• Russia Offers Help To Greece In German War Reparations Investigation

  Just a day after German President Joachim Gauck shocked his government by remarking in an interview that Germany should at least “consider” demands by Prime Minister Alexis Tsipras that the nation pay billions of euros in reparations for the Nazi occupation of Greece, ekathimerini reports that none other than ‘helpful’ Russians are willing to provide assistance in the World War II claims investigation.

   

   

  Following recent comments by German President Joachim Gauck that,

  “We are not only people who are living in this day and age but we’re also the descendants of those who left behind a trail of destruction in Europe during World War Two — in Greece, among other places, where we shamefully knew little about it for so long,” Gauck said in an interview with German newspaper Sueddeutsche Zeitung.

   

  “It’s the right thing to do for a history-conscious country like ours to consider what possibilities there might be for reparations.”

   

  While he only went as far as to suggest “consideration” of the demand, this is further than the direct rejections other high-ranking German officials have issued. As Reuters recalls, the last time a German official mentioned the reparations demand, it was economic minister Sigmar Gabriel, who proclaimed them “stupid.”

  And now, as ekathimerini reports, it appears the Greeks are getting some assistance…

  Moscow is helping Greece in its investigation into possible Second World War reparations from Germany by providing access to previously unused archives.

   

  Following a request by Alternate Defense Minister Costas Isichos, the Russian Embassy in Athens has provided Greek authorities with a list of the relevant archives, including documents, photographs and documentary footage.

   

  Moscow’s move comes as the National Council for WWII Reparations from Germany has stepped up efforts to inform Greeks about its work. The group has put on display videos and posters explaining its work at 100 locations in Athens metro stations.

  *  *  *
  Perhaps  Putin is working on commission? 20% finders fee of the €278.7 billion that Greece believes it is owed for helping to gather the money from the Germans?

  

  

  
  
  

  

• In A Cop Culture, The Bill Of Rights Doesn't Amount To Much

  Submitted by John Whitehead via The Rutherford Institute,

  Police officers are more likely to be struck by lightning than be held financially accountable for their actions.—Law professor Joanna C. Schwartz (paraphrased)

  “In a democratic society,” observed Oakland police chief Sean Whent, “people have a say in how they are policed.”

  Unfortunately, if you can be kicked, punched, tasered, shot, intimidated, harassed, stripped, searched, brutalized, terrorized, wrongfully arrested, and even killed by a police officer, and that officer is never held accountable for violating your rights and his oath of office to serve and protect, never forced to make amends, never told that what he did was wrong, and never made to change his modus operandi, then you don’t live in a constitutional republic.

  You live in a police state.

  It doesn’t even matter that “crime is at historic lows and most cities are safer than they have been in generations, for residents and officers alike,” as the New York Times reports.

  What matters is whether you’re going to make it through a police confrontation alive and with your health and freedoms intact. For a growing number of Americans, those confrontations do not end well.

  As David O. Brown, the Dallas chief of police, noted: “Sometimes it seems like our young officers want to get into an athletic event with people they want to arrest. They have a ‘don’t retreat’ mentality. They feel like they’re warriors and they can’t back down when someone is running from them, no matter how minor the underlying crime is.”

  Making matters worse, in the cop culture that is America today, the Bill of Rights doesn’t amount to much. Unless, that is, it’s the Law Enforcement Officers’ Bill of Rights (LEOBoR), which protects police officers from being subjected to the kinds of debilitating indignities heaped upon the average citizen.

  Most Americans, oblivious about their own rights, aren’t even aware that police officers have their own Bill of Rights. Yet at the same time that our own protections against government abuses have been reduced to little more than historic window dressing, 14 states have already adopted LEOBoRs—written by police unions and being considered by many more states and Congress—which provides police officers accused of a crime with special due process rights and privileges not afforded to the average citizen.

  In other words, the LEOBoR protects police officers from being treated as we are treated during criminal investigations: questioned unmercifully for hours on end, harassed, harangued, browbeaten, denied food, water and bathroom breaks, subjected to hostile interrogations, and left in the dark about our accusers and any charges and evidence against us.

  Not only are officers given a 10-day “cooling-off period” during which they cannot be forced to make any statements about the incident, but when they are questioned, it must be “for a reasonable length of time, at a reasonable hour, by only one or two investigators (who must be fellow policemen), and with plenty of breaks for food and water.”

  According to investigative journalist Eli Hager, the most common rights afforded police officers accused of wrongdoing are as follows:

  • If a department decides to pursue a complaint against an officer, the department must notify the officer and his union.
  • The officer must be informed of the complainants, and their testimony against him, before he is questioned.
  • During questioning, investigators may not harass, threaten, or promise rewards to the officer, as interrogators not infrequently do to civilian suspects.
  • Bathroom breaks are assured during questioning.
  • In Maryland, the officer may appeal his case to a “hearing board,” whose decision is binding, before a final decision has been made by his superiors about his discipline. The hearing board consists of three of the suspected offender’s fellow officers.
  • In some jurisdictions, the officer may not be disciplined if more than a certain number of days (often 100) have passed since his alleged misconduct, which limits the time for investigation.
  • Even if the officer is suspended, the department must continue to pay salary and benefits, as well as the cost of the officer’s attorney.

  It’s a pretty sweet deal if you can get it, I suppose: protection from the courts, immunity from wrongdoing, paid leave while you’re under investigation, and the assurance that you won’t have to spend a dime of your own money in your defense. And yet these LEOBoR epitomize everything that is wrong with America today.

  Once in a while, the system appears to work on the side of justice, and police officers engaged in wrongdoing are actually charged for abusing their authority and using excessive force against American citizens.

  Yet even in these instances, it’s still the American taxpayer who foots the bill.

  For example, Baltimore taxpayers have paid roughly $5.7 million since 2011 over lawsuits stemming from police abuses, with an additional $5.8 million going towards legal fees. If the six Baltimore police officers charged with the death of Freddie Gray are convicted, you can rest assured it will be the Baltimore taxpayers who feel the pinch.

  New York taxpayers have shelled out almost $1,130 per year per police officer (there are 34,500 officers in the NYPD) to address charges of misconduct. That translates to $38 million every year just to clean up after these so-called public servants.

  Over a 10-year-period, Oakland, Calif., taxpayers were made to cough up more than $57 million (curiously enough, the same amount as the city’s deficit back in 2011) in order to settle accounts with alleged victims of police abuse.

  Chicago taxpayers were asked to pay out nearly $33 million on one day alone to victims of police misconduct, with one person slated to receive $22.5 million, potentially the largest single amount settled on any one victim. The City has paid more than half a billion dollars to victims over the course of a decade. The Chicago City Council actually had to borrow $100 million just to pay off lawsuits arising over police misconduct in 2013. The city’s payout for 2014 was estimated to be in the same ballpark, especially with cases pending such as the one involving the man who was reportedly sodomized by a police officer’s gun in order to force him to “cooperate.”

  Over 78% of the funds paid out by Denver taxpayers over the course of a decade arose as a result of alleged abuse or excessive use of force by the Denver police and sheriff departments. Meanwhile, taxpayers in Ferguson, Missouri, are being asked to pay $40 million in compensation—more than the city’s entire budget—for police officers treating them “‘as if they were war combatants,’ using tactics like beating, rubber bullets, pepper spray, and stun grenades, while the plaintiffs were peacefully protesting, sitting in a McDonalds, and in one case walking down the street to visit relatives.”

  That’s just a small sampling of the most egregious payouts, but just about every community—large and small—feels the pinch when it comes to compensating victims who have been subjected to deadly or excessive force by police.

  The ones who rarely ever feel the pinch are the officers accused or convicted of wrongdoing, “even if they are disciplined or terminated by their department, criminally prosecuted, or even imprisoned.” Indeed, a study published in the NYU Law Review reveals that 99.8% of the monies paid in settlements and judgments in police misconduct cases never come out of the officers’ own pockets, even when state laws require them to be held liable. Moreover, these officers rarely ever have to pay for their own legal defense.

  For instance, law professor Joanna C. Schwartz references a case in which three Denver police officers chased and then beat a 16-year-old boy, stomping “on the boy’s back while using a fence for leverage, breaking his ribs and causing him to suffer kidney damage and a lacerated liver.” The cost to Denver taxpayers to settle the lawsuit: $885,000. The amount the officers contributed: 0.

  Kathryn Johnston, 92 years old, was shot and killed during a SWAT team raid that went awry. Attempting to cover their backs, the officers falsely claimed Johnston’s home was the site of a cocaine sale and went so far as to plant marijuana in the house to support their claim. The cost to Atlanta taxpayers to settle the lawsuit: $4.9 million. The amount the officers contributed: 0.

  Meanwhile, in Albuquerque, a police officer was convicted of raping a woman in his police car, in addition to sexually assaulting four other women and girls, physically abusing two additional women, and kidnapping or falsely imprisoning five men and boys. The cost to the Albuquerque taxpayers to settle the lawsuit: $1,000,000. The amount the officer contributed: 0.

  Human Rights Watch notes that taxpayers actually pay three times for officers who repeatedly commit abuses: “once to cover their salaries while they commit abuses; next to pay settlements or civil jury awards against officers; and a third time through payments into police ‘defense’ funds provided by the cities.”

  Still, the number of times a police officer is actually held accountable for wrongdoing while on the job is miniscule compared to the number of times cops are allowed to walk away with little more than a slap on the wrist.

  A large part of the problem can be chalked up to influential police unions and laws providing for qualified immunity, not to mention these Law Enforcement Officers’ Bill of Rights laws, which allow officers to walk away without paying a dime for their wrongdoing.

  Another part of the problem is rampant cronyism among government bureaucrats: those deciding whether a police officer should be immune from having to personally pay for misbehavior on the job all belong to the same system, all with a vested interest in protecting the police and their infamous code of silence: city and county attorneys, police commissioners, city councils and judges.

  Most of all, what we’re dealing with is systemic corruption that protects wrongdoing and recasts it in a noble light. However, there is nothing noble about government agents who kick, punch, shoot and kill defenseless individuals. There is nothing just about police officers rendered largely immune from prosecution for wrongdoing. There is nothing democratic about the word of a government agent being given greater weight in court than that of the average citizen. And no good can come about when the average citizen has no real means of defense against a system that is weighted in favor of government bureaucrats.

  So if you want a recipe for disaster, this is it: Take police cadets, train them in the ways of war, dress and equip them for battle, teach them to see the people they serve not as human beings but as suspects and enemies, and then indoctrinate them into believing that their main priority is to make it home alive at any cost. While you’re at it, spend more time drilling them on how to use a gun (58 hours) and employ defensive tactics (49 hours) than on how to calm a situation before resorting to force (8 hours).

  Then, once they’re hyped up on their own authority and the power of the badge and their gun, throw in a few court rulings suggesting that security takes precedence over individual rights, set it against a backdrop of endless wars and militarized law enforcement, and then add to the mix a populace distracted by entertainment, out of touch with the workings of their government, and more inclined to let a few sorry souls suffer injustice than challenge the status quo or appear unpatriotic.

  That’s not to discount the many honorable police officers working thankless jobs across the country in order to serve and protect their fellow citizens, but there can be no denying that, as journalist Michael Daly acknowledges, there is a troublesome “cop culture that tends to dehumanize or at least objectify suspected lawbreakers of whatever race. The instant you are deemed a candidate for arrest, you become not so much a person as a ‘perp.’”

  Older cops are equally troubled by this shift in how police are being trained to view Americans—as things, not people. Daly had a veteran police officer join him to review the video footage of 43-year-old Eric Garner crying out and struggling to breathe as cops held him in a chokehold. (In yet another example of how the legal system and the police protect their own, no police officers were charged for Garner’s death.) Daly describes the veteran officer’s reaction to the footage, which as Daly points out, “constitutes a moral indictment not so much of what the police did but of what the police did not do”:

  “I don’t see anyone in that video saying, ‘Look, we got to ease up,’” says the veteran officer. “Where’s the human side of you in that you’ve got a guy saying, ‘I can’t breathe?’” The veteran officer goes on, “Somebody needs to say, ‘Stop it!’ That’s what’s missing here was a voice of reason. The only voice we’re hearing is of Eric Garner.” The veteran officer believes Garner might have survived had anybody heeded his pleas. “He could have had a chance,” says the officer, who is black. “But you got to believe he’s a human being first. A human being saying, ‘I can’t breathe.’”

  As I point out in my new book Battlefield America: The War on the American People, when all is said and done, the various problems we’re facing today—militarized police, police shootings of unarmed people, the electronic concentration camp being erected around us, SWAT team raids, etc.—can be attributed to the fact that our government and its agents have ceased to see us as humans first.

  Then again, perhaps we are just as much to blame for this sorry state of affairs. After all, if we want to be treated like human beings—with dignity and worth—then we need to start treating those around us in the same manner. As Martin Luther King Jr. warned in a speech given exactly one year to the day before he was killed: “We must rapidly begin the shift from a ‘thing-oriented’ society to a ‘person-oriented’ society. When machines and computers, profit motives and property rights are considered more important than people, the giant triplets of racism, materialism, and militarism are incapable of being conquered.”

  

  

  
  
  

  

• On This Day In 1945: Reporter Fired For Biggest Scoop In History

  In World War II's final moments in Europe, Associated Press correspondent Edward Kennedy gave his news agency perhaps the biggest scoop in its history.

  He reported, a full day ahead of the competition, that the Germans had surrendered unconditionally at a former schoolhouse in Reims, France.

  

   

  For this, he was publicly rebuked by the AP, and then quietly fired.

  As AP reports,

  The reason: The veteran reporter was accused of breaking a pledge that he and 16 other correspondents had made to keep the surrender secret for a time, as a condition of being allowed to witness it. This was done so Russian dictator Josef Stalin could formally announce the defeat in Berlin.

   

  Kennedy viewed the embargo as a political security issue, rather than a military one, and felt compelled to report the surrender, especially after learning that German radio had already broadcast the news.

   

  In 2012, almost 50 years after Kennedy's death, then-AP President and CEO Tom Curley apologized for the way the company had treated the journalist.

  Ed Kennedy, pictured below,  was one of 17 reporters taken to witness the ceremony.

  

  He and the others were hastily assembled by military commanders, then pledged to secrecy by a U.S. general while the group flew over France. As a condition of being allowed to see the surrender in person, the correspondents were barred from reporting what they had witnessed until authorized by Allied headquarters.

  Initially, the journalists were told the news would be held up for only a few hours. But after the surrender was complete, the embargo was extended for 36 hours—until 3 p.m. the following day.

   

  Kennedy was astounded.

   

  "The absurdity of attempting to bottle up news of such magnitude was too apparent," he would later write.

   

  Nevertheless, he initially stayed quiet. Then, at 2:03 p.m., the surrender was announced by German officials, via a radio broadcast from Flensburg, a city already in Allied hands. That meant, Kennedy knew, that the transmission had been authorized by the same military censors gagging the press.

   

  Furious, Kennedy went to see the chief American censor and told him there was no way he could continue to hold the story. Word was out. The military had broken its side of the pact by allowing the Germans to announce the surrender. And there were no military secrets at stake.

   

  The censor waved him off. Kennedy thought about it for 15 minutes, and then acted.

  Seventy years after the scoop, the AP is making Kennedy's original story and photographs available…

  Germany surrendered unconditionally to the Western allies and the Soviet Union at 2:41 a.m. French time today. (This was at 8:41 p.m. Eastern war time Sunday, May 6, 1945.)

   

  The surrender took place at a little red school house that is the headquarters of Gen. Dwight D. Eisenhower.

   

   

   

  The surrender was signed for the Supreme Allied Command by Lt. Gen. Walter Bedell Smith, chief of staff for Gen. Eisenhower.

   

  It was also signed by Gen. Ivan Susloparov of the Soviet Union and by Gen. Francois Sevez for France.

   

  

   

  Gen. Eisenhower was not present at the signing, but immediately afterward Gen. Alfred Jodl and his fellow delegate, Gen. Admiral Hans Georg von Friedeburg, were received by the supreme commander.

   

  

   

  They were asked sternly if they understood the surrender terms imposed upon Germany and if they would be carried out by Germany.

   

  They answered yes.

   

  Germany, which began the war with a ruthless attack upon Poland, followed by successive aggressions and brutality in concentration camps, surrendered with an appeal to the victors for mercy toward the German people and armed forces.

   

  After signing the full surrender, Gen. Jodl said he wanted to speak and received leave to do so.

   

  "With this signature," he said in soft-spoken German, "the German people and armed forces are for better or worse delivered into the victor's hands.

   

  "In this war, which has lasted more than five years, both have achieved and suffered more than perhaps any other people in the world."

  *  *  *

  After being fired by the AP, Kennedy took a job as managing editor of the Santa Barbara News-Press in California, and then went on to become publisher of the Monterey Peninsula Herald. He died at age 58 after being struck by an automobile.

  Kennedy's family had held on to the manuscript for decades before his daughter, Cochran, began looking for a publisher.

  She said that even though she was only 16 when her father died, she got the impression he still took great joy in his career, despite the episode.

  Curley said Kennedy's daughter approached him around the same time he had become interested in the matter while helping with work on the book "Breaking News: How The Associated Press Has Covered War, Peace, and Everything Else." The publication of Kennedy's memoir prompted the AP's apology, Curley said.

  He called Kennedy's dismissal "a great, great tragedy" and hailed him and the desk editors who put the surrender story on the wire for upholding the highest principles of journalism.

  

  
  
  

  

• In Most Countries, 40 Hours + Minimum Wage = Poverty

  Last week, we noted that Democratic lawmakers in the US are pushing for what they call “$12 by ’20” which, as the name implies, is an effort to raise the minimum wage to $12/hour over the course of the next five years. Republicans argue that if Democrats got their wish and the pay floor were increased by nearly 70%, it would do more harm than good for low-income Americans as the number of jobs that would be lost as a result of employers cutting back in the face of dramatically higher labor costs would offset the benefit that accrues to the workers who are lucky enough to keep their jobs. 

  Regardless of who is right or wrong when it comes to projecting what would happen to low-wage jobs in the face of a steep hike in the minimum wage, one thing is certain: many working families depend on government assistance to make ends meet, suggesting it’s tough to persist on minimum wage in today’s economy and indeed, a new study by the OECD shows that in 21 out of the 26 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.

  

  Here’s more from Bloomberg:

  A global ranking out Wednesday by the Paris-based Organization for Economic Cooperation and Development painted a grim picture of the situation in member countries straddling continents. The 34-member organization found that a legal minimum wage existed in 26 countries and crunched the numbers to see how they compared.

   

  Forget taking a siesta in Spain. There, you’d have to work more than 72 hours a week to escape the trappings of poverty. Turns out that is the norm, not the exception. In the 21 countries highlighted with blue bars in the chart below, a full 40-hour work week still won’t lift families out of relative poverty. This list includes France, home to the 35-hour work week, which almost met the threshold. Minimum wage workers there who are supporting a spouse and two children need to work 40.2 hours to get their families out of poverty.  (The poverty line is defined as 50 percent of the median wage in any nation.)

  

  

  
  
  

  

• US Approves Saudi Use Of Banned Cluster Bombs (But Only If They're Extra Careful)

  Following a report on Sunday, where Human Rights Watch said video and photographic evidence showed that Saudi Arabia used cluster bombs near villages in Yemen’s Saada Province at least two separate times, the US State Department said it is "looking into" the allegations but, as Foreign Policy reports, said the notoriously imprecise weapon — banned by much of the world — could still have an appropriate role to play in Riyadh’s U.S.-backed offensive (as long as it was used carefully).

  Human Rights Watch details credible evidence indicates that the Saudi-led coalition used banned cluster munitions supplied by the United States in airstrikes against Houthi forces in Yemen, Human Rights Watch said today.

  Cluster munitions pose long-term dangers to civilians and are prohibited by a 2008 treaty adopted by 116 countries, though not Saudi Arabia, Yemen, or the United States.

   

  

   

  Photographs, video, and other evidence have emerged since mid-April 2015 indicating that cluster munitions have been used during recent weeks in coalition airstrikes in Yemen’s northern Saada governorate, the traditional Houthi stronghold bordering Saudi Arabia.

   

   

  “Saudi-led cluster munition airstrikes have been hitting areas near villages, putting local people in danger,” said Steve Goose, arms director at Human Rights Watch. “These weapons should never be used under any circumstances. Saudi Arabia and other coalition members – and the supplier, the US – are flouting the global standard that rejects cluster munitions because of their long-term threat to civilians.”

  However, as Foreign Policy reports, the State Department said it is "looking into" the allegations…

  “We’re looking into those details carefully. I don’t have an outcome of that to report,”  State Department spokesman Jeff Rathke said in answer to questions about the HRW report. “We take all accounts of civilian deaths in the ongoing hostilities in Yemen very seriously.”

   

  …

   

  On Monday, Rathke noted that U.S. law and policy dictates that the United States may only export cluster munitions to foreign buyers if the weapon’s unexploded ordnance rate does not exceed one percent. The U.S. also requires that the governments buying U.S. cluster bombs “must commit that cluster munitions will only be used against clearly defined military targets and will not be used where civilians are known to be present or in areas normally inhabited by civilians,” said Rathke.

   

  When Foreign Policy asked if cluster bombs were “appropriate” to use in the U.S.-backed air campaign in Yemen, Rathke said they were so long as they’re used “against clearly defined military targets.”

   

  “That’s our policy on those,” he said.

   

  …

   

  On the humanitarian front, U.S. officials have privately noted concerns about civilian casualties and fears that Riyadh is failing to properly vet the local fighters it’s arming in Yemen. But publicly, the White House fully backs the operation.

   

  Rathke said “we share the concerns regarding unintended harm to civilians caused by the use of cluster munitions.”

   

  “The United States remains the single largest financial supporter of addressing the explosive remnants of war,” he added.

  *  *  *
  And single largest supplier of explosives and creator of the need for them…

  

  

  
  
  

  

• Guest Post: The Big Business Of Cancer – 100 Billion Dollars Was Spent On Cancer Drugs Last Year Alone

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

  If you are an American, there is a 1 in 3 chance that you will get cancer during your lifetime.  If you are a man, the odds are closer to 1 in 2.  And almost everyone in America either knows someone who currently has cancer or who has already died from cancer.  But it wasn’t always this way.  Back in the 1940s, only one out of every sixteen Americans would develop cancer.  Something has happened that has caused the cancer rate in this nation to absolutely explode, and it is being projected that cancer will soon surpass heart disease and become the leading cause of death in the United States.  Overall, the World Health Organization says that approximately 14 million new cases of cancer are diagnosed around the globe each year, and the number of new cases is expected to increase by about 70 percent over the next 2 decades.

  There are very few words in the English language that cause more fear than the word “cancer”, but despite billions spent on research and all of the technological progress we have made over the years this plague just continues to spiral wildly out of control.  Why is that?

  In America today, more money is spent to treat cancer than to treat any other disease by far.  In fact, according to NBC News, 100 BILLION dollars was spent on cancer drugs just last year alone…

  As drug prices continue to fall under ever-increasing scrutiny, spending on cancer medicines has hit a new milestone: $100 billion in 2014.

   

  That’s up more than 10 percent from 2013, and up from $75 billion five years earlier, according to a report published Tuesday from the IMS Institute for Healthcare Informatics.

  100 million dollars would be an astounding amount of money to spend on these drugs.  But 100 billion dollars is 1,000 times as much money as 100 million dollars.  And the IMS Institute for Healthcare Informatics is projecting that the amount of money spent on cancer drugs will continue to grow at a rate of 6 to 8 percent a year.

  Needless to say, there are a lot of people out there that are becoming exceedingly wealthy treating this disease.

