to both, such as gay marriage, is a nonstarter. But polygamy is not off the table, and a senior Chechen official recently took a young bride to be his second wife. This event caused quite a sensation, but was allowed to proceed—in Moslem Chechnya.

  Second is the principle that ethnicity is significant to social and political organization. Russia is not a nation—it is a multinational federation. There are over 190 different nations that make it up, with ethnic Russians accounting for a little over 3/4 of the population. This percentage is likely to decrease over time: Russia is second only to USA in the number of immigrants it absorbs, and their country of origin, sorted by the number of immigrants, is as follows: Ukraine, Uzbekistan, Tajikistan, Azerbaijan, Moldova, Kazakhstan, Kyrgyzstan, Armenia, Belarus, China, Germany and USA.

  During the existence of the USSR, the multi-ethnic composition of the country was given much emphasis. Numerous small nations had their languages written down for the first time, using the ever-expanding Cyrillic alphabet, and endowed with a national literature. National languages were included in school curricula, and various nations used them in their local self-governance, to enlarge their autonomy and improve social cohesion. In essence, the Russian Federation provides for ethnic sovereignty—each nation can claim a measure of sovereignty for itself, rule itself and create its own laws, provided they do not conflict with the larger whole. A prime example of this is modern Chechnya: Moscow is content to let it persecute its own anti-terrorist campaign, to put down the remaining foreign-financed jihadis.

  Imagine the principle of ethnic sovereignty being applied to the US, where one's ethnicity is of no consequence provided one looks, sounds and behaves sufficiently Anglo. In the US, ethnicity has been reduced to questions of music and cuisine, with perhaps a festival here and there, but always with the tacit understanding that “ethnic” means “other”: there is no such thing as an “ethnic Anglo.” Since ethnicity is essentially taboo, the completely artificial construct of race is used instead, with artificial, discriminatory labels attached to categories of individuals. The label “Latino” is particularly bogus, since there is very little in common between, say, a Cuban and a Bolivian, except that both are likely to face discrimination, neither being considered sufficiently “white”—Anglo, that is. But imagine if the Mexicans or the African-Americans were to be granted a similar level of autonomy within the US? It would blow the country to pieces!

  A country predicated on protecting “white privilege” cannot possibly survive such a corruption of its founding principles. The US fought a revolution to keep slavery legal (it was about to be abolished by the British); then it fought a civil war to change slavery from one form to another (there are more African-Americans in US jails now than there were slaves in the Confederate South prior to the Civil War).

  Nobody knows what wars lie in its future, or what will provoke them, but this particular intercivilizational fault line is likely to be very important. For what is a nation? Is it your tribe, or is it a bunch of mercenaries pretending to be Anglo so that they are allowed into the country club? Only time will tell which of the two civilizations will prove to be more durable.

  

  

  
  
  

  

• China Officially Launches Critical Local Government Debt Swap — But Is The PBoC Really Just Issuing Treasury Bonds?

  After getting off to a rocky start last month, China’s local government debt swap program is officially underway. As a refresher, here is the situation, in a nutshell:

  The idea is to swap existing high-interest loans — which are a consequence of localities skirting debt issuance limits by tapping shadow banking conduits for cash — for standard muni bonds which will carry yields that are more inline with the supposed credit-worthiness of the issuer. This sounded great on paper, but when the provincial early adopters tested the waters they discovered that bank demand for the new bonds was tepid, leaving the PBoC with two options: 1) buy the bonds outright, 2) create demand by allowing banks who purchases the bonds to pledge them for long-term cash loans. Option number one would simply constitute Chinese QE, while option number two is akin to ECB LTROs and in either case, it gives the PBoC an excuse to implement a large-scale easing program and in the case of the latter option, the hope is that banks will use the cash to lend to the broader economy thus kickstarting growth.

  China chose the latter option (for now). On Monday, Jiangsu Province sold 3-year bonds at 2.94%, 5-yr bonds at 3.12%, 7-year bonds at 3.41%, and 10-year bonds at 3.41%. Broadly speaking, borrowing costs were lower than expected, a relief for Jiangsu which pulled an offering in April after bank demand proved tepid. That event effectually forced the PBoC’s hand when it came to allowing purchasing banks to pledge the new issues as collateral for cash loans. In other words, we can thank the failed Jiangsu offering for Chinese LTROs. 

  Here’s FT with more:

  Jiangsu is one of China’s richest and best-managed provinces, but its initial plan in late April to sell Rmb64.8bn of bonds to pay off existing debt failed because state-owned banks balked at an interest rate that was considered too low for the risk involved in lending to the province.

   

  After initially saying the Rmb1tn bond programme would be driven by the market, Beijing changed its mind and issued an administrative order to banks to buy the bonds.

   

  The central government also capped the interest rate that could be offered at no more than 30 per cent above Treasury yields, allowed banks to use the new bonds as collateral from the central bank and lowered benchmark interest rates to make the bonds more attractive.

  For reference, here’s a breakdown of debt by region (as a percentage of GDP) and also of regional revenue growth:

  

  While it now appears that the PBoC’s support (and heavy hand) will be enough to ensure that the debt swap program will be generally successful at least in the narrow sense of saving local governments billions in interest expense, two things are as yet unclear: 1) what impact will participation in this multi-trillion yuan experiment have on banks?, and, more importantly, 2) will a new directive that encourages local governments to continue to tap LGFV even as the bond swap program is barely off the ground serve to undercut the whole endeavour by encourage localities to accumulate still more high interest debt?

  Here’s Citi on the first question:

  We believe local government bond issuance, despite the low yields, is overall positive for banks. We see the following implications:

   

  Negative interest income impact due to the lower yields on LG bonds vs. LGFV loans. We reckon this yield differential could be 200-250bps lower in this case (assuming LGFV loans at benchmark lending rate). On the present announced Rmb1trn debt swap target, we estimate the interest income loss will be about 1% of industry-wide earnings.

   

  Positive for credit risk because provincial government is surely a better credit risk than an LGFV.

   

  Positive for capital because the risk-weight for provincial government bonds is 20%, much lower than the 100% risk-weight for a corporate loan (under the standardized approach).

   

  Lowers LDR and releases lending capacity. To the extent that there is loan demand, banks can use this extra loan capacity to make up for the loss in interest income.

  Consider the bolded passage there and then consider this from SocGen:

  If we are right about PBoC’s intention of helping local government debt restructuring, the total size of this programme may match the total size of local government’s debt stock at the moment. Considering that issuance for the fiscal spending in the coming years may also need some help on attracting demand, we would not be surprised by an eventual size of CNY20tn.

  The question then appears to be this: if the program is expanded dramatically over the course of the next several years, what will the cumulative impact be on banks’ bottom line if just the initial CNY1 trillion pilot program is going to amount to 1% of industry-wide earnings?

  As to the relaxation of the ban on LGFV financing, we’ve suggested that this could ultimately open the door for the limitless expansion of credit in China (and maybe that’s the goal) because should the PBoC decide that new LGFV loans are also eligible for the debt swap program, it isn’t clear what keeps this from turning into a debt creation machine, whereby local goverments obtain financing wherever they can get it, swap the loans for muni bonds, sell the muni bonds to banks who then pledge them to the PBoC for cash that’s then used to extend still more credit. 

  Irrespective of whether this is exactly how the situation plays out, one thing seems clear: with the relaxation of the LGFV rule, China is sending a clear message that the immediate concern is simply to roll-over local governments’ existing debt while allowing them to add still more leverage. In other words, “delay-and-pray.” As it turns out, Fitch agrees. 

  Via Fitch:

  Chinese government directives last week concerning local government debt signal a potentially significant policy shift to prioritise growth over managing the country’s debt problem…

   

  Uncertainty over the scale and strategy to resolve high local government debt remains a key issue for China’s sovereign credit profile, and the latest directives could reflect a continuation of an “extend and pretend” approach to the issue…

   

  A joint directive from the Chinese finance ministry, central bank and financial regulator on 15 May, instructed the banks to continue extending loans to local government financing vehicles (LGFV)s for existing projects that had commenced prior to end-2014, and to renegotiate debt where necessary to ensure project completion. This is an explicit form of regulatory forbearance, and serves to delay plans to wind down the role of LGFVs. More broadly, it also suggests that propping up growth in the short term has temporarily taken priority over efforts to resolve solvency problems at the local government level. 

   

  We’ll close with the following passage from Citi which suggests that in reality, the new local government bonds might as well be treasury bonds both in terms of yield and in terms who will ultimately be responsible if (perhaps more appropriately “when” given what we’ve said above) local governments can no longer kick the can and wind up unable to pay.

  The new setting is in line with our view of burden sharing on local debts: local governments have promised no default, banks will receive lower yield, and the central bank has committed to provide cheap funding. But if there is no efficiency gain in coming years, some local governments may become insolvent, and then all burdens would be channeled up to the central government. Local bonds are thus not much differentiated from treasury bonds.

  

  

  
  
  

  

• In Iraq, ISIS Is Winning And The United States Is Losing

  Submitted by Michael Snyder via The End of The American Dream blog,

  During the Iraq war more than 4,000 U.S. soldiers died, countless others were severely injured, and the total cost to U.S. taxpayers was more than 2 trillion dollars.  But now whatever the U.S. military accomplished during that war is being completely undone by ISIS.  On Monday, we learned that ISIS had fully taken control of the strategically important city of Ramadi.  Despite nine months of airstrikes by the U.S. military, ISIS continues to move forward and take new territory. 

  Just a few years ago, American soldiers fought some incredibly bloody battles on the streets of Ramadi, but now that city is in the hands of the most ruthless terror organization on the entire planet.  And since it is only about 70 miles from Baghdad, Ramadi is going to make a fine staging area for an all-out assault on the capital.  No matter how you cut it, the cold, hard reality of the matter is that the United States is losing in Iraq and ISIS is winning.  So what will the U.S. do if ISIS actually takes control of the entire country?

  Ramadi is traditionally known as the ‘Gateway of Baghdad’, but in recent days it has experienced utter carnage.  According to the Daily Mail, “mutilated bodies” now lie everywhere along the streets of that once proud city…

  ISIS militants have held a twisted victory parade after taking the key city of Ramadi in an orgy of violence and beheadings – and the extremists could march on the Iraqi capital Baghdad within the next month.

   

  Mutilated bodies scatter the streets of the ‘Gateway of Baghdad’, where Islamic State slaughtered around 500 and forced nearly 25,000 to flee their homes over the last few days.

   

  Now ISIS has released images of militants celebrating, children wielding automatic weapons and a fleet of pick-up trucks carrying its jubilant fighters through the blood-stained streets of Ramadi.

  U.S. military officials insist that it really isn’t that big of a deal that Ramadi has fallen, but they made similar pronouncements back during the days of the Vietnam War.  Just consider the following passage from a recent Wall Street Journal article…

  In the closing years of the Vietnam War it was often noted sardonically that the “victories” against the Viet Cong were moving steadily closer to Saigon. The same could be said of Baghdad and the victories claimed against Islamic State, or ISIS, in Iraq in the past year. The ISIS takeover of Ramadi in the Anbar province over the weekend exposed the hollowness of the reported progress against ISIS. The U.S.-led bombing campaign in support of Iraqi forces isn’t working.

  And guess what?  As the “Iraqi Security forces” folded, they left behind large amounts of military equipment and large numbers of armored vehicles for ISIS to capture.  In the end, this will make ISIS even more formidable.  The following comes from Fox News…

  Although there were a large number of Iraqi security forces occupying Ramadi, most troops fled after ISIS fighters began their assault on the city center Sunday, leaving behind Humvees and armored vehicles supplied by the U.S. military, a separate senior U.S. military official told Fox News.

   

  “The Iraqi security forces were pushed out by a much smaller [ISIS] force,” the official said.

  This is a theme that we have seen time after time.  ISIS is taking over both Iraq and Syria largely using captured American weapons.  Vehicles, equipment and weapons that our tax dollars paid for are being used to establish and expand a terrorist state in the heart of the Middle East, and Barack Obama seems almost ambivalent to the whole thing.

  Even those that are on Obama’s side can’t quite understand what Obama is doing.  For example, just consider the words of Piers Morgan…

  But Obama’s had plenty of time to devise a successful strategy for dealing with the emerging threat of ISIS, and so far he has spectacularly failed.

   

  As they beheaded Americans, he made somber speeches, then played golf minutes literally seven minutes later.

   

  As they burned Jordanian pilots in cages, Obama assured us with almost casual confidence that he was on top of things.

   

  As they threw gays to their death off rooftops and slaughtered Christians on beaches, still the leader of the free world exuded calm.

   

  The clear message? ‘Don’t worry, I’ve got this all under control..’

   

  Only he hasn’t.

  For years and years, we heard about what a “threat” al-Qaeda was.  But the truth is that al-Qaeda never was much of a threat at all.  Most of the time their leaders seemed to be hiding out in caves or bunkers, and they never actually controlled any real territory.

  But now we have a very real Islamic caliphate which has become so powerful that it can successfully fight a multi-front war against the Syrian government, the Kurds and the Iraqi government.  Since it was first established, the amount of territory that it has captured is larger than the British Isles, and smaller terror groups all over the planet are rapidly swearing allegiance to it.

  Unlike al-Qaeda, ISIS appears to be the real deal, and nobody in the western world can seem to muster up the will to do anything about it.  The following is how this new Islamic State was described in a recent article in the Telegraph…

  It is one of the strangest states ever created. The Islamic State wants to force all humanity to believe in its vision of a religious and social utopia existing in the first days of Islam. Women are to be treated as chattels, forbidden to leave the house unless they are accompanied by a male relative. People deemed to be pagans, like the Yazidis, can be bought and sold as slaves. Punishments such as beheadings, amputations and flogging become the norm. All those not pledging allegiance to the caliphate declared by its leader, Abu Bakr al-Baghdadi, on 29 June last year are considered enemies.

  Almost every day now, there are global headlines about the latest ISIS atrocities.  You can find a couple of particularly disturbing examples right here and right here.

  There is no negotiating with these guys, and they will not stop until the entire Middle East is under their control.

  I want to share with you two maps.  This first map is the territory that ISIS controls today…

  

  This second map is what ISIS claims belongs to them…

  

  So what should be done about ISIS?

  

  

  
  
  

  

• "If The Public Knew About Obama's Lies And Cover Ups, Mitt Romney Might Be President" – Judicial Watch

  When it comes to the countless lies of this administration (and that of the next one under Hillary Clinton) one has to just throw in the flag.

  Days after Seymour Hersh exposed the biggest lie of Obama’s first term, a lie which we learned was also facilitated and perpetuated by the CIA as well (the topic of the latest Frontline documentary “How the CIA Helped Make “Zero Dark Thirty””), we get yet more evidence of the administration’s lies this time on a topic dear – and sensitive – for the person who may well be the next US president, Hillary Clinton, who as a reminder made up a story that the September 11, 2012 Benghazi embassy attack was a product of spontaneous protests of an obscure YouTube documentary by an American producer that lampooned Muslims.

  Only later did the administration concede that the attack was a terrorist operation.

  And now, according to a declassified Defense Department document obtained by Judicial Watch we learn that the Obama administration knew that “al Qaeda terrorists had planned the Benghazi attack ten days in advance.” Then Secretary of State Hillary Clinton and other senior level individuals including then-Defense Secretary Leon Panetta, the Joint Chiefs of Staff and the Obama White House National Security Council were given intelligence within hours of the Benghazi attack describing how it had been planned at least 10 days in advance “to kill as many Americans as possible.”

  The heavily redacted Defense Department “information report” says that the attack on the Benghazi facility “was planned and executed by The Brigades of the Captive Omar Abdul Rahman (BCOAR).”  The group subscribes to “AQ ideologies:”

  The attack was planned ten or more days prior on approximately 01 September 2012. The intention was to attack the consulate and to kill as many Americans as possible to seek revenge for U.S. killing of Aboyahiye ((ALALIBY)) in Pakistan and in memorial of the 11 September 2001 atacks on the World Trade Center buildings.

  “A violent radical,” the DIA report says, is “the leader of BCOAR is Abdul Baset ((AZUZ)), AZUZ was sent by ((ZAWARI)) to set up Al Qaeda (AQ) bases in Libya.”  The group’s headquarters was set up with the approval of a “member of the Muslim brother hood movement…where they have large caches of weapons.  Some of these caches are disguised by feeding troughs for livestock.  They have SA-7 and SA-23/4 MANPADS…they train almost every day focusing on religious lessons and scriptures including three lessons a day of jihadist ideology.”

  One can see why Clinton is allergic to any hearings on the Benghazi killings nearly three years after the event: she lied about the entire affaird during countless sworn testimonies, and as a result has been haunted from the first lie she uttered to avoid looking incompetent. A lie which may be very costly for the nation as it prepares to elect its next president.

  There was more in the Judicial Watch disclosure: the DOD documents also contain the first official documentation that the Obama administration knew that weapons were being shipped from the Port of Benghazi to rebel troops in Syria. An October 2012 report confirms:

  Weapons from the former Libya military stockpiles were shipped from the port of Benghazi, Libya to the Port of Banias and the Port of Borj Islam, Syria. The weapons shipped during late-August 2012 were Sniper rifles, RPG’s, and 125 mm and 155mm howitzers missiles.

   

  During the immediate aftermath of, and following the uncertainty caused by, the downfall of the ((Qaddafi)) regime in October 2011 and up until early September of 2012, weapons from the former Libya military stockpiles located in Benghazi, Libya were shipped from the port of Benghazi, Libya to the ports of Banias and the Port of Borj Islam, Syria. The Syrian ports were chosen due to the small amount of cargo traffic transiting these two ports. The ships used to transport the weapons were medium-sized and able to hold 10 or less shipping containers of cargo.

  The DIA document further details:

  The weapons shipped from Syria during late-August 2012 were Sniper rifles, RPG’s and 125mm and 155mm howitzers missiles.  The numbers for each weapon were estimated to be: 500 Sniper rifles, 100 RPG launchers with 300 total rounds, and approximately 400 howitzers missiles [200 ea – 125mm and 200ea – 155 mm.]

  The heavily redacted document does not disclose who was shipping the weapons, however we do know what happened to US weapons sent by unknown sources to Yemen rebels: they are now being used to kill US-supported coalition forces.

  The State Department has yet to turn over any documents from the secret email accounts of Hillary Clinton and other top State Department officials.

  Judicial Watch president Tom Fitton summarized this latest round of hard fought revelations – which should have been a matter of public record from day one for the most transparent administration ever – as follows:

  “These documents are jaw-dropping. No wonder we had to file more FOIA lawsuits and wait over two years for them.  If the American people had known the truth – that Barack Obama, Hillary Clinton and other top administration officials knew that the Benghazi attack was an al-Qaeda terrorist attack from the get-go – and yet lied and covered this fact up – Mitt Romney might very well be president. And why would the Obama administration continue to support the Muslim Brotherhood even after it knew it was tied to the Benghazi terrorist attack and to al Qaeda? These documents also point to connection between the collapse in Libya and the ISIS war – and confirm that the U.S. knew remarkable details about the transfer of arms from Benghazi to Syrian jihadists,” stated Tom Fitton, Judicial Watch president.  “These documents show that the Benghazi cover-up has continued for years and is only unraveling through our independent lawsuits. The Benghazi scandal just got a whole lot worse for Barack Obama and Hillary Clinton.”

  He may be right: as the WSJ reported moments ago, Hillary’s aides openly scrutinized, and even blocked release of documents requested under public-records law, openly flaunting their legal responsibility to the American people:

  When Hillary Clinton was secretary of state, her staff scrutinized politically sensitive documents requested under public-records law and sometimes blocked their release, according to people with direct knowledge of the activities.

   

  In one instance, her chief of staff, Cheryl Mills, told State Department records specialists she wanted to see all documents requested on the controversial Keystone XL pipeline, and later demanded that some be held back.”

  And yet… ladies and gentlemen, presenting the next US president.

  

  

  

  
  
  

  

• Welcome To The Bubble State, Where Everything Is Unsustainable

  Submitted by Joshua Kraise via The Daily Sheeple,

  Since its inception, California has always portrayed itself as the land of opportunity. Kind of like a dream within the American dream. It’s the California dream to be precise, and while it has taken on many forms over the years, the song has always remained the same.

  That song preaches that anyone can become fabulously wealthy here. But unlike the American dream, the California dream does not demand effort, at least not in its current form. Instead, it offers low hanging fruit. It claims to be overflowing with opportunities, just waiting to be exploited. The grass is always greener here, and a new millionaire is made every day. So why not you? What are you waiting for? Anybody can make it big in the Golden State, haven’t you heard? You’d be a damn fool to stay in your podunk Midwestern town. Get over here already!

  Of course, if you ask anyone who actually lives here, they’ll tell you the truth. The only people getting rich from the dream are the ones who made it up. They prey on the gullible masses who think they can move here and become movies stars, and tech CEO’s. But more importantly, this dream is the lifeblood of our vampiric state, and always has been. Like the myths surrounding the Great Wall of China, our foundations are layered with those who fell while chasing the dream. We owe our very existence to this ever evolving scam.

  It all started with the gold rush. The first of our get rich quick schemes. As soon as word got out that there was gold in those hills, the rubes poured in by the thousands. The only folks who got rich were the ones who sold picks, pans and shovels to the miners at outrageous prices.

  Then came the movie industry, which produces the one lie that never seems to die. There are always just enough success stories about talentless nobodies making it big, that the Hollywood machine will always have an abundance of starry eyed wannabes hoping to ride the gravy train to fame and fortune. Few ever “make it” of course, and the rest would be fortunate enough to get a second chance in the porn industry.

  And who could forget the hippies? Ahhh the hippies. That one managed to suck in thousands angsty teenagers, who now make their living as either college professors or strung out homeless panhandlers, depending on who you ask. This scam was unique for it was not a get rich quick scheme in the financial sense, but in the spiritual and political sense. Hunter S. Thompson so astutely described them as “All those pathetically eager acid freaks who thought they could buy Peace and Understanding for three bucks a hit.”

  You might be thinking to yourself “But how do you house and feed all these gullible masses?” I would say, as inefficiently as humanly possible. Only in California would they build gigantic cities hundreds of miles away from the nearest source of fresh water, because the weather is just so darn pleasant in LA. Then they feed those people with crops grown on thousands of square miles of desert. Not even Las Vegas can hold a torch to that kind of madness.

  And between the poorly regulated water supply and the sublime weather conditions, you have the perfect recipe for the marijuana bubble, which hasn’t quite reached its peak. There are plenty of folks who think they can show up and make hundreds of thousands of dollars growing pot. They’re in for a rude awakening once the plant is fully legalized, and Philip Morris starts growing Mary Jane in such vast quantities, that it cost half as much as it does now, and runs all these people out of business.

  By the way, our water supply didn’t just make our sprawling dystopian cities a reality. There’s no housing bubble if you don’t have houses and cities right? While California doesn’t carry all the blame for the housing crash of 2007, would it really be the same without this state? I seem to recall that the price of housing was pretty stable in other parts of the country, while it was ballooning to ridiculous levels every year in California. Our state was practically the epicenter of the “house flipping” fad.

  Do you see what I’m getting at here? California is the pump and dump state. The history of California is a cascade of overlapping economic bubbles and ridiculous lies, each one bigger than the last. It’s the only thing that sustains us. The get rich quick scheme is our oldest trick, and it has never failed suck up an abundance of money and talent that would have never arrived here otherwise. The ever-changing Cali graft continues to operate to this day, though it’s finally starting to get repetitive.

  Everyone remembers the dot-com crash right? Call me crazy, but aren’t we starting to see the same thing now with all these startups? We keep hearing stories about these young nobodies making millions after selling their tech companies. It’s kind of ridiculous isn’t it?

  It’s the next gold rush, and just like all previous gold rushes, very few people are making that kind of money. The vast majority of these new companies you hear about, fail miserably. Silicon Valley is not the easy money tech mecca they want us all to believe in, and yet, people keep putting millions of dollars into these companies. It hasn’t even been 20 years since the last tech bubble burst, and now we’re in another one.

  You see the same situation unfolding in the real estate market. When someone buys a 750sq foot fixer upper in San Francisco for $1.5 million, or when sharing a room with three people costs $1,000 a month per person, one must wonder if another real estate bubble is being inflated courtesy of the California dream, whose hallmarks are blind optimism and blissful ignorance.

  The tech bubble and the housing bubble were responsible for the greatest financial losses in recent memory, and now they’re both back with a vengeance, and they appear primed to burst at the same time. And when they do, you can thank the California dream, the most outrageous and pervasive scam in American history. The century spanning hustle that just won’t die.

  

  

  
  
  

  

• Beijing We Have A Problem: China Suffers Record Capital Outflow In Q1

  Back on April 18 in “China Sees Largest Capital Outflow In Three Years,” we noted that according to JP Morgan estimates, China saw its fourth consecutive quarter of capital outflows in Q1, bringing the total over the last 12 months to some $300 billion. This is part and parcel of what we have called China’s “currency conundrum” wherein Beijing needs to devalue in order to support the export-driven economy, but can’t for fear of exacerbating capital flight and/or jeopardizing an IMF SDR bid (assuming China is still interested in the latter after Washington’s abject refusal to reform the Fund’s structure), or to put as simply as possible, “devalue too much, and the capital outflows will accelerate, not devalue enough, and the mercantilist economy gets it.”

  The official numbers for the first three months of the year are now in and sure enough, China reported a record $159 billion deficit on its capital and financial accounts. 

  More, via UBS:

  FX reserves shrank sharply by USD 113 billion in Q1, following last Q4’s contraction of USD 45 billion and 2014’s annual increase of USD 22 billion. PBC’s FX asset also shrunk by RMB 252 billion in Q1 (vs. last Q4’s fall of RMB 134 billion). Our preliminary estimates show that China saw non-FDI capital outflows of around USD 190 billion in Q1 on a BoP basis. Recent data release showed that China’s capital & financial account (excluding reserve assets) recorded a deficit of USD 159 billion in Q1…

   

  In Q1 2015, China saw an even sharper pace of FX reserve contraction, with a negative valuation effect (of around USD 34 billion) and non-FDI capital outflows (of around USD 190 billion) more than offsetting a still sizable trade surplus of goods & service (USD 77 billion) and largely stable net FDI. The main types of non-FDI capital flows include the usual portfolio investment flows, trade credit flows, other foreign borrowing and foreign lending, domestic banks interbank borrowing and offshore lending, interest rate arbitrage flows, and capital flight.

   

  Factors driving recent persistent capital outflows likely include: corporates’ increasingly holding on to their FX proceeds due to weaker RMB appreciation expectation; growing market concerns over China’s property downturn and recent weak economic data; weakening or unwinding of interest rate arbitrage capital flows due to the anticipated rise in global interest rates and fall in domestic interest rates; an increased desire by domestic residents to diversify their assets globally; among others.

  And as we noted last month, this marks four consecutive quarters of outflows. For Beijing, the implications of the above are clear, although the proper course of action is anything but. Here’s FT:

  Capital outflows are complicating efforts by the People’s Bank of China to support the economy through monetary easing. For the past decade, central bank purchases of foreign exchange inflows were the main source of base money creation in China’s banking system. Now, with outflows threatening to shrink the money supply, the central bank is turning to new mechanisms to expand it. 

   

  The most important of these is cuts to banks’ required reserve ratio. The PBoC once used RRR rises to restrain excess money growth by forcing commercial banks to keep a chunk of newly created base money on reserve at the central bank, where it is unavailable for lending. Now the PBoC is doing the opposite: cutting the RRR to offset the loss of liquidity caused by capital outflows. 

   

  Yet even after RRR cuts totalling 1.5 percentage points this year, the ratio for big banks, at 18.5 per cent, remains far higher than in any other large economy. Most economists believe that for the PBoC to meet its broad M2 money growth target of 12 per cent, further RRR cuts will be necessary.

   

  “From the start of this year, capital inflows have been negative. We believe the key factor now restricting effective monetary easing is that the required reserve ratio remains at a high level,” said Liu Liu, macroeconomic analyst at China International Capital Corp.

   

  In addition to RRR cuts, the central bank has slashed benchmark rates three times since November. But lower rates could exacerbate capital flight by making Chinese assets less attractive, especially in comparison to the US, where the Federal Reserve is expected to raise interest rates this year.

   

  The PBoC’s signal to the market that it intends to hold the renminbi stable has helped prevent the trickle of outflows from becoming a flood.

  For those who prefer a visual explanation and are interested to know why all of the above means QE in China is getting more likely by the month, read on. 

  With each passing data point, we get still more evidence that China’s economy is in trouble… 

  

  

  

  

  …but thanks to rising capital outflows…

  

  …Beijing has favored policy rate cuts over devaluation…

  

  …but three benchmark rate cuts since November and two RRR cuts this year aren’t working…

  

  

  *  *  *

  What all of this means — just as we said more than two months ago in “How Beijing Is Responding To A Soaring Dollar” — is that QE in China may be inevitable. Since then, the PBoC has indeed moved in that direction, while still maintaining that outright QE will not be necessary given the number of policy tools at Beijing’s disposal. Shortly after explaining all of the above in March, we went on to suggest that the likely form Chinese QE would take would be the purchase of local government debt (which totals 35% of GDP). 

  Sure enough, the PBoC ended up announcing a program whereby banks will be allowed to pledge local government bonds for cash which can then be re-lent to the broader economy. While this doesn’t quite constitute QE (it’s akin to the ECB’s LTROs), it is nevertheless a definitive step in that direction and unquestionably represents a foray into “unconventional” policy. 

  If capital outflows persist over the coming quarters and if economic data continues to come in soft (which it likely will), China will likely first move to cut policy rates further, with sell-side desks projecting at least three more cuts in 2015. Eventually however, that avenue will be exhausted and at that point, we will see if the PBoC’s contention that Chinese QE “doesn’t exist” holds up under pressure.

  

  

  
  
  

  

• Plains All American Pipeline Ruptures; 21,000 Barrel 4-Mile Oil Slick On Santa Barbara Beaches

  Emergency officials and Exxon Mobil were responding Tuesday afternoon to a ruptured pipeline that was leaking crude oil into the ocean off the Santa Barbara County coast, authorities said. The Santa Barbara County office of emergency management has identified the responsible party as Plains All American Pipeline.

  

  As The LA Times reports, by 3:45 p.m., the leak had left a 21,000 barrel four-mile-long sheen of oil extending about 50 yards into the waters along Refugio State Beach in Goleta, said U.S. Coast Guard Petty Officer Andrea Anderson.

   

   

  First trains, now pipelines…

  The ruptured pipeline — which runs along the coast near Highway 101 — was first reported to county fire officials about noon. Coast Guard crews arrived and stopped the leak, Anderson said.

   

  It’s unclear how much oil streamed into the ocean, and officials could not confirm what type of oil had been flowing through the pipeline.

  As Sputnik reports,

  According to one of the first responders, the oil was leaking at a rapid rate of “a couple of hundred BMP,” or barrels per minute. Speaking to the Santa Barbara Independent after arriving at the scene, County Fire spokesperson David Zenobi said the leak, which had originated from a broken pipeline on land, had stopped.

  *  *  *

  *  *  *

  As Santa Barbara County Office of Emergency Management,

  The responsible party for the ruptured pipeline near Refugio Beach has been identified as Plains All-American Pipeline. A Incident Command Post has been established and the CG will oversee the clean-up of the oil by the responsible party.

  *  *  *

  Pipeline leak sending oil into ocean at Refugio State Beach in #SantaBarbara.
  We’re live. #OilSpill #environment pic.twitter.com/rudJIvN3Oh

  — Tena Ezzeddine (@TenaNBCLA) May 19, 2015

  Pipeline rupture leaks oil onto Santa Barbara County beaches
  http://t.co/tY2MN5MBev
  Pic: Refugio State Beach, today pic.twitter.com/N3hEPTeLOK

  — Shelagh Becerra (@ShelaghBecerra) May 19, 2015

  Breaking: #Oil pipeline spill fouls #SantaBarbara beaches. Slick 4 miles long. http://t.co/mAv5es3zFh pic.twitter.com/X7FaUm2L4n

  — Watershed Watch (@WatershedWatch_) May 19, 2015

  #breaking Oil Spill north of Goleta, Refugio State Beach, pipeline burst pic.twitter.com/43y72uKO6N

  — Tara Wallis (@tarawallis) May 19, 2015

  Unclear if this is source of pipeline break in SB County- but many officials on ground checking out this spot pic.twitter.com/rneYNFMAH7

  — Tara Wallis (@tarawallis) May 19, 2015

  NBC Los Angeles reports, the oil pipeline leaked 21,000 gallons

  

  

  
  
  

  

• "Kept Afloat With Nothing But Happy Thoughts"

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The Edmund Fitzgerald departed the Burlington Northern Railroad dock in Superior, Wisconsin on November 9, 1975, at about 2:20 in the afternoon. She was carrying a load of taconite pellets to Zug Island in the Detroit River, a rather routine run for this massive ore hauler on the Great Lakes. Only a few minutes after departing, the National Weather Service issued a gale warning for along the Edmund Fitzgerald’s scheduled route. By early in the morning on November 10, the ship was reporting winds of 52 knots and 10 foot waves.

   

  While it was certainly rough seas, or lakes as it were, the Edmund Fitzgerald was the largest and probably most well-known of the Great Lakes haulers that moved huge quantities of raw materials coming out of the Midwest and Plains toward the East. For an ore shipper built in the 1950’s, she was pretty much state of the art and even boasted rather unusual amenities. That didn’t stop the ship from setting all sorts of records up and down the Great Lakes, becoming known as “Pride of the American Flag” and the “Titanic of the Great Lakes.”

   

  That last nickname was meant of as high compliment in service rather than to convey any such perceptions about the potential for catastrophic mishap. Though the lakes were extremely hazardous, holding still a reputation for swallowing up ships and their men, by the late 1950’s and into the 1960’s modern equipment supposedly made the ship unsinkable. If there was such a thing possible running up and down that busy shipping corridor, the Edmund Fitzgerald was it.

   

  So when the Fitzgerald’s captain, Ernest McSorley, radioed the Arthur Anderson in the middle of the afternoon on November 10, as that ship was trailing the Fitz by about 20 miles, it was somewhat of a shock that McSorley reported some damage to his vessel. He relayed to the Anderson that, “I have a fence rail laid down, two vents lost or damaged, and a list.” All of those were by themselves something to worry about, as even the fence rail indicated the possibility of structural damage in the hull itself (the fence was meant to be pulled taught by the “weight” of the ship under load, and if the rail came down something in the structure might have changed). Of course, the fact that the ship was listing and some vent covers were lost or missing indicated that the Fitzgerald was taking on water.

   

  That did not normally produce the loss of any ship or vessel and was not even that unusual on the Great Lakes. These ships have enormous pumps and pumping capacity, but there is a limit, especially in rough seas, as to how long the ship could tolerate such huge imbalance and deviation from expected design performance. And, as is usual in these kinds of affairs, there were cumulative setbacks all through the rest of the trip.

   

  At 4:10 pm, the Fitzgerald radioed the Anderson that it had lost both its navigation radars, asking the Anderson’s captain if he would help the Fitz navigate to Whitefish Bay. There was a radio beacon and light at Whitefish Point that McSorley was probably counting on in lieu of all his high-tech gadgetry. Unfortunately, as reported by a passing ocean-going ship, the Avafors, neither the beacon nor light were apparently working.

   

  Sometime around 6 pm, McSorely reported to the Avafors, “I have a bad list, lost both radars, and am taking heavy seas over the deck.” It only got worse, as around 7 pm two waves buffeted the ship, riding right up over the deck 35 feet above the waterline. The bow of the ship would actually “sink” into each wave and then pop back up out of the water due to nothing but buoyancy. About 10 minutes later, the Anderson called the Fitzgerald, now trailing only about 10 miles behind, about some traffic in the area but that it wasn’t going to be a concern.

   

  McSorley reported that, “we are holding our own.” It was clear that, despite all the damage, unworkable systems and even the weather and waves, the Edmund Fitzgerald’s captain was expecting continued operation and even better performance once they reached Whitefish Bay. It was the last time the ship was ever heard from, as the Anderson reported to the Coast Guard only ten minutes later that the Fitzgerald had disappeared from their radar. It did enter a small squall at that time, and it wasn’t unusual for the squall to obscure radar reports, but by 7:55 pm the Anderson was reporting that the Edmund Fitzgerald was still lost to radar and visual contact.

   

  Nobody knows exactly what happened and the exact sequence that turned an “unsinkable” ship to the bottom of Lake Superior. The focus these past forty years has been on the boat’s listing and vent covers, taking on water, but there is no explanation as to why the pumps were insufficient. It has been speculated that maybe one or two of the cargo covers themselves came loose or even came fully off, and that with waves coming right up over the ship there was no way to equalize the amount of water going out and that which was flooding in. Whatever the case, the Fitz went down in one wave just as it had before, with the bow sinking into the wave’s stormy trough, and the entire ship just never came back up.

   

  In many ways these kinds of disasters are a process. I think we tend to think of them along the lines of single events, which is where the Titanic comparison might be misleading in that respect. There was no “iceberg” for the Fitzgerald to impact and begin the catastrophic chain of events, but rather a sustained degradation to systemic capacity that, at some critical point, could no longer keep the ship afloat. It was such embedded deterioration that even the ship’s captain seemed fairly confident that ultimately it would turn out just another unsteady trip on Lake Superior. Instead, he suffered catastrophic failure after hours of nothing but attrition.

  The equivalence of the Edmund Fitzgerald to the US economy is striking to me. Orthodox economics holds fast to the theory that recessions are, and can be, nothing but the work of an exogenous “shock” – the iceberg of the Titanic variety. The indications of consumer “demand” so far in 2015 not only suggest that is wrong but for the very reasons, from a systems perspective, that the Fitz sank – attrition.

  

  For their part in this allegory, the FOMC even recognized the “rough seas” of the post-crisis era, making no shortage of excuses that they were dealt a very difficult hand to begin with (without ever admitting or even contemplating their own role in dealing that hand). But overall they believed that their monetary toolkit, especially QE, would propel the US economy through those swells and into the safety of the full recovery. In the past year, they and their parroting economists have been infused with even more confidence that the economy would pass through this barrier despite the continuous stream of indications that there were structural problems still unsolved, and that those structural problems were leading to the economy’s version of listing (namely the “mysterious” lack of income and wage growth).

  Since monetary policy functions very much like the internal water pumps on the Fitzgerald, it seems appropriate to analyze them in the same manner as the nautical disaster. In other words, if the US economy is really about to head under the 2015 wave, and not buoy back up as it had briefly after the heavy wave in Q1 2014, then why hasn’t QE been effective at its design?

  A clue to that lies in the state of monetary policy as it actually exists rather than what various people and even investors at this late stage think it does. There remains the stubborn idea that the Federal Reserve is and has been “printing money.” From that, it stands to some reason that the economy would be available for a positive injection of cash, the old idea of the equation of exchange. If you give enough people cash to spend, out of nowhere, then it will be spent and the rest of the economy is supposed to follow. It makes no difference in theory whether that comes as cash itself or cash from borrowing – more of either is supposed to create more demand for the sake of demand.

  But even under QE that was never really the case. Buying bonds directly from primary dealers did absolutely nothing except increase the level of bank “reserves” (using scare quotes here, appropriately, because the reserve account at the Fed is nothing like what used to constitute actual bank reserves, though they are classified now as if they were). This is not to say that there were no effects of that effort, only that those effects were highly muted, mutable and indirectly captured by bank balance sheet constraints that were often unrelated even to liquidity in the immediate post-crisis period.

  

  As even the Federal Reserve will tell you, the quantity of bank “reserves” only indicates what the Fed is doing and has no actual and direct bearing upon what banks, or the economy, might do. However, the FOMC does not at all mind if you think they hold such immense power so long as you don’t go too far in that unsupported belief. That is why the FOMC and its academic arm have been diligent in parrying criticisms about those expecting “runaway inflation” without ever admitting the full extent of reality in that effort.

  To which is added ZIRP, a factor that has been quite the topic of conversation since the middle of 2013. The FOMC exercises an interest rate target as its main lever of monetary influence, setting a range (or an exact interest rate prior to ZIRP) for the federal funds rate. This tool is at least one step in the realistic direction over QE, as the federal funds rate is derived from interbank activities among banks themselves. The premise is that banks drive the main mechanics in the interbank markets, the balance sheet factors that are crucial to all finance, but that the Fed can intervene in order to maintain its targets. The fallacy here is as those “reserves”, as essentially the Open Market Desk would undertake mini-QE’s (which are all just open market operations that change the level of cumulative “reserve” accounts) if the effective federal funds rate continued under its target.

  So even in the interest rate target, the Fed is left with nothing but “reserves”, and in this case just the threat of “reserves” to control a major interest rate in order to reset and regulate systemically the price of the “risk-free” benchmarks (including and especially OIS). Prior to August 2007, that was enough as banks simply followed the target out of self-fulfilling expectations carried through arbitrage (both globally and amongst the survivorship basis in interbank payment mechanisms). However, in the post-crisis period there is another problem, one that has only grown over time, as the federal funds market itself is, quite frankly, dead.

  

  What you see above in the effective rate is essentially what banks might offer of “cash” here if there was some actual demand for it. This is not a market in any meaningful way, a fact that the FOMC has acknowledged on many occasions. Most of those relate to suggestions and academic studies about repo markets which have taken over the relevant role of interbank determination. In fact, the Fed continues to be the only major central bank that does not employ its main monetary policy device through the repo market.

  That leaves domestic monetary policy in the United States, of the world’s supposed reserve currency, as a process of fake reserves threatening highly indirect action in a market that nobody participates in. If that doesn’t sum up the economic predicament, than I doubt anything will ever do so.

  For its part, the Fed does not care about all that. They are more concerned about signaling monetary policy to you and I and everyone in between. The actual pathology of how it is carried out in the end has become almost totally unimportant and irrelevant to how well the FOMC can “communicate” its intentions. In other words, never mind exactly how the Fed might do something like or around “money printing”, just as long as you assure yourself that something somewhere might happen as it is supposed to (as Janet Yellen continues to plead, stop worrying about the details and just accept her big picture socialism). I am not making this up, truth is far stranger than fiction, as the Fed will not move off its federal funds rate target to a more appropriate repo target because they don’t want to lose, in their minds, the ability to influence your behavior no matter how indirect, or, as in the case now, imaginary.

  Monetary policy is all about psychology, to the point that the Federal Reserve itself will continue to use a non-existent interest rate in its actual “exit” (which I still doubt they will ever get to). In other words, there is no even “money printing” forward or in reverse as they increase rates, or keep them at zero; all that actually changes is a number published in the paper and talked about on the TV and internet. The full purpose is for you to get the message about what they intend for you to do without thinking about the operational impossibility of it taking place on their end; their main monetary policy rate is nothing about money, banking or anything in between but only a rate by which they think they will influence behavior and behavior alone.

  Is it any wonder the economy is in danger of sinking toward catastrophic failure?

  All that has been deployed as a counterforce to this continued attrition has been psychological, happy mumbo jumbo. The Fed stimulates absolutely nothing but the media’s descriptions of it and the various economists and their models that depend solely on them being successful in doing so. If recessions are emotional and irrational pessimism as the monetary textbooks believe, then QE and ZIRP are just right sort of “happy pills” to push emotions back to the “right” direction. The Fed can’t be bothered to hook its actual monetary programs into an actual market where actual finance is carried out, preferring instead the continuity of nothingness. The Fed continues its main line into the federal funds market despite the fact that nobody actually goes there, and hasn’t been there since 2008.

  To finish in the analogy of the Edmund Fitzgerald, the water effecting a list upon the economic ship is real, the attrition, but the pumps that everyone thought were enough to correct all that are just imaginary creatures of a lot of happy talk and signals. It would be bad enough if they existed and just were not turned on, but, as the interest rate target in the dead federal funds market shows without ambiguity, the pumps don’t even exist at all.

  But don’t get too pessimistic about it; their target for that dead market is still “stimulative” and “loose.”

  

  

  
  
  

  

• Someone Finally Read Obama's Secret Trade Deal And Admits The TPP "Will Damage This Nation"

  There is a huge paradox surrounding what is supposed to be the crowning achievement of Obama’s second term, the Trans Pacific Partnership (TPP), a bill whose contents virtually nobody is familiar with or will be before it passes into law.

  That’s not the paradox: the paradox is that back in October 2009, the White House Press secretary said that “the President has returned to a stance of transparency and ethics that hasn’t been matched by any other White House…. the President believes strongly in transparency… that transparency in that way in the best policy.“

  Or to paraphrase Nancy Pelosi, “we have to pass the bill so that you can find out what is in it.”

  And yet while everyone seems to have an opinion on the final formulation of the TPP bill, especially Elizabeth Warren and her circle of progressive democrats who have emerged as the bill’s most vocal critics, the truth is that none have actually read it for the simple reason that anyone who is familiar with its text could be jailed for disclosing its contents.

  Most transparent administration indeed.

  We won’t even comment that those who don’t care to have their opinion made public and do have access to the bill have also not read the massive bill which layers giveaway upon giveaway to mega corporations: in fact the only ones who are intimately familiar with the TPP’s contents are those who drafted it: America’s multinational corporations whose shareholders will be the biggest beneficiaries of the TPP.

  And yet someone appears to have finally read Obama’s TPP: that someone is Michael Wessel, a cleared liaison to two statutory advisory committees and a commissioner on the U.S. Trade Deficit Review Commission, as well as the international trade co-chair for the Kerry-Edwards Presidential Campaign.

  Earlier today, Wessel wrote an article in Politico titled “I’ve Read Obama’s Secret Trade Deal. Elizabeth Warren Is Right to Be Concerned” which we agree with wholeheartedly because while one may or may not disgree whether the US economy will benefit from a trade agreement which anecdotally benefits large multinationals, it should be unanimous that America’s transformation into a secretive, klepto-fascist state controlled by corporations is catastrophic for not only the republic but America’s people, or at least those who are not among the 0.001% who stand to benefit from the TPP.

  * * *

  From Michael Wessel, first posted in Politico:

  I’ve Read Obama’s Secret Trade Deal. Elizabeth Warren Is Right to Be Concerned. 

  “You need to tell me what’s wrong with this trade agreement, not one that was passed 25 years ago,” a frustrated President Barack Obama recently complained about criticisms of the Trans Pacific Partnership (TPP). He’s right. The public criticisms of the TPP have been vague. That’s by design—anyone who has read the text of the agreement could be jailed for disclosing its contents. I’ve actually read the TPP text provided to the government’s own advisors, and I’ve given the president an earful about how this trade deal will damage this nation. But I can’t share my criticisms with you.

  I can tell you that Elizabeth Warren is right about her criticism of the trade deal. We should be very concerned about what’s hidden in this trade deal—and particularly how the Obama administration is keeping information secret even from those of us who are supposed to provide advice.

  So-called “cleared advisors” like me are prohibited from sharing publicly the criticisms we’ve lodged about specific proposals and approaches. The government has created a perfect Catch 22: The law prohibits us from talking about the specifics of what we’ve seen, allowing the president to criticize us for not being specific. Instead of simply admitting that he disagrees with me—and with many other cleared advisors—about the merits of the TPP, the president instead pretends that our specific, pointed criticisms don’t exist.

  What I can tell you is that the administration is being unfair to those who are raising proper questions about the harms the TPP would do. To the administration, everyone who questions their approach is branded as a protectionist—or worse—dishonest. They broadly criticize organized labor, despite the fact that unions have been the primary force in America pushing for strong rules to promote opportunity and jobs. And they dismiss individuals like me who believe that, first and foremost, a trade agreement should promote the interests of domestic producers and their employees.

  I’ve been deeply involved in trade policy for almost four decades. For 21 years, I worked for former Democratic Leader Richard Gephardt and handled all trade policy issues including “fast track,” the North American Free Trade Agreement and the World Trade Organization’s Uruguay Round, which is the largest trade agreement in history. I am also a consultant to various domestic producers and the United Steelworkers union, for whom I serve as a cleared advisor on two trade advisory committees. To top it off, I was a publicly acknowledged advisor to the Obama campaign in 2008.

  Obama may no longer be listening to my advice, but Hillary Clinton and Elizabeth Warren might as well be. Warren, of course, has been perhaps the deal’s most vocal critic, but even the more cautious Clinton has raised the right questions on what a good TPP would look like. Her spokesman, Nick Merrill, said: “She will be watching closely to see what is being done to crack down on currency manipulation, improve labor rights, protect the environment and health, promote transparency and open new opportunities for our small businesses to export overseas. As she warned in her book Hard Choices, we shouldn’t be giving special rights to corporations at the expense of workers and consumers.”

  On this count, the current TPP doesn’t measure up. And nothing being considered by Congress right now would ensure that the TPP meets the goal of promoting domestic production and job creation.

  The text of the TPP, like all trade deals, is a closely guarded secret. That fact makes a genuine public debate impossible and should make robust debate behind closed doors all the more essential. But the ability of TPP critics like me to point out the deal’s many failings is limited by the government’s surprising and unprecedented refusal to make revisions to the language in the TPP fully available to cleared advisors.

  Bill Clinton didn’t operate like this. During the debate on NAFTA, as a cleared advisor for the Democratic leadership, I had a copy of the entire text in a safe next to my desk and regularly was briefed on the specifics of the negotiations, including counterproposals made by Mexico and Canada. During the TPP negotiations, the  United States Trade Representative (USTR) has never shared proposals being advanced by other TPP partners. Today’s consultations are, in many ways, much more restrictive than those under past administrations.

  All advisors, and any liaisons, are required to have security clearances, which entail extensive paperwork and background investigations, before they are able to review text and participate in briefings. But, despite clearances, and a statutory duty to provide advice, advisors do not have access to all the materials that a reasonable person would need to do the job. The negotiators provide us with “proposals” but those are merely initial proposals to trading partners. We are not allowed to see counter-proposals from our trading partners. Often, advisors are provided with updates indicating that the final text will balance all appropriate stakeholder interests but we frequently receive few additional details beyond that flimsy assurance.

  Those details have enormous repercussions. For instance, rules of origin specify how much of a product must originate within the TPP countries for the resulting product to be eligible for duty-free treatment. These are complex rules that decide where a company will manufacture its products and where is will purchase raw materials. Under the North American Free Trade Agreement (NAFTA), 62.5 percent of a car needed to originate within NAFTA countries. In the US-Australia Free Trade Agreement, it was lowered to 50 percent. It further dropped to 35 percent in the US-Korea Free Trade Agreement (KORUS). In essence, under our agreement with Korea, 65 percent of a car from South Korea could be made from Chinese parts and still qualify for duty-free treatment when exported to the U.S.

  That fact is politically toxic, and for that reason, we should expect the TPP agreement to have higher standards. But will it reach the 62.5 percent NAFTA requirement? Or will it be only a slight improvement over KORUS? Without access to the final text of the agreement, it’s impossible to say.

  State-owned enterprises may, for the first time, be addressed in the TPP. But, once again, the details are not clear. Will exemptions be provided to countries like Vietnam, Malaysia and Singapore, all of which could be heavily impacted by such a rule? What will be the test to determine what is or is not acceptable behavior? Will injury be required to occur over a substantial period of time, or will individual acts of non-commercial, damaging trade practices be actionable? Again, it’s impossible to say for sure.

  Advisors are almost flying blind on these questions and others.

  Only portions of the text have been provided, to be read under the watchful eye of a USTR official. Access, up until recently, was provided on secure web sites. But the government-run website does not contain the most-up-to-date information for cleared advisors. To get that information, we have to travel to certain government facilities and sign in to read the materials. Even then, the administration determines what we can and cannot review and, often, they provide carefully edited summaries rather than the actual underlying text, which is critical to really understanding the consequences of the agreement.

  Cleared advisors were created by statute to advise our nation’s trade negotiators. There is a hierarchal structure, starting with the USTR’s Advisory Committee on Trade Policy & Negotiations at the top—a committee that includes people like Steelworkers President Leo Gerard, Mastercard CEO Ajay Banga, Etsy CEO Chad Dickerson and Jill Appell, co-owner of Appell’s Pork Farms. Then there are specific Committees covering subjects like labor, the environment and agriculture that make up the next tier. The last tier consists of the Industry Trade Advisory Committees (ITACS), which focus on individual sectors such as steel and aerospace. At last count, there were more than 600 cleared advisors. The vast majority of them represent business interests.

  In an effort to diminish criticism, USTR is now letting cleared advisors review summaries of what the negotiators have done. In response to a question about when the full updated text will be made available, we’ve been told, “We are working on making them available as soon as possible.” That’s not the case overseas: Our trading partners have this text, but the government’s own cleared advisors, serving on statutorily-created advisory committees, are kept in the dark.

  How can we properly advise, without knowing the details?

  Questions pervade virtually every chapter of the proposed agreement, including labor and the environment, investor-state, intellectual property and others. The answers to these questions affect the sourcing and investment decisions of our companies and resulting jobs for our people. Our elected representatives would be abdicating their Constitutional duty if they failed to raise questions.

  Senator Warren should be commended for her courage in standing up to the President, and Secretary Clinton for raising a note of caution, and I encourage all elected officials to raise these important questions. Working Americans can’t afford more failed trade agreements and trade policies.

  Congress should refuse to pass fast track trade negotiating authority until the partnership between the branches, and the trust of the American people is restored. That will require a lot of fence mending and disclosure of exactly what the TPP will do. That begins by sharing the final text of the TPP with those of us who won’t simply rubber-stamp it.

  * * *

  And then, moments ago: OBAMA SAYS HE’S `PLEASED’ WITH DEAL IN CONGRESS ON TRADE

  It almost makes one wonder just whom does “elected” government represent…

  

  

  
  
  

  

• "Obama's Strategy Against ISIS Is In Ruins"

  Over the weekend, a major shift in the balance of power in Iraq took place when Islamic State forces seized the key Iraqi state of Ramadi after militants detonated a series of car bomb blasts, which forced Iraqi security forces and tribal fighters to retreat to the city’s east, they said. The location of Ramadi is shown in the below ISW map.

  

   

  It took barely one day for the neoconservative cries for an aggressive and powerful response when overnight Kimberly Kagan’s hawkish think tank, the Institute for the Study of War, came out with its assessment which was at least partially right that “Obama’s strategy against the Islamic State in ruins not only in Iraq but also throughout the Muslim world.”

  However, the reason why said strategy is in ruins, namely decades of enforcing US presence in countless foreign territories to defend US “national interests” under false military pretenses, was ignored, and instead the ISW demands an immedate escalation of the war in Iraq, to wit:

  … the Islamic State remains unable to stand against even a limited deployment of U.S. military forces if those forces are properly resourced and allowed to operate against the enemy. A few thousand additional combat troops, backed by helicopters, armored vehicles and forward air controllers able to embed with Iraqi units at the battalion level, as well as additional Special Forces troops able to move about the countryside, would certainly prevent further gains. They could almost certainly regain Ramadi and other recently lost areas of Anbar, in cooperation with local tribes. They might be able to do more.

  Maybe, but they would certainly do enough on behalf of the US military-industrial complex, which would be delighted with the long overdue escalation of the Iraq war, especially since it has taken far too long to drag Syria back into the conflict for the second time in 2 years. We’ll also ignore widespread speculation that ISIS is merely a failed joint venture of the CIA and Saudi Arabia, as that would cause a substantial glitch in the narrative matrix.

  We won’t however, ignore, Obama’s “pacificist” image. Or perhaps neither the ISW, nor the president really cares about his Nobel peace prize-winning legacy much, especially since Obama is now openly defending himself against a “fascist” agenda, one in which both the Executive and Legislative branches of government have been taken over by a corporatist agenda in the guise of the TPP.

  For what it’s worth, here is the full ISW note.

  The Fall of Ramadi was Avoidable

  The seizure of Ramadi on Sunday leaves President Obama’s strategy against the Islamic State in ruins not only in Iraq but also throughout the Muslim world. It means that the Iraqi security forces will almost certainly not be able to recapture Mosul this year and, therefore, that the Islamic State will retain its largest city in Iraq. Worse, it gives the group momentum again in Iraq even as it gains ground in Syria and expands in the Sinai, Yemen, Afghanistan and elsewhere. This defeat was avoidable. Neither the Islamic State nor any other al-Qaeda offshoot has ever taken a major urban area actively defended by the United States in partnership with local forces. This is what happens when a policy of half-measures, restrictions and posturing meets a skillful and determined enemy on the battlefield. If the president does not change course soon, he will find that his legacy is not peace with Iran and ending wars, but rather the establishment of a terrorist state with the resources to conduct devastating attacks against the United States and a region-engulfing sectarian war.
   
  Obama reacted slowly and reluctantly to the initial Islamic State surge last June from Syria into Mosul and then down the Tigris toward Baghdad. He authorized U.S. air support to assist the defense of the Kurdish capital of Irbil in August and eventually deployed first a few hundred and then a few thousand U.S. advisers. He did not allow those advisers to fight alongside the Iraqi units they were assisting. U.S. airstrikes have destroyed many fixed Islamic State targets and killed its fighters by the thousands since then, mainly in Iraq, but have allowed the group to retain a haven in Syria and even to maneuver freely within Iraq.
   
  The Islamic State maneuver that led up to the fall of Ramadi was sophisticated and many weeks in the making, as a recent publication from the Institute for the Study of War shows. It entailed diversionary attacks in Baiji and Garma, a prison break in Diyala, attacks against pilgrims in Baghdad and raids near Ayn al-Asad air base west of Ramadi, a major hub of U.S. forces and Iraqi training. It was accompanied by a coordinated offensive around Deir ez-Zor, in Syria, that could give the group the ability to operate all along the Euphrates and toward Damascus as well. Numerous Islamic State fighters moved across Iraq and Syria. Although they leveraged poor weather that impedes U.S. reconnaissance, such activity must have created a signature that a properly resourced U.S. force in the region would have detected, and it certainly created a proliferation of targets on the ground for combinations of attack aviation and ground maneuvers – had those resources been available and allowed to operate freely. U.S. military power, properly employed and resourced, can thwart these kinds of maneuvers. The fall of Ramadi was unnecessary and avoidable.
   
  It is also a major strategic setback. The president’s strategy has been to support the Iraqi security forces in retaking territory lost to the Islamic State last summer and then, in some unspecified manner, turn to confronting it in Syria (probably in the next president’s term). Statements by U.S. and Iraqi leaders this spring made it clear that their plans involved holding in Anbar while focusing on a major operation to retake Mosul sometime this year. That operation would have been an essential precondition for the liberation of the rest of Anbar and for any subsequent operations against the Islamic State in Syria. But discussions about whether the retaking of Mosul would lead to the immediate collapse of the group now appear to have been premature. The disaster in Anbar, along with the fight for Tikrit precipitated by Iranian-backed Shiite militias that ultimately required the diversion of U.S. and Iraqi assets, has certainly derailed any campaign aiming at an early reconquest of Mosul.
   
  Setbacks against the Islamic State in Iraq might not be so devastating if the United States and its allies were on the offensive against that group elsewhere. The president’s plan, unfortunately, confined our efforts almost exclusively to Iraq. In the meantime, the group has managed to gain adherents in the Sinai, Yemen, Libya, Afghanistan, Pakistan and even further abroad, as part of its strategy to remain in Iraq and Syria and expand the caliphate. Had the Islamic State been dealt a rapid and crushing blow in Iraq, one might have hoped for a collapse in support for the organization and the dwindling of these various movements, all of which were preexisting organizations that swore allegiance to the Islamic State opportunistically in the hope that they would prove to be early backers of what Osama bin Laden liked to call “the strong horse.” The Islamic State’s success against the United States in Iraq makes the group look, indeed, like a strong horse and is likely to strengthen its efforts to recruit individuals and groups to its ranks. The fall of Ramadi is a major strategic defeat for the United States and an important victory for the Islamic State, even if it proves ephemeral.

  The White House is no doubt abuzz with recommendations, many probably counseling avoiding being sucked further into Iraq. Such recommendations would be completely wrongheaded. We are already sucked into Iraq for the simple reason that an enemy that has claimed credit for lone-wolf attacks in the United States and Australia (which it quite probably inspired, although did not direct) is entrenched there, defeating our local partners, and threatens to establish a quasi-state that controls several large cities. Even at this stage, however, the Islamic State remains unable to stand against even a limited deployment of U.S. military forces if those forces are properly resourced and allowed to operate against the enemy. A few thousand additional combat troops, backed by helicopters, armored vehicles and forward air controllers able to embed with Iraqi units at the battalion level, as well as additional Special Forces troops able to move about the countryside, would certainly prevent further gains. They could almost certainly regain Ramadi and other recently lost areas of Anbar, in cooperation with local tribes. They might be able to do more.

   The choice facing Obama is not between a massive deployment of hundreds of thousands of troops and a tightly constrained mission of under-resourced forces. It is, rather, between the serious application of a limited amount of U.S. military power and the establishment of a terrorist state. We submit that it is hard to imagine a serious policy discussion that concludes by favoring the latter outcome.

  

  

  
  
  

  

• How GDP Metrics Distort Our View of the Economy

  Submitted by Christopher Casey via The Mises Institute,

  GDP purports to measure economic activity while largely divorcing itself from the quality, profitability, depth, breadth, improvement, advancement, and rationalization of goods and services provided.

  For example, even if a ship — built at great expense — cruised without passengers, fished without success, or ferried without cargo; it nevertheless contributed to GDP. Profitable for investors or stranded in the sand; it added to GDP. Plying the seas or rusting into an orange honeycomb shell; the nation’s GDP grew.

  Stated alternatively, GDP fails to accurately assess the value of goods and services provided or estimate a society’s standard of living. It is a ruler with irregular hash marks and a clock with erratic ticks.

  As proof, observe this absurdity: in 1990, Soviet GDP equaled half of US GDP, according to the 1991 CIA Factbook. No one visiting the Soviet Union in 1990 would believe their economy came close to 50 percent of the quality and quantity of the goods and services produced in America. GDP-defined production may have been strong, but laying roads to nowhere, smelting unusable steel, and baking barely edible breads stretches the definition of “production.” And this describes the goods which were actually produced. There is no accounting for the opportunity cost of forfeited essential goods and services.

  How can this be? Why does GDP poorly reflect economic size and vitality? The blame largely resides with three fallacious concepts embedded within GDP “measurements”:

  (1) intermediate goods (e.g., steel) must be eliminated to avoid “double counting”;
  (2) government expenditures consist of viable economic activities; and
  (3) imports should be netted against exports.

  The Overstatement of Consumption

  Which transactions should be included within GDP? Since most products consist of other products, GDP architects attempt to avoid “double counting” transactions by largely including only final goods and services produced. By their methods, the production of a car is counted (as an increase in inventory), but the metal, rubber, and plastic purchased in its creation is not. But the rules behind what makes a transaction “final” are arbitrary. The logic could just as easily justify including the sale of an automobile to a consumer and disregarding its previous production. In addition, any “final” transaction during a given time period does not necessarily include intermediate goods produced in that same time period: metal, rubber, and plastic purchased today will likely be for a different car produced or sold in a different (future) time period.

  Regardless as to the arbitrary nature of determining final sales and notwithstanding the problem of temporally matching intermediate goods with their associated final sales, the exclusion of certain “intermediate” transactions simply excludes massive volumes of economic activity. Thus, GDP understates the economy as a whole while grossly overstating its consumption component relative to business investment. A better measure of overall production was created in 2014 when the US Commerce Department began publishing Gross Output which incorporates intermediate transactions. Using Gross Output, the commonly cited statistic of consumption accounting for 70 percent of all economic activity quickly falls to a mere 40 percent.

  The Treatment of Government Expenditures as Productive

  If GDP purports to measure economic activity which benefits society, the inclusion of government expenditures is dubious. GDP “produced” in the Soviet Union is no different than GDP “produced” by any government — the difference is but one of scale. All government spending is to some degree malinvestment, for as Murray Rothbard noted:

  Spending only measures value of output in the private economy because that spending is voluntary for services rendered. In government, the situation is entirely different … its spending has no necessary relation to the services that it might be providing to the private sector. There is no way, in fact, to gauge these services.

  The absence of voluntary action renders prices impotent, and without true price discovery, benefits cannot be ascertained. This does not mean all goods and services provided by government would cease to exist; rather, some production (e.g., hospitals, schools, roads, etc.) would revert to the private sector. To the extent government expenditures for goods and services would be produced by the free market, the true government contribution to GDP may be positive but overstated (it currently approximates 20 percent of US GDP). A more accurate depiction of economic activity would reduce if not eliminate the contribution of government expenditures. Or perhaps, as Rothbard argued, the higher of government receipts or expenditures should actually be deducted from GDP since “all government spending is a clear depredation upon, rather than an addition” to the economy.

  The Problems of Subtracting Imports from Exports

  As Robert Murphy has noted several times, the netting of imports against exports in determining GDP seriously understates the contribution of trade to overall economic activity. To wit, an economy which exports $1 and imports $1 will have the same GDP contribution (zero) as one which exports $100 billion and imports $100 billion. Obviously, the latter economy would be far worse off with the sudden cessation of trade.

  A fixture of GDP is the mercantilist mentality of treating exports positively and imports negatively. Why are exports additive to GDP while imports are deductive? If the goal of GDP is to measure the goods and services provided to people within a geographic region, imports — not exports — are the benefit. Exports are but payment for imports. The problem and confusion arises because the GDP calculation unrealistically excludes other forms of payment: it should make a difference if imports are funded with increasing debt levels or if funds are accumulated from previous years of compensated exports. If China converted over $1 trillion in US debt instruments into imports of American goods and services, its people benefit today, but under GDP accounting, the negative impact of imports would offset greater consumption and/or government spending (the increase in GDP was previously realized in the years during which exports created a trade surplus).

  GDP is Designed to Advance the Keynesian Agenda

  Simon Kuznets (1901–1985) revolutionized econometrics and standardized measurements of GDP, with his research culminating in his 1941 book, National Income and Its Composition, 1919–1938. While not a Keynesian per se, the nature and timing of his research fueled the Keynesian revolution since central planning requires economic statistics. As Murray Rothbard noted:

  Statistics are the eyes and ears of the bureaucrat, the politician, the socialistic reformer. Only by statistics can they know, or at least have any idea about, what is going on in the economy. Only by statistics can they find out … who “needs” what throughout the economy, and how much federal money should be channeled in what directions.

  GDP’s faulty theoretical underpinnings and politically motivated acceptance distort the performance and nature of an economy while failing to satisfactorily estimate a society’s standard of living. In fact, Kuznets partially understood this. In his very first report to the US Congress in 1934, Kuznets said “the welfare of a nation [can] scarcely be inferred from a measure of national income.” Yet the blind usage of GDP persists. That its permanence and persistence only serves the Keynesian policies of greater consumer spending, increased government expenditures, and larger exports through currency debasement should not be considered coincidental. Unfortunately, the resulting economic stagnation, debt accumulation, and price inflation are as inevitable as they are predictable.

  

  

  
  
  

  

• Even More Admitted False Flag Terror Incidents Come to Light

  Every time we look, we find new admissions of false flag terror attacks.

  In the following instances, officials in the government which carried out the attack (or seriously proposed an attack) admit to it, either orally, in writing, or through photographs or videos:

  (1) Japanese troops set off a small explosion on a train track in 1931, and falsely blamed it on China in order to justify an invasion of Manchuria. This is known as the “Mukden Incident” or the “Manchurian Incident”. The Tokyo International Military Tribunal found: “Several of the participators in the plan, including Hashimoto [a high-ranking Japanese army officer], have on various occasions admitted their part in the plot and have stated that the object of the ‘Incident’ was to afford an excuse for the occupation of Manchuria by the Kwantung Army ….” And see this.

  (2) A major with the Nazi SS admitted at the Nuremberg trials that – under orders from the chief of the Gestapo – he and some other Nazi operatives faked attacks on their own people and resources which they blamed on the Poles, to justify the invasion of Poland.

  (3) Nazi general Franz Halder also testified at the Nuremberg trials that Nazi leader Hermann Goering admitted to setting fire to the German parliament building in 1933, and then falsely blaming the communists for the arson.

  (4) Soviet leader Nikita Khrushchev admitted in writing that the Soviet Union’s Red Army shelled the Russian village of Mainila in 1939 – while blaming the attack on Finland – as a basis for launching the “Winter War” against Finland. Russian president Boris Yeltsin agreed that Russia had been the aggressor in the Winter War.

  (5) The Russian Parliament, current Russian president Putin and former Soviet leader Gorbachev all admit that Soviet leader Joseph Stalin ordered his secret police to execute 22,000 Polish army officers and civilians in 1940, and then falsely blamed it on the Nazis.

  (6) The British government admits that – between 1946 and 1948 – it bombed 5 ships carrying Jews attempting to flee the Holocaust to seek safety in Palestine, set up a fake group called “Defenders of Arab Palestine”, and then had the psuedo-group falsely claim responsibility for the bombings (and see this, this and this).

  (7) Israel admits that in 1954, an Israeli terrorist cell operating in Egypt planted bombs in several buildings, including U.S. diplomatic facilities, then left behind “evidence” implicating the Arabs as the culprits (one of the bombs detonated prematurely, allowing the Egyptians to identify the bombers, and several of the Israelis later confessed) (and see this and this).

  (8) The CIA admits that it hired Iranians in the 1950′s to pose as Communists and stage bombings in Iran in order to turn the country against its democratically-elected prime minister.

  (9) The Turkish Prime Minister admitted that the Turkish government carried out the 1955 bombing on a Turkish consulate in Greece – also damaging the nearby birthplace of the founder of modern Turkey – and blamed it on Greece, for the purpose of inciting and justifying anti-Greek violence.

  (10) The British Prime Minister admitted to his defense secretary that he and American president Dwight Eisenhower approved a plan in 1957 to carry out attacks in Syria and blame it on the Syrian government as a way to effect regime change.

  (11) The former Italian Prime Minister, an Italian judge, and the former head of Italian counterintelligence admit that NATO, with the help of the Pentagon and CIA, carried out terror bombings in Italy and other European countries in the 1950s and blamed the communists, in order to rally people’s support for their governments in Europe in their fight against communism. As one participant in this formerly-secret program stated: “You had to attack civilians, people, women, children, innocent people, unknown people far removed from any political game. The reason was quite simple. They were supposed to force these people, the Italian public, to turn to the state to ask for greater security” (and see this) (Italy and other European countries subject to the terror campaign had joined NATO before the bombings occurred). And watch this BBC special. They also allegedly carried out terror attacks in France, Belgium, Denmark, Germany, Greece, the Netherlands, Norway, Portugal, the UK, and other countries.

  False flag attacks carried out pursuant to this program include – by way of example only:

  • The murder of the Turkish Prime Minister (1960)

  • Bombings in Portugal (1966)

  • The Piazza Fontana massacre in Italy (1969)

  • Terror attacks in Turkey (1971)

  • The Peteano bombing in Italy (1972)

  • Shootings in Brescia, Italy and a bombing on an Italian train (1974)

  • Shootings in Istanbul, Turkey (1977)

  • The Atocha massacre in Madrid, Spain (1977)

  • The abduction and murder of the Italian Prime Minister (1978)

  • The bombing of the Bologna railway station in Italy (1980)

  • Shooting and killing 28 shoppers in Brabant county, Belgium (1985)

  (12) In 1960, American Senator George Smathers suggested that the U.S. launch “a false attack made on Guantanamo Bay which would give us the excuse of actually fomenting a fight which would then give us the excuse to go in and [overthrow Castro]“.

  (13) Official State Department documents show that, in 1961, the head of the Joint Chiefs and other high-level officials discussed blowing up a consulate in the Dominican Republic in order to justify an invasion of that country. The plans were not carried out, but they were all discussed as serious proposals.

  (14) As admitted by the U.S. government, recently declassified documents show that in 1962, the American Joint Chiefs of Staff signed off on a plan to blow up AMERICAN airplanes (using an elaborate plan involving the switching of airplanes), and also to commit terrorist acts on American soil, and then to blame it on the Cubans in order to justify an invasion of Cuba. See the following ABC news report; the official documents; and watch this interview with the former Washington Investigative Producer for ABC’s World News Tonight with Peter Jennings.

  (15) In 1963, the U.S. Department of Defense wrote a paper promoting attacks on nations within the Organization of American States – such as Trinidad-Tobago or Jamaica – and then falsely blaming them on Cuba.

  (16) The U.S. Department of Defense even suggested covertly paying a person in the Castro government to attack the United States: “The only area remaining for consideration then would be to bribe one of Castro’s subordinate commanders to initiate an attack on Guantanamo.”

  (17) The NSA admits that it lied about what really happened in the Gulf of Tonkin incident in 1964 … manipulating data to make it look like North Vietnamese boats fired on a U.S. ship so as to create a false justification for the Vietnam war.

  (18) A U.S. Congressional committee admitted that – as part of its “Cointelpro” campaign – the FBI had used many provocateurs in the 1950s through 1970s to carry out violent acts and falsely blame them on political activists.

  (19) A top Turkish general admitted that Turkish forces burned down a mosque on Cyprus in the 1970s and blamed it on their enemy. He explained: “In Special War, certain acts of sabotage are staged and blamed on the enemy to increase public resistance. We did this on Cyprus; we even burnt down a mosque.” In response to the surprised correspondent’s incredulous look the general said, “I am giving an example”.

  (20) A declassified 1973 CIA document reveals a program to train foreign police and troops on how to make booby traps, pretending that they were training them on how to investigate terrorist acts:

  The Agency maintains liaison in varying degrees with foreign police/security organizations through its field stations ….

   

  [CIA provides training sessions as follows:]

   

  a. Providing trainees with basic knowledge in the uses of commercial and military demolitions and incendiaries as they may be applied in terrorism and industrial sabotage operations.

   

  b. Introducing the trainees to commercially available materials and home laboratory techniques, likely to he used in the manufacture of explosives and incendiaries by terrorists or saboteurs.

   

  c. Familiarizing the trainees with the concept of target analysis and operational planning that a saboteur or terrorist must employ.

   

  d. Introducing the trainees to booby trapping devices and techniques giving practical experience with both manufactured and improvised devices through actual fabrication.

   

  ***

   

  The program provides the trainees with ample opportunity to develop basic familiarity and use proficiently through handling, preparing and applying the various explosive charges, incendiary agents, terrorist devices and sabotage techniques.

  (21) The German government admitted (and see this) that, in 1978, the German secret service detonated a bomb in the outer wall of a prison and planted “escape tools” on a prisoner – a member of the Red Army Faction – which the secret service wished to frame the bombing on.

  (22) A Mossad agent admits that, in 1984, Mossad planted a radio transmitter in Gaddaffi’s compound in Tripoli, Libya which broadcast fake terrorist trasmissions recorded by Mossad, in order to frame Gaddaffi as a terrorist supporter. Ronald Reagan bombed Libya immediately thereafter.

  (23) The South African Truth and Reconciliation Council found that, in 1989, the Civil Cooperation Bureau (a covert branch of the South African Defense Force) approached an explosives expert and asked him “to participate in an operation aimed at discrediting the ANC [the African National Congress] by bombing the police vehicle of the investigating officer into the murder incident”, thus framing the ANC for the bombing.

  (24) An Algerian diplomat and several officers in the Algerian army admit that, in the 1990s, the Algerian army frequently massacred Algerian civilians and then blamed Islamic militants for the killings (and see this video; and Agence France-Presse, 9/27/2002, French Court Dismisses Algerian Defamation Suit Against Author).

  (25) The United States Army’s 1994 publication Special Forces Foreign Internal Defense Tactics Techniques and Procedures for Special Forces – updated in 2004 – recommends employing terrorists and using false flag operations to destabilize leftist regimes in Latin America. False flag terrorist attacks were carried out in Latin America and other regions as part of the CIA’s “Dirty Wars“. And see this.

  (26) Similarly, a CIA “psychological operations” manual prepared by a CIA contractor for the Nicaraguan Contra rebels noted the value of assassinating someone on your own side to create a “martyr” for the cause. The manual was authenticated by the U.S. government. The manual received so much publicity from Associated Press, Washington Post and other news coverage that – during the 1984 presidential debate – President Reagan was confronted with the following question on national television:

  At this moment, we are confronted with the extraordinary story of a CIA guerrilla manual for the anti-Sandinista contras whom we are backing, which advocates not only assassinations of Sandinistas but the hiring of criminals to assassinate the guerrillas we are supporting in order to create martyrs.

  (27) An Indonesian fact-finding team investigated violent riots which occurred in 1998, and determined that “elements of the military had been involved in the riots, some of which were deliberately provoked”.

  (28) Senior Russian Senior military and intelligence officers admit that the KGB blew up Russian apartment buildings in 1999 and falsely blamed it on Chechens, in order to justify an invasion of Chechnya (and see this report and this discussion).

  (29) As reported by BBC, the New York Times, and Associated Press, Macedonian officials admit that the government murdered 7 innocent immigrants in cold blood and pretended that they were Al Qaeda soldiers attempting to assassinate Macedonian police, in order to join the “war on terror”.

  (30)  At the July 2001 G8 Summit in Genoa, Italy, black-clad thugs were videotaped getting out of police cars, and were seen by an Italian MP carrying “iron bars inside the police station”.  Subsequently, senior police officials in Genoa subsequently  admitted that police planted two Molotov cocktails and faked the stabbing of a police officer at the G8 Summit, in order to justify a violent crackdown against protesters.

  (31) The U.S. falsely blamed Iraq for playing a role in the 9/11 attacks – as shown by a memo from the defense secretary – as one of the main justifications for launching the Iraq war. Even after the 9/11 Commission admitted that there was no connection, Dick Cheney said that the evidence is “overwhelming” that al Qaeda had a relationship with Saddam Hussein’s regime, that Cheney “probably” had information unavailable to the Commission, and that the media was not ‘doing their homework’ in reporting such ties. Top U.S. government officials now admit that the Iraq war was really launched for oil … not 9/11 or weapons of mass destruction. Despite previous “lone wolf” claims, many U.S. government officials now say that 9/11 was state-sponsored terror; but Iraq was not the state which backed the hijackers. (Many U.S. officials have alleged that 9/11 was a false flag operation by rogue elements of the U.S. government; but such a claim is beyond the scope of this discussion. The key point is that the U.S. falsely blamed it on Iraq, when it knew Iraq had nothing to do with it.).

  (32) Although the FBI now admits that the 2001 anthrax attacks were carried out by one or more U.S. government scientists, a senior FBI official says that the FBI was actually told to blame the Anthrax attacks on Al Qaeda by White House officials (remember what the anthrax letters looked like). Government officials also confirm that the white House tried to link the anthrax to Iraq as a justification for regime change in that country.

  (33) According to the Washington Post, Indonesian police admit that the Indonesian military killed American teachers in Papua in 2002 and blamed the murders on a Papuan separatist group in order to get that group listed as a terrorist organization.

  (34) The well-respected former Indonesian president also admits that the government probably had a role in the Bali bombings.

  (35) Police outside of a 2003 European Union summit in Greece were filmed planting Molotov cocktails on a peaceful protester

  (36) Former Department of Justice lawyer John Yoo suggested in 2005 that the US should go on the offensive against al-Qaeda, having “our intelligence agencies create a false terrorist organization. It could have its own websites, recruitment centers, training camps, and fundraising operations. It could launch fake terrorist operations and claim credit for real terrorist strikes, helping to sow confusion within al-Qaeda’s ranks, causing operatives to doubt others’ identities and to question the validity of communications.”

  (37) Similarly, in 2005, Professor John Arquilla of the Naval Postgraduate School – a renowned US defense analyst credited with developing the concept of ‘netwar’ – called for western intelligence services to create new “pseudo gang” terrorist groups, as a way of undermining “real” terror networks. According to Pulitzer-Prize winning journalist Seymour Hersh, Arquilla’s ‘pseudo-gang’ strategy was, Hersh reported, already being implemented by the Pentagon:

  “Under Rumsfeld’s new approach, I was told, US military operatives would be permitted to pose abroad as corrupt foreign businessmen seeking to buy contraband items that could be used in nuclear-weapons systems. In some cases, according to the Pentagon advisers, local citizens could be recruited and asked to join up with guerrillas or terrorists…

  The new rules will enable the Special Forces community to set up what it calls ‘action teams’ in the target countries overseas which can be used to find and eliminate terrorist organizations. ‘Do you remember the right-wing execution squads in El Salvador?’ the former high-level intelligence official asked me, referring to the military-led gangs that committed atrocities in the early nineteen-eighties. ‘We founded them and we financed them,’ he said. ‘The objective now is to recruit locals in any area we want. And we aren’t going to tell Congress about it.’ A former military officer, who has knowledge of the Pentagon’s commando capabilities, said, ‘We’re going to be riding with the bad boys.’”

  (38) United Press International reported in June 2005:

  U.S. intelligence officers are reporting that some of the insurgents in Iraq are using recent-model Beretta 92 pistols, but the pistols seem to have had their serial numbers erased. The numbers do not appear to have been physically removed; the pistols seem to have come off a production line without any serial numbers. Analysts suggest the lack of serial numbers indicates that the weapons were intended for intelligence operations or terrorist cells with substantial government backing. Analysts speculate that these guns are probably from either Mossad or the CIA. Analysts speculate that agent provocateurs may be using the untraceable weapons even as U.S. authorities use insurgent attacks against civilians as evidence of the illegitimacy of the resistance.

  (39) Undercover Israeli soldiers admitted in 2005 to throwing stones at other Israeli soldiers so they could blame it on Palestinians, as an excuse to crack down on peaceful protests by the Palestinians.

  (40) Quebec police admitted that, in 2007, thugs carrying rocks to a peaceful protest were actually undercover Quebec police officers (and see this).

  (41) A 2008 US Army special operations field manual recommends that the U.S. military use surrogate non-state groups such as “paramilitary forces, individuals, businesses, foreign political organizations, resistant or insurgent organizations, expatriates, transnational terrorism adversaries, disillusioned transnational terrorism members, black marketers, and other social or political ‘undesirables.’” The manual specifically acknowledged that U.S. special operations can involve both counterterrorism and “Terrorism” (as well as “transnational criminal activities, including narco-trafficking, illicit arms-dealing, and illegal financial transactions.”)

  (42)  The former head of Secret Services and Head of State of Italy (Francesco Cossiga) advised the 2008 minister in charge of the police, on how to deal with protests from teachers and students:

  He should do what I did when I was Minister of the Interior … infiltrate the movement with agents provocateurs inclined to do anything …. And after that, with the strength of the gained population consent,  … beat them for blood and beat for blood also those teachers that incite them. Especially the teachers. Not the elderly, of course, but the girl teachers yes.

  (43) At the G20 protests in London in 2009, a British member of parliament saw plain clothes police officers attempting to incite the crowd to violence.

  (44) Egyptian politicians admitted (and see this) that government employees looted priceless museum artifacts in 2011 to try to discredit the protesters.

  (45) Rioters who discredited the peaceful protests against the swearing in of the Mexican president in 2012 admitted that they were paid 300 pesos each to destroy everything in their path. According to Wikipedia, photos also show the vandals waiting in groups behind police lines prior to the violence.

  (46) A Colombian army colonel has admitted that his unit murdered 57 civilians, then dressed them in uniforms and claimed they were rebels killed in combat.

  (47) On November 20, 2014, Mexican agent provocateurs were transported by army vehicles to participate in the 2014 Iguala mass kidnapping protests, as was shown by videos and pictures distributed via social networks.

  (48) The highly-respected writer for the Telegraph Ambrose Evans-Pritchard says that the head of Saudi intelligence – Prince Bandar – recently admitted that the Saudi government controls “Chechen” terrorists.

  (49) High-level American sources admitted that the Turkish government – a fellow NATO country – carried out the chemical weapons attacks blamed on the Syrian government; and high-ranking Turkish government admitted on tape plans to carry out attacks and blame it on the Syrian government.

  (50) The Ukrainian security chief admits that the sniper attacks which started the Ukrainian coup were carried out in order to frame others. Ukrainian officials admit that the Ukrainian snipers fired on both sides, to create maximum chaos.

  (51) Britain’s spy agency has admitted (and see this) that it carries out “digital false flag” attacks on targets, framing people by writing offensive or unlawful material … and blaming it on the target.

  (52) U.S. soldiers have admitted that if they kill innocent Iraqis and Afghanis, they then “drop” automatic weapons near their body so they can pretend they were militants

  (53) Similarly, police frame innocent people for crimes they didn’t commit. The practice is so well-known that the New York Times noted in 1981:

  In police jargon, a throwdown is a weapon planted on a victim.

  Newsweek reported in 1999:

  Perez, himself a former [Los Angeles Police Department] cop, was caught stealing eight pounds of cocaine from police evidence lockers. After pleading guilty in September, he bargained for a lighter sentence by telling an appalling story of attempted murder and a “throwdown”–police slang for a weapon planted by cops to make a shooting legally justifiable. Perez said he and his partner, Officer Nino Durden, shot an unarmed 18th Street Gang member named Javier Ovando, then planted a semiautomatic rifle on the unconscious suspect and claimed that Ovando had tried to shoot them during a stakeout.

  Wikipedia notes:

  As part of his plea bargain, Pérez implicated scores of officers from the Rampart Division’s anti-gang unit, describing routinely beating gang members, planting evidence on suspects, falsifying reports and covering up unprovoked shootings.

  (As a side note – and while not technically false flag attacks – police have been busted framing innocent people in many other ways, as well.)

  (54) A former U.S. intelligence officer recently alleged:

  Most terrorists are false flag terrorists or are created by our own security services.

  (55) The head and special agent in charge of the FBI’s Los Angeles office said that most terror attacks are committed by the CIA and FBI as false flags.  Similarly, the director of the National Security Agency under Ronald Reagan – Lt. General William Odom said:

  By any measure the US has long used terrorism. In ‘78-79 the Senate was trying to pass a law against international terrorism – in every version they produced, the lawyers said the US would be in violation.

  (audio here).

  (56) Leaders throughout history have acknowledged the “benefits” of of false flags to justify their political agenda:

  “Terrorism is the best political weapon for nothing drives people harder than a fear of sudden death”.
  – Adolph Hitler

   

  “Why of course the people don’t want war … But after all it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship … Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.”
  – Hermann Goering, Nazi leader.

   

  “The easiest way to gain control of a population is to carry out acts of terror. [The public] will clamor for such laws if their personal security is threatened”.
  – Josef Stalin

  Postscript: Private parties – such as NBC News, as well as Muslims, Jews, Scientologists, African-Americans and Neo-Nazis – play this game as well.

  

  
  
  

  

• Make College Free By Taxing Stock Trades, Dem Presidential Candidate Says

  As the student loan bubble steams along towards the $1.5 trillion mark, pundits, researchers, and even (gasp) ratings agencies are starting to sound the alarm. While everyone is (as usual), around three years behind when it comes to admitting what’s been outlined extensively in these pages, we’re at least glad to see that the world is waking up to the fact that i) $1.3 trillion is a lot of money, ii) delinquency rates are far higher than the headline figures suggest, iii) students are never, repeat never, going to repay all of this, and iv) it is taxpayers who will eventually foot the bill. 

  To the latter point there, the calls for across-the-board debt “forgiveness” have already started and even if they hadn’t, and even if The White House weren’t looking at ways to make the discharge of student debt “more efficient” in bankruptcy, there are a number of reasons to believe that when it’s all said and done, taxpayers will be on the hook at least for hundreds of millions and more probably for hundreds of billions. Consider for instance that the cost of closing just one for-profit college could well run more than $200 million in federal loan forgiveness. Then there’s IBR (that’s “Income Based Repayment“) in which borrowers whose disposable income isn’t deemed sufficient when it comes to making monthly payments have the remainder of their loan forgiven after 25 years. There’s literally no way to know what the cost to taxpayers will ultimately be from IBR plans, but what we do know is that an increase in the number of borrowers opting for some kind of IBR plan is one reason why Moody’s thinks some $3 billion in student loan-backed paper may be at risk for default. 

  So against this backdrop, America needs a plan, because as we’re fond of reminding people, one person’s liability is another person’s asset, meaning debt is never really “cancelled”, it’s just written off at some else’s expense. Ideally, opportunities in the job market and a robust economy would allow new graduates to obtain high-paying, full-time jobs which would in turn allow them to pay down their loans, but since that isn’t going to happen any time soon, we’re open to suggestions. 

  Fortunately, Democratic Presidential candidate Bernie Sanders has a plan that will ensure future generations of taxpayers aren’t stuck paying for their parents’ college degrees: simply tax investors so the entire country can go to school for free. 

  Via Bloomberg:

  Democratic presidential candidate Bernie Sanders wants to take from the rich in order to make public college tuition-free for everyone else.

   

  On Tuesday, the Vermont senator will hold a press conference in the nation’s capital at which he will introduce a plan to use a so-called Robin Hood tax on stock transactions to fund tuition at four-year public colleges and universities. 

   

  Sanders’ bill sets a 50-cent tax on every “$100 of stock trades on stock sales, and lesser amounts on transactions involving bonds, derivatives, and other financial instruments,” the group Robin Hood Tax on Wall Street said Monday in a press release. 

   

  “The Robin Hood tax would also slow the growth of automated high frequency trading, which makes the stock market more dangerous,” the press release stated. “A small tax would make risky HFT unprofitable, and help reduce the excess speculation on commodities like food and gas that drives up prices, which will protect the economy from computer-generated collapses and market manipulation.”

   

  Sanders, who is the only candidate so far to mount a formal primary challenge to Hillary Clinton, argues that making college tuition-free will help America compete in the global marketplace. 

   

  “We live in a highly competitive global economy and, if our economy is to be strong, we need the best-educated work force in the world,” he said in a press release on Sunday. “That will not happen if, every year, hundreds of thousands of bright young people cannot afford to go to college, and if millions more leave school deeply in debt.” 

  There you go. Problem solved. We’ll leave it to readers to judge what kind of reception that plan is likely to get from GOP lawmakers, but we will venture to propose an alternative: make market rigging algos fund the education of the nation’s best and brightest by taxing all canceled orders. Then again, that plan would only generate revenue for one day because it would put the HFT crowd out of business overnight.

  

  

  
  
  

  

• This Is How Totally Over-the-Top Crazy San Francisco’s Housing Boom Really Is

  Wolf Richter   www.wolfstreet.com   www.amazon.com/author/wolfrichter

  In San Francisco, a boom is always associated with its essential counterpart, the bust. They’re as typical to the city as sun and fog. And currently, the city is in one heck of a housing boom, but the national indices don’t quite do justice to how over-the-top mind-blowing crazy the situation has gotten.

  For example, the S&P/Case-Shiller Home price index covers not just the city or county of San Francisco (identical) but includes four other Bay Area counties: Alameda, Contra Costa, Marin, and San Mateo. There are more counties in the Bay Area, but they’re not included in the index. Two of the cities in these counties – Richmond and Oakland – have made the lists of the nation’s most dangerous cities, justified or not, and home prices in these cities and other cities too are much, much lower.

  So in terms of home prices, the five-county Case-Shiller index for “San Francisco,” though showing a significant gain, waters down the craziness happening before our very eyes in the real San Francisco.

  For the most current granular neighborhood-by-neighborhood data for San Francisco itself, we go to Paragon Real Estate Group’s May 2015 report, and what we find are vertigo-inducing price increases that have now beautifully spiked.

  During the prior nationwide housing bubble that blew up with such fanfare, helped take down the world financial system, and caused central banks and governments to instigate the largest bail-out schemes the world has ever seen – from banks to entire countries – well, during that bubble, while it was still going on, homes in San Francisco reached what afterward were called totally crazy valuations, with the median price topping out in November 2007 at a completely mind-boggling $895,000.

  People were shaking their heads at the time. But after the boom came the inevitable bust. By January 2012, the median home price had plunged 31% to $615,000.

  By then, the tsunami of money that the Fed had unleashed was already washing over San Francisco from multiple directions: a stock-market and startup boom that the city is so dependent on, a tourist boom from around the world, waves of foreign buyers too, and a veritable flood of nearly free funding. Everything came perfectly together. Over the course of three years and four months, the median home price about doubled to $1,225,000.

  January is typically the low point in the seasonal fluctuations of the median price. Paragon notes that sales prices in one month reflect deals negotiated in the prior month or two. So from January to April last year, home prices surged 15%. The four-month surge in 2013 hit 20%. But look at that gorgeous 32% spike so far this year! That’s what a real boom looks like:

  

  The median home price is now 37% above the prior-bubble completely mind-boggling median price that afterwards everyone admitted had been based on totally crazy valuations.

  This has a real impact on rents, with average asking rent in the first quarter hitting $3,458 a month, or $41,500 per year.

  On a neighborhood-by-neighborhood basis, the differences in median home prices are enormous. Below are two charts from Paragon. The first chart shows median prices of houses; the second chart shows median prices of condos and co-ops. In some neighborhoods, houses dominate. In others, condos and co-ops dominate. So not all neighborhoods made it into both charts.

  In the chart below, the median house prices range from $610,000 in Bayview, one of the more troubled neighborhoods, to nearly $6 million in Pacific Heights. It is in this exclusive, gorgeous, and groomed neighborhood, endowed with breathtaking views of the Bay, where you find the humble abode of the champion of the poor, former Speaker of the House Nancy Pelosi.

  

  The chart below shows median prices of condos and co-ops. Prices too vary from one end to the other, but not by as much as prices in the prior chart:

  

  The extraordinary moolah that developers make at these prices has kicked off a construction boom – to be followed, as always, by the inevitable bust.

  “The new-home development situation in San Francisco is fascinating – and a fierce political issue,” Paragon explains. Probably one of the biggest understatements of the year. And this is what the construction boom-and-bust cycle looks like through 2014:

  

  This year promises to be even more ebullient. Cranes are sprouting in some neighborhoods like mushrooms. Lots that have been vacant for years or decades suddenly see construction work. This place is hopping. According to Paragon’s Housing Construction report: “99% of all new construction being built for sale consists of new and usually high-end condos.”

  New home development often goes through gigantic boom and bust cycles. What complicates the issue for SF developers is that from start to finish, from creating plans for city review to completing construction, the process can easily take 4 to 6 years. Right now, both residential and commercial developers are making enormous bets on a long, sustained, up cycle in the SF economy and real estate market.

  They’re certainly not betting on the next bust.

  Most of it is happening in the eastern quarter of the city (Paragon map) near the Market Street corridor, the Van Ness Street corridor just north of Market, and in the large area southeast of Market where sleek condo towers are replacing former commercial and industrial sites. Zoning in these areas “allows for large – sometimes very large – projects,” Paragon points out. Which you can’t do easily or at all in other areas of San Francisco. And people are already complaining that it doesn’t even look like San Francisco anymore.

  So in this environment, how many years does it take to save up for a down payment in San Francisco and other US cities if you earn the local median income? Are you sitting down? Read…  How Soaring Housing Costs Impoverish a Whole Generation and Maul the Real Economy

  

  
  
  

  

• Bloody Biker Breastaurant Shootout: New Footage, Details Emerge

  Terrified patrons and flippant, scantily clad waitresses alike witnessed a rare “true biker shootout” at the Waco, Texas Twin Peaks Sports Bar and Grill on Sunday. Although details were initially sparse, the story seems to have begun when members of several rival biker gangs agreed to meet at Twin Peaks to discuss a territorial disagreement. 

  When tensions flared in the men’s room, the meeting to resolve what Reuters called “a dispute over a parking lot,” quickly escalated into a dispute in a parking lot where as many as five rival gangs brandishing bats, brass knuckles, knives, clubs, guns, and motorcycle chains set about attacking one another in a melee involving hundreds of bikers.

  Police — who were aware that trouble might be brewing down at the Twin Peaks and who had actually warned the franchise owner that a biker brawl might be in the cards — quickly joined the shootout after the bikers “turned their guns” away from each other and onto the officers. In the end, the restaurant parking lot was littered with blood and bullets, 9 bikers were dead, 18 were injured, and 192 were arrested. 

  Here’s aerial footage of the arrests (set to fun music), cell phone footage, and more images from the melee:

  

  

  

  For those interested in the backstory behind Sunday’s ‘event’, read on.

  Two days after the harrowing high noon hostilities, details have begun to emerge. As The NY Times reports, the two instigating gangs look to be the Cossacks and the Bandidos who are engaged in a “long-running feud”:

  Law enforcement officials said the midday gun battle was primarily between the Bandidos and Cossacks gangs, a continuation of a long-running feud between the two groups, though members of the Scimitars — a gang affiliated with the Cossacks — and two other motorcycle clubs were also involved…

   

  The people arrested after the shootout at the Twin Peaks Restaurant, in south Waco, were charged with engaging in organized crime linked to capital murder, said Sgt. Patrick Swanton, a Waco Police Department spokesman. It will be up to prosecutors and a grand jury to decide what charges they will ultimately face, but capital murder charges can carry the death penalty.

   

  With hundreds of bikers gathered at the restaurant, at the Central Texas Marketplace shopping plaza just off Interstate 35, the police anticipated trouble and were out in force before the confrontation. There were 18 Waco officers and four Texas Department of Public Safety officers there, and they closed in “within 30, 45 seconds” of the start of shooting, Sergeant Swanton said.

   

  “There were multiple people on the scene firing weapons at each other,” he said. “They then turned on our officers. Our officers returned gunfire, wounding and possibly killing several”…

   

  Both the Bandidos and the Cossacks originated in Texas in the 1960s, according to law enforcement officials and gang historians. Last year, two members of the Bandidos, including the president of the Abilene chapter,were indicted on charges of stabbing two other men, in what the police said was a conflict with the Cossacks.

   

  “The view of the Bandidos is that Texas is their state,” said Terry Katz, vice president of the International Association of Outlaw Motorcycle Gang Investigators, a group of about 600 analysts, investigators, police officers and prosecutors. The Bandidos “are the big dogs of Texas,” he said, but the smaller Cossacks gang was “not going to bow down,” and there has been a series of violent confrontations between them…

   

  The Bandidos are one of the few major biker gangs in the United States and the world. A 2013 national gang report produced by federal law enforcement agencies identified the Bandidos as one of five motorcycle groups — in addition to the Hells Angels, Pagans, Outlaws and Iron Horsemen — that posed the most significant gang threat around the country. 

  The Boston Globe has more:

  The group is generally considered the world’s second-largest biker gang, behind the Angels, with as many as 2,500 members in 13 countries, according to the Department of Justice.

   

  The Bandidos’ story charts the rise of biker gangs from counterculture clubs to fearsome organized crime organizations and helps to explain why tragedy struck on Sunday in a city already associated with spectacular violence.

   

  The Bandidos began almost 20 years after the Hells Angels, but the two gangs soon became bitter rivals. According to the motorcycle club’s legend, founder Donald Chambers was bored with other bike clubs. ‘‘Chambers started the Bandidos in March 1966, when he was 36 years old and working on the ship docks in Houston,’’ Skip Hollandsworth wrote in a 2007 profile of the gang. ‘‘He told his friends that he was naming his club the Bandidos, in honor of the Mexican bandits who refused to live by anyone’s rules but their own, and he began recruiting his first members not only out of Houston but also out of the biker bars in Corpus Christi, Galveston, and San Antonio…

   

  ‘‘By the late 1970s local police and federal investigations began to expose the involvement of many 1% [motorcycle clubs] in drug trafficking, theft, extortion, and prostitution rings,’’ Quinn writes. Chambers was caught in 1972, when he and two other Bandidos were arrested for killing two drug dealers in El Paso…

   

  In the mid 1990s, a ‘‘Great Nordic Biker War’’ between the Bandidos and the Hells Angels shook Scandinavia. At least 12 people died and nearly 100 were injured in the three-year skirmish, which featured unprecedented firepower for a gangland rivalry…

   

  The two bike gangs faced off again in Canada during the late 1990s and 2000s. This time, the conflict — dubbed ‘‘The Quebec Biker war’’ — reportedly cost 150 lives. 

  Steve Cook, a Kansas City police officer who’s worked undercover in biker gangs told The Globe the following about Sunday’s shootout:

  ‘‘My perception is that the Cossacks have been flirting, if you will, with Hell’s Angels. If I’m a Bandido, my immediate reaction is: ‘These guys are going to try to make a move and bring an international gang into our state, which is going to cause a war.’’’

  So there you have it. No other international gangs in the Bandidos’ state — and that includes Twin Peaks franchises in strip malls. 

  Incidentally, the Bandidos have a website for those interested. Here are some selected images:

  

  

  

  

  
  
  

  

• The Untied State Of America

  Dis-united…

  In words…

  As Robert Reich said yesterday, “yes, The Fed is feeding inequality; but it has to keep rates low for the good of the economy”

  And Pictures…
  

  

   

  And charts…

  

   

  Source: Bloomberg and @Stalingrad_Poor

  

  
  
  

  

• Are Stocks & Bonds Due For A "Generational" 75% Crash?

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  From the point of view of history, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target.

  If we look back to 1981 valuations of stocks and bonds as a guide to valuations at the next generational low, we find stocks and bonds are due for a 75% drop. The Great Bull market in bonds and equities took off after 1981, and has run higher for 34 years (notwithstanding a spot of bother in 2000-02 and 2008-09).
   

  Before credit bubbles became the New Normal, the stock market was valued at less than 50% of GDP. Now stocks are valued at over 200% of GDP, as are bonds. Together, the total securities valuation is over 400% of GDP:
   

  
  Data courtesy of Doug Noland

   

  The GDP (gross domestic product) of the U.S. was around $17 trillion in 2014. If valuations returned to pre-bubble levels of 50% of GDP, stocks would have to drop from $36 trillion to around $8 trillion–a decline of 75%.

  Bonds would have to experience a similar decline to reach pre-credit-bubble levels.
   

  A drop back to the rich valuations of 100% of GDP would require a decline of 50% from current levels. In other words, the S&P 500 would be around 1,000, not 2,000.
   

  To provide some context for the extreme valuations of present -day stocks and bonds, I have shown what the stock and bond markets would be worth in current dollars if they had simply tracked inflation since 1981. According to the Bureau of Labor Statistics Inflation Calculator, $1 in 1981 is now worth $2.60 in 2014 dollars.
   

  If stocks had risen only with official inflation, the S&P 500 would be worth 10% of its current valuation: $3.6 trillion versus $36 trillion.
   

  The bond market (Treasury, corporate and Municipal bonds and agency securities) would be worth 15% of the bond market's current valuations.
   

  Measuring the valuations of bonds and equities in terms of GDP bypasses the debate over inflation.GDP has risen smartly in the past 34 years, and so the expansion of securities at the same rate is to be expected–never mind what official inflation registers.
   

  Measured in GDP, stocks and bonds have reached extremes that make no sense except as the result of an unprecedented global credit bubble. Credit bubbles have a history of not being as permanent and durable as those living in the peak of the bubble expect.
   

  By any reasonable measure, the current credit-bubble boom in stocks and bonds is getting long in tooth after 34 years of relentless expansion, and the rise of securities to 400% of GDP is reaching extremes that are increasingly difficult to support, much less push higher.
   

  From the point of view of history, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target. This implies a 75% decline in both stocks and bonds within the next decade, if not sooner.

  

  

  
  
  

  

Digest powered by RSS Digest

• SocGen Bosses Knew 'Rogue Trader' Kerviel Was Taking Massive Risks

  Bosses at French banking giant Societe Generale were aware of the activities of "rogue trader" Jerome Kerviel, a top detective working on the case reportedly told an investigating judge, according to France24. The French investigative news website, Mediapart, quoted Nathalie Le Roy as telling judge Roger Le Loire she was "certain" that Kerviel's superiors "could not have been unaware" he was taking wildly risky bets on derivatives. However, as Bloomberg reports, SocGen, in a statement released on Monday, that several judicial decisions have assigned exclusive criminal responsibility to Kerviel, adding "it’s just the opinion of a person and not based on the discovery of new documents."

   

  

   

  Having been hung out to dry by his bank after Jerome Kerviel allegedly brought Societe Generale to its knees in 2008 with losses of nearly five billion euros ($5.7 billion) from unwinding his trades of up to 50 billion euros ($57 billion). As we explained previously, something did not add up abiout his single-handed scapegoating…

  From 2005 through 2007, Kerviel made increasingly large trades, and as his profits rose, he became more confident. It was “intoxicating,” he said. At the end of every day, his direct supervisor came by and asked how much he’d made and encouraged him. And the hierarchy set his ever growing objectives based on profits from the prior year. In 2007, he made €55 million for the bank, which became the basis for his 2008 objective. He was so successful that the hierarchy suggested in an email that the bank “adopt the system Kerviel.”

   

  In the trading room of about 100 traders, word of the magnitude and profits of his positions “circulated.” Société Générale traders in Asia called Kerviel the “fat one” (le gros) because of his positions. His boss in the trading room knew that he was risking up to €50 billion; emails between his supervisors and “control services” have emerged that discussed his outsized trades—one of them for €17 billion. But none of this was accepted by the court. “Incomprehensible,” Kerviel groaned.

   

  On the plaintiff’s side, it was the opposite. Its “witnesses came and lied,” Koubbi said; and when challenged, the judge said that plaintiff’s witnesses had “a right to lie.” When Koubbi asked one of Kerviel’s supervisors what he knew about his trades, he replied: “I cannot answer that question because if I answered that question, I’d have to pay back the money I already received.” He’d signed a contract with the bank that prevented him from talking about the case. And the judge let it go.

  And now, as France24 reports, bosses at French banking giant Societe Generale were aware of the activities of "rogue trader" Jerome Kerviel, a top detective working on the case reportedly told an investigating judge, according to Mediapart.

  The French investigative news website quoted Nathalie Le Roy as telling judge Roger Le Loire she was "certain" that Kerviel's superiors "could not have been unaware" he was taking wildly risky bets on derivatives.

   

  …

   

  "From different hearings and different documents that I've seen, I had the feeling, then I was certain, that Jerome Kerviel's bosses could not be unaware of the positions he was taking," Mediapart cited Le Roy as saying during her hearing.

   

  She cited interviews she herself had carried out with an employee in the operational risk department of Societe Generale, who told her that "Jerome Kerviel's activities were known."

  Societe Generale said in a statement it was "surprised" by the report.

  "The case surrounding the fraudulent activities of Jerome Kerviel go back now more than seven years and there have been several court decisions which have always shown the sole criminal responsibility of Jerome Kerviel," the bank said.

   

  "Societe Generale is surprised by the declarations apparently made by a police officer to a judge in charge of a case brought by Jerome Kerviel given that he (Kerviel) himself told detectives questioning him in 2008 that he had acted alone and without his superiors' knowledge," added the statement.

   

  The bank also stressed that it did not have access to the legal documents from which these declarations were taken.

  *  *  *
  As Bloomberg concludes, managers missed at least 1,071 bogus trades, a special committee of the bank’s board found seven years ago. His supervisors failed to react to the size of his trading gains, cash flows and brokerage expenses, and overlooked warnings from Eurex AG, Europe’s biggest futures exchange, as the former trader amassed his positions, the committee found.

  Kerviel has argued at every trial that Societe Generale stealthily sold unprofitable subprime mortgage investments as it liquidated his positions, exaggerating the losses.

  

  

  
  
  

  

• Republicans, Democrats and Independents ALL Hate NSA Spying … Think the Patriot Act Should NOT Be Reauthorized

  A poll released today shows that Americans across the political spectrum hate the Patriot Act and NSA spying.

  The bipartisan polling team – made up of Global Strategy Group and G Public Strategies – found (edited for readability):

  • By nearly a 2:1 margin (60% modify, 34% preserve), Americans believe the Patriot Act should not be reauthorized in its current form. With broad, bipartisan support across all ages, ideologies and political parties, voters are rejecting the argument that the Patriot Act should be preserved with no changes because of potential terrorist threats. Millennials (65% modify) and Independent men (75% modify), in particular, are driving the push for modification to limit government surveillance.

  • By more than 4:1 (82% concerned, 18% not concerned), voters find it concerning that the United States government is collecting and storing the personal information of Americans, including 31% who are extremely concerned and 25% who are very concerned.

  • Over three quarters of voters found four different examples of government spying personally concerning to them. The government accessing personal communications, information or records without a judge’s permission (83%) and using that information for things other than stopping terrorist attacks (83%) were the two most concerning examples to voters.

  • Specific arguments made in favor of adding more protections for Americans around privacy, also proved to be convincing to voters. 84% of voters said it was a convincing argument that local police and the FBI should have a warrant to search phone and email records, further confirming that Americans believe that individual privacy rights should be more strongly protected. Additionally, 81% of voters were convinced more protections were needed on account of companies providing loopholes in their services to make surveillance easier for the government.

  This jibes with previous polls showing that Americans:

  • Value privacy over anti-terror protections

  • Don’t believe the NSA

  • And are now more afraid of our own government than terrorists

  

  
  
  

  

• Chris Christie Calls Snowden Supporters "Civil Liberties Extremists" In His Latest Desperate Neocon Diatribe

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Chris Christie is a uniquely American embarrassment. Only a person so completely consumed with his own bullshit and narcissism could miss the fact that he characterizes the word coward. He’s created a national presence for himself as a warrior against corruption, yet he only punches downward, and exclusively picks on the weak. While he rails against entitlements and takes particular pleasure in attacking teachers, he never dares go after the real entitlement criminals. Wall Street bailout babies, and the multi-national corporations constantly sucking on the taxpayer teat via corporate welfare are never the focus of his ire. That’s because he’s 100% completely full of shit with regard to pretty much every topic he addresses.

  Chris Christie is the consummate authoritarian, and he worships at the altar of the rich and powerful. He loves war, the surveillance state and political control. He’s the type of person who would chop off the hand of a poor person caught stealing a cookie, while happily offering a deferred prosecution agreement to a financial oligarch stealing billions. The fact that anyone takes him seriously after all his scandals and previous examples of verbal diarrhea is a testament to how deranged and damaged our political system really is.

  The good news is that not many people take Christie seriously, which is perhaps why he decided to elevate his rhetoric in New Hampshire today in a desperate attempt to earn some shekels from Sheldon Adelson, since the casino oligarch seems to have christened a new favorite poodle in Marco Rubio. Here is some of what he had to say courtesy of the Star Tribune:

  MERRIMACK, N.H. — Making the case for a more active U.S. presence overseas, New Jersey Gov. Chris Christie will call for a larger military and a boost in defense spending while defending the government’s intelligence-collection efforts, in a speech Monday setting forth his foreign policy approach.

   

  The likely Republican presidential contender will also use an appearance in New Hampshire to criticize President Barack Obama’s handling of the surging Islamic State group and the emerging nuclear deal with Iran.

   

  “Iran might not have the bomb right now — but their influence is absolutely radioactive to the world,” the New Jersey governor says in prepared remarks released by his political action committee. “So we need to contain it with our moderate Sunni Arab allies, while at the same time rolling back the shadow of ISIS,” he said, using another acronym for Islamic State.

  Iran is radioactive! How clever Christie, did you come up with that on your own or did you actually pay a speechwriter to come up with that idiotic soundbite?

  Christie, who served as a U.S. attorney before he was elected governor, will also seek to distance himself from the crowded Republican field by offering an unapologetic defense of the U.S.’s intelligence-collection efforts.

   

  He will specifically take aim at former National Security Agency contractor Edward Snowden, who in 2013 leaked thousands of documents to journalists. Among Snowden’s revelations: NSA had for years been secretly collecting millions of Americans’ phone records. Christie has previously said that program should continue.

   

  “When Edward Snowden revealed our intelligence secrets to the world in 2013, civil liberties extremists seized that moment to advance their own narrow agenda,” he will say, according to the excerpts. “They want you to think that there’s a government spook listening in every time you pick up the phone or Skype with your grandkids. They want you to think of our intelligence community as the bad guys, straight out of the Bourne Identity or a Hollywood thriller. And they want you to think that if we weakened our capabilities, the rest of the world would love us more.”

  Well the founding fathers were also “civil liberties extremists” with a narrow agenda. That agenda was laid out in a little something called the Constitution.

  The most dangerous part of Christie’s language is calling Snowden defenders “extremists.” Christie knows exactly what that term has come to mean, and he deliberately used it.

  Currently, almost all Western governments are aggressively trying to crack down even further on civil liberties in the name of fighting the “extremists.” In the recent post, The Mindset of UK Prime Minister David Cameron – It’s Not Enough to Follow the Law, You Must Love Big Brother, David Cameron specifically used the word “extremist” to describe the core problem.

  The measures would give the police powers to apply to the high court for an order to limit the “harmful activities” of an extremist individual. The definition of harmful is to include a risk of public disorder, a risk of harassment, alarm or distress or creating a “threat to the functioning of democracy”.

  If that isn’t enough for you, in the post from earlier this year, The “War on Terror” Turns Inward – DHS Report Warns of Right Wing Terror Threat, we learned that the U.S. Department of Homeland Security considers “domestic extremists” a core focus. Here’s an excerpt:

  A new intelligence assessment, circulated by the Department of Homeland Security this month and reviewed by CNN, focuses on the domestic terror threat from right-wing sovereign citizen extremists and comes as the Obama administration holds a White House conference to focus efforts to fight violent extremism. 

   

  The government says these are extremists who believe that they can ignore laws and that their individual rights are under attack in routine daily instances such as a traffic stop or being required to obey a court order.

  So Christie is deliberately using language that essentially calls Edward Snowden supporters domestic terrorists. We can therefore be certain that a President Christie wouldn’t hesitate for a second in using mass surveillance on segments of the population he disagrees with politically. After all, they are in his words “extremists.”

  Naturally it doesn’t matter to Christie that bulk collection hasn’t stopped a single terror attack. As the Star Tribune itself noted:

  Independent reviews have found that the bulk collection program did not foil a single terrorist attack.

  In fact, all of the thwarted terrorist plots you hear about on the news aren’t real terrorist plots at all. Rather, they are all FBI created setups. Don’t believe me? Read the following:

  The FBI Busts Up Another of its Own Terrorist Plots and Politicians Rush to Blame the First Amendment

  Manufactured Terrorism – U.S. Officials Claim Credit for Stopping Another Terror Attack Created by the FBI

  A hundred years ago a real statesman named Teddy Roosevelt suggested America should “speak softly and carry a big stick.” A century later we have a New Jersey governor who chooses to: “speak loudly and carry a Big Mac (preferably paid for by the taxpayer)”

  How times have changed.

  

  

  
  
  

  

• Peak Picasso – Did The Art Market Just Flash A "Sell" Signal For Stocks

  “Like any trend in an unhinged market, it’s next to impossible to predict when the confidence will peak. Based on previous peaks, it could (should) be any time,“ warns Jason Goepfert, president of Sundial Capital Research.

  As Bloomberg reports, Goepfert’s recent note, analyzing the relationship between record art sales and the stock market, strongly suggests, “previous bouts of expensive art sales have indicated over-confident conditions in the stock market as well.”

  There is broad overlap between the markets, now more than ever. Wealth concentration is near an all-time high, and with stocks doing so well, it has helped to fuel massive confidence in other “greater fool” markets like art.

   

  …The market is relatively isolated and a plateau in art prices wouldn’t have much affect on broader assets, though it would likely be coincident with a plateau in stock and bond markets.

  

  With the art market hitting a new milestone last week, perhaps it is time to consider reducing exposure to the exuberance.

  Read more at Sundial Capital Research

  

  

  
  
  

  

• 9 Killed, 18 Injured, 192 Arrested After "True Biker Shootout" At Texas "Breastaurant"

  It’s not everyday that a “true biker shootout” happens, but according to police and eyewitness accounts, a “simmering feud” between rival biker gangs reached the boiling point at Twin Peaks Sports Bar and Grill in Waco Texas on Sunday afternoon. 

  Twin Peaks — a so-called “breastaurant” where “eats and drinks” are all “served by friendly and attentive Twin Peaks Girls, offering their signature ‘Girl Next Door’ charisma and playful personalities to ensure that your adventure happens at the Peaks” — erupted into chaos after a dispute which Reuters reports “may have been over a parking lot” spilled from a bathroom, to the restaraunt, and then into the parking lot, where five rival biker gangs “attacked each other with guns, knives, brass knuckles, clubs and motorcycle chains.” 

  Police soon joined the shootout and when all was said and done, 9 people were dead and 18 were hospitalized (presumably all bikers) while 192 were arrested. Authorities say they adopted the standard ‘deadly biker shootout rules of engagement’ by only firing once fired upon: 

  “Yesterday’s events was bad guys on bad guys. When our officers arrived, those bad guys turned their guns on our officers.” Waco Police Sergeant Patrick Swanton said.

  Unfortunately for local patrons who enjoy having their “eats” and “drinks” served by “playful girls next door,” the Waco Twin Peaks location was shut down by the Texas Alcoholic Beverage Commission due to … well, due to the threat that high noon biker shootouts pose to the public.

  Police also say the franchise operator was notified ahead of time that “there might be trouble,” and as Reuters notes, there’s some concern that the various gangs may circle back to exact some measure of revenge:

  Some area businesses closed early Sunday after police warned people to stay away from the area. Swanton said police had received intelligence that other gang members might be coming to the area for “payback.”

  Here’s more color from a local ABC affiliate:

  The investigation continues after nine people were killed and multiple others were injured in a shooting at Twin Peaks on Sunday. Shortly after noon, Waco police were at Twin Peaks monitoring at least two motorcycle clubs gathering there. The two groups had reportedly planned to meet in the safety of a public place to mediate a previous fight between two members of the rival gangs. The conflict began with an argument inside the restaurant, which then escalated and moved into the parking lot. Multiple weapons were involved in the conflict, including chains, knives, bats, clubs, and firearms. A total of eight people were shot and killed at the scene and another died at the hospital. Eighteen people were transferred to local hospitals with gunshot and stab wounds. Two of them were transported to other hospitals due to the severity of their injuries. Police said Monday they are still working to process the crime scene, which is littered with bullets, blood and other evidence.

  More visuals:

  

  

  

  

  

  

  

  
  
  

  

• Obama Flip-Flops: Plans To De-Militarize His Militarized Police

  Having enabled billions of dollars worth of militarized equipment to be unloaded into every police department in the nation – only to have alienated the very Americans that hoped for change the most – it appears President Obama is ready to uncross another red line. Following unrest in U.S. cities over the deaths of black men at the hands of police officers, Reuters reports, during his triup to Camden NJ, Obama announced his plans to put in place new restrictions on the use of military equipment by police departments.

   

  Just six months ago, President Obama was discussing increasing the funding for the militarization of America's police force.

  

  Now, after various riots, deaths, and police excess, he appears to be flip-flopping away from that idea…

  As Reuters reports,

  Obama will ban police use of equipment such as explosive-resistant vehicles with tracked wheels like those seen on army tanks, the White House said in a fact sheet. For other types of equipment, such as MRAP (mine-resistant ambush protected) vehicles and riot shields, departments will have to provide added justification for their use.

   

  …

   

  In the aftermath of the Baltimore riots, Obama has been speaking out more about race, including in a speech in the Bronx on increasing opportunity for young minority men and during a panel discussion on poverty in Washington.

   

  "Race issues have been more present over the past year for this country. We've seen, since Ferguson, issues that have been bubbling up in communities becoming much more present," said Rashad Robinson, executive director of colorofchange.org, a group that aims to strengthen the black community's political voice in America.

  Obama's remarks in Camden will be the fourth time in as many weeks that he has held an event to discuss his ideas for improving life for poor black communities. Obama, the country's first black president, has often been reticent about discussing race issues.

  "We’ve seen how militarized gear sometimes gives people a feeling like they are an occupying force as opposed to a part of the community there to protect them," Obama said during remarks in Camden, N.J. "Some equipment made for the battlefield is not appropriate for local police departments."

  The nation's largest police union denounced the president's move, saying he has overstated the problem, but as his base appears to be alienated by his actions, The Washington Post reports,

  “The issue of militarization has been really kind of exaggerated almost to the point that I don’t recognize it at times,” said James Pasco, executive director of the national Fraternal Order of Police. “The vast majority of the equipment that civilian law enforcement gets from the military is administrative stuff or defensive in nature.”

   

  The ban on items will take effect immediately, White House officials said, while the restrictions on other gear will be phased in so that local law enforcement agencies can be briefed about the new requirements.

   

  "The idea is to make sure we strike the right balance of providing equipment that is appropriate and important, while at the same time put standards in place that give a clear reason for the transfer of that equipment, with clear training and safety provisions in place," Cecilia Muñoz, the White House director of domestic policy, told reporters in a conference call on Sunday.

   

  …

   

  As he has over the past months, Obama sought to tread a careful line between calling on police officers and members of the community to do more to improve the relationship between them. The president emphasized that pervasive hopelessness in the inner city is driven in large part by a lack of educational and economic opportunities.

  *  *  *
  Meanwhile, anti-police brutality and law enforcement reform groups were more measured, praising the move by the Obama administration but painting it as a small step in what they believe will be a long process to reform American policing.

  “We know that reforming 1033 or putting limits on military equipment is not going to be enough,” said Dante Barry, executive director of Million Hoodies Movement for Justice, one of the groups born in response to the shooting of Trayvon Martin in Florida in 2012. “Any reform done to policing must be systemic and transformative," said Barry, who has played a role in organizing the Black Lives Matter protests that have occurred nationwide since Michael Brown was killed. "Militarized police culture, surveillance technologies and equipment must all be looked at if we are to see an end of police militarization in our communities.”

  

  

  
  
  

  

• Puerto Rico Faces Default, Government Shutdown On July 1

  Late last month we outlined what is an increasingly desperate fiscal crisis in Puerto Rico. The commonwealth faces a July 1 payment of $630 million on its GO bonds and without furloughing some public sector employees, it’s not clear that the payment can be made, setting up a possible default.

  “They really aren’t going to have the cash. There’s no tax you can legislate today that will generate enough income by the time you need it,” Sergio Marxuach, public-policy director at the Center for a New Economy in San Juan, told Bloomberg earlier this month.

  In total, Puerto Rico owes some $73 billion, the result of persistently covering deficits with debt even as economic activity continued to slow. On the heels of last month’s failed attempt to push through tax reform, lawmakers and Governor Alejandro Garcia Padilla are now scrambling to pass a new proposal that calls for a sales tax increase and $500 million in spending cuts as part of a 2016 budget which Puerto Rico desperately needs to pass by a July 1 deadline in order to resurrect a $2.9 billion oil-tax bond offering. The proceeds from the proposed deal would go towards repaying a loan from the Government Development Bank which may run out of money by the end of September if the new issue doesn’t materialize. 

  Budget cuts aren’t very popular these days, especially among students, as the recent protests in Montreal and Quebec make clear. In essence, the anti-austerity bug has spread outward from Europe and was on full display last week in Puerto Rico when college students took to the streets of San Juan. 

  Here’s a clip:

  As unpopular as the current set of measures looks to be, Bloomberg reports that further belt-tightening will likely be needed to bring the situation under control. Here’s more:

  Official projections of economic growth haven’t panned out. An index tracking monthly economic activity has registered 27 consecutive year-over-year declines. March unemployment, at 11.8 percent, was more than double the U.S. rate. With revenue well below forecasts, the commonwealth has a $191 million budget gap it must close by June 30. Procter & Gamble Co. plans to close its only plant on the island within 12 months, Jeff LeRoy, a spokesman for the consumer-product maker, said in an interview. The facility employs 230 people.

   

  The May 14 proposal by Governor Alejandro Garcia Padilla and legislative leaders to cut spending also would raise the sales tax temporarily to 11.5 percent from 7 percent. Even if the legislature approves the measure, it won’t be enough. The commonwealth, the largest employer on the island, needs to shrink the government and boost private-sector jobs, said Secretary of Economic Development Alberto Baco Bague.

   

  The island must exercise financial self-reliance as yields on its general obligations surpass 10 percent, effectively blocking access to capital markets. The Government Development Bank, which lends to the commonwealth and its localities, may run out of cash by Sept. 30 unless it can sell $2.9 billion of oil-tax bonds, according to its latest quarterly filing. The filing said the government may place a moratorium on debt payments in fiscal 2016 if it can’t cut spending or generate more revenue.

  If lawmakers are unable to pass a 2016 budget by the end of next month, Puerto Rico faces a government shutdown, but perhaps more importantly, will likely have trouble convincing hedge funds to purchase its bonds. The commonwealth has become increasingly reliant on hedge fund financing as traditional investors fear a looming default. 

  For his part, Jeff Gundlach is optimistic. The DoubleLine chief doubled his Puerto Rico GO bond holdings in Q1, but later told Reuters that the position still did not qualify as a “big bet.” Perhaps that’s a good thing, because as the following chart shows, the market seems to believe the commonwealth is about as credit worthy as Greece.

  

  

  

  
  
  

  

• 79 Members Of Congress Have Been In Office For At Least 20 Years

  Submitted by Michael Snyder via The End of The American Dream blog,

  No wonder Washington never changes – 79 members of Congress have been there since Bill Clinton’s first term in the White House.  This list includes names such as Reid, Feinstein, McConnell, McCain, Pelosi, Boehner, Rangel and Boxer.

  In this article, I am going to share with you a complete list of the members of Congress that have been “serving” us for at least 20 years.  They believe that they are “serving” us well, but without a doubt most Americans very much wish that true “change” would come to Washington.  In fact, right now Congress has a 15 percent approval rating with the American people, and that approval rating has been consistently below 20 percent since mid-2011.  So of course we took advantage of the 2014 mid-term election to dump as many of those Congress critters out of office as we possibly could, right?  Wrong.  Sadly, incumbents were re-elected at a 95 percent rate in 2014.  This just shows how broken and how corrupt our system has become.  The American people absolutely hate the job that Congress is doing, and yet the same clowns just keep getting sent back to Washington again and again.

  Our founders never intended for service in Congress to become a career, but that is precisely what it has become for many of our “public servants”.  As of this moment, there are 79 members of Congress that have been in office for at least 20 years, and there are 16 members of Congress that have been in office for at least 30 years.

  No wonder so many Americans are advocating term limits these days.  When there are dozens of members of Congress that know that they are going to be sent back to Washington over and over again no matter how the American people feel about things, that can cause them to become extremely callous toward the will of the people.  Instead, often these politicians become increasingly responsive to the needs of their big donors, because it takes big money to win campaign after campaign.  I am sure that if George Washington, John Adams and Thomas Jefferson were running around today, they would be absolutely disgusted by how our system has evolved.

  The following is a list from rollcall.com of the Republicans in the U.S. Senate that have served for at least 20 years and the dates when they first took office…

  • Orrin G. Hatch, Utah Jan. 4, 1977
  • Thad Cochran, Miss. Dec. 27, 1978
  • Charles E. Grassley, Iowa Jan. 5, 1981
  • Mitch McConnell, Ky. Jan. 3, 1985
  • Richard C. Shelby, Ala. Jan. 6, 1987
  • John McCain, Ariz. Jan. 6, 1987
  • James M. Inhofe, Okla. Nov. 30, 1994

  The following is a list from rollcall.com of the Democrats in the U.S. Senate that have served for at least 20 years and the dates when they first took office…

  • Patrick J. Leahy, Vt. Jan. 14, 1975
  • Barbara A. Mikulski, Md. Jan. 6, 1987
  • Harry Reid, Nev. Jan. 6, 1987
  • Dianne Feinstein, Calif. Nov. 4, 1992
  • Barbara Boxer, Calif. Jan. 5, 1993
  • Patty Murray, Wash. Jan. 5, 1993

  The following is a list from rollcall.com of the Republicans in the U.S. House of Representatives that have served for at least 20 years and the dates when they first took office…

  • Don Young, Alaska March 6, 1973
  • Jim Sensenbrenner, Wis. Jan. 15, 1979
  • Harold Rogers, Ky. Jan. 5, 1981
  • Christopher H. Smith, N.J. Jan. 5, 1981
  • Joe L. Barton, Texas Jan. 3, 1985
  • Lamar Smith, Texas Jan. 6, 1987
  • Fred Upton, Mich. Jan. 6, 1987
  • John J. Duncan Jr., Tenn. Nov. 8, 1988
  • Dana Rohrabacher, Calif. Jan. 3, 1989
  • Ileana Ros-Lehtinen, Fla. Aug. 29, 1989
  • John A. Boehner, Ohio Jan. 3, 1991
  • Sam Johnson, Texas May 18, 1991
  • Ken Calvert, Calif. Jan. 5, 1993
  • Robert W. Goodlatte, Va. Jan. 5, 1993
  • Peter T. King, N.Y. Jan. 5, 1993
  • John L. Mica, Fla. Jan. 5, 1993
  • Ed Royce, Calif. Jan. 5, 1993
  • Frank D. Lucas, Okla. May 10, 1994
  • Rodney Frelinghuysen, N.J. Jan. 4, 1995
  • Walter B. Jones, N.C. Jan. 4, 1995
  • Frank A. LoBiondo, N.J. Jan. 4, 1995
  • Mac Thornberry, Texas Jan. 4, 1995
  • Edward Whitfield, Ky. Jan. 4, 1995

  The following is a list from rollcall.com of the Democrats in the U.S. House of Representatives that have served for at least 20 years and the dates when they first took office…

  • John Conyers Jr., Mich. Jan. 4, 1965
  • Charles B. Rangel, N.Y. Jan. 21, 1971
  • Steny H. Hoyer, Md. May 19, 1981
  • Marcy Kaptur, Ohio Jan. 3, 1983
  • Sander M. Levin, Mich. Jan. 3, 1983
  • Peter J. Visclosky, Ind. Jan. 3, 1985
  • Peter A. DeFazio, Ore. Jan. 6, 1987
  • John Lewis, Ga. Jan. 6, 1987
  • Louise M. Slaughter, N.Y. Jan. 6, 1987
  • Nancy Pelosi, Calif. June 2, 1987
  • Frank Pallone Jr., N.J. Nov. 8, 1988
  • Eliot L. Engel, N.Y. Jan. 3, 1989
  • Nita M. Lowey, N.Y. Jan. 3, 1989
  • Jim McDermott, Wash. Jan. 3, 1989
  • Richard E. Neal, Mass. Jan. 3, 1989
  • José E. Serrano, N.Y. March 20, 1990
  • David E. Price, N.C. Jan. 7, 1997 Also served 1987-95
  • Rosa DeLauro, Conn. Jan. 3, 1991
  • Collin C. Peterson, Minn. Jan. 3, 1991
  • Maxine Waters, Calif. Jan. 3, 1991
  • Jerrold Nadler, N.Y. Nov. 3, 1992
  • Jim Cooper, Tenn. Jan. 7, 2003 Also served 1983-95
  • Xavier Becerra, Calif. Jan. 5, 1993
  • Sanford D. Bishop Jr., Ga. Jan. 5, 1993
  • Corrine Brown, Fla. Jan. 5, 1993
  • James E. Clyburn, S.C. Jan. 5, 1993
  • Anna G. Eshoo, Calif. Jan. 5, 1993
  • Gene Green, Texas Jan. 5, 1993
  • Luis V. Gutierrez, Ill. Jan. 5, 1993
  • Alcee L. Hastings, Fla. Jan. 5, 1993
  • Eddie Bernice Johnson, Texas Jan. 5, 1993
  • Carolyn B. Maloney, N.Y. Jan. 5, 1993
  • Lucille Roybal-Allard, Calif. Jan. 5, 1993
  • Bobby L. Rush, Ill. Jan. 5, 1993
  • Robert C. Scott, Va. Jan. 5, 1993
  • Nydia M. Velázquez, N.Y. Jan. 5, 1993
  • Bennie Thompson, Miss. April 13, 1993
  • Sam Farr, Calif. June 8, 1993
  • Lloyd Doggett, Texas Jan. 4, 1995
  • Mike Doyle, Pa. Jan. 4, 1995
  • Chaka Fattah, Pa. Jan. 4, 1995
  • Sheila Jackson Lee, Texas Jan. 4, 1995
  • Zoe Lofgren, Calif. Jan. 4, 1995

  As you looked over those lists, you probably noticed that they contain many of the members of Congress that Americans complain about the most.

  Unfortunately, because the vast majority of these individuals come from states or congressional districts that are basically a lock to vote a certain way, there is very little hope of ever removing them.  That means that most of these Congress critters are going to get to keep coming back for as long as they want.

  No matter which political party you prefer, this should greatly disturb you.

  Our founders certainly never intended for a permanent class of elitists to rule over us.

  But that is what we have.

  We are supposed to have a government of the people, by the people and for the people, but instead we have a government of the elite, by the elite and for the elite.  Most people do not realize this, but today most members of Congress are actually millionaires.  The disconnect between members of Congress and average Americans has never been greater than it is right now, and I think that is a very troubling sign for the future of this nation.

  So is there a solution to this problem?

  

  

  
  
  

  

• Revealing The Identity Of The Mystery "Belgian" Buyer Of US Treasurys

  A little over a year ago, we showed something quite unexpected: in the span of just a few months, the tiny nation of Belgium had become the third largest foreign holder of US Treasurys.

  

  Of course, the buying wasn’t Belgium doing so for its own account, but someone using the custody services of Belgium-domiciled Euroclear. This is what we said last April.

  it is quite clear that Belgium itself is not the buyer. What is not clear is who the mysterious buyer using Belgium as a front is. Because that same “buyer”, who to further explain is not China, just bought another whopping $31 billion in Treasurys in February, bringing the “Belgian” total to a record $341.2 billion, cementing “it”, or rather whoever the mysterious name behind the Euroclear buying rampage is, as the third largest holder of US Treasurys, well above the hedge fund buying community, also known as Caribbean Banking Centers, which held $300 billion in March.

   

  In summary: someone, unclear who, operating through Belgium and most likely the Euroclear service (possible but unconfirmed), has added a record $141 billion in Treasurys since December, or the month in which Bernanke announced the start of the Taper, bringing the host’s total to an unprecedented $341 billion!

  And while there had long been speculation that the mystery buyer using anonymous Belgian custody accounts is none other than China, the same nation which previously had used UK accounts precisely for the purpose of masking its purchases, there was never any proof.

  Further confounding the analysis was that while “Belgium” was massively adding to its Treasury holdings over the past year, mainland China was telegraphing that it was dumping Treasurys. It got to the point that in February Japan officially surpassed China as the largest official US foreign creditor.

  

   

  Then, on Friday we finally got if not direct, then certainly indirect, evidence from this month’s TIC data that “Belgium” was merely a front for China.

  First, note that after dropping for 6 consecutive months, official Chinese holdings had a major countertrend move and rebounded in March, jumping by $37 billion to $1.261 trillion and regaining the top US creditor spot from China.

  

   

  Even more curious was the Belgian Treasury holdings update, which after flatlining in the mid-$300 billion range for one year, also had a sharp countertrend move as they suddenly tumbled by $93 billion in the month of March, a 27% of the total “Belgian” holdings.

  

   

  But the real surprise emerges when stacking the monthly Chinese and Belgian holdings on top of each other. One gets the following chart, which in itself is hardly shocking…

  

   

  … but becomes so when one also overlays China’s offically reported monthly Forex reserves on top of the consolidated China+Belgium treasury holdings. Here one can easily see that indeed Belgium was nothing but an “anonymous” front for Chinese Treasury buying…

  

   

  … and as the case has recently become, selling.

  Because while we have previously commented on the dramatic capital outflow from China in recent months, which also explains why China is desperate to slam its currency but will not do it over fears of accelerating capital outflow, the combined Chinese and Belgian Treasury holdings reveal the true extent of China’s USD-denomination liquidation conundrum.

  As the next and final chart shows, in March the monthly drop across China’s official and “anonymous” i.e., Belgian holdings, was the biggest on record!

  

   

  So as a result of the latest TIC data we know know with almost complete confidence that:

  i) “Belgium” is, or rather, was a front for China: either SAFE, CIC, or the PBOC itself.

  ii) That Belgium’s holdings, after soaring as high as $381 billion a year ago, have since tumbled back to only $2532 billon as China has dumped the bulk of its Euroclear custody holdings, and that once this number is back to its historical level of around $170-$180 billion, “Belgium” will again be just Belgium.

  iii) China’s foreign reserves tumbled and this was offset by a the biggest quarterly drop in Chinese pro-forma treasury holdings, which dropped by a record $72 billion in the month of March, and a record $113 billion for the quarter.

  So why mask its offshore holdings? So when China proceeds to liquidate nearly $100 billion via its custody account, the US didn’t feel compelled to chastise Beijing. After all there is no official confirmation that Belgium is indeed China, and likely won’t be – it was merely a buffer account which China used to build up TSY holdings in, and now – to rapidly liquidate.

  A better question perhaps is what is the use of funds of these tens of billions of liquidations: because what was once invested in the form of Treasurys is now invested in the form of something else… most likely real estate in San Francisco, Beverly Hills, or New York City, with a few billion left over to buy stocks.

  Finally, the last thing China would want the world to know, is just how acute its capital flight truly is: a capital flight which is the only thing that is preventing the Politburo and the PBOC from cutting rates even more aggressively and/or engaging in even more outright QE than it currently does because should the chart above be matched with a comparably sharp drop in the Renminbi, and suddenly the VIX closing the day at 12 will be a very distant memory.

  

  

  
  
  

  

• Graphing The Evolution Of The World's Debt Addiction

  It’s no secret that the world is addicted to debt.

  China for instance, has an astounding $28 trillion debt load that amounts to 282% of GDP, while the country’s local governments are now undertaking a multi-trillion yuan refi initiative in order to cut the debt servicing costs on a mountain on high interest loans they acquired off balance sheet in an effort to skirt official borrowing limits.

  In Europe, a series of fiscal crises nearly brought the currency bloc to its knees in 2012 and indeed, the drama continues today with Greece sliding ever closer to insolvency as government revenues are woefully inadequate to cover the country’s obligations. 

  Japan had its credit rating cut by Fitch late last month with the agency citing the “high and rising level of government debt” which Fitch projects will rise to 244% of GDP by the end of the year, “by far the highest ratio of any rated sovereign.”

  Of course the US has its own debt woes, not the least of which is the well-documented $1.3 trillion student loan bubble which is, for the most part, underwritten by the American taxpayer. 

  The following graphic shows the evolution of the world’s debt addiction from 2000 to 2014. Note that the y-axis is debt-to-GDP while the x-axis is GDP-per-person, meaning that a line which slopes up and backwards is the worst case scenario as it generally indicates a contraction in GDP and an increase in debt burden. Each line is a country and you can find the full interactive graphic from The Economist here. 

  

  Here are some country-by-country highlights:

  

  

  

  

  More color from The Economist:

  The borrowings of governments, households, companies and financial firms have risen in almost every big country around the world since the year 2000, relative to their GDP. As economies develop they naturally build a bigger stock of financial assets, including debt. But plenty of countries have gone out on a limb. Some are financial centres, such as Singapore and Ireland. Their debts are inflated because they host the subsidiaries of many global banks and companies. Others have economies that are driven by debt-fueled investment, or which are stagnant. China has similar debt levels to America, despite being only 20% as rich as it per person. Portugal has similar leverage to Sweden, which is almost twice as wealthy as it. Troubled Greece’s debt-to-GDP is on a par with that of prosperous Norway’s. Countries with disproportionately high debts are more prone to crises. But working out how to shrink-debt to GDP without causing a slump is tough—as China is discovering.

  

  

  
  
  

  

• The End Of Meaningful Work: A World Of Machines And Social Alienation

  Submitted by Daniel Drew of Dark Bid

  The End of Meaningful Work: A World of Machines and Social Alienation

  Many activists are clamoring for a higher minimum wage. That’s an admirable goal, but is that where the worst problem is? Even at the abysmally low wages of the present moment, we still have 938,000 people being turned away from McDonald’s because there aren’t enough McJobs. The real problem is the lack of meaningful work. In a world of machines and social alienation, meaningful work is as scarce as water in the drought-stricken California Central Valley.

  One cause of the employment crisis is relentless outsourcing to foreign countries. However, even more insidious has been the replacement of human workers by machines. For hundreds of years, the Protestant work ethic lauded hard work and efficiency as ideals to strive for. It’s not easy to object to those principles. But what happens when efficiency means eliminating humans? It’s doubtful the early Protestants ever imagined that could be a possibility.

  Even up to the present day, many view new technology and efficiency as the main drivers of human progress. For awhile, it seemed like this was indisputable. In his book Rise of the Robots, Martin Ford describes the 25 years after World War II as the “golden age” of the American economy. Productivity, employment, and wages were increasing in synchrony. As with many trends, economists assumed they would continue indefinitely. It was the glorious free market at work.

  Then it all came crashing down at the turn of the century.

  

  This time, it really is different. The shift happened when machines transformed from mere tools to actual workers.

  Martin Ford explained, “In 1998, workers in the US business sector put in a total of 194 billion hours of labor. A decade and a half later, in 2013, the value of the goods and services produced by American businesses had grown by about $3.5 trillion after adjusting for inflation – a 42 percent increase in output. The total amount of human labor required to accomplish that was…194 billion hours. Shawn Sprague, the BLS economist who prepared the report, noted that ‘this means that there was ultimately no growth at all in the number of hours worked over this 15-year-period, despite the fact that the US population gained over 40 million people during that time, and despite the fact that there were over thousands of new businesses established during that time.'”

  If this trend continues a few more years, it will be two lost decades, which means an entire generation has gone by with no net new jobs created. This might be somewhat permissible if the population had stagnated or declined, but with 40 million new people, it sets the stage for a national disaster.

  It is truly a new era. Ford confirmed, “There has never been a postwar decade that produced less than a 20 percent increase in the number of available jobs. Even the 1970s, a decade associated with stagflation and an energy crisis, generated a 27 percent increase in jobs. This new reality is nothing less than the end of progress and the Protestant work ethic. Efficiency can no longer be held up as something that is unambiguously good. The Protestants were wrong. There is something much more important than efficiency: survival.

  In a world without sufficient work, some have argued in favor of a broader social safety net. In a New York Times op-ed called “Sympathy for the Luddites,” Paul Krugman said more education is not the answer, and it never was. Indeed, education is probably the biggest national scam in history. Nothing turns the average person into a debt slave the way college does. Krugman said instead of more education, we should provide everyone with a basic minimum income – kind of like Social Security, except for all ages. Krugman claims it’s the “only way” to have a middle-class society. He’s not the first one to suggest this. Ironically, the biggest libertarians of all, economists Friedrich Hayek and Milton Friedman, agreed that a basic universal income was prudent policy.

  Another proposed solution is broad-based capital ownership. The basic concept is to mimic the way rich kids get an inheritance. Everyone would get an inheritance, and it would be courtesy of Uncle Sam. The initial implementation of such a project would require an enormous one-time expenditure, probably $100 trillion if the individual amounts were meaningful in any sense. It would be like a lump sum version of Social Security. It would be the ultimate quantitative easing, possibly the QE Infinity that some have referred to. Unlike prior quantitative easings, this one would actually benefit the average person because everyone would be a capitalist.

  The idea for widespread capital ownership can be traced to the Founding Fathers. George Washington, Thomas Jefferson, John Adams, and James Madison all believed men should have their own farms and be self-sustaining citizens. Abraham Lincoln supported the idea with the Homestead Act of 1862, which granted citizens 160 acres of government land to cultivate.

  

  In his book The Citizen’s Share, economic sociologist Joseph Blasi said, “business capital has replaced land as the source of wealth creation.”

  Blasi told Fortune Magazine, “We could have a future where technology creates a low feudal serf class – people with low wages or flat wages or high structural unemployment. Or, we could have a future where we have a smaller workweek and citizens broadly have more capital ownership.”

  Blasi explained to PBS, “John Adams favored distribution of public lands to the landless to create broad-based ownership of property, then the critical component of business capital in the largely agricultural U.S. Current levels and trends in inequality would almost certainly have terrified the founders, who believed that broad-based property ownership was essential to the sustenance of a republic.”

  James Madison warned that inequality in property ownership would “subvert liberty” by fostering class warfare.

  Blasi raises compelling points about the Founders. This information completely defies the critics who think socialist capital redistribution is inherently Un-American. As the Founding Fathers argued, such socialist policies are necessary to ensure a republic where the “common man” is not merely a concept, but a reality as well.

  Nonetheless, the compelling scheme of broad-based capital ownership is not without problems. First of all, there is the whole feasibility issue. If we want to give every American a stock portfolio, it would require an unprecedented one-time expense. Second, unless there were some kind of “reload” option, it could create a society where there are no second chances. Investing is basically a gamble, and if you blew your entire government inheritance on a biotech stock, would you be permanently homeless? In the new dystopia, you wouldn’t be able to “work” to get the money back because the machines would do all the labor. The money would be lost forever. On the other hand, this reality might make people extremely risk-averse, and we could have an even more severe situation than we have now, with government bonds trading at negative interest rates.

  Whether it’s guaranteed income like Social Security or a broad-based capital ownership program, what both “handout” solutions fail to do is restore the dignity of work. Even if work is routine or inefficient, the mere act of working and contributing to society creates meaning in the worker’s life. No one wants to receive a handout. People want to feel like they earned it. This is what workers in the Civilian Conservation Corps felt like during The Great Depression.

  

  The History Channel explains, “Formed in March 1933, the Civilian Conservation Corps, CCC, was one of the first New Deal programs. It was a public works project intended to promote environmental conservation and to build good citizens through vigorous, disciplined outdoor labor. Close to the heart of President Franklin D. Roosevelt, the CCC combined his interests in conservation and universal service for youth. He believed that this civilian ‘tree army’ would relieve the rural unemployed and keep youth ‘off the city street corners.'”

  With 938,000 people being turned away from McDonald’s jobs and riots in the streets, there has never been a time since The Great Depression when we could use something like the Civilian Conservation Corps as much as now.

  Even an ambitious work project like this does not eliminate the threat of machines whose primary advantage is efficiency. Are human beings inefficient? You better believe it. Are we loud, obnoxious, smelly, and unsanitary creatures that are huge liabilities? Yes we are. But for thousands of years, those were accepted realities. Only now, when mechanical options present themselves, are these realities being questioned.

  Nothing captures the humans vs. machines debate as well as Agent Smith’s interrogation of Morpheus in the 1999 movie The Matrix. Ironically, the film was released at the turn of the century, just when efficiency was about to diverge from human employment. In eerie prescience, Agent Smith calls it the peak of our civilization. According to him, human beings are like the dinosaurs, about to be wiped out and replaced by machines. He is dressed like the MBA automatons that dominate corporate America. Sometimes, it’s not clear if this is entertainment or reality.

  One writer named Hayley Krischer shared a frightening story about her five-year-old daughter:

  The other day, I pointed out the pink sunset between the cluster of bare winter trees behind our house to my five-year-old daughter, and she turned to me, her face blank and said,

  “Is that real?”

  “What do you mean, honey? It’s the sunset.”

  “No, I mean is that fake, like is this something we see on TV, or is it actually happening?”

  When our children don’t even know if a sunset is real, we have a problem. What happens when we can’t even tell if a human is real? Aiko Chihira is the name of the new receptionist at the Mitsukoshi Nihonbashi department store in Tokyo. She’s not made from the same stuff as you and me.

  

  One way we can halt creepy, degrading mechanical intrusions into our social experience is through a new series of incentives. In the same way we have “sin taxes” on alcohol and tobacco products, we could have a sin tax on companies that use a machine to completely eliminate human interaction, which would be defined as face-to-face interaction or vocal communication, but not text or pictures. Conversely, we could provide subsidies for companies that create new human interaction in their business transactions. For example, banks that use ATMs when human tellers are available would have to pay the technological sin tax. If they created a new policy where all ATMs were shut down during normal business hours, they would have to hire more tellers, which would boost employment and create more human interaction. Both of these results would be good for society.

  The goal of these policies would be to eliminate the increasing mechanical alienation that pervades every aspect of life. Anyone who has been to a party where everyone was using a cell phone can attest to this reality. Susan Greenfield, a neuroscientist at Oxford University, says modern technology is already rewiring the way the human brain works. UCLA scientists found that sixth-graders who went five days without any digital screen exposure did substantially better at reading human emotions than sixth-graders from the same school who spent hours every day looking at their electronic devices. When a New York Times reporter asked Steve Jobs how his kids liked the iPad, he said, “They haven’t used it. We limit how much technology our kids use at home.”

  It’s clear that technology has intruded far enough into our lives. If we do not act now, we will lose our ability to communicate with each other and the ability to enjoy meaningful employment. We will degenerate into an idiocracy. If you agree, you can sign this petition to President Obama to promote the responsible use of technology in the work environment.

  Despite the clear data and obvious dangers of being replaced by machines, being a Neo-Luddite is not easy. Critics abound. The Information Technology & Innovation Foundation hands out annual Luddite Awards to make fun of tech critics who wish to “smash the engines of innovation.” According to them, technology is unambiguously good; it is “the wellspring of human progress.” Because nothing says “progress” like no net new jobs created in 15 years when the American population increased by 40 million. There is nothing unscientific about demanding a technology policy that promotes moral responsibility. If science has bioethics, technology can have technoethics.

  Some critics will argue that we shouldn’t create incentives with sin taxes because it interferes with the “free market.” The free market evangelists at Forbes write columns that are filled with quotes like, “The market always wins, you cannot stop it.” It’s simply not true. The free markets brought us slavery, monopolies, dangerous working conditions, and unsafe consumer products. Contrary to what you heard from Gordon Gekko, greed is not good, and it does not work. The backwards belief that greed somehow benefits society with one giant invisible handshake is one of the greatest lies ever perpetuated by the economics profession.

  

  Even Adam Smith, the author of The Wealth of Nations and the one who popularized the Invisible Hand, said, “When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters…No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

  Economist Joseph Stiglitz said, “The reason the Invisible Hand often seemed invisible was because it wasn’t there.”

  The free market has certainly failed us. We are left with a society that has no work to offer 40 million new citizens. We prefer to spend most of our days staring at screens rather than at actual human faces. We jump at the chance to avoid human contact. Text messaging is basically a regression to an earlier mode of communication: the telegraph. Instead of Morse code, we use emoticons – artificial digital faces to express emotions we can barely convey across our actual faces. Now, it is considered an accomplishment rather than an abomination to create a humanoid robot receptionist. The free market brought us slavery. Now, it wants to purge everyone of our humanity and make us all more like robots.

  Am I a silly Neo-Luddite? Why don’t you ask Aiko Chihira for her opinion. She might not have an opinion now, but she will some day.

  

  

  
  
  

  

• Mapping Marijuana Prices In The US

  Want cheap weed? Don’t go to North Dakota, where you’ll pay nearly $400 an ounce. You’re far better off in Orgeon where the going rate is just $204. And while some evidence indicates that the tax-related markup on legal, recreational marijuana has driven buyers back into the black market, the average price per ounce looks to support the idea that legalization drives down prices. 

  As you can see from the map below, the mean price for an ounce of marijuana in the United States is $324, according to the subtly named “PriceOfWeed.com”, a site which crowdsources average prices from users across the US, Canada, Europe, and Australia. Not coincidentally, the states where prices are lowest are also the states where recreational use is legal.

  

   

   

  As a side note on taxation and legal marijuana, it appears that while some legal weed proprietors are happy to pay their fair share, the inconsistencies between state and federal laws make the reality anything but equitable.

  Via NY Times:

  Dispensary owners who once feared raids by drug enforcement agents say they take pride in paying taxes like any other business. They say it brings them out of the shadows and distinguishes them from the black market. Marijuana advocates trumpet tax-collection numbers to show that the industry is pouring millions of dollars into state budgets.

   

  “It is the last domino that has to fall for us to be treated like any other business in the country,” said Tim Cullen, a co-owner of five marijuana shops in Colorado. “We’re not a black-market cocaine dealer. We’re totally on board and on the level. We’d like to be treated as such.”

  A normal business, for example, might pay a 30 percent federal rate on its taxable income, which would represent its gross income minus deductible business expenses. A marijuana business, on the other hand, might pay the same federal rate on all of its gross income because it cannot take these deductions. The difference can raise the rate on a marijuana business to 70 percent or more of its profits.

  Whatever the case may be, we suspect the widespread legalization of marijuana wouldn’t be the worst thing that could happen to the US right now because although the $53 million in tax revenue Colorado took in during the first year of legalization was underwhelming by some estimates,  the massive underfunded pension liabilities and gross fiscal mismanagement that plague the country’s state and local governments seem to suggest that every little bit of incremental revenue would help especially if legalization saves on drug enforcement costs.

  

  

  
  
  

  

• DEA Strikes Again: Seize Man's Life Savings Under Civil Asset Forfeiture Without Charges

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  All the money – $16,000 in cash – that Joseph Rivers said he had saved and relatives had given him to launch his dream in Hollywood is gone, seized during his trip out West not by thieves but by Drug Enforcement Administration agents during a stop at the Amtrak train station in Albuquerque.

   

  Rivers, 22, wasn’t detained and has not been charged with any crime since his money was taken last month.

   

  That doesn’t matter. Under a federal law enforcement tool called civil asset forfeiture, he need never be arrested or convicted of a crime for the government to take away his cash, cars or property – and keep it.

   

  Rivers was left penniless, his dream deferred.

   

  From the Albuquerque Journal article: DEA to Traveler: Thanks, I’ll Take That Cash

  In the “land of the free” you might be innocent until proven guilty, but your assets aren’t.

  In one of the most uncivilized and preposterous loopholes in America, federal agents are allowed to steal citizens’ assets; cars, cash, even homes, based on suspicion alone. I’ve covered this barbaric and backward practice on many occasions, but here’s a quick refresher from the first post I wrote on the subject in 2013, Why You Should Never, Ever Drive Through Tenaha, Texas:

  In a nutshell, civil forfeiture is the practice of confiscating items from people, ranging from cash, cars, even homes based on no criminal conviction or charges, merely suspicion. This practice first became widespread for use against pirates, as a way to take possession of contraband goods despite the fact that the ships’ owners in many cases were located thousands of miles away and couldn’t easily be prosecuted. As is often the case, what starts out reasonable becomes a gigantic organized crime ring of criminality, particularly in a society where the rule of law no longer exists for the “elite,” yet anything goes when it comes to pillaging the average citizen.

   

  One of the major reasons these programs have become so abused is that the police departments themselves are able to keep much of the confiscated money. So they actually have a perverse incentive to steal. As might be expected, a program that is often touted as being effective against going after major drug kingpins, actually targets the poor and disenfranchised more than anything else.

  Fortunately, civil asset forfeiture became a major issue last year, and while many states are moving to halt or crack down on the practice, this apparently doesn’t stop federal agents from continuing to ruin people’s lives. In today’s post, the culprits are DEA agents, recently best known for using drug cartel and taxpayer money to pay for orgies with prostitutes, as well as wrongfully locking up a California student for days without food and water until he had to drink his own urine to survive.

  If those stories weren’t sufficient to convince you that the war on drugs is a useless fraud, perhaps the following will. From the Albuquerque Journal:

  Maybe he should have taken traveler’s checks.

   

  But it’s too late for that now. All the money – $16,000 in cash – that Joseph Rivers said he had saved and relatives had given him to launch his dream in Hollywood is gone, seized during his trip out West not by thieves but by Drug Enforcement Administration agents during a stop at the Amtrak train station in Albuquerque.

   

  An incident some might argue is still theft, just with the government’s blessing.

   

  Rivers, 22, wasn’t detained and has not been charged with any crime since his money was taken last month.

   

  That doesn’t matter. Under a federal law enforcement tool called civil asset forfeiture, he need never be arrested or convicted of a crime for the government to take away his cash, cars or property – and keep it.

   

  Agencies like the DEA can confiscate money or property if they have a hunch, a suspicion, a notion that maybe, possibly, perhaps the items are connected with narcotics. Or something else illegal.

  The most amazing part is that any society can be stupid and passive enough to allow this policy to persist.

  Or maybe the fact that the person holding a bunch of cash is a young black man is good enough.

   

  It happened, Rivers said, to him on April 15 as he was traveling on Amtrak from Dearborn, Mich., near his hometown of Romulus, Mich., to Los Angeles to fulfill his dream of making a music video. Rivers, in an email, said he had saved his money for years, and his mother and other relatives scraped together the rest of the $16,000.

   

  Rivers said he carried his savings in cash because he has had problems in the past with taking out large sums of money from out-of-state banks.

   

  A DEA agent boarded the train at the Albuquerque Amtrak station and began asking various passengers, including Rivers, where they were going and why. When Rivers replied that he was headed to LA to make a music video, the agent asked to search his bags. Rivers complied.

   

  Rivers was the only passenger singled out for a search by DEA agents – and the only black person on his portion of the train, Pancer said.

   

  Rivers was left penniless, his dream deferred.

   

  Other travelers had witnessed what happened. One of them, a New Mexico man I’ve written about before but who asked that I not mention his name, provided a way for Rivers to get home, contacted attorneys – and me.

   

  Sean Waite, the agent in charge for the DEA in Albuquerque, said he could not comment on the Rivers case because it is ongoing. He disputed allegations that Rivers was targeted because of his race.

   

  Waite said that in general DEA agents look for “indicators” such as whether the person bought an expensive one-way ticket with cash, if the person is traveling from or to a city known as a hot spot for drug activity, if the person’s story has inconsistencies or if the large sums of money found could have been transported by more conventional means.

   

  “We don’t have to prove that the person is guilty,” Waite said. “It’s that the money is presumed to be guilty.”

  Again, what kind of idiotic civilization conducts its business like this?

  DEA agents may choose to ask the person whether his or her possessions can be searched in what is called a “consensual encounter.” If the subject refuses, the bags – but not the person – can be held until a search warrant is obtained, he said.

   

  Waite said that he could not provide exact figures on how often seizures occur in Albuquerque but that last week the DEA had five “consensual encounters” that resulted in seizures.

   

  Whatever is seized is held during an internal administrative process (read: not public) while a case is made to connect the property to narcotics. Subjects can file a claim to have the items returned – and then they wait, sometimes forever.

  This is not what freedom looks like.

  While travelers like Rivers still have to worry about DEA agents, state and local law enforcement in New Mexico no longer has these virtually unlimited seizure powers. Five days before Rivers’ encounter in Albuquerque, Gov. Susana Martinez signed into law a bill that bars state and local law enforcement from seizing money or property under civil asset forfeiture. The law takes effect in July.

   

  But the new state law won’t supersede the federal law, meaning federal agencies such as the DEA are still free to take your cash on arguably the flimsiest of legal grounds.

  Drugs are everywhere. The “war on drugs” has been a monumental failure that has achieved absolutely nothing other than erode the civil liberties of average Americans, and provide an efficient avenue for police and federal agent to steal citizens’ hard earned assets with no due process. It’s long past time to put an end to the war on drugs, civil asset forfeiture and the DEA.

  

  

  
  
  

  

• Meet "The Most Bearish Investment Manager You Will Find Today"

  "Maybe there's someone hiding in their basement who's more bearish than I am," says Mark Spitznagel, but I'm "the most bearish investment manager that you will find today."

  The billionaire founder of Universa Investments exclaims, "stocks are the side show of the world. They shouldn't matter that much. They matter too much. They're the realm of punters, the realm of hair-trigger traders, flashing, colorful lights, blips and bleeps of Bloomberg terminals… What does matter is investment in capital, investment in the the tools of greater productivity, of really the progress of civilization."

  Predicting the end of this bubble is impossible "because it's entirely Fed-driven.. and you're relying on liquidity," what we don't understand about markets is there's a buyer for every seller, there's a seller for every buyer, "the market doesn't owe you liquidity."

  Some key exceprts…

  "The beautiful thing about the business is when the markets get really rich, really overvalued, really distorted like today, the cost of insurance goes way down. There's incredible complacency. People are selling (tail insurance). This is another one of those carry trades that are so popular today. We're back to this Great Moderation. There's a religious belief that the Fed is our savior. And it's priced into the market."

   

  "We're at an extreme point today. We're as extreme as we've been n the last hundred years except for 2000. You can read into that what you want. (The year) 2000 was one of the great bubbles in human history. So here we are today just shy of that."

   

  "(Predicting when this bubble will end) would be impossible, because it's entirely being driven by the Fed and we don't know what they're willing to do next. I don't know what lever they're going to pull next."

   

  "Giant liquidity holes are a part of market dynamics. If you think you're going to lean on these buy orders (in order to get out) is the height of naivete."

   

  "Stocks are the side show of the world. They shouldn't matter that much. They matter too much. They're the realm of punters, the realm of hair-trigger traders, flashing, colorful lights, blips and bleeps of Bloomberg termnals…(awkward silence).

   

  What does matter is investment in capital, investment in the the tools of greater productivity, of really the progress of civilization."

  And finally to FOMO, and the consensus, Bloomberg asks "If the ECB is buying, and trying to inflate the prices of risk assets, OWN THOSE RISK SSETS."

  Spitznagel: "Right, this is what the entire world is doing, what you're describing. Don't fight the Fed, go with the Fed. But, of course, the problem there is we're relying on our ability to change our mind, change our position. Is there an exit to this idea for us?

   

  You're relying on liquidity, of course. What we don't understand about markets is there's a buyer for every seller, there's a seller for every buyer. The market doesn't owe you liquidity."

  

  

  
  
  

  

• Welfare Nation: From EBT… To AMG

  In America, where work is punished, it’s only fair… an AMG in every driveway.

   

  

   

  h/t @Stalingrad_Poor

  

  

  
  
  

  

• Abolishing Cash – The New Age Of Economic Totalitarianism

  Submitted by Martin Armstrong via Armstrong Economics,

  Europe is moving full speed ahead to eliminate all cash.

  

   

  Instead of reforming and tackling the economic problems, government always seeks to maintain the same course of thinking that now leads us to the totalitarian approach coming from Brussels.

  To maintain the euro, they must maintain the banks. However, the bank reserves are debts of all member states. As government becomes insolvent as in Greece, the banking system is undermined. The only way to prevent the banking collapse is to prevent people from withdrawing cash.

  Hence, we see this trend is surfacing in all the mainstream press to get the people ready for what is coming after 2015.75 – the elimination of cash. We are even starting to see this advocated in parts of Germany. We will not be able to buy or sell anything without government approval. That is where we are going, and it may be the major event that erupts after 2015.75.

  

   

  The bail-in that took place in Cyprus managed to get away without bloodshed. The people just took it.

  This has encouraged governments everywhere, since now they know they can safely do the same thing and the people are like sheep – dumb and stupid.

  

   

  Just how much will society take before they say no?

  

  

  
  
  

  

• City Secure? Baltimore Is Averaging 1.3 Murders Per Day Since Riot

  The widespread riots, looting, and indiscriminate arson may have subsided in Baltimore, but the violence has not. The vivid yet surreal images of a burning city along with real-time footage of stores being cleaned out with no intervention from law enforcement were set against the chilling rumor that the chaos began with a social media message calling for a citywide “purge” (after the film of the same name). By the early morning hours of April 28, the city lay in ashes and America’s race relations had suffered their most severe setback in years. 

  Three weeks later and most of America has moved on, believing that the drama is for the large part over, now that charges have been handed down against six officers and the Baltimore skyline is no longer ablaze. The reality on the ground however, is that since the riots, the murder rate in the city has skyrocketed, with 23 homicides in the last 18 days alone.

  Here’s The Washington Post with more:

  Although riots and protests after the death of Freddie Gray, who was injured in police custody, brought national attention to the city, the slayings have attracted little notice. They come as Baltimore works to recover from the unrest, with a police force demoralized by the arrests of six of its members — three of whom face murder or manslaughter charges in Gray’s death — and under the scrutiny of the Justice Department…

   

  The protests and riots that roiled this city in the aftermath of Gray’s death quieted after the police officers were charged. But even as shops were looted and burned and 3,200 Maryland National Guard troops came to restore order, another type of violence was consuming Baltimore.

   

  From mid-April to mid-May, 31 people were killed, and 39 others were wounded by gunfire. Twice, 10 people were shot on a single day. As of Friday, the deadly burst has pushed the city’s homicide count to 91, 21 above last year at the same time.

   

  In the District, 40 people had been slain as of Friday, not including four people found dead Thursday in cases police said are being investigated as homicides but are awaiting a ruling by the medical examiner.

  The spike since the riots has been remarkable…

  

  …and most of the violence has occurred in West Baltimore…

  

  *  *  *

  But out of sight, out of mind for the rest of the country and we imagine that just as high crime rates and a generalized sense of despair were ignored before the riots, so too will they be ignored now that the media spectacle has died down … at least until the next “purge.” 

  We’ll close with the following quote from the police commissioner on April 28:

  “The citizens are safe. The city is stable”

  Indeed.

  

  

  
  
  

  

• Young & American? You're Out Of Luck

  Submitted by Bill Bonner via Bonner & Partners,

  Old age and treachery will always triumph over youth and skill. At least, that is the way it looks.

  Our speech to the Class of 2015 (you can catch up here and here) left out some important points. The jobs picture, for example, is even bleaker. And depriving young people of jobs is like depriving pandas of bamboo shoots: It’s all they have. Older people can watch their stocks, real estate, and bonds go up in price. A young person can only look at the “Help Wanted” ads… and hope for a break.

  20 Million Fewer Jobs

  In 2000, 56% of the working-age population was employed. That was an all-time high. It has fallen ever since… and is now down to 46%. The working-age population is about 200 million people. This suggests there are about 20 million fewer people with jobs today than there were at the start of the century. Guess who those people are?

  People with all their teeth, all their hair, and all their wits.

  Since the stock market bottomed in 2009, only one group has added jobs – people 55 and older. Every other age group has lost out.

  Why?

  New businesses hire young people. Old businesses hire old ones. Imagine a new company – Uber, Snapchat, or Pinterest – recruiting gray-haired workers.

  They won’t. The older generation wouldn’t understand. They’d be out of place.

  But the rate of new business start-ups has fallen sharply. And fewer new businesses means fewer places for new workers to get work.

  Also, older workers might like to retire and give their jobs to younger workers. But they can’t afford to. They are squeezed by their own economy.

  Now they must hang on to their jobs as long as they can.

  Wasted Youth

  This leaves young people with no way to get on the bottom rungs of the ladder. To get ahead in the business/employment world, you have to get started. Then you work hard… you learn… you progress. But today, young people mill around, wasting their time in college, flipping burgers and parking cars while they wait for a “real” job opening.

  Then it is too late.

  They go for a job interview at 25, 30, or 35… and employers want to know what the heck they’ve been doing for the last few years.

  They may never get onto the bottom rung, never learn a real trade or profession, and never be able to play their part in the adult, debt-soaked, middle-class economy.

  The Atlantic magazine looked at the situation. It concluded there was “nothing uniquely wrong with the youth job market.” But something is wrong.

  It is not nearly as bad in America as it is in France, for example. But every labor rule drives employers to protect themselves. Hire a young person and who knows what you get? He has no work experience; he cannot prove that he won’t cause trouble. Instead, you look for a résumé with familiar assurances: “Oh, he worked for 10 years at the Ford Motor Company,” you tell yourself. “Then, he’ll be fine here.”

  Callow youths entering the workforce have few skills. They should be cheap. But as the cost of hiring these new people goes up – costs imposed by the older generation – the price of older workers, relatively, goes down.

  Entry-level jobs are scarce partly because old people – using the police power of their government – have made them more expensive.

  A Stacked Deck

  The declining availability of income opportunities is just one way the older generation has stacked the deck against the young. You have no doubt heard about how today’s highly financialized U.S. economy favors the rich over the poor. You might just as well say it favors the old over the young.

  Financial assets – stocks and bonds – have gained value. Jobs have not. Incomes have been flat for an entire generation, as capital gains have soared. The old have gotten richer; the young have gotten poorer.

  In 2013, for example, there were 50 million people in the U.S. who earned an average of just $6,000. Who were they? Disproportionately, they were young people.

  This is where it gets really interesting… The “financial economy” – roughly the value of stocks and bonds – has gone up 15 times in the last generation, an increase from $6 trillion to $95 trillion.

  But do young people own stocks and bonds?

  Nope. Financial assets are owned, in the main, by old, well-connected, skilled, and successful people. Young people have little but their own time.

  When you are starting out in life, you need to trade your time and energy for money… and gradually accumulate financial assets. You need an economy in which you can work… and earn money.

  But that economy – the economy of work and wages – grew only five times during the same period (as measured by GDP).

  “The financial sphere,” explains former Reagan administration budget adviser David Stockman, “occupied 212% of GDP in 1981… now, [it] weighs in at 537%.”

  In short, the geezers have done much better than the under-30 crowd.

  Although average wages have barely risen at all, the value of America’s corporate equity has gone up 28 times since Jimmy Carter was president.

  Was this just an accident? Was this just an honest market economy at work?

  No, the fix was in…

  

  

  
  
  

  

• Volumeless VIXtermination Fuels Stock-Buying Frenzy To Record Highs

  There can be only one clip for today…

  Because it's all about the fundamentals… and funnily enough the day when consensus GDP hopes collapsed also..

  

   

  And volume doesn't matter…

  

   

  Futures give us a glimpse at the dip-buying euphoria that began early on…

  

   

  But cash indices just would not stop… Small Caps ripped as AAPL pumped Nasdaq higher

  

   

  With shorts squeezed even more… (2nd biggest rise in "most shorted" stocks in 4 months)

  

   

  As VIX collapsed (this is front-month futures smashed below 15)…

  

   

  Crucially SPY took out its December fat finger spike highs… freeing any long lost longs remaining…

   

   

  But credit was nmot happy with rising rates – so how are you CFO muppets gonna fund yr cheap buybacks noiw?

  

   

  Treasuries were sold aggressively… roundtripping Friday's gains…

  

   

  Even as Bunds were "managed"… the smallest range since Gross and Gundlach spoke..

  

   

  The dollar soared over 1% on EUR and CAD weakness… This is the best day for the Dollar in 2 months… worst day for EUR in 2 months (notice this is a complete roundtrip of Friday's losses with Swissy well offered

  

   

  The Loonie had its worst day in 4 months against the USD today…

  

   

  Despite the USD strength, Silver and gold gained on the day, copper lost ground but crude was a financialized joke…

  

   

  Trade those "fundamentals"…

  

   

  So – to summarize – US stocks soared relentlessly on no volume to record highs as traders monkey-hammered VIX futures lower… on a day when Bunds were well managed but TSYs traded out of control, FX markets were carnaging and commodities whipped up and down like a whore's drawers…

  Charts: Bloomberg

  

  
  
  

  

Digest powered by RSS Digest

• Falling Yield, Rising Asset

  by Keith Weiner

  Our monetary system is failing, but explaining that isn’t easy. The most popular argument is that the dollar has falling purchasing power and rising inflation. The problem with this argument is that consumer prices aren’t skyrocketing now. So, of course, people remain skeptical.

  Meanwhile, yields across all markets are falling worldwide. This causes the income generated from assets to fall. I wrote about this serious problem last time, introducing the concept of yield purchasing power—which is how much you can buy with the interest on your savings.

  Today, there is little to no interest, which forces retirees to spend down their principal. This is no accident. It’s the vision of economist John Maynard Keynes. Nearly 80 years ago, he called for the “euthanasia of the rentier,”—his pejorative term for retirees and others on fixed income. Today Federal Reserve Chair Janet Yellen calls herself a New Keynesian.

  To picture the plight of the retiree living on fixed income, let’s use the example of a poor farmer. Every year, his harvest shrinks. With a smaller and smaller crop, it’s harder and harder to live. So he commits the sin of eating some of his seed corn. Smaller plantings only accelerate the decline in his crops.

  Our paper currency causes falling productivity, though not in terms of bushels per acre. What falls is productivity per dollar or euro of savings. This is the real meaning of the falling interest rate. When the rate was 10 percent, $1,000 of principal produced $100 of return. When it falls to two percent, then the same capital generates a return of only $20. Now with the Swiss 10-year bond, CHF 1,000 earns only CHF 1.3.

  Every farmer understands a falling crop yield. However, few investors see the problem with a falling interest rate. Let’s use another farm example to help clarify. A dealer wants to buy the farmer’s tractor. He offers $10,000 for
  it. The farmer says no. Next week, he increases his offer to $11,000. Still no. The dealer keeps coming back with higher offers, until the farmer finally accepts $50,000. He can live for a year on that. Unfortunately, he’s given up
  his most important tool. Now he’s not consuming his seed corn, but his capital stock. Next year’s harvest will be even more meager.

  

  Falling interest forces you to spend your principal, because it starves you of return. At the same time it feels rather pleasant, because you can sell your assets at higher and higher prices. Everyone loves a bull market, because they’re all making money. Alas, the process of relentlessly higher asset prices is totally corrupt. Let’s drill down into this, because it’s the key to understanding why our system is failing.

  Normally, to make money you must first produce something. This means either working, or else putting your capital to work. Our monetary system now breaks this economic law. Falling yields and rising assets seemingly offer you a profit for doing nothing. You are not putting your capital to work, using your tractor to plant a food crop. You are consuming it, selling the tractor to pay for food. It’s not a real profit. A society cannot live by consuming previously-accumulated capital. Consumption without production is unsustainable.

  This is how our money is being devalued, debased, debauched, and destroyed. Money was once a tool to help people coordinate their production and trade. Now, it has devolved into a lever to deprive retirees of the return on their life savings.

  Forget about consumer prices. The problem is much more serious than that. We’re destroying the productivity of capital, and rewarding instead its consumption.

   

  This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.

  

  
  
  

  

• Guest Post: Why Syriza Will Blink

  Authored by Anatole Kaletsy, originally posted at Project Syndicate,

  Once again, Greece seems to have slipped the financial noose. By drawing on its holdings in an International Monetary Fund reserve account, it was able to repay €750 million ($851 million) – ironically to the IMF itself – just as the payment was falling due.

  This brinkmanship is no accident. Since coming to power in January, the Greek government, led by Prime Minister Alexis Tsipras’s Syriza party, has believed that the threat of default – and thus of a financial crisis that might break up the euro – provides negotiating leverage to offset Greece’s lack of economic and political power. Months later, Tsipras and his finance minister, Yanis Varoufakis, an academic expert in game theory, still seem committed to this view, despite the lack of any evidence to support it.

  But their calculation is based on a false premise. Tsipras and Varoufakis assume that a default would force Europe to choose between just two alternatives: expel Greece from the eurozone or offer it unconditional debt relief. But the European authorities have a third option in the event of a Greek default. Instead of forcing a “Grexit,” the EU could trap Greece inside the eurozone and starve it of money, then simply sit back and watch the Tsipras government’s domestic political support collapse.

  Such a siege strategy – waiting for Greece to run out of the money it needs to maintain the normal functions of government – now looks like the EU’s most promising technique to break Greek resistance. It is likely to work because the Greek government finds it increasingly difficult to scrape together enough money to pay wages and pensions at the end of each month.

  To do so, Varoufakis has been resorting to increasingly desperate measures, such as seizing the cash in municipal and hospital bank accounts. The implication is that tax collections have been so badly hit by the economic chaos since January’s election that government revenues are no longer sufficient to cover day-to-day costs. If this is true – nobody can say for sure because of the unreliability of Greek financial statistics (another of the EU authorities’ complaints) – the Greek government’s negotiating strategy is doomed.

  The Tsipras-Varoufakis strategy assumed that Greece could credibly threaten to default, because the government, if forced to follow through, would still have more than enough money to pay for wages, pensions, and public services. That was a reasonable assumption back in January. The government had budgeted for a large primary surplus (which excludes interest payments), which was projected at 4% of GDP.

  If Greece had defaulted in January, this primary surplus could (in theory) have been redirected from interest payments to finance the higher wages, pensions, and public spending that Syriza had promised in its election campaign. Given this possibility, Varoufakis may have believed that he was making other EU finance ministers a generous offer by proposing to cut the primary surplus from 4% to 1% of GDP, rather than all the way to zero. If the EU refused, his implied threat was simply to stop paying interest and make the entire primary surplus available for extra public spending.

  But what if the primary surplus – the Greek government’s trump card in its confrontational negotiating strategy – has now disappeared? In that case, the threat of default is no longer credible. With the primary surplus gone, a default would no longer permit Tsipras to fulfill Syriza’s campaign promises; on the contrary, it would imply even bigger cutbacks in wages, pensions, and public spending than the “troika” – the European Commission, the European Central Bank, and the IMF – is now demanding.

  For the EU authorities, by contrast, a Greek default would now be much less problematic than previously assumed. They no longer need to deter a default by threatening Greece with expulsion from the euro. Instead, the EU can now rely on the Greek government itself to punish its people by failing to pay wages and pensions and honor bank guarantees.

  Tsipras and Varoufakis should have seen this coming, because the same thing happened two years ago, when Cyprus, in the throes of a banking crisis, attempted to defy the EU. The Cyprus experience suggests that, with the credibility of the government’s default threat in tatters, the EU is likely to force Greece to stay in the euro and put it through an American-style municipal bankruptcy, like that of Detroit.

  The legal and political mechanisms for treating Greece like a municipal bankruptcy are clear. The European treaties state unequivocally that euro membership is irreversible unless a country decides to exit not just from the single currency but from the entire EU. That is also the political message that EU governments want to instill in their own citizens and financial investors.

  If Greece defaults, the EU will be legally justified and politically motivated to insist that the euro remains its only legal tender. Even if the Greek government decides to pay wages and pensions by printing its own IOUs or “new drachmas,” the European Court of Justice will rule that all domestic debts and bank deposits must be repaid in euros. That, in turn, will force a default against Greek citizens, as well as foreign creditors, because the government will be unable to honor the euro value of insured deposits in Greek banks.

  So a Greek default within the euro, far from allowing Syriza to honor its election promises, would inflict even greater austerity on Greek voters than they endured under the troika program. At that point, the government’s collapse would become inevitable. Instead of Greece exiting the eurozone, Syriza would exit the Greek government. As soon as Tsipras realizes that the rules of the game between Greece and Europe have changed, his capitulation will be just a matter of time.

  

  

  
  
  

  

• Peak Population Growth?

  The total number of living humans on Earth is now greater than 7 billion. As Max Roser notes, this large world population size is only a very recent development, as around just 200 years ago the world population was less than 1 billion. 

  Since the 18th century, Roser continues, the world population has seen a rapid increase; between 1900 and 2000 the increase in world population was three times as great as the increase during the entire previous history of humankind – in just 100 years the world population increased from 1.5 to 6.1 billion. But, Roser concludes, this development is now coming to an end, and we will not experience a similarly rapid increase in population growth over the course of this century…

  World history can be divided into three periods of distinct trends in population growth.

   

  The first period (pre-modernity) was a very long age of very slow population growth.

   

  The second period, beginning with the onset of modernity (with rising standards of living and improving health) and lasting until 1962, had an increasing rate of growth.

   

  Now that period is over, and the third part of the story has begun: the population growth rate is falling and will continue to fall, leading to an end of growth before the end of this century.

   

  

  Source: OurWorldInData.org

  While The United Nations (UN) sees world population continuing to rise until 2100, some, such as Deutsche's Sanjeev Sanyal, believe world population will peak at 8.7 billion people in 2055 and then decline to 8 billion by 2100… As Sanyal wrote previously, misrepresent underlying demographic dynamics – the future we face is not one of too much population growth, but too little.

  According to the United Nations’ Population Division, the world’s human population hit seven billion on October 31. As always happens whenever we approach such a milestone, this one has produced a spike in conferences, seminars, and learned articles, including the usual dire Malthusian predictions. After all, the UN forecasts that world population will rise to 9.3 billion in 2050 and surpass 10 billion by the end of this century.

   

  Such forecasts, however, misrepresent underlying demographic dynamics. The future we face is not one of too much population growth, but too little.

   

  Most countries conducted their national population census last year, and the data suggest that fertility rates are plunging in most of them. Birth rates have been low in developed countries for some time, but now they are falling rapidly in the majority of developing countries. Chinese, Russians, and Brazilians are no longer replacing themselves, while Indians are having far fewer children. Indeed, global fertility will fall to the replacement rate in a little more than a decade. Population may keep growing until mid-century, owing to rising longevity, but, reproductively speaking, our species should no longer be expanding.

   

  What demographers call the Total Fertility Rate (TFR) is the average number of live births per woman over her lifetime. In the long run, a population is said to be stable if the TFR is at the replacement rate, which is a little above 2.3 for the world as a whole, and somewhat lower, at 2.1, for developed countries, reflecting their lower infant-mortality rates.

   

  The TFR for most developed countries now stands well below replacement levels. The OECD average is at around 1.74, but some countries, including Germany and Japan, produce less than 1.4 children per woman. However, the biggest TFR declines in recent years have been in developing countries. The TFR in China and India was 6.1 and 5.9, respectively, in 1950. It now stands at 1.8 in China, owing to the authorities’ aggressive one-child policy, while rapid urbanization and changing social attitudes have brought down India’s TFR to 2.6.

   

  An additional factor could depress future birth rates in China and India. The Chinese census suggests that there are 118.6 boys being born for every 100 girls. Similarly, India has a gender ratio at birth of around 110 boys for every 100 girls, with large regional variations. Compare this to the natural ratio of 105 boys per 100 girls. The deviation is usually attributed to a cultural preference for boys, which will take an additional toll on both populations, as the future scarcity of women implies that both countries’ effective reproductive capacity is below what is suggested by the unadjusted TFR.

   

  Indeed, after adjusting for the gender imbalance, China’s Effective Fertility Rate (EFR) is around 1.5, and India’s is 2.45. In other words, the Chinese are very far from replacing themselves, and the Indians are only slightly above the replacement rate. The EFR stands at around 2.4 for the world as a whole, barely above the replacement rate. Current trends suggest that the human race will no longer be replacing itself by the early 2020’s. Population growth after this will be mostly caused by people living longer, a factor that will diminish in significance from mid-century.

   

  These shifts have important implications for global labor supply. China is aging very rapidly, and its working-age population will begin to shrink within a few years. Relaxing the one-child policy might have some positive impact in the very long run, but China is already past the tipping point, pushed there by the combined effect of gender imbalance and a very skewed age structure.

   

  The number of women of child-bearing age (15-49 years) in China will drop 8% between 2010 and 2020, another 10% in the 2020’s and, if not corrected, at an even faster pace thereafter. Thus, China will have to withdraw an increasing proportion of its female workforce and deploy it for reproduction and childcare. Even if China can engineer this, it implies an immediate outflow from the workforce, with the benefits lagging by 25 years.

   

  Meanwhile, the labor force has peaked or is close to peaking in most major economies. Germany, Japan, and Russia already have declining workforces. The United States is one of a handful of advanced countries with a growing workforce, owing to its relative openness to immigration. But this may change as the source countries become richer and undergo rapid declines in birth rates. Thus, many developed countries will have to consider how to keep people working productively well into their seventies.

   

  India, the only large economy whose workforce will grow in sufficient scale over the next three decades, may partly balance the declines expected in other major economies. But, with birth rates declining there, too, current trends suggest that its population will probably stabilize at 1.55 billion in the early 2050’s, a full decade ahead of – and 170 million people below – the UN’s forecast.

   

  Given this, it is likely that world population will peak at nine billion in the 2050’s, a half-century sooner than generally anticipated, followed by a sharp decline. One could argue that this is a good thing, in view of the planet’s limited carrying capacity. But, when demographic dynamics turn, the world will have to confront a different set of problems.

  *  *  *

  "The world is approaching a major turning point in its demographic trajectory and we think that the shift is likely to be sooner and sharper than mainstream projections suggest,"

  Just remember, it took Japan a very long time to realize the decline in fertility was not 'transitory'…

  

  

  
  
  

  

• Dan Ariely: Why The Next Market Downturn May Quickly Become A Full-Blown Panic

  Submitted by Adam Taggart via PeakProsperity.com,

  Behavioral economist and author of Predictably Irrational Dan Ariely returns to explain the science underlying the continued mismanagement and mal-investment within our financial system, despite 7 years of opportunity to learn from and address the causal factors of the Great Recession.

  Behavioral science shows we are our own worst enemies in this story. In a realm where everything is so quantifiable, measurable and trackable, one would expect exceptionally good decision-making. But it's our human wiring, our proclivity for seeing things as we want them to be rather than as they truly are, that makes us vulnerable to influences we often aren't even conscious of. And the bad decisions — and bad outcomes — ensue:

  For me, as somebody interested in human behavior, there are two elements that worry me a lot. The first one is Conflicts of interest.

   

  Conflicts of interest is one of those things that get to us without us realizing how powerful it is. Imagine that you invite me to dinner, and you buy me a beer and a sandwich and we talk more and we become friends. To what degree am I going to be able to see the world in an objective way without taking your perspective into account? It turns out conflicts of interest are wonderful because they allow us to create friendship really quite quickly. You can buy someone a beer and a sandwich and they become your friend to some degree. Once you marry this with a complex system like the financial system, all of a sudden some not-so-good things can happen.

   

  I think we really haven't done much to address conflicts of interest in our financial system — there are lots of places where people get paid in all kinds of ways that have conflicts of interest. There are companies that have divisions within them that create tremendous conflicts of interest. And human nature doesn't help. What happens is that you look at yourself and you ask: Do I have conflicts of interest? You say: No. Of course, not. I evaluate everything objectively; therefore, we don't need regulation. But I think we do, and actually to a much higher degree.

   

  The second element that bothers me about which we have done to little is Trust. There are people who are active in the financial system and they understand it better. And there are people who are not. The people who are not have experienced this tremendous devastation. Many people lost lots of money, especially people close to retirement. Many people pulled out their money and basically have lost trust. Now the question is: Under what conditions will people regain this lost trust? This is extremely important for the financial system's long-term viability. If you think about the financial system as a way to accumulate wealth and be able to retire securely and so on, I think we've lost some of the capacity of that system to serve that function, because people are just not trusting anything.

   

  Imagine if we have another beginning of a catastrophe happening, not something as big as we had, but something smaller. Is people's sensitivity right now is going to be so high that they're going to panic very quickly? I think the answer is: Yes. So we haven't done much to eliminate conflicts of interest, and we haven't done anything to earn back trust. And because of that, I deeply worry.

  Click the play button below to listen to Chris' interview with Dan Ariely (41m:53s)

  

  

  
  
  

  

• Chinese Firm Reveals World's First 3D-Printed Five Story Apartment Building

  While China’s stock market continues levitating at an ever more amusing pace, this is happening at the expense of China’s far more important housing market, which sadly for three-quarters of China’s population (in the US 75% of household assets are in financial products, in China: in real estate) continues to deflate at a rate faster than US housing in the aftermath of Lehman. And for better or worse, Chinese home prices are likely set to drop even more, and not due to something as arcane as glitches in fiscal or monetary policy, but something far more tangible: technological advances, and specifically – 3D printed houses.

  Meet WinSun: the Chinese company has been documented to print 10 complete houses in 24 hours, using a proprietary 3D printer that uses a mixture of ground construction and industrial waste, such as glass and tailings, around a base of quick-drying cement mixed with a special hardening agent. But while this in itself is impressive, the punchline is the cost: the houses can be produced for under $5,000, which means that if adopted widely, 3D printing can lead to a collapse in prices of new home construction across China, which while good for new buyers could be catastrophic for the economy and the banking sector where nearly $30 trillion in commercial loans are collateralized almost entirely by China’s overinflated housing sector.

  

   

  Not content with building single-family houses (and WinSun’s own office), WinSun recently made history when it demonstrated the world’s first entirely 3D-printed five-story apartment building and a 1,100 square metre (11,840 square foot) villa, complete with decorative elements inside and out, on display at Suzhou Industrial Park.

   

  

  

  

  

   

  

  According to CNET, while the company hasn’t revealed how large it can print pieces, based on photographs on its website, they are quite sizeable and ornate. A CAD design is used as a template, and the computer uses this to control the extruder arm to lay down the material “much like how a baker might ice a cake,” WinSun said. The walls are printed hollow, with a zig-zagging pattern inside to provide reinforcement. This also leaves space for insulation.

  This process saves between 30 and 60 percent of construction waste, and can decrease production times by between 50 and 70 percent, and labour costs by between 50 and 80 percent. In all, the villa costs around $161,000 to build.

   

  And, using recycled materials in this way, the buildings decrease the need for quarried stone and other materials — resulting in a construction method that is both environmentally forward and cost effective.

  WinSun hopes to use its technology on much larger scale constructions, such as bridges and even skyscrapers, which means this is just the beginning of not only conveyer houses, but of massive price deflation across China’s housing market, which judging by the relentless plunge in Chinese inflation and the hard landing the local economy has found itself in, may have come at the worst possible time.

  In conclusion, one can only hope that WinSun “Quality Control” checklist is a little broader than some of its Chinese peers whose rush to the finish, often times leads to unfortunate consequences.

  

  h/t Keith

  

  

  
  
  

  

• How China Covered The World In "Liquidity Swap Lines"

  As we’ve discussed on a number of occasions and at great length, the market is periodically hit by systemic dollar shortages. For instance, in 2007 European commercial banks found themselves staring down a dollar funding gap on the order of several trillion (all in). Meeting USD funding requirements became immeasurably more difficult as the crisis intensified, necessitating what amounted to a Fed bailout via dollar liquidity lines to foreign central banks.

  Then, in November of 2011 (so right around the time when, just like today, the financial world was glued to Greece), the Fed extended its “temporary” swap lines with The Bank of Canada, the BoJ, the BoE, the ECB, and the SNB, and also lowered the price of dollar liquidity. 

  The most recent global USD funding shortage began to show up earlier this year and as we noted in March, has been ironically created by central banks themselves (for those interested in a detailed account of the conditions which lead to episodic dollar dearths, see the articles linked above).

  Central bank liquidity lines like those the Fed used to bailout the world seven years ago have become a fixture of the post crisis financial system and as you can see from the following maps, their growth since 2007 has been remarkable. Perhaps the most striking thing about the following graphics is the extent to which China has (literally) covered the world in renminbi swap lines. Essentially, China has used bilateral swap agreements to help embed the yuan in international trade in the the post-crisis era. As you’ll see below, counterparty countries have also tapped their yuan liquidity lines when they’re cut off from dollar funding, making China a critical lifeline for bolstering FX reserves and helping to alleviate shortages of imported goods.

  

  

  

  

  

  

  

  

  

  Click here for the full interactive map 

  Here’s more from The Council on Foreign Relations on the history of the Fed’s international dollar liquidity bailouts:

  During the crisis, banks became highly reluctant to lend to one another, owing to fears about the true financial condition of counterparts. This drove up the cost of borrowing, as lenders demanded higher interest rates to compensate for rising counterparty risk. While central banks could provide local currency to their domestic banks to lower the cost of borrowing in that currency, their ability to provide foreign currency was limited by the amount of foreign currency reserves they held. To address these foreign currency funding issues, developed-economy central banks agreed to provide swap lines to one another.

   

  On December 12, 2007, the Federal Reserve extended swap lines to the European Central Bank (ECB) and Swiss National Bank (SNB). European bank demand for dollars had been pushing up, and creating accentuated volatility in, U.S. dollar interest rates. The swap lines were intended “to address elevated pressures in short-term funding markets,” and to do so without the Fed having to fund foreign banks directly.

   

  On September 16, 2008, two days after the collapse of Lehman Brothers, the Federal Reserve Open Market Committee (FOMC) gave the foreign currency subcommittee the power “to enter into swap agreements with the foreign central banks as needed to address strains in money markets in other jurisdictions.” This enabled the subcommittee to extend swap lines to other central banks and to expand the size of the existing swap lines, without the need for the full FOMC to vote on it.

  
  

   

  In 2011, the Bank of Canada, Bank of England, European Central Bank, Bank of Japan, Federal Reserve, and Swiss National Bank announced that they had established a network of swap lines that would allow any of the central banks to provide liquidity to their respective domestic banks in any of the other central banks’ currencies. In October 2013, they agreed to leave the swap lines in place as a backstop indefinitely.

  If you needed further evidence of China’s growing influence, consider that Beijing has essentially blanketed the globe with yuan liquidity lines, inking swap agreements with nearly three dozen countries with the primary goal of increasing the degree to which the renminbi is used in international trade…

  Since 2009, China has signed bilateral currency swap agreements with thirty-one counterparties. The stated intention of these swaps is to support trade and investment and to promote the international use of renminbi.

   

  Broadly, China limits the amount of renminbi available to settle trade, and the swaps have been used to obtain renminbi after these limits have been reached. In October 2010, the Hong Kong Monetary Authority and the People’s Bank of China (PBoC) swapped 20 billion yuan (about $3 billion) to enable companies in Hong Kong to settle renminbi trade with the mainland. In 2014, China used its swap line with Korea to obtain 400 million won (about $400,000). The won were then lent on to a commercial bank in China, which used them to provide trade financing for payment of imports from Korea.

  …and in fact, Argentina used their swap agreement with Beijing as a bailout mechanism…

  In addition to using the swaps to facilitate trade in renminbi, China is also using the swap lines to provide loans to Argentina in order to bolster the country’s foreign exchange reserves. In October 2014, a source at the Central Bank of Argentina reportedly told Telam, the Argentine national news agency, that the renminbi Argentina receives through the swap would be exchanged into other currencies. Argentina has had difficulty borrowing dollars on international markets since it defaulted on its debt in July and has faced shortages on a range of imported goods as a result. Swapping renminbi into dollars enables companies to import more than they would be able to otherwise.

  We’ll close with the following two maps which display only swaps lines set up by China. As you can see, the evolution is quite remarkable…

  2009

  

  2015

  

  

  

  
  
  

  

• The Deadliest Jobs In America

  The U.S. Department of Labor tracks how many people die at work, and why. The latest numbers were released in April and cover the last seven years. As Bloomberg reports, some of the results may surprise you.

  click images for large interactive versions…

  

   

  

  

   

   

  Source: Bloomberg

  

  
  
  

  

• Billionaire Oil CEO Demands Scientists Terminated After Oklahoma Quake Study

  The billionaire CEO of Continental Resources told a dean at the University of Oklahoma that he wanted earthquake researchers fired. In one of the most transparently oligarchic tactics we have seen yet during this ‘recovery’, oil tycoon Harold Hamm demanded certain scientists be dismissed following their findings that fracking wastewater disposal was the cause of the spike in Oklahoma earthquakes. Despite his protestations recently that “I don’t try to push anyone around,” as the following email obtained by Bloomberg, exposes, “Mr. Hamm is very upset at some of the earthquake reporting to the point that he would like to see select OGS staff dismissed.”

   

  

  As we noted previously, no matter what other problems may or may not be linked to hydraulic fracturing, or fracking, the disposal of wastewater from oil and gas drilling almost certainly is primarily responsible for the recent spate of earthquakes in Oklahoma, normally a seismologically quiet state.

  That’s the conclusion of a report issued April 21 by the Oklahoma Geological Survey (OGS), in which the state geologist Richard D. Andrews and Dr. Austen Holland, the state seismologist, said the rate of earthquakes near major oil and gas drilling operations that produce large amounts of wastewater demonstrate that the quakes “are very unlikely to represent a naturally occurring process.”

   

  Andrews and Holland concluded that the “primary suspected source” of the quakes is not hydraulic fracturing, or fracking, in which water and chemicals are injected under high pressure to crack shale to free oil and gas trapped inside. It said the source is more likely the injection of wastewater from this process in disposal wells, because water used in fracking cannot be re-used.

   

  “The OGS considers it very likely that the majority of recent earthquakes, particularly those in central and north-central Oklahoma, are triggered by the injection of produced water in disposal wells,” the statement said. It warned that residents should prepare for “a significant earthquake.”

   

  Oklahoma recorded 585 earthquakes with a magnitude of 3 or greater, the equivalent of the force felt in Oklahoma City at the time of the terrorist bombing in 1995. This is a significant increase from 109 earthquakes of the same magnitude in 2013. Before 2008, when fracking became a popular drilling technique in the state, there were fewer than two earthquakes in Oklahoma each year, on average.

   

  

   

  Andrews’ and Holland’s report draws the same conclusions as a study last year by Katie Keranen, an assistant professor of seismology at Cornell University, who found that injecting fracking wastewater into underground disposal sites tends to widen cracks in geological formations, increasing the chances of earthquakes.

   

  Keranen’s study, in turn, reinforces similar conclusions in a previous study by the U.S. Geological Survey, which found that earthquakes in central and eastern parts of the United States between 2010 and 2013 also coincided with the disposal of fracking wastewater.

   

  What’s important about Andrews’ and Holland’s conclusion is that they represent the state of Oklahoma, where energy is an important industry, providing about one-quarter of the state’s jobs. Last autumn, Gov. Mary Fallin, a Republican, dismissed the problem as speculative and urged further study.

   

  But in a statement coinciding with Andrews’ and Holland’s report, Fallin said their ability to link wastewater disposal with earthquakes was significant and promised unspecified action. “Oklahoma state agencies already are taking action to address this issue and protect homeowners,” she said.

   

  The state’s energy industry also supports further study of the state’s recent uncharacteristic seismic activity. “Oklahoma’s oil and natural gas producers have a proven history of developing the state’s oil and natural gas resources in a safe and effective manner,” Kim Hatfield, regulatory committee chairman for the Oklahoma Independent Petroleum Association, said in a statement.

  And now, as Bloomberg reports, it is clear the elites were not happy with these findings…

  According to the dean’s e-mail recounting the conversation, Oil tycoon Harold Hamm told a University of Oklahoma dean last year that he wanted certain scientists there dismissed who were studying links between oil and gas activity and the state’s nearly 400-fold increase in earthquakes…

   

  

   

  He has vigorously disputed the notion that he tried to pressure the survey’s scientists. “I’m very approachable, and don’t think I’m intimidating,” Hamm was quoted as saying in an interview with EnergyWire, an industry publication, that was published on May 11. “I don’t try to push anybody around.”

   

  Kristin Thomas, a spokeswoman for Continental, says the company has no comment.

  Worse still the lies and deceit run deep…

  Catherine Bishop, the university’s vice president of public affairs and one of the recipients of Grillot’s 2014 e-mail, didn’t respond to requests for an interview, but she defended Hamm in an e-mail: “Mr. Hamm absolutely did not ask to be on the search committee or to have anyone from Continental put onto the committee, nor did he ask that anyone from the Oklahoma Geological Survey be dismissed,” she wrote.

   

  Asked about the difference between her statement and Grillot’s 2014 e-mail, Bishop responded: “Please note that the bottom line is that University of Oklahoma will not tolerate any possible interference with academic freedom and scientific inquiry.” She added in a subsequent message: “Neither Mr. Hamm nor anyone from Continental Resources served on the search committee.”

   

  …

   

  Hamm has been a generous donor to the University of Oklahoma, including a 2011 gift of $20 million for a diabetes research center named after the oilman. University President David Boren, a former U.S. senator, sits on the board of directors of Hamm’s Continental Resources.

   

  In the e-mail he wrote about his meeting with Hamm, Grillot—who himself sits on the board of Pioneer Natural Resources, an Irving (Tex.)-based oil and gas company—noted that he saw Boren leaving Continental’s corporate offices before he went in to see the CEO.

  Profits – once again – it would appear come before public safety and while money may not be able to buy happiness, it seems to be able to buy pretty much everything else.

  

  

  
  
  

  

• Lapdogs, Redux: How The Press Tried To Discredit Seymour Hersh’s Last Bombshell Report

  By Mark Ames, first posted in Pando Daily

  Lapdogs, Redux: How The Press Tried To Discredit Seymour Hersh’s Bombshell Reporting On CIA Domestic Spying

  

  Seymour Hersh found himself in the middle of an F-5 shitstorm this week after breaking his biggest blockbuster story of the Obama Era, debunking the official heroic White House story about how Navy SEALs took out Osama Bin Laden in a daring, secret nighttime raid in the heart of Pakistan.

  According to Hersh’s account, OBL was given up by one of his Pakistani ISI prison wardens—our Pakistaini allies had been holding him captive since 2006, with backing from our Saudi allies, to use for leverage. Hersh’s account calls into question a lot of things, starting with the justification for the massive, expensive, and brutal US GWOT military-intelligence web, which apparently had zilch to do with taking out the most wanted terrorist in the world. All it took, says Hersh, was one sleazy Pakistani ISI turncoat walking into a CIA storefront in Islamabad, handing them the address to Bin Laden’s location, and picking up his $25 million bounty check. About as hi-tech as an episode of Gunsmoke.

  The celebrated Navy SEAL helicopter raid and killing of OBL was, according to Hersh, a stage production co-directed by the US military and Pakistan’s intelligence agency, who escorted the SEALs to Bin Laden’s room, pointed a flashlight at the captive, and watched the SEALs unload hot lead on the old cripple, turning him into spaghetti bolognese. (Raising other disturbing questions—such as, why would the White House want to silence forever the one guy with all the names, the most valuable intelligence asset in the world… unless of course that was the whole point of slaughtering him in his Abbottabad cell? Which leads one to wonder why the US wanted to make sure Bin Laden kept his secrets to himself, should one bother wondering.)

  Hersh has pissed off some very powerful people and institutions with this story, and that means the inevitable media pushback to discredit his reporting is already underway, with the attacks on Hersh led by Vox Media’s Max Fisher, CNN’s Peter Bergen, and even some on the left like Nation Institute reporter Matthieu Aikins. Yesterday Slate joined the pile-on, running a wildly entertaining, hostile interview with Hersh.

  Such attacks by fellow journalists on a Sy Hersh bombshell are nothing new—in fact, he used to relish them, and probably still does. He got the same hostile reaction from his media colleagues when he broke his biggest story of his career: The 1974 exposé of the CIA’s massive, illegal domestic spying program, MH-CHAOS, which targeted tens, maybe hundreds of thousands of Americans, mostly antiwar and leftwing dissidents.

  Hersh is better known today for his My Lai massacre and Abu Ghraib exposés, but it was his MH-CHAOS scoop, which the New York Times called “the son of Watergate,” that was his most consequential and controversial—from this one sensational exposé the entire intelligence apparatus was nearly taken down. Hersh’s exposés directly led to the famous Church Committee hearings into intelligence abuses, the Rockefeller Commission, and the less famous but more radical Pike Committee hearings in the House, which I wrote about in Pando last year. These hearings not only blew open all sorts of CIA abuses, assassination programs, drug programs and coups, but also massive intelligence failures and boondoggles.

  They also revealed to the public for the first time the NSA’s secret programs targeting Americans, including co-opting all the major US telecoms and cable telex companies— AT&T, ITT, Western Union and RCA—in a program “vacuuming” all electronic communications, as well as “Project Minaret,” in which the NSA wiretapped hundreds or perhaps tens of thousands (depending on the source) of antiwar and leftwing American dissidents. Those hearings led briefly to some real reforms and some half-assed reforms in the intelligence community during the Carter years, all of which were undone as soon as Reagan came to power. (I wrote about the history of Hersh’s MH-CHAOS exposé for NSFWCorp here and here.)

  That is what effective journalism looks like. But if Hersh’s media peers at the time had their way, none of that would’ve happened. Rather than supporting Hersh, journalists across the spectrum, led by the Washington Post, did everything to discredit and undermine his reporting. “I was reviled,” is how Hersh later put it to UC Davis professor Kathryn Olmsted, author of the excellent “Challenging the Secret Government.”

  It was mostly thanks to the CIA director’s own admission in January 1975 that Hersh’s reporting was correct that other journalists backed off, and joined in the adversarial feeding frenzy. Yes: the CIA saved Hersh’s biggest scoop from the lapdog press. Times were strange.

  And it was the Washington Post that led the attacks on Hersh’s reporting. In early January 1975, the WaPo ran an editorial, “The CIA’s ‘Illegal Domestic Spying,’” attacking Hersh for relying on anonymous sources—this from the same paper that relied on the most famous anonymous source in history, Deep Throat. The WaPo editorial went on:

  “While almost any CIA activity can be fitted under the heading of ‘spying,’ and while CIA activities undertaken on American soil can be called ‘domestic spying,’ it remains to be determined which of these activities has been conducted in ‘violation’ of the agency’s congressional charter or are ‘illegal.’”

  The WaPo’s top intelligence reporter, Laurence Stern, took to the Columbia Journalism Review to attack Hersh in an article titled “Exposing the CIA (Again)”—alleging a “dearth of hard facts” in Hersh’s reporting, and a “remarkably febrile succession of follow-ups.” While in the Post, Stern alleged that it wasn’t the CIA that was keeping files on the 9,000 Americans that Hersh orginally reported, but rather the Justice Department—making it therefore legal. Pulitzer Prize winner Jack Anderson followed up in the WaPo confirming Stern’s false allegation, in a piece titled, “CIA’s Files Said to Support Denials”.

  The two major news weeklies, Time and Newsweek, piled on Hersh’s reporting too. Newsweek, in a piece headlined “A New CIA furor,” quoted a number of anonymous intelligence sources to discredit and downplay the significance of Hersh’s MH-CHAOS scoop: “There’s something to Hersh’s charges, but a hell of a lot less than he makes of it.” Time’s article, “Supersnoop,” snarked:

  “[T]here is a strong likelihood that Hersh’s CIA story is considerably exaggerated and that the Times overplayed it.”

  A common line of attack was to call Hersh’s series “overwritten and under-researched.” Gossip in the Washington press corps at the time claimed that WaPo’s famous editor Ben Bradlee denounced Hersh’s stories as “overwritten and under-researched”; and when Hersh was passed over for the Pulitzer that year, to everyone’s surprise, one columnist wrote Hersh didn’t deserve it anyway, calling his MH-CHAOS exposes “overwritten, overplayed, under-researched and under-proven.”

  Hersh might’ve been buried by his own press colleagues, who were only interested in discrediting his reporting, if not for CIA director William Colby’s testimony before the Senate in mid-January, 1975. Hersh himself reported it for the Times, which led:

  “William E. Colby, Director of Central Intelligence, acknowledged at a Senate hearing today that his agency had infiltrated undercover agents into antiwar and dissident political groups inside the United States as part of a counterintelligence program that led to the accumulation of files on 10,000 American citizens.”

  After the CIA chief’s confirmation of Hersh’s story, his media detractors had no choice but to grudgingly walk back their criticism. Quoting again from Kathryn Olmsted’s book, after Colby’s admission,

  “The Washington Post reported that Colby’s disclosure had ‘confirmed major elements’ of Hersh’s stories, and Newsweek agreed that Colby’s testimony had substantiated ‘many basic elements of the original story if not all the adjectives.’”

  Today we’re seeing some of the same grudging, qualified acceptance of Hersh’s Bin Laden bombshell from the establishment press.

  Later in 1975, the great Bill Greider—who was then an editor at the WaPo—summed up the attitude of the press to Hersh’s revelations:

  “the press especially tugs back and forth at itself, alternately pursuing the adrenal instincts unleashed by Watergate, the rabid distrust bred by a decade of out-front official lies, then abruptly playing the cozy lapdog.”

  My how we’ve grown so much in the 40 years since.

  

  

  
  
  

  

• "When Enough Is Never Enough" – What Do Millionaires Want?

  The simple answer: moar.

  While hardly a scientific study, it should come as no surprise that in a recent poll of high net worth clients by UBS, the “recidivist” bank found that the more money a high net worth individual has, the more money that same individual needs to retire comfortably.

  Or, as the saying goes, “appetite comes with eating” even though according to that other saying: “the rat race has no exit.”

  

  UBS’ explanation:

  Satisfaction goes up as net worth increases, reaching 85% for those with $5 million or more. But enough is not enough for many millionaires to be fully satisfied, because lifestyle expectations rise along with net worth. Fifty-eight percent of millionaires say their expectations for their standard of living have increased in the last 10 years. Those whose wealth has increased significantly during this time period are even more likely to feel their standard of living expectations have gone up (64%). As a result, the majority of millionaires want more. Those with $1 million want $2 million; those with $10 million want $25 million.

  And those with $100 million want $1 billion; those with $1 billion want to move AAPL with a single tweet and to stop being so bored with their lives, and so on.

  The bottom line, when UBS asks “When is enough…enough?” and “Why the wealthy can’t get off the treadmill“…

  

  … the answer is: never.

  But there is good news, because all those overburdened millionaires now live in a crony capitalist system which rewards wealth above all else, and as a result the rich are assured of becoming even richer as the following summary of America’s record class divide explains.

  For the not so wealthy, well… this is your “chance” to get off the treadmill for the simple reason that when it comes to the US middle class becoming wealthy, the lights were turned off the day the Fed’s printed was turned on.

  

  

  
  
  

  

• Jim Rogers On The Coming Water Wars

  Submitted by Erico Matias Tavares of Sinclair & Co.

  Water – An Interview with Jim Rogers

  Jim Rogers, Jr. is an American businessman, investor and author. He is currently based in Singapore. Rogers is the Chairman of Rogers Holdings and Beeland Interests, Inc. He was the co-founder of the Quantum Fund and creator of the Rogers International Commodities Index (RICI).

  Erico Tavares: Jim, thank for being with us today. We would like to talk about water and other agricultural inputs, something you have been very vocal about in recent years.

  To set the stage for today’s topic, a few years ago we worked on a biofuels project which took us all around the world. In a trip to Bolivia a pioneering Austrian engineer involved in the sector told us something very interesting. At that time the price of vegetable oils was much cheaper than diesel, prompting many people to start building biofuels facilities across Europe. He said this was crazy and in no way sustainable because crude oil is and always will be the lowest common denominator in an economy.

  He was right, and many biofuels today need government support in order to be viable. But looking at the world we can argue that the lowest common denominator is in fact water. Even crude oil increasingly depends on it, particularly in the US with all the fracking. You are known for being ahead of the curve in many markets. As you look at the water situation across the globe, what do you see?

  Jim Rogers: Water is one of the great opportunities of our times. If you look at the world there are some huge shortages developing in some parts but there is also a lot of water in other parts, just in the wrong place – like water in Siberia for instance, which is not where most people are.

  There are going to be wars in the Middle East over oil east of the Red Sea, but west of that there will be wars over water since there are serious water problems in that region. We will also have problems in the western parts of the US with the depletion of a big aquifer, from what I read.

  So we have a lot of water problems in a lot of places. California is making the news right now, but that is not the only place at risk. And if you can figure out ways to clean or transport or pump water you are going to do very well.

  ET: Let’s focus on China first, a country you know well. There are reports that a vast proportion of their pure water resources is contaminated, an unfortunate outcome of their rapid industrialization process. Do you have a view on the situation there? Is the Chinese government starting to address the issue?

  JR: China has got gigantic water problems. First they have the water in the wrong place and second the water is filthy, terribly polluted in many cases. So the Chinese know that and they are spending a lot of money trying to figure that out. So someone is going to make a lot of money in China helping them to solve their own water problems.

  That’s the opportunity right now. Figure out how to get the water from the wrong place to the right place, clean it up and you can get very rich.

  ET: We have been involved with companies that are developing innovative ways to do just that. However, one recurring issue is cost. Water ends up being much more expensive once you treat or transport it. So do you think we could actually face some constraints on how to improve access to that resource despite the significant opportunity?

  JR: There is no question that we are facing constraints. They are already here in many parts of the world. Water, I presume, is going to get very expensive or else we are going to move to where the water is. This is how societies and civilizations have developed. Once upon a time there was a lot of farming in the Sahara desert that we now know of. It is now a desert and everybody moved away because there is no more water there.

  Water is the single most important determination of civilization. I travelled around the world a couple of times and I have seen whole societies that disappeared because the water disappeared. People can survive recession and war, revolution and famine, plague, but they cannot survive without water. That ends the whole story, no matter how smart you think you are.

  We have to move or it becomes very expensive, but you have to move because you got to have the water.

  ET: Well here in Singapore it rains quite a bit so you guys might do OK.

  JR: Actually Singapore is one of the most advanced places for solving water problems, because they have to. They recycle water, figured out ways to capture the water. One of the worries is that if they go to war with Malaysia that would be the end of the story, because Malaysia would just cut off the water. Fortunately, they are not at war and Singapore has been hard at work – I believe that we are now 90% self-sufficient, but still, you got to have the water.

  ET: India has been one of the very bright spots in the emerging markets sector lately. Food is obviously very important there, given its weight on disposable income and so forth. A food security professor told us that he recently flew over a large agricultural area there, and salty spots were starting to become very apparent as a result of over-drainage from underground reservoirs. Once salt takes over those lands become unproductive, and this is being reported in other areas as well. Are you aware of this issue? More broadly, is food prices one of the things you track when considering investing in an emerging economy?

  JR: To repeat, if you don’t have water you can’t make it. I’m wildly bullish on China but if they don’t solve the water problem there’s no China story. Likewise India has a water problem, worse in fact. There’s no question that India will be in worse shape than China. Northern India has gigantic problems. And that’s a nation of a billion people. Add another 1.3 billion in China and you have a big water problem.

  There are great opportunities in water. I haven’t found one that is publicly listed as of yet. I am sure there are several, I am just too lazy to find them. But I would love to find water plays that are substantial and serious.

  The problem with water is that you can’t own it. Because if you do, when the crisis comes the politicians will hang you in the public square because you are exploiting Man’s God given right to water. And they will curse and scream at you. But if you find a way to solve the water problem they will build a monument for you. You will be very, very rich. But for goodness sake don’t own the water because if you do they will take it away from you, torture you and execute you.

  ET: It looks like California might have yet another dry year ahead. As we all know, the Golden State produces an incredible amount of all varieties of food, which will be impacted if they don’t start getting a lot of water soon. Major reservoirs are already at extremely low levels, and we may be seeing a reversion to a much drier period which actually has been prevalent over the last 1000 years in that region. Is this something that concerns you, not only as an American but also looking at global food supplies as a whole?

  JR: The whole Southwest is facing a serious water problem. The aquifer, based on what I read, is drying up out there. And not just in California but all over the Southwest. And if that happens America will have to absorb a gigantic change. If you have water and productive land you will be very, very rich. Because whether we like it or not – now this is not going to happen next year, I don’t think California is going to become a desert any time soon – it is a process which is going on, from what I can read.

  And from what I can see nobody in the government seems to know or care about it. The government of California is learning but they are not solving the problem, they are deliberating about the problem. But again it is just not the US, there many places in the world with problems – China, India, the Middle East, many places have big water problems.

  ET: Switching gears a bit, you are also a director of a fertilizer company. Do you see constraints developing on that side of the equation going forward?

  JR: Well, we all read the same thing, that the supply of phosphorous, which is a vital fertilizer, is not unlimited and will run out at some point in the future. I’m a director of a phosphorous fertilizer company.

  This is another reason for people to learn about farming and agriculture. You can farm without fertilizer, people have done that for a long time. But it is less efficient and if you start having phosphorous problems, fertilizer problems and water problems then, my God, there are 7 billion people in the world and there haven’t always been 7 billion people in the world. We may have gigantic changes again.

  Civilization shifts again. Not might, we will. This is something that has been going on since the beginning of time. If you see where Mankind has lived over the centuries, I mentioned the Sahara, you mentioned California. There will be great investment opportunities; but longer term there are staggering implications.

  ET: You have spoken about the advanced age of many farmers in key countries around the world, such as in the US, Canada, Great Britain and Japan. The demographics in this sector look particularly appalling. What needs to happen so that young people start getting more interested in this activity? Technology development? Higher prices? Do you see a shift occurring here in all your discussions around the world?

  JR: There is very little shift. Farming has been a terrible business for 30 years. And when that happens people go to where the money is. They go to Wall Street, wherever the money is.

  In America the average age of farmers is 58 because nobody wants to be a farmer anymore. There are farms in Japan that are empty because there is nobody to farm them; they are even experimenting bringing in workers from China, and they don’t like foreigners at all but they have little choice. The average age in Australia is 58. Canada has the oldest age for farmers in recorded history. In the UK the highest rate of suicide is in agriculture. I guess we all know that millions of Indian farmers commit suicide because things are so terrible.

  More people in America study public relations than agriculture, because it has been a terrible business. The only that is going to change is for it to become very profitable and for young people to see the farmers getting rich. Of course they will say “those guys are driving Lamborghinis and I want one too so I will become a farmer”.

  But it’s not going to happen until it becomes an exciting and profitable business. The Soviets tried to make people farm, they had all these coops or whatever they called them; Mao Tse Tung tried the same thing and eventually ruined Chinese agriculture by forcing people to become farmers. It doesn’t work.

  The only way it works is for people to become motivated to become farmers and that will only happen when they get rich. There have been many periods in history where farmers got rich and powerful. It will happen again.

  ET: Given all the issues that we have discussed, if these trends persist we will see higher food prices, perhaps significantly so. How can people hedge against this? Should they start growing their own food, purchase the appropriate securities in the markets, buy water treatment companies…?

  JR: That’s why you should become a farmer. Buy some land and become a farmer if you like the outdoors. Otherwise you can lease it to a farmer. Make sure you buy land where it is going to rain and that you lease it to a competent farmer, otherwise you will suffer.

  There are many ways. You can invest in seed companies, or you can become a tractor salesman, or set up restaurants for the farmers because they will have a lot more money down the road. Buy yourself a second home by a lake in the farm belt, in the places where the farmers are going to be.

  There are many ways to participate and to get involved – to hedge if you will. Becoming a stockbroker is not the best way. Farming is the way of the future. But don’t do it unless you like it. If you don’t like it you will find out it’s a lot of hard work and will go broke, like many other farmers. Certainly many have gone broke, committed suicide and so forth over the last 30 years.

  Instead you can become a journalist covering the farming sector. Depends on what your skills and interests are. As you look at your life, figure out a way to orient it towards agriculture. If you want to sell, sell something to the farmers.

  ET: A quick comment on possible macro implications. The US Federal Reserve excludes food from its core inflation definition, but if prices rise quickly there could be repercussions on the rest of the economy. It seems that Western central banks have spent so much time and effort printing money to avoid deflation that when they finally start getting inflation, driven by a food crisis or any other shock, they will be in a very weak position to tackle it. For one, raising interest rates will put a lot of pressure on government finances given the huge debt loads that they are now carrying. What do you think could happen here?

  JR: Throughout history we have had economic slowdowns every four to seven years, every so often. Always have, and always will. Nobody has solved that problem, not even the central banks. We are going to have another one in the world. We are going to have more I should say, and they will get worse because the debt situation is higher and higher. We hear all this talk about austerity and cutting back but every country in the world has higher debt now than it had last year and will have higher debt next year.

  The buildup of debt in the US alone is staggering; Japan is staggering, everywhere is staggering. So the next time we have an economic slowdown it is going to be much worse than the last time, and if the world survives that one, the one after that is going to be worse and worse.

  Because as you point out, if interest rates go higher – and they will; this current level of interest rates is not only abnormal but absurd, it has never been so low anywhere in the world – with the gigantic amount of debt we are going to have gigantic problems worldwide: more turmoil, we will probably have wars, governments fail, countries fail. This is going to be a mess.

  So buy yourself a farm. Be prepared! It’s going to be a serious mess. And hopefully your farm will be far away from the marauding hordes.

  ET: Final question. You are also known as the “investment biker”, after driving thousands of miles around the world. Is this how you have generated your best investment ideas, being on the ground and seeing what was actually happening? These days, how do you keep close tabs on the markets?

  JR: I drove around the world not for investing but for adventure. Because of who I am, when I go some place I do look around, I do observe. And in my travels I would see opportunities just by the nature of who I am. If I saw something changing I would pursue it.

  And that’s a good way to do it. If you have the time and the money to go around the world in a car or a motorcycle do it. It’s a great adventure, at least for me. I’ve done it twice. The investing was a sideline.

  But just walking down the street, if you can be observant you can find investment ideas. Sometimes I missed them but other times not, and I capitalized on it. And I read a lot. I don’t know much about basketball but I know what’s going on around the world because I read and that’s my passion.

  Start with what interests you. Find the changes in the industry you like and figure out ways to invest and profit from it. This will you put you ahead of Wall Street because this is your passion, so you can get in before anybody else. You can also get out sooner, because Wall Street is always late in getting out.

  Over the course of your life you can spot 25 or so good investment opportunities. Concentrate your efforts on understanding them rather than jumping around and you will do very well.

  ET: Jim, thank you very much for sharing your knowledge on these important topics. We’ll go drink some water and eat an apple while they’re still cheap!

  JR: All the best to you.

  

  

  
  
  

  

• If Numbers Don’t Lie Then…

  Authored by Mark St.Cyr

  If Numbers Don’t Lie Then…

  There’s an old saying that “numbers don’t lie.” However, when we apply simple common sense to the way we hear numbers spun across the financial media what doesn’t add up is precisely that: the numbers.

  Once again I was left slack-jawed countless times as I heard one after another economist, analyst, chief investment big bank guru, et al tout their reasoning and pontificate why we’re on the verge of breaking out of this stagnant economic malaise of sub 1% GDP prints.

  The reasonings were laughable when applying common sense rather than math skills to the arguments. Yet, as I’ve stated and wrote before. When it comes to this set of supposed number mavens: “They can add – but they can’t put two and two together.”

  One argument now being proposed to help bolster the projections that Q2 will be closer to 3% as opposed to the abysmal print of Q1 is (even as the Atlanta Fed. is now predicting the same if not worse) that this jump will be fueled by (wait for it…) “Cap-ex spending relating to the bump up in crude prices over the recent weeks…” (insert rimshot here)

  This wasn’t coming from some ancillary small fund manager. This line of thought and analysis was coming from one of our “too big to fail” taxpayer-funded bail-out houses of financial acumen.

  As this “insight” was simultaneously broadcast throughout television and radio, heralded as “This is why we have people like you on – for exactly this type of insightful analysis and perspective.” I couldn’t help myself but to agree. For this is what “financial” brilliance across the financial media now represents: Financial spin.

  My analysis? With analysis like this? Taxpayers better get ready – again!

  This objective “seasoned” analysis is being professed by one of the same that expected the prior GDP print to show “great improvement” based on “the gas savings made possible from lower crude prices.” The result? If the build in inventory hadn’t been “adjusted” in formulations Pythagoras would marvel at – the print would have been negative.

  So now you’re being led to believe with the recent rise in crude prices: drillers, refiners, etc., etc., are going to load up on cap-ex only months after many have scuttled rigs, buildings, employees, and more? Again, soon enough to effect Q2?

  If cap-ex can be effected that soon, and to that degree as to pull GDP prints from near negative to 3% in a single quarter all by itself – as every other macro data point is collapsing? Why would lower gas prices have ever been wanted let alone touted as “good for the economy?”I’ll just remind you that this “insightful analysis” was coming from one of the many who loved to tout endlessly how the U.S. economy is based on “consumer spending” and “more money in consumers wallets based on lower prices at the pump was inevitable.” All I’ll ask is: when does “inevitable” materialize? Before? Or, after the next revisions?

  Again, now since it’s been shown that the “inevitable consumer” spent nothing of their gas savings to help prop up the prior GDP. (sorry I forgot, yes they did in higher health insurance costs) Where the case was made to bludgeon any doubters of their analysis: i.e., “lower crude prices resulting in lower gas prices = more consumer spending.” We are now supposed to embrace the inverted narrative where: “GDP for Q2 will show growth of around 3% based on higher crude prices resulting in increased cap-ex?”

  Maybe it’s just me since some in the financial media refer to people like myself who question their reasoning as “idiots.” Doesn’t that calculation (as well as the conflicting narrative) render their previous argument they’ve professed ad nauseam: GDP growth in a consumer based economy is hindered by high gas prices – moot?

  For if higher GDP expectations is now predicated on higher crude – than higher prices paid by the consumer at the pump is the answer to our whoa’s – not the other way around. Is it not? Oh yes, plus the added driver of increased insurance premiums. No additional car required. Remember: It’s not math – It’s magic!

  Again, using the logic chain espoused by the so-called “smart crowd” the afore example is absolutely well within their “reasonable expectations of analysis.” My analysis? Sure, as long as it’s your money at risk – not theirs.

  The above math is not erroneous. However, when it’s used to obfuscate the true meaning of those numbers where deception is more in line rather, than explaining the true calculations? Then my saying of “If the numbers don’t lie then…” takes on far more “truth in numbers” than the projections as well as their quantitative analysis would portend.

  If you doubt this; just change the premise (or narrative) but keep the numbers the same. i.e., “We calculate and project GDP growth to triple from here. Up from under 1% nearer to 3%…” to “We miscalculated and our projections were wrong for Q1 by as much as 300% in the wrong direction, from a projected 3% print to a now less than 1% with possible revisions to negative” and you are far closer to the truth. For that is where, “The numbers didn’t lie.” Because if the truth be told, for Q1 – that’s precisely what happened.

  As egregious to the sensibility of entrepreneurs, business people, and others everywhere. It’s far from the only example. And for my money one of the worst offences used is: The relevance to past data sets and their implied meanings to today’s since the emergence of QE.

  This is when I have my most imaginative sessions of imitating Elvis. No, not on stage. Rather, when he took his frustrations out while watching a television.

  Here is where “cherry picking” numbers takes on a whole new meaning nevermind qualitative “apples to apples” relevancy.

  Of all the data points used across the financial media, the rationale to compare one set of data points (e.g., comparing numbers from any prior multi-year period to today) is so outrageously comical, it borders on near criminal assault to one’s common sense.

  I hear one after another so-called “brilliant economist” or “top-tier analyst” tout data points, or sets such as, “Well back in the 70’s from 1972 thru 1978 this metric was identical to where we are now and then we rocketed higher in GDP growth, employment, blah, blah, blah.” (You can use any data sets you like for example; they’re all the same. i.e., If not the 70’s it’s the 80’s, or 50’s, or 20’s, or 30’s etc., etc.)

  Before the advent of QE these data sets were relative to extract some quantitative analysis. Today? Rubbish. They’re like comparing cherries to pineapples. Sure they are both fruit, but other than that they are far from anything “similar,” And using them in a form of “quantitative” analysis without mentioning nor adjusting for “relevance in qualitative” objective analysis is just outright malfeasance in my opinion.

  Before QE and the outright intervention of monetary policy directly influencing stocks – people bought stocks reflective of the economy. Today? Central Banks across the globe are now openly manipulating markets as a “matter of policy.”

  The dwindling volume along with the capital outflows that has continued since the beginning of the financial crisis as the markets once again set new all time historic records proves prima facie, without adjusting for that metric alone (e.g., QE) and it’s quantitative, as well as qualitative impact (if it could be calculated) all – and I do mean all – relevance to prior economic examples is outright “junk science.” Or better yet: Outright bunk. Period.

  Who cares (except for one whose salary is based on the commission paid if one buys in) what the numbers were in any given data set relative to the advent of QE? They are meaningless.

  Just like a 5.4% print in unemployment is outright “voodoo economics” when used when trying to extrapolate what an economy did when 5.4% was measured at any time prior without the qualitative adjustment of what 5.4 today actually means relative to 5.4% ten, twenty years ago, let alone even further.

  This type of extrapolation I hear now so often is insulting. And this comes from people touted as “smart” while they proclaim us as “idiots.”

  Here we are, once again at “never before seen in human history” highs. Yet, since the ending of QE last November – the markets have virtually gone nowhere.

  Over this same period GDP expectations have not only been ratched down, they’ve been revised from prints of abysmal – to pathetic.

  Various social media stocks that were touted as the bastion of “everything is awesome” indicators have dropped like “dead canary’s” overnight after reporting “earnings.” Some losing near 30% and have yet to find any buyers at these now “On Sale” bargain prices.

  What was once touted as “bad for the markets” (e.g., falling macro data points) is now touted as “great for stocks!” i.e. The Federal Reserve wouldn’t dare raise rates now.

  Less real people making trades, and more HFT algorithmic front running means ever more “liquidity and stability” by those more involved with protecting their “cut” rather than the stability of our financial markets.

  Just remember that other well-worn bromide they like to use when one ever questions their math: “It’s different this time.” And for their sakes as well as commissions – they had better hope so. Because, if we exclude relevant numbers as well as their qualitative measures. How does one square the circle today with the announcement as we once again hit never before seen heights in the markets – AOL™ is back in the news where merger, synergies, eyeballs, and ad revenues are once again the focus?

  Do we use quantitive, qualitative, or both to figure out the implications for such a deal? Should we be nervous? Or, is once again: “Different this time?” And the “numbers” truly do add up.

  

  

  
  
  

  

• When The Class Divide Gets Too Wide: Another Look At The French Revolution

  Two months ago, legendary trader and investor Paul Tudor Jones, when observing the growing chasm between the 1% and the rest of America, and between the US and the rest of the world, said that this gap “cannot and will not persist” and ominously added that “historically, these kinds of gaps get closed in one of three ways: by revolution, higher taxes or wars.”

  And while the US government is doing its best to push both the war and higher tax “mandate”, it is the revolution that nobody expects, and everyone is shocked when it happens, despite what is clearly an unprecedented level of class, wealth, religious, educational, age, gender and – after a quick stroll through St. Louis or Baltimore – racial division.

  It is therefore appropriate that the following documentary reminder of what happens when the class divide gets too wide, in this case captured by the French Revolution, carries the following words of caution: “no one could have foreseen the turbulent times ahead on one spring day in 1770. The shadow of Versailles is packed to its gilded rafters with the glittering crowds of the royal court.”

  Replace Versailles with modern day Monte Carlo, New York or St. Barts, and the “crowds of the royal court” with the “0.001%”, and one can easily see why ‘nobody’ can foresee that which in retrospect will have been all too obvious, only not 250 years ago, but this very moment.

  So for those who would prefer to learn from the past which they may have forgotten as they follow every tick higher in the stock ‘market’, here is NatGeo’s documents on the French Revolution.

   

  

  

  
  
  

  

• Final Pillar Of Bull Market Showing Cracks?

  By Dana Lyons, partner at J. Lyons Fund Management and founder of My401kPro.com

  Final Pillar Of Bull Market Showing Cracks?

  

  We have repeated ad nauseam the litany of concerns we have regarding the longer-term fate of the U.S. stock market. These concerns include metrics pertaining to price proximity to trend, valuation, sentiment, investor allocation, investor leverage, corporate profligacy and on and on and on. Our biggest problem with these conditions are that such excesses of the prior secular bull market, in our view, were not adequately corrected in the subsequent secular bear market. Thus, we find it a reach to consider that the necessary conditions were in place to support a new sustainable secular bull market – particularly one in which many of the same excesses have so hastily reemerged. That said, we have also taken great care to emphasize the one factor which has remained favorable and which trumps all of the concerns above: price action. Unfortunately for the bulls, this last and most crucial pillar of the bull market is now too potentially showing signs of vulnerability.

  The most bullish thing stocks can do is go up, especially to an all-time high. And as recently as last month, many of the broad stock averages were continuing to make new highs, including the Russell 2000 small cap index, the NYSE Composite, the S&P 500 Equal-Weight Index and even the NYSE Advance-Decline Line. This was important as it showed that the persistence of the bull market rally was evident across a wide range of stocks, not just a few top-heavy large cap indexes.

  Another broad index at new highs was the Value Line Geometric Composite (VLG). The VLG is an unweighted index of approximately 1700 stocks and is a favorite of ours in gauging the level of participation among the broad universe of stocks. We posted a piece on it July 2 of last year noting the fact that it was bumping against the same level that saw the index top out at in both 1998 and 2007. Sure enough, the VLG peaked the very next day, setting up the makings of a possible but most improbable 26-year triple top. That July peak held until February when the index finally broke above the triple top level. After a test of the breakout level in March, the index moved to new highs again in April. However, over the last few weeks, the VLG’s triple top breakout has shown initial signs of cracking.

  

   

  The recent bout of market weakness has hit the small cap stocks especially hard. This has had an impact on the VLG. Not only has the index now lost the level signifying the 26-year triple top, it has also violated the up trendline from the October low of last year.

  

   

  Now of course this weakness is very short-term and does not guarantee the longer-term failure at these levels. That is why we say it is showing “initial” signs of cracking. Who knows, the index could be up 4% next week to an all-time high and this development will be irrelevant. However, considering the level at which this weakness is occurring as well as the list concerns already in place, the risk is that this too will develop into trouble of a longer-term nature. It would also put the 26-year triple top potential back on the table considering the possible false breakout.

  This, again, is just a preliminary breakdown in price. However, it is concerning as positive price action has been the one remaining pillar supporting the bull market – and the only one that can overcome all of the ancillary concerns pertaining to stocks. However, it too is potentially starting to show some cracks.

  

  

  
  
  

  

• Belligerent US Refuses To Cede Control Over IMF In Snub To China

  One story that’s been covered extensively in these pages over the past several months is the emergence of the China-led Asian Infrastructure Investment Bank. The bank began to attract quite a bit of attention in early March when the UK decided, much to Washington’s chagrin, to make a bid for membership. The dominoes fell quickly after that and within a month it was quite clear that The White House’s effort to discourage its allies from supporting the new institution had failed in dramatic fashion. 

  Since then, China has been careful not to jeopardize the overwhelming support the bank has received. While Beijing is keen on expanding China’s regional influence and promoting the widespread use of the yuan, downplaying the idea that the new bank will become a tool of Chinese foreign policy is critical if it hopes to enjoy the long-term support of the many traditional US allies who have become early adopters so to speak. Similarly, China must be sensitive to the perception that the AIIB is the first step towards usurping the dollar as the world’s reserve currency and although Beijing has dispelled the notion of “yuan hegemony” as nonsensical, it’s clear that the renminbi will play a key role in loans made from the new bank. 

  So while the AIIB certainly represents an attempt on China’s part to realize its regional ambitions (what we’ve described as the establishment of a Sino-Monroe Doctrine) and carve out a foothold for the yuan on the global stage, it’s also a product of Washington’s failure to adapt to a changing world. That is, the establishment of new supranational lenders suggests the US-dominated multilateral institutions that have characterized the post-war world are proving unable (for whatever reason) to meet the needs of modernity.

  Nowhere is this more apparent than the IMF, where reforms aimed at making the Fund more reflective of its membership have been stymied by Congressional ineptitude for years. As Bloomberg reports, the US has apparently learned very little from the AIIB experience:

  The Obama administration signaled it won’t jeopardize the U.S. power to veto IMF decisions to achieve its goal of giving China and other emerging markets more clout at the lender, according to people familiar with the matter.

   

  That message was delivered at the International Monetary Fund’s spring meetings in Washington last month, the people said, where officials discussed how to overcome congressional opposition to a 2010 plan to overhaul the lender’s voting structure.

   

  A solution backed by Brazil would have enabled an end-run around Congress — while potentially sacrificing the veto the U.S. has held since World War II. With that option off the table, the people said, IMF member nations are considering a watered-down proposal that risks alienating China and India, which are already challenging the postwar economic order by setting up their own lending and development institutions…

   

  The 2010 plan calls for increasing the emerging markets’ sway through a doubling of the IMF’s capital, with the U.S. contribution subject to approval by Congress. Without that approval, the plan wouldn’t have the support of the required 85 percent of members’ voting shares, because the U.S. has 16.7 percent. Voting rights are proportional to capital shares at the fund.

   

  China, the world’s second-largest economy, currently ranks sixth in its voting shares at the IMF, behind Japan, Germany, France and the U.K. Under the 2010 plan, China would jump to third, while India would climb to eighth from 11th and Brazil would move up four spots to 10th.

   

  The option backed by Brazil and other countries would have pushed through the changes without requiring Congress to ratify them. The catch was that the U.S. veto over major IMF decisions may have been at risk if Congress failed to react by approving the 2010 plan, because America’s voting share would potentially fall below the 15 percent threshold needed to maintain the power…

   

  The fund is now considering a capital increase of just 10 percent, said the people familiar with the matter, who asked not to be identified because the discussions are confidential. Most of the boost would go to emerging nations that are underrepresented based on the size of their economies.

   

  The solution is unlikely to satisfy some emerging economies because the capital increase is too small, said Truman, now a senior fellow at the Peterson Institute for International Economics in Washington.

   

  In a column last month, former U.S. Treasury Secretary Lawrence Summers cited Congress’s failure to pass the IMF reforms as one of the reasons why China is pushing to reshape the global economic order with new institutions such as the Asian Infrastructure Investment Bank.

  *  *  *

  In many ways, the above represents everything that’s wrong in Washington. First, Congress’ famous inability to do what they were elected to do (i.e. legislate) is on full display. Second, the President is unwilling to bypass an ineffectual group of lawmakers in the name of accomplishing something worthwile because the end-around would require the US to give up absolute control over an institution that by its very nature should not be controlled by one nation. Finally, you have yet another example of the US learning absolutely nothing from egregious foreign policy mistakes even when they occurred less than two months ago. 

  This is all par for the course in Washington so we suppose the real question is what this means for China’s IMF SDR bid. That is, will Beijing simply lose interest if the US-controlled IMF can’t agree on a structure which reflects China’s growing influence on the world stage? 

  

  

  
  
  

  

• Martin Armstrong Warns Of The Coming Crash Of All Crashes

  Submitted by Martin Armstrong via Armstrong Economics,

  Why are governments rushing to eliminate cash?

  During previous recoveries following the recessionary declines, the central banks were able to build up their credibility and ammunition so to speak by raising interest rates during the recovery. This time, ever since we began moving toward Transactional Banking with the repeal of Glass Steagall in 1999, banks have looked at profits rather than their role within the economic landscape.

  They shifted to structuring products and no longer was there any relationship with the client. This reduced capital formation for it has been followed by rising unemployment among the youth and/or their inability to find jobs within their fields of study. The VELOCITY of money peaked with our Economic Confidence Model 1998.55 turning point from which we warned of the pending crash in Russia.

  

   

  The damage inflicted with the collapse of Russia and the implosion of Long-Term Capital Management in the end of 1998, has demonstrated that the VELOCITY of money has continued to decline.

  

   

  There has been no long-term recovery. This current mild recovery in the USA has been shallow at best and as the rest of the world declines still from the 2007.15 high with a target low in 2020, the Federal Reserve has been unable to raise interest rates sufficiently to demonstrate any recovery for the spreads at the banks between bid and ask for money is also at historical highs. Banks will give secured car loans at around 4% while their cost of funds is really 0%. This is the widest spread between bid and ask since the Panic of 1899.

  We face a frightening collapse in the VELOCITY of money and all this talk of eliminating cash is in part due to the rising hoarding of cash by households both in the USA and Europe.

  This is a major problem for the central banks have also lost control of the ability to stimulate anything.The loss of traditional stimulus ability by the central banks is now threatening the nationalization of banks be it directly, or indirectly.

  We face a cliff that government refuses to acknowledge and their solution will be to grab more power – never reform.

  

  

  
  
  

  

• Is This The Chart Of A Healthy Stock Market?

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  If fundamentals like profits and sales no longer matter, then all that’s left is faith that central banks will never let stock markets fall ever again. 

  Is this the chart of a healthy stock market? The consensus view is either 1) yes, by definition, because charts don’t matter because the central banks will never let markets fall ever again, or 2) the market has been choppy due to a “soft patch” in the economy, which is about to start growing at 3% instead of .3%.

  Nice, but this chart says distribution to me: beneath the jolly surface of new highs, the smart money is selling to greater fools who believe the consensus.

  

   

  This chart is characterized by lengthy chop-fests in which wild gyrations up and down make a mockery of trends.December 2014 to January 2015 was such a chop-fest, and March to May has been another chop-fest in which Bulls have been unable to put together an uptrend of more than a few days.

  The script for insiders distributing (selling) shares to greater fools hasn’t changed in decades. First, juice the market higher with some big orders, then sell into that buying until the market weakens. Reverse the downtrend with another big order, and then resume selling.

  This process is even easier in the current era of high-frequency trading and machines executing most of the trades. A few big buy orders is all that’s needed to trigger more buy orders from the trading bots, which are essentially trend-followers, and the smart money can sell into that automated buying.

  Despite the occasional new closing high that’s notched to assure the greater fools who have been buying, the market has gone nowhere for months. Beneath the surface, many market internals have been weakening for months–for example, MACD and Chaiken Money Flow.

  Those selling into strength can always cherry-pick some market internal that supports the Bull case–if you were selling, wouldn’t you encourage buyers to take the shares you’re dumping off your hands?

  Wedges usually break big up or down The current wedge has been formed by the Bulls inability to break out decisively into a new uptrend and the distributors managing to limit any declines lest the herd of greater fools get spooked by the deteriorating fundamentals of stagnating profits, sales, etc. or the painfully obvious blow-off tops forming in global markets.

  If fundamentals like profits and sales no longer matter, then all that’s left is faith that central banks will never let stock markets fall ever again. Never, ever; that is of course the language of fairy tales.

  

  

  
  
  

  

• Leading German Keynesian Economist Calls For Cash Ban

  It’s official: the world has gone central-planner crazy. 

  Monetary policy, whether in the form of “conventional” methods such as the micromanagement of policy rates or so-called “unconventional” measures such as QE, has proven utterly ineffective when it comes to both “smoothing out” the business cycle and reigniting economic growth in the wake of severe downturns. If anything, recent history has shown the exact opposite to be true. That is, the Fed helped to engineer the housing bubble and has now succeeded in inflating a similar bubble in stocks and fixed income. Meanwhile, the Japanese experience with QE has plunged the country into what we have affectionately dubbed “The Kuroda Zone”, wherein the BoJ has cornered both the stock and bond markets while failing to promote wage growth or meaningfully raise inflation expectations. In China, the PBoC has taken to cutting policy rates at the first sign of weakness in the stock market, helping to sustain what will perhaps go down in history as the second coming of the tulip bulb mania, while the ECB has taken the insane step of adopting a trillion euro bond buying program while simultaneously demanding fiscal discipline, meaning the central bank’s bond monetization efforts are set against a backdrop of meager supply.

  In sum, the collective actions of the world’s most influential central banks have done wonders when it comes to inflating asset bubbles but have done very little to revive robust economic growth. In fact, far from smoothing out the business cycle and resuscitating DM demand, post-crisis monetary policy has actually had the exact opposite effect: it has set the stage for an even more spectacular collapse while simultaneously creating a worldwide deflationary supply glut.

  At this stage, a sane person might be tempted to call it a day on the monetary experiments, especially considering that at this point, the limits have been reached. That is, there are literally no more assets to buy and rates have hit the effective lower bound where rational actors will eschew bank deposits in favor of the mattress. But not so fast, say folks like Citi’s Willem Buiter and economist Ken Rogoff: the world could always ban cash because if you eliminate physical currency and force people to use a debit card linked to a government controlled bank account for all transactions, you can effectively centrally plan everything. Consumers not spending? No problem. Just tax their excess account balance. Economy overheating? Again, no problem. Raise the interest paid on account holdings to encourage people to stop spending. So with Citi, Harvard, and Denmark all onboard, we bring you the latest call for a cashless society, this time from German economist and member of the German Council Of Economic Experts Peter Bofinger.

  Via Spiegel (Google translated):

  Coins and bills are obsolete and only reduce the influence of central banks. This position represents the economy Peter Bofinger. The federal government should stand up for the abolition of cash, he calls in the mirror…

   

  The economy Peter Bofinger campaigns for the abolition of cash. “With today’s technical possibilities coins and notes are in fact an anachronism,” Bofinger told SPIEGEL.

   

  If these away, the markets for undeclared work and drugs could be dried out. In addition, it would have the central banks easier to enforce its monetary policy.The teaching in Würzburg economics professor called on the federal government to promote at the international level for the abolition of cash. “That would certainly be a good topic for the agenda of the G-7 summit in Elmau,” he said. (Click here to read the full interview in the new mirror .)

   

  Even the former US Treasury Secretary Larry Summers and economist pleaded for an end to the already cash . Likewise, the US economist Kenneth Rogoff . He also argued that the interest rates of central banks have less clout when banks or consumer credit rather than hoard cash.

   

  Critics warn, however , such debates would only distract from the real problems of the current monetary policy.

  Yes, the “real problems” with current monetary policy. Like the fact that by design it can’t possibly work (but it can and will push stocks to unprecedented highs). Paging Mr. Weidmann, your countrymen are going Keynesian crazy.

  

  

  
  
  

  

• A PiCTuRe OF THe FuTuRe…

  

  
  
  

  

Digest powered by RSS Digest

• Central Planning Goes Global As UN Unveils Major Sustainable Development Agenda "For The Good Of The Planet"

  Submitted by Michael Snyder via The Economic Collapse blog,

  The UN plans to launch a brand new plan for managing the entire globe at the Sustainable Development Summit that it will be hosting from September 25th to September 27th.  Some of the biggest names on the planet, including Pope Francis, will be speaking at this summit.  This new sustainable agenda focuses on climate change of course, but it also specifically addresses topics such as economics, agriculture, education and gender equality.  For those wishing to expand the scope of “global governance”, sustainable development is the perfect umbrella because just about all human activity affects the environment in some way.  The phrase “for the good of the planet” can be used as an excuse to micromanage virtually every aspect of our lives.

  So for those that are concerned about the growing power of the United Nations, this summit in September is something to keep an eye on.  Never before have I seen such an effort to promote a UN summit on the environment, and this new sustainable development agenda is literally a framework for managing the entire globe.

  If you are not familiar with this new sustainable development agenda, the following is what the official United Nations website says about it…

  The United Nations is now in the process of defining Sustainable Development Goals as part a new sustainable development agenda that must finish the job and leave no one behind. This agenda, to be launched at the Sustainable Development Summit in September 2015, is currently being discussed at the UN General Assembly, where Member States and civil society are making contributions to the agenda.

   

  The process of arriving at the post 2015 development agenda is Member State-led with broad participation from Major Groups and other civil society stakeholders. There have been numerous inputs to the agenda, notably a set of Sustainable Development Goals proposed by an open working group of the General Assembly, the report of an intergovernmental committee of experts on sustainable development financing, General Assembly dialogues on technology facilitation and many others.

  Posted below are the 17 sustainable development goals that are being proposed so far.  Some of them seem quite reasonable.  After all, who wouldn’t want to “end poverty”.  But as you go down this list, you soon come to realize that just about everything is involved in some way.  In other words, this truly is a template for radically expanded “global governance”.  Once again, this was taken directly from the official UN website…

  1. End poverty in all its forms everywhere

  2. End hunger, achieve food security and improved nutrition, and promote sustainable agriculture

  3. Ensure healthy lives and promote wellbeing for all at all ages

  4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all

  5. Achieve gender equality and empower all women and girls

  6. Ensure availability and sustainable management of water and sanitation for all

  7. Ensure access to affordable, reliable, sustainable and modern energy for all

  8. Promote sustained, inclusive and sustainable economic growth, full and productive employment, and decent work for all

  9. Build resilient infrastructure, promote inclusive and sustainable industrialisation, and foster innovation

  10. Reduce inequality within and among countries

  11. Make cities and human settlements inclusive, safe, resilient and sustainable

  12. Ensure sustainable consumption and production patterns

  13. Take urgent action to combat climate change and its impacts (taking note of agreements made by the UNFCCC forum)

  14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development

  15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification and halt and reverse land degradation, and halt biodiversity loss

  16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels

  17. Strengthen the means of implementation and revitalise the global partnership for sustainable development

  As you can see, this list goes far beyond “saving the environment” or “fighting climate change”.

  It truly covers just about every realm of human activity.

  Another thing that makes this new sustainable development agenda different is the unprecedented support that it is getting from the Vatican and from Pope Francis himself.

  In fact, Pope Francis is actually going to travel to the UN and give an address to kick off the Sustainable Development Summit on September 25th…

  His Holiness Pope Francis will visit the UN on 25 September 2015, and give an address to the UN General Assembly immediately ahead of the official opening of the UN Summit for the adoption of the post-2015 development agenda.

  This Pope has been very open about his belief that climate change is one of the greatest dangers currently facing our world.  Just a couple of weeks ago, he actually brought UN Secretary General Ban Ki-moon to the Vatican to speak about climate change and sustainable development.  Here is a summary of what happened…

  On 28 April, the Secretary-General met with His Holiness Pope Francis at the Vatican and later addressed senior religious leaders, along with the Presidents of Italy and Ecuador, Nobel laureates and leading scientists on climate change and sustainable development.

   

  Amidst an unusually heavy rainstorm in Rome, participants at the historic meeting gathered within the ancient Vatican compound to discuss what the Secretary-General has called the “defining challenge of our time.”

   

  The mere fact that a meeting took place between the religious and scientific communities on climate change was itself newsworthy. That it took place at the Vatican, was hosted by the Pontifical Academy of Sciences, and featured the Secretary-General as the keynote speaker was all the more striking.

  In addition, Pope Francis is scheduled to release a major encyclical this summer which will be primarily focused on the environment and climate change.  The following comes from the New York Times…

  The much-anticipated environmental encyclical that Pope Francis plans to issue this summer is already being translated into the world’s major languages from the Latin final draft, so there’s no more tweaking to be done, several people close to the process have told me in recent weeks.

  I think that we can get a good idea of the kind of language that we will see in this encyclical from another Vatican document which was recently released.  It is entitled “Climate Change and The Common Good”, and it was produced by the Pontifical Academy of Sciences and the Pontifical Academy of Social Sciences.  The following is a brief excerpt…

  Unsustainable consumption coupled with a record human population and the uses of inappropriate technologies are causally linked with the destruction of the world’s sustainability and resilience. Widening inequalities of wealth and income, the world-wide disruption of the physical climate system and the loss of millions of species that sustain life are the grossest manifestations of unsustainability. The continued extraction of coal, oil and gas following the “business-as-usual mode” will soon create grave existential risks for the poorest three billion, and for generations yet unborn. Climate change resulting largely from unsustainable consumption by about 15% of the world’s population has become a dominant moral and ethical issue for society. There is still time to mitigate unmanageable climate changes and repair ecosystem damages, provided we reorient our attitude toward nature and, thereby, toward ourselves. Climate change is a global problem whose solution will depend on our stepping beyond national affiliations and coming together for the common good. Such transformational changes in attitudes would help foster the necessary institutional reforms and technological innovations for providing the energy sources that have negligible effect on global climate, atmospheric pollution and eco-systems, thus protecting generations yet to be born. Religious institutions can and should take the lead in bringing about that change in attitude towards Creation.

   

  The Catholic Church, working with the leadership of other religions, can now take a decisive role by mobilizing public opinion and public funds to meet the energy needs of the poorest 3 billion people, thus allowing them to prepare for the challenges of unavoidable climate and eco-system changes. Such a bold and humanitarian action by the world’s religions acting in unison is certain to catalyze a public debate over how we can integrate societal choices, as prioritized under UN’s sustainable development goals, into sustainable economic development pathways for the 21st century, with projected population of 10 billion or more.

  Under this Pope, the Vatican has become much more political than it was before, and sustainable development has become the Vatican’s number one political issue.

  And did you notice the language about “the world’s religions acting in unison”?  Clearly, the Vatican believes that it has the power to mobilize religious leaders all over the planet and have them work together to achieve the “UN’s sustainable development goals”.

  I can never remember a time when the United Nations and the largest religious institution on the planet, the Catholic Church, have worked together so closely.

  So what will the end result of all this be?

  Should we be concerned about this new sustainable development agenda?

  

  

  
  
  

  

• How Japan Became The Benchmark For America's Fraudulent "Jobs Recovery"

  It was one month ago when we showed how, thanks to a lot of statistical sleight of hand, Japan had completely “revised” one year of increasing nominal base wages to declining or flat at best, confirming that all the much-touted wage “improvements” heading into the Japanese election of late 2014 in which Abe was reelected by a wide margin had been purposefully fabricated to give the impression that Abenomics is working, when in reality it was… well, see the pre- and post-revision data for yourselves:

  

   

  If that had been the full extent of Japan’s labor data fabrication we would speak no more of it, however the rabbit hole goes much, much deeper.

  As a reminder, in Japan where the Nikkei has been soaring ever since the Bank of Japan decided to crush the Japanese Yen the one missing component from the promised Abenomics recovery has been wage growth, because without rising wages there can be no sustained benign inflation of the kind that the Keynesian brains behind Abenomics require to proclaim success.

  This is how Goldman summarized what the virtuous feedback loop of rising wages should look like:

  The BOJ’s ultimate goal is to realize the following positive cycle: Increase in actual prices -> rise in inflation expectations -> wage hikes -> boost to consumer spending / improvement in corporate earnings -> inflation -> rise in inflation expectations -> sustained wage hikes in the corporate sector. The underlying notion is that the pursuit of both high wage growth and high inflation expectation ensures stable inflation

  That’s the theory. The reality is far different because some two years after the start of Abenomics and the launch of Japan’s QE, nominal wages are about where they were when Abenomics started, while indexed real wages have never been lower!

  

  The paradox of Japan’s lack of wage increases become particularly glaring when one considers that just like in the US, Japan recently reported a post-Lehman low unemployment rate of just 3.4%, in fact in Japan this was  the lowest print since 1997. As the following employment indicators suggest, the Japanese labor market should be tighter than at any point in the 21st century, suggesting wage inflation should be rampant:

  

  In the US the most recent unemployment rate was 5.4%, about as close to full employment as possible, and yet neither in Japan nor in the US has there been any wage improvement.

  So how does one explain the paradox of a labor market that at least quantitatively has no further slack and yet where real wage growth has never been lower. Simple, and incidentally the explanation is one which Zero Hedge provided all the way back in 2010 when we charted “America’s Transformation To A Part-Time Worker Society.”

  It turns out that in Japan the answer is the same, only when one peeks beyond the merely quantitative and into the qualitative, it is worse. Much, much worse. As the following chart shows, virtually all the job growth in Japan since the great financial crisis has been thanks to part-time jobs!

  

   

  This is Goldman’s explanation which comes 5 years after our own:

  As Exhibit 4 demonstrates, growth in the number of full-time permanent workers has more or less leveled off since the 2008 Global Financial Crisis, whereas the number of part-time workers in Japan has risen consistently over the last decade. Having accounted for 20.3% of Japan’s workforce in 2005, part-timers made up 25.1% of the labor market in 2014 (this substantial increase contrasts with far weaker growth in the ratio of nonpermanent full-time workers such as contingent and temporary staff, to 11.5% from 10.3%).

   

  Japan’s part-time worker ratio now exceeds that of the US and the EU average; nevertheless, the Japanese labor market had been characterized by the high fraction of permanent workers in the past. What this essentially means is that growth in part-time workers has persistently depressed Japan’s average wage over the last decade. Exhibit 5 … illustrates that the decline in average wages due to the shift to part-time labor began in the mid-1990s at the latest and continues to this day. We calculate that growth in part-time labor depresses the average wage by 0.5pp a year.

  

  As a reminder, in the most recent BLS report, part-time jobs in the US once again surged, and have been the only source of incremental job growth since the start of the last recession in December 2007. As we showed, full-time jobs have yet to recover their prior cycle peak, which is the glarinly obvious answer for anyone still surprised why there is no wage gains in the US.

  

   

  But if you thought the US was bad, in Japan things are – as one would expect of any economy approaching a state of terminal, demographically-facilitated collapse – far, far worse. Back to Goldman:

  If companies have been hiring more part-timer workers simply to cut labor costs in line with a slowing economy, then the ratio of part-time workers should in theory fall as the economy recovers, lifting overall wages. In the US, the part-time worker ratio correlates closely with the macro economy (Exhibit 6). In Japan, however, the ratio of part-time workers has risen more or less consistently, suggesting that besides the economic cycle, structural factors are also playing a part.

   

  

   

  At this point Goldman’s economists do the usual thing and spend days of research investigating an answer that is so simple a five year old can figure it out after a few seconds of contemplation. And sure enough, the primary reason why companies prefer to hire part-time workers over full-timers is, drumroll, they are cheaper.

  

   

  Finally, recall another persistent theme which sadly only Zero Hedge appears to be focusing on: namely that all the hiring since the Financial Crisis has been for workers 55 and older.

  

   

  The apologists consistently, and erroneously, explain this with “demographics”, even though the participation rate of young workers has collapsed, suggesting it is the younger who simply no longer have a motive or a desire to remain in the work force, while that of old workers has remained largely flat since 2007 as more and more old Americans realize they will never be able to retire under ZIRP and as a result will have to work until their death.

  

   

  Well, now we have confirmation that the surge in hiring of older, part-time workers has little to do with demographic transitions and everything to do with the simplest possible explanation: they are cheap!

  Enter the case of Japan, where Goldman finally has a long, long overdue epiphany:

  What drew our attention in Exhibit 8 are two responses that rose between the 2006 and 2011 surveys: The re-employment of retirees, and the re-employment of full-time staff who left for family reasons, most likely getting married or having children (the number of businesses that cited labor cost savings as a reason for hiring part-timers has declined considerably).

   

  This suggests to us a change in the structure of part-time employment in recent years. Employers generally recruited part-time staff in the past as a means of reining in labor costs. However, Exhibit 8 reveals that more recently, part-time hiring is increasingly being used as a means of employing senior citizens or re-employing housewives. In Exhibit 9, we see that the increase in part-time hiring over the last decade has been largely driven by senior citizens and housewives entering the labor market.

   

  

  Here is Goldman’s admission that Zero Hedge was correct about what lay in store for America some 5 years ago, by looking at the labor dynamics in Japan:

  We attribute this trend to three factors. First is a shift to part-time labor among the elderly generation as Japan’s population ages. Baby boomers – the generation of Japanese born in 1947-1949 – began to turn 60 in 2007 and started retiring around the same period, raising concerns about the so-called “2007 problem” namely a labor shortage in the corporate sector. In the event, major turmoil in the labor market was averted as companies extended employment beyond 60. Five years later, however, the “2012 problem” arose as the same baby boomers turned 65.

   

  Having raised the pensionable age, Japan passed an amended Act on Stabilization of Employment of Elderly Persons in April 2013 that requires companies to offer employment through to 65 for those seeking to work beyond 60. When extending the period of employment, however, companies are under no obligation to offer the same terms that existed before. With the agreement of the employee and employer, companies can switch to a non-permanent arrangement in the form of short-time, contract, or part-time employment (most companies re-employ retirees on non-permanent contracts to reduce their wage bill).

   

  Second – and also linked to the aging population – is that both elderly men and women are remaining in the labor market to supplement a decline in income due to cuts in pension payments. Japan began raising the pensionable age in the early 2000s, meaning that the current generation of people in their 60s faces fewer pension payments. Pension cuts have gained further traction since April 20134, and the labor participation rate among people in their 60s has accordingly risen at a faster rate over the past two years. For senior citizens aged 65-69, the labor participation rate has reached 42% (FY2014 average, versus a FY2000 average of 37%). How this generation is employed has also changed notably over the past 15 years: whereas in 2000 around 50% of people aged 65-69 were self-employed/family workers, by 2014 the ratio of employees had reached almost 75%.

   

  Third, female labor participation rates are rising in all age groups except women under 25, as Womenomics manifests itself. Exhibit 9 shows a marked increase in part-time female workers in their 40s and 60s. A key factor is the impact of a rise in the labor participation rate within this more populous generation (of baby boomers and junior baby boomers).

  To summarize the Japanese economic recovery under Abenomics (and before): all the labor growth has been thanks to senior citizens and housewives. And this comprises the bulk of the surge in part-time jobs, which as shown above, is the only component of Japan’s employed workers that has grown. As a result, Japan’s real wages are the lowest in history.

  And now to summarize the US labor picture as well: more part-time workers, and more old workers.

  In other words, Japanification is truly coming to the US, and unfortunately in the one place where it hurts the most: the labor market. And not just any labor market, but one which is touted by the press as improving which while perhaps true quantitatively, is absolutely false qualitatively: in fact, if one extends the Japanese comparison to its logical conclusion, real wages in the US are due to tumble in the coming months and years as the Japanese economic and demographic reality is unrolled in the US.

  Precisely as we warned in 2010.

  But the biggest problem is not that the underlying economics is devastating when one looks behind the populist headlines. It is that both in Japan and in the US, the mainstream economists – who we can only hope are not all idiots, and can figure out what even Goldman now sees – are engaging in open fraud when spinning disastrous labor trends into what the mainstream press touts is a “labor recovery.”

  But at least we know the reason: recall that for Janet Yellen the only “data-dependent” economic indicator which holds back a rate hike is the lack of wage growth. And as long as there are no rate hikes, the Fed and other central banks will continue flooding the global markets with trillions in liquidity while keeping rates at 0% or negative, pushing global stock markets and asset prices to ever recorder highs.

  Who benefits from this fraud? Why the 1% of course, because while the hope for 99% of the population – and the lie – remains that wage growth is just around the corner – a story repeated in 2010, 2011, 2012, 2013, 2014 and 2015… and which will be repeated in the coming years without a doubt – who benefits from this fraudulent status quo here and now? Those who could care less if the average wages for everyone continue crashing, does care very much that the S&P 500 hits another record high tomorrow and the day after.

  And as long as the fraud behind wage growth, and the lack thereof, remains, they will get precisely what they want, with the blessings of every central bank in the world.

  

  

  
  
  

  

• Not ISIS? Saudi Arabia To Execute & Display Beheaded Body Of Political Activist In Public "Crucifixion"

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  One of the ways that the U.S. government most clearly expresses its deep dedication to global human rights, democracy and decency across the globe is via its unwavering support for the feudal, inhumane tyrannical monarchy of Saudi Arabia. A monarchy that also increasingly seems to have played a key role in the attacks of September 11, 2001.

  The Saudis have received a lot of bad press as of late due to it consistently breaking its own records for beheadings, but sometimes a simple beheading isn’t sufficient. In a punishment known as “crucifixion,” the executed person’s beheaded body is placed on public display for three days. Currently facing this fate are three political activists, including two children. We learn from Reprieve.org that:

  Saudi Arabia has been urged to spare the lives of two juveniles and an ageing political activist, after plans emerged to execute at least one of them this Thursday (14th).

   

  Sheikh Nimr Baqir Al Nimr, a 53-year old critic of the Saudi regime, and two juveniles, Ali Mohammed al-Nimr and Dawoud Hussain al-Marhoon, were arrested during a 2012 crackdown on anti-government protests in the Shiite province of Qatif. After a trial marred by irregularities, Mr Al Nimr was sentenced to death by crucifixion on charges including ‘insulting the King’ and delivering religious sermons that ‘disrupt national unity’. This week, it emerged that the authorities plan to execute him on Thursday, despite protests from the UN and Saudi human rights organizations.

   

  The planned execution of Mr Al Nimr has prompted fears for the safety of the two juveniles, who were both 17 when they were arrested and eventually sentenced to death on similar charges. Both teenagers were tortured and denied access to lawyers, and faced trials that failed to meet international standards. All three prisoners, including Mr Al Nimr, have not yet exhausted their legal appeals.

   

  Saudi Arabia has carried out executions at an unprecedented rate since the coming to power of King Salman in 2015. On May 6th 2015, the Kingdom carried out its 79th execution of the year, and it is already close to surpassing its 2014 total of 87 executions. Human rights organization Reprieve has urged the European Union to intervene with Saudi Arabia to prevent the killings.

  It isn’t clear whether or not this execution has happened. As Vox notes:

  Saudi Arabia is set to behead a man and publicly display his headless body (a practice called “crucifixion” in Saudi law) — for nothing more than speaking his mind. Sheikh Nimr Baqir al-Nimr, an internationally respected Shia cleric, was sentenced to death for “disobeying the ruler,” “inciting sectarian strife,” and “encouraging, leading and participating in demonstrations.” His actual crime: participating in nonviolent protests and calling for the fall of the house of Saud.

   

  It’s not clear when the Saudis plan on executing al-Nimr: the country has a habit of both postponing executions and carrying them out without very much warning. But the case illustrates a basic fact about one of America’s closest allies in the Middle East: its system of capital punishment is one of the cruelest on earth.

  Meanwhile, publicly at least, the U.S. government remains as committed to the Saudis as ever. We learn the following from National Journal:

  CAMP DAVID, Md.—Of the six Arab leaders invited to the summit, one was too busy, two called in sick, and a fourth skipped it to go to a horse show instead.

   

  The Gulf Cooperation Council conference was nevertheless “the beginning of a new era of cooperation,” President Obama declared Thursday after a daylong series of meetings.

   

  Obama laid out five points of agreement among all the countries, top among them a commitment by the United States to respond to an “external threat” to any of the nations’ territorial integrity, which could include the use of military force, as well as the development of a ballistic-missile defense for the Gulf nations. “And let me underscore, the United States keeps our commitments,” Obama said.

  The Saudi highlight reel is a long one.

  Here are a few examples:

  The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack

  New Saudi King Unveils Internal Power Shake-up in Desperate Pivot Toward Increased Authoritarianism

  Already 45 Beheadings in 2015 – Saudi Arabia on Pace to Easily Beat 2014’s Decapitation Level

  Saudi Arabia Sentences 3 Lawyers to Jail for Tweets

  Record Beheadings and the Mass Arrest of Christians – Is it ISIS? No it’s Saudi Arabia

  How the NSA is Actively Helping Saudi Arabia to Crackdown on Dissent

  Saudi Arabia Passes New Law that Declares Atheists “Terrorists”

  

  

  
  
  

  

• Europe Explained (In 1 Image)

  But, but, but… Q€…

   

  

   

  Source: Investors.com

  

  

  
  
  

  

• One Gauge Of Investor Sentiment Just Hit A 6-Year High

  Via Dana Lyons' Tumblr,

  There’s no question that the general level of stock investor sentiment is at historically high levels at this time. However, I think it’s probably safe to say that much of this bullishness has accrued gradually due to the cumulative stock market gains over the past 6 years. What has largely been absent, though, despite the elevated sentiment are examples of veritable investor euphoria. We are talking about bursts of frenzied, “get-me-in-at-all-costs” type of buying behavior. We did see traces of it over the past 2 years, especially in early 2013, but nothing consistent. Yesterday, however, we did see a possible example of this type of euphoria from the International Securities Exchange.

  We have mentioned the ISE several times over the past year as their options ratios have become favorites of ours in gauging short to intermediate-term investor sentiment. The ISE “Equity” Call/Put Ratio has been especially helpful, at times, in identifying extremes in short-term sentiment. This series has decent volume and behaves in an orderly, “normal” fashion that renders its extremes particularly valid as accurate measures of sentiment. The “Index & ETF” Call/Put Ratio (the ISE uses call volume in its numerator as opposed to the denominator like most sources do) has at times been helpful as well. However, it has mostly been too erratic to be consistently reliable. That said, the reading of this ratio yesterday was so extreme that we thought it was worthy of today’s Chart Of The Day.

  Specifically, the ISE Index & ETF Call/Put Ratio registered its highest reading (228) in over 6 years. 

   

  

   

  At 228, the reading means that call volume at the ISE was more than double put volume. In the last 6 years, that is just the 4th time that has occurred. These are the dates of all of the readings above 180 since 2009, along with the aftermath in the S&P 500.

  • July 20, 2011 The S&P 500 hit a high the following day before dropping 16% over 12 days.
  • November 28, 2011 The exception as the S&P 500 was jumping off a short-term low and would rally 6% over the next week.
  • September 7 & 14, 2012 The S&P 500 hit a high on the 14th and proceeded to drop nearly 8% in the next 2 months.
  • January 22, 2015 The S&P 500 hit a high that day before dropping 3.3% over 6 days.

  So one can see why yesterday’s reading would make us take notice. It hasn’t been unanimous, but 3 of the 4 other readings above 180 in the past 6 years led to immediate selling pressure, some mild and short-term and some more serious and over the intermediate-term.

  Now, there are some obvious asterisks we would place on this study. For one, the November 2011 event led to more buying instead of selling. Secondly, as we mentioned, this series has been very erratic throughout the years and thus, hard to depend on. And third, consider the last time this indicator flashed readings this high: March 9 & 11, 2009. Of course, that was THE exact cyclical market low. So what gives? We’re not sure. The ETF’s that received the highest volume on those days were essentially the same as those from yesterday. Perhaps this particular exchange was used by unique market participants or for alternate options strategies at the time that reflected non-contrarian sentiment extremes instead.

  Whatever the reason, over the past 4 years, the ISE Index & ETF Call/Put Ratio has typically been a contrarian indicator, when at extremes. Thus, yesterday’s most bullish reading in 6 years is likely not a welcomed sign for stock market bulls. It could be an example of the euphoric type of investor behavior that has been mostly missing from the general bullish sentiment picture. A few more of these examples and we would really be concerned about stocks in the immediate-term.

  

  

  
  
  

  

• What Goldman Is Telling Its Clients: Sell In May And Don't Come Back For One Year

  While Goldman gives the following explicit warning in all of its public research pieces: “Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research”, the reality is that in recent months Goldman’s chief equity strategist David Kostin has been getting increasingly “toppish” if not outright bearish on stocks. In his latest report he now openly warns that “the market will rise to 2150 by mid-year but fade after the Fed raises interest rates in September for the first time in nine years.” As a result Goldman’s “year-end forecast is 2100 and its 12-month target equals 2125.”

  Which is where the S&P 500 closed on Friday. In other words, sell in May and come back until next May.

  Here is what else Goldman is telling its buyside clients:

  During the last 50 years, dividends accounted for nearly 80% of the total return generated by US equities. The proportion fell to 45% during the past 25 years and 35% for the past decade. However, since the 2009 financial crisis lows, price return has accounted for more than 80% of the total return of the S&P 500 as the P/E multiple soared from 10.1x to 17.3x. Looking ahead, the market implies 46% of the total return for stocks during the next decade will be generated by dividends, in-line with the past quarter-century.

   

  

   

  The median S&P 500 stock trades at a P/E of 18.2x, the 99th percentile of historical valuation, and has limited scope for further upward expansion. Investors are looking to enhance performance by buying stocks returning cash to shareholders. We forecast S&P 500 firms will return $1 trillion to investors during 2015 via dividends and buybacks. Cash dividends will total $400 billion, a 7% increase from 2014, while buybacks will climb by 18% to $600 billion. The median S&P 500 stock trades with a 1.9% annualized dividend yield, slightly below the ten-year US Treasury note yield of 2.2%.

   

  In addition to high dividend yields, investors are also looking to boost returns by finding stocks growing dividends at a rapid pace. The median S&P 500 stock is expected to grow its dividend by 8% annually during the next two years. However, with record levels of cash on corporate balance sheets, many firms are increasing dividends at a much faster clip.

   

  The dividend swap market foreshadowed by more than six months the underperformance of shares in our dividend growth basket. The rebound in the dividend swap market at the start of 2015 presaged by two months the recent rally in our dividend growth basket.

   

  At the sector level, Telecom and Utilities offer the highest dividend yields at 4.8% and 3.7%, respectively. Information Technology and Financials account for the largest proportion of gross S&P 500 dividends paid, each at 15% of the index total. The fastest dividend growth is found in Financials, Health Care, and Consumer Discretionary, each with a 13% pace.

   

  

   

  The historical relationship between the cyclically-adjusted P/E multiple (currently 23.4x) and forward equity returns suggest the prospective 10-year annualized total return for the S&P 500 will be 5%. Dividend levels implied by the swap market suggest that 46% of the total return during the next ten years will be derived from dividends, and 54% from price gain.

  Which means annualized capital appreciation (i.e., price increases) over the next decade will be just about 2.5%. And that is assuming record central bank intervention. One wonders: what happens if and when the central planners finally pull the plug?

  

  

  
  
  

  

• Chinese Hacker Spies Take Over Penn State Engineering Department, School Says

  Late last month we highlighted the US Department of Defense’s new “Cyber Strategy.” In a new directive, the Pentagon outlined the circumstances it says may warrant the deployment of cyberweapons and, taking things a step further, indicated that the use of cyberattacks as offensive weapons wasn’t out of the question. Here’s how the DoD sums up its cyber mission:

  

  

  As we noted at the time, the countries named as potential cyberadversaries come as no surprise:

  Unsurprisingly, the list of cyber adversaries is indistinguishable from what might fairly be called Washington’s “usual suspects.” The villains are: Russia, Iran, China, and North Korea. In fact, Defense Secretary Ashton Carter says the Pentagon was recently the target of a Russian “cyber intrusion” which he claims was quickly detected by a government “crack team.” 

  That “crack team” has apparently not been on the case at Penn State over the past 24 or so months, because as Bloomberg reports, Chinese hackers have apparently been perusing sensitive information stored on computers at Penn State’s College of Engineering for years. Here’s more:

  Penn State University, which develops sensitive technology for the U.S. Navy, disclosed Friday that Chinese hackers have been sifting through the computers of its engineering school for more than two years.

   

  One of the country’s largest and most productive research universities, Penn State offers a potential treasure trove of technology that’s already being developed with partners for commercial applications. The breach suggests that foreign spies could be using universities as a backdoor to U.S. commercial and defense secrets.

   

  The hackers are so deeply embedded that the engineering college’s computer network will be taken offline for several days while investigators work to eject the intruders.

  The breach, which the school’s president calls “an incredibly serious situation,” was allegedly perpetrated by what Bloomberg calls “state-sponsored hackers” acting as “foreign spies” and was reportedly uncovered by the FBI late last year. After a lengthy investigation (which cost the university millions) school officials are now concerned that information from Penn State’s Applied Research Laboratory (which has worked with the US Navy for the better part of a century) may have been compromised in the operation:

  Among Penn State’s specialties is aerospace engineering, which has both commercial and defense applications important to China’s government. The university is also home to Penn State’s Applied Research Laboratory, one of 14 research centers around the country that work mainly for the military.

   

  While the lab is not part of the College of Engineering, Jones said experts there have been alerted to the breach and are investigating whether the hackers could have moved there from those networks.

   

  Bennett said the lab’s computers are separated from the engineering college by “network-based controls,” and its personnel use different passwords. The Applied Research Lab has been doing work for the Navy since 1945 and specializes in undersea propulsion and navigation.

   

  That the hackers were in the network undetected for more than two years raises the possibility that they used connections between computers to move into more highly guarded networks, including defense contractors, government agencies or the Navy, according to the person familiar with the investigation.

  If all of that isn’t conspiratorial enough for you, then consider this:

  In addition to online activities, the Chinese have sent legions of graduate students to U.S. schools and have tried to recruit students, faculty members and others at both universities and government research facilities, several recent law-enforcement investigations show…

   

  University provost Nicholas Jones said Penn State hopes to use its experience to help other universities that are also likely targets for advanced cyberspies and other intruders, providing information on the hack as well as advanced security measures the university is putting in place.

   

  “We don’t think we’re alone,” Jones said.

  If Ashton Carter and the DoD needed an excuse to launch a cyber offensive on the way to “convincing a potential adversary that it will suffer unacceptable costs if it conducts a [cyber] attack on the United States,” we suppose this is it, because apparently, China has not only employed a vast network of sophisticated hacker spies in order to steal the blueprints for unmanned military drones and submarines from the computers of university engineering departments, but has also sent “legions” of operatives posing as graduate students to infiltrate America’s higher education system. This represents a remarkable step up the cyber attack accusation ladder compared to Washington’s attempt to blame North Korea for cyber-sabotaging James Franco and Seth Rogen.

  We will let readers determine the extent to which any of the above is grounded in reality, but if indeed China does intend to use students as instruments of espionage, we have the following message for Beijing: given the inexorable rise in US college tuition rates and your $28 trillion debt pile, China may become insolvent on the way to procuring US military secrets. 

  

  

  
  
  

  

• The Secret Fed Paper That Advocated a "Carry Tax" on All Physical Cash

  Many commentators have noted that mainstream economists are calling to do away with cash entirely.

   

  It would be easy to scoff at these proposals as completely insane if the Fed hadn’t published a paper back in 1999 suggesting the implementation of a “carry tax” or taxing actual physical cash using an expiration date if depositors aren’t willing to spend the money.

   

  The author of this lunacy is a visiting scholar with the ECB, the Fed, the IMF, and the Swiss National Bank. The fact that two of those groups have already imposed negative interest rates (ECB and SNB) should give warning that these sorts of ideas are actually taken very seriously by Central Banks.

   

  The paper, written 16 years ago, suggested that if the Fed were to find that zero interest rates didn’t induce economic growth, it could try one of three things:

   

  1)   A carry tax (meaning tax the value of actual physical cash that is taken out of the system)

  2)   Buy assets (QE)

  3)   Money transfers (literally HAND OUT money through various vehicles)

   

  Regarding #1, the idea here is that since it costs relatively little to store physical cash (the cost of buying a safe), the Fed should be permitted to “tax” physical cash to force cash holders to spend it (put it back into the banking system) or invest it.

   

  The way this would work is that the cash would have some kind of magnetic strip that would record the date that it was withdrawn. Whenever the bill was finally deposited in a bank again, the receiving bank would use this data to deduct a certain percentage of the bill’s value as a “tax” for holding it.

   

  For instance, if the rate was 5% per month and you took out a $100 bill for two months and then deposited it, the receiving bank would only register the bill as being worth $90.25 ($100* 0.95=$95 or the first month, and then $95 *0.95= $90.25 for the second month).

   

  It sounds like absolute insanity, but I can assure you that Central Banks take these sorts of proposals very seriously.  QE sounded completely insane back in 1999 and we’ve already seen three rounds of it amounting to over $3 trillion.

   

  No one would have believed the Fed could get away with printing $3 trillion for QE in 1999, but it has happened already. And given that it has failed to boost consumer spending/ economic growth, I wouldn’t at all surprised to see the Fed float one of the other ideas in the coming months.

   

  Indeed, JP Morgan has already begun implementing a similar scheme by forbidding the storage of cash in its safe deposit boxes.

   

  As of March, Chase began restricting the use of cash in selected markets, including Greater Cleveland.  The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and auto loans.  Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes .

   

  In a letter to its customers dated April 1, 2015 pertaining to its "Updated Safe Deposit Box Lease Agreement,"  one of the highlighted items reads:  "You agree not to store any cash or coins other than those found to have a collectible value."  Whether or not this pertains to gold and silver coins with no numismatic value is not explained. 

   

  https://mises.org/blog/chase-joins-war-cash

   

  Here is the single largest bank in the US, forbidding depositors from storing cash in a storage box or safe deposit box at their bank. And virtually no one even responded in outrage.

   

  Again, the Fed has declared a War on Cash, and a “carry tax” is coming.

   

  If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

   

  You can pick up a FREE copy at:

  http://www.phoenixcapitalmarketing.com/roundtwo.html

   

  Best Regards

  Phoenix Capital Research

   

   

   

   

  

  
  
  

  

• The War On Cash Destroys A Small Entrepreneur

  Submitted by Joseph Salerno via Mises Canada,

  Lyndon McClellan is a small entrepreneur who owns and operates L & M Convenience Mart in Fairmont, North Carolina.

  

  L & M comprises a gas station, convenience store, and a small restaurant serving hot dogs, hamburgers, and catfish sandwiches.  One day last July, more than a dozen federal, state and local law enforcement agents swarmed Mr. McClellan’s business, including agents from the FBI and the North Carolina Alcohol and Law Enforcement agency—and they were “asking” for him.  When Mr. McClellan arrived, he was escorted by two federal agents into his stock room for a private chat.  The agents showed him paperwork indicating that he had made two cash deposits totaling $11,400 within a 24-hour period in his bank account at the Lumbee Guarantee Bank.  They informed him that the papers also indicated that he had a history of “consistent cash deposits” of less than  $10,000, which was a violation of the the Federal law against “structuring.”  They also informed him that the IRS had seized all of the $107,702.66 in L & M’s bank account.

  What Mr McClellan did not know was that it was against the law to make cash deposits of lessthan $10,000.  Banks are legally obligated to report any deposit of more than $10,000 to the U.S. Treasury Department.  But if an individual makes several cash deposits of less than $10,000 over an unspecified period of time that total more than $10,000, then he is presumed to be a money launderer or drug trafficker who is committing the dastardly crime of structuring, that is, seeking to circumvent the bank’s reporting requirement and maintaining the privacy of his financial affairs Thus banks are also required to file “suspicious activity reports” on cash deposits of less than $10,000.   Based on these reports, if one is merely suspected–not convicted–of structuring, his bank account is seized by the IRS under “civil asset forfeiture” laws, which permits seizures of money or other property suspected of being related to a crime.

  Government agencies have a financial incentive to invoke civil asset forfeiture laws because the law permits the seizing agency to keep the assets and use them to expand  their activities without an appropriation from Congress.  In its insatiable hunger for funds, the IRS even  “deputizes”  state and local law enforcement agencies to go through “suspicious activities reports” in exchange for a cut of the loot subsequently seized by the IRS.  This is probably how a small entrepreneur like Mr. McClellan living peacefully in a sleepy hamlet was targeted for destruction in the War on Cash.

  Months after the seizure of his bank account, the federal government offered Mr. McClellan 50 percent of his money back if he agreed to a settlement.  He heroically refused and intends to pursue the matter in court.  Unfortunately, under the oppressive and despotic “civil asset forfeiture” laws, he bears the burden of proving his innocence.  But as he puts it:

  It’s not fair to the American people who work for a living that one day they can knock on the door, walk in their businesses, and say, ‘We just took your money’ … I always thought your money was safe in the bank, but I wouldn’t say that now.

  Neither would I!

  

  

  
  
  

  

• Caught On Tape: Unequal Opportunity Policing In America

  Same laws, same gun, same street. What is the difference between these two Americans walking with an AR-15?

   

  

  
  
  

  

• The Economist "Buries" Gold

  Submitted by Pater Tenebrarum via Acting-Man.com,

  A Proven Contrary Indicator

  In early May, the Economist has published an editorial on gold, ominously entitled “Buried”. We wanted to comment on it earlier already, but never seemed to get around to it. It is still worth doing so for a number of reasons.

  The Economist is a quintessential establishment publication. It occasionally gives lip service to supporting the free market, but anyone who has ever read it with his eyes open must have noticed that 70% of the content is all about how governments should best centrally plan the economy, while most of the rest is concerned with dispensing advice as to how to expand and preserve Anglo-American imperialism. We are exaggerating a bit for effect here, but in essence we think this describes the magazine well. In other words, its economic stance is essentially indistinguishable from that of the Financial Times or most of the rest of the mainstream financial press.

   

  

   

  Keynesian shibboleths about “market failure” and the need to prevent it, as well as the alleged need for governments to provide “public goods” and to steer the economy in directions desired by the ruling elite with a variety of taxation and spending schemes as well as monetary interventionism, are dripping from its pages in generous dollops. It never strays beyond the “acceptable” degree of support for free markets, which is essentially book-ended by Milton Friedman (a supporter of central banking, fiat money and positivism in economic science, who comes from an economic school of thought that was regarded as part of the “leftist fringe” in the 1940s as Hans-Hermann Hoppe has pointed out). Needless to say, the default expectation should therefore be that the magazine will be dissing gold – and indeed, it didn’t disappoint.

  Another reason is that the magazine has one of the very best records as a contrary indicator whenever it comments on markets. If a market trend makes the cover page of the Economist, it is almost as good as if it were making the front page of the Mirror or the Daily Mail. If you do the exact opposite of what an Economist cover story prediction indicates you should do, you can actually end up being set for life.

  A famous example was the “Drowning in Oil” cover story which was published about two months after a multi-decade low in the oil price had been established, literally within two trading days of the slightly higher retest low. The article predicted that crude oil would soon fall from then slightly over $10/bbl. to a mere $5/bbl. – a not inconsiderable decline of more than 50%. Instead it began to soar within a few days of the article’s publication and essentially didn’t stop until it had risen nearly 15-fold – a gain of almost 1,400%.

   

  

  One of the most ill-timed cover stories of all time – the Economist’s early March 1999 cover “Drowning in Oil”. In the article it was argued that there was such a huge oversupply of oil on the market, that a 50% price decline to $5 per barrel was highly likely.

   

  

  From the “what really happened” department: within days of being left for dead by the Economist, oil embarked on a 1,400% rally – click to enlarge.

   

  The Economist’s Disjointed and Irrelevant Musings on Gold

  Unfortunately gold hasn’t yet made it to the front page, but the Economist has sacrificed some ink in order to declare it “dead” (or rather, “buried”). We hasten to add than during the recent trading range, every time we have written something mildly positive about gold, it usually felt as though we had jinxed it, often within hours. It is no secret that we are favorably disposed toward gold in the medium to long term, but we do as a rule inject some objectivity by mentioning the potential short to medium term downside risks that could become manifest should important support levels give way. It doesn’t seem very likely to us that this will happen (we believe a lengthy bottoming process is underway), but obviously the probability isn’t zero.

  The Economist article is a typical “after the fact” denouncement – we wouldn’t have seen such an article appear in August/September 2011, when gold was still trading near its highs. It is also a disjointed mess, with many irrelevant arguments and non-sequiturs – basically a hit piece. However, since some of these arguments are at times mentioned by both bulls and bears, we thought it worthwhile to discuss their merit (or the lack of same). The article begins:

  “Uncertainty is supposed to lift the gold price. But neither upheaval in the Middle East, nor the travails of the euro zone, nor startlingly loose monetary policy in the rich world is brightening the spirits of those who swear by bullion. After a big rally during the financial crisis, the price has sagged to about $1,200 an ounce, a third below its peak in 2011. Little seems likely to turn it round. “We’ve seen everything gold bugs could hope for: endless money printing, 0% interest rates (both short-term and long-term adjusted for inflation), rising debt and debt ratios in the public and private sectors…So where’s the damn hyperinflation?” asks Harry Dent, a newsletter publisher, in a recent blog post.”

  (emphasis added)

  We would submit that with developed market stock markets at one of their most overvalued levels in history and government bond yields recently trading at absurdly low and even negative yields, there are exactly zero signs of “uncertainty” in the financial markets. The St. Louis Fed’s financial stress index is presently at one of its lowest levels in history. As we have mentioned previously, gold has primarily lost its “euro break-up premium”. The question should actually not be “why is gold down one third from its highs”, but “why is it still up by 400% from its 1999 lows?”

  The sentence “little seems likely to turn it around” is, well, golden in a sense. When a market trend changes, is always seems as if nothing could possibly turn the market around. Of course that doesn’t necessarily mean that a market turn in gold is imminent – we merely want to point out that the phrase used by the Economist perfectly describes the conditions found near major market turns. The above discussed “drowning in oil” article from early 1999 is a very good example of just such a situation.

   

  

  Uncertainty? There is none – the “financial stress index” is near the lowest levels in the history of the data series. The faith of market participants in central banks and their policies is close to an all time high. One should ask why gold is still trading at such high levels, not why it is down from the euro crisis peak – click to enlarge.

   

  The remark by Harry Dent is downright bizarre. Where was the “hyperinflation” when gold rose from $250 to $1,900? There wasn’t even a single mild inflation scare over the entire period. Is this meant to indicate that Dent believes “hyperinflation” is required for the gold price to rise? If so, then he should really refrain from commenting on the gold market. Although the true US money supply has increased by a chunky 265% since the year 2000, it would be ludicrous to expect “hyperinflation” anytime soon. The probability that we will experience hyperinflation over the next several years is so extremely low, it is hardly worth mentioning.

  However, the process that historically ends with hyperinflation has always begun in a very similar manner: government debt rises to such an extent, that debt monetization by central banks is initiated. For many years, nothing happens. Occasionally, the pace of debt monetization is slowed down again, only to speed up again a short while later. Eventually, the price effects of the enlarged money supply begin to migrate from capital goods and asset markets to consumer goods (especially if the economy’s structural integrity becomes severely compromised by incessant credit expansion). At this point, it is still possible for the authorities to arrest the inflationary trend by abandoning the inflationary policy. Only when they consistently fail to do so, will the public’s confidence in the currency be suddenly lost. The actual “hyperinflation” process usually plays out in just a few short months – as the final conflagration in a process that takes many years, sometimes even decades, to play out. So we would advise Mr. Dent to be patient. Hyperinflation does not seem likely from today’s perspective, but a time may come when it does become likely. You will almost certainly read about it here if/when that should happen. In the meantime, rest assured that gold can easily rise to much higher prices than today’s, even if “CPI inflation” remains perfectly tame.

   

  

  Gold vs. the y-y change rate in CPI – the direction of the latter seems to matter empirically (see “In Gold We Trust” by Ronnie Stoeferle and Mark Valek) – falling rates of inflation (“disinflation”) tend to be gold bearish, rising rates as well as “deflation” tend to be bullish. Hyperinflation is not required at all – click to enlarge.

   

  The Economist continues:

  “The biggest pressure on the gold price comes from the expectation that interest rates in America will rise later this year. Matthew Turner of Macquarie, a bank, says that low interest rates cut the opportunity cost of owning gold. Higher interest rates, by contrast, raise the cost of holding non-interest-bearing assets. Mr Turner thinks expectations of rising rates are already built into the gold price; if they do not materialize as quickly as expected, there could even be a rally.”

  While it is true that the opportunity cost of holding gold is an important factor influencing its price, nominal rates are irrelevant – only real interest rates count. The idea that fear of Fed rate hikes exert the “biggest pressure on gold prices” is largely a myth however (even though Mr. Turner may turn out to be correct that if the Fed fails to hike rates soon, gold could rally for a while). If the Fed were to raise rates by 15 or 25 basis points, they would still be at levels that are among the lowest in history. Moreover, if inflation expectations rise by a similar amount, absolutely nothing would change for gold. If they were to rise at a faster pace than the Fed’s rate hikes, then the real interest rate backdrop would turn increasingly bullish for gold. As Steve Saville has recently pointed out though, if one looks closely at when the gold price has put in lows and reversed upward since 2013, it turns out that whenever an announced tightening of Fed policy (tapering, end of QE3) became reality, the gold price has started to rise instead of falling further.

  Why is this so? The explanation is that the gold market is very much a forward-looking market. It senses trouble long before anyone becomes consciously aware of it. If one looks closely at the final phases of stock market bubbles in recent years, the gold price always stopped falling even while the stock market was still rising (at times sharply), but closing in on its peak. Anything that is bad for “risk assets” will be good for gold. Many people buy gold as “insurance” (even Ray Dalio has a sizable percentage of his personal assets in gold, if we can believe what he recently stated in a Q&A at the CFR). These people represent a steady stream of demand, that is usually buttressed by strong reservation demand that tends to surge whenever “bubble talk” with respect to other markets becomes prevalent. In short, because certain percentage of market participants recognizes the danger posed by the bubble, a floor is put under the gold price.

  In order to understand the reasoning of gold buyers and gold holders who don’t sell at current prices, we only have to gauge our own demand for bullion, including our reservation demand, and consider what motivates it. Would we sell any bullion here? There isn’t a snowball’s chance in hell of that happening. What is the motive? We regard the monetary experiments performed by central banks in recent years as extremely dangerous. Furthermore, we believe that most of the Western world is suspended in a state of “pretend solvency”.

  A giant confidence game is underway, in which a critical mass of people still pretends that governments are fiscally sound and that the banking system is in fine fettle. It seems to us that the reality is a tad more sobering, and while we have a lot of faith in the ability of what remains of the market economy to generate real wealth, we doubt it will suffice to stave off a less than happy outcome. On the day a sufficiently large number of people stops keeping up the pretense, we will have reached a fork in the road: either much of the world will get the “Cyprus treatment”, or we will indeed see hyperinflation emerge. It will be a default either way. Is there any possibility to hedge against such an outcome, or even a slightly less apocalyptic one, that still involves a great deal of financial and economic distress? If anyone has a better idea than gold, we’d love to hear it.

  The Economist continues:

  “That cannot come soon enough for gold producers. Nikolai Zelenski, the boss of Nordgold, which has mines in Africa and the former Soviet Union, says that half of all producers have negative cashflow. Some are heavily indebted, too. If the price does not rise, production could fall on a scale not seen since the two world wars.”

  That is of course irrelevant for the gold price, but we would point out that gold producers somehow survived the bear market from 1980 to 1999 as well, and their production actually surged rather dramatically that time period. What Mr. Zelenski seems to be forgetting is that mining margins are a moving target. They depend not only on the gold price, but also on input costs.

  The Economist continues:

  “Gold bugs are determinedly optimistic. Gold is priced in dollars, so the fact that it stayed stable while America’s currency was rising (making gold more expensive for buyers in foreign currencies) is cause for cheer.”

  With closed-end bullion funds trading it discounts of almost 10% to NAV, we have our doubts about the size and importance of this allegedly “determinedly optimistic” group. Anecdotal evidence actually suggests that most “gold bugs” are at best frustrated at this point. It is however true that it is a bullish sign when gold stays strong in the face of a strengthening dollar.

  “Chinese consumers are buying more gold, after a sharp decline sparked partly by an anti-corruption campaign. So are Indians, the world’s biggest consumers of gold, after the government removed restrictions on imports last year. Yet the fact remains: gold is in a rut.”

  This is one of the points often made by gold bulls: see how much gold China is importing! This is however at best of tangential importance, roughly on a par with the ups and down in mine supply. Gold is not an industrial commodity, it is a monetary commodity (for an explanation of the difference between the two see our previous missive “Misconceptions About Gold”). When gold moves from COMEX warehouses to warehouses in Shanghai, it is not a bullish event, but a completely irrelevant event. Having said all that, we do believe that Chinese investors could play a role in the eventual blow-off move we expect to occur a few years down the road. However, this is just speculation on our part.

  The assertion that “gold is in a rut” is clearly a matter of perspective. It is certainly back in a bull market both in euro and yen terms, while going sideways in dollar terms. The chart below illustrates the current situation. Note that both in euro and yen terms, it is impossible to not see that a textbook technical bottoming process has taken place. Of course, the Economist hasn’t exactly lost its magic touch either: Since the article appeared, gold has risen by $45 in USD terms as well.

   

  

  Whether one thinks that gold remains in a “rut” clearly depends on where one happens to reside. Could it be that all that money printing in the euro area and Japan does have an effect on the gold price after all? Just asking – click to enlarge.

  The Economist continues:

  “One reason may be that investors have so many more options nowadays. Humble citizens who distrust their own currencies can buy assets ranging from shares to bitcoins. Laurence Fink, the chairman of BlackRock, the world’s biggest asset-management firm, said in March that gold had “lost its lustre”, thanks to the wider availability of property and even contemporary art. “It’s become much more accessible for global families worldwide to store wealth outside their country.”

  Obviously, the chairman of Blackrock is at odds with the chairman of Bridgewater, which is another one of those “largest asset management firms” in the world. Judging from what Fink says, we actually doubt that he has any expertise with respect to gold. Shares and Bitcoins? Property and contemporary art? Three of these four asset classes are in egregious bubbles, which clearly depend on confidence being maintained. The fourth is at the moment pretty much a burst bubble (Bitcoin has declined from $1,200 to a little over $200, so if people indeed see it as an “alternative to gold”, it has proved to be a rather poor one). It is in principle true that all these asset classes compete with gold to some extent, but it is a bit misleading to call stocks, property and works of art an “alternative” to gold. Gold is sought after when these assets are not – it is not merely an “alternative” to them, it is their antithesis.

   

  

  Bitcoin – a bubble that has burst for now (it may well make a comeback though, and as we have previously noted, Bitcoin is likely here to stay) – click to enlarge.

  Gold is currently dormant precisely because people are confident enough to pay absolutely ludicrous prices for assorted “risk” assets (recently a Gauguin painting sold for a record $300 million – a sign that some sectors of the economy are indeed displaying almost “hyperinflationary” characteristics by now). At the same time, the fact that these bubbles have grown to such exorbitant heights (there are countless breath-taking property bubbles underway around the world along with those in contemporary art and stocks) is a major reason why it makes sense to hold gold as insurance.

  Gold is akin to money – although it is currently not money in the strict sense, as it doesn’t serve as the general medium of exchange, the market “knows” that it would be money if the market were free and treats it accordingly. So Fink’s statement is simply yet another non-sequitur. People were able to buy stocks and art works between 2000 and 2011 as well, and yet gold was the preferred asset in most of that time period, because confidence frequently faltered.

   

  

  Gauguin’s “Will You Marry Me” – certainly a nice picture, but 300 million smackers? Come on…

  Finally, the Economist cannot fail to get one last dig in, by letting us know that only the evil Vladimir Putin and his henchmen in Moscow are buying gold (either they are stupid, or it is a sign that gold is only bought by foaming-at-the-mouth crazies, take your pick!):

  “The main exception to the trend is Russia, where the central bank has been a notable buyer of gold, tripling its holdings since 2005. It bought 30 tonnes in March alone, bringing its hoard to 1,238 tonnes. The Kremlin’s growing stockpile does not so much reflect a belief in gold’s prospects, however, as a distaste for the American dollar. Whatever Vladimir Putin’s other qualities, most investors would hesitate to take him on as a financial adviser.”

  First of all, neither the Economist nor anyone else can properly judge Putin’s qualities as a “financial advisor”. Russia’s central bank may have very good reasons for buying gold. As Alan Greenspan once remarked, gold it is the only form of payment that will always be accepted. He dissuaded the US treasury from selling its hoard, precisely because extreme situations can arise when gold ownership can prove very useful. We would assume that strategic reasons are the Russian government’s main motive for buying gold as well – we doubt it cares much about where gold trades next week, next month or even next year.

  Secondly, just because the Russian central bank is one of the few known big official gold buyers certainly doesn’t mean one has automatically hired Putin as one’s financial advisor when investing in gold. Incidentally, what Russia’s central bank is doing is not directly relevant to the gold price. What it buys in an entire year trades in London and Zurich in a few hours every trading day. It is a pittance compared to the total supply of gold.

  Lastly, we still remember how Bloomberg, another viciously statist mainstream financial medium that disses gold at every opportunity, tried to scare less well informed would-be gold buyers by asserting that Russia would be forced to sell its gold reserves! See “Will There be Forced Official Sellers of Gold” for our assessment at the time. We have so far been proved right, but obviously we can’t win, because now Putin is our “financial advisor”!

   

  

  Meet our evil new financial advisor, Vladimir Putin.

  Conclusion

  We enjoy picking on the Economist of course, but our main motive for dissecting its editorial on gold was to show that the gold market remains widely misunderstood. Moreover, given the Economist’s record as a contrary indicator, it might prove to be a useful marker, although we don’t want to make too much of this (if it had been a cover story, we’d recommend mortgaging the house and renting a vault). In the meantime, the fundamental backdrop for gold remains largely in neutral, with some factors improving and others not. However, buyers seem to be willing to step in every time gold dips below the $1,200 level. Technically it remains in no-man’s land in dollar terms, but continues to look encouraging in euro and yen terms. Maybe the Economist has managed to ring the bell after all? Stay tuned …

  

  

  
  
  

  

• Stephen King Warns "The Second Great Depression Only Postponed, Not Avoided"

  Reading like his name-sake's horror novels, HSBC's Chief Economist Stephen King unleashes a torrent of truthiness about the Titanic-like economic ocean liner that is headed for an iceberg except this fragile ship doesn’t have lifeboats. As ValueWalk's Mark Melin notes, what is different with this economic recovery is that, unlike most, "the recovery phase has not marked a return to economic growth," nor has it ushered in a return to policy "normality." From King’s point of view, the normal recovery “typically allows policymakers to rebuild their stocks of ammunition, providing them with room to fight the next economic battle.” Problem is, under the regime of quantitative easing, the central bank central planners are now out of bullets as the economic recovery and the stock bull market is long in the tooth.

   

  Stephen King: Economy is like Titanic except without lifeboats

  In his research piece titled “The world economy’s titanic problem: Coping with the next recession without policy lifeboats,” King notes it has been six years since the last recession. Without specifically saying it, those who follow quantitative market probability note that bullish stock market environments last, on average, 67 months. The current bullish economic environment, depending on where you call the low point, is nearly 72 months old.

   

  

   

  What is different with this economic recovery is that, unlike most, “the recovery phase has not been marked a return to economic growth,” nor has it ushered in a return to policy “normality.” In a normal environment interest rates have risen, tax revenues have rebounded, welfare payments shrunk, and government deficits have declined – “and, on some occasions, have even turned into surpluses.”

  Stephen King: In QE-driven economic recovery, policymakers are out of ammunition

  From King’s point of view, the normal recovery “typically allows policymakers to rebuild their stocks of ammunition, providing them with room to fight the next economic battle.” Problem is, under the regime of quantitative easing, the central bank central planners are now out of bullets as the economic recovery and the stock bull market is long in the tooth.

   

  

   

  Quantitative easing has not built a a “real” economic foothold other that instilling a four letter word for investors: hope. “The higher value of financial assets have not translated into decent economic growth,” he said, and then documented what many hedge fund managers and economic analysis points out, that quantitative fairy dust isn’t driving sustainable economic growth:

   

  It may be that QE has merely driven a wedge between financial hope and economic reality. Worse, if the next recession simply provokes more QE, are investors already beginning to believe that, once again, they are to be continuous beneficiaries of what was once affectionately known as the “Greenspan put”? This was the belief – held most strongly during the late-1990s tech bubble – that the Fed would stand ready to offer support in the event of economic weakness, inevitably encouraging even more in the way of risk-loving behavior.

   

  

  Stephen King: We are closer to the next recession with few bullets remaining

  King says that “if history is any guide, we are probably now closer to the next one (recession),” as he points out that the QE recovery has not accomplished what previous recoveries have: enabled monetary and fiscal policymakers to replenish their ammunition. In fact, the QE recovery has “been distinguished by a persistent munitions shortage.”

   

  King goes on to outline solutions to a potential forthcoming recession, which is difficult to predict in an environment where debt is literally “out of control” and economic central planners have few bullets available to them.

   

  These include 1) reducing the risk of recession; 2) reverting to quantitative easing; 3) moving away from inflation targeting; 4) using fiscal policy to replace monetary policy; (v) using fiscal and monetary policy together in a bid to introduce so-called “helicopter money”; and 5) pushing interest rates higher through structural reforms designed to lower excess savings, most obviously via increases in retirement age.

   

  “We conclude that only the final option is likely to lead to economic success,” he said. “Politically, however, it seems implausible. As a result, we are faced with a serious shortage of effective policy lifeboats.”

  Stephen King: The Second Great Depression Only Postponed, Not Avoided Altogether

  Knowing that central banks are potentially hooked on QE for the long term is, at best, likely to lead to the mis-pricing of financial assets. That, in turn, might lead to a deterioration in the quality of investment and, hence, lower productivity growth over the medium term. At worst, it may lead to a repeat of the asset price bubbles that have proved to be so disruptive to economic activity.

   

  In the absence of conventional policy ammunition, an addiction to QE could ultimately mean that the second great depression was only postponed, not avoided altogether.

  Source: ValueWalk's Mark Melin

  *  *  *

  In his own words…

  *  *  *

  King's full letter below…

  

  

  
  
  

  

• Just Sold For $37,100,000 – Capital Misallocation Perhaps?

  

  StealthFlation.org

  The unhinged misallocations of capital engendered by a systematically suppressed interest rate monetary regime are simply astounding.

   

  Until the cows come home……………

   

  Got Gold?

  
  

  Check out: ABX (Allocated Bullion Exchange)

  .

  
  

  

  

  
  
  

  

• Leading German Keynesian Economist Calls For Cash Ban

  It’s official: the world has gone central-planner crazy. 

  Monetary policy, whether in the form of “conventional” methods such as the micromanagement of policy rates or so-called “unconventional” measures such as QE, has proven utterly ineffective when it comes to both “smoothing out” the business cycle and reigniting economic growth in the wake of severe downturns. If anything, recent history has shown the exact opposite to be true. That is, the Fed helped to engineer the housing bubble and has now succeeded in inflating a similar bubble in stocks and fixed income. Meanwhile, the Japanese experience with QE has plunged the country into what we have affectionately dubbed “The Kuroda Zone”, wherein the BoJ has cornered both the stock and bond markets while failing to promote wage growth or meaningfully raise inflation expectations. In China, the PBoC has taken to cutting policy rates at the first sign of weakness in the stock market, helping to sustain what will perhaps go down in history as the second coming of the tulip bulb mania, while the ECB has taken the insane step of adopting a trillion euro bond buying program while simultaneously demanding fiscal discipline, meaning the central bank’s bond monetization efforts are set against a backdrop of meager supply.

  In sum, the collective actions of the world’s most influential central banks have done wonders when it comes to inflating asset bubbles but have done very little to revive robust economic growth. In fact, far from smoothing out the business cycle and resuscitating DM demand, post-crisis monetary policy has actually had the exact opposite effect: it has set the stage for an even more spectacular collapse while simultaneously creating a worldwide deflationary supply glut.

  At this stage, a sane person might be tempted to call it a day on the monetary experiments, especially considering that at this point, the limits have been reached. That is, there are literally no more assets to buy and rates have hit the effective lower bound where rational actors will eschew bank deposits in favor of the mattress. But not so fast, say folks like Citi’s Willem Buiter and economist Ken Rogoff: the world could always ban cash because if you eliminate physical currency and force people to use a debit card linked to a government controlled bank account for all transactions, you can effectively centrally plan everything. Consumers not spending? No problem. Just tax their excess account balance. Economy overheating? Again, no problem. Raise the interest paid on account holdings to encourage people to stop spending. So with Citi, Harvard, and Denmark all onboard, we bring you the latest call for a cashless society, this time from German economist and member of the German Council Of Economic Experts Peter Bofinger.

  Via Spiegel (Google translated):

  Coins and bills are obsolete and only reduce the influence of central banks. This position represents the economy Peter Bofinger. The federal government should stand up for the abolition of cash, he calls in the mirror…

   

  The economy Peter Bofinger campaigns for the abolition of cash. “With today’s technical possibilities coins and notes are in fact an anachronism,” Bofinger told SPIEGEL.

   

  If these away, the markets for undeclared work and drugs could be dried out. In addition, it would have the central banks easier to enforce its monetary policy.The teaching in Würzburg economics professor called on the federal government to promote at the international level for the abolition of cash. “That would certainly be a good topic for the agenda of the G-7 summit in Elmau,” he said. (Click here to read the full interview in the new mirror .)

   

  Even the former US Treasury Secretary Larry Summers and economist pleaded for an end to the already cash . Likewise, the US economist Kenneth Rogoff . He also argued that the interest rates of central banks have less clout when banks or consumer credit rather than hoard cash.

   

  Critics warn, however , such debates would only distract from the real problems of the current monetary policy.

  Yes, the “real problems” with current monetary policy. Like the fact that by design it can’t possibly work (but it can and will push stocks to unprecedented highs). Paging Mr. Weidmann, your countrymen are going Keynesian crazy.

  

  

  
  
  

  

• This May Just Be The Start Of The Oil Price War Says IEA

  Submitted by Andy Tully via OilPrice.com,

  Saudi Oil Minister Ali al-Naimi may be one of the most powerful individuals in the global oil industry. After all, as the top oil official in arguably the world’s most influential oil-producing country, he has enormous influence.

  But for all his power, is he the most ingenious? That question arises from the release of two reports on the current state of the oil industry that look at whether or not OPEC’s strategy of forcing US shale to cut back is succeeding.

  The first, issued on May 12 by OPEC, says, in essence, that Saudi Arabia’s effort to keep its own oil production at near-record highs is succeeding in wresting market share back from US producers of shale oil, also called “light, tight oil” (LTO). The second, issued a day later by the International Energy Agency (IEA), agrees, but only up to a point.

  “In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked,” the IEA reported. “Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating.”

  But the report from the Paris-based IEA, which advises 29 industrialized countries on energy policy, also pointed to a rebound in oil prices that could benefit US shale producers.

  As both the OPEC and IEA reports point out, the decline in US shale oil output has somewhat reduced the oil glut and led oil prices to rally up to about $65 per barrel. And the IEA adds that this brings LTO back above the threshold where its production becomes profitable again.

  But that, evidently, isn’t good enough for both domestic and foreign shale drillers in the United States, and this is where ingenuity enters the picture. “Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks,” the report said.

  For example, Statoil, Norway’s huge state-owned energy company, is trying out new techniques of hydraulic fracturing, or fracking, in Texas’ Eagle Ford shale field. They include using different grades of sand to mix with water and chemicals, and drilling at varying depths, to increase oil yields.

  “There’s a proverb in Norway that says necessity teaches the naked woman how to knit,” Bjorn Otto Sverdrup, a Statoil vice president, told The New York Times, during a tour of the company's shale operations in Kennedy, Texas.

  Evidently this mother of invention is showing some success. Statoil may have cut the number of its rigs at Eagle Ford from three to two in 2014, but its production from the shale field is up by one-third. The new fracking method has also cut the cost of extraction from an average of $4.5 million per well to $3.5 million, in part because it’s been able to reduce drilling time from an average of 21 days to 17.

  Against this backdrop, then, it’s not surprising that the IEA isn’t so sure that OPEC in general, and al-Naimi in particular, have the upper hand – yet. “It would thus be premature to suggest that OPEC has won the battle for market share,” the agency’s report said. “The battle, rather, has just started.”

  

  

  
  
  

  

• Greece Will Default On June 5 Without Deal, IMF Leaks

  Another week came and went with no breakthrough in negotiations between Greece and its creditors. The IMF is now fed up and has reportedly refused to be a part of any new bailout program for Greece, after Athens drew down its SDR reserves to makes its latest payment to the Fund. That money will now need to be repaid and in a move that surely marks the new gold standard for absurd circular funding schemes, Greece will likely look to use the next tranche of IMF money to payback its IMF SDR reserve which it tapped to pay the IMF. The country’s public sector employees live in limbo, not knowing from one week to the next whether they will be paid and commuters are now subjected to a 50 second looped highlight reel of the Nazi occupation meant to rally the country behind the government’s quarter trillion euro war reparations claim (they might as well just ask for a ‘gagillion’) on Germany which has now become the symbol of tyranny and debt servitude for many Greek citizens. 

  Given the situation, one would be inclined to think that Alexis Tsipras would be falling all over himself to cut a deal with creditors because while giving up on campaign promises to voters isn’t ideal, it’s better than going down in history as the PM who sent the country careening into a drachma death spiral, and besides, giving up on campaign promises is something most politicians do all the time (it’s a job requirement for the US presidency). Alas we were back to the now ubiquitous ‘red line’ rhetoric on Friday as Tsipras continued to employ the “tell EU officials one thing behind close doors and tell the public the exact opposite a day later” negotiating technique. Here’s more from Bloomberg:

  Greece won’t cross its red lines in negotiations with international creditors just because time is pressing to close a deal, Prime Minister Alexis Tsipras said.

   

  “Those who think that our red lines will fade as time goes on would do well to forget it,” Tsipras said at a conference in Athens late Friday. “I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts,” he said. “A deal must be reached but it must be mutually beneficial.”

  Europe is once again set to take the stalled negotiations down to the wire as it now appears the next serious round of talks will come in Riga (the site of an epic Varoufakis meltdown that saw the FinMin tweeting out melodramatic FDR quotes after he was forced to have dinner by himself while his EU counterparts attended a gala) when Tsipras will try to close a deal by the end of the month.

  Tsipras will address the standoff in bailout negotiations on the sidelines of a meeting of European Union leaders to be held May 21-22 in Riga, Latvia, according to a Greek government official who asked not to be identified as the diplomacy is not public.

  If a deal isn’t struck by the end of May, it is truly game over. Here’s the ECB’s Yves Mersch:

  “We are in an end game in Greece where the situation is grave. This situation is not tenable. There has been an accord between Europe and Greece to go through a program. This hasn’t been the case since December last year, because the new government said it doesn’t want to have anything to do with the program. But then they can’t demand money that was attached to that program either. In the meantime, they haven’t managed to bring other measures to the table that could lead to the same goal as foreseen in the first program. Greece is convinced it can play along the line of other rules than” the other 18 euro-area members.”

  Despite the obviously dire circumstances, the Syriza government still insists it will somehow scrape together cash to meet its obligations…

  “Greece Will Pay Wages, Pensions, Varoufakis Tells Skai TV”

  …while EU officials (who one imagines are at this point completely amazed at how obtuse the Greek government has proven to be) are left with no option but to remind Greece that Brussels is still waiting on a list of reforms…

  “Dombrovskis Reminds Greece to Submit Reform List, Bild Reports”

  ….and at the end of the day, here is the reality (via Bloomberg)…

  “Greece won’t be able to make IMF repayments, beginning with a June 5 payment, unless an agreement is reached with international partners, U.K.’s Channel 4 reports, citing a leaked IMF memo dated May 14.”

  *  *  *

  As a reminder, here is the IMF procedure for a default and a matrix which outlines what a missed IMF payment would mean in terms of accelerated payment rights for Greece’s other creditors:

  

  
  

  

  

  
  
  

  

• Inside China's Insane IPO Market: Full Frontal

  We’ve said it before and we’ll say it again: China’s equity mania truly is the gift that keeps on giving, and not just for those who are riding the wave, but also for those who, like us, appreciate the humor in a giant, margin-fueled bubble that’s captivated millions upon millions of semi-literate housewives and banana vendors turned day traders. 

  While there are some signs that the bubble in Chinese stocks may be set to peak — such as brokers looking to curb margin trading — rest assured that the PBoC is on the case, cutting policy rates twice in a month in an effort to ensure the country’s stock market miracle continues to overshadow a bursting real estate bubble and a decelerating economy in the minds of Chinese investors. 

  One area that’s been particularly hot this year is the Chinese IPO market, which has spawned companies like the now famous Beijing Baoefung Technology which, until Thursday, had traded limit-up every single day since its March IPO. Here to shed some light on just how ridiculous the IPO market in China has become is Morgan Stanley:

  Since January 1, 2014, a total of 225 companies have IPO’d in China’s A share markets. The mean performance since IPO is 418%, with trailing P/E currently at 92x and EV/EBIT at 105x. Mean yoy EPS growth in the year prior to IPO was 4%. Total market cap is now over US$500bn.

   

  We have used an ‘interstellar’ metaphor before to discuss China’s A share markets. In this context the IPO markets are Blue-White, the hottest stars in the A-share universe…

   

  

   

  In every industry group except the two IPOs in Energy, performance on the IPO date was between 43% and 44%. What this means is that for the vast majority of the other 223 of 225 IPOs, the stock rose limit up (20%) at the open and then by the additional limit restriction to a 20% gain during the day.

   

  To put it mildly, this suggests a market that has not been discriminating in relation to pricing, at least early on.

  It also explains the huge subscription volumes for IPOs and the surge in new account openings since China allowed individuals to open more than one account in mid-April. Investors have come to see IPOs as a sure-fire way of making high returns over a short period of time.

   

   

  Performance over longer time horizons has been more variable. The average return has been 418%, since the date of IPO (itself an eye-opening number). However, energy IPOs have lagged, returning “only” 160%. Media (773%), and Software and Services (1125%) are way out in front.

   

  

   

  The mean trailing P/E is 92x trailing, with no sector trading below 50x trailing. The most expensive industry groups are Software (311x), Media (140x) and Retailing (134x); the cheapest are Diversified Financials (53x) and Semiconductors (53x).

   

  We also provide in the Exhibit historical EPS growth for 2014 yoy vs 2013. The mean EPS growth for the stocks that have IPO’d is just 4%. The only industry groups with double-digit historical EPS growth at the time of IPO are Food & Staples Retailing and Diversified Financials (securities firms helped by strong stock market volumes). In seven sectors, the mean EPS growth was negative in the year prior to IPO.

   

  

   

  *  *  *

  In sum: since the beginning of 2014, the 225 companies that have gone public in China have returned an average of 418% on their way to an average P/E of nearly 100X while growing earnings by an average of just 4%. Most absurd of all, software IPOs have returned 1,124%, have an average P/E of 311X on earnings growth of -5%. 

  But remember, HSBC’s Head of China Equity Strategy Steven Sun “wouldn’t call [Chinese stocks] a bubble.”

  

  

  
  
  

  

• Sovereign Debt: You Cannot Go Unprepared into This

  By Chris at www.CapitalistExploits.at

  A recent conversation I had with an exasperated parent of a teenager showed me how horribly things can turn out if parents have no discipline when raising kids. If parents have been spoiling poor little “Johnny Snotbrat” for most of his life and let him get away with murder at some point he may actually do just that.

  This teenager is now causing serious harm to family, acquaintances and the police. I’ve seen this happen before.

  The parents – in their desire to keep the calm – let “Johnny” get away with bad behavior. This is somewhat manageable when Johnny is still small. But quite quickly Johnny grows in size and brattiness, and becomes a truly unruly brute who threatens to do serious damage. Every scuffle has always resulted in letting Johnny have his way, appeasing and keeping the calm.

  Now, fast forward a few years later and Johnny is 6 ft 5, has hair on his chest and is out of control!

  I’ll do my best to keep out of the way of Johnny Snotbrat but there is another event brewing and this one is going to have a vastly greater impact on us all.

  Central bankers, the proud parents of the largest debt bubble this world has ever seen, have tried to spoil and appease the markets when they deserved to be disciplined. Instead of allowing the markets to correct themselves and showing discipline, central bankers flooded the world with liquidity and soaked up many problems.

  In doing so they’ve created a truly wild monster both in the sovereign debt markets directly, and indirectly in the corporate debt markets as market participants seeking some sort of yield (heck, any sort of yield) have been driven down the risk curve. I detailed this recently in a post discussing the terrible misconception that many people have about a so-called global deleveraging post 2008. It never happened!

  Central bankers have created this bastard of a neighbour punching, head-butting, sister shagging teenager which requires continuous feeding. But feeding him more just makes him more dangerous. The last few weeks have seen this wild creature flexing his muscles and when he truly gets out of control he’s going to start tearing people’s heads off.

  

  Above you’ll see the last 10 years in the respective bond markets of the US, Germany and Japan – the most important bond markets in the world today.

  

  Let’s now take a look at the above chart showing the same bonds since the beginning of this year.

  Bond yields are rising sharply on the long end of the curve (long duration bonds) in favour of the short end. This is a rational move. Liquidity is crashing on all the long dated maturities and as you can see yields are breaking out. It makes perfect sense to sell the long end of the yield curve given the fundamentals. What we’re witnessing is that cash flooding into the shorter duration maturities. I’m going to nab a quote which I used last week here, originally from Howard Marks of Oaktree Capital as it’s really critical to assessing risk.

  It’s often a mistake to say a particular asset is either liquid or illiquid. Usually an asset isn’t “liquid” or “illiquid” by its nature. Liquidity is ephemeral: it can come and go.

  Is this the beginning of the loss of faith in government paper?

  We’ve discussed at length how we believe the first move to be a rush to the US dollar. We detailed this in a special US Dollar Bull Market Report on our favourite ways to trade this trend.

  Since we first published the report some months back our positions have moved in our favour, though over the past few weeks there has been a pullback – something that is healthy and to be expected.

  When I look at the above graphs and the fact that volatility in many of the long dated option positions we recommended has dropped again I believe the market is offering us up another fantastic opportunity to add to these positions.

  The bond market is beginning to crack at the periphery (Greece and Italy) and is now showing stress on the long end of the curve.

  If there is one thing that I think I’ve learned when it comes to sell offs it’s that you can be an hour early to the party but never a minute late.

  There is a crisis coming and we’ll be sitting around watching each of the world’s central bankers attempting to deal with the fallout of their own creation. It promises to be entertaining:

  • The Brits, being British, will get all hot and flushed and then splutter and pardon with a few “crikey’s” and “goshes”
  • The Europeans will handle this by blaming each other, but mostly the Germans
  • The Germans, in turn will flush the sauerkraut with a large beer, don their lederhosen and get on with fixing the problem. This particular problem will be akin to wrestling a man eating tiger in a Japanese nuclear power station: impossible. Not even German technology will fix this!
  • The French will set up a committee to investigate how they may be able to tax individuals on losing money rather than making it, never acknowledging their own part in the fiasco.
  • The Japanese. Well, they’ll do the honorable thing and fall on their sword. Seppuku!
  • And the Americans will search the nation to find the man with the shiniest teeth, put him on Oprah where he’ll open his arms in an apology and reassure everyone that everything will be fine, even though it won’t.

  Let’s get ready for the show but for goodness sake make sure you’re prepared for it!

  – Chris

  “By failing to prepare, you are preparing to fail.” – Benjamin Franklin

  

  
  
  

  

• Martin Armstrong Warns Of The Coming Crash Of All Crashes

  Submitted by Martin Armstrong via Armstrong Economics,

  Why are governments rushing to eliminate cash?

  During previous recoveries following the recessionary declines, the central banks were able to build up their credibility and ammunition so to speak by raising interest rates during the recovery. This time, ever since we began moving toward Transactional Banking with the repeal of Glass Steagall in 1999, banks have looked at profits rather than their role within the economic landscape.

  They shifted to structuring products and no longer was there any relationship with the client. This reduced capital formation for it has been followed by rising unemployment among the youth and/or their inability to find jobs within their fields of study. The VELOCITY of money peaked with our Economic Confidence Model 1998.55 turning point from which we warned of the pending crash in Russia.

  

   

  The damage inflicted with the collapse of Russia and the implosion of Long-Term Capital Management in the end of 1998, has demonstrated that the VELOCITY of money has continued to decline.

  

   

  There has been no long-term recovery. This current mild recovery in the USA has been shallow at best and as the rest of the world declines still from the 2007.15 high with a target low in 2020, the Federal Reserve has been unable to raise interest rates sufficiently to demonstrate any recovery for the spreads at the banks between bid and ask for money is also at historical highs. Banks will give secured car loans at around 4% while their cost of funds is really 0%. This is the widest spread between bid and ask since the Panic of 1899.

  We face a frightening collapse in the VELOCITY of money and all this talk of eliminating cash is in part due to the rising hoarding of cash by households both in the USA and Europe.

  This is a major problem for the central banks have also lost control of the ability to stimulate anything.The loss of traditional stimulus ability by the central banks is now threatening the nationalization of banks be it directly, or indirectly.

  We face a cliff that government refuses to acknowledge and their solution will be to grab more power – never reform.