• For Today's Investors: Ignorance Is Not Bliss – It Is Oblivion

  Submitted by Tim Price via The Cobden Centre,

  “We’re not gonna make it, are we ? People, I mean.”

   

  “It is in your nature to destroy yourselves.”

   

  “Yeah. Major drag, huh ?”

   

  From James Cameron’s ‘Terminator 2: Judgment Day’.

  Here is a thought experiment. It is January 2000. The last wild Pyrenean ibex has been found dead, squashed by a tree. America Online has just announced an agreement to buy Time Warner for $162 billion – the largest corporate merger in history. It is all very exciting. Suddenly, a sourceless wind rises; papers blow across the pavement; windows rattle; the air fills with electrical crackling. Arnold Schwarzenegger emerges from the darkness. “It is 2015,” he tells you in his distinctive Austrian drawl. “The US unemployment rate is 5.4%. The S&P 500 is at a record high. We have record M&A activity. The corporate debt markets are booming. High end real estate is on fire. A Picasso has just broken the record for artwork sold at auction.”

  “So where are US interest rates ?” you ask the Austrian Oak. “Where are Fed Funds ?”

  He is impassive.

  “Fed Funds are at zero. The Fed Funds Target Rate for the upper bound is 0.25%.”

  “Wow,” you respond.

  Too right. If you could have told anyone back in 2000 just how insane monetary policy would have become by 2015, they probably wouldn’t have believed you.

  But it is what it is.

  Human beings are suckers for a narrative. We love stories, perhaps more than we like reality itself. A team of equity analysts at Citigroup – no stranger to boom and bust, having gone bankrupt itself at least twice – has just published “It’s bubble time”, a note on the current madness of markets.

  Citi identify four key drivers to bubble conditions:

  • A ‘new paradigm’ story with convincing fundamentals
  • Excess liquidity
  • A demand / supply imbalance
  • Business risk amongst asset managers.

  Doug Noland takes up the story:

  “By their nature, the final phase of an epic Bubble will indeed “destroy many contrarian investors.” There’s a confluence of important dynamics at play. First, during final Bubble phases, officials are by then responding to serious fundamental deterioration with heightened policy desperation. So-called “bears” – positioned based on negative fundamental factors – are squashed by the policy whirlwind. Meanwhile, flows gravitate to the most bullish and aggressive (tending to be those content to overlook weak fundamentals and fragilities).

   

  “Such a backdrop foments dangerous Bubble Dynamics. “Money” chases inflating risk markets, while a depleting few retain the resources or willingness to take the other side of this “bull” trade. The upshot is a self-reinforcing market supply/demand imbalance. Over time, as bull market psychology and speculative impulses build, unhinged markets succumb to upside dislocation and “melt-up” dynamics: Too many anxious buyers facing a dearth of sellers.”

  There is, of course, a crowning irony in the supposed custodian of monetary stability, the Fed, being behind most of the fundamentals (overly easy monetary policy, and huge surplus liquidity), but we’ll pass over that. Janet Yellen is only human too, after all, presumably.

  And there’s another gigantic irony at work – the suggestion that the financial services industry is itself hard-wired for the creation of bubbles:

  “From Citi: “Business/Career risk: A weary client once defined a bubble to us: ‘something I get fired for not owning’. It is career-threatening for an asset manager to fight a big bubble. For example, the late 1990s TMT bubble almost destroyed the value-based fund management community. Any bond manager hoping that valuations were mean-reverting would have been fired many years ago. Big bubbles are especially dangerous. TMT stocks already represented a large part of equity market benchmarks when they rerated aggressively in the late 1990s. By contrast, Biotech stocks might currently be expensive but their small market cap means they are still not a big benchmark risk.

   

  You don’t get fired for not owning Biotech stocks now, but you did get fired for not owning TMT stocks in the late 1990s. Bubbles are obvious in hindsight, but they are very hard to fight in real time. Indeed, proper bubbles are so overwhelming that they force sceptical fund managers to buy into them in order to reduce benchmark risk and avoid significant asset outflows. As these sceptics capitulate, of course they contribute to the bubble and so force other sceptics to capitulate and so on and on until there are no sceptics left to capitulate. It makes sense for an asset management company to manage its business risk but this can end up contributing to the madness.”

  There is a rational question to pose at this point: why follow the benchmark, in anything ? Bond indices allocate the largest weights to the most heavily indebted issuers. From the perspective of quality, this is clearly nonsense. Equity indices allocate the largest weights to yesterday’s winners, which tells you precisely nothing about the future – only that investment policy out of the rear view mirror might not be the best tactic for survival in a world of dynamic change. The rational response is to throw the benchmark out of the window and practise something more sensible.

  Doug Noland, again:

  “I would, however, suggest that it is not so much that “modern fund management is almost hard-wired to produce bubbles” as it is that the entire financial services complex has been transformed by central banks inflating serial Bubbles. Inflation psychology has become deeply, deeply ingrained: everything revolves around purchasing securities that will benefit from ongoing central bank market manipulations and interventions. To survive has meant to climb aboard the great bull. This ensures the entire industry is now on the same side of the “trade” – with functioning “two-way” markets relegated to history. And markets will remain seductively “abundantly liquid” only so long as bullish psychology is sustained.”

  There is something exquisitely awful about the whole mess. The central bank is tasked with maintaining monetary stability and yet is in the midst of inflating the most terrifying bubble in history. Fund managers are tasked with shepherding their clients’ assets through this uncertainty and yet they are the very players gate-crashing the party even as the cop cars arrive outside.

  From ‘Supermoney’ by Adam Smith:

  “We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment the Black Horsemen will come shattering through the great terrace doors, wreaking vengeance and scattering the survivors. Those who leave early are saved, but the ball is so splendid no-one wants to leave while there is still time, so that everyone keeps asking, “What time is it ? What time is it ?” But none of the clocks have any hands.”

  By the time the sequel to ‘Terminator’ has come around, Arnie’s killer cyborg has morphed into an altruist fighting for humanity and not against it. “Come with me if you want to live.” The advice he might give comes straight from the American author Philip Wylie (hat-tip to Rob Chapman):

  “Ignorance is not bliss – it is oblivion. Determined ignorance is the hastiest kind of oblivion.”

  As investors, we have all been warned. Not by the future, but by the past.
   

  

  

  
  
  

  

• Junk-Rated Chicago Has A Billion Dollar Pension Problem

  Last week, Chicago got some bad news from Moody’s. On the heels of an Illinois Supreme Court decision that struck down a pension reform law, the ratings agency cut the city to junk status, triggering some $2.2 billion in accelerated payment rights for the city’s creditors and complicating Mayor Rahm Emanuel’s efforts to refinance nearly a billion in floating rate notes and borrow another $200 million to pay off the accompanying swaps.

  The Moody’s downgrade in many ways punctuates what has been a rapid deterioration in state and local government finances across the country, a situation that’s forcing lawmakers to slash budgets and cut funding for a variety of state-funded programs. 

  As a refresher, here’s some context on Chicago’s underfunded pension problem:

  

  In downgrading the city, Moody’s said it expected “Chicago’s credit challenges will continue, both in the near term and in the long term [as] unfunded liabilities of the Municipal, Laborer, Police, and Fire pension plans grow and exert increasing pressure on the city’s operating budget.” That looks to have been an accurate assessment, because as Bloomberg reports, Chicago’s budget gap is set to triple by 2017.

  Chicago’s budget gap is expected to triple with statutory contributions to pension funds, after the city improved its fund deficit for four straight years to less than $300 million in fiscal year 2015.

   

  “Notwithstanding the gains achieved by the city in recent years in addressing its structural budget deficit, the budget gap in coming years is likely to widen from the 2015 level due largely to growing salaries and wages and funding requirements from city pension plans,” Chicago bond documents, released yesterday, said. A budget gap of $430.2 million was projected for 2016 and $587.7 million for 2017. However, “statutory obligations to the [police pension fund] and [firemen’s pension fund] will, in the absence of legislation modifying the city’s contributions to these funds, increase the projected budget gaps for 2016 and 2017 by more than $500 million,” the documents said.

   

  

  So Chicago taxpayers, get ready to take one for the team, because as one muni bond analyst told the Chicago Tribune earlier this month, “raising taxes is going to have to be a part of the solution.”

  *  *  *

  Incidentally, this is just one more example of the unintended (we hope) consequences of monetary policy gone ZIRP, because when reality forces you to lower the rate of return you can expect on your investment, your unfunded liabilities balloon, and as you can see from the following table, the assumed rates of return for Chicago’s pension funds are nowhere near the risk-free rate meaning, in short, this could get very, very ugly.

  

  

  

  
  
  

  

• Guest Post: 10 Images That Suggest America Is Becoming A Lot Like Nazi Germany

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

  The history books tell us about how evil and wicked the Nazis were, so why aren’t we more alarmed that the United States is becoming more like Nazi Germany with each passing day?  More than three years ago, I wrote an article entitled “25 Signs That America Is Rapidly Becoming More Like Nazi Germany” which got a ton of attention.  Unfortunately, nothing has gotten better since I first published that piece.

  Government control freaks are still watching us, tracking us, recording our phone calls and monitoring our emails.  TSA thugs at our airports are still fondling the private parts of our women and children and laughing while they do it.  Our police and our military are still training for civil unrest and martial law in America.  And even though our politicians are socializing our economy and destroying our constitutional freedoms, the American people keep sending most of them back to Washington time after time.  It is an incredibly sad thing to watch the country that you love slowly die right in front of your eyes.

  At the heart of Nazism was a desire to control everyone and everything, and that is exactly what we are seeing in America today.  Most of our “leaders” are psychotic control freaks that want to micromanage every aspect of our lives.  For example, a bill that was just introduced in Congress would force all children in public schools nationwide to be vaccinated with no exceptions whatsoever.  Other new legislation that was just introduced would ban all sales of ammunition over the Internet and require ammo dealers to report all bulk sales to individuals to the government.  Our founders intended for this nation to be a place where individual freedom and liberty were maximized, but today we literally have millions of laws, rules and regulations that wrap us so tightly in red tape that we can hardly breathe.

  To say that we are becoming just like the Nazis is a very strong statement, but I think that after reviewing the evidence you will agree with me.  The following are 10 pictures that show how America is becoming just like Nazi Germany…

  #1 It surprises most people to learn that the Nazis were actually radical leftists that had great animosity for free market capitalism.  For example, National Socialist theologian Gregor Strasser once made the following statement…

  We National Socialists are enemies, deadly enemies, of the present capitalist system with its exploitation of the economically weak … and we are resolved under all circumstances to destroy this system.

  With that in mind, I want you to check out the following political cartoon from 1934.  The same kinds of things that helped the communists rise to power in Russia and the Nazis rise to power in Germany are happening in the United States today…

  

   

  #2 Just like in Nazi Germany, political leaders in America tend to foster cult followings.  At this point, there are millions of Americans that would support Barack Obama and believe whatever he had to say even if he was sacrificing children on the White House lawn.  These kinds of followers are called “sheeple” for a reason…

  

   

  #3 The Nazis were well known for their brutal police tactics, and that is definitely true of us today.  The following photo is a powerful commentary on the transformation of police in America over the past several decades…

  

  Just recently, representatives from 117 countries confronted the U.S. about all of this police brutality at the United Nations’ Human Rights Council.  Unfortunately, I don’t think that this is actually going to change anything…

  The United States was slammed over its rights record Monday at the United Nations’ Human Rights Council, with member nations criticizing the country for police violence and racial discrimination, the Guantánamo Bay Detention Facility and the continued use of the death penalty.

   

  The issue of racism and police brutality dominated the discussion on Monday during the country’s second universal periodic review (UPR). Country after country recommended that the U.S. strengthen legislation and expand training to eliminate racism and excessive use of force by law enforcement.

   

  #4 Why do so many of our police insist on dressing up like Darth Vader these days?  Yes, I know that body armor is called for in certain situations, but many believe that the primary goal of these outfits is to intimidate.  The following photo was submitted to Flickr by Elvert Barnes…

  

   

  #5 In recent years, the American people have become conditioned to seeing troops in our streets.  This next picture is from the Ferguson protests.  The fact that sharpshooters were deployed on rooftops during the unrest there is more than a little disconcerting…

  

   

  #6 Just like in Ferguson, when rioting started in Baltimore the police were initially ordered to stand down and allow it to spiral out of control.  Then after a few hours, National Guard troops were finally deployed to help restore order.  We are slowly getting used to the idea that martial law in our cities is a good thing…

  

   

  #7 Meanwhile, “progressives” continue to use our system of public education to launch a relentless attack on the values that this country was founded upon.  The Nazis were also big believers in “public education”, and they used it with shocking efficiency.  Today, our children are being brainwashed to accept “progressive values”, and most Americans don’t seem to be too concerned about what is happening…

  

   

  #8 Yes, the Nazis loved gun control.  In fact, they eventually had everyone in the general population turn in their guns, and that is precisely what the “progressives” would love to see take place in the U.S. today.  But what would this country look like if that actually happened?  I think that this next photo which has been circulating on Facebook gives us a clue…

  

   

  #9 Under the Nazis, the Germans were taught to salute a new flag and to adopt an entirely new set of values.  In America today, it is not “politically correct” to display the American flag publicly or to show honor for it.  Instead, we are being trained to think of ourselves as “global citizens” and to never question the growing power of international institutions such as the United Nations.  Fortunately, there are many Americans that never plan to accept the “global governance” that the elitists have planned…

  

   

  #10 In the end, the reason why the Nazis were so successful in Germany was because the vast majority of the German population simply complied with their demands.  As Americans, we are going to be faced with our own choices in the years ahead…

  

  So what do you think?

  Is America becoming more like Nazi Germany?

  

  

  
  
  

  

• "Strongly Dissatisfied" China Warns US "Accident" Is "Highly Likely" In South China Sea

  Things are escalating rapidly in the South China Sea where Beijing has figured out an innovative solution to the notion of “disputed waters.” 

  As regular readers are by now acutely aware, China appears to have adopted the maritime boundary equivalent of the old “possession is nine tenths of the law” axiom because Chinese dredgers have been busy for some time now creating islands out of reefs in the Spratly archipelago. Once the islands are complete, China promptly colonizes them. Next comes the construction of cement plants, ports, and 10,000 ft airstrips. 

  Not surprisingly, Washington isn’t fond of China’s “sandcastles” and everyone from President Obama to the Pentagon is now shouting from the rooftops about territorial sovereignty and Chinese “bullying.” 

  The US took it up a notch this week when it flew a spy plane over Fiery Cross Reef, presumably just to see what would happen. A CNN camera crew went along for the ride. What Washington discovered is that when it comes to protecting its new islands, bashful China is not.  “This is the Chinese Navy… YOU GO!” was the message that came over the radio. 

  The rhetoric and sabre rattling haven’t let up a bit since then and in fact, there’s been a steady stream of quotables from both sides over the past 48 hours. Here’s the latest. 

  Via Reuters:

  The United States vowed on Thursday to keep up air and sea patrols in international waters after the Chinese navy repeatedly warned a U.S. surveillance plane to leave the airspace over artificial islands China is creating in the disputed South China Sea…

   

  The incident, along with recent Chinese warnings to Philippine military aircraft to leave areas around the Spratly archipelago in the South China Sea, suggested Beijing is trying to enforce a military exclusion zone above its new islands there.

   

  Some security experts worry about the risk of confrontation, especially after a U.S. official said last week that the Pentagon was considering sending military aircraft and ships to assert freedom of navigation around the Chinese-made islands.

   

  The senior U.S. diplomat for the East Asia, Assistant Secretary of State Daniel Russel, told a media briefing in Washington the U.S. reconnaissance flight was “entirely appropriate” and that U.S. naval forces and military aircraft would “continue to fully exercise” the right to operate in international waters and airspace.

  
  

  He said the United States would go further to preserve the ability of all countries to move in international waters and airspace.