  And the cost of some these drugs is absolutely absurd.  According to NBC News, two of the latest cancer drugs to be developed “are priced at $12,500 a month“…

  Forty-five new drugs for cancer hit the market between 2010 and 2014, including 10 last year alone, IMS said. Two of those are so-called immunotherapies, a hot new class that harnesses the immune system to fight cancer. They are Opdivo from Bristol-Myers Squibb and Keytruda from Merck. Both are priced at $12,500 a month.

  Yes, I understand that drug companies are in business to make a profit.

  But how can anyone possibly justify charging cancer patients that much for their medicine?

  If you are diagnosed with cancer in America today and you choose to trust the medical system with your treatment, you can say goodbye to your financial future.  Even if you have health insurance, you will probably end up flat broke one way or the other.  Either you will survive and be flat broke, or you will die flat broke.

  And despite all of our ultra-expensive treatments, the survival rate for cancer is still not very good.  At this point, the five year survival rate for those diagnosed with cancer is just 65 percent.  That means that 35 percent of those diagnosed with cancer are going to end up dead within five years, and for certain forms of cancer that percentage is much, much higher.

  Sadly, as I mentioned at the top of this article, the percentage of the population getting cancer just continues to go up…

  We have lost the war on cancer. At the beginning of the last century, one person in twenty would get cancer. In the 1940s it was one out of every sixteen people. In the 1970s it was one person out of ten. Today one person out of three gets cancer in the course of their life.

  We live in a society that is highly toxic, and it is getting worse with each passing day.

  And once you do develop cancer, doctors are not allowed to prescribe any “alternative treatments” for you.  They are only permitted to offer you the treatments that the system tells them that they must offer.

  One of these is chemotherapy.  It is an absolutely nightmarish treatment that often kills the patient before it kills the cancer.  The following is how one woman described her experience with chemo…

  This highly toxic fluid was being injected into my veins. The nurse administering it was wearing protective gloves because it would burn her skin if just a tiny drip came into contact with it. I couldn’t help asking myself “If such precautions are needed to be taken on the outside, what is it doing to me on the inside?” From 7 pm that evening, I vomited solidly for two and a half days. During my treatment, I lost my hair by the handful, I lost my appetite, my skin colour, my zest for life. I was death on legs.

  Many patients go through round after hellish round, hoping that it will do something about their cancer.  Have you ever known someone who has gone through this ordeal?  It can be absolutely heartbreaking.

  But in the end, there is a tremendous amount of doubt regarding whether chemo does much good at all.  Just consider the words of Dr. Ralph Moss, the author of a book entitled “The Cancer Industry“…

  In the end, there is no proof that chemotherapy actually extends life in the vast majority of cases, and this is the great lie about chemotherapy, that somehow there is a correlation between shrinking a tumour and extending the life of a patient.

  So why do oncologists push chemo so hard?

  Well, it is because they make a tremendous amount of money doing it…

  According to the research of Steven Levitt and Stephen Dubner of Freakonomics fame, “Oncologists are some of the highest paid doctors, their average income is increasing faster than any other specialist  in the medical field, and more than half their income comes from selling and administering chemotherapy.”

   

  Yes you read that right.  Oncologists make a huge profit, as much as two-thirds of their income in some cases, from chemotherapy drugs.

   

  Their business model is very different from other doctors because you can’t buy chemotherapy drugs at your local pharmacy.

   

  Oncologists buy these drugs direct at wholesale prices, then they mark them up and bill the insurance companies. This legal profiting on drugs by doctors is unique to the cancer treatment world. They’re making money off the drugs that they insist you take to save your life. That’s a HUGE conflict of interest. They’re selling you the drugs, and charging you for the privilege of putting them in your body. No other doctor can do that.

  Our system is deeply corrupt and deeply broken.

  But nothing is going to change any time soon because hundreds of billions of dollars are being made.

  

  

  
  
  

  

• America’s Main Problem: Corruption

  Preface: Sadly, in the month since we last posted on this topic, many new examples of corruption have arisen.

  The Cop Is On the Take

  Government corruption has become rampant:

  • Senior SEC employees spent up to 8 hours a day surfing porn sites instead of cracking down on financial crimes

  • Nuclear Regulatory Commission workers watch porn instead of cracking down on unsafe conditions at nuclear plants

  • An EPA employee who downloaded 7,000 porn files, then spent 2-6 hours each workday watching porn. He's been doing it for years … but the EPA never fired him. Another EPA employee harassed 16 women co-workers … and then was promoted to a higher-paying job with more responsibility, where he harassed more women

  • NSA spies pass around homemade sexual videos and pictures they've collected from spying on the American people

  • NSA employees have also been caught using their mass surveillance powers to spy on love interests, such as girlfriends, obsessions or former wives … and to eavesdrop on American soldiers’ intimate conversations with their wives back home. And see this (“routinely shared salacious or tantalizing phone calls that had been intercepted” … “‘Hey, check this out … there’s good phone sex'”)

  • An employee of the Transportation Security Administration admitted that TSA agents share – and laugh at – nude scans of passengers.  Another TSA employee says that screeners make excuses so they can grope and fondle travelers that they're attracted to

  • Investigators from the Treasury’s Office of the Inspector General found that some of the regulator’s employees surfed erotic websites, hired prostitutes and accepted gifts from bank executives … instead of actually working to help the economy

  • The Minerals Management Service – the regulator charged with overseeing BP and other oil companies to ensure that oil spills don’t occur – was riddled with “a culture of substance abuse and promiscuity”, which included “sex with industry contacts”

  • Agents for the Drug Enforcement Agency had dozens of sex parties with prostitutes hired by the drug cartels they were supposed to stop (they also received money, gifts and weapons from drug cartel members)

  • Pentagon employees used government credit cards to pay for adult "escorts" (i.e. prostitutes) and to gamble

  • Federal agents with the Drug Enforcement Administration and Secret Service investigating Bitcoin money laundering extorted and stole over $1 million in Bitcoin

  • The IRS gave promotions to employees who were themselves tax cheats

  • The Commodity Futures Trading Commission has conspired with big banks to manipulate commodities prices for decades

  • The government-sponsored rating agencies committed massive fraud (and see this)

  • The Treasury department allowed banks to “cook their books”

  • Regulators knew of and allowed the use of debt-hiding accounting tricks by the big banks

  • The Secretary of Treasury (Tim Geithner) was complicit in Lehman’s accounting fraud, (and see this)

  • The former chief accountant for the SEC says that Bernanke and Paulson broke the law and should be prosecuted

  • The government knew about mortgage fraud a long time ago. For example, the FBI warned of an “epidemic” of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this and this. For example, the Federal Reserve turned its cheek and allowed massive fraud, and the SEC has repeatedly ignored accounting fraud. Indeed, Alan Greenspan took the position that fraud could never happen

  • Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy, when they were not. The Treasury Secretary also falsely told Congress that the bailouts would be used to dispose of toxic assets … but then used the money for something else entirely

  • A high-level Federal Reserve official says quantitative easing is “the greatest backdoor Wall Street bailout of all time”

  • The SEC has been shredding Wall Street documents for decades to help the big banks cover up their fraud

  • The non-partisan Government Accountability Office calls the Fed corrupt and riddled with conflicts of interest. Nobel prize-winning economist Joe Stiglitz says the World Bank would view any country which had a banking structure like the Fed as being corrupt and untrustworthy. The former vice president at the Federal Reserve Bank of Dallas said said he worried that the failure of the government to provide more information about its rescue spending could signal corruption. “Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said

  • Arguably, both the Bush and Obama administrations broke the law by refusing to close insolvent banks

  • Congress may have covered up illegal tax breaks for the big banks

  • Police have been busted framing innocent people

  • Warmongerers in the U.S. government knowingly and intentionally lied us into a war of aggression in Iraq. The former head of the Joint Chiefs of Staff – the highest ranking military officer in the United States – said that the Iraq war was “based on a series of lies”. The same is true in Libya and other wars

  • $8.5 TRILLION dollars in taxpayer money doled out by Congress to the Pentagon since 1996 has NEVER been accounted for. The military wastes and "loses" trillions of dollars. And Congress pushes expensive boondoggles that our generals say are unnecessary and unhelpful … because it's pork for their district

  • The government lied when it said it doesn't conduct mass surveillance on Americans, and then lied again when it said that spying was aimed at protecting America against terrorists

  • The government also lied when it said American doesn't torture (and see this), and then lied once again when it said torture was aimed at protecting America against terrorists

  • The government made sure that false claims were made about the amount of oil spilled by BP in the Gulf

  • The government has framed whistleblowers with false evidence

  • The Pentagon falsely smeared USA Today reporters because they investigated illegal Pentagon propaganda

  • When one of the most respected radiologists in America – the former head of the radiology department at Yale University – attempted to blow the whistle on the fact that the FDA had approved a medical device manufactured by General Electric because it put out massive amounts of radiation, the FDA installed spyware to record his private emails and surfing activities (including installing cameras to snap pictures of his screen), and then used the information to smear him and other whistleblowers

  • In an effort to protect Bank of America from the threatened Wikileaks expose of wrongdoing – the Department of Justice told Bank of America to a hire a specific hardball-playing law firm to assemble a team to take down WikiLeaks (and see this)

  • The Bush White House worked hard to smear CIA officers, bloggers and anyone else who criticized the Iraq war

  • Corruption at the FBI lab led to the execution of scores of innocent people

  • The FBI smeared top scientists who pointed out the numerous holes in its anthrax case. Indeed, the head of the FBI's investigation agrees that corruption was rampant

  • Terror attacks such as 9/11, the Boston Marathon bombing and the Texas shooting all happened because of pervasive corruption in our intelligence agencies

  The biggest companies own the D.C. politicians. Indeed, the head of the economics department at George Mason University has pointed out that it is unfair to call politicians “prostitutes”. They are in fact pimps … selling out the American people for a price.

  Government regulators have become so corrupted and “captured” by those they regulate that Americans know that the cop is on the take. Institutional corruption is killing people’s trust in our government and our institutions.

  Indeed, America is no longer a democracy or republic … it's officially an oligarchy.

  The allowance of unlimited campaign spending allows the oligarchs to purchase politicians more directly than ever. Moreover, there are two systems of justice in America … one for the big banks and other fatcats, and one for everyone else.

  Big Corporations Are Also Thoroughly Corrupt

  But the private sector is no better … for example, the big banks have literally turned into criminal syndicates.

  Wall Street and giant corporations are literally manipulating every single market.

  And the big corporations are cutting corners to make an extra penny … wrecking havoc with their carelessness. For example:

  • Fracking companies dumped 3 billion gallons of highly-toxic waste into California's drinking water supply. Fracking is polluting water all over the country. A study published in the journal Ground Water predicts that the highly-toxic fluids used in fracking can migrate to aquifers within a few short years. In addition, it is now official that fracking can cause earthquakes.  Yet fracking companies are using military psychological operations techniques to discredit opponents (and see this)

  • U.S. military contractors have pocketed huge sums of money earmarked for humanitarian and reconstruction aid

  • Monsanto has claimed for decades that Roundup is safe, but the World Health Organization just said that it probably causes cancer.  Monsanto forbids independent scientists from testing its GMO crops for safety, attacks the computers of people who oppose GMO foods and sue small farmers when Monsanto GMO crops drift onto their fields

  • Big farmers are drenching their crops with Roundup right before harvest … to save a buck

  • Big food companies work hand-in-glove with the government to dish up unhealthy food

  • BP's criminal negligence led to the giant Gulf oil spill

  (Further examples here, here, here, here and here.)

  We've Forgotten the Lessons of History

  The real problem is that we need to learn a little history:

  • We’ve known for thousands of years that – when criminals are not punished – crime spreads

  • We’ve known for hundreds of years that the failure to punish financial fraud destroys economies, as it destroys all trust in the financial system

  • We’ve known for centuries that powerful people – unless held to account – will get together and steal from everyone else

  Beyond Partisan Politics

  Liberals and conservatives tend to blame our country's problems on different factors … but they are all connected.

  The real problem is the malignant, symbiotic relationship between big corporations and big government.

  

  
  
  

  

• Introducing Hotel ISIS: Have Fun, But Don't 'Lose Your Head'

  Over the past year, the world has learned quite a bit about ISIS, the once obscure band of CIA-trained, Qatar-funded, marauding Muslim militants whose Cinderella story saw the group transform themselves from Syrian proxy war puppets to barbarous pseudo-state conquerors in the space of nine short months. We’ve learned, for instance, that the group are avid Twitter users, which is why they felt especially betrayed when the social network began suspending members’ accounts, prompting the group to warn co-founder Jack Dorsey that ISIS “lions” would be arriving in short order to “take his breath.” We’ve also learned that despite proving themselves extraordinarily capable when it comes to producing near Hollywood-quality videos, the group struggles when it comes to creating a social network from scratch. Finally, we’ve come to understand that despite the group’s tough guy posturing, most members have a soft spot for kittens and enjoy a spoonful of Nutella now and again. 

  And so, as the CIA prepares to train the next group of “moderate” Syrian rebels who may or may not become the successor to ISIS much as ISIS did to al-Qaeda, and as Texans ponder “lone wolves” and false flags, we present ISIS first-ever venture into the hospitality industry. Behold! Hotel ISIS…

  This was once the 262-room, five-star Ninawa International Hotel in Mosul, Iraq:

  

  It is now being reopened under new ownership… 

  

  

  

  …who are working diligently to give the hotel a fresh new look…

  

  …while tending to the grounds…

  

  …trimming the hedges…

  

  …and waxing the floors…

  

  As you can see, the group expended quite a bit of effort to get the building ready for opening night which was reportedly on May 1. All Muslims were told they could attend the event free of charge and as The Independent reports, ISIS even put on a fireworks show at the end of the night:

  Pictures circulated by Isis-affiliated social media accounts show members tending to a well-maintained garden, polishing floors and cleaning windows, expansive swimming pools and two black Isis flags flying at the front of the multi-storey building.

   

  The hotel is believed to be the Ninawa International Hotel, which received a number of positive reviews on TripAdvisor before being overtaken by militants and stripped of its branding. It has 262 rooms, two restaurants, two ballrooms and a gymnasium, among other facilities.

   

  Images from the event show dozens gathered around pools during the day, followed by a firework display in the evening.

  So while there’s plenty of fun to be had at this former five-star establishment, you’d be wise not to go overboard or otherwise ‘lose your head’ because well… you might lose your head. Here’s SputnikNews:

  Alas, the jihadists have prohibited their guests from dancing, smoking, gambling and other “sins”; women, visiting the hotel, should be dressed in accordance with strict Sharia laws – head-to-toe in black.

   

  Those who violate the Islamic rules are at risk of being decapitated, while ISIL’s infamous female police al-Khansaa will keep an eye on guests to ensure observance of Islamic values and practices.

  For those interested in making the trip to Mosul, we have not yet been apprised of the best way to make reservations, but we’ll be sure to keep an eye on Expedia for the best deals.

  

  
  
  

  

• Why We Have An Oversupply Of Almost Everything

  Submitted by Gail Tverberg via Our Finite World blog,

  The Wall Street Journal recently ran an article called, Glut of Capital and Labor Challenge Policy Makers: Global oversupply extends beyond commodities, elevating deflation risk. To me, this is a very serious issue, quite likely signaling that we are reaching what has been called Limits to Growth, a situation modeled in 1972 in a book by that name.

  What happens is that economic growth eventually runs into limits. Many people have assumed that these limits would be marked by high prices and excessive demand for goods. In my view, the issue is precisely the opposite one: Limits to growth are instead marked by low prices and inadequate demand. Common workers can no longer afford to buy the goods and services that the economy produces, because of inadequate wage growth. The price of all commodities drops, because of lower demand by workers. Furthermore, investors can no longer find investments that provide an adequate return on capital, because prices for finished goods are pulled down by the low demand of workers with inadequate wages.

  Evidence Regarding the Connection Between Energy Consumption and GDP Growth

  We can see the close connection between world energy consumption and world GDP using historical data.

  

  Figure 1. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

  This chart gives a clue regarding what is wrong with the economy. The slope of the line implies that adding one percentage point of growth in energy usage tends to add less and less GDP growth over time, as I have shown in Figure 2. This means that if we want to have, for example, a constant 4% growth in world GDP for the period 1969 to 2013, we would need to gradually increase the rate of growth in energy consumption from about 1.8% = (4.0% – 2.2%) growth in energy consumption in 1969 to 2.8% = (4.0% – 1.2%) growth in energy consumption in 2013. This need for more and more growth in energy use to produce the same amount of economic growth is taking place despite all of our efforts toward efficiency, and despite all of our efforts toward becoming more of a “service” economy, using less energy products!

  

  Figure 2. Expected change in GDP growth corresponding to 1% growth in total energy, based on Figure 1 fitted line.

  To make matters worse, growth in world energy supply is generally trending downward as well. (This is not just oil supply whose growth is trending downward; this is oil plus everything else, including “renewables”.)

  

  Figure 3. Three-year average percent change in world energy consumption, based on BP Statistical Review of World Energy 2014 data.

  There would be no problem, if economic growth were something that we could simply walk away from with no harmful consequences. Unfortunately, we live in a world where there are only two options–win or lose. We can win in our contest against other species (especially microbes), or we can lose. Winning looks like economic growth; losing looks like financial collapse with huge loss of human population, perhaps to epidemics, because we cannot maintain our current economic system.

  The symptoms of losing the game are the symptoms we are seeing today–low commodity prices (temporarily higher, but nowhere nearly high enough to maintain production), not enough good paying jobs for common workers, and lack of investment opportunities, because workers cannot afford the high prices of goods that would be required to provide adequate return on investment.

   

  How We Have Won in Our Contest with Other Species–Early Efforts 

  The “secret formula” humans have had for winning in our competition against other species has been the use of supplemental energy, adding to the energy we get from food. There is a physics reason why this approach works: total population by all species is limited by available energy supply. Providing our own external energy supply was (and still is) a great work-around for this limitation. Even in the days of hunter-gatherers, humans used three times as much energy as could be obtained through food alone (Figure 1).

  

  Figure 4

  Earliest supplementation of food energy came by burning sticks and other biomass, starting one million years ago. Using this approach, humans were able to gain an advantage over other species in several ways:

  1. We were able to cook some of our food. This made a wider range of plants and animals suitable for food and made the nutrients from these foods more easily available to our bodies.
  2. Because less energy was needed for chewing and digesting, our bodies could put energy into growing a larger brain, thus giving us an advantage over other animals.
  3. The use of cooked food freed up time for such activities as hunting and making clothes, because less time was needed for chewing.
  4. Heat from burning plant material could be used to keep warm in cold areas, thereby extending our range and increasing total human population that could be supported.
  5. Fire could be used to chase off predatory animals and hunt prey animals.

  Our bodies are now adapted to the need for supplemental energy. Our teeth our smaller, and our jaws and digestive apparatus have shrunk in size, as our brain has grown. The large population of humans that are alive today could not survive without supplemental energy for many purposes, such as cooking food, heating homes, and fighting illnesses that spread when humans are in as close proximity as they are today.

  Our Modern Formula For Winning the Battle Against Other Species

  In my view, the formula that has allowed humans to keep winning the battle against other species is the following:

  1. Use increasing amounts of inexpensive supplemental energy to leverage human energy so that finished goods and services produced per worker rises each year.
  2. Pay for this system with debt, because (if supplemental energy costs are cheap enough), it is possible to repay the debt, plus the interest on the debt, with the additional goods and services made possible by the cheap additional energy.
  3. This system gradually becomes more complex to deal with problems that come with rising population and growing use of resources. However, if the output of goods per worker is growing rapidly enough, it should be possible to pay for the costs associated with this increased complexity, in addition to interest costs.
  4. The whole system “works” as long as the total quantity of finished goods and services rises rapidly enough that it can fund all of the following: (a) a rising standard of living for common workers so that they can afford increasing amounts of debt to buy more goods, (b) debt repayment, and interest on the debt of the system, and (c) and an increasing amount of “overhead” in the form of government services, medical care, educational services, and salaries of high paid officials (in business as well as government). This overhead is needed to deal with the increasing complexity that comes with growth.

  The formula for a growing economy is now failing. The rate of economic growth is falling, partly because energy supply is slowing (Figure 3), and partly because we need more and more growth of energy supply to produce a given amount of economic growth (Figure 2). With this lowered world economic growth, the amount of goods and services being produced is not rising fast enough to support all of the functions that it needs to cover: interest payments, growing wages of common workers, and growing “overhead” of a more complex society.

  *  *  *

  Some Reasons the Economic Growth Cycle is Now Failing

  Let’s look at a few areas where we are reaching obstacles to this continued growth in final goods and services. An overarching problem is diminishing returns, which is reflected in increasingly higher prices of production.

  1. Energy supplies are becoming more expensive to extract.

  We extract the easiest to extract energy supplies first, and as these deplete, need to use the more expensive to extract energy supplies. We hear much about “growing efficiency” but, in fact, we are becoming less efficient in the production of energy supplies.

  In the US, EIA data shows that we are becoming less efficient at coal production, in terms of coal production per worker hour (Figure 5).

  

  Figure 5. US coal production per worker, on a Btu basis based on EIA data.

  With oil, growing inefficiency is shown by the steeply rising cost of oil exploration and production since 1999 (Figure 6).

  

  Figure 6. Figure by Steve Kopits of Douglas-Westwood showing trends in world oil exploration and production costs per barrel.

  Thus, it is for a fairly recent period, namely the period since about 2000, that we have been encountering rising costs both for US coal and for worldwide oil extraction.

  The extra workers and extra costs required for producing the same amount of energy  counteract the tendency toward growth in the rest of the economy. This occurs because the rest of the economy must produce finished products with fewer workers and less resources as a result of the extra demands on these resources by the energy sector.

  2. Other materials, besides energy products, are experiencing diminishing returns. 

  Other resources, such as metals and other minerals and fresh water, are also becoming increasingly expensive to extract. The issue with mineral ores is similar to that with fossil fuels. We start with a fixed amount of ores in good locations and with high mineral percentages. As we move to less desirable ores, both human labor and more energy products are required, making the extraction process less efficient.

  With fresh water, the issue is likely to be a need for desalination or long distance transport, to satisfy the needs of a growing population. Workarounds again involve more human labor and more resource use, making the production of fresh water less efficient.

  In both of these cases, growing inefficiency leaves the rest of the economy with less human energy and less energy products to produce the finished goods and services that the economy needs.

  3. Growing pollution is taking its toll.

  Instead of just producing end products, we are increasingly finding ourselves fighting pollution. While this is a benefit to society, it really is only offsetting what would otherwise be a negative. Thus, it acts like overhead, rather than producing economic growth.

  From the point of view of workers having to pay for higher cost energy in order to fight pollution (say, substitution of a higher cost energy source, or paying for more pollution controls), the additional cost acts like a tax. Workers need to cut back on other expenditures to afford the pollution control workarounds. The effect is thus recessionary.

  4. The amount of “overhead” to the world economy has been growing rapidly in recent years, for a number of reasons: 

  • The amount of overhead is growing because we are reaching natural barriers. For example, population per acre of arable land is growing, so we need more intensity of development to produce food for a rising population.
  • With greater population density and increased bacterial antibiotic resistance, disease transmission becomes a more of a problem.
  • Increasing education is being encouraged, whether or not there are jobs available that will make use of that education. Education that cannot be used in a productive way to produce more goods and services can be considered overhead for the economy. Educational expenses are frequently financed by debt. Repayment of this debt leads to a decrease in demand for other goods, such as new homes and vehicles.
  • We have more elderly to whom we have promised benefits, because with the benefit of better nutrition and medical care, more people are living longer.

  5. We are reaching debt limits.

  As economic growth has slowed, we have been adding more and more debt, to try to mitigate the problem. This additional debt becomes a problem in many ways: (a) without cheap energy to leverage human labor, there are not many productive investments that can be made; (b) the addition of more debt leads to a need for more interest payments; and (c) at some point debt ratios become overwhelmingly high.

  At least part of the slowdown in economic growth that we are seeing today is coming from a slowdown in the growth of debt. Without debt growth, it is hard to keep commodity prices high enough. Investment in new manufacturing plants is also affected by low growth in debt.

  *   *   *

  Reasons for Confusion in Understanding Our Current Predicament

  1. Not understanding that all of the symptoms we are seeing today are manifestations of the same underlying “illness”. 

  Most analysts think that the economy has stubbed its toe and has a headache, rather than recognizing that it has a serious underlying illness.

  2. Academia is focused way too narrowly, and tied too closely to what has been written before. 

  Academics, because of their need to write papers, focus on what previous papers have said. Unfortunately, previous papers have not understood the nature of our problem. Academics have developed models based on our situation when we were away from limits. The issues we are facing cover such diverse subjects as physics, geology, and finance. It is hard for academics to become knowledgeable in many areas at once.

  3. Models that seemed to work before are no longer appropriate.

  We take models like the familiar supply and demand model of economists and assume that they represent everlasting truths.

  

  Figure 7. (Source Wikipedia). The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product.

  Unfortunately, as we get close to limits, things change. Both wage levels and debt levels have an impact on demand; the quantity goods available is also affected by diminishing returns. The model that worked in the past may be totally inappropriate now.

  Even a complex model like the climate change model being used by the IPCC is likely to be affected by financial limits. If near-term financial limits are to be expected, IPCC’s estimate of future carbon from fuels is likely to be too high. At a minimum, the findings of the IPCC need to be framed differently: climate change may be one of a number of problems facing those people who manage to survive a financial crash.

  4. Too much wishful thinking.

  Everyone would like to present a positive result, especially when grants are being given for academic research will support some favorable finding.

  A favorite form of wishful thinking is believing that higher costs of energy products will not be a problem. Higher cost energy products, whether they are renewable or not, are a problem for many reasons:

  • They represent growing inefficiency in the economy. With growing inefficiency, we produce fewer finished goods and services per worker, not more.
  • Countries using more of the higher cost types of energy become less competitive in the world market, and because of this, may develop financial problems. The countries most affected by the Great Recession were countries using a high percentage of oil in their energy mix.
  • The amount workers have available to spend is limited. If a worker has $100 to spend on energy supply, he can buy 100 times as much in energy supplies priced at $1 as he can energy supplies priced at $100. This same principle works even if the cost difference is much lower–say $3.50 gallon vs. $3.00 gallon.

  5. Too much faith in, “We pay each other’s wages.”

  There is a common belief that growing inefficiency is OK; the wages we pay for unneeded education will work its way through the system as more wages for other workers.

  Unfortunately, the real secret to economic growth is not paying each other’s wages; it is growing output of finished products per worker through increased use of cheap energy (and perhaps technology, to make this cheap energy useful).

  Increased overhead for the system is not helpful.

  6.  An “upside down” peak oil story.

  Most people in the peak oil community believe what economists say about supply and demand–namely, that oil prices will rise if there is a supply problem. They have not realized that in a networked economy, wages and prices are tightly linked. The way limits apply is not necessarily the way we expect. Limits may come through a lack of good paying jobs, and because of this lack of jobs, inability to purchase products containing oil.

  The connection between energy and jobs is clear. Good jobs require the use of energy, such as electricity and oil; lack of good-paying jobs is likely to be a manifestation of an inadequate supply of cheap energy. Also, high paying jobs are what allow rising buying power, and thus keep demand high. Thus, oil limits may appear as a demand problem, with low oil prices, rather than as a high oil price problem.

  In my opinion, what we are seeing now is a manifestation of peak oil. It is just happening in an upside down way relative to what most were expecting.

  *  *  *

  Conclusion

  One way of viewing our problem today is as a crisis of affordability. Young people cannot afford to start families or buy new homes because of a combination of the high cost of higher education (leading to debt), the high cost of fuel-efficient new cars (again leading to debt), the high cost of resale homes, and the relatively low wages paid to young workers. Even older workers often have an affordability problem. Many have found their wages stagnating or falling at the same time that the cost of healthcare, cars, electricity, and (until recently) oil rises. A recent Gallop Survey showed an increasing share of workers categorize themselves as “working class” rather than “middle class.”

  It is this affordability crisis that is bringing the system down. Without adequate wages, the amount of debt that can be added to the system lags as well. It becomes impossible to keep prices of commodities up at a high enough level to encourage production of these commodities. Return on investment tends to be low for the same reason. Most researchers have not recognized these problems, because they are narrowly focused and assume that models that worked in the past will continue to work today.

  

  

  
  
  

  

• Slavery In America

  Presented with no comment…

   

  

   

  Source: Investors.com

  

  

  
  
  

  

• What The US Government Spends Its Money On, Besides Hookers And Gambling

  While there are those who, oblivious of the fastest collapse in US economic data on record, have pointed out that government tax receipts are rising with the implication being that the US consumer is doing quite fine thank you (and they are absolutely correct if by “consumer” they mean about 1% of the US population), what is rarely if ever discussed is that government expenditures are rising just as fast.

  In fact as the following chart from the latest Treasury refunding presentation shows, the cumulative deficit through December in 2015 is just a fraction greater than last year, when government tax revenues were substantially lower.

  

  So to understand where Uncle Sam spent all that extra cash it collected through various rising tax increases on the rich here is the full breakdown of the largest outlay categories for the US government in the first fiscal quarter of 2015 and 2014.

  

   

  It will hardly come as a surprise that after being neck and neck a year ago with Social Security outlays, the spending on Medicare and Medicaid (HHS) has jumped substantially, and at over $250 billion in the quarter, is now the most cash demanding category courtesy of a demographically deteriorating America that is just a little bit older and whole lot fatter.

  The bulk of the other spending categories were largely in line with the prior year, and the one outlier was interest on the debt (Treasury), which jumped to just around $125 billion for the quarter an increase of about 25% from a year ago, which is somewhat unexpected considering the average cost of debt continues to decline even if the total notional amount of US Federal Debt is now in the mid-$18 trillion range.

  The one most interesting category was defense spending: a category despised by progressives even though at this rate spending on interest for the progressives’ beloved government debt will soon eclipse defense. It is here that outlays actually dropped from a year ago, declining to just over $150 billion for the quarter. Which is surprising, because as Politico wrote overnight, among the items funded by general taxpayer revenue were such discretionary expenses as hookers and blackjack, after a defense department audit founds that Pentagon employees used their government credit cards to gamble and pay for “adult entertainment.”

  From Politico:

  The audit of “Government Travel Charge Transactions” by the Department of Defense Office of Inspector General, which is to be made public in coming weeks, found that both civilian and military employees used the credit cards at casinos and for escort services and other adult activities — in Las Vegas and Atlantic City.

  The audit forgot to add that the employees were either ridiculously brave or dumb as a bag of hammers to assume that charging a hooker on your taxpayer credit card would pass unnoticed.

  Actually make that dumb as a bag of hammers, because the expenditures did not just involve swiping you card (in the prostitute’s magnetic card reader), but actually submitting the expense for reimbursement. And for the supervisors to figure out that the funds were spent on hookers, it means that the Pentagon lackeys wrote down just that.

  A Pentagon official briefed on some of the findings stressed that the federal government did not necessarily pay the charges; holders of the cards pay their own bills and then submit receipts to be reimbursed for expenses related to their government business.

  Actually make that really, really dumb, because “the official said that the employees may have used the government cards for gambling and escort services in order to shield the charges from spouses.” In other words, if you got caught not only would you get fired, but you would lose half your assets following a very messy divorce.

  Those taxpaying Americans wondering if this was a one-off event, will be delighted to know that their taxes are abused pretty much on a constant basis by the government’s employees: “the Department of Labor’s Inspector General recently found that Job Corps employees charged nearly $100,000 to the government for hair cuts, clothing, and personal cell phone service. The Department of Homeland Security found that Coast Guard employees charged more than $12,000 at a one California coffee shop alone. Three employees were fired and two resigned last year at the Bureau of Land Management after they charged $800,000 worth of gift cards on their government credit cards.”

  On the other hand, the Keynesians among us will protest that this is perfectly normal and even legitimate theft: after all, how is the economy expected to grow if corrupt criminals don’t spend, spend, spend. Especially if the money isn’t theirs to begin with. Those same Keynesians will demand that instead of collecting taxes, the government should merely issue a quadrillion dollars in debt which will be promptly monetized by the Fed, with the proceeds used by every government criminal to hire hookers, do blow, gamble 24/7 and otherwise “boost” the economy.

  In fact, that may well describe the Keynesian nirvana: surely it would explain why the real US economy is fast approaching a state of terminal collapse. Which is why expect the trend in declining defense spending not to persist.

  As for that last question, whether anyone will be fired, here is the simple answer: of course not,

  Because the review was an audit of the credit card system and not an investigation of particular individuals, the official said the likely result will be that the agencies and military branches most affected will be compelled to remind employees that the practice violates policy — and possibly the law. [T]he findings are expected to lead department officials to issue stern new warnings.

  Because if criminal banks get away with a wrist slap and a harsh warning by their “regulators”, why not criminal government workers?

  

  

  
  
  

  

• New Russian High-Tech Tank Suffers BSOD Moment During Army Parade

  Russia unveiled its new main battle tank as part of practices for Saturday’s Victory Day parade (commemorating the end of WWII). According to RT, the Armata “is a cutting-edge vehicle with an unmanned turret armed with a brand new 125 mm smoothbore cannon, which is the most powerful gun of its kind to date in terms of muzzle energy.” You decide…

  Of course, the painful 40 seconds could be seen as an anology for The Fed’s effort to revive The US Economy.

  
  

  

  

  
  
  

  

• Global Trade To Remain Subdued Until At Least 2020, Goldman Says

  In early March, Maersk chief executive Søren Skou delivered a stinging blow to those who claim the epic decline in the Baltic Dry Index is representative not of sagging worldwide demand, but rather of severe oversupply, and is thus no longer a reliable indicator when it comes to assessing the state of the global economy. Skou told FT he sees container demand “towards the low end” of the 3-5% growth range the company forecasts for 2015. If Skou is correct, it would mark a Y/Y decline in growth for the company, which handles around 15% of all seaborne freight. Skou also flagged the generally sluggish pace of global economic growth, noting that “the economies in Europe are still very sluggish. Brazil, Russia and China: those three economies used to drive a lot of growth, and right now we are not really seeing that to the same extent. The only real bright spot is the US, and even the US is good but not great.” This led us to remark that “yes supply isn’t helping, but it is the lack of global demand that is pushing equilibrium levels lower, aka global deflation.” Later in the month, we flagged further declines in shipping rates as evidence that global trade was grinding to a crawl. 

  Meanwhile, we’ve exhaustively documented the laundry list of signs that point to dramtically decelerating economic growth in China, including falling metals demand, collapsing rail freight volume, slumping exports, a war on pollution that may cost the country 40% in industrial production terms, and, most recently, a demographic shift that’s set to trigger a wholesale reversal of the factors which contributed to the country’s meteoric rise. All of this means that the world’s once-reliable engine of demand is set to stall in the years ahead. 

  Finally, we’ve been keen to note that CB policy has had the effect of allowing otherwise insolvent companies to stay solvent by tapping investors at record low borrowing costs contributing to a supply glut and, ultimately, to deflation.

  Consider the above and then consider the following, from Goldman, who now predicts the intersection between soft commodity markets and the Chinese transition from investment to consumption will weigh on dry bulk trade — and by extension, on shipping rates — until at least 2020. 

  Via Goldman:

  The transition from investment to consumption in the Chinese economy, together with a shift towards cleaner energy sources, has caused a sharp deceleration in dry bulk trade. After expanding at an average annual rate of 7% over the period 2005-14, seaborne demand in iron ore, thermal and metallurgical coal is set to increase by only 2% in 2015 to 2.5 billion tonnes as these trends persist. In the steel sector, domestic consumption growth ground to a halt in 2014 and the prospect of peak iron ore demand is nigh. In the power sector, demand for coal-fired generation is suffering from a combination of weaker economic growth, rising energy efficiency and a diversification in the fuel mix towards renewable energy, natural gas and nuclear. There are no other markets large and/or dynamic enough to offset a slowdown in China in the foreseeable future, and we forecast trade volumes to stabilize in the period to 2018.

  
  

  Meanwhile, shipyards churning out large dry bulk carriers in expectation of a sustained period of strong demand for commodities now find themselves adding unwanted capacity into an oversupplied freight market. The two largest dry bulk vessel types, panamax (c.75,000 DWT2) and capesize (c.180,000 DWT), benefited the most from the bull market in iron ore and coal. The size of the fleet doubled between 2008 and 2015, and current order books will ensure that shipping capacity continues to grow until 2017, when vessel retirements will finally outweigh new deliveries.

  
  

  

   

  The divergence between demand for freight and the capacity of the vessel fleet reflects the time lag between the mining and shipping sectors. In both industries, supply responds to price: rising commodity prices in a tight market leads to investment in new mining capacity in the same way that rising freight rates encourages greater activity in shipyards. On that basis, the mining sector moves first by ramping up export volumes and the shipping sector moves next, responding to rising trade volumes by investing in new vessels. Conversely, mining companies will be the first to respond in a bear market by curtailing investment, while the delayed response from ship builders will result in overinvestment and excess capacity. 

  

  The daily charter rate for a capesize vessel has declined from a peak in excess of US$100,000 in 2008 down to its current level below US$10,000. Faced with the risk of leaving vessels idle over long periods, we believe that ship owners will charge charter rates that are range bound between the cash cost of operating the vessel and the accounting break-even rate. This compounds the impact of lower fuel prices, resulting in a period of cheap freight that should last until older vessels have been scrapped in sufficient numbers to balance the market, most likely beyond 2020.

   

  In other words: not bullish for global trade/demand. So as we anxiously wait to hear from those who claim it’s all about oversupply and nothing to do with the fact that between a decelerating China and the utter failure of central bank policies to stimulate demand to soak up a global supply glut which QE has to a large extent facilitated, we’ll leave you with a fresh look at the Baltic Dry Index which, all things equal, signifies a global depression of epic proportions.

  

  

  

  
  
  

  

• Presenting The Best (And Worst) College Majors

  A long time ago someone started a rumor that says college graduates will make around $1,000,000 more over their lifetime than those who only earn a high school degree.

  Ok, maybe it’s not entirely fair to call it a “rumor” because we’re sure there are some statistics behind it, but as Jamie Dimon recently reminded us, statistics can’t be trusted, and even if in this case they could, the fact that the average college graduate enters the job market saddled with nearly $30,000 in student loan debt and the fact that — as Moody’s recently noted on the way to putting some $3 billion in student loan-backed ABS on review for downgrade — unemployment rates are high among recent graduates, have led some observers to question whether a college degree is still as valuable as it once was. Throw in relentlessly rising tuitions rates (meaning degrees will become ever more expensive over time), and you have the beginnings of what may be a compelling case against the utility of higher education in America.

  Fortunately, there are still some majors out there which promise to reward students with high paying, full-time work upon graduation. Here, courtesy of a study from Georgetown, are the best and worst areas to major in if you hope to survive once the student loan checks stop showing up in the mail.

  (Note: the dots in the middle of the bars represent the median salaries for a given major)

  If it’s money you’re after, you don’t want to be a social worker and probably not a psychologist either…

  

  … and you definitely do not want to major in any of the liberal arts…

  

  …or any other kind of arts for that matter…

  

  …but you might want to consider being a doctor…

  

  …or a finance executive…

  

  …but if you really want to make some serious cash right out of college, you’ll help find oil…

  

  …and if you really want to struggle, you’ll teach children…

  

  Here’s a bit of color from the report:

  STEM (science, technology, engineering, and mathematics), health, and business majors are the highest paying, leading to average annual wages of $37,000 or more at the entry level and an average of $65,000 or more annually over the course of a recipient’s career.

   

  The 10 majors with the lowest median earnings are: early childhood education ($39,000); human services and community organization ($41,000); studio arts, social work, teacher education, and visual and performing arts ($42,000); theology and religious vocations, and elementary education ($43,000); drama and theater arts and family and community service ($45,000).

  And a bit more from Bloomberg:

  Georgetown University’s Center on Education and the Workforce analyzed Census Bureau data to determine the average wages for 137 college majors and found that students who focused on architecture and engineering come out on top, with a $50,000 starting salary.

   

  Within that group, those who studied the skills needed for oil jobs got paid best. People who majored in petroleum engineering made an average of $135,754 a year by their mid to late 20s—more than any other major. 

   

  Then there are the jobs people do more for love than cash: Early childhood education majors pulled in the least, making an average of $39,097 a year. While that’s still a significant bump over high school graduates, who typically pull in $22,000 a year, it’s a drastic cut of what STEM and business majors reported making a couple years out of college.

   

  “A college major isn’t destiny,” said Anthony Carnevale, director of the Center and the report’s lead author. But it does appear to be a more significant factor than some college counselors and brochures might suggest. “For today’s high school graduates, and an increasing share of middle-aged adults who are pursuing a bachelor’s degree, the decision about what to major in will have critical economic consequences for the rest of their lives,” Carnevale said.

  To summarize: drilling for oil is important, educating America’s youth … not so much.

  WIW2-FullReport

  

  

  
  
  

  

• The Nazi Economic Mirage

  Submitted by Erico Matias Tavares via Sinclar & Co.,

  Many believe that Adolf Hitler’s centrally-planned economic policies produced an economic miracle in the 1930s, with Germany finally regaining its tempo and getting out of a terrible depression.

  Conventional economic indicators confirm this view. However, they can also be misleading as to the true condition of the German economy and the sustainability of its finances. Moreover, the heavy burden placed on society, where millions of people suffered tragic losses and virtually everyone lost their freedoms, cannot be just regarded as a footnote. And these policies, or more precisely their failure, put Germany on a collision course with the rest of the world.

  In 1930 Germany had a functioning democracy, world class scientists and engineers and impressive industrial capabilities. Still, prosperity levels were well below those of its US and UK counterparts, as the country never fully recovered from the socioeconomic turmoil that resulted from its defeat in World War I.

  The global depression that soon followed only worsened the economic conditions of Germans, with unemployment reaching a staggering 30% of the population by 1933. In their desperation, they turned to a man with a grand vision and a plan, promising he would fulfill the great Germanic promise and usher in a new era of prosperity: Adolf Hitler. His siren song and radical policies set in motion a chain of events which eventually lead to a diametrically opposed outcome for his country.

  From Failure to Savior

  Hitler had been pretty much a failure most of his early life. While he valiantly served as a Private during World War I, often volunteering for the most dangerous jobs and even receiving two Iron Crosses as a result, he was never promoted because he could not interact well with his comrades, nor – if you can believe it – did he have the charisma to lead them into action.

  In 1918 he was blinded by a gas attack and put of commission for weeks. When he recovered his entire world had changed: his country lost the war and everything he had fought for collapsed.

  Hitler was quick to blame his misfortunes on others, particularly wild conspiracy theories about the undue influence of the Jews in world events, as he would later articulate in his book “Mein Kampf”. Disillusioned with the outcome of the war and prospects for the future, he settled in Munich and joined a radical workers party, along with other former soldiers. In charge of propaganda, he became a prolific public speaker, so much so that people began to think that the National Socialist German Workers’ Party – abbreviated to Nazi – was in fact his own party.

  After being imposed hefty war reparations by the Allies, Germany’s woes got progressively worse, leading to a humiliating foreign occupation of the Ruhr in 1923, along with a devastating bout of hyperinflation. This was too much to bear and the Nazis decided to take violent political action, seeking to expand their influence in society.

  After this strategy failed to deliver any tangible results, and most importantly put him in jail for a while, Hitler realized that he would have to resort to legal means to achieve power. He then split the party and headed the new faction, with the financial backing of several Bavarian industrialists and landlords.

  Although progress was very slow at first, the Nazi party grew steadily. In May 1928 they had won less than 3% of the vote in the elections to the Reichstag, Germany’s parliament. They fared even worse in the presidential elections almost a year later, with their candidate getting barely 1% of the vote. But as Germany’s socioeconomic crisis deepened, all of the sudden their influence exploded. In the parliamentary election of July 1930, the Nazis scored 18% of the vote, doubling it within two years and becoming the largest party in the Reichstag. Hitler became Germany’s chancellor in January 1933 – at 39 years old, and absolute dictator by August 1934, marking the end of the Weimar Republic.

  The Nazis had finally reached their goal—the establishment of the Third Reich, an authoritarian state in Germany under the control of the Fuhrer, Adolf Hitler.

  An Economic Revival – Of Sorts

  Having tightened their grip on politics, the Nazis promptly implemented their plan to reshape society and the economy with the following goals:

  • Solve the unemployment problem – a key promise of Hitler
  • Drag the German economy out of the recession and make the country self-sufficient (“autarky”)
  • Promote the population growth of “true” Germans
  • Get rid of Jewish socioeconomic influence
  • Realign the economy with the Nazi’s expansionist objectives

  Hitler launched several government programs and policies to reduce unemployment, with much fanfare to boot.

  Massive public work schemes were announced. Over 2,500 miles of autobahn (highways) were built, linking major cities. Hospitals, houses, canals and so forth were also built across the country. All this work was done manually, shovel in hand, so that more workers were needed.

  Trade unions were banned and all workers were forced to join the Nazi Labor Front. Working hours were thus increased and wages frozen. Workers were strongly encouraged to go along with this, as any dissenters were immediately accused of economic sabotage and sent to forced labor camps.

  To counter any resentment for the loss of worker rights, the “Strength through Joy Movement” (KdF) was established specifically to make workers “happy”, providing them with a range of leisure opportunities. This of course included a healthy dosage of Nazi ideological indoctrination and thanking the Fuhrer for their good fortune. The KdF also introduced a plan that enabled workers to buy a car. The Volkswagen (the People's Car) was conceptualized so that most people could afford it. The Beetle, designed by Ferdinand Porsche, cost the equivalent of 35 weeks wages for the average worker, and he could pay for it on a weekly basis.

  Women’s rights – which had flourished under the Weimar Republic, were significantly curtailed. Since they were no longer allowed to work, men took over their jobs and were the only ones allowed to make decisions in society. The Nazis had another role in mind for women, since they had always been particularly concerned with the decline in “true” German population numbers. Accordingly, there was a great deal of propaganda celebrating the image of the mother and the family unit. Prizes were given to women who would bear a large number of children.

  Industry was also reorganized – around a very pressing Nazi concern: rearmament. Hitler had devolved great many powers to large private industrial interests, which were now headed by Nazi sympathizers and who stood to gain a great deal from weapons production. Entire factories were uprooted to parts of the country less exposed to French aggression. New railways were built in record time (but with dubious efficiency). The whole productive scheme was now rethought and planned in the context of war.

  Of course the Treaty of Versailles had prohibited all of this, but Hitler went ahead regardless. From 1935 onwards, every man aged between 18 and 25 had to spend two years in the armed forces. While in 1933 there were 100,000 members in the armed forces, by 1939 this number would balloon to 1.4 million.

  Rearmament created jobs of course, but also a lot of disturbances in established industrial practices and logistics. All the while, the Nazis attempted to reconcile these efforts with making Germany more self-reliant – which was clearly contradictory given the massive increase in demand for raw materials to support the construction new ships, tanks and airplanes. At first they searched for artificial ingredients to replace oil, rubber, textiles and coffee, to no avail. Then they struck a deal with the Soviets, exchanging raw materials for arms in the lead up to the war. By 1939 Germany was still importing 33% of its raw materials. Autarky turned out to be another grandiose Nazi policy ill-adjusted to the needs of the economy.

  Unfortunately, not only factories were uprooted. The Jewish community, which had played a prominent role in German society for centuries, was promptly segregated and then progressively eliminated. Other minorities followed, with all their jobs and possessions reallocated.

  Hitler’s vision for the German nation was finally becoming a reality. But he was far from done.

  The Crucial Role of the Farming Sector

  Many of the traditional Germanic themes were associated with the land. As such, this became a centerpiece of the Nazis’ ideology, further accentuated by the historical support of many landlords to their cause.

  Some 9 million people worked in German farms by the time Hitler came to power. In comparison, the US had 10 million people employed in the sector (curiously many from German descent, particularly in the Midwest) with seven times as much arable land. This was emblematic of Germany’s meager productivity and incomes in the farming sector.

  In 1933, Hitler implemented the State Hereditary Farm Law, where selected lands were declared hereditary, as an Erbhof, to pass from father to son, and could not be mortgaged or alienated. Any farm of 7 to 125 hectares, the size deemed to be adequate to maintain a family and act as a productive unit, could be declared Erbhof. All farms of over family size were also made secure in possession of their owner's family, with no possibility of alienation.

  While farmers benefited from the elimination of debt and some aid from the government – such as fixating prices and production to promote that elusive autarky, their ability to finance crop expansions and purchases of new equipment was also reduced. The sector saw a continuous outflow of workers, who were now being employed in all the other government sponsored projects and the military.

  As a result, agricultural productivity suffered and shortages of food developed across the country. In response, the Nazis implemented food rationing – which would remain in place until the end of the war. In 1937, annual consumption of wheat bread, meat, bacon, milk, eggs, fish, vegetables, sugar, fruit and beer had fallen to levels comparable to a decade earlier (only rye bread, cheese and potatoes had increased). Malnourishment was starting to become a real problem amongst German workers, in farms and factories across the country.

  In typical fashion, rather than blaming his own policies, Hitler believed that this situation resulted from a lack of “space to live” for his people. All major European powers had access to vast territories in Africa and elsewhere. The US had a huge continent at its disposal. But not Germany, who had lost out in WWI and was now confined to its diminished borders.

  If other countries could obtain large amounts of land by force, why couldn't Germany? After all, security was not the only reason to build a powerful army.

  The Miracle Begins to Unravel

  By the time the Olympic Games took place in Berlin in 1936, cracks were starting to appear in German society. This was not immediately obvious to large parts of the population (nor to foreign economists and commentators, for that matter), who for the most part were still seduced by the Fuhrer’s promises of a glorious pan-Germanic future.

  Any dissent was violently crushed through party terrorism (via the infamous SS and Gestapo). The persecution of Jews was intensified. The regular police were circumvented by the party’s police; the regular avenues of justice were bypassed by the party’s courts; the regular prisons were eclipsed by the party's concentration camps. In short, a rational bureaucracy was replaced by a virulent irrational one.

  Government controls and management of certain parts of the economy were creating huge distortions which in turn prompted even more intervention, invariably at the expense of some other society group. While the big industrial concerns were benefiting from these arrangements, small businesses and the middle classes were squeezed out of the market; as were most of the staples that ordinary people needed.

  With taxation revenues curtailed by design, Hitler’s expansionary policies had to be financed with debt. But these funds were neither unlimited nor free, and Nazi leaders were starting to become very aware of this. There was some debate as to which economic policies should be adopted as a result, with some prominent figures recommending a more liberalized approach to the economy.

  However, like any good central planner, Hitler decided to press ahead with his original policies with even more gusto. During a cabinet meeting in 1936, he and Hermann Göring, his aviation minister and trusted adviser, announced that the German rearmament program must be sped up. There was no turning back.

  As a result, Göring was put in charge of the four year economic plan, creating a new organization to administer it. He subordinated the ministries of labor and agriculture and bypassed the economics ministry in his policy-making decisions, which meant that he had de facto control of the economy. Expenditures on rearmament were increased, in spite of growing budget deficits. In 1937, the Reichswerke Hermann Göring was established under state ownership with the aim of boosting steel production beyond the level which private enterprise could economically provide. This was command-and-control policies on steroids.

  

  German Unemployed (in millions): Jan 33 – Jan 39

  Source: historylearningsite.co.uk

  As shown in the graph above, the reduction of unemployment was an unequivocal bright spot, but largely at the expense of women, Jews and other minorities, as well as over a million people serving in the military. The same formula was applied to other territories that were subsequently annexed, yielding similar results. For instance, unemployment also dropped in Austria after the Anschluss in 1938.

  But the Nazis had a strategy to fund their grand vision and release the German people from the shackles of want: territorial expansion and plain robbery. And so the hostilities began with the invasion of Poland in 1939.

  The War Years

  The early months of the war went fairly smoothly for the German army, which overran large territories as the Allies were still gearing up for battle. However, as the war intensified, so did the chronic shortages back home. Farms lacked equipment and people, which were now being absorbed in ever expanding numbers by factories supplying the military, or by the military itself.

  By early 1941, when the German army arguably had its strongest foothold across Europe, civilian consumption was already down 18% from 1938 levels. And it would continuing going down from there.

  The labor force kept on shrinking, although now irreversibly. Impressive military victories soon turned into stalemates and finally into catastrophic losses across all three war fronts: East, West and South. The Nazis were left with little choices on how to replenish those losses and continue fighting. Accordingly, farmers were next to be enlisted, which was then extended to everyone once Germany was on the brink of defeat. To get a sense of the catastrophe resulting from Hitler’s stubbornness, a third of all boys born between 1915 and 1924 was either dead or missing by the end of the war.

  But in addition to soldiers Germany needed to eat. As its farming population shrank, the Nazis came up with a devious plan to make up for it: enslave their neighbors and prisoners of war.

  Every season there used to be a flow of workers coming across from Poland to work in German farms, given that higher wages were on offer. But after the German invasion in 1939, the Nazis brought back hundreds of thousands of Polish workers and POWs against their will. Then came the invasion of France, which provided a labor pool of over a million POWs. But even that paled in comparison to the number of workers brought in after the invasion of the Soviet Union in 1941, almost three million in total. When the Italians changed sides in 1943, the German army captured as many of them as they could to work in the fields. None of this was enough to sustain production as all these people died quickly due to appalling working conditions.

  Such was the insanity of the Nazi war machine. By the end of the war nearly one in every four workers in Germany was a foreigner, in most cases unwillingly.

  The Nazi Economic Mirage

  Hitler’s policies are still viewed to this day as a great example of how unprecedented government intervention fixed a dire economic problem. In short, Hitler laid a golden egg and produced an economic miracle.

  As early as 1933, even before any miracle could be seen, the New York Times had nothing but praise for his ambitions, according to the following front page headline:

  “There is at least one official voice in Europe that expresses understanding of the methods and motives of President Roosevelt—the voice of Germany, as represented by Chancellor Adolf Hitler.”

  For sure, some of Hitler’s policies made a lot of sense. Building up the country’s infrastructure, which was so vital to a modern industrial economy, proved to be a winning bet. German workers could now afford cars to drive in the new roads, as well as other modern conveniences. Economic activity and incomes responded accordingly. That Weimar Republic feeling of uncertainty and malaise finally subsided. And the dramatic increase in fertility rates during the Nazi years also provided a boost (after all, babies can promote consumption). So in a sense there was no mirage here, the growth was real.

  Perhaps if the real economy had been allowed to flourish at that stage, Germany could have indeed produced a real economic miracle. If anything the most prosperous nations of the 20th century proved that the economic reigns and decision-making must eventually be decentralized in order for any gains to be sustained and expanded. Women also needed to play a role in the economy, much beyond just having babies.

  Unfortunately for the people living under the Third Reich, this was never allowed to happen. All of these efforts became increasingly subordinated to the logic of war. As a result, the economy was stifled by top-down industrial policies and readjustments, price controls, misallocation of resources and so forth. Personal and commercial freedoms had to be restricted so that the prevailing Nazi ideology could never be challenged.

  Rearmament thus became the most significant government expenditure. The resulting increase in GDP was significant. In fact Germany boasted the highest growth rates in Europe in the prewar years. But this can be misleading as any comparison could not be done on an apples-to-apples basis, since other major economies spent considerably more on consumption and productive activities. Just because Germans were producing more guns does not mean that they were better off.

  The government went ever deeper into debt as a result of this policy. Of course any leader, no matter how incompetent, can create growth if enough money is thrown at the economy; the problem is that those debts will need to be repaid at some point.

  During the war, Albert Speer, the minister of armaments and war production and a close friend to Hitler, also directed a miracle of his own: doubling Hitler’s production orders as Germany was under heavy Allied bombardments. No doubt his administrative genius played a role, but so did exploiting millions of slave laborers who were starved and worked to death in his factories. It was the same ideology at work all over again. And the war effort was significantly prolonged as a result.

  Speer was arrested in 1945 and interrogated by a committee of US representatives, who wanted to learn more about the inner workings of the Third Reich. John Kenneth Galbraith, the famous Harvard economist and adviser to several US presidents later in his career, was also in attendance.

  Here’s a transcript of the committee’s report after that meeting:

  “The German people, [Speer] said, had worked hard and faithfully and had suffered greatly. They had won victory after two years and had been denied the fruits of the victory they deserved by the inadequacy of their leaders. That inadequacy he felt obliged to expose.

   

  “The fall of the Third Reich Speer attributed to the moral decay of its rulers. This decay was well advanced before the outbreak of the war. Its most spectacular manifestation was soft, expensive living. In some instances it took the form of extreme corruption. Speer cites Göring as the most corrupt of his colleagues. Göring's acquisitive looting and hoarding was unmatched by the other party leaders. But nearly all of the party leaders, Berlin ministers and Gauleiters alike, showed a penchant for a rich, easy, well-nourished existence and variety in wine and women.”

  Göring of course was the prime architect of Germany’s war economy after 1936. All of the sudden the Nazi elite was not looking so brilliant after all. Here’s what Galbraith would later say about the whole bunch in his book “The Age of Uncertainty”:

  “Hermann Göring, Joachim von Ribbentrop, Albert Speer, Walther Frank, Julius Streicher and Robert Ley did pass under my inspection and interrogation in 1945 but they only proved that National Socialism was a gangster interlude at a rather low order of mental capacity and with a surprisingly high incidence of alcoholism.”

  Rather than being some central planning geniuses, Galbraith’s quote is a rather more accurate description of the Nazis. After over a decade under their leadership, Germany reversed its gains and prosperity all the way back to the late 19th century, with a large part of its population annihilated in the process. The country was then sectioned off to different Allied factions.

  The mirage was finally over.

  

  

  
  
  

  

• "Mystery" Buyer Of Stocks In The First Quarter Has Been Identified

  Three days ago, when looking at the unprecedented, record outflows from US equities (coupled with continued inflow into bond funds into what BofA’s Hans Mikkelsen would likely dub the Great Antirotation) we asked a simple question: “who is buying… no really“.

  

  

  
  

  Then yesterday, the spoofing algos were briefly spooked when Yellen, for the second time in under one year, issued a warning about valuations, only this time instead of bashing the biotech and social media sector, the non-Series 7, 63 certified financial advisor brought attention to the entire market saying “equity market valuations generally are quite high.”

  She was referring to a level in the S&P around 2100 (aka 21x forward GAAP P/E multiple) which is where the S&P has been trading for the past several months, a level which was as high as 2120 in the first quarter, on February 20, 2015.

  Yet, one entity that clearly disagrees with her assessment is none other than her peer institution in Switzerland, the Swiss Central Bank, which as we noted earlier, owned a record $1.1 billion in AAPL stock as of March 31.

  The Swiss National Bank is also the answer to the question we posed, rhetorically, a few days ago:

  “Who is buying”?

   We now know, because while everyone else, hedge funds included, were dumping stocks in droves, here is what the Swiss National Bank was doing:

  

   

  Together with companies engaging in record amounts of stock buybacks, the SNB was buying billions and billions worth of shares. So much so, in fact, that its US-listed equity portfolio rose by a record 40% to a record $37 billion.

  

   

  And now we know, even if we don’t know how many other central banks were active alongside the Swiss during its record stock-buying spree. And perhaps even more apropos: which central bank was selling to the SNB?

  Finally, those wondering if the Fed gave the SNB the money with which to buy stocks on its behalf, the answer based on the most recent NY Fed FX swap data, is no. At least not in the most recent week.

  

  Source: SEC

  

  

  
  
  

  

• "Market 1 – 0 Yellen/Gartman" Bonds & Stocks Bid As Crude Crumbles

  Only one clip seemed appropriate given the last two days…

  This seemed to sum things up nicely…

  S&P500 Futures; NO STOPS GO UNTOUCHED IN THE ELECTRONIC ARCADE – http://t.co/8DmaJqUWbe pic.twitter.com/Icwt87hliL

  — Mr TopStep (@MrTopStep) May 7, 2015

   But this morning's epic short squeeze provided the momentum for the rest of the move… 

  

   

   Gartman and Yellen were celebrating briefly (very briefly) this morning… then not so much

  

  As we said this morning, "Will Yellen Capital Management LP be right, or will Gartman's uncanny ability to be always wrong at just the right time, provide the bounce the market so desperately needs?" It appears so – for now.

   

  Cash indices managed briefly to get green *(Russell and Trannies only) for the week, but leaked lower into the close…

  

   

  It appears there was some protection-buying ahead of tomorrow's "digital" payrolls number (VIX notably underperformed)

  

   

  As did HY Credit…

  

   

  Then there's YELP…

  

   

  SHAK shook…

  

   

  Bonds were the big movers today with Bunds & Treasuries massively roundtripping… (Bunds -18bps from overnight highs… and USTs -15bps!!)

  

  This is the best day for 30Y TSYs since Jan 28th

  On the week, Treasuries remain higher in yields but major bull flattening today (as perhaps AAPL rate locks were lifted)…

  

   

  The Dollar rose notably, driven by buying during the US Session…

  

   

  Commodities all weakened as the dollar strengthened…

  

   

  As Crude crashed back to one-week lows…(despite tension rising in ME)

  

   

  And Shale Stocks were slammed…

  

   

  Charts: Bloomberg

  Bonus Chart: Bears still absent…

  shocker -bears still 13.9% pic.twitter.com/PR4mAEHjnb

  — Not Jim Cramer (@Not_Jim_Cramer) May 6, 2015

  

  
  
  

  

• Cable Surges After UK Exit Poll Shows Big Lead For Conservatives

  In what Goldman suggested was "the most market-friendly" outcome, UKPolls reports that the Conservative Party leads the UK election (based on exit polls) with LibDems taking enough seats to enable a majority coalition. UKIP managed a disappointing 2 seats. Cable is rallying on the back of this (though we note this is exit polls only).

  

   

  With 326 seats required for a majority:

  • *U.K. VOTES: TORIES SET TO WIN 316 SEATS: EXIT POLL
  • *U.K. VOTES: LABOUR SET TO WIN 239 SEATS: EXIT POLL
  • *U.K. VOTES: SNP SET TO WIN 58 SEATS IN SCOTLAND: EXIT POLL
  • *U.K. VOTES: LIBDEMS SET TO  WIN 10 SEATS: EXIT POLL
  • *UKIP 2 SEATS, "GREENS" 2 SEATS, OTHER 19

  A projected GB-only electoral map using @May2015NS's model, based on the exit poll #GE2015 http://t.co/8Fu11S4HJI pic.twitter.com/T3ILLLBggm

  — New Statesman (@NewStatesman) May 7, 2015

  Here are the possible outcomes (along with SocGen's probabilities)… It appears Box (6) is the most likely now…

  

   

  and here is Goldman, simplifying the decision process to three potential outcomes. While there is a whole range of potential outcomes to the May 7 election, each of the most likely governmental combinations falls into one of three broad groupings:

  1. A Conservative-led government (either on its own or in coalition with the LibDems). This is likely to be perceived as the most ‘market-friendly’ outcome, partly because it would come closest to maintaining the status quo and also because the Conservatives’ stated aim is to reduce the budget deficit through cutting current expenditure rather than by raising taxes. Set against this, the Conservatives’ commitment to hold a referendum on EU membership by 2017 and the increased risk of exit would likely be negative for investment spending and UK assets.

   

  2. A Labour-led government (either on its own, with the implicit support of the SNP, or in a formal coalition with the LibDems) would shift the balance of further fiscal adjustment away from spending cuts to tax increases. Labour’s proposals include: raising the top rate of income tax from 45% to 50%; raising the headline corporation tax rate from 20% to 21% (offset by measures designed to help small businesses); increasing the ‘Bank Levy’ on banks’ balance sheets, applying a second ‘one-off’ tax on bank bonuses, removing the non-domicile tax status and introducing a ‘Mansion Tax’ on residential properties worth more than £2 million. At the same time, a government of this complexion would be less likely to contemplate a referendum on Britain’s EU membership.

   

  Of the potential Labour-led government combinations, financial markets would likely respond more favourably to a Labour/LibDem coalition than to a minority Labour government supported by the SNP on a confidence and supply basis. (The Labour party has ruled out a formal coalition with the SNP.) In this scenario, concerns are likely to emerge that reliance on the SNP would pull the Labour government away from the centre to the left of the political spectrum, as well as raising the spectre of distributional policies favouring Scotland at the expense of the UK as a whole.

   

  3. It is also possible that there will be no clear outcome to the election. If no party (or coalition of parties) is able to form a stable government, a second election could be called shortly after the first or a minority government might attempt to struggle on. Again, the lack of clarity surrounding such an impasse would likely be damaging for UK growth and assets.

  *  *  *
  The Bottom Line is that at the macro level the implications of the election may be less pronounced than many anticipate. Monetary policy has been de-politicised through the Bank of England’s independence. Moreover, the formation of a coalition government is likely to involve convergence towards centrist positions, while a minority administration that pursues policies outside the mainstream would be unlikely to survive given its fragile parliamentary basis. In either case, the political system is unlikely to deliver radically different macroeconomic outcomes.

  *  *  *

  As Bloomberg reports,

  David Cameron is on course to remain prime minister at the head of a minority government after the U.K. general election, an exit poll showed. The pound jumped.

   

  The prime minister’s Conservatives were forecast to win 316 of Parliament’s 650 seats, with Ed Miliband’s Labour Party trailing on 239 seats, according to the survey of voters published shortly after polling stations closed Thursday.

   

  The forecast, based on interviews at voting centers in 140 districts across Britain, put the Scottish National Party in third place with 58 seats and Deputy Prime Minister Nick Clegg’s Liberal Democrats fourth with 10, almost wiping out the 57 seats they won in 2010.

   

  “We haven’t had an incumbent government increase its majority since 1983,” Conservative Chief Whip Michael Gove told the BBC. “If it is right, it means the Conservatives have clearly won this election and Labour has lost it.”

  It appears Scenario #1 is most likely now and cable is loving it

  

  

  
  
  

  

• The Great Disconnect – Central-Bank-Driven "Markets" Have Nothing To Do With Economics

  Submitted by David Stockman via Contra Corner blog,

  The German bund yield soared like a rocket earlier today. After touching on the truly lunatic rate of 5 bps only a few weeks back, it has just crossed the 60 bps marker. Needless to say, when a blue chip 10-year bond widely held on @95% repo leverage moves that far that fast – there is some heavy duty furniture breakage happening in fast money land.

  But don’t cry for the bond market gamblers. They already made a killing front-running the ECB.  During the 16 months between January 2014 and the April peak, speculators in German 10-year bunds would have made a 350% profit using essentially zero cost repo funding. So in the last few days they have given a tad of that back while making a bee line for the exit.
  

  BUNL data by YCharts

  Yet during the uninterrupted march of the bund into the monetary Valhalla depicted above, how many times did you hear that the market was merely “pricing in” a flight to quality among investors and the dreaded specter of “deflation”. That is, what amounted to sheer lunacy—– valuing any 10-year government bond at a deeply negative after-tax and after-inflation yield—-was attributed to rational economic factors. 

  No it wasn’t. The manic drive to 5 bps was pure speculative caprice, triggered by the ECB’s public pledge to corner the market in German government debt. What gambler in his right mind would not buy hand-over-fist any attempt to corner the market by a central bank with a printing press——especially one managed by a dim bulb apparatchik like Mario Draghi!

  Never has an agency of a state anywhere on the planet pleasured speculators with such stupendous windfalls. Yet any day now we will hear from the talking heads on CNBC that, no, massive bond buying by central banks does not repress or distort interest rates because once Europe’s QE started, rates actually backed up. And, furthermore, this is entirely logical because QE will enable the economy to escape its deflationary trap, meaning that investors are discounting an imminent resurgence of growth!

  Oh, com’on.  When investors—-if there are any such naïve waifs left—–start down the rabbit hole believing that markets and economics are still connected in a historically orthodox manner, they will eventually run smack into something a lot more ferocious than a rabbit.  Namely, the next bear market crash——the inexorable end game of a financial system in which price discovery has been totally extinguished.

  Thus, in today’s central bank dominated casinos, bad news is not priced in slowly as its scope and timing become more defined; it’s priced-in suddenly and violently when even the fast money gamblers conclude that the pricing has reached irrationally exuberant extremes that even the central banks cannot sustain.

  That’s what now happening to the bund, the Italian bond, the US treasury note and most all else in the $100 billion global bond market. The front-runners are cashing-out. The vast falsification of pricing fostered by the central banks is unraveling upon its own perilous extreme.

  Like in the case of the Fed’s QE phases, it was mostly all over except the shouting when the ECB’s bond-buying campaign actually commenced in early March. By then the front-runners had done their work of accumulating vast inventories of bonds to sell back to the respective national central banks at far higher prices than they had paid.

  So what’s left now is for the euro-market gamblers to unload their stashes to the sucker with the dumbest bid in the casino. Namely, the geniuses in Frankfurt who apparently believe that if you tax an economy to 50% of income and then bury its consumers, producers and taxpayers alike under endless heapings of debt, that you can make growth accelerate by injecting $1.3 trillion of fraudulent credit conjured from thin air into the casino.

  In fact, today’s bund and treasury dumpers are piling into other short-run speculations like oil futures and busted shale names. And soon the rabbit hole dwellers will pronounce that the oil bottom is in and all is awesome in the forward outlook for growth and profits.

  But here’s the problem—–that is, the very same and universal problem as that which afflicts the fixed income markets. To wit, any and all of the “incoming data” on the economy is badly distorted and deformed owing to the global falsification of financial prices by the central banks.

  For example, this week they stuck the proverbial fork in the GDP “escape velocity” myth not only owing to the 0.2% posting for Q1 GDP, but more especially due to the thundering March collapse in the non-oil trade deficit. The latter “unexpected” data shock will clearly drive Q1 into negative GDP growth, even as Q2 struggles with the massive overhang of excess inventories that have been building for more than a year.

  Yet the Wall Street economists and strategists did not see it coming because they view today’s tortured data through the false lens of 50 years worth of business cycle data patterns. In that vein, one prong of the recovery has been the strong growth of US exports during recent years. It now turns out, however, that the rising numbers were largely an artifact of the false global boom in industrial activity spurred by the central bank printing presses.

  Now that boom is cooling rapidly, as every new release from China and other EM economies like Brazil make clear. Consequently, it seems that the US economy had not regained its mojo as an industrial materials supplier, after all. There was just a temporary shortage of petrochemical feedstock and scrap metal, for example, that has now disappeared.

  As shown below, just in the last two quarters, US exports of industrial supplies and materials have dropped by nearly $100 billion or 20% at annualized rates.
  

  US Exports of Industrial Supplies and Materials data by YCharts

  And there is a lot more where that came from. The collapse of oil drilling rigs from 1600 as recently as October to hardly 700 in April is only a leading indicator of the impending collapse in CapEx, where the modest recovery since 2009 has been heavily dependent upon the energy sector.

  In short, the bond market is now cracking as the mother of all bubbles reaches its apex. Likewise, the risk asset markets generally are likely not far behind.

  None of this is “expected” by the Wall Street talking heads, of course. They are still in the rabbit hole combing through economic data archives that are utterly disconnected from the “markets” they claim to explain.

  What matters now is what the central banks do next. Yet having painted themselves into an impossible corner of junk Keynesian economics, they are now clueless about how to get out.

  So its time to recognize that there has been a monetary regime change. The Fed might well have been your friend since March 2009 or even for the last several decades. But stranded on the zero bound and smothered by a $22 trillion collective balance sheet, the central banks of the world are now fast becoming your fiend.

  

  

  
  
  

  

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• When The Elites Wage War On America, This Is How They Will Do It

  Submitted by Brandon Smith via Alt-Market.com,

  The consequences and patterns of war, whether by one nation against another or by a government against the citizenry, rarely change. However, the methods of war have evolved vastly in modern times. Wars by elites against populations are often so subtle that many people might not even recognize that they are under attack until it is too late. Whenever I examine the conceptions of “potential war” between individuals and oligarchy, invariably some hard-headed person cries out: “What do you mean ‘when?’ We are at war right now!” In this case, I am not talking about the subtle brand of war. I am not talking about the information war, the propaganda war, the economic war, the psychological war or the biological war. I am talking about outright warfare, and anyone who thinks we have already reached that point has no clue what real war looks like.

  The recent exposure of the nationwide Jade Helm 15 exercise has made many people suspicious, and with good reason. Federal crisis exercises have a strange historical tendency to suddenly coincide with very real crisis events. We may know very little about Jade Helm beyond government admissions, claims and misdirections. But at the very least, we know what “JADE” is an acronym for: Joint Assistance for Deployment and Execution, a program designed to create action and deployment plans using computer models meant to speed up reaction times for military planners during a “crisis scenario.” It is linked with another program called ACOA (Adaptive Course of Action), the basis of which is essentially the use of past mission successes and computer models to plan future missions. Both are products of the Defense Advanced Research Projects Agency (DARPA).

  As far as I know, no one has presented any hard evidence as to what “HELM” really stands for, but the JADE portion of the exercise explicitly focuses on rapid force deployment planning in crisis situations, according to the government white paper linked above. This fact alone brings into question statements by the Department of Defense that Jade Helm is nothing more than a training program to prepare military units for “foreign deployment.” This is clearly a lie if Jade Helm revolves around crisis events (which denotes domestic threats), rather than foreign operations.

  Of course, if you also consider the reality that special operations forces ALWAYS train like they fight and train in environments similar to where they will fight, the entire notion of Jade Helm as a preparation for foreign theaters sounds absurd. If special operations forces are going to fight in Iraq, Iran or Syria, they go to training grounds in places like Kuwait. If they are training in places like Fort Lauderdale, Florida (including “infiltration training”), then there is no way around the fact that they are practicing to fight somewhere exactly like Fort Lauderdale with a similar culture and population.

  I would further note that Jade Helm exercises are also joint exercises with domestic agencies like the FBI and the DEA.  Again, why include domestic law enforcement agencies in a military exercise merely meant to prepare troops for foreign operations?  I often hear the argument that the military would never go along with such a program, but people who take this rather presumptive position do not understand crisis psychology.  In the event of a national catastrophe many military personnel and government employees may determine that they will do what is "best for them and their families".  And if following orders guarantees the security of their families (food security, shelter, etc), then they may very well follow any order, no matter how dubious.  Also, a large scale crisis could be used as a rationale for martial law; otherwise well meaning military men and women could be convinced that the loss of constitutional freedoms might be for the "greater good of the greater number".  I believe some military will indeed resist such efforts, but of course, Jade Helm may also be a method for vetting such uncooperative people before any live operation occurs.

  So if Jade is actually a crisis-planning system for the military and the military is training for domestic operations, what is the crisis it is training to react to? It’s hard to say. I believe it will come down to an economic disaster, but our economic and social structures are so weak that almost any major event could trigger collapse. Terror attacks, cyberattacks, pandemic, a stiff wind, you name it. The point is the government expects a crisis to occur. And with the advent of this crisis, the ultimate war on the American people will begin.

  Why wait for a crisis situation? With the cover of a crisis event, opposition to power is more easily targeted. For my starting point on the elite war strategy, I would like to use the following presentation on guerrilla warfare by Max Boot, Council on Foreign Relations senior fellow and military adviser, at the elitist World Affairs Council.

  I would first point out that Boot claims his work is merely a historical character study of interesting figures from the realm of insurgency and counterinsurgency and is not “polemical.” I’m afraid that I will have call horse hockey on that. Boot is direct adviser to the Department of Defense. His work and this presentation were obviously a study of guerrilla tactics from the perspective of counterinsurgency and an attempt to explore strategic methods for controlling and eradicating guerrillas and “terrorists.”

  Any defense the American people might muster against elitist dismantling of constitutional liberties would inevitably turn to "insurgency". So using CFR member Boot’s views on counterinsurgency as a guideline, here is how the elites will most likely wage open war on those within the American population who have the will to fight back.

  Control Public Opinion

  Boot stresses the absolute necessity for the control of public opinion in defeating an insurgency. Most of his analysis is actually quite accurate in my view in terms of successes versus failures of guerrilla movements. However, his obsession with public opinion is, in part, ill-conceived. Boot uses the American Revolution as a supposed prime example of public opinion working against the ruling powers, claiming that it was British public opinion that forced parliament and King George III to pull back from further operations in the colonies.

  Now, it is important to recognize that elitists have a recurring tendency to marginalize the success of the American Revolution in particular as being a “fluke” in the historical record. Boot, of course, completely overlooks the fact that the war had progressed far longer than anyone had predicted and that the British leadership suffered under the weight of considerable debts. He also overlooks the fact that pro-independence colonials were far outnumbered by Tories loyal to the crown up to the very end of the war. The revolution was NEVER in a majority position, and public opinion was not on the revolutionaries’ side.

  The very idea of the American Revolution is a bit of a bruise on the collective ego of the elites, and their bias leads them to make inaccurate studies of the event. The reality is that most revolutions, even successful ones, remain in a minority for most, if not all, of their life spans.  The majority of people do not participate in history.  Rather, they have a tendency to float helplessly in the tides, waiting to latch onto whatever minority movement seems to be winning at the time.

  Boot suggests that had the Founding Fathers faced the Roman Empire rather than the British Empire, they would have been crucified and the rebellion would have immediately floundered because the Romans had no concern for public opinion. This is where we get into the real mind of the elitist.

  For now, the establishment chooses to sway public opinion with carefully crafted disinformation. But what is the best way to deal with public opinion when fighting a modern revolution? Remove public opinion as a factor entirely so that the power elite are free to act as viciously as they wish. Engineered crisis, and economic crisis in particular, create a wash of other potential threats, including high crime, looting, riots, starvation, international conflict, etc. In such an environment, public opinion counts for very little, if people even pay attention at all to anything beyond their own desperation. Once this is achieved, the oligarchy has free reign to take morally questionable actions without fear of future blowback.

  Control The Public

  Another main tenet Boot describes as essential in defeating insurgency is the control of the general population in order to prevent a revolution from recruiting new members and to prevent them from using the crowd as cover. He makes it clear that control of the public does not mean winning the “hearts and minds” in a diplomatic sense, but dominating through tactical and psychological means.

  He first presents the example of the French counterinsurgency in Algeria, stating that the French strategy of widespread torture, while “morally reprehensible,” was indeed successful in seeking out and destroying the insurgent leadership. Where the French went wrong, however, was their inability to keep the torture campaign quiet. Boot once again uses the public opinion argument as the reason for the eventual loss of Algeria by the French.

  What Boot seems to be suggesting is that systematic torture is viable, at least as a hypothetical strategy, as long as it remains undetected by the overall public. He also reiterates this indirectly in his final list of articles for insurgency and counterinsurgency when he states that “few counterinsurgencies (governments) have succeeded by inflicting mass terror, at least in foreign lands,” suggesting that mass terror may be an option against a domestic rebellion.

  Boot then goes on to describe a more effective scenario, the British success against insurgents in Malaya. He attributes the British win against the rebellion to three factors:

  1)  The British separated large portions of the population, entire villages, into concentration camps, surrounded by fences and armed guards. This kept the insurgents from recruiting from the more downtrodden or dissatisfied classes. And it isolated them into areas where they could be more easily engaged.

  2)  The British used special operations forces to target specific rebel groups and leadership rather than attempting to maneuver through vast areas in a pointless Vietnam-style surge.

  3)  The British made promises that appealed to the general public, including the promise of independence. This made the public more pliable and more willing to cooperate.

  Now, I have no expectation whatsoever that the elites would offer the American public “independence” for their cooperation in battling a patriot insurgency, but I do think they would offer something perhaps more enticing: safety.

  I believe the British/Malayan example given by Boot would be the main methodology for the elites and the federal government in the event that a rebellion arises in the U.S. against planned shifts away from constitutional republic or martial law instituted in the wake of a national emergency.

  Isolate Population Centers

  There is a reason why certain American cities are being buried in technologically sophisticated biometric surveillance networks, and I think the Malayan example holds the key. Certain cities (not all) could be turned into massive isolated camps, or “green zones.” They would be tightly controlled, and travel would be highly restricted. Food, shelter and safety would likely be offered, after a period of disaster has already been experienced. A couple months of famine and lack of medication to the medically dependent would no doubt kill millions of people. Unprepared survivors would flock to these areas in the hopes of receiving aid. Government forces would confiscate vital supplies in rural areas whenever possible in order to force even more people to concentrate into controlled regions.

  I have seen the isolation strategy in action in part, during the G20 summit in Pittsburgh. More than 4,000 police and National Guard troops locked down the city center, leaving only one route for travel. The first day, there were almost no protesters; most activists were so frightened by the shock-and-awe show of force that they would not leave their homes. This is the closest example I have personally experienced to a martial law cityscape.

  Decapitate Leadership

  The liberty movement has always been a leaderless movement, which makes the “night of long knives” approach slightly less effective. I do not see any immediate advantage to the elites in kidnapping or killing prominent members of the movement, though that does not mean they will not try it anyway. Most well-known liberty proponents are teachers, not generals or political firebrands. Teachers leave all their teachings behind, and no one needs generals or politicians. The movement would not necessarily be lost without us.

  That said, there is a fear factor involved in such an event. The black-bagging of popular liberty voices could terrorize others into submission or inaction. This is why I constantly argue the need for individual leadership; every person must be able and willing to take individual action without direction in defense of his own freedoms, if the need arises. Groups should remain locally led, and national centralization of leadership should be avoided at all costs.

  According to the very promoters of Jade Helm exercises, training will center on quick-reaction teams striking an area with helicopter support, then exfiltrating within 30 minutes or less. Almost every combat veteran I have spoken with concerning this style of training has said that it is used for “snatch and grab” — the capture or killing of high value targets, then exfiltration before the enemy can mount a response.

  Fourth-Generation Warfare

  The final method for war against the American people is one Boot does not discuss: the use of fourth-generation warfare. Some call this psychological warfare, but it is far more than that. Fourth-generation warfare is a strategy by which one section of a population you wish to control is turned against another section of the population you wish to control. It is warfare without the immediate use of armies. Rather, the elites turn the enemy population against itself and allow internal war to do most of their work for them. We can see this strategy developing already in the U.S. in the manipulation of race issues and the militarization of police.

  The use of provocateurs during unrest in places like Ferguson, Missouri, and Baltimore suggests that a race war is part of the greater plan. I believe law enforcement officials have also been given a false sense of invincibility. With military toys and federal funding, but poor tactical philosophies and substandard training, LEOs are being set up as cannon fodder when the SHTF. Their inevitable failure will be used as a rationalization for more domestic military involvement; but in the meantime, Americans will be enticed to fight and kill each other while the elites sit back and watch the show.

  4th Gen warfare also relies on fooling the target population into supporting measures that are secretly destructive to the people.  For example, liberty movement support for controlled opposition such as Russia or China, or liberty support for a military coup in which the top brass are elite puppets just like the Obama Administration. Think this sounds far fetched?  It has already happened in our recent history!  Marine Corp Major General Smedley Butler was hired by corporate moguls to lead a paid army in a coup against Franklin D. Roosevelt (also an elitist puppet) in 1933.  Butler luckily exposed the conspiracy before it ever got off the ground.  Both sides were controlled, but the coup if successful could have resulted in popular support for the expedient erosion of the Constitution, rather than a slow erosion which is what took place.  This is the epitome of 4th Gen tactics – make the people think they are winning, when they are actually helping you to defeat them.

  Know Thy Enemy

  I have outlined the above tactics not because I necessarily think they will prevail, but because it is important that we know exactly what we are dealing with in order to better defend ourselves. Such methods can be countered with community preparedness, the avoidance of central leadership, the application of random actions rather than predictable actions, etc. Most of all, liberty champions will have to provide a certain level of safety and security for the people around them if they want to disrupt establishment efforts to lure or force the population into controlled regions. Crisis is the best weapon the elites have at their disposal, and exercises like Jade Helm show that they may use that weapon in the near term. The defense that defeats crisis is preparation — preparation not just for yourself, but for others around you. War is coming, and while we can’t know the exact timing, we can assume the worst and do our best to be ready for it as quickly as possible.

  

  

  
  
  

  

• China To Establish Yuan-Denominated Gold Fix In Bid To Upend London Benchmark

  A long time ago, in a financial galaxy far, far away, a “fringe” blog raised the topic of gold market manipulation during the London AM fix. Several years later (which, incidentally, is about average in terms of the lag time between when something is actually going on and when the mainstream financial media finally figures it out and reports on it), it was revealed that in fact, shenanigans were likely afoot and indeed, regulators are still trying to sort out what happened. 

  Via WSJ earlier this year:

  The precious-metals probes are the latest example of regulatory scrutiny into how the world’s biggest financial institutions influence widely used benchmarks. Until last year, prices for gold, silver, platinum and palladium were set using a decades-old practice of once- or twice-a-day conference calls between a small group of banks. The process for setting each of the price “fixes” has since been overhauled…

   

  Last year, the FCA fined Barclays £26 million ($40.2 million) for lax controls after one of its traders allegedly manipulated the gold fix at the expense of a client…

   

  Swiss regulator Finma settled last year allegations of foreign-currency manipulation with UBS. The regulator said it found “serious misconduct” among precious-metals traders at UBS, including “front running,” or trading ahead of, the silver-fix orders of one client…

   

  More than 25 lawsuits have been filed against Barclays, Deutsche, HSBC, Bank of Nova Scotia and Société Générale over their alleged role in setting the gold fix. 

  The ‘fix’ for the ‘fixed’ gold fix (only in the world of corrupt high finance is such a hilariously absurd passage possible) is supposedly a new system whereby the fixings are derived electronically, but as Reuters notes, there’s a new kid on the block when it comes to benchmarking the price of gold. Here’s more:

  China conducted trial runs for the planned launch of a yuan-denominated gold fix last month, three sources familiar with the matter said, in a sign the world’s second-biggest bullion consumer was moving closer to creating a benchmark price.

   

  The state-run Shanghai Gold Exchange (SGE), on whose international platform the fix will be launched, conducted the trial with major Chinese banks and a few foreign banks, the sources said this week…

   

  China plans to launch a yuan gold fix this year through trading of a 1 kg contract on the SGE, Reuters reported in February.

   

  “The launch of the fix is towards the end of the year … Banks were invited in April to test the fixing process,” said one of the sources directly involved in the process.

   

  The SGE will act as the central counterparty, unlike the London fix where the bullion banks settle trades amongst themselves, the source said.

   

  If the Chinese fix becomes a success, it could add to the pressure on the London benchmark, which is used worldwide by producers, refiners and central banks to price holdings and contracts, although the two could exist side-by-side.

  The ironic conclusion: the currency ‘manipulating’, GDP fabricating, soon-to-be global superpower is now set to challenge the century-old gold price fixing regime which is under fire for being just as corrupt as every other ‘benchmark’ has proven to be since we first suggested that LIBOR was rigged some six years ago. But don’t worry: China promises that yuan hegemony is not something Beijing is interested in establishing.

  

  

  
  
  

  

• The Complete UK Election Preview

  The UK General Election will be held tomorrow. The polls close at 10 pm. We should have a pretty clear picture of the overall seat count by 5 to 6 am on Friday morning. The result, as SocGen notes, is almost certain to be a hung parliament.

  Then the fun will really start.

  The leader of the incumbent Conservative/ Liberal Democrat coalition (David Cameron) stays in power until or unless it becomes clear that he does not have the ability to form a new government. Most polls are showing that the Conservatives will win the most seats but fall far short of an absolute majority. That will then lead to a contest between them and the Labour party to negotiate with the other parties to form some type of formal or informal coalition. The first test of the new government will be the vote on its legislative programme which is then presented in the Queen’s speech (tentatively scheduled for 27 May). That vote should be in the early part of June.

   

  The main concern for the markets should be whether or not a Conservative-led coalition is formed that is sufficiently supportive of the Conservative’s plans to allow them to hold the promised Brexit referendum by the end of 2017.

  Here are the possible outcomes (along with SocGen's probabilities)…

  

   

  As a reference, here are 2010's results:

  

   

  And here are the key features of tomorrow's election relative to that result…

  1) A reduction in Conservative seats and an increase in Labour seats;

   

  2) A major fall in support for the Liberal Democrats who could easily see the number of seats won fall to less than 30;

   

  3) A surge in the SNP seats from 6 to maybe even more than 50;

   

  4) The poor performance of the UKIP (UK Independence Party), despite its heavy influence on Conservative party policy in recent years. As the chart above shows, they won NO seats in 2010. They currently have two seats as a result of defections from the Conservative party but they will be lucky to win even one more seat than that. So, in the absence of the most unlikely outcome of the Conservatives being only one or two seats short of a stable government, UKIP would have no role in the formation of the next government.

  The opinion polls show Conservative and Labour to be neck and neck

  

   

  SocGen concludes, there is a real choice between the broad fiscal plans of the Conservative and Labour parties.

  Labour would cut the deficit more slowly to allow a higher level of net investment than the Conservatives plan. That is a defensible position, worthy of debate at a time when financing costs are at record lows.

   

  However, the key point for the markets is that both major parties have plans to continue austerity at a pace that would satisfy the markets. Certainly, the Labour party has been accused of being anti-big business but that is something that, if true, would only have a gradual impact on the economic future of the UK.

   

  

   

  More immediately worrying for the financial markets would be if the Conservatives were able to construct a form of coalition that allowed them to deliver the promised Brexit referendum by the end of 2017. That would create lasting uncertainty that could damage business and investor confidence.

  Deutsche Bank believes UK politics alone are unlikely to derail the recovery or meaningfully change foreign appetite for UK assets, in the short term at least and lays out 7 predictions for post-election UK…

  Rather than try to guess the outcome, however, in this note we make a few broad brush predictions about what the post-election UK will look like for investors. Our conclusion is that while the politics is extremely uncertain, the policy mix may undergo less rather than more change. Politics alone are unlikely to derail the recovery or meaningfully change foreign appetite for UK assets, in the short term at least.

   

  

   

  For GBP, once the initial uncertainty over government formation has passed, the focus should quickly turn back to the monetary policy outlook. On that front, we still see the risks lying in earlier rate cuts from the Bank of England than the market expects. For this reason we see value in using election uncertainty as an opportunity to position into EUR/GBP shorts.

   

  Prediction #1: Fiscal policy will be easier, but the deficit will fall
  At the Budget in March, forecast tightening over the next five years fell from 5.5% GDP to 4.4% as the coalition abandoned its goal of a GBP 23bn surplus by 2019-20, but the next two years were still projected to be roughly as austere as at the start of the coalition.1 After the election, there is reason to think this may change.

   

  In the first place, Labour policy is less tight than implied by current forecasts. As the IFS notes, the party’s plans mean only moderate reductions in departmental spending may be required. Under the increasingly likely probability the SNP holds influence over the next parliament, policy could be easier still. The party currently advocates rises of 0.5% public spending in real terms. Note that even under SNP plans, Treasury analysis suggests that the deficit would continue to fall.3 If the Conservatives were to remain in office, current forecasts may not materialize. The party eased off austerity in the middle of the last parliament as growth suffered, and there are question marks over where additional cuts implied by their deficit plans will come from. The party may also be helped by the improving growth outlook. Receipts have started to improve in recent months, and the OBR’s current growth projections are on the pessimistic side of official forecasters. In sum, and as our economist has noted, it may be helpful to look through the very noisy political debate on the deficit, and focus instead on the underlying improvement in the public finances. This has important implications for sterling, because the Bank of England’s inflation and growth projections as of the February Inflation Report are currently predicated on the very austere fiscal path outlined in the December Autumn Statement. Easier fiscal policy should provide the bank with more scope for monetary tightening.

   

  Prediction #2: There will be no fiscal crisis, whatever the outcome
  Even if fiscal policy were loosened, there seems little chance of a fiscal crisis. In the first place, the structural deficit has halved over the last five years. Perhaps more importantly, the markets’ understanding of fiscal risks has moved on since 2010, when a genuine loss of investor confidence in the UK finances was arguably on the cards. As the Eurozone crisis has shown, debt and deficits are much more relevant when countries lack an independent monetary policy. A lack of market concern is reflected in credit spreads, which remain at pre-crisis lows. Third, the external environment is very favorable for UK assets. The ECB’s QE program had driven yields of core fixed income negative across the curve. One of the obvious beneficiaries should be the UK. The spread between 10-year UK and German yields is currently the widest on record. Today’s Bank of England data showed massive (GBP 26bn) foreign buying of gilts in March, more than reversing outflows in the first two months of the year.

   

  Prediction #3: The UK will remain one of the most attractive destinations for foreign investment
  The last few years have been very positive for foreign investment. FDI inflows to the UK have totaled over 8% of GDP since the fourth quarter of 2012, financing around half of the current account deficit. The policy mix has played an important role. The corporation tax rate has fallen from 28% to 21% over the last five years, seeing the UK leapfrog above every OECD country save Switzerland in terms of corporate tax competitiveness. On the margin, a Labour-led administration would imply a moderately less positive investment climate than a Conservative one, but the policy mix is not set for wholesale change. The party favors keeping the corporation tax rate at its current low level (against another 1% cut proposed by the Conservatives). We doubt that other Labour party policies such as a mansion tax, changes to the non-domicile status of taxpayers and rises in the top rate of income tax, will result in a foreign exodus. Significant changes to the tax treatment of non-doms and foreign purchases of UK property were made by the current coalition government over the last five years with no apparent effect on foreign investors’ appetite for UK assets.

   

  Prediction #4: A new Scottish referendum won’t happen anytime soon
  Last year’s Scottish independence referendum generated panic among investors as it became apparent that a ‘yes’ vote was a real possibility, with potentially destabilizing consequences for the UK banking system and economy. But even if the SNP were to hold the balance of power after the next election, it seems unlikely that a new referendum would materialize soon. The party made no mention of another referendum in its manifesto released earlier this month. This should not be surprising – recent polling suggests that the issue ranks extremely low on Scottish voters’ priorities. Even if the SNP wished to reintroduce the question over the next five years, the party’s leverage over a future Labour government may be overestimated (see Prediction #6). A more likely date for the issue to be reintroduced is after the Scottish parliamentary elections in May next year, assuming the SNP holds on to its majority in the Scottish parliament. But it is also worth pointing out that a future referendum would likely be less destabilizing than last year’s events. Precisely because of uncertainty in September, authorities and businesses are now much better informed about the risks of a Scottish exit, particularly with respect to risks concerning the banking sector.

   

  Prediction #5: An EU referendum may be good for the UK economy
  Under the Conservatives, a referendum on the UK’s membership in the European Union would likely be held before 2017 following a renegotiation of the UK’s terms of membership. A ‘Brexit’ could have severe consequences for UK growth performance and foreign investment, and the potential impact on business confidence leading into a referendum has been widely noted.6 Less commented on, however, are the potential benefits that a renegotiation could bring to the British economy. As our economists have argued, the UK is uniquely placed to benefit from reforms to the EU Single Market and the Department for Business Innovation and Skills has estimated that the potential gains for British exports could add up to 7% GDP.7 A referendum may be an ideal bargaining chip for the UK to remodel aspects of the EU in its favor. Of course, this would depend on an ‘in’ vote, but polls currently suggest a majority in favor of staying in, particularly after a successful renegotiation.

   

  Prediction #6: A Labour minority government would be more stable than you might think
  If no party wins a majority next Thursday, the UK faces the prospect of a coalition or minority government. In the event that SNP support is required to pass legislation in the House of Commons, an increasingly probable outcome given the latest opinion polls in Scotland, the latter seems the more likely option. Labour has ruled out a formal deal with the nationalists. Some have argued that if the SNP held the balance of power, the result could be destabilizing, but the party’s leverage may be less than thought. Even if the SNP found Labour uncooperative on key policy issues, it would not be rational for them to bring down the government with a vote of no-confidence.

   

  

   

  This would cause a new election, a possible future Conservative government, and damaging Labour accusations that the SNP had voted down a ‘progressive’ administration (we outline the SNP’s options on a decision tree on the previous page). The party also looks set to perform exceptionally well next week, with some polls suggesting a near clean sweep of Labour’s seats. It is unclear why the party would want to risk these with a new election.

   

  Prediction #7: There may be less change rather than more
  Precisely because no party is likely to have enough seats for a majority, it is difficult to envisage sweeping changes to the policy mix. The last five years have seen the deficit cut in half, the employment rate reach a record high and UK growth accelerate above any other advanced economy. Major challenges remain, however. The current account deficit has reached a record, meaning much-vaunted ‘rebalancing’ has failed to occur. Productivity has also been the weakest among any G10 country. This has important implications for wage growth, which has been very slow relative to previous recoveries. Indeed, the current fracturing of the UK’s political environment can indirectly be attributed to imbalances in the labour market. Pollsters find that a key explanatory variable behind support for the UK Independence Party (UKIP), for example, is lack of a university degree. 8 It is unclear whether any major party has the solutions for these issues, but also doubtful that it will have the electoral resources. On the other hand, the doom-laden predictions of certain commentators are unlikely to materialize.

  *  *  *

  Finally, Goldman simplifies the decision process to three potential outcomes. While there is a whole range of potential outcomes to the May 7 election, each of the most likely governmental combinations falls into one of three broad groupings:

  1. A Conservative-led government (either on its own or in coalition with the LibDems). This is likely to be perceived as the most ‘market-friendly’ outcome, partly because it would come closest to maintaining the status quo and also because the Conservatives’ stated aim is to reduce the budget deficit through cutting current expenditure rather than by raising taxes. Set against this, the Conservatives’ commitment to hold a referendum on EU membership by 2017 and the increased risk of exit would likely be negative for investment spending and UK assets.

   

  2. A Labour-led government (either on its own, with the implicit support of the SNP, or in a formal coalition with the LibDems) would shift the balance of further fiscal adjustment away from spending cuts to tax increases. Labour’s proposals include: raising the top rate of income tax from 45% to 50%; raising the headline corporation tax rate from 20% to 21% (offset by measures designed to help small businesses); increasing the ‘Bank Levy’ on banks’ balance sheets, applying a second ‘one-off’ tax on bank bonuses, removing the non-domicile tax status and introducing a ‘Mansion Tax’ on residential properties worth more than £2 million. At the same time, a government of this complexion would be less likely to contemplate a referendum on Britain’s EU membership.

   

  Of the potential Labour-led government combinations, financial markets would likely respond more favourably to a Labour/LibDem coalition than to a minority Labour government supported by the SNP on a confidence and supply basis. (The Labour party has ruled out a formal coalition with the SNP.) In this scenario, concerns are likely to emerge that reliance on the SNP would pull the Labour government away from the centre to the left of the political spectrum, as well as raising the spectre of distributional policies favouring Scotland at the expense of the UK as a whole.

   

  3. It is also possible that there will be no clear outcome to the election. If no party (or coalition of parties) is able to form a stable government, a second election could be called shortly after the first or a minority government might attempt to struggle on. Again, the lack of clarity surrounding such an impasse would likely be damaging for UK growth and assets.

  *  *  *
  The Bottom Line is that at the macro level the implications of the election may be less pronounced than many anticipate. Monetary policy has been de-politicised through the Bank of England’s independence. Moreover, the formation of a coalition government is likely to involve convergence towards centrist positions, while a minority administration that pursues policies outside the mainstream would be unlikely to survive given its fragile parliamentary basis. In either case, the political system is unlikely to deliver radically different macroeconomic outcomes.

  Sources: Bloomberg, Goldman Sachs, Societe Generale, and Deutsche Bank

  

  

  
  
  

  

• Weak Dong Forces Vietnam Central Bank To Devalue Currency (Again)

  Having put off the decision to devalue the Vietnamese currency in March, the Dong has pressured the weaker limit (1% trading band) of the reference rate ever since. This has led to Vietnam’s central bank devaluing the dong reference rate to 21,673 (from 21,458) for the 2nd time this year. This is the softest the dong has ever been relative to king dollar, pushing them deeper into the currency wars.

  • *VIETNAM CENTRAL BANK DEVALUES DONG
  • *VIETNAM DEVALUES DONG REFERENCE RATE TO 21,673 PER DOLLAR

   

  

   

  As Bloomberg notes,

  The State Bank of Vietnam devalued the dong for the second time this year in a bid to spur exports and accelerate economic growth.

   

  The central bank weakened its reference rate by 1 percent to 21,673 dong per dollar. The Vietnamese currency is allowed to trade as much as 1 percent either side of the daily fixing, which was also cut by 1 percent on Jan. 7.

  Chart: Bloomberg

  

  

  
  
  

  

• Peter Schiff: The Embarrasment Of Fed Transparency

  Submitted by Peter Schiff via Euro Pacific Capital,

  Over the past decade or so, "transparency" has become one of the buzzwords that has guided the Federal Reserve's culture. The word was meant to convey the belief that central banking was best done for all to see in the full light of day, not in the murky back rooms of Washington and New York. The Fed seems to be on a mission to prove that its operations are benevolent, fair, predictable, and equitable. Part of that transparency movement took shape in 2007 when the Fed began publicizing its Gross Domestic Product (GDP) forecasts, which previously (to the frustration of investors) had been kept under wraps. Most of the Fed's policy moves are tied to how strong, or how weak, it believes the economy will be in the coming year. As a result, its GDP forecast is perhaps the single most important estimate it makes.

  So the good news for investors is that the Fed now tells us where it thinks the economy is headed. The bad news is it has been consistently, and sometimes spectacularly, wrong. Talk about the blind leading the blind.

  In the eight years that the Fed has issued GDP forecasts in the prior Fall, only once, in 2010, did the actual economic performance come in the range of its expectations (referred to as its "central tendency.") And even in that year, Fed forecasters did not manage to put the ball through the goal posts. Instead it just hit the upright (the low end of its range: 2.5% in actual growth vs. a central tendency of 2.5% to 3.5%). In all other years the Fed missed the mark completely on the downside. The tale of the tape tells the story:

  

  The biggest misses clearly came during the recession years of 2008 and 2009. The Fed clearly had no idea that trouble was brewing, or that the trouble would last once it started. In 2008 the actual growth came in 2.1% below the low end of its forecast range and 2.5% below the midpoint of its estimates. In 2009 it was 2.6% below the low end and 3.2% below the midpoint. 2011 wasn't much better, with the Fed missing by 1.4% and 1.7% for the same criteria. The rest of the years had more pedestrian misses of less than a percentage point. But it never really hit the mark, and it consistently overbid by a significant margin.

  And while we are only a few months into 2015, it doesn't look like they will be on target this year either.

  

  With first quarter growth at just a scant .2% annualized, the remaining three quarters of the year would have to average 3.4% annualized just to get to 2.6% for the full year (the low end of the Fed's range). Furthermore, the latest data, such as the spectacular increase of the trade deficit in March (to $51.4 billion, the largest month over month growth on record and the biggest monthly gap since the crisis month of October 2008), and today’s report showing the largest consecutive quarterly decline in productivity in more than 20 years, will likely force a downward revision to Q1 GDP. With April data looking even weaker than what was seen in February and March, a strong second quarter rebound, like the one seen in 2014, seems increasingly unlikely. In other words, good luck getting to 2.6%. But even if we do get there, it is no cause for celebration. 2.6% growth would be indicative of a struggling economy (recall that for the 20th Century, annual growth averaged well north of 3%).

  In the seven full years since the Fed brought rates to zero, and at times showered the markets with trillions of dollars of QE cash, GDP growth has averaged just 1.1%. Even stripping out the recession years of 2008 and 2009, to focus only on the five "recovery" years of 2010-2014, gives us an average GDP of 2.2%, a rate that has been below the central tendency every year. 

  So what do we make of this? Are Fed economists just horrible forecasters? And if so, why not hire others who more competent? Or is something more troubling going on? The most benign explanation is that they simply failed to anticipate a string of unfortunate events that have supposedly prevented a real recovery from taking hold. First it was the European debt crisis, then it was the high energy prices, then it was Syria, then Ukraine, then the Polar Vortex, then it was the low energy prices, then it was the European recession, the strong dollar, and then another bad winter. Apparently, unbeknown to Fed forecasters, the world is a tricky place fraught with economic, political and meteorological crises. But hasn't that always been the case?

  A more troubling possibility is that the Fed simply doesn't understand how its policy tools really impact the economy. It expects that zero percent interest rates and quantitative easing will stimulate aggregate demand, encourage consumers to spend and businesses to hire, thereby initiating a virtuous cycle that will propel the economy back to healthy growth. Since it believes its medicine will cure the patient, it builds a favorable outcome into its forecasts, which biases those forecasts in an upward direction. Based on that assumption, it's a bit of a headscratcher to the Fed as to why the economy has failed to deliver as expected. So cue the long litany of excuses.

  But what if that's not the way it works?  What if, as I have argued many times, that stimulus in the form of zero percent interest rates and QE bond purchases, act more like economic sedatives than stimulants? What if, as I have argued, that these crutches prevent an economy from finding the solid footing needed to build a real recovery? This would explain why we have failed to recover after seven years of policies expressly designed to spur recovery.

  A more sinister possibility is that the Fed is not really forecasting at all but cheerleading. The fact that all its forecasts have missed on the high side reveals that its misses may not be random. If the Fed were just wrong, one would expect some of its forecasts to be too low. An obvious explanation is that the Fed may be using its "forecast" to talk up the economy. By forecasting strong growth, the Fed may be hoping to engender optimism, with more spending and hiring hopefully to follow. Kind of like a field of dreams recovery — if the Fed forecasts it; it will come. Plus the Fed may be hesitant to issue a somber assessment of future growth even if it expects it, fearful that its forecasts become self-fulfilling as businesses and consumers cut back to reflect that forecast. If so, its economics "forecasts" would be in actuality just another policy arrow in its quiver, and should never be taken seriously.

  Another inconvenient fact that needs to be ignored in the string of GDP reports is the consistently low inflation numbers that the Fed uses. Remember, to get a sense of real growth, the bean counters need to subtract inflation from the nominal figures. Now I have always argued that the CPI itself has consistently underreported inflation, but I have also explained how the Fed's preferred gauge of inflation used in the GDP report, called the GDP deflator, is consistently lower than the CPI (a trend that goes back to 1977). But the GDP report for First Quarter 2015 really kicks that trend into another dimension.

  To arrive at the .2% annualized GDP estimate, the Fed assumed inflation was running at minus .1% annually (Bureau of Economic Analysis). With the exception of two quarters during the depths of the Great Recession (2nd and 3rd Quarters of 2009), we have to go all the way back to the First Quarter of 1952 to find a negative deflator (BEA). If positive inflation data had been used, growth in Q1 would have come in negative.

  Based on what we have seen thus far in the year, fantasies about a 2015 recovery should be evaporating. But, as of March 18, the Fed continues to hold to 2.5%-3.0% GDP forecasts and tangential assumptions that rate hikes will begin the second half of this year and will continue throughout next year. (A February 12th survey of economists by the Wall Street Journal shows a consensus 2.2% Fed Funds rate by year end 2016). With these assumptions baked into portfolio dispositions investors risk being caught wrong footed when the ugly truth is finally accepted.

  

  

  
  
  

  

• Two-Thirds Of Workers Plan To Fund Retirement With Inheritance, HSBC Finds

  With more than 80% of America’s non-farm workers laboring under non-existent wage growth, and with central bank policies serving not only to exacerbate the gap between the wealthy and everyone else while wiping out what’s left of the Middle Class in the process, but also creating conditions whereby pension funds are unable to meet their obligations without assuming inordinate amounts of risk, the idea of a comfortable retirement could become more elusive than ever in the new paranormal. Exacerbating the problem are rock bottom yields on traditional savings vehicles and risk-free assets, and the simple fact that generally speaking, people just aren’t saving enough in a world driven by rampant consumerism. Here’s NY Times on the latter issue:

  On average, a typical working family in the anteroom of retirement — headed by somebody 55 to 64 years old — has only about $104,000 in retirement savings, according to the Federal Reserve’s Survey of Consumer Finances.

   

  That’s not nearly enough. And the situation will only grow worse.

   

  The Center for Retirement Research at Boston College estimates that more than half of all American households will not have enough retirement income to maintain the living standards they were accustomed to before retirement, even if the members of the household work until 65, two years longer than the average retirement age today.

   

  Using a different, more complex model, the Employee Benefit Research Institute calculates that 83 percent of baby boomers and Generation Xers in the bottom fourth of the income distribution will eventually run short of money. Higher up on the income scale, people also face challenges: More than a quarter of those with incomes between the middle of the income distribution and the 75th percentile will probably run short.

  Fortunately, some forward-thinking members of the world’s workforce have devised a clever workaround (no pun intended): they’ll just rely on funds they imagine they’ll receive when family members die. According to a new study commissioned by HSBC (which has in the past developed its own innovative take on the ‘tax advantaged’ retirement savings plan), one in three working age people are banking on an inheritance to partially or fully fund their retirement. Here’s more:

  Many working age people are banking on receiving an inheritance. Almost two thirds (66%) of those who have received or expect to receive an inheritance believe that it will help to fund their retirement, while more than a quarter (27%) expect it will completely or largely fund it.  

  Unfortunately, these expectations don’t match up particularly well with reality:

  Less than a third (32%) of working age people have received an inheritance. While this is more understandable among younger working age people, the proportion of older people who have received an inheritance is also lower – just over a third (36%) of working age people aged 45-64 have received an inheritance, while for those aged 65+, the proportion is still less than half (48%). 

  And the gap between perception and reality may be growing because ironically, nearly a quarter of those surveyed — and this is the same pool of respondents wherein 66% are betting on an inheritance to retire — indicated that they believe “it is better to spend all your money and let the next generation create their own wealth.” In other words: “I expect the previous generation to fund my retirement, but I’ll be damned if I’m going to pay for my kids to quit working.”

  

  

   

  HSBC draws the following conclusion regarding working age people’s assumptions about inheritances:

  To avoid disappointment in later life, working age people need to consider what happens if an inheritance is lower than expected – or doesn’t come at all. 

  And if the survey results presented above are any indication, that conclusion goes double for the children of those who participated in the study. 

  *  *  *

  

  

  
  
  

  

• There Will Be No 25-Year Depression

  Submitted by Bill Bonner via Acting-Man.com,

  Good and Bad News

  Today, we have bad news and good news. The good news is that there will be no 25-year recession. Nor will there be a depression that will last the rest of our lifetimes.

  The bad news: It will be much worse than that. On Monday, the Dow rose another 43 points. Gold seems to be working its way back to the $1,200 level, where it feels most comfortable.

  “A long depression” has been much discussed in the financial press. Several economists are predicting many years of sluggish or negative growth. It is the obvious consequence of several overlapping trends and existing conditions.

   

  

  Newspaper from October 24 1929, a.k.a. “Black Thursday” – at this point, the panic had just begun with the market losing 11% in one day. On the next two trading days (Friday and Saturday – at the time, the market was open on Saturdays) the market rebounded slightly, then came “Black Monday” and “Black Tuesday”, which erased all doubt about the seriousness of the situation

   

   

  Old People Are Dead Wood

  First, people are getting older. Especially in Europe and Japan, but also in China, Russia and the US. As we’ve described many times, as people get older, they change. They stop producing and begin consuming.

  They are no longer the dynamic innovators and eager early adopters of their youth; they become the old dogs who won’t learn new tricks.

  Nor are they the green and growing timber of a healthy economy; instead, they become dead wood. There’s nothing wrong with growing old.

  There’s nothing wrong with dying either, at least from a philosophical point of view. But it’s not going to increase auto sales or boost incomes – except for the undertakers.

   

  

  Mr. Hislop is looking forward to booming business

  Photo credit: State Library of Queensland

   

  The Cure for Debt? More Debt!

  Second, most large economies are deeply in debt. The increase in debt levels began after World War II and sped up after the money system changed in 1968-71.

  By 2007, US consumers reached what was probably “peak debt.” That is, they couldn’t continue to borrow and spend as they had for the previous half a century. Most of their debt was mortgage debt, and the price of housing was falling.

  The feds reacted, as they always do… inappropriately. They tried to cure a debt problem with more debt. But consumers were both unwilling and unable to borrow. Their incomes and their collateral were going down. This left corporations and government to aim only for their own toes.

  Central banks created more money and credit – trillions of dollars of it. But since the household sector wasn’t borrowing, the money went into financial assets and zombie government spending.

  Neither provided any significant support for wages or output. So, the real economy went soft, even as the cost of credit fell to its lowest levels in history.

   

  

  In order to revive the credit creation machinery, the Fed has monetized incredible amounts of debt, via Saint Louis Federal Reserve Research. With the end of QE 3, its balance sheet has begun to subtly decline … click to enlarge.

   

  The Cronies Are in Control

  Third, the developed economies have been zombified. The US, for example, is way down at No. 46 on the World Bank’s list of places where it is easiest to start a new business. And only one G8 country – Canada – even makes the top 10.

   

  

  How to get ahead in the world of today….

  Cartoon by Stahler

   

  Paperwork. Expenses. Regulation. High taxes. High labor rates. Entrenched competition with aging, loyal customers. All are endemic from Boston to Berlin to Beijing.

  Leading industries – heavily controlled and regulated, including defense, education, health and finance – are practically arms of the government. All are protected with high barriers to entry and low expectations. Competition is barely tolerated. Innovation is discouraged. Mistakes are forgiven and reimbursed.

  Meanwhile, the masses are encouraged to become zombies too, with generous rewards for those who 1) do nothing, 2) pretend to work or 3) prevent other people from doing anything. After all the zombies, cronies and connivers get their money, there is little left for the productive economy.

   

  

  How it all works in crony heaven – until it doesn’t anymore – via bastiatinstitute.org

   

  The Solution Begins When Markets Crack

  Typically, these problems – too much debt, too many zombies, and too many old people – lead to financial crises. Then, they are “solved” by either inflation or depression. And the solution begins when markets crack.

  Markets never go up forever. Instead, they go up, down and even sideways. They breathe in and out. And after sucking in air for the last 30 years, US financial assets are ready to exhale. Legendary asset manager Bill Gross comments:

  “When does our credit-based financial system sputter/break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit and stocks begin to be exchanged for figurative and sometimes literal money in a mattress.”

  When that happens, problems begin to take care of themselves, in one of two ways…

  A quick, sharp depression wipes out the value of credit claims. Borrowers go broke. Bonds expire worthless. Companies declare bankruptcy. The whole capital structure tends to get marked down as debts are written off and financial assets of all kinds lose their value.

  Or, under pressure, the feds print money. Debts are diminished as the currency loses its value. The zombies still get money, but it is worth less. Inflation adjustments cannot keep up with high rates of inflation. Pensions, prices and promises fade. Either way, the slate is wiped clean and a new cycle can begin. But what rag will clean the slate now? Stay tuned…

   

  

  You knew there would eventually be a picture of the living dead.

  

  

  
  
  

  

• Japanese Bond Yields Spike Most In 2 Years On Return From Golden Week Holiday

  As Japanese markets re-open after Golden Week, the bond market is extremely active (which in itself is unusual given its total lack of liquidity). Playing catch up to the rest of the world’s igniting bond markets, 10Y JGB yields are up over 6bps (and even the 20Y is trading). The last few days have seen yields spike from 28bps to 43bps – a colossal move only seen before in May 2013 (after the initial euphoria of QQE).

  Biggest absolute yield swing in bonds since May 2013…

  

   

  Which drags yields to 2-month highs…

  

   

  Charts: Bloomberg

  

  

  
  
  

  

• Ultra-Secrecy Surrounds Barack Obama's New Global Economic Treaty

  Submitted by Michael Snyder via The Economic Collapse blog,

  Barack Obama is secretly negotiating a global economic treaty which would destroy thousands of American businesses and millions of good paying American jobs.  In other words, it would be the final nail in the coffin for America’s economic infrastructure.  Obama knows that if the American people actually knew what was in this treaty that they would be screaming mad, so the negotiations are being done in secret.  The only people that are allowed to look at the treaty are members of Congress, and even they are being banned from saying anything to the public.  American workers are about to be brutally stabbed in the back, and thanks to all of this secrecy and paranoia they won’t even see it coming.

  The name of this new treaty is “the Trans-Pacific Partnership”, and it is being touted as perhaps the most important trade agreement in history.  But very few people in this country are talking about it, because none of us are allowed to see it.  An article that was just released by Politico detailed the extreme secrecy that is surrounding this trade agreement…

  If you want to hear the details of the Trans-Pacific Partnership trade deal the Obama administration is hoping to pass, you’ve got to be a member of Congress, and you’ve got to go to classified briefings and leave your staff and cellphone at the door.

   

  If you’re a member who wants to read the text, you’ve got to go to a room in the basement of the Capitol Visitor Center and be handed it one section at a time, watched over as you read, and forced to hand over any notes you make before leaving.

   

  And no matter what, you can’t discuss the details of what you’ve read.

  This treaty is going to affect the lives of every man, woman and child living in this nation, and yet it is deemed so “important” that none of us can know what is in it?

  Are you sure that we still live in a Republic?

  This treaty will cover 40 percent of the global economy, and U.S. officials hope that the EU, China and India will become members eventually as well…

  Right now, there are 12 countries that are part of the negotiations: the United States, Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  These nations have a combined population of 792 million people and account for an astounding 40 percent of the global economy. 

   

  And it is hoped that the EU, China and India will eventually join as well.  This is potentially the most dangerous economic treaty of our lifetimes, and yet there is very little political debate about it in this country.

  If the EU, China and India did eventually join the treaty, that would essentially make it a trade agreement for the entire planet.

  This is a really big deal, and it should be openly debated by the American people.  But instead, Barack Obama has chosen to shroud the entire process with as much secrecy as possible.  Not only that, he also wants Congress to give him fast track negotiating authority.  If Congress does that, they would essentially be saying that they blindly trust Obama to negotiate a good treaty for us.  At the end of the process, Congress would be able to vote the treaty up or down, but would not be able to amend it.

  That sounds insane, right?  Well, if you can believe it, Republicans in the Senate are quite eager to give Barack Obama this authority.

  And this is not just an economic treaty.  The following is an excerpt from one of my previous articles…

  It is basically a gigantic end run around Congress.  Thanks to leaks, we have learned that so many of the things that Obama has deeply wanted for years are in this treaty.  If adopted, this treaty will fundamentally change our laws regarding Internet freedom, healthcare, copyright and patent protection, food safety, environmental standards, civil liberties and so much more.  This treaty includes many of the rules that alarmed Internet activists so much when SOPA was being debated, it would essentially ban all “Buy American” laws, it would give Wall Street banks much more freedom to trade risky derivatives and it would force even more domestic manufacturing offshore.

  We can’t consume our way to prosperity, and we can’t borrow and spend our way to prosperity.  In order to be prosperous as a nation, we have got to create at least as much wealth as we consume.  But instead, we are doing just the opposite.  We are consuming wealth like mad even while our economic infrastructure is being absolutely gutted.  We have lost thousands of businesses and millions of jobs already, and this new treaty will make things much worse.

  And of course eventually even the ultra-cheap labor on the other side of the planet will be replaced.  This is something that is already happening in China.  Just today there was a news story about a new manufacturing facility in China that will use only robots…

  Construction work has begun on the first factory in China’s manufacturing hub of Dongguan to use only robots for production, the official Xinhua news agency reported.

   

  A total of 1,000 robots would be introduced at the factory initially, run by Shenzhen Evenwin Precision Technology Co, with the aim of reducing the current workforce of 1,800 by 90 percent to only about 200, Chen Xingqi, the chairman of the company’s board, was quoted as saying in the report.

   

  The company did not give a figure for the investment in the factory, but said its production capacity could reach a value of 2 billion yuan (US$322 million) annually.

  All of this is very bad news for American workers.  Whether it is ultra-cheap labor on the other side of the globe or new technology, big corporations are constantly looking for ways to produce things less expensively.

  But in order to have a middle class, we have got to have middle class jobs.  The middle class in the United States is steadily disappearing, and neither political party seems very concerned about this at all.

  Even without this new trade treaty, our trade deficit with the rest of the planet continues to grow even larger.  We just learned that the monthly U.S. trade deficit for March rose to $51.4 billion.  That was the largest monthly trade deficit since October 2008.  If you will remember, in October 2008 we were experiencing the worst financial crisis since the days of the Great Depression.

  And if you take oil out of the number, our trade deficit for the month of March would be the worst ever recorded.

  Thank you Barack Obama.  Your trade policies are really “working”.

  Because the trade deficit was much worse than expected, that is going to push the GDP number for the first quarter into negative territory…

  Greg Daco of Oxford Economics says he expects the wider than expected trade deficit to prompt the government to revise its estimate of 0.2% growth in U.S. gross domestic product for the first quarter to a 0.5% contraction.

  That means that if we have another contraction in the second quarter, we will officially be in a recession.

  In fact, we could be in a recession right now (according to the official government definition) and not even know it yet.

  One of the biggest reasons why the U.S. economy has been struggling so much in recent years is due to our trade policies.  If we had balanced trade with other nations, our cumulative economic growth since mid-2009 would have been nearly 20 percent higher…

  Since rising trade balances subtract from economic growth, the increase in this real non-oil goods deficit has now cut cumulative U.S. economic growth after inflation by a stunning 19.49 percent since the recovery technically began in mid-2009.

  Are you starting to see why I get so fired up about trade?

  But instead of encouraging big corporations to do what is right for the American people, our system greatly rewards companies like Apple that proudly send jobs offshore.  The following is an excerpt from an outstanding article by Andrew Zatlin…

  Nine years, a trillion dollars in sales, and almost no taxes paid. That’s just the starting point for wondering about Apple’s actual contribution to the US economy.

   

  Apple’s success drags down the US GDP.  The behemoth that is Apple sold almost 200M phones last year, none of which were made in the US or used components made here. Instead of exporting $100B in iPhones, the US imported $50B. That $150B swing matters in terms of balance of trade, GDP and jobs. If you wanted to improve the US economy, there’s no better place to start than with Apple and smartphones.

   

  Apple undermines the US manufacturing base. Assembly matters and manufacturing matters more. There was a time when Apple could have assembled phones and tablets in the US, but that would mean spending an extra $5 per phone since that’s approximately the extra labor cost to build that $700 phone here instead of in Vietnam or China. Assembly may not be a competitive, value-add step but it does employ a lot of people.

   

  Unfortunately, it would also cut Apple’s profits by $1B, shrinking the company’s annual net income from $45B to $44B. Apple wouldn’t notice a drop in profits of $1B because it’s not putting its cash to use: Apple has $200B in cash conveniently parked outside of the US, not doing anything. On the other hand, assembling in the US would employ tens of thousands of people.

  You can read the rest of that great article right here.

  Our trade policies matter.  Decades of incredibly foolish decisions have ripped our economic infrastructure to shreds, and we are slowly but steadily committing national economic suicide.

  Now, Barack Obama is absolutely determined to deliver the finishing blow, and it is all being done in secret.

  When are you going to wake up and start getting angry America?

  

  

  
  
  

  

• The End Of The "Reflation" Trade? China To Focus On Fiscal Stimulus, Avoid Monetary Policy

  One of the biggest, if not the driving, factor behind the latest bout of the “reflation trade” which has sent bond yields surging (not to mention sending the Chinese stock market into outer space) in a deja vu rerun of the “Great Rotation” of 2013 and 2014, was constant chatter of imminent monetary easing by the People’s Bank of China, and perhaps with good reason: with the Chinese economy hard-landing and growing according to some estimates as low as 1.6%, the Chinese housing market tumbling faster than that of the US in the great financial crisis, the media has been flooded with recurring reports of Chinese QE any minute.

  To be sure, the PBOC has given plenty of ammunition for such speculation, having cut both its interest and Reserve Ratio rates twice in 2015.

  

  As a result of constant jawboning that the PBOC may not only cut rates even more but proceed to launch QE (which it will ultimately, just not for a while), both the Shanghai Composite has been trading at multi-year highs and oil has found a bid strong enough that in the past two months it has surged by some 50% on hopes that Chinese demand will finally come back once the local economy is so weak it leaves the PBOC no other choice.

  However, two things suggest that the great “reflation” trade is ending.

  Overnight, Xinhua reported that after months of plunging housing sales, the all important Chinese housing market, where the bulk of Chinese net worth is located, is rebounding sharply: sales volume of new homes in China’s major cities posted a solid gain in April with the support of the recent policy easing, the latest industry report showed.

  New home sales in China’s 30 major cities including Beijing, Shanghai, Guangzhou and Shenzhen surged 15.1 percent in April from the previous month to 16.57 million square meters, also representing an increase of 30.8 percent from the previous year, according to the report released by E-house China R&D Institute, a leading property consultancy.

  Of the tier-one cities, Beijing witnessed the strongest new home sales growth at 70.7 percent in April compared with a year earlier, noted the report released Wednesday.

  Xinhua recounts that China’s property market took a downturn in 2014 due to weak demand and an excess of unsold homes. In late March, China’s central bank cut the minimum down payment requirement for second home buyers to 40 percent.

  Business tax will be exempt for sales of homes purchased more than two years ago, instead of the previous requirement of five years, the Ministry of Finance announced. These easing measures have bolstered the recent rebound of the real estate market, analysts said.

   

  Policy easing should further lift home transactions in the months ahead, with a strong rebound expected in the second quarter, predicted Yan Yuejin, a researcher with the institute.

  In other words, what the PBOC has already done may be quite sufficient to claim victory for the near to mid-term future, to where no additional easing, much of which has been factored into global asset prices, is forthcoming.

  But where things get dangerous for the liquidity-addicted, risk-on crowd, is a report just released by Reuters, according to which, China is “likely to resort to fiscal stimulus to revive growth after a run of monetary policy easings proved less effective, policy insiders said.“

  “They are very worried. If they don’t take bolder measures, it will be very hard to achieve the full-year growth target, and there is risk the slowdown may get out of control,” an economist at a well-connected think-tank said of top policymakers.

   

  “Fiscal policy will become more forceful, and infrastructure investment will accelerate, while monetary policy will be more flexible,” said the economist.

  Confused by the 5% drop in the Shanghai Composite in the past two days and the worst 6-day run since June 2013?

  

  This may explain it:

  The emerging view is that the direct impact of government spending would work where monetary policy, including two cuts in interest rates and two cuts in bank reserve requirements since November, has not.

   

  The government is eyeing “a package of measures to stabilize growth and control risks”, said a senior economist at the cabinet’s Development Research Centre think-tank.

   

  “There is no big problem in employment. They (top leaders) are more worried about financial risks and debt risks.”

  If true, expect the dramatic doubling in Chinese stocks to promptly deflate because while fiscal stimulus is indeed great for the economy it does absolutely nothing for a market that desperately needs constant liquidity injections merely to stay at the same level, nevermind keep rising.

  The level of fiscal stimulus detail provided by Reuters suggests that indeed hopes for more PBOC interventions have been officially snuffed. To wit:

  The National Development and Reform Commission (NDRC), the country’s top planning agency, is already speeding up investment projects in several key sectors, including water conservation, environmental protection, power grids and health care.

   

  And President Xi Jinping is spearheading the integration of Beijing with Tianjin and Hebei province, aiming to create a growth driver similar to the Yangtze River Delta around Shanghai and Pearl River Delta in Guangdong, the sources said. The government has said the new metropolis would require investment of 42 trillion yuan ($6.8 trillion).

   

  “It’s hard to boost consumption while external demand is weak, so the only thing they can do is boost investment,” said Lu Zhengwei, chief economist at Industrial Bank.

   

  The NDRC has been struggling to lure private investment into such projects, adding more pressure on the government to spend.

  Needless to say, China already has a massive overcapacity problem as a remnant of its late 2000s policy of a massive, debt-fueled spending binge that has now left the country with trillions of (mostly undisclosed) bad debt, and a mountain of shadow liabilities the Politburo is desperate to eliminate. Reuters confirms as much: “Stimulus plans will, nevertheless, be restrained by the fact that China is still struggling with a mountain of local government debt from the 4 trillion yuan ($645 billion) stimulus rolled out in 2008/09 to cushion the impact of the global crisis.”

  Which means that while monetary stimulus is now firmly on the backburner, not even fiscal policy will match the massive stimulus dumps seen in previous years, which in turn suggests that anyone hoarding oil over hopes that China will reemerge as a massive source of demand will be disappointed.

  As for the sudden bout of the great reflation trade… well, just keep an eye on Chinese stocks – leaking inside information in the Middle Kingdom is usually encouraged, and if someone is aware of the PBOC’s plans, or lack thereof, it will sweep like wildfire through the market, and lead to an avalanche of selling as the liquidity tsunami is drained.

  

  

  
  
  

  

• Repatriation Of Gold From Fed Suggests Historic Vote Of No Confidence

  Submitted by Seth Mason via Solidus.Center blog,

  Since 2012, there’s been an unprecedented call from foreign nations to repatriate their gold from Federal Reserve vaults in the U.S. This is an incredible development given many countries’ 71-year reliance on the Fed as a custodian for their bullion. Over the last few years, countries including, but not limited to, Germany, the Netherlands, France, Belgium, Austria, Poland, Ecuador, Finland, Switzerland, Venezuela, and Romania have either formally requested repatriation of their gold or are in discussions with the Fed about it. Some of these nations, mind you, have held more than 50% of their entire reserves of bullion in the U.S. since 1944, when the Dollar became the world’s reserve currency.

  Something huge must of happened in the last few years to prompt such action. That something may be a break in foreign gold holders’ trust in the Fed as a custodian of their precious metals.

  There’s evidence that, in recent years, the Fed has been leveraging some of its foreign gold holdings to lower skyrocketing gold prices as part of its grand scheme to “engineer” an economic recovery from the 2008 Financial Crisis. This is to be expected. After all, the Fed has spent the past 7 years throwing everything but the kitchen sink at the chronically-ill American economy and its epidemic of long-term unemployment and underemployment: It’s bailed out the Too Big to Fail banks to the tune of $14 trillion. It’s printed more than $4.2 trillion. It’s crushed down interest rates to zero and has kept them there. Naturally, the good people at the Eccles Building would include leveraging their foreign gold holdings in their campaign to prop up the economy. After all, high gold prices are a proxy for fears about the future of the economy, and prices reached generational highs in late summer 2011–3.5 years into the Fed’s post-crisis “recovery”.

  (Interestingly, gold prices began their long journey downward from their summer 2011 peak just after the Economic Cycle Research Institute called a double dip recession and the Bureau of Economic Analysis–if you believe government data–reported that we narrowly missed a second recession due to GDP growth hovering just above zero.) Gold prices are supposed to rise when economic data are bad!

  So, if the Fed has been leveraging its foreign gold holdings in order to lower the price of bullion, it’s quite possible that it simply doesn’t have in its possession the amount of foreign gold it should. Again, this isn’t a stretch. In fact, it’s Occam’s Razor: Hypothecation is a common practice in the precious metals world, and, recently, the Fed has been flat-out refusing foreign nations from auditing their gold and will only return large holdings on installment plans.

  Pretty suspicious behavior, particularly given the long history of foreign nations continuing to store their gold in Fed vaults during times in which repatriation would have made more sense.

  Consider the following:

  The Fed became a popular custodian of foreign gold during World War II, when threats of appropriation of valuable assets by invading empires were an unfortunate reality in much of the Allied world. In 1944, through the Bretton Woods Agreement, much of the globe came to the consensus that the U.S. Dollar would become the world’s de facto reserve currency and that the Dollar would be backed by foreign and domestic gold physically held by the Fed.

  Then, in 1971, Bretton Woods was repealed, and the Dollar was decoupled from gold. One would think that the foreign nations that held gold at the Fed would have recalled much of their bullion at this time. Not only was the gold not needed to back the world’s reserve currency any more, but the threat of appropriation by foreign empires had diminished significantly. Three decades had passed since WWII, the Khrushchev Era of the Cold War had ended years earlier, and the West had begun to develop diplomatic and trade relations with the Soviet Union and China. But, despite these favorable conditions for repatriation, few nations called for it. It wasn’t worth the cost or effort: The price of gold at the time was at an inflation-adjusted 20th Century low of $210. (2015 dollars – See chart at end of article. Prices likely higher due to use of Bureau of Labor Statistics data, whose methodology has been altered several times to discount inflation.)

  But the financial incentives for repatriation significantly improved by the end of the 1970s, to say the least. By January 1980, with the Fed’s home country mired in stagflation and shocked by an oil crisis, the price of gold skyrocketed to an all-time record inflation-adjusted high of $2100 (a record that remains today, even after the Financial Crisis). Decades removed from the threats of appropriation of WWII and early Cold War-era empires, the late ’70s and early ’80s would have been a great time to repatriate bullion from the Fed. But there were simply few calls.

  More astonishingly, there were few calls for repatriation in the early 2000s, when Alan Greenspan’s post-tech bubble recession and Al-Qaeda’s devastating attacks on the world’s then-largest financial complex–LOCATED JUST BLOCKS FROM WHERE THE FED WAS HOLDING THE GOLD–sent bullion prices skyrocketing. If there were an ideal time for mass calls of repatriation, it was then. But the calls just didn’t come.

  Nor did they during the 2008 Financial Crisis, an event which plunged the U.S. into its worst recession since the Great Depression and sent gold prices skyrocketing again…after a 10 year run-up since Greenspan’s tech bubble. Nor did they come when it appeared that Greece’s collapse was imminent and was going to jeopardize the future of the EU. Nor did they come when it appeared that the U.S. was going to go over the Fiscal Cliff.

  No, they’ve only come recently, during a period of time in which the possibility that the Fed has been depressing gold prices has come to light and in which the Fed has been suspiciously prohibiting foreign nations from auditing their gold.

  

  (Click to enlarge chart.)

  Given all of this history, the recent massive calls for repatriation suggest that foreign gold holders have lost trust in the Fed as a custodian of their precious metals.

  

  

  
  
  

  

• Meet The FBI's Secret 'Eye In The Sky' Overseeing The Baltimore Riots

  As the controversy surrounding the upcoming Jade Helm military exercises has made abundantly clear, Americans are growing more distrustful of a federal government they perceive as being increasingly willing to infringe upon the civil liberties of US citizens. Fears that Washington is conducting clandestine activities aimed at gathering intelligence about the US populace and the notion that we are witnessing a creeping militarization of US cities has many Americans on edge and as the following story from the Washington Post makes clear, it’s not paranoia if they’re really watching you. 

  Via WaPo:

  As Benjamin Shayne settled into his back yard to listen to the Orioles game on the radio Saturday night, he noticed a small plane looping low and tight over West Baltimore — almost exactly above where rioting had eruptedseveral days earlier, in the aftermath of the death of a black man, Freddie Gray, in police custody.

   

  The plane appeared to be a small Cessna, but little else was clear. The sun had already set, making traditional visual surveillance difficult. So, perplexed, Shayne tweeted: “Anyone know who has been flying the light plane in circles above the city for the last few nights?”

   

  That was 9:14 p.m. Seven minutes later came a startling reply. One of Shayne’s nearly 600 followers tweeted back a screen shot of the Cessna 182T’s exact flight path and also the registered owner of the plane: NG Research, based in Bristow, Va.

  @scanbaltimore It’s registered to NG Research: http://t.co/mCWpUzvndp
  For some other info: http://t.co/cbCehxiCS0 pic.twitter.com/eGXFIKXCgr

  — Pete Cimbolic (@pete_cimbolic) May 3, 2015

  

  As it turns out, Shayne had unwittingly uncovered a secret FBI overhead surveillance campaign carried out over Baltimore during the riots that set the city ablaze late last month. The operation involved two planes circling the city, and as WaPo notes, if equipped with the latest technology, the aircraft would have been capable of monitoring “dozens of city blocks” at a time. The revelations have prompted the ACLU to demand answers as to the legality of what an unnamed official calls FBI “aerial support”:

  Civil libertarians have particular concern about surveillance technology that can quietly gather images across dozens of city blocks — in some cases even square miles at a time — inevitably capturing the movements of people under no suspicion of criminal activity into a government dragnet. The ACLU plans to file information requests with federal agencies on Wednesday, officials said.

   

  “A lot of these technologies sweep very, very broadly, and, at a minimum, the public should have a right to know what’s going on,” said Jay Stanley, a senior policy analyst at the ACLU specializing in privacy and technology issues.

   

  A government official familiar with the operations, speaking on the condition of anonymity to discuss matters not approved for public release, said the flights were aerial support that Baltimore police officials requested from the FBI.

   

  Flight records maintained by the Web site Flightradar24 show two Cessnas — one a propeller plane, the other a small jet — flying precise formations over the part of West Baltimore where the rioting had occurred. The smaller Cessna conducted flights in the area on Thursday, Friday and Saturday, always after dark. The planes used infrared technology to monitor movements of people in the vicinity, the official said.

   

  

  
  

   

   

  Last year, the Post outlined how Cessnas can be outfitted with technology “that can track every vehicle and person across an area the size of a small city, for several hours at a time.” The camera setups the Post profiled are developed by Persistent Surveillance Systems (PSS). Here’s a schematic:

  

  The company’s Chief Technical Officer Ross McNutt told the Chicago Tribune that PSS was not involved in the Baltimore operation, noting that “the kinds of sensors used in most government surveillance flights can see at least a five-block-by-five-block area. What they need is a system that follows people back to the house they came out of.“

  Nevertheless, it’s worth noting that these systems have been deployed over Baltimore before. Here’s WaPo from last February:

  Already, the cameras have been flown above major public events such as the Ohio political rally where Sen. John McCain (R-Ariz.) named Sarah Palin as his running mate in 2008, McNutt said. They’ve been flown above Baltimore; Philadelphia; Compton, Calif.; and Dayton in demonstrations for police. 

  If that’s a little too ambiguous for you, have a look at the following slide from a company presentation delivered in January 2014 by the very same Ross McNutt:

  

   

  Just what is this PSS ‘eye’ that the company swears was not ‘in the sky’ over Baltimore, you ask? A good place to start in terms of answering that question might be a product called the “NightHawk” which employs infrared technology that provides “wide area surveillance capability with persistent coverage of areas as large as 4 square kilometers.” 

  

  The NightHawk “integrates seamlessly” with the company’s HawkEye II wide area surveillance sensor which PSS markets to law enforcement with this rather compelling sales pitch:

  Have a Crime Spike?  Criminals on the run?  Gang or Drug Networks you need to shut down? [ZH: Rioters burning down your city?]  Do you have limited manpower and/or limited intelligence assets?

  PSS can help – and fast.

   

  Whether your objective is to monitor a single intersection, several city blocks, or a whole city, PSS’s HawkEye II gives the capability and the flexibility to meet your mission requirements.

   

  To get an idea of what the Hawkeye II is capable of in terms of both scope and detail, have a look at the following images from the portion of the company’s webpage dedicated to its law enforcement customers:

  

  

  *  *  *

  Besides the Baltimore Police Department, PSS has conducted operations in conjunction with police in Dayton, Los Angeles, and Philadelphia, and while we can’t say for sure whether Baltimore was indeed under the watchful eye of the PSS “NightHawk” last month, we think it’s safe to say that if you want to watch those who may be watching you, PSS is a good company to keep an eye on. 

  

  

  
  
  

  

• 7 Person CFTC Team Charges Gold Manipulators Identified First On Zero Hedge With Gold And Silver Spoofing

  Last Tuesday, as part of our ongoing effort to help the clueless commodity regulator, the CFTC, do its jobs of identifying, preventing and punishing manipulators, we wrote “Dear CFTC: Here Is Today’s Illegal “Spoofing” In Gold Futures” in which we presented “3 examples of spoofing in gold futures which, you’ll note, aren’t difficult to spot if one is willing to expend the tiniest effort.”

  The gold spoofing was obvious, and as as the following Nanex charts showed, a cursory glance revealed how large buy and sell orders push prices up and down without every transacting.

  

  2. Another set of instances appear about 50 minutes after the first set (shown in chart 1).

  

  3. Another set of spoofing instances appear about an hour after the second set (shown in chart 2).

  

   

  We go the spoofing right, but we got our audience wrong because the very next day it was not the CFTC, but the exchange on which said manipulation was taking place, the CME, that issued an order denying access to the alleged spoofers we had identified just hours before, Heet Khara and Nasim Salim, and which would be barred from trading on the CME for a period of 60 days.

  Fast forward to today when, humiliated at having its job done not only by a for-profit exchange but a tinfoil fring blog first, the CFTC finally did its job and charged United Arab Emirates residents Heet Khara and Nasim Salim with “Spoofing in the Gold and Silver Futures Markets.” Note: “and silver” – this is important.

  Here is the full CFTC order:

  Court Issues an Ex Parte Restraining Order Freezing Defendants’ Assets and Preserving Records

   

  Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a civil enforcement action in the U.S. District Court for the Southern District of New York against Heet Khara and Nasim Salim, residents of the United Arab Emirates.  According to the CFTC’s Complaint, Defendants engaged in unlawful disruptive trading practices known as “spoofing” in the gold and silver futures markets by placing bids and offers with the intent to cancel them before execution.

   

  Based on Defendants’ pattern of unlawful spoofing conduct and the potential for dissipation of Defendants’ assets, on May 5, 2015, U.S. District Judge Deborah A. Batts issued an Order freezing and preserving assets under Defendants’ control and prohibiting them from destroying documents or denying CFTC staff access to their books and records. The court scheduled a hearing on the CFTC’s motion for a preliminary injunction for May 19, 2015.

   

  The Complaint alleges that between at least February 2015 and at least April 28, 2015, Defendants Khara and Salim, both individually and in a coordinated fashion, regularly placed larger aggregate orders for gold and silver futures contracts on the Commodity Exchange, Inc. (COMEX) opposite smaller orders and cancelled the larger orders after the smaller orders were executed.

   

  CME Group Inc.’s (CME Group) Market Regulation Department identified the disruptive trading practices and initiated an investigation.  On or about April 30, 2015, CME Group issued notices summarily denying Defendants Khara and Salim’s access to all CME Group markets and any trading platforms owned or controlled by CME Group.  CME Group Inc. operates four self-regulatory organizations and designated contract markets, which are the Chicago Mercantile Exchange Inc., Board of Trade of the City of Chicago, Inc., New York Mercantile Exchange, Inc., and COMEX.

   

  CFTC Director of Enforcement Aitan Goelman commented: “Protecting the integrity and stability of the U.S. futures markets is critical to ensuring a properly functioning financial system.  Aggressive prosecution of spoofing is an important part of that mission.  Today’s actions make clear that the CFTC will partner with self-regulatory organizations to find and swiftly prosecute those who engage in such disruptive trading practices, wherever they may be.”

   

  In its ongoing litigation, the CFTC is seeking preliminary and permanent injunctive relief, civil monetary penalties, and equitable relief including trading and registration bans and disgorgement. 

  Curious where your taxpayer dollars go? It took the CFTC seven (7) well-paid manipulation sleuths to figure out what was revealed on the pages of Zero Hedge on the day of the manipulation, without us ever having accepted a single taxpayer dollar.

  CFTC Division of Enforcement staff members responsible for this matter are Patryk J. Chudy, David Oakland, Neel Chopra, Katie Rasor, Trevor Kokal, Lenel Hickson, and Manal Sultan.

  Finally:

  The CFTC thanks and acknowledges the assistance of the CME Group in this matter.

  You are welcome.

  And perhaps in retrospect it is time for the CFTC to revise its announcement from September 25, 2013…

  The @CFTC Closes Investigation Concerning the Silver Markets. http://t.co/JZRliwfW6P

  — CFTC (@CFTC) September 25, 2013

  … in which it said:

  “The Commodity Futures Trading Commission (CFTC or Commission) Division of Enforcement has closed the investigation that was publicly confirmed in September 2008 concerning silver markets. The Division of Enforcement is not recommending charges to the Commission in that investigation. For law enforcement and confidentiality reasons, the CFTC only rarely comments publicly on whether it has opened or closed any particular investigation. Nonetheless, given that this particular investigation was confirmed in September 2008, the CFTC deemed it appropriate to inform the public that the investigation is no longer ongoing. Based upon the law and evidence as they exist at this time, there is not a viable basis to bring an enforcement action with respect to any firm or its employees related to our investigation of silver markets.”

  Because, you see, had the “woefully underbudgeted” CFTC, which needed at least 7 employees to discover what took Nanex and Zero Hedge about 10 minutes of work, not closed its particular investigation, it would have caught not only this but countless other instances of gold and silver manipulation…

  The good news, of course, is that with a UK spoofer, working out of his parents’ basement, having been charged with causing the Flash Crash, and now two Arabs found guilty of manipulating gold and silver, both the S&P and the gold markets are once again completely unrigged, the CFTC is on top of everything, and investors should, please, come right back in.

  

  

  
  
  

  

• It Begins: US Government Issues $700,000 Fine Against A Digital Currency

  Submitted by Simon Black via Sovereign Man blog,

  Well, it was bound to happen sooner or later.

  Our beloved amigos at the US Financial Crimes Enforcement Network (FinCEN), have just issued the first-ever ‘civil enforcement action’ against a virtual currency.

  The offending criminal mastermind in this case? Ripple Labs.

  If you’re not familiar, Ripple is a virtual currency platform that was once the darling of Silicon Valley, attracting top VC firms like Google Ventures and Andreessen Horowitz.

  Ripple’s technology allows users to conduct financial transactions with one another — sending and receiving payments in cryptocurrencies like Bitcoin, as well as fiat currency.

  Imagine Bitcoin meets Paypal… and you have the basic idea.

  As part of its technology, the parent company Ripple Labs also created a native virtual currency called ‘XRP’, which is the second largest in the world after Bitcoin when measured by market capitalization.

  Because of all of these features, Ripple Labs qualifies as a ‘money service business (MSB)’ according to FinCEN… which makes them subject to all sorts of regulations.

  At the top of the list is the Bank Secrecy Act (BSA), which, contrary to its name, requires banks and MSBs to betray their customers’ financial secrets to the US government.

  Specifically, the BSA mandates that all banks and MSBs file ‘suspicious activity reports’ if they “know, suspect, or have reason to suspect” that a transaction of $2,000 or more is ‘suspicious’.

  And in the age of the USA PATRIOT Act, suspicious transactions are BIG BUSINESS for Uncle Sam.

  Last year a record 2.4 MILLION suspicious activity reports were filed. That’s a 40% increase from 2013’s record year of 1.7 million.

  As you can imagine, Ripple Labs failed to register with FinCEN as an MSB, nor did it submit suspicious activity reports.

  In its complaint, FinCEN describes several of the oooooh-so-nefarious violations.

  According to FinCEN, “In January 2014, a Malaysian-based customer sought to purchase XRP from [Ripple Labs], indicating that he wanted to use a personal bank account for a business purpose.”

  HOLY JIHAD BATMAN!!!! Someone wanted to use a personal bank account for business purposes?!?! NUKE THE SON OF A BITCH!

  I mean, seriously. This is the complete nonsense that keeps financial bureaucrats up at night: some guy in Malaysia wants to buy digital currency with his personal funds.

  Whoop-dee-doo.

  But what’s really wild is that Ripple actually DENIED the transaction. They just didn’t file the SAR.

  So… even though Ripple didn’t actually ENGAGE in said ‘suspicious activity’, failing to file the SAR (with the appropriate TPS report cover sheet) was enough to land them in hot water.

  End result — Ripple was dinged with a $700,000 fine.

  Now, $700k is a pittance compared to the $9 BILLION that BNP Paribas was slammed with last year for doing business with countries that were former enemies-turned-BFFs of the US government — namely Cuba and Iran.

  But it’s still a ridiculous penalty for having done nothing wrong.

  Of course, it’s never about right or wrong. It’s about sending a message. And that’s exactly what FinCEN is doing.

  By going after Ripple (a major player in the industry), FinCEN is trying to scare all the smaller players into ratting out their customers.

  This, after all, is what desperate, bankrupt governments have done for millennia —

  Step 1: Track down where everyone’s money is.

  Step 2: Take it.

  You don’t see rich, stable countries doing this sort of thing. In fact, the exact opposite.

  An official from Hong Kong’s Treasury recently stated that: “the Government does not consider it necessary to introduce at the moment new legislation to regulate trading in such virtual commodities or prohibit people from participating in such activities.”

  Night and day difference.

  We’ll continue to see these steps in the US and in Europe. Tracking down virtual currency transactions. Banning cash. Anything they can do to keep your money trapped in the system where they can keep their eyes on it.

  It’s all the more reason to move a portion of your savings out of that system and into somewhere safe.

  

  

  
  
  

  

• Mapping Income Mobility: The Best (And Worst) Places To Grow Up

  A new study from Harvard economists Raj Chetty and Nathaniel Hendren seeks to quantify the financial impact of where America’s children are brought up. More specifically, Chetty and Hendren measure “the percentage earnings gain from growing up in each county [in America] relative to an average place for children in low-income families.” 

  The goal of the study (and its predecessors) is to determine the most effective way to imporove economic outcomes for low-income children. Here, the researchers “focus on families who moved across areas to study how neighborhoods affect upward mobility.” Unsurprisingly, Chetty and Hendren “find that every year of exposure to a better environment improves a child’s chances of success.” Interestingly, the economists have actually quantified the improvement in order to “estimates of the causal effect of each county in America on upward mobility.”

  The map below, from NY Times, shows “how much extra money a county causes children in poor families to make” compared to national averages for low-income households:

  

  Click here for interactive map

  More from NY Times:

  Raj Chetty and Nathaniel Hendren [have had] huge consequences on how we think about poverty and mobility in the United States. The pair, economists at Harvard, have long been known for their work on income mobility, but the latest findings go further. Now, the researchers are no longer confined to talking about which counties merely correlate well with income mobility; new data suggests some places actually cause it.

   

  Across the country, the researchers found five factors associated with strong upward mobility: less segregation by income and race, lower levels of income inequality, better schools, lower rates of violent crime, and a larger share of two-parent households. In general, the effects of place are sharper for boys than for girls, and for lower-income children than for rich.

   

  “The broader lesson of our analysis,” Mr. Chetty and Mr. Hendren write, “is that social mobility should be tackled at a local level.”

  We’ll leave you with the following screenshots from the interactive map (presented with no comment):

  

  

  

  

  
  
  

  

• Why The Fed Will Do QE4 (In 4 Ugly Charts)

  While The Fed and its apologists (except for Jim Bullard) remain firmly attached to the idea that it is the 'stock' (or absolute level) of Fed Assets that represents the amount of policy-easement and not the 'flow' (rate of change), we have explained numerous times that this is complete rubbish. With the Federal Reserve balance sheet hitting 6-month lows this week, we thought the following 4 pictures would paint more than a thousand words on why The Fed will need to restart the flow soon… or the game is up.

   

  The quiet, subtle decline in the Federal Reserve's balance sheet continued in April. As of May 1st, Gavekal notes the Fed's balance was at $4.47 trillion. While undoubtedly still incredibly large, the Fed's balance sheet is about $45 billion less than its peak level on January 16, 2015.  Total assets at the Fed are back to levels last seen on October 17th. Total assets at the Fed have declined by nearly $29 billion over the past three months. On a rolling three-month basis, the Fed's balance sheet has been declining for the last two months.

  

  And the three-month difference in total Fed assets has produced some interesting relationships since QE started. Below are some economic indicators that caught our eye…
  

  

  

  

  All suggesting it is indeed the flow.. and not stock that has pumped everything… and now that it is officially in decline, Yellen is going to need to find an excuse to crank the flow once again…

  Source: Gavekal

  

  

  
  
  

  

• Does The Stock Market Matter?

  Submitted by Omid Malekan,

  Today marks the five year anniversary of the Flash Crash, the day in 2010 when the US stock market fell drastically in a matter of minutes then recovered most of the losses.

  

  Unlike sharp declines in the past, the Flash Crash happened for apparently no reason. Since then the government has launched multiple inquiries into what happened and recently charged a trader for alleged market manipulation. Figuring all of this out is considered a priority because the stock market is an important part of the economy and has an important place in economic policy.

  But does the stock market really matter? And if it does, should it?

  Stock market relevance to policy dates back to the crash of 1987, when Fed Chairman Alan Greenspan decided the Fed should respond boldly to market machinations. That emphasis on the importance of stocks was at the core of the Greenspan Fed and was continued by his successors Ben Bernanke and Janet Yellen.

  

   

  Along the way economists increasingly factored stocks into their theories and the Wealth Effect – the idea that when people feel rich from their investments they spend more – gained prominence.

  The 2008 financial crisis cemented the importance of stocks in economic management. Policy makers monitored falling stocks as if they were a good barometer for economic activity and reacted accordingly. In 2010, in an editorial defending the Fed’s then controversial Quantitative Easing program, Chairman Ben Bernanke pointed to rallying stocks as evidence the policy was working. In 2012 Assistant Attorney General Lanny Breuer, the man who presided over the Justice Department’s Criminal division in the aftermath of the financial crisis, said when considering prosecution of a bank executive they took into account the impact on the bank’s shares and financial markets. More recently Fed President Bill Dudley has stated that how the market reacts will play a role in how quickly the Fed raises interest rates back to normal.

  The first thing we should recognize about the stock market is that it’s a pretty bad indicator for the economy. Today stocks trade at all time highs, but that’s not the case for any meaningful metric of the economy, like employment, GDP growth or wages. Real median household income, perhaps the purest measure of the vitality of the middle class, has steadily declined…

  

   

  …while the stock market has rallied during the recovery.

  

   

  The second thing we should realize is that stocks only matter to a small and peculiar subset of the population: large corporations and the wealthy. The employees of the S&P 500, the index consisting of the 500 largest public companies in America make up only 15% of all employed persons. Most jobs in this country are created by companies that can’t participate in the stock market. As for the minority that do, there is no evidence that higher stock prices lead to hiring. If companies added and subtracted employees based on volatile individual stock prices they would constantly be firing and hiring people in almost random fits that might have little to do with their actual business.

  Shareholders also consist of a minority of the population, in this case the highly affluent. Most shares are not owned by average Americans, but rather executives and founders. Think of people like Mark Zuckerberg and Warren Buffet. Some academics estimate the top 10% in terms of wealth own over two-thirds of all stocks. Scan down a list of the world’s richest people and you will see why. Meanwhile, the most recent Gallup survey shows almost half of all Americans don’t own any stocks.

  Given this reality, it should come as no surprise that the post-crisis era has seen a surge in the economic disparity between the haves and the have-nots. As policy makers have focused increasingly on stocks, they have committed resources to elevating the market thus improving the lot of the rich and powerful. Most of the Fed’s post-crisis programs for example would have been considered a failure if they weren’t constantly validated by a surging Dow Jones Industrials Index. There is a moral imperative to help the majority that has been left behind by this recovery, and it starts with paying closer attention to economic factors that measure their well being.

  There is also a practical benefit to shifting our attention away from the stock market. Any market that can yo-yo 10% within a day for no apparent reason, or undergo multiple booms and busts in a 20 year period should not be given too much credibility. The wealth-effect on the way up always turns into the wealth-destruction effect on the way down.

  If we can look away from the daily machinations of the unpredictable market we are more likely to work on the sort of structural reform that pays off in the long run, even if it doesn’t make the market go up today.

   

  

  

  
  
  

  

• Late-Day Buying Scramble Saves Dow's Year After Yellen Yanks Punchbowl

  Translating what Janet Yellen (and Lockhart) said today to stock investors….

   

  Before we start – Trannies are trading 2% below the levels pre-EndQE3 and The Dow was rescued late on into the green YTD for 2015…

  

   

  UNRIGGED!!!! Every time the Dow lost YTD green, VIX was smashed… and look at the close!!!

  

   

  Stocks have now given up all the exuberant gains post March payrolls

  

   

  Volume is back…

  

   

  The epic late-day ramp was a desparate effort to get The Dow into the green YTD… managed to get Small Caps comfortably green (because you Fight The Fed)

  

   

  Futures show the swings today more clearly…

  

   

  On the week, Nasdaq remains the laggard, Small caps outperforming

  

   

  The initial driver was the weak ADP print which sparked selling in the USD, then Yellen's comments really pulled the rug…

  

   

  Shale stocks continue to slide post-Einhorn (even despite this morning's meltup in crude after DOE inventory draw). Worst still for the frackers, Gartman said "The frackers are going to ramp back up, there is no question at all"

  

   

  Treasury yields are up 8 days in a row – the longest stretch of increases since 9 days in a row in March 2012. (note the big AAPL issue today whioch may be the driver of the recent weakness in US sessions as ratelocks hit an illiquid market)

  

   

  10Y yield closes above its 200DMA…

  

   

  The dollar slipped once again…

  

   

  Commodities (except for Crude) saw muted activity today…

  

   

  But crude pumped and dumped after the EOD draw…

  

   

  Just as an aside, this is what happened in European bond risk today…

  

   

  Charts: Bloomberg

  Bonus Chart: What's worse than worst?

  

   

  

  
  
  

  

• Top NSA Official Who Created the Global Surveillance System: Fire the U.S. Intelligence Agencies … Hire Anonymous, Instead

  William Binney is the high-level NSA executive who created the agency’s mass surveillance program for digital information. A 32-year NSA veteran widely regarded as a “legend” within the agency, Binney was the senior technical director within the agency and supervised thousands of NSA employees.

  Binney sent Washington’s Blog an article from Monday showing that a member of the cyber collective Anonymous tipped off Texas police to the imminent shootings by Muslim extremists.

  Binney comments:

  This is the objective of intelligence agencies that I worked in – predict intentions and capabilities in advance. I agree with my VIPS [i.e. Veteran Intelligence Professionals for Sanity] associates, hire Anonymous and fire the bums we got including the intelligence committees and the FISC [U.S. Foreign Intelligence Surveillance Court].

   

  After all, when was the last time our “intelligence community” predicted anything like this in advance????

  Binney and other top NSA whistleblowers have previously explained that the intelligence agencies should have stopped 9/11, the Boston Marathon bombing, the Paris shootings and other terrorist attacks.  But corruption prevented them from  stopping the attacks.

  Veteran Intelligence Professionals for Sanity – a group composed of former high-level military and intelligence officials – recently called for independent intelligence analysis to keep our country safe.

  

  
  
  

  

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• Everything That Is Wrong With Banking Today

  Here is the latest SmartKnowledgeU Podcast #5: “Everything Wrong With Banking Today”.

   

  

  To listen to this podcast on YouTube, please click the above image and then click the link “Watch this video on YouTube.”

   

  For those of you that would like a downloadable mp3 file of any of our podcasts to listen to at your leisure on your smartphone or iPod, please visit https://www.apple.com/itunes, log in to iTunes and then search the iTunes store for the “smartknowledgeu podcast” which will contain
  all of our downloadable podcasts for free. To be informed of when we release future podcasts, merely subscribe to our YouTube channel here or subscribe to our podcast channel on iTunes.

   

  The topic of our upcoming Podcast #6 next week will be “Deciphering the Language of Lies”, in which we address why the use of the world “failure” and “mistake” in association with our global financial and political leaders most definitely muddies and obscures the truth about them, and why it is of utmost importance to stop using these two words in conjunction with them if we want the truth about their deliberately engineered path of economic destruction and collapse to take root and eventually go viral among the masses.

  

  
  
  

  

• Florida Man Faces 15 Year Sentence For Sex On A Beach (But Still No Bankers In Jail)

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

   

  A jury Monday found a couple guilty of having sex on Bradenton Beach after only 15 minutes of deliberation.

   

  The convictions carry a maximum prison sentence of 15 years.

   

  Both Caballero and Alvarez will now have to register as sex offenders.

   

  Ronald Kurpiers, defense attorney for the couple, said his clients were “devastated,” by the verdict.

   

  Though Dafonseca hinted that they’d be speaking with the judge about whether or not 15 years was appropriate for Caballero, Kurpiers said the judge would have no discretion.

  “That’s what he’ll get,” Kurpiers said.

   

  – From the Miami Herald article: Couple Found Guilty of Having Sex on Florida Beach

  This is what “justice” looks like in the Oligarch States of America. If you’re a pleb who gets caught having consensual sex on the beach, you’re immediately convicted and face up to 15 years in the gulag. Meanwhile, if you’re a banking executive responsible for crashing the global economy, you’re rewarded with trillions in taxpayer bailouts and backstops and given free reign to continue your crime spree. Criminal charges are never considered, despite the extreme negative impact your actions have on society at large, and you’re always given a slap on the wrist via deferred prosecution agreements, or DPAs. Don’t believe me? Let’s look at an excerpt from last year’s post titled, The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally:

   

  These agreements were created 100 years ago to give juvenile defendants and first-time offenders a chance to for rehabilitate themselves. Only in the last 20 years have DPAs migrated to the field of corporate criminals, treating them like kids who’ve just gone down a bad path in life.

   

  The Justice Department is leaning on these toothless agreements more and more. Of the DoJ’s 283 deferred prosecution agreements since 2000, half have come since 2010, Reilly found in a working paper for BYU Law Review.

   

  Why has the DoJ been so keen on deferred prosecution since 2010? It coincides exactly with investigations into the 2008 financial crisis.

  With that in mind, let’s take a look at what 40-year old Jose Caballero faces in Florida for “sex on the beach.” From the Miami Herald:

  A jury Monday found a couple guilty of having sex on Bradenton Beach after only 15 minutes of deliberation.

  The convictions carry a maximum prison sentence of 15 years.

   

  Jose Caballero, 40, and Elissa Alvarez, 20, were charged with two counts each of lewd and lascivious behavior for having sex on a public beach on July 20, 2014.

   

  Video played in the courtroom during the 1- 1/2-day-long trial showed Alvarez moving on top of Caballero in a sexual manner in broad daylight. Witnesses testified that a 3-year-old girl saw them.

   

  Both Caballero and Alvarez will now have to register as sex offenders.

   

  The state will ask for jail time for Alvarez and prison time for Caballero. Dafonseca said due to Caballero being out of prison less than three years before committing another felony, he’s looking at serving the maximum time of 15 years.

   

  Ronald Kurpiers, defense attorney for the couple, said his clients were “devastated,” by the verdict. Though Dafonseca hinted that they’d be speaking with the judge about whether or not 15 years was appropriate for Caballero, Kurpiers said the judge would have no discretion.

   

  “That’s what he’ll get,” Kurpiers said.

   

  Ed Brodsky, elected state attorney for the 16th judicial district, joined Defonseca in prosecuting the case. When asked why the case was an important one to the state attorney, Dafonseca said it was important that the community knew what wouldn’t be tolerated on public beaches.

   

  “We’re dealing with basically tourists, that came from Brandon and Riverview and West Virginia, and they’re here on the beaches of Manatee County, our public beaches,” Dafonseca said, referring to the witnesses. “So you want to make sure that this isn’t something that just goes by the wayside. And that it is well known to the community, what will be tolerated and what won’t be.”

  So this is where Florida draws the line, how brave! In reality, Florida is known for tolerating and encouraging some of the most statist behavior in America, which is why the state is so often highlighted on this site. Recall:

  Girl Gang Raped during Spring Break in Florida as Crowds Stand Around and Do Nothing to Stop It

  Video of the Day – Watch as Florida Parents are Treated Like Children for Questioning School Curriculum

  Protecting and Serving – Florida Police Raid 90-Year-Old Woman’s Home; Find No Drugs but Wreck Home

  90-Year-Old WW2 Veteran and Two Clergymen Face 60 Days in Jail for Feeding the Homeless in Florida

  Florida Cop Rapes 20-Year Old Woman at Gunpoint While on Duty

  I could go on, but let’s go back to the Miami Herald.

  Family members of the couple defended the two outside the courthouse, saying the crime did not deserve this kind of attention.

   

  “He’s a great person,” said Caballero’s mother of her son, declining to give her name. “There are other things out there we need to worry about, and they’re still loose, people who have done worse stuff.”

  Indeed.

  This story demonstrates how completely and totally broken the U.S. justice system is. Should this couple have been having sex in public and in broad daylight? Absolutely not. Should there be some sort of punishment? Absolutely.

  That said, the punishment should fit the crime in a just civilization, and 15 years behind bars for public sex is more akin to what you’d expect in Saudi Arabia. It’s particularly appalling when compared with the license to commit fraud and steal, which politically connected oligarchs have been granted. After all, who was really harmed by this couple’s act? Sure, some tourists may have had their day temporarily ruined or inconvenienced. A three-year-old girl may have seen something, but would probably have no way of understanding what it was. On the other hand, criminal bankers have demonstrably ruined the lives of hundreds or millions, if not billions, of people across the globe. Yet not a single TBTF executive has been prosecuted. They were bailed out instead.

  Meanwhile