   

  “Nobody in their right mind is going to try to stop the U.S. Navy from operating – that would not be a good bet,” he said.

   

  Chinese Foreign Minister Wang Yi last week asserted Beijing’s right to reclaim the reefs and said China’s determination to protect its interests was “as hard as a rock.”

   

  China has also said it had every right to set up an Air Defense Identification Zone (ADIZ) in the South China Sea but that current conditions did not warrant one.

   

  ADIZs are used by some nations to extend control beyond national borders, requiring civilian and military aircraft to identify themselves or face possible military interception.

  And as if that isn’t enough, here’s more from a separate Reuters piece:

  China said on Friday it was “strongly dissatisfied” after a U.S. military plane flew over part of the South China Sea near where China is building artificial islands, and called on the United States to stop such action or risk causing an accident…

   

  Foreign Ministry spokesman Hong Lei said the Chinese military drove away the U.S. aircraft, in accordance with relevant regulations, labeling the U.S. action a security threat to China’s islands and reefs.

   

  “Such action is likely to cause an accident, it is very irresponsible and dangerous and detrimental to regional peace and stability. We express our strong dissatisfaction, we urge the U.S. to strictly abide by international law and international rules and refrain from taking any risky and provocative actions,” he told a news conference.

  It’s impossible to overstate the magnitude of what China is attempting here. Beijing has literally created new sovereign territory in the middle of the ocean and is now effectively enforcing a no-fly zone.

  And despite the rheotric out of Washington regarding how no one “in their right mind” would try to curtail the movement of American military operations, that is exactly what China did this week when it essentially told the P8-A Poseidon spy plane to either stop it with the spying or become a part of a reef underneath a Chinese sandcastle. 

  We can’t wait to see what happens next week.

  

  

  
  
  

  

• Adult FriendFinder Hacked – Federal Employees Allegedly Among 3.5 Million 'Exposed'

  Just two short weeks ago we explained what happened to Tinder’s predecessor, Adult FriendFinder, which was a website whose sole purposes was finding, to put it bluntly, a fuck buddy. Just like Tinder currently under IAC’s wing, we explained, back in 2011 when the early stages of the current
  gargantuan tech bubble were only taking shape, nobody could hide their
  enthusiasm about the stock.

  So imagine our shock when we see today that Adult FriendFinder has been hacked and, as CNN reports, more than 3.5 million people’s sexual preferences, fetishes and secrets have been exposed…

  But it gets better, as Liberty Blitzkrieg’s Mike Krieger explains, accusations are emerging that Federal employees used it from government emails.

  Before I get into the meat of this story, let’s briefly cover the background of the Adult FriendFinder hack. From CNN:

  More than 3.5 million people’s sexual preferences, fetishes and secrets have been exposed after dating site Adult FriendFinder was hacked.

   

  Already, some of the adult website’s customers are being identified by name.

   

  Adult FriendFinder asks customers to detail their interests and, based on those criteria, matches people for sexual encounters. The site, which boasts 64 million members, claims to have “helped millions of people find traditional partners, swinger groups, threesomes, and a variety of other alternative partners.”

   

  The information Adult FriendFinder collects is extremely personal in nature. When signing up for an account, customers must enter their gender, which gender they’re interested in hooking up with and what kind of sexual situations they desire. Suggestions AdultFriendfinder provides for the “tell others about yourself” field include, “I like my partners to tell me what to do in the bedroom,” “I tend to be kinky” and “I’m willing to try some light bondage or blindfolds.”

  I don’t relish in the fact that people’s private information is being exposed in this manner; however, if federal employees are using the site via government email addresses, that is newsworthy.

  Andrew Auernheimer, a controversial computer hacker who looked through the files, used Twitter to publicly identify Adult FriendFinder customers, including a Washington police academy commander, an FAA employee, a California state tax worker and a naval intelligence officer who supposedly tried to cheat on his wife.

   

  Asked why he was doing this, Auernheimer said: “I went straight for government employees because they seem the easiest to shame.”

   

  Millions of others remain unnamed for now, but anyone can open the files — which remain freely available online. That could allow anyone to extort Adult FriendFinder customers.

  Again, I don’t get any pleasure in the public shaming of people for these sorts of things, but RT adds the following to the story:

  The men behind the screen names “Eaglesfan_6969” and “Verywilling2011” are looking for sex, and they’re doing it from government-provided email accounts, according to data pilfered from a hacked dating website.

   

  A trove of personal information pertaining to paid account holders of AdultFriendFinder, a website that touts itself as letting users “Find a fuck buddy for online sex,” has surfaced, and its contents suggest employees of local and federal agencies, including law enforcement, the Navy and the Federal Aviation Administration have used their government-provided email addresses to search for partners.

   

  Among account holders identified through the leaked details include individuals with emails linked to the United States Department of Homeland Security, the FAA, the government of Augusta, Georgia; the state of Virginia and the Metropolitan Police Department of Washington, DC.

   

  DHS guidelines prohibit employees from using their government email for “Engaging in any activity that would discredit DHS, including seeking, transmitting, collecting or storing defamatory, discriminatory, obscene, harassing or intimidating messages or material.” The Pentagon says in a 2013 report that “Federal Government communication systems and equipment (including Government-owned telephones, facsimile machines, electronic mail, Internet systems and commercial systems when the federal Government pays for use) shall be for official use and authorized purposes only.” There is an exemption in place for “morale and welfare” communications by employees on extended deployments.

  If true, I’m sure nothing will happen to them, as federal employees, like bankers, are essentially above the law.

  *  *  *

  Given this, however, one wonders just how exuberant IAC is over its valuation of Tinder now? …and how fast people will be logging off…

  

   

  Still, all that really matters for the current generation of sophisticated
  investors is eyeballs (or in this case some other anatomical organ).

   

  

  

  

  
  
  

  

• A Vision of Monetary Hell Troubles Our Sleep…

  Submitted by Bill Bonner via Bill Bonner & Partners,

  A vision of Hell troubles our sleep.

  It is the vision of what the United States will be like when the authorities have obliterated almost three millennia of monetary progress and have their boots on our necks.

  Here’s Peter Bofinger, a leading German Keynesian economist, in Der Spiegelmagazine:

  With today’s technical possibilities, coins and notes are in fact an anachronism. They made payments incredibly difficult, with people wasting all sorts of time at the cashier as they wait for the person ahead of them to dig through their belongings to find some cash, and for the cashier to render change (rather than, for example, waiting for someone to find the right credit card, complete the transaction, and wait for approval)

   

  […]

   

  But the additional time is not the largest benefit of the elimination of cash. It dries out the markets for moonlighting and drug trafficking. Almost a third of the euro cash in circulation consists of 500-euro notes. No one needs those for shopping; light-shy figures use them for their activities. [Also] it would be easier for central banks to impose their monetary policies. At this time, they cannot push interest rates appreciably below zero because the savers would hoard cash. If there is no cash, the zero bound is eliminated.

  A Slide Back into Prehistory

  Yes, dear reader, it seems to be coming – a dreadful slide back beyond the darkest ages and into the mud and slime of prehistory. Back then, modern “money” had not been invented. Using rudimentary credit and barter systems, you could only trade with people you knew – and on a limited scale. Capitalism was impossible. Progress was unattainable. Wealth couldn’t be accumulated.

  Then in India, in about the sixth century B.C., came silver coins – real cash. You didn’t need to know the person you were trading with. You didn’t know his family. Or his motives. Or his balance sheet.

  And you didn’t have to keep track of who owed what to whom. You could just settle up – in specie. This made modern commerce and industry possible.

  This new wealth also provided people with a new kind of liberty. They could travel – and pay for food and lodging with this new money. They could invest… and use this new, private wealth to create even more wealth.

  They could even raise armies… build fortifications… and challenge the power of the ruling elites.

  “Suspicious Activities”

  But now, governments are trying to abolish cash.

  Leading economists want it banned, too. Limits on cash use are already in place in many countries. In France, for instance, a law will come into force in September that will limit cash payments to €1,000 ($1,115). And in the U.S., having a large amount of cash is already considered “suspicious activity,” subject to forfeiture without due process. That’s right: Thanks to civil forfeiture laws, the feds can seize your property without having to convict you of a crime. As the Washington Post reported here last year, police made 61,998 cash seizures – totaling $2.5 billion since 9/11 – without search warrants or indictments.

  Why do the feds want to eliminate cash? Isn’t it obvious? They want to control you and your money. Where did you get it? They’ll want to know. What will you do with it? They’ll want a say. Couldn’t you use it for something “bad”?

  Heck, you might support “terrorists”… evade taxes… or buy a pack of cigarettes.

  The possibilities are too rich to ignore. And the arguments are too persuasive to stop. Zero Hedge summarizes the “pros”:

  •  Enhance the tax base, as most/all transactions in the economy could now be traced by the government
  •  Substantially constrain the parallel economy, particularly in illicit activities
  •  Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment

  Feeling the Feds’ Lash

  The arguments are hollow… but they’ll probably be convincing. And for the first time in history, rulers will have a way of controlling people by cutting off their money. Electronic money, run through a government-controlled banking system, allows the feds to put us where they want us – with bars on our cages and whips on our backs. All transactions could be subject to approval. And every person would know that he could feel the feds’ lash at any time.

  Under Argentina’s military dictatorship, about 13,000 people “disappeared.” That is, they were rounded up by government death squads, interrogated, murdered, and then thrown from planes into rivers.

  How much easier it will be – and more humane – simply to cut off their money? With modern face-recognition technology, the feds could identify almost anyone in any setting – at a café, a public meeting, or an ATM. Then with a couple of strokes on a keyboard, the accounts could be frozen… or confiscated. The poor citizen would “disappear” in seconds – unable to participate in public life and forced to scrounge through trash cans to stay alive.

  Who would dare to help him? Who would dare to support him? Who would dare to speak out against this new diabolical system? They, too, would be marked as undesirable… and disappeared.

  Imagine the political candidate who suddenly discovers his backers have no money? Imagine the whistle-blower who suddenly has no whistle to blow?

  A Warning from Argentina

  Are we hallucinating? Are we worrying about nothing?

  In Argentina, following a coup d’état in 1976, the military junta first targeted leftist revolutionaries – who may have posed some real threat to the nation. Then, in what became known as the “Dirty War,” the targets grew more diverse – with students, political adversaries, intellectuals, trade unionists, and anyone the junta wanted to get rid of caught in the net. This period of terror only came to a close in 1983, after the generals unwisely invaded the Falkland Islands and proclaimed Argentine sovereignty over a British overseas territory.

  The plain people are easily led into war – no matter how moronic the pretense. As they had hoped, the Argentines rallied behind their soldiers. But the British, led by the “Iron Lady,” Margaret Thatcher, did not play the role the generals had expected. Rather than negotiate a settlement, they sent a task force to the South Atlantic, including a nuclear submarine, two aircraft carriers, 42 fighter jets, a brigade of Royal Marine commandos, and an infantry brigade. In a matter of weeks, the British submariners had sunk Argentina’s World War II-era cruiser the General Belgrano… as the Royal Marines, the soldiers of the 5th Infantry Brigade, and the RAF hammered away at the ill-prepared and ill-equipped Argentine troops shivering out in the South Atlantic.

  This was too great a humiliation for the Argentines to take. The Union Jack went up once again over the Falklands, the military junta was thrown out of office, and the disappearances stopped.

  Are Americans smarter than Argentines? Are their politicians more honest or more faithful to the rule of law? Does power corrupt less in the Northern Hemisphere than it does south of the equator?

  We doubt it.

  

  

  
  
  

  

• The US Department Of Commerce Officially Jumps The Shark, Will "Double Seasonally Adjust" GDP Data

  It’s official: after seeing it work so well for years in China, the US Department of Commerce’s Bureau of Economic Statistics has officially replaced all of its excel models with just one function. The following:

  

  As Steve Liemsan hinted a few days ago, in what we thought was a very belated April fools joke, th eBEA has finally thrown in the towel on weak seasonally-adjusted US GDP data, and as a result has decided to officially proceed with a second seasonal adjustment: one which will take all the bad data, and replaced it with nice and sparkly, if totally fake and goalseeked, GDP numbers.

  As Bloomberg reports, “the way some parts of U.S. gross domestic product are calculated are about to change in the wake of the debate over persistently depressed first-quarter growth. In a blog post published Friday, the Bureau of Economic Analysis listed a series of alterations it will make in seasonally adjusting data used to calculate economic growth. The changes will be implemented with the release of the initial second-quarter GDP estimate on July 30, the BEA said.”

  In other words, as of July 30, the Q1 GDP which will have seen its final print at -1% or worse, will be revised to roughly +1.8%, just to give the Fed the “credibility” to proceed with a September rate hike which means we can now safely assume not even the Fed will launch a “hiking cycle” at a time when the first half GDP will print negative (assuming the Atlanta Fed’s 0.7% Q2 GDP estimate is even modestly accurate).

  Will abnormally “good” data be revised lower, or whether labor market data, which is already manipulated beyond comparison by the BLS will also be adjusted due to “residual seasonality”? Don’t hold your breath.

  And since economists pride themselves in giving complex names to what even 5 years olds now grasp is open data manipulation, the technical term the BEA will use to goalseek historical data is now also clear: “residual seasonality“

  Although the agency adjusts its figures for seasonal variations, growth in any given first quarter still tends to be weaker than in the remaining three, economists have found, a sign there may be some bias in the data. It’s a phenomenon economists call “residual seasonality.”

  More details on how economics has just devolved into a complete farce on a scale that even the Chinese Department of Truth will find laughable:

  “BEA is aware of the potential for residual seasonality in GDP and its components, and the agency is looking for ways to minimize this phenomenon,” the division said in the post. More information will be available in a BEA Survey of Current Business report scheduled for mid-June publication.

   

  The agency is exploring ways to address possible issues in measures of federal government defense spending, where research has shown that first- and fourth-quarter growth rates are lower on average, the BEA said, reiterating a statement given to Bloomberg published May 18.

   

  It will also start seasonally adjusting some inventory components that currently aren’t, and also some data from the U.S. Census Bureau’s quarterly services survey, it said. The latter should boost the accuracy of consumer spending estimates, it said. The changes to the calculations will cover the period from 2012 to the present.

   

  Additionally, the BEA is reviewing all series that figure into the GDP calculations to find and fix any leftover biases that exist within its current methodology.

  And to complete the total collapse of US reporting integrity, here is the full BEA blog post on the topic of goalseeked data, aka “residual seasonality.”

  * * *

  BEA Works to Mitigate Potential Sources of Residual Seasonality in GDP

  The Bureau of Economic Analysis (BEA) is working on a multi-pronged action plan to improve its estimates of gross domestic product (GDP) by identifying and mitigating potential sources of “residual” seasonality. That’s when seasonal patterns remain in data even after they are adjusted for seasonal variations.

  Each spring, BEA conducts an extensive review–receiving updated seasonally adjusted data from the agencies that supply us with data used in our calculation of GDP. Most of the data the feeds into GDP is seasonally adjusted by the source agency, not BEA. At the same time, BEA examines its own seasonal factors for those series that BEA seasonally adjusts itself. All that work takes place in preparation for BEA’s annual revision to GDP and its major components, which will be released on July 30.

  As a result of this ongoing work, BEA is aware of the potential for residual seasonality in GDP and its components, and the agency is looking for ways to minimize this phenomenon.

  • One of the areas we’re currently reviewing is possible residual seasonality in measures of federal government defense services spending. Initial research suggests that the first and fourth quarter growth rates are lower on average than those of the third and second quarters. BEA is developing methods for addressing what it has found.

  • Time frame to implement: Improvement will take place with the release of second quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

  • BEA also will begin adjusting certain inventory investment series that currently aren’t seasonally adjusted.

  • Time frame to implement: Improvement will take place with the release of second-quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

  • Also as part of this year’s seasonal adjustment review, BEA is planning to seasonally adjust a number of series from the Census Bureau’s quarterly services survey that now have sufficient time spans to which seasonal adjustment techniques can be applied. Currently, these series are smoothed using a four-quarter moving average to attempt to smooth out seasonal trends in the data. While BEA’s review had not identified residual seasonality in the PCE services estimates, applying statistical seasonal adjustment techniques to these indicators will improve the accuracy of the underlying trends in PCE estimates.

  • Time frame to implement:  Improvement will take place with the release of second quarter GDP on July 30.  Period covered 2012, 2013, 2014, and forward.

  • BEA will review all series entering the GDP calculations to identify, and where feasible, mitigate any residual seasonality within its existing seasonal adjustment methodologies.

  • Time frame to implement: Review will take place with the release of second-quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

  • Longer term–beyond July 30–BEA will continue looking at components of GDP to determine if there are opportunities to improve seasonal adjustment methodologies.  Should BEA identify other areas of potential residual seasonality, BEA will develop methods to address these findings. If research suggests that residual seasonality originates with already seasonally adjusted source data, BEA will work alongside its source data agencies to determine the appropriate course of action.

  * * *

  Some further thoughts: when, not if, the Fed’s rate hike leads to a recession, that too will be seasonally adjusted away. And QE4 will be called tightening in the name of “residual seasonality.”

  And, of course, once the Fed’s credibility finally crashes, its seasonally adjusted credibility will be at an all time high.

  

  

  
  
  

  

• In No State Can A Minimum Wage Worker Afford A One Bedroom Apartment

  Earlier this month we learned that in 21 out of the 26 OECD member countries that have a minimum wage, working 40 hours per week at the pay floor would not be sufficient to keep one’s family out of poverty. That rather stunning revelation comes as Democrats in the US push for a $12 minimum wage by 2020 and as pressure grows on companies like McDonald’s to raise wages for its lowest-paid employees. 

  Of course rising minimum wages can also have the rather counterintuitive side effect of harming those they’re meant to help because after all, when the cost of labor goes up, employers may simply fire people or, as we saw yesterday when McDonald’s pledged to reduce the number of company-owned restaurants by 10% over the next several years, resort to other measures aimed at getting around pay floor hikes.

  So while one can debate pros and cons of addressing abysmal wage growth by legislating a non-market-driven solution, what is not up for debate is this: it’s getting harder and harder to subsist above the poverty line for low-income workers.

  In fact, as the following map shows, in no state can a minimum wage worker afford a one bedroom apartment.

  

   

  Here’s some color from a study by the National Low Income Housing Coalition:

  Rents for apartments have risen nationally for 23 straight quarters. As of the third quarter of 2014, rents were 15.2% higher than at the tail end of the Recession in 2009. Rising rents are an outcome of increased demand for rental housing. One recent study of 11 major cities found double-digit growth in the number of renters in nine of the 11 cities between 2006 and 2013. In the fourth quarter of 2014, the homeownership rate dropped to its lowest rate in twenty years and the rental vacancy rate fell to 7% as more households sought rental units. The downward pressure on vacancy rates directly impacts the rental housing market, making landlords less willing to offer rent concessions and more likely to increase rents. The tightening rental market has the most significant impact on low income renters. 

  So thank you Wall Street (and a hat tip to Alan Greenspan as well) for creating an entirely unsustainable housing bubble which finally collapsed on itself, turning a nation of homeowners into a nation of renters many of whom will now have to pony up everything they make each month to someone who may have gotten a landlord loan from Wall Street to buy up rental properties from home flippers who also got loans from Wall Street where some very clever investment bankers are busy securitizing these landlord and home flipper loans in order to sell billions in new ABS on the way to recreating the very same bubble only to have it burst all over again. 

  

  

  
  
  

  

• It Is Mathematically Impossible To Pay Off All Of Our Debt

  Submitted by Michael Snyder via The Economic Collapse blog,

  Did you know that if you took every single penny away from everyone in the United States that it still would not be enough to pay off the national debt?  Today, the debt of the federal government exceeds $145,000 per household, and it is getting worse with each passing year.

  Many believe that if we paid it off a little bit at a time that we could eventually pay it all off, but as you will see below that isn’t going to work either.

  It has been projected that “mandatory” federal spending on programs such as Social Security, Medicaid and Medicare plus interest on the national debt will exceed total federal revenue by the year 2025.  That is before a single dollar is spent on the U.S. military, homeland security, paying federal workers or building any roads and bridges.  So no, we aren’t going to be “paying down” our debt any time in the foreseeable future.  And of course it isn’t just our 18 trillion dollar national debt that we need to be concerned about.  Overall, Americans are a total of 58 trillion dollars in debt.  35 years ago, that number was sitting at just 4.3 trillion dollars.  There is no way in the world that all of that debt can ever be repaid.  The only thing that we can hope for now is for this debt bubble to last for as long as possible before it finally explodes.

  It shocks many people to learn that our debt is far larger than the total amount of money in existence.  So let’s take a few moments and go through some of the numbers.

  When most people think of “money”, they think of coins, paper money and checking accounts.  All of those are contained in one of the most basic measures of money known as M1.  The following definition of M1 comes from Investopedia…

  A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency.

  As you can see from the chart below, M1 has really grown in recent years thanks to rampant quantitative easing by the Federal Reserve.  At the moment it is sitting just shy of 3 trillion dollars…

  

  So if you gathered up all coins, all paper currency and all money in everyone’s checking accounts, would that even make much of a dent in our debt?

  Nope.

  We’ll have to find more “money” to grab.

  M2 is a broader definition of money than M1 is, because it includes more things.  The following definition of M2 comes from Investopedia…

  A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

  As you can see from the chart below, M2 is sitting just short of 12 trillion dollars right now…

  

  That is a lot more “money”, but it still wouldn’t pay off our national debt, much less our total debt of 58 trillion dollars.

  So is there anything else that we could grab?

  Well, the broadest definition of “money” that is commonly used is M3.  The following definition of M3 comes from Investopedia…

  A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. The M3 measurement includes assets that are less liquid than other components of the money supply, and are more closely related to the finances of larger financial institutions and corporations than to those of businesses and individuals. These types of assets are referred to as “near, near money.”

  The Federal Reserve no longer provides charts for M3, but according to John Williams of shadowstats.com, M3 is currently sitting somewhere in the neighborhood of 17 trillion dollars.

  So even with the broadest possible definition of “money”, we simply cannot come up with enough to pay off the debt of the federal government, much less the rest of our debts.

  That is not good news at all.

  Alternatively, could we just start spending less than we bring in and start paying down the national debt a little bit at a time?

  Perhaps that may have been true at one time, but now we are really up against a wall.  Our rapidly aging population is going to put an enormous amount of stress on our national finances in the years ahead.

  According to U.S. Representative Frank Wolf, interest on the national debt plus “mandatory” spending on programs such as Social Security, Medicare and Medicaid will surpass the total amount of federal revenue by the year 2025.  That is before a single penny is spent on homeland security, national defense, paying federal workers, etc.

  But even now things are a giant mess.  We are told that “deficits are under control”, but that is a massive hoax that is based on accounting gimmicks.  During fiscal year 2014, the U.S. national debt increased by more than a trillion dollars.  That is not “under control” – that is a raging national crisis.

  Many believe that that we could improve the situation by raising taxes.  And yes, a little bit more could probably be squeezed out of us, but the impact on government finances would be negligible.  Since the end of World War II, the amount of tax revenue taken in by the federal government has fluctuated in a range between 15 and 20 percent of GDP no matter what tax rates have been.  I believe that it is possible to get up into the low twenties, but that would also be very damaging to our economy and the American public would probably throw a huge temper tantrum.

  The real problem, of course, is our out of control spending.

  During the past two decades, spending by the federal government has grown 63 percent more rapidly than inflation, and “mandatory” spending on programs such as Social Security, Medicare and Medicaid has actually doubled after you adjust for inflation.

  We simply cannot afford to keep spending money like this.

  And then there is the matter of interest on the national debt.  For the moment, the rest of the world is lending us gigantic mountains of money at ridiculously low interest rates.  However, if the average rate of interest on U.S. government debt was just to return to the long-term average, we would be spending more than a trillion dollars a year just in interest on the national debt.

  So the best possible environment for “paying down our debt” that we are ever going to see is happening right now.  The only place that interest rates on U.S. government debt have to go is up, and our population is going to just keep getting older and more dependent on government programs.

  Meanwhile, our overall debt continues to spiral out of control as well.  According to CNBC, the total amount of debt that Americans owe has reached a staggering 58.7 trillion dollars…

  As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened.

   

  The gap began to widen during the decade, and then became basically parabolic through the ’90s and into the early part of the 21st century.

   

  Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion, 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve’s St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102 percent of GDP and is a subset of the total figure.)

  As I discussed above, there isn’t enough money in our entire system to even pay off a significant chunk of that debt.

  So what happens when the total amount of debt in a society vastly exceeds the total amount of money?

  Is there any way out other than collapse?

  

  

  
  
  

  

• How China's (Formerly) Richest Man Destroyed His Own Fortune When He Tried To Sell A Stock

  On Wednesday, we reported on what was certainly the biggest market news of the week when in under one second, Chinese solar company Hanergy Thin Film crashed by nearly 50% due to what are still unknown reasons. As a reminder, before its crash and indefinite trading suspension, Hanergy’s market value was higher than all other listed Chinese solar companies combined and six times the value of First Solar, the biggest producer of thin-film solar panels.

  

  Aside from the dramatic move, the reason why the wipeout of this tightly held stock was particularly memorable is because it took with it some $14 billion or nearly half of majority owner Li Hejun’s $30 billion fortune, who as we reported previously, is China’s richest man, having recently overtaken Alibaba’s Jack Ma. Or rather was.

  A quick tangent into how Li built up his stratospheric paper wealth on very short notice.

  As noted above, the bulk of Li’s fortune comes from his 80.8% stake in Hanergy, whose market cap had topped at approximately $40 billion, or greater than the market cap Sony and Twitter. Even more notable, is that the bulk of the appreciation in the stock took was a result of what appears to have been an aggressive buying campaign by none other than Li himself, who as Bloomberg recounts, was the single biggest buyer in the name as it soared since the start of January, becoming “wealthier” (on paper) by buying ever more stock, thus pushing his own net worth every higher!

  From April 30, three weeks before the crash:

  Hanergy Thin Film Power Group Ltd.’s executive chairman raised his stake in the Chinese solar equipment maker this  month, buying 53.9 million shares as the company’s market value surged.

   

  Li Hejun bought the shares in seven transactions at prices of HK$6.90 to about HK$6.95, with the latest purchase on April 23, according to transaction details filed in statements to the Hong Kong Stock Exchange. The company closed at a record HK$7.88 on April 23.

   

  Hanergy has surged more than six-fold in the past year to a market value of about $39 billion amid questions about its valuation and revenue.

  What is certainly peculiar is that even as Li was aggressively single-handedly pushing the price of the stock, thre were many questions about the company’s operations. Of note, about 61% of the company’s revenue was sourced from sales it made to its own parent company Hanergy Group, and its affiliates.

  The relationship was laid out by Bloomberg as follows: “The publicly traded entity makes factory equipment that produces thin-film solar panels. Closely held Hanergy Group makes the panels and installs them, though it has never disclosed its production output. Hanergy Thin Film also buys PV panels from its parent company to make into finished solar parks.”

  As the FT reported first 5 months ago, Hanergy “has been racking up enviable revenues largely through sales between its listed subsidiary, HTF, and itself.” No wonder the company has been desperate to distract attention from its cooked books, and instead had focused on pure marketing, pitching itself as a company that promises to revolutionize solar power and to become the Apple of green energy.

  Perversely, it was on January 28 when the Financial Times first raised questions about the incestuous relationship between the two entities: since then, the stock of Hanergy had risen 86%… until it crashed.

  It wasn’t just Apple: Hanergy needed more buzzwords and tried to be like that other famous “alternative energy” unicorn, Tesla: a whole lot of “story” fluff, much hype and no substance. Because lacking from its earnings report was an overall estimate for how much equipment it will ship or install this year, a figure that’s prominent in the reports of panel makers such as Trina Solar and Yingli Green Energy.

  There were many other flashing red warnings: Hanergy Thin Film’s receivables surged 86 percent last year to HK$4.3 billion, with the parent company responsible for about half of the outstanding sum.

  And another: a year ago, the Kowloon headquarters of Hanergy Thin Film housed a little-noticed subsidiary of Li’s Hanergy Holding, which initially was a hydroelectric-dam operator with more than 6 gigawatts of projects.

  And another: not content with being a Tesla-clone, the company was also a Valeant-style “rollup”: the company has been investing in thin-film technology since 2009. It’s bought four overseas companies since 2012 — the U.S. producers Global Solar Energy Inc., Miasole Inc. and Alta Devices and the Solibro unit of Germany’s Q-Cells.

  And another: when the FT wrote another story on March 25 showing that Hanergy’s shares listed in Hong Kong tend to rise in the final 30 minutes of the trading day, the company issued a statement dismissing the story as “innuendo.”

  Not everyone was fooled by the epic lie: as Bloomberg also reports, on February 27, analysts Charles Yonts and Johnny Lau at CLSA Asia-Pacific Markets in Hong Kong issued a report saying the stock was wildly inflated. Jenny Chase, lead solar industry analyst at Bloomberg New Energy Finance, published a note on March 6 saying Hanergy is working with “unproven” technology and that it hasn’t detailed a level of installations that would help justify its valuation.

  Paradoxically, the more public caution about Hanergy’s parabolic, circular surge there was, the higher the stock traded… until the morning of May 20, when Li’s was suspiciously absent from the company’s annual meeting.  

  On that day, as the WSJ recalls, heavy trading in Hanergy’s stock began shortly before said annual general meeting began at 10 a.m. in Hong Kong on Wednesday. “At the time, trading in the stock was furious, with traders offering to buy and sell millions of shares at a time. Eventually, there were far more shares being offered for sale than there were buyers.”

  As the WSJ further reports, “at 10:17 a.m. and 23 seconds, a large 426,000 share sell order piled up at the current market price of HK$6.80. Two small trades were done at slightly lower prices, but then the price at which traders were willing to buy the shares fell to HK$3.45, 48% below the market’s price.”

  The instantaneous collapse at precisely 10:17:23 am in the Hanergy stock price can be seen on the following Nanex chart.

  

  Such market microstructure airpockets are very familiar to frequent Zero Hedge readers, appearing periodically and unexpectedly in virtually all HFT-traded stocks, and occasionally, such as on May 6, 2010, in the entire market.

  As Nanex’ Eric Hunsader notes, “a large seller exhausted liquidity and tipped the market over.. boom.“

  WSJ’s take:

  This low bid showed that there weren’t many buyers in the market, potentially setting the stage for a big share decline. Computer algorithms, which trade automatically based on current market data, likely detected the sudden shift and reacted by selling more or pulling out of the market altogether.

   

  Nearly 16 hundredths of a second later, a series of smaller buy orders ranging from 8,000 to 30,000 shares trades were made at rapidly declining prices. The first buy order was priced at HK$6.69, and four tenths of a second later, a trade occurred at HK$6.10. Once that trade occurred, the next highest bid became HK$3.45 and over the next several hundredths of a second, the price that people were willing to sell shares fell to HK$4.50.

   

  A trade occurred at HK$4.50, meaning the official market price had fallen by 26% in fractions of a second. Hanergy shares briefly recovered but then sold off again. They were trading at HK$3.91 when the shares were suspended at 10:40 after falling 47% and wiping out $20 billion worth of market value.

  Cited by the WSJ, Hunsader said the collapse “could have been caused by high-speed traders pulling out of the market due to heavy selling by an investor looking to unload a large chunk of stock.”

  Bingo.

  Because as it turns out, after accumulating a gargantuan position in the stock in order to diffuse speculation that his primary investment vehicles is a fraud, Mr. Li decided he had had enough. And decided to sell.

  He did this at first by shorting several billions shares of the stock in which he had built up an 80% stake.

  According to the WSJ, “on Friday in a filing with the Hong Kong Stock Exchange, Mr. Li disclosed he went short 759.7 million shares in Hanergy on Monday, two days before the annual meeting. This represented 1.9% of the company and about 5.3 times that day’s trading volume of Hanergy shares.”

  Bloomberg adds that Li “also increased his short position to 7.71 percent of Hanergy’s issued share capital from 5.81 percent on the same day.“

  The following Bloomberg screenshot reveals the original 5.81% short stake between China Geiko Investments and Hanergy Invest Ltd, both shell companies controlled by Li: an amount equal to about 2.4 billion shares.  The problem: at the same moment he was also long some 30.6 billion shares.

  

   

  Yet something must have provoked Li to switch his posture from a chronic buyer to an acute shorter/seller.

  That something was a very fundamental factor, the most fundamental of all – the company had run out of money.

  As Caixin reported, “the solar panel manufacturer whose listed subsidiary has suffered a sell-off of shares in Hong Kong failed to repay bank loans, sources close to the parent company say.“

  Worse, the selling avalanche and the subsequent suspension of trading means that all hell may be about to break loose according to Caixin, Hanergy had “used shares in its listed unit to take out bank loans, but has been unable to repay some of them. The share sales escalated after debtors made little progress in negotiations with the company over the defaults, those sources said.”

  More:

  Hanergy secured loans from Jinzhou Bank, in the northeastern province of Liaoning, in the second half of last year after the bank gave it an 8 billion yuan credit line, other people close to the firm said. In January last year, Hanergy reached a deal with China Minsheng Bank and a credit consortium the bank leads to provide the company with loans of no less than 20 billion yuan.

  In other words, the stock price itself had become the collateral against which the company was borrowing cash. So once the long-overdue selling finally started, the margin calls become a self-sustaining feedback loop and would flood the company with demands for ever more cash, and lead to a prompt and painful collapse.

  And nobody knew this better than the man who had orchestrated this entire Ponzi scheme: Mister Li himself.

  In other words, having sunk billions in real cash to generate paper profits against which to take out loans, Li tried to cash out. The problem – and one which we warn day after day when we point out the ever declining volume of the market on the way up – is that while there was no shortage of willing sellers as the stock was rising, once he pushed the bid a little too aggressively to accelerate his exit, he found just one thing: a bidless vacuum.

  What happened next? This.

  

   

  Don’t expect the company to rebound promptly when it reopens for trading. If it ever reopens, as by then the banks will have sent some of their less reputable “collection agents” to make sure they “collect” the money owed them by Mister Li, especially since they can’t sell a halted stock which serves as collateral for their loans.

  As for Li, all of this could have been avoided: he merely had to keep bidding a worthless stock to infinity. Sadly for him, unlike central banks, he does not have access to infinite cash with which to do so.

  Incidentally, all of this should remind regular readers of an almost identical example on this side of the Pacific.

  Remember CYNK: the illiquid stock of a company which did not even exist, and yet whose market cap rose to several billion, before a bout of selling wiped out all the equity holders, and forced the regulators to halt it and delist it, in the process wiping out its entire “value” built up courtesy of gullible idiots believing in “get rich quick” Ponzi schemes.

  This is what we wrote last July, in a post titled “How The Market Is Like CYNK.” In retrospect, our prediction is becoming painfully accurate, if only to billionaires willing to monetize their “paper” profits.

  For all the drama and comedy surrounding the epic idiocy in which a bunch of “investors” took the price of non-existent company CYNK from essentially zero to a market cap of over $5 billion in under a week, most people missed the key message here: the stock is a harbinger of what is happening to the entire market. Because while those defending what is clear irrational exuberance, scratch that, irrational idiocy are quick to point out that CYNK’s epic surge took place on less than 0.1% of its outstanding shares, these are the same people to say precisely the opposite about the S&P 500. “Ignore the collapsing volumes sending the stock market to all time high – it’s perfectly normal” is an often repeated refrain by the permabullish crowd. Just not when it involves case studies in market insanity like CYNK apparently.

   

  Perhaps ironically, it was the concurrent most recent crisis in Europe, that involving Portugal’s cryptic Espirito Santo group, whose top-most HoldCo is largely shrouded in secrecy yet which somehow is not a deterrent to the sellside community to issue one after another “all is clear; don’t pull your deposits please” note, that confirmed not only that nobody has any idea what the real situation of European banks is, but how the entire capital market has now become nothing more than one glorified CYNK penny-stock turning into a mid-cap.

   

  Deutsche Bank’s Jim Reid explains:

   

  Whatever one feels about financials and the wider financial system, credit markets did arguably get a small glimpse of what things will be like when this cycle does actually end as the structurally impaired liquidity that exists in credit caused a small amount of panic yesterday morning before markets recovered in the European afternoon session. Liquidity is really poor in credit these days which doesn’t matter when markets are in buy only mode as they have been for many quarters now, but it does matter on the days when you get a negative story.

   

  In other words, just like the CEO of CYNK who promptly “made” a few billion in paper profits, it feels great to “make” money on virtually no volume. The problem arises when one tries to cash out of paper and into all too real profits.

   

  And here is what happens when one does finally try to book profits: moments ago the OTC BB just announced that, finally, CYNK was finally halted.

   

  

  Increasingly we are witnessing how this “market”, if this rigged, illiquid, central-bank manipulated cesspool can be called a market, is precisely like CYNK.

  And as of this moment, Mister Li and Javier Romero, the President, CEO and secretary, in fact the only employee, of CYNK certainly have much in common: they see what happens when you levitate a company to mindblowing extremes on no volume and when you own the bulk of the float… and what happens when you try to offload it.

  Sadly, this is a lesson which the entire market, and all those who are buying on the way up, and confusing paper profits with actual wealth, will also learn the hard way.

  Because between CYNK and now Hanergy, we have had a very clear glimpse of the endgame: and as of this moment nobody can say they were not warned about how this most manipulated of asset bubbles ever, ends.

  

  

  
  
  

  

• Our Crazy-Making Economy's Endgame: Festering Frustration Seeking An Outlet

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  The consequence of policies that exacerbate injustice, inequality and double-bind demands is a madness that will find a social and economic outlet somewhere, sometime.

  We all know crazy-makers: people who make contradictory claims about reality, who say one thing and do another, who change their stories constantly to justify their own pursuit of self-interest, who demand the impossible of others while giving themselves unlimited excuses.

  When they can't change reality to suit their purposes, they change their accounts of reality, and stick with the revised stories even when they are contradictory.

  This describes the entire financial structure of the U.S.: crazy-making.

  We all know the U.S. economy is diseased, and the Powers That Be are attempting to mask the sickness with contradictory accounts of reality.

  To get ahead, you need a 4-year college diploma. But oops, the student debt you'll need to shoulder acts as a brake on getting ahead. And it turns out many of those who became debt-serfs to get a diploma actually end up in jobs that don't require a college education.

  One reality–soaring student loan debt and diminishing value of the product, a college diploma–and two contradictory stories.

  Systems theorist/anthropologist Gregory Bateson developed (with others) the concept of double bind, a psychological and social conflict in which contradictory demands generate a form of schizophrenia:

  Unlike the usual no-win situation, the subject has difficulty in defining the exact nature of the paradoxical situation in which he or she is caught. The contradiction may be unexpressed in its immediate context and therefore invisible to external observers, only becoming evident when a prior communication is considered. Typically, a demand is imposed upon the subject by someone who they respect (such as a parent, teacher or doctor) but the demand itself is inherently impossible to fulfill because some broader context forbids it. For example, this situation arises when a person in a position of authority imposes two contradictory conditions but there exists an unspoken rule that one must never question authority.

  Consider the schizophrenia-generating contradictions underpinning all U.S. economic policy.

  We have to keep interest rates near-zero forever because the economy is weak, but the economy is strong–look at the low unemployment rate.

  Well, which one is it? The official answer: both. The U.S. economy is both strong and weak at the same time. Interestingly, it's strong in terms of official measures of employment and jobs, but weak in financial terms.

  This means there's nothing to be fixed for those working for a living, and everything to fix for financiers and banks, who are struggling due to weak financial fundamentals.

  Meanwhile, corporate and financier profits are soaring to record levels and wages have stagnated for years. Wait a minute–weren't we just told that the financial fundamentals are weak, hence the need for zero interest rates for ever, and that job growth was strong?

  These are internally inconsistent accounts of reality, i.e. crazy-making. Here are corporate profits–to the moon, baby:

  

  Here are wages/salaries: going nowhere for 15 years (or 40 years, if we go back to the 1970s):

  

  Financialization has enriched the few with access to free money for financiers and those who own assets favored by the Fed and left everyone earning a living in the dust:

  

  The Federal Reserve insists on maintaining this crazy-making double bind because the stock market depends on both conditions being true at the same time: the economy must be expanding so profits can loft ever higher, but the economy must also be weak and ill so the Fed will continue its policies of zero interest rates (ZIRP) and free money for financiers that have pumped trillions of dollars into "risk-on" assets like stocks.

  If either of these contradictory conditions is erased, the stock market will tumble, as neither a weak economy nor zero interest rates (ZIRP) alone is sufficient to maintain the stock market's current sky-high valuations: profits must continue rising and rates must stay zero to enable carry trades, stock buy-backs, and all the other financial finagling that has driven stocks into the stratosphere.

  In effect, the Fed and all the other organs of propaganda are telling the American public:don't you dare trust your lying eyes, ears, mind and awareness of rising insecurity–believe us.

  Crazy-making contradictions generate free-floating anxiety, frustration and rage that then seek an outlet. The essence of official crazy-making is that dissent–protests that the official stories are patently false–is suppressed, marginalized or ridiculed. This is the purpose of a militarized Police State–to suppress anything that questions authority and that might undermine the schizophrenic policies and propaganda.

  The endgame of crazy-making is that just about anything can suddenly become an outlet for the rage, frustration and anxiety that is the only possible output of schizophrenic policies. A minor civil disturbance morphs into a major riot; a limited melee at a sports event metastasizes into a destructive free-for-all, and a peaceful gathering turns ugly seemingly without cause.

  These are expressions of the social and economic double-binds that are being imposed on the citizenry as the last-ditch method of retaining control of the nation's wealth and power–both of which are flowing into the hands of the few at the expense of the many.

  You can impose crazy-making policies and propagandize a schizophrenic economy, but you can't bottle up the resulting frustration, anxiety and rage forever. Our oligarchic Elite reckons it can suppress anything and everything with Police State tactics, but the madness they have created will not be so easily controlled.

  The consequence of policies that exacerbate injustice, inequality and double-bind demands is a madness that will find a social and economic outlet somewhere, sometime, and probably at a moment when few in the Power Elite expect it.

  

  

  
  
  

  

• Apple Watch: Epic Dud?

  With Apple Watches still on back-order (due to defective supply, not abundant demand) and the sell-side confused as to whether it will be a great success (Morgan Stanley's exuberant extrapolation of Google searches) or a damp squib (KGI cut estimates on demand slowing), the latest projections from Slice Intelligence suggest things are definitely going so well for the world's largest gadget-maker.

  After the first minute of the first day's initial (and oh so American short-attention-span-confirming) burst of buying…

  

   

  Things have tailed off dramatically… averaging under 30k per day being ordered (according to Slice Intelligence projections)

  

  Slice Intelligence's projections are based on data that it tracks from US consumer spending through e-commerce email receipts.

  As QZ reports,

  Apple has taken orders for almost 2.5 million watches in the US through Monday, May 18, according to Slice’s projections, which are based on more than 14,000 online shoppers.

   

  More than half of those orders were placed on April 10, the first day Apple accepted watch pre-orders in the US and eight other countries, according to Slice.

  *  *  *

  Perhaps, The Daily Mash's satirically-conjured man's perspective of his first day wearing the device is closer to home after all…

  Sales manager Tom Logan’s new Apple Watch has been unexpectedly ridiculed by his work colleagues.

   

  32-year-old Logan felt confident that his futuristic timepiece would attract admiring glances rather than unflattering Knight Rider comparisons.

   

  

   

  He said: “I had it all planned out – not saying anything about it, but then somebody just notices and goes ‘is that the new Apple Watch?’. I would respond simply with a wry Clooney-esque smile and they would mouth the word ‘awesome’.

   

  “What actually happened is somebody said ‘what the fuck’s that weird-looking thing?’

   

  “I explained that it was the brand new Apple Watch and they went ‘HAHAHA’ in a really deliberately hurtful way. The accounts assistant said it was the opposite of a fanny magnet and everyone cracked up.

   

  “Then everyone started pretending to talk into their watches, saying things like ‘come in KITT, I am a massive tosser, please help’.”

   

  By 10am Logan had removed the watch. He explained: “It wasn’t because people were being sarcastic, I just had a hot wrist, everyone gets a hot wrist sometimes.

   

  “People get jealous of early adopters.”

   

  

  
  
  

  

• 5 Things To Ponder: Everybody's Got One

  Submitted by Lance Roberts via STA Wealth Management,

  Over the last couple of months, I have regularly updated the ongoing consolidation process in the S&P 500. As I noted earlier this week, that consolidation was completed confirming the current bull trend in the market. To wit:

   "I stated previously that I expected the consolidation to resolve itself to the upside due to the underlying momentum in the markets. As I discussed in this past weekends newsletter (subscribe for free e-delivery), the resolution of that consolidation has now been achieved."

  

  "This [breakout] suggests that portfolios should remain FULLY ALLOCATED to equities for the time being as the tendency for the markets remains upwardly biased.

   

  WARNING: This does NOT mean that this will be the case for the next three (3) months or the next year. It just means that the markets are still moving higher at the current time. However, investors should continue to monitor portfolios and manage risk going forward as things will change. As I have discussed previously, this does NOT mean that all market risk is now resolved,  or that investors should return to their complacent slumber. See "Bull Market Most Overbought/Leveraged In History."

   

  I want to be quite clear about my comments. My job is to manage portfolios in a manner to participate in markets when they are rising and protect capital when they are not. Therefore, focusing on WHY markets are rising is of little importance because portfolios are already invested. My attention needs to be directed toward WHAT may cause markets to buckle unexpectedly. It is because of that analysis that I am often viewed as a "bear." In reality, I am agnostic, and because I am discussing the markets bullish breakout it does NOT mean that I have somehow changed my views.

   

  IT IS WHAT IT IS. Denying the fact markets are rising, and failing to participate in the short term, is just as damaging as participating in a sharp market decline. In BOTH events, I am destroying client capital."

  This weekend's reading list is a compilation of opinions on the current state of the makrkets and investing. And as the old saying goes – "opinions are like ***holes, everybody's got one."

  ---

  1) Investors Need To Face The Possibility Of A "Great Reset" by Mark Hulbert via MarketWatch

  "Watch out if corporate-profit margins narrow to their long-term average share of gross domestic product. If so, the S&P 500 Index would trade at less than 1,700 in five years, a decline of more than 20%.

  I'm not necessarily forecasting such a dismal eventuality, though it's in the realm of possibility. I merely point it out to illustrate how dependent the stock market is on wide profit margins.

   

  Few seem to be focusing on this vulnerability."

  Read Also: A Stock Market Top Is Likely Near by Mark Hulbert via MarketWatch

   

  2) Monetary Movements & Economic Mirage by Gavekal via Gavekal Capital Blog

  "If the Fed has quietly decided to not only abandon any prospect of rate increases, but begin expanding its balance sheet again (in some stealth QE), stocks probably do propel out the year long relative strength consolidation with bonds. But, if not, then stock managers should be particularly attuned to monetary movements and the economic mirage in the US. Our simple model of the change in Fed asset compared to the total return of stocks vs. bonds, suggests the potential for significant bond outperformance if the Fed sticks to its plan of a 2015 lift-off."

  

  Read Also: Lower Earnings, Higher Stock Prices by Charlie Bilello via Pension Partners

   

  3) Valuation & The Fed Model by Dr. Yardeni via Dr. Ed's Blog

  "Valuation like beauty is in the eye of the beholder. With bond yields at historical lows, why shouldn't valuation multiples be at historical highs? At 2%, the 10-year Treasury bond yield has an effective forward P/E of 50, implying that stocks trading at a forward earnings yield of 5.9% and a multiple of 17 are grossly undervalued by as much as 62%. Of course, this "Fed Model," as I first named it back in July 1997, has been showing that stocks are undervalued since the Tech bubble burst. Furthermore, historically low interest rates may be a sign of secular stagnation, which isn't particularly bullish."

  

  Read Also: Market Is Becalmed, No Reason To Rally Or Sell by AP via NYT

  Read Also: The Fallacy Of The Fed Model by Lance Roberts via Streettalklive.com

   

  4) Liquidity Starved Markets Fear The Worst by Simon Nixon via WSJ

  "The optimistic view is that over time the market will innovate its way around the liquidity squeeze. Perhaps trading will migrate to the futures market and new fixed- income indices, allowing investors to gain exposure to price moves without having to own the underlying asset. Or perhaps new private pools of capital such as hedge funds will take the place of bank-based market makers in providing daily liquidity, although currently they show little appetite to do so. Or maybe longer-term investors such as insurers and pension funds will simply step in and hold less liquid assets to maturity, although this may require a change in the way these businesses are regulated.

   

  An alternative view is that the liquidity squeeze is symptomatic of less benign changes in the financial landscape. In the 30 years since the Big Bang reforms in the City of London and the repeal of the Glass-Steagall Act in the U.S., capital markets have provided the motor for globalization, underpinned by the liquidity provided by banks. If banks stop making markets, the risk is that this process goes into reverse: As investors discover they can't sell their assets, they may stop buying too, pushing up the cost and reducing the supply of capital to the primary market."

  Read Also:  This Chart Gets Us To 2425 On The S&P by Sam Ro via Business Insider

  

   

  5) The Debate Of Tobin's Q Ratio

  "If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you'd have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality."

   

  Read: Nobel Winner's Math Is Showing Market Unhinged From Reality via Bloomberg

   

  ""But how useful is this ratio in reality? In my view, not very. And the problem, as I've explained before, is that it tries to apply a historical concept of mean reverting "value" in a world where the concept of value could be (and likely is) totally dynamic."

   

  Read: Thoughts On Tobin's Q by Cullen Roche via Pragmatic Capitalism

   

  ""I'm usually very skeptical of these market models. For one reason, just because the market is over-valued doesn't mean that it won't become even more richly valued."

   

  Read: Don't Fret About Tobin's Q by Eddy Elfenbein via Crossing Wall Street

  ---

  MUST READS

  Meb Faber's April Tweets via Meb Faber Research

  A veritable smorgasbord of great data points worth your time to review. Great stuff Meb.

  4 Factors Signaling Volatility Will Return With A Vengence by Nomi Prins via ZeroHedge

  "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."

  Is This The Top? by Ben Carlson via Wealth Of Common Sense

  "Here are some better questions to be asking yourself."

  These Are The 10 Things That You Will Do That Will Kill Your Returns by The Irrelevant Investor

  No matter what investors SAY they will do, they will almost always succumb to the emotional investment mistakes caused by being human. Might as well understand them up front.

  ---

  

  Have a great weekend.

  

  
  
  

  

• The Fed Hasn't Solved Anything… All It's Done Is Set Up an Even Bigger Crisis

  The 2008 Crisis was caused by too much debt/ leverage, particularly in the form of illiquid derivatives (mortgage backed securities get the most attention, but the derivatives market was well over $800 trillion at the time of the crisis).

   

  To combat the financial crisis, the Fed did three things:

   

  1)   Cut rates to zero.

  2)   Abandon accounting standards.

  3)   Engage in Quantitative Easing/ QE.

   

  None of these policies represented “solutions” to the crisis. In fact, you couldn’t even accurately argue that they represented “containment.” What the Fed did was permit the very cancerous securities that nearly imploded the Wall Street banks to spread beyond from the private sector onto the public’s balance sheet.

   

  You cannot cure cancer by letting it spread from one area of the body to the next. You cannot solve a termite problem by letting the termites move somewhere else in a house. So how could one argue that you could solve a financial crisis by letting the problems spread elsewhere in the financial system?

   

  Consider mere leverage levels. Going into the 2008 crisis, the investment banks sported leverage levels in the 30-40s. Lehman was leveraged at 31 to 1. Morgan Stanley was leveraged at 30 to 1. Merrill Lynch peaked out in the low 40s.

   

  Today, the Fed’s has $57.6 billion in capital and $4. 4 TRILLION in assets. That represents a leverage level of 75 to 1.

   

  The Fed will argue that this leverage does not matter because it can print money to increase its leverage levels. This is technically true, but doesn’t alter the fact that the Fed has backed itself into a corner by buying up over $3.5 trillion worth of stuff… which the Fed has no idea how to exit.

   

  Indeed, we know that Janet Yellen was “somewhat concerned about exit strategies” back in 2009 when the Fed’s balance sheet was $2 trillion or so. Today it’s more than TWICE that. One wonders just how “concerned” she is today, with the Fed’s balance sheet larger in size than the GDP for most developed countries.

   

  Even more absurd is the Fed’s ongoing issue with interest rates. Never before in history has the Fed kept rates at zero for 5+ years. But then again, never before has the Fed’s real taskmasters, the TBTFs, been sitting on over $180 trillion in interest rate based derivatives.

   

  Those who shrug off these issues are overlooking the fact that the treasury dept. has ordered survival kits for employees at the TBTFs… while the New York Fed, has been boosting its satellite office in Chicago in preparation for potential market dislocations when the inevitable interest rate hike hits.

   

  Indeed, nothing exposes the fallacies of the Fed’s policies of the last five years like its horror at the prospect of raising rates even a little bit. Rates have been effectively zero for five years. Today, the Fed is so concerned about what even ONE rate hike would do that it is actively preparing for potential systemic risk.

   

  A second round of the great crisis is coming. The Fed didn’t fix 2008.; it simply set the stage for something even worse.

   

  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

   

   

  

  
  
  

  

• Sudden Selling Panic Sends Stocks Reeling On Dollar's Best Week Since Lehman

  VIX Smashed, Euro Trashed, Bonds Cashed, Stocks Dashed… and Markets BREAK!!! 1517ET BATS BYX HAS DECLARED SELF-HELP AGAINST NASDAQ

   

  In case it was unclear from all the positive spin post-Yellen speech… (h/t @jonvthvn)

  

   

  On the day – it was very quiet with some excitement around a hot CPI and not-hot Janet Yellen

  

   

  Everything might have been awesome for The Nasdaq and Small Caps high-beta buffonery, but Trannies werer trounced on the week…

  

   

  Sectors were very mixed on the week…

  

   

  While cash looks relatively stable… the serious swings in the equity markets are much clearer when looking at futures…

  

  NOTE – just look again at the week in cash and the week in futures… now look at VIX!

   

  VIX was smashed to an 11 handle – lowest since early December…

  

   

  Before it started to rip back higher and so th emarket broke…

  

   

  Treasury yields ended the week higher – jumping notably after today's CPI data…(but note the flattening of the curve – 5Y notably underperforming 30Y)

  

   

  The USDollar rose well over 3% this week – its best week since Lehman…

  

   

  Led by a 4%-plus collapse in the Euro – its worst since Lehman…

  

   

  The USD strength kept commodities under pressure (with copper worst)… higher than expected inflation – sell Gold!

  

   

  Crude had another magical v-shaped recovery week…

  

   

  Charts: Bloomberg

  Bonus Chart: Did the Microsoft curse strike again?

  

  

  
  
  

  

• Hill-nochio

  “I got no strings on me…”

   

  

   

  Source: Townhall

  

  

  
  
  

  

• Bank Of England Accidentally E-mails Top-Secret Brexit Plan To Newspaper

  The first rule of “Project Bookend” is that you don’t talk about “Project Bookend.”

  In retrospect, maybe the first rule should have been “you don’t accidentally e-mail ‘Project Bookend’ to a news agency”, because as the Guardian reports, one of its editors opened his inbox and was surprised to find a message from the BOE’s Head of Press Jeremy Harrison outlining the UK financial market equivalent of the Manhattan project. 

  Project Bookend is a secret (or ‘was’ a secret) initiative undertaken by the BOE to study what the fallout might be from a potential ‘Brexit’, but if anyone asked what Sir Jon Cunliffe and a few senior staffers were up to, they were instructed to say that they were busy investigating “a broad range of European economic issues.”

  Here’s more from The Guardian:

  Bank of England officials are secretly researching the financial shocks that could hit Britain if there is a vote to leave the European Union in the forthcoming referendum.

   

  The Bank blew its cover on Friday when it accidentally emailed details of the project – including how the bank intended to fend off any inquiries about its work – direct to the Guardian.

   

  According to the confidential email, the press and most staff in Threadneedle Street must be kept in the dark about the work underway, which has been dubbed Project Bookend…

   

  MPs are now likely to ask whether the Bank intended to inform parliament that a major review of Britain’s prospects outside the EU was being undertaken by the institution that acts as the UK’s main financial regulator. Carney is also likely to come under pressure within the Bank to reveal whether there are other undercover projects underway.

   

  Officials are likely to have kept the project under wraps to avoid entering the highly charged debate around the EU referendum, which has jumped to the top of the political agenda since the Conservatives secured an overall majority. Many business leaders and pro-EU campaigners have warned that “Brexit” would hit British exports and damage the standing of the City of London.

   

  The email indicates that a small group of senior staff are to examine the effect of a Brexit under the authority of Sir Jon Cunliffe, who as deputy director for financial stability has responsibility for monitoring the risk of another market crash. 

   

  Cunliffe also sits on the board of the City regulator, the Prudential Regulatory Authority.

   

  The email from Cunliffe’s private secretary to four senior executives, was written on 21 May and forwarded by mistake to a Guardian editor by the Bank’s head of press, Jeremy Harrison.

  It says: “Jon’s proposal, which he has asked me to highlight to you, is that no email is sent to James’s team or more broadly around the Bank about the project.”

   

  It continues: “James can tell his team that he is working on a short-term project on European economics in International [division] which will last a couple of months. This will be in-depth work on a broad range of European economic issues. Ideally he would then say no more.”

  *  *  *

  In sum: Mark Carney accidentally pulled a Coeure who intentionally pulled a Yellen. 

  On the bright side for Carney, it looks like he’s making big strides when it comes to his goal of providing “greater transparency over [the BOE’s] decision-making.”

  

  

  
  
  

  

• And The Market Breaks (As VIX Hits 2015 Lows)

  Surprise!!!!

  VIX hit 2015 lows and started to rip higher…

  

   

  So something had to be done…

   

  

   

  • *BATS BYX HAS DECLARED SELF-HELP AGAINST NASDAQ
  • *BATS:ROUTING TO NASDAQ HAS BEEN SUSPENDED AS OF 3:13 PM NY TIME

  When Nasdaq goes dark, #HFT machines freak out (“Mommy!”) and the % of non-NBBO quotes goes wild pic.twitter.com/OvrWwMMQJ7

  — Eric Scott Hunsader (@nanexllc) May 22, 2015

  

  
  
  

  

• Clinton Benghazi E-mails Released, Show "Sensitive" Information Was Sent From Personal Server

  The State Department has released 850 pages of e-mails from Hillary Clinton’s private e-mail address. Clinton has been under fire for using a private e-mail server (as opposed to an official government account) to discuss potentially sensitive matters of national security and foreign policy during her tenure as the nation’s top diplomat. Specifically, there are big questions about who knew what and when about an attack on US outposts in Benghazi that killed US ambassador J. Christopher Stevens. 

  Clinton has said she wants the e-mails to be released and The State Department is using this as a “we told you so” moment as you can see from the following statement:

  “The emails we release today do not change the essential facts or our understanding of the events before, during, or after the attacks, which have been known since the independent Accountability Review Board report on the Benghazi attacks was released almost 2½ years ago.”

  Nevertheless, the release isn’t likely to impress Clinton’s critics who note that the now-public documents represent but a small fraction of the 55,000 pages turned over to Congress and even though the rest of e-mails are set to be released on a “rolling basis”, what the public sees is ultimately filtered through Clinton’s attorneys so you can be absolutely certain that there will be no Seymour Hersh moments to be had by sifting through the pile. Here’s Rep. Trey Gowdy who heads the House Select Committee on Benghazi:

  “State Department transferred 300 messages exclusively reviewed and released by her own lawyers. These lawyers, it must be noted, owed and continue to owe a fiduciary responsibility to Secretary Clinton to protect her interests. To assume a self-selected public record is complete, when no one with a duty or responsibility to the public had the ability to take part in the selection, requires a leap in logic no impartial reviewer should be required to make and strains credibility.”

  It sure does, but be that as it may, there were a few interesting things to be gleaned from perusing the documents. The first batch of e-mails released to the NY Times on Thursday do not seem to suggest that Clinton received or transmitted any classified information on her personal e-mail server, but that isn’t the interesting part because after all, if there’s evidence she did transmit such information, the lawyers would make sure those e-mails didn’t see the light of day. What is interesting though is that there’s a whole lot of SBU flying around. SBU stands for “sensitive but unclassified”, and as you’ll see from the below, some of the information probably shouldn’t have been sent from a private account:

  Via NY Times:

  The day after the Sept. 11, 2012, attacks on American outposts in Benghazi that killed Mr. Stevens and three other Americans, Mr. Blumenthal sent Mrs. Clinton a memo with his intelligence about what had occurred. The memo said the attacks were by “demonstrators” who “were inspired by what many devout Libyan viewed as a sacrilegious internet video on the prophet Mohammed originating in America.” Mrs. Clinton forwarded the memo to Mr. Sullivan, saying “More info.” (Pages 193-195)..

   

  The next day, Mr. Blumenthal sent Mrs. Clinton a more thorough account of what had occurred. Citing “sensitive sources” in Libya, the memo provided extensive detail about the episode, saying that the siege had been set off by members of Ansar al-Shariah, the Libyan terrorist group. Those militants had ties to Al Qaeda, had planned the attacks for a month and had used a nearby protest as cover for the siege, the memo said. “We should get this around asap” Mrs. Clinton said in an email to Mr. Sullivan. “Will do,” he responded. That information contradicted the Obama administration’s narrative at the time about what had spawned the attacks. Republicans have said the administration misled the country about the attacks because it did not want to undermine the notion that President Obama, who was up for re-election, was winning the war on terrorism. (Pages 200-203)..

   

  Mrs. Clinton’s emails show that she had a special type of government information known as “sensitive but unclassified,” or “SBU,” in her account. That information included the whereabouts and travel plans of American officials in Libya as security there deteriorated during the uprising against the leadership of Col. Muammar el-Qaddafi in 2011. Nearly a year and a half before the attacks in Benghazi, Mr. Stevens, then an American envoy to the rebels, considered leaving Benghazi citing deteriorating security, according to an email to Mrs. Clinton marked “SBU.”

  So nothing “classified” there which should perhaps raise questions in and of itself because if top level discussions about what might have caused the death of a US diplomat in a country that was (and still is) engulfed in a civil war, doesn’t constitute “classified” information, then one shudders to think what does. 

  Further, the fact that Clinton was exchanging mails on her private server that revealed the whereabouts and travel plans of the very same ambassador who was later killed is a bit disconcerting, as is the fact that apparently, the travel itinerary of diplomats in conflict zones is apparently not top secret enough to be deemed classified. Of course we guess the latter point there makes sense, considering that government officials probably only have so much mental bandwidth when it comes to “classified” things before it becomes impossible to keep up with all the lies and when you’re busy doing things like crafting complex narratives to justify overthrowing a dictator so you can help your Middle Eastern friends help you by piping natural gas to Europe in an effort to cripple Russia, small-ish things like telegraphing the whereabouts of ambassadors might have a tendency to fall through the classified cracks by being judged to be merely “sensitive.” 

  Finally, it does look like there may have been an effort (although it’s not clear, and probably never will be, how concerted the effort was), to delay going public with the whole “it was actually terrorists who killed him” bit, but then again who knows because when it comes to the government’s relationship with militants fighting to usurp regimes in strategic and/or oil-rich Middle Eastern countries, all bets are off and the public will likely never read an e-mail that contains anything that even approximates the real story. 

  Read and draw your own conclusions…

  ClintonEmails.pdf

  

  

  
  
  

  

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• OBAMAS MaSSiVe FiGHT WiTH WaLL STReeT…

  .

   

  Our banks have admitted to crimes

  And sentenced to pay a few dimes

  While profits they see

  Front-running QE

  We’re living in interesting times

  The Limerick King

  

  
  
  

  

• ECB's Willful Ignorance: Leaking Central Bank Says Austerity "Compliments" QE

  Earlier this week, the ECB’s Benoit Coeure pulled a Janet Yellen and told a non-public audience of hedge funds that because markets are usually less liquid in the July-August “lull”, the central bank would be “slightly” front-loading PSPP purchases in May and June. This bit of very material, very non-public information promptly triggered a quick move lower in the EURUSD before things calmed down. Some ten hours later, the ECB was kind enough to share that information with the public which of course precipitated a 150 pip EURUSD plunge prompting us to ask just how many other mysterious market moves can be explained by “Chatham House rule” meetings heald by The ECB each day/week/month?

  The ECB’s move to front-load asset purchases effectively means that QE will be expanded in months when net supply is positive and tapered when negative, which underscores a feature of PSPP that sets it apart from QE in the US and Japan: Mario Draghi is buying at a time when European governments have been cornered into an austerity fixation by the troika, meaning in many cases, monthly asset purchase targets will be difficult to hit owing lackluster supply. 

  This of course highlights something rather absurd about the ECB’s asset purchase program specifically, and about Brussels’ stance on fiscal discipline more generally. Namely, there’s something quite contradictory about telling governments to tighten their belts while promising to buy any and every piece of paper their treasury departments care to issue. In fact, it’s probably fair to say that a €1.1 trillion QE program simply cannot peacefully coexist with a strict, currency bloc-wide austerity policy.

  This glaring contraction was on full display at the ECB’s April 14-15 policy meeting, minutes show.

  Here’s more via the ECB:

  Since the Governing Council’s previous monetary policy meeting on 4-5 March 2015, the implementation of the ECB’s expanded asset purchase programme (APP) had had a significant impact on euro area financial markets, contributing to further declines in government bond yields, while higher levels of excess liquidity had put downward pressure on euro money market rates. The euro had continued to depreciate against the US dollar, reaching a low of USD 1.05 per euro.

   

  Since the start of purchases under the public sector purchase programme (PSPP) on 9 March, sovereign bond yields had declined further, reaching new historical lows in almost all euro area jurisdictions, the impact being strongest at the longer end of the yield curve. However, over the course of the month, yields in some jurisdictions had partly reversed the earlier declines that had immediately followed the start of the programme. Yield curves had remained lower and flatter than on 4 March, i.e. just before the announcement of the details on PSPP implementation. The downward shift was even more apparent when comparing prevailing yield curves with those observed immediately before the announcement of the APP on 22 January.

  In other words, the ECB’s announcement in January has made it easier for EMU governments to borrow (the opposite of fiscal discipline), recent bond market turmoil notwithstanding. But the ECB is willfully ignorant (at least we hope it’s willful, although with central bankers, it’s hard to say what they might or might not understand) of the fact that its policies run counter to notions of fiscal restraint:

  At the same time, a strong signal needed to be sent to euro area governments urging them to press ahead with structural reforms and to take measures to improve the business environment. Only with such complementary action could the full benefits of the monetary policy measures be reaped. Swift and effective implementation of appropriate reforms in the euro area would not only lead to higher sustainable growth in the medium to long term but also raise expectations of permanently higher incomes and encourage households to expand consumption and firms to increase investment already in the near term. In addition, fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact.

  It doesn’t get much more ridiculous than that. Coeure has just called fiscal reform “complementary” to a €1.1 trillion government bond buying program. But these two things aren’t complimentary at all, a fact which is on full display in Germany where the government does not need to borrow money, meaning that unless Bunds can be purchased in the secondary market, QE simply can’t be implemented in full under the capital key. 

  With these types on conflicting messages coming out of EMU officials, is it any wonder that “ascendant” socilaists are challenging austerity?

  

  

  
  
  

  

• George Soros Warns "No Exaggeration" That China-US On "Threshold Of World War 3"

  While admitting that reaching agreement between the two countries will be difficult to achieve, George Soros – speaking at The World Bank’s Bretton Woods conference this week – warned that unless the U.S. makes ‘major concessions’ and allows China’s currency to join the IMF’s basket of currencies, “there is a real danger China will align itself with Russia politically and militarily, and then the threat of world war becomes real.”

   

  Much in global geopolitics depends on the health and trajectory of the Chinese economy, was the undertone of George Soros’ comments as he spoke this week, but as MarketWatch reports,

  Billionaire investor George Soros said flatly that he’s concerned about the possibility of another world war.

   

  …

   

  If China’s efforts to transition to a domestic-demand led economy from an export engine falter, there is a “likelihood” that China’s rulers would foster an external conflict to keep the country together and hold on to power.

   

  …

   

  To avoid this scenario, Soros called on the U.S. to make a “major concession” and allow China’s currency to join the International Monetary Fund’s basket of currencies. This would make the yuan a potential rival to the dollar as a global reserve currency.

   

  In return, China would have to make similar major concessions to reform its economy, such as accepting the rule of law, Soros said.

   

  Allowing China’s yuan to be a market currency would create “a binding connection” between the two systems.

   

  An agreement along these lines will be difficult to achieve, Soros said, but the alternative is so unpleasant.

   

  “Without it, there is a real danger that China will align itself with Russia politically and militarily, and then the threat of third world war becomes real, so it is worth trying.”

  And while on the topic, Soros also spoke recently, as ValueWalk notes, on the situation in Europe…

  “The European Union was a very inspiring idea to people like me,” he commented, reflecting back to when EU economies were more balanced. “It was the embodiment of the idea of an open society, like minded countries getting together and sacrificing part of their sovereignty for the common good.  It was meant to be a voluntary association of equals.”

   

  Soros continued to say: “Because of the Euro crisis, [the E.U.] has been transformed into something radically different.” He also emphasized that over time two different classes of countries have evolved: creditors and debtors. “The debtors had difficulty meeting their obligations and this put the creditors in charge. They (the creditors) set the rules and made it very difficult for the debtors to exit their inferior status. A voluntary association of equals turned into an involuntary association of un-equals.”

   

  While avoiding making predictions, on Greece Soros noted: “Greece is a poisonous situation. All sides have made a lot of mistakes, and there is a lot of hostility, a lot of negative sentiments…Both sides are willing to hurt the other side even if it hurts them.”

  *  *  *

  The billionaire investor concluded by pointing out that military spending is currently on the rise in both Russia and China, warning ominously…

  “If there is conflict between China and a military ally of the United States, like Japan, then it is not an exaggeration to say that we are on the threshold of a third world war.”

  

  

  
  
  

  

• Guest Post: This October The World Will Change – "China Is Preparing For Something Big"

  Submitted by Mac Slavo via SHTFPlan.com,

  “China… across the board… is preparing for something big in currency markets.”

  (Video Via Future Money Trends)

  This October may see the beginning of the end for the U.S. dollar as the world’s reserve currency. Twice every decade the International Monetary Fund meets to discuss their Special Drawing Rights (SDR) currency basket. Currently comprised of the dollar, Japanese Yen, British Pound and Euro, if China has their way a few months from now, we may well see the Chinese Yuan take its place among the world’s most trusted currencies.

  U.S. Treasury Secretary Jack Lew says, “China isn’t ready for currency reserve status,” and would certainly like to see the Chinese blocked from entry, preserving the dollar’s status as the world’s go-to currency and primary mechanism of exchange for global international trade.

  But while Lew and his predecessors have presided over the largest growth in national debt in world history, the Chinese have been strategically positioning, much like the United States did in the early 1900’s, to not just become the world’s largest economy, but to be the super power of the 21st century.

  Forget for a moment what’s being touted by analysts, forecasters, politicians, and financial officials who say China is not ready. Focus instead on the actions being undertaken by China and you’ll understand why Chinese President Hu Jintao says that the dollar is a product of the past.

  Excerpted From Future Money Trends:

   

  Already we are seeing China and Russia hoard gold with Chinese demand skyrocketing in the past give year… China is both, the world’s largest gold producer and biggest importer… so not only are they accumulating gold by the truck load, but not one ounce produced is leaving their shore.

   

  China… across the board… is preparing for something big in currency markets.

   

  …

   

  The world has an unease about the dollar system… President Hu of China said ‘the dollar is a product of the past.’

  There was a time when the U.S. dollar was backed by gold. This backing helped to solidify it as a currency that could be trusted on the open market. Today, however, for all intents and purposes, the dollar is backed by absolutely nothing.

  It is this weakness that the Chinese aim to exploit and that’s why they have been actively stockpiling thousands of tons of gold in recent years. But this is only part of the story.

  In addition to their physical gold holdings, the Chinese have been using a secret gold accumulation strategy that no one is talking about :

  The headlines for gold these past few years have only focused on physical gold accumulation by China, Russia and Eastern central banks. But what they have missed is a 7,000 year-old strategy that China is doubling down on.

   

  According to data compiled by Bloomberg, in 2013 asset purchases by Hong Kong and [Chinese] mainland miners increased to a record $2.2 billion.

   

  China is buying gold mines at a record… something completely missed by both, the mainstream investor and even the gold analysts who tend to only focus on the bullion sales, which haven’t been disclosed officially since 2009.

   

  Although, according to Bloomberg, based on trade data the physical bullion stockpile has likely tripled since then.

   

  China, who is aggressively buying gold, would spark an event if it disclosed how much gold it has stockpiled.

   

  But imagine the true disclosure when you add up all their deposits… not just in China, but offshore. $2.2 billion is equivalent to 46 metric tons of physical gold… but when buying gold deposits in the ground this could be upwards of 5,000 metric tons.

   

  And that is just one year of record mine buying from China.

  It’s been rumored that China may disclose those gold holdings ahead of the IMF’s decision this October in an effort to prove to the world that their currency is not only worthy of admission into the SDR basket, but that it is more trustworthy than the U.S. dollar itself.

  The winds of change are blowing and the Chinese will soon be taking the helm of the global economy. They know a major event is coming and they have been preparing for it by acquiring the one asset that has survived the test of time as a mechanism of exchange.

  For those desperately trying to figure out where they should be putting their money before the next major market event takes shape, consider following their strategy.

  

  

  
  
  

  

• Welcome To The Oligarch Recovery: 82% Of US Construction Is Luxury Units

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Here is good news for the plutocrat who wants to try out Manhattan’s ritziest neighborhoods before taking the multimillion-dollar plunge. The market for super-high-end rentals is booming, with plenty of enticing options for tenants of every taste.

   

  In all, 82 apartments renting for at least $50,000 a month were listed on StreetEasy during the first three months of the year, more than triple the number listed in the first quarter of 2008. At lower thresholds, luxury listings are also on the rise. Apartments renting for more than $25,000 a month made up 0.95 percent of total inventory in the first quarter of 2015, up from 0.46 percent in the first quarter of 2008…

   

  Of 370,000 multifamily rental units completed from 2012 to 2014 in 54 U.S. metropolitan areas, 82% were in the luxury category, according to CoStar Group Inc., a real-estate research firm. The firm defines luxury buildings as those that command rents in the top 20% of the market. In some places, including Denver, Tampa, Baltimore and Phoenix, virtually all new apartment construction has been targeted to high-end renters. In Atlanta, about 95% of new apartments have been in the luxury category.

   

  – From Bloomberg and the Wall Street Journal

  The oligarch recovery marches forward with reckless enthusiasm, despite extremely disturbing underlying trends which are all but guaranteed to result in significant societal unrest in the years ahead. The U.S. economy, and indeed the global economy, is much more similar to pre-1789 France than any other historical period I can think of.

  You have a handful of super wealthy people, completely disconnected from any sense of reality, running around telling governments what to do. All the same characters who created the global financial crisis remain in charge of the world’s most powerful institutions, and continue to benefit handsomely from its aftermath. While claiming to have “saved the global economy,” the only things they really saved were their own positions of power and wealth. The only thing that was saved, was the very thing that should have been completely discarded, the global status quo. 

  The results of the global bailouts and backstops are now clear for everyone to witness. The entire global economy is one gigantic ongoing crime scene. It’s an economy in which fraud is rewarded and never punished. An economy where the rich, powerful and connected concoct unimaginably lucrative crony deals knowing the law doesn’t apply to them. To hedge their corruption, they feed scraps to the poor, not out of altruism, but so that the growing underclasses have just enough not to rebel.

  Today, I want to highlight two related articles to clearly demonstrate just how completely screwed up the U.S. economy really is. The first one is courtesy of Bloomberg, and focuses on my hometown of NYC. The best decision I ever made in my life was leaving that place, and it’s gotten much, much more narcissistic and financialized since I left (for the story of why I left, see: The Biggest Trade of My Life). The second article is from the Wall Street Journal, and it highlights the extremely troubling statistic that 82% of multifamily rental units completed from 2012 to 2014 in 54 U.S. metropolitan areas were luxury units.

  First, from Bloomberg:

  Here is good news for the plutocrat who wants to try out Manhattan’s ritziest neighborhoods before taking the multimillion-dollar plunge. The market for super-high-end rentals is booming, with plenty of enticing options for tenants of every taste.

   

  In all, 82 apartments renting for at least $50,000 a month were listed on StreetEasy during the first three months of the year, more than triple the number listed in the first quarter of 2008. At lower thresholds, luxury listings are also on the rise. Apartments renting for more than $25,000 a month made up 0.95 percent of total inventory in the first quarter of 2015, up from 0.46 percent in the first quarter of 2008. Real estate agents and wealth managers say the increase in expensive rentals is partly an outgrowth of the luxury building boom sweeping through New York City and partly due to the shifting whims of a global elite that wants luxury digs without the hassle of a long-term commitment.

   

  The hot market for super-luxury apartments has spurred new high-end projects. Spending on residential construction increased 73 percent in 2014 from the year before, according to the New York Building Congress, but the number of new units increased by only 11 percent. That means fewer resources for more-affordable housing. “The existence of a greater share of pricey buildings implies that the lower end isn’t growing as quickly,” said Alan Lightfeldt, data scientist at StreetEasy.

   

  In some cases, it’s the very demand for luxury real estate that’s providing supply to the rental market. As the global elite hit on Manhattan condos as a store of wealth, buyers are more likely to become landlords. Last year, condo buyers were twice as likely to rent their apartments out within 60 days of buying them as they were in 2010, according to a Bloomberg story in February.

   

  “The question might not be how rich do you have to be—it might be how foolish,” says Michael Goodman, chief executive of Wealthstream Advisors. “It’s like, why do you buy a $250,000 car? Not because it gets good gas mileage, but because you want to, and you can.”

  While the above article points out that most of the construction in NYC targets the very wealthy, what about trends across the U.S. as a whole? For that, we turn to the WSJ:

  Of 370,000 multifamily rental units completed from 2012 to 2014 in 54 U.S. metropolitan areas, 82% were in the luxury category, according to CoStar Group Inc., a real-estate research firm. The firm defines luxury buildings as those that command rents in the top 20% of the market. In some places, including Denver, Tampa, Baltimore and Phoenix, virtually all new apartment construction has been targeted to high-end renters. In Atlanta, about 95% of new apartments have been in the luxury category.

   

  “I don’t believe there ever has been a time where we have produced so much luxury rental housing,” said Susan Wachter, professor of real estate at The Wharton School of the University of Pennsylvania. While these new buildings are priced for the affluent, many middle-class and young workers are straining to rent the units, in part because they have few others choices.

   

  What’s more, rents in new apartment buildings are commanding a far bigger premium over older buildings than during past construction booms. According to MPF Research, a division of RealPage Inc., apartments completed a decade ago on average commanded rents that were 9% higher than older buildings. But new apartments delivered since 2010 have fetched a 21% premium over existing rental stock. In the Atlanta area, the premium for a new apartment is 39% compared with 2% a decade ago.

   

  While some developers worry that the current construction boom could eventually result in overbuilding at the high-end—which could put downward pressure on rents for all types of apartments—there is considerable angst among city officials and housing advocates worried that the middle class is getting squeezed.

  What’s the middle class? But don’t worry, there’s hope…

  Some cities, such as New York, are moving to require that new developments in some areas include more units for middle- and low-income families.

  I suppose after deliberately handing out subsidies to oligarchs, the serfs could use a few scraps. Let’s not forget: Tax Breaks for Oligarchs – The $100 Million Manhattan Apartment with a Property Tax Rate of 0.017%

  Mr. Randall, owner of privately-held South City Partners, said when he started 30 years ago “almost 100%” of what he built was low-rise, suburban buildings with rents of about $1,000 a month in today’s dollars. Now, even as his business has shifted almost entirely to urban projects like Inman Quarter, he fears the supply of new high-end building could be overdone.

   

  As a hedge, he’s in the process of purchasing two sites in suburbs of Atlanta where he hopes to return to building apartments for about $1,200 a month on average. He said the challenges are steep because suburban communities often oppose multifamily projects and banks aren’t anxious to finance middle-market projects.

  Ah the banks. The taxpayers bailed them out so that they could turn around and steal billions by criminally rigging the financial markets, yet they can’t be bothered to finance projects for the middle class.

  The reason everything is being built for the wealthy, is because all the gains from the oligarch recovery have gone to the wealthy. This is no accident. It’s how the bailouts were designed, and how the status quo operates. Our socio-economic system since 2008 can be best described as serfdom, and nothing is going to change until people admit this, rather than hanging on to false hopes that they one day too will become an oligarch. It’s not gonna happen.

  

  

  
  
  

  

• US Retaliates At China Escalation, Warns Sea "Sandcastles" May "Lead To Conflict"

  On Wednesday we showed what happens when US spy planes carrying CNN reporters get too close to China’s land reclamation project in the South China Sea. In short, the Chinese Navy not-so-politely advises them to “Go now!” 

  China is working diligently to construct man-made islands atop reefs in the Spratly archipelago where Beijing shares disputed waters with the Philippines, Vietnam, Malaysia, Brunei and Taiwan. For its part, Washington is none too pleased with the effort and in a fantastic example of ironic rhetoric and American hypocrisy, The White House is shouting about violations of territorial sovereignty and Chinese “bullying”.

  The Pentagon meanwhile has said the US may consider confronting China in the region with surveillance aircraft (and CNN crews apparently) and war ships, a move China has gently advised against, telling Washington that it might be in everyone’s best interest if the US “refrains from risky and provocative actions,” and now, China looks to have conducted a practice bombing raid on Wednesday. 

  Via The South China Morning Post:

  China’s air force sent a group of strategic bombers through the Miyako Strait south of Okinawa in a long-range drill for the first time yesterday as part of military exercises in the western Pacific.

   

  The manoeuvre came as US-based CNN reported that the Chinese navy repeatedly warned a US surveillance plane to leave airspace over artificial islands that Beijing is building in the disputed South China Sea.

   

  CNN reported that on Wednesday a Chinese navy dispatcher demanded eight times that a US Air Force P8-A Poseidon surveillance aircraft leave the area as it flew over Fiery Cross Reef, where China has conducted extensive reclamation work. The exercise and the warnings underscore growing tensions between the armed forces of China and the United States, and China’s neighbours.

   

  PLA Air Force spokesman Colonel Shen Jinke said in a statement on The PLA Daily’s website that the bombers flew over the strait in a routine drill that was part of a blue-water training exercise.

   

  Shen said the drill was not aimed at any country, region or target, and similar exercises could be conducted in future.

  Now that the Chinese Navy has explicitly told at least one US surveillance aircraft to “leave immediately” (and implicitly threatened to shoot it down, CNN camera crew and all), it’s the US’s turn to ratchet up the war rhetoric. This time it’s John Kerry’s deputy Secretary of State Antony Blinken’s turn to denounce China’s series of sea sandcastles. Reuters has more:

  China’s land reclamation around reefs in the disputed South China Sea is undermining freedom and stability, and risks provoking tension that could even lead to conflict, U.S. Deputy Secretary of State Antony Blinken told a conference in Jakarta.

   

  China claims 90 percent of the South China Sea, which is believed to be rich in oil and gas, its claims overlapping with those of Brunei, Malaysia, the Philippines, Vietnam and Taiwan.

   

  Recent satellite images suggest China has made rapid progress in filling in land in contested territory in the Spratly islands and in building an airstrip suitable for military use and that it may be planning another.

   

  “As China seeks to make sovereign land out of sandcastles and redraw maritime boundaries, it is eroding regional trust and undermining investor confidence,” Blinken said on Wednesday.

   

  “Its behavior threatens to set a new precedent whereby larger countries are free to intimidate smaller ones, and that provokes tensions, instability and can even lead to conflict.”

  As for China … well, let’s just say that the resolve to implement territorial expansion via fake island construction is pretty strong:

  China said its determination to protect its interests was “as hard as a rock”.

   

  Asked about Blinken’s remarks, China’s Foreign Ministry demanded on Thursday that the United States abide by the principle of not taking sides on the South China Sea, and said his comments damaged trust in the region.

   

  “The U.S. assumptions are groundless,” ministry spokesman Hong Lei told a regular briefing.

  “Groundless” though these assumptions may be, one thing that is now certainly not “groundless” is Fiery Cross Reef.

  *  *  *

  

   

   

  Satellite photography has identified three cement plants operating on the island.

  

   

   

  China has already constructed in excess of 60 semi-permanent or permanent buildings.

  

   

   

  At least 20 structures are visible on the southern side of the island (ZH: including a helipad).

  

   

   

  China is building an airstrip on the island. The airstrip is likely large enough to land nearly any Chinese aircraft.

  

   

   

  Images taken on April 11 show the runway more than one-third complete.

  

  

  Full interactive report available here from the AMTI

  

  

  
  
  

  

• How The Media Deceive The Public About "Fast Track" And The "Trade Bills"

  Submitted by Eric Zeusse,

  The way that “Fast Track” is described to the American public is as an alternative method for the Senate to handle “Trade Bills” (TPP & TTIP) that the President presents to the Senate for their approval; and this alternative method is said to be one in which “no amendments are permitted, and there will be a straight up-or-down vote on the bill."

  But, in fact, the “Fast Track” method is actually to require only 50 Senators to vote “Yea” in order for the measure to be approved by the Senate, whereas the method that is described and required in (Section 2 of) the U.S. Constitution is that the President “shall have the Power, by and with the Advice and Consent of the Senate, to make treaties, provided two thirds of the Senators present concur.”  That’s not 50 Senators; it’s 67 Senators, that the Constitution requires.

  In other words: “Fast Track Trade Promotion Authority” (which was invented by the imperial President Richard Nixon in 1974, in order to advance his goal of a dictatorial Executive, that the Presidency would become a dictatorship) lowers the Constitutionally required approval from 67 Senators down to only 50 Senators.

  This two-thirds rule is set forth in the Constitution in order to make especially difficult the passing-into-law of any treaty that the United States will have with any foreign country. The same two-thirds requirement is set forth for amending the Constitution, except that that’s a two-thirds requirement in both the House and the Senate: it can be done “by either: two-thirds (supermajority) of both the Senate and the House of Representatives …; or by a national convention assembled at the request of the legislatures of at least two-thirds (at present 34) of the states.”

  Getting two-thirds of either house of Congress to vote for a bill is rare and difficult, but it has happened 27 times, because the entire process was public, and because there was widespread support of each Amendment.

  By contrast: Obama’s proposed trade treaties are still secret.

  The difference between 50 Senators versus 67 Senators is, essentially, the difference between a treaty that is publicly discussed and widely acceptable to the American public (the people, after all, who voted for those members of Congress); versus a secret treaty that will be widely unacceptable to the American public when the America public will become informed of its contents, which won’t be until years after the treaty has already gone into effect.

  This is the reason why only a tiny fraction of authentic “trade bills” even need “Fast Track Trade Promotion Authority” in order to pass; most trade bills are passed in the normal way. A President doesn’t ask for “Fast Track Trade Promotion Authority” unless he is going to be presenting to the Congress a treaty that is so horrible for the American people that only few members of either the House or the Senate would vote for it — the bill needs “Fast Track” in order for it to be able to pass.

  What types of “Trade Bills” are these?

  They are treaties in which only a tiny fraction of the treaty actually has to do with “Trade,” or with tariffs and other legal favoritisms toward one nation as opposed to another.  In other words: They’re legislation to cede our national sovereignty to international corporations. Issues of tariffs and other “trade” disputes between nations are tacked onto these multinational treaties in order to be able to fool the public into thinking that all that’s at issue is “trade.”

  Now, it’s true that “Fast Track” does also eliminate the ability of members of the Senate to propose an amendment to the treaty that the President is presenting for their approval. But that’s a relatively minor feature of “Fast Track,” which was included in the concept in order for “Fast Track” to be able to be described by politicians and by the ‘news’ media as being a minor matter — no “big deal,” no ceding of sovereignty to international corporations. 

  It’s not a minor matter; it’s the biggest matter in President Obama’s entire Presidency: it’s about scandalously bad international treaties with many nations at once, in which international corporations (that is, the hundred or so individuals who own the controlling interests in them) will be handed our national and democratic soverieignty over labor rights, consumer rights, environmental rights, and investors’ rights — it’s every way that those billionaires can think of to pass off onto the public the harms that they do while keeping for themselves all the benefits of the heads-I-win-tails-you-lose game they’re playing with the U.S. public and that of every other signatory nation. It’s international fascism, not merely fascism  of the local type.

  And that’s what we’ve now got.

  *  *  *

  Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of  CHRIST’S VENTRILOQUISTS: The Event that Created Christianity, and of  Feudalism, Fascism, Libertarianism and Economics.

   

  

  

  
  
  

  

• The Government's Message For Heavily Indebted Students: Don't Pay Us Back

  Over the course of several years, we’ve chronicled virtually all aspects of America’s $1.3 trillion student loan bubble. 

  We’ve discussed, for instance, the Treasury’s projections of a $3.3 trillion student debt nightmare by 2025. We’ve also outlined why the official data on delinquencies almost assuredly understates the case. The numbers you see, have been adjusted twice. Instead of taking the number of delinquent borrowers over the number of borrowers in repayment, the official figures instead report the number of delinquent borrowers over total borrowers, even those in deferment and forbearance, which ensures the delinquency ratio will be far lower than it would otherwise be. But that’s not all. Borrowers making no monthly payments due to their enrollment in the  government’s Income Based Repayment program are not counted as delinquent because in a society built on debt, a “payment” of $0 counts as a “qualified payment” towards the 300 monthly installments needed for the government to “forgive” the balance of the loan. The delinquency data has effectively been “Liesman’d”. 

  Moody’s (when they aren’t busy sparking bank runs) has warned that the proliferation of $0 Income Based Repayment plans threatens to plunge billions in student loan-backed ABS into default and based on the following official Department of Education letter that’s sent to students coming off of the 6-month post-graduation grace period, we can see why the ratings agency is concerned because as you can see, the government can’t wait to tell students how they can avoid repaying their debt.

  Dear XXX,

   

  Your loan servicer, Great Lakes Educational Loan Services, Inc., has contacted you or will be contacting you soon about your repayment options for your federal student loan. As you consider these options, the U.S. Department of Education wants to remind you that you may qualify for a repayment plan that calculates your monthly payment based on your income.

   

  You will likely qualify for an income-driven repayment plan if your total federal student loan debt exceeds your annual income. Under an income-driven plan, your initial payment could be as low as $0 per month.

   

  When you make payments based on your income, your loans are paid off over a longer period of time than the standard 10-year plan. While this reduces your monthly payment amount, it also increases the total amount you pay over time. But if you work for the government or a not-for-profit employer, you may qualify to have your remaining loan balance forgiven after 10 years of payments under the Public Service Loan Forgiveness Program.

   

  We encourage you to use our repayment estimator to estimate your monthly payments under our income-driven plans and see if you might qualify. Your loan servicer can also help you better understand your repayment options.

   

  Thank you,

   

  U.S. Department of Education

   

  

   

  We’ll leave you with the open letter we penned to the Class of 2015 earlier this month:

  Dear Class of 2015, 

  Because we recognize your plight, allow us to provide you with a bit of friendly advice as it realtes to your student loans. Once you are uncerimoniously thrown from your dorm into the less-than robust US jobs market, you will likely discover that contrary to what you were told in your economics courses, the US economy is but a shadow of its former self. Because you probably didn’t study to become a petroleum engineer, you will likely find your student debt burden to be quite onerous. The key to having it discharged is to make just enough money to stay clear of bankruptcy, but not enough to really survive above the poverty line. This is because it’s hard to have student debt discharged in the event you go completely broke. However, if your discretionary income is so small as to render you incapable of making payments, the government will start you on a program whereby a monthly payment of zero dollars counts towards the 300 “payments” you need to make to have your debt forgiven. Toe this line carefully (i.e. don’t slip up and start making too much discretionary income) and the entirety of your student debt will be forgiven in 25 short years without your ever having to pay a dime.

  You’re welcome,

  Zero Hedge

  

  

  
  
  

  

• Zappos CEO Pushes "100% Weird" Boss-less Model After Employee Exodus

  Last month, Zappos CEO Tony Hsieh made what he would likely call a calculated error: he forced his 1,500 employees to choose between a seemingly unpopular ultimatum and free money. Hundreds chose the money.

  Hsieh is in the process of implementing a “holacratic” corporate culture at Zappos. As a reminder, here’s what that means:

  Holacracy is, in Hsieh’s words, “a system that removes traditional managerial hierarchies allowing employees to self-organize to complete work in a way that increases productivity, fosters innovation and empowers anyone in the company with the ability to make decisions that push the company forward.” So essentially, it’s a boss-less structure aimed at driving productivity and innovation by allowing employees to take ownership of their respective goals and responsibilities. 

  That sounds good in theory, but for whatever reason — perhaps employees want structure and guidance, perhaps they perceived the new system as antithetical to career advancement, or maybe all of the managers just quit — 210 people chose “the offer” over Holocracy. 

  “The offer” is Zappos lingo for a pay-to-quit scheme wherein the company offers to compensate employees who choose to leave, the idea being to retain only those who are truly dedicated to Zappos. Typically, only around 1-3% accept — this time around, the number was 14%. 

  New details are now emerging both about the employee exodus and about how effective the “bossless” system has been in terms of achieving the outcomes envisioned by Hsieh.

  WSJ has the story:

  Brironni Alex was so good at answering telephone calls and emails from customers at Zappos.com Inc. that the company promoted her to customer-service manager.

   

  But when the online retailer adopted a management philosophy called Holacracy, she lost her job title and

  responsibility for performance reviews. Since the end of April, Zappos has zero managers to oversee employees, who are supposed to decide largely for themselves how to get their work done…

   

  Employees say the new system has been confusing and time-consuming, especially at first, sometimes requiring five extra hours of meetings a week as workers unshackled from their former bosses organize themselves into “circles” and learn the vocabulary of Holacracy.

   

  Created by a former software executive, the philosophy is spelled out in a 30-page “Constitution” where doing a job is called “energizing a role,” workplace concerns are “tensions” and updates are made at “tactical meetings”…

   

  Boss-free companies are the extreme version of a recent push to flatten out management hierarchies that can create bottlenecks and slow productivity. W.L. Gore & Associates Inc., the maker of Gore-Tex fabric, says it has more than 10,000 employees and annual sales of more than $3 billion but no traditional organizational charts or chain of command…

   

  Tweaks to how employees work at the company’s headquarters in the former Las Vegas city hall are common. Employees from every part of Zappos frequently mention its second core value: “Embrace and Drive Change.”

   

  Zappos began testing Holacracy with a small group of employees in 2013. Mr. Hsieh then declared at a company wide meeting that Zappos would get rid of bosses and put employees in charge.

   

  The management philosophy replaces work teams with circles. Employees start or join a circle based on the type of work they want to do, and each circle has a “lead link” who is similar to a project manager with limited authority.

   

  Day-to-day routines were thrown into doubt, too. In many companies, managers announce new projects and direct employees to meet specified deadlines. The bosses usually track performance, make crucial decisions and swoop in if problems erupt.

   

  Holacracy-driven employees establish their own priorities and raise problems with the rest of their “circle.” Meetings end with an opportunity for employees to say whatever is on their minds. Ms. Jimenez says she has heard employees say: “We got a lot done” and “I can’t wait to eat my leftover pizza for lunch.”

  Note the rather amusing bolded passage above wherein employees attest that this space-age, zen-like management philosophy which Hsieh swears will “increase productivity” has in fact been “confusing”, “time-consuming”, and on bad weeks, creates five hours worth of extra meetings because no one can understand what anyone else is saying.

  In a further testament to just how efficient this new system isn’t, Hsieh says implementation will take half a decade…

  Mr. Hsieh says it could take Zappos two to five years to finish the transition. 

  …while those who stuck around think things have gone from ‘we’ve got a McDonald’s playplace in the office’ eccentric to ‘we may have inadvertently joined a cult’ weird:

  “Create Fun and a Little Weirdness” is one of 10 “core values” [at Zappos] and a conference room features a Chuck E. Cheese’s-style pit filled with small plastic balls…

   

  Marques Smith, 31, who drives the company’s courtesy shuttles, found Holacracy hard to understand and “weird 100%.”

  Here’s a handy Holacracy graphic to which you can refer should any of the above sound as convoluted to you as it apparently did to 14% of Zappos’ workforce:

  

  *  *  *

  In the end, Hsieh isn’t discouraged by the employee exodus because after all, not everyone quit:

  “Another way to look at it is that 86% of employees chose to … stay with the company.”

  Right.

  Kind of like how another way to look at a 20% decline in Greek bank deposits since December is that 80% of depositors didn’t stuff their money in the mattress.

  

  

  
  
  

  

• Where America's Airplanes Go To Die

  Davis–Monthan Air Force Base is located in Tucson, Arizona. It occupies an area of over 10 square kilometers, equal to roughly 1,870 football fields. The base is the location of the Air Force Materiel Command’s 309th Aerospace Maintenance and Regeneration Group, or AMARG in short. It is also known as the “boneyard.” 

  With the area’s low humidity in the 10%-20% range, meager rainfall of 11″ annually, hard alkaline soil, and high altitude of 2,550 feet, it has the “just right” conditions to avoid corrosion and not to need paving when moving massive objects. It has emerged as the perfect venue for one thing: the largest aircraft boneyard in the world, with a typical inventory of more than 4,400 aircraft.

  Allowing the aircraft to be naturally preserved for cannibalization or possible reuse, Davis-Monthan is the logical choice for a major storage facility. The geology of the desert allows aircraft to be moved around without having to pave the storage areas.

  AMARG’s role in the storage of military aircraft began after World War II, and continues today.

  Interactive map of AMARG as seen in the most recent Google maps satellite overflight:

  been commented on," Schleiger wrote. "This one took until after midnight."

  Which resulted in an internal probe ordered by Bernanke that inevitably found no wrongdoing.. and so Congress took up the matter.

  And then, as The Wall Street Journal reports, The Fed has ignored that request…

  The Federal Reserve has not replied to a lawmakers’ request that it identify the individuals who had contact with a private consulting firm that published a report on the central bank’s market-sensitive internal policy deliberations.

   

  In October 2012, the day before the Fed released its minutes of its September 2012 policy meeting, Medley Global Advisors, sent a report to its clients with several sensitive details that subsequently appeared in the minutes. A central bank probe found  a “few” Fed staffers had contact with Medley before the report, but did not identify them.

   

  Rep. Jeb Hensarling (R., Texas), Chairman of the House Financial Services Committee, sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22.

   

  The deadline passed without any response by the Fed, a committee spokesman said Wednesday.

   

  The Fed declined to comment. Medley did not respond to a request for comment.

  *  *  *

  Then Janet Yellen herself admitted meeting with Medley Global Advisors…

  So she met with the analyst that leaked the statement… but didn't say anything?

  

   

  And so then The Fed agrees to name the leaker (but only in secrecy)

  As The Wall Street Journal reports,

  The Federal Reserve is providing a congressional panel with the names of its staffers who had contact with a consulting firm that published details of market-sensitive policy deliberations in October 2012, “with the understanding that the names will be kept confidential,” Fed Chairwoman Janet Yellen said.

   

  “As you are aware, the [Fed] Board’s Inspector General and the Department of Justice are in the midst of an investigation into this matter,” Ms. Yellen wrote in a letter dated Monday to Rep. Jeb Hensarling (R., Texas), chairman of the House Financial Services Committee, and Rep. Sean Duffy (R., Wis.), who chairs the panel’s oversight subcommittee.

   

  “We are cooperating fully with them and look forward to the results of their investigation. To avoid compromising that investigation, these names are being provided with the expectation that they will be kept confidential.”

   

  Mr. Hensarling did not respond immediately Monday to a request for comment.

  So we'll happily tell you who leaked it… as long as you don't tell the public.

  Audit The Fed!!!

  *  *  *

  And so now, Hensarling is subpoenaing them…

  The subpoena is necessary because the Fed has failed to comply with a request for documents, Hensarling, a Texas Republican, said in a statment Thursday.

   

   

  

  

  
  
  

  

• Hewlett Packard Just Reported Its Worst Revenue Since 2007: This Is How It "Beat"

  If you are the Hewlett-Packard CFO and you know you are about to miss badly on your revenue, which incidentally at $25.5 billion will not only be a 7% drop from the prior year’s topline and below the $25.7 billion expected, but will also be the worst revenue since July 2007 and on top of that, your Q2 GAAP EPS of $0.55 will will miss lower end of the previously provided range of $0.57 -$0.61, what do you do? Why you fudge your non-GAAP EPS as much as you possibly can.

  So much so, that while missing your own GAAP outlook your non-GAAP EPS of $0.87 lands in the upper end of the $0.84-$0.88 range you provided!

  

   

  How is it that the company’s GAAP EPS declined by a whopping 17%, from $0.66 to $0.55, and yet its non-GAAP EPS dropped by a tiny 1% from 0.88% to 0.87%?

  This is how:

  Non-GAAP diluted net EPS exclude after-tax costs of $585 million and $0.32 per diluted share, respectively, related to separation costs, restructuring charges, the amortization of intangible assets and acquisition-related charges.

  In other words, because the business is doing progressively worse, it will get full credit for all these non-GAAP addbacks, which make it seem that neither revenue nor actual operations cratered!

  But don’t worry, while Hewlett admits the organic contraction will continue and Q3 EPS will decline even more, this time to a range of $0.50-$0.54 or down 13% from the current quarter guidance (which the company will surely miss once more) its non-GAAP EPS will be virtually unchanged at $0.83-$0.87!

  And that is non-GAAP data fabrication magic front and center right there.

  Oh, and just in case someone asks about that all important metric which no amount of seasonal-adjustments or GAAP fabrication can adjust, actual cash flow, here it is: “HP generated $1.5 billion in cash flow from operations in the second quarter, down 51% from the prior-year period.”

  Oops.

  The collapse in cash flow generation however did not prevent the company from “utilized $659 million of cash during the quarter to repurchase approximately 19.0 million shares of common stock in the open market.”

  In fact, as the following chart shows, in the LTM Period, HPQ has spent just about the same amount on stock buybacks as it has on capital expenditures.

  

   

  Is there any wonder then why HPQ’s revenue is constantly crashing, and has now dropped to the lowest level in 8 years?!

  

  

  

  
  
  

  

• Top 10 Banks To Sell Your Soul
  Follow ZeroHedge in Real-Time on FinancialJuice

  Janet Yellen at the Federal Reserve believes that the partying on Wall Street and in the financial institutions may “lead to trouble”. The world knows that the trouble that they start because they are too drunk celebrating the higher-than-high highs that they have created will lead the banksters and the tradesters to pass the baby onto the likes of Joe Blow and John Doe out there. That will be inevitable. The partying is now entering the early morning hours. You know, that time just when you’ve drunk too much and you think you are invincible and there’s really no point stopping downing another one, is there. One for the road?

  But, why have the financial markets got to this stage of gorging on the stocks and eating up everything in sight to a position where a new high no longer makes the headlines just because it’s mundane and oh so boringly everyday’ish? They are in this position because the killings that can be made in the final few hours before a new crash happens are usually the greatest ones. But, the ones that will last the least. They are in this position because they have been lead to believe that they are priceless, unimaginable worth their weight in gold and that they are irreplaceable. The tradesters and the banksters have become the new child prodigies, the child king, the big baby syndrome where the party always has to be on.  

  These are the guys that push you out the way as you hail a taxi and jump in ahead of you. These are the guys that pull up and double park so they can pick up what they need from that little boutique. Who cares about the traffic and the police will recognize his bravado and brashness, a telling sign of the trading floor and the bank vaults. These are the guys that are paid the most. So, which bank should you be working for if you want to throw a two-year-old tantrum when the stock market crashes and you get your toys throw out of the pram? But, the saving grace is that in all societies in the world there are taboos were babies are concerned. They always have to be protected from danger. The banksters will be protected because they are earning the top salaries.

  Top 10 Banks:

  1. Goldman Sachs

  ·         Average base salary for Vice-Presidents stands at $169,896.

  ·         Financial Analysts get $69,461.

   

  2. Capital One

  ·         Vice-President’s average base salary is $165, 514.

  ·         Financial Analysts earn $73, 462.

   

  3. American Express

  ·         This bank pays an average of $163, 908 for a Vice-President.

  ·         A Financial Analysts earns $66, 459.

   

  4. MetLife

  ·         Average base salary of a Vice-President stands at $145, 583.

  ·         A Financial Analyst gets $57, 115.

   

  5. Morgan Stanley

  ·         A Vice-President earns $143, 489.

  ·         A Financial Analyst’s salary is $63, 100.

   

  6. HSBC

  ·         A Vice-President has a salary of $129, 686.

  ·         A Financial Analyst gets $76, 413.

   

  7. Wells Fargo

  ·         A Vice-President earns $128, 805.

  ·         A Financial Analyst’s salary is $62, 195.

   

  8. Citigroup

  ·         A Vice-President salary here stands at $119, 240.

  ·         Financial Analysts get $66, 280.

   

  9. JPMorgan Chase

  ·         This bank pays its Vice-Presidents $117, 058.

  ·         A Financial Analysts earns $63, 229.

   

  10. Bank of America

  ·         A Vice-President’s salary stands at $112, 501.

  ·         A Financial Analyst earns $71, 435.

   

  Bonuses ‘n all that?

  There really is very little point in taking into account the ridiculously laughably low salaries that the poor bankers are earning, is there?

  Of course, the vice-presidents and the presidents are earning a lot more in bonuses. This is just the shop window. It’s in the stock room and the back office that the real sound of fluttering greenbacks can be heard and the wads of Benjamins are doled out. Who said they never liked ‘cabbage’?

  The average US salary for a president of a bank stands officially at $100, 566. But, this is the figure for the entire country in 2015. It doesn’t take into account the top banks only, which will push that figure much higher and it certainly doesn’t take into account the bonuses.

  ·         The Bank of England has just announced to all banks in the UK that thy must re-write contracts of staff receiving bonuses to comply with EU legislation on bonus capping.

  ·         EU legislation stipulates that bonuses cannot exceed 100% of the basic salary or 200% if shareholders give their approval.

  ·         Banks got around the quandary by paying ‘allowances’ instead of bonuses. But, that has been deemed to tantamount to the same thing by the EU.

  ·         The head of Barclays, Anthony Jenkins received £1m in allowances, as did Lloyd’s boss António Horta-Osório.

  ·         Lloyds Banking Group saw its shareholders approve an £11.5m pay packet for the Chief Executive António Horta-Osório.

  ·         The UK government share held in Lloyds Banking Group stood at 43% in 2008 after the financial crisis.

  ·         Today it stands at 20% (May 2015).

  ·         Only 3% of shareholders actually voted against the salary increase given.

  ·         UK Financial Investments (responsible for managing the UK government stake in the bank) voted in favor of the increase and stated: “Following a process of thorough engagement with the Lloyds remuneration committee, UKFI believes the committee has exercised reasonable judgement in relation to their approach to directors’ remuneration, particularly in the context of performance over the year.”

  ·         The head of HSBC, Stuart Gulliver had £1.7m in allowances.

  ·         There are currently 39 banks in 6 countries in the EU that are using the allowance system to get around the bonus caps.

  ·         It is supposed to be changed in 2015 and affect bonuses paid out in April 2016.

  ·         Andrew Bailey, the deputy governor at the Bank of England, has stated categorically that outlawing bonuses will only push the salaries into a fixed area which will be possible to claw back if (or when) the banks suffer losses.

  Steve Hilton, the former strategy adviser to Prime Minister David Cameron announced today that bankers should be paid no more than civil servants, since they were relying implicitly on the backing of the taxpayer.

  In 2012, the top bank salaries already soared by 35% in the UK and they showed that nothing had been learnt.  The pay-rises worked out in UK banks between 2011 and 2012 to 11% on average.

  In the City of London there were more nearly 3, 000 bankers on more than a million dollars a year. There was a small lull, a reprieve for the rest of society as banks froze (is that possible?) their salaries. But, the meltdown didn’t last very long. In the UK more than 80% of the top salaries are in investment banking today.

  Goldman Sachs announced in October 2013 that junior bankers would be ‘expected’ to take off time from work between Friday 9pm and Sunday 9pm. Although, they would be expected to consult their messages during that time. Does that mean the only thing the bank was doing was to save on electricity, getting the banker to work from home? JPMorgan Chase thought it was great and set up the ‘protected weekend’, whereby every banker would have to take off a weekend per month. Then, all banks followed suit. Apparently, today junior bankers only get bonuses in the region of $70, 000, whereas they were on six-figure sums before. The base salary stands at roughly $85, 000. Although there is a plan to have that increased by 20% this year. Haven’t the banks just redistributed the wealth, giving even more to the jobs at the very top? You know, those people that will deny they were aware of what you were doing when you were losing the money that the bank never had. Jérôme Kerviel is exactly that guy right now. Now the official investigator has finally admitted that the Société Générale must have known of the rogue antics and has accused the prosecutor of swallowing the bank’s story. Justice at last?  

  Instead of investing in the stock that is already high, the financial markets would be better off investing in the companies around the world that are growing quietly and secretly in their own little corner; the ones that attract the least amount of attention and the ones that will ride out the crash when Yellen starts a- yelling.

  What stocks would you invest in that you think would survive that bubble bursting again?

  Or, maybe we should just invest in the banks? They will never suffer, will they? 

  

  

  
  
  

  

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• 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…

  

  

  
  
  

  

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• 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.

  

  

  
  
  

  

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• 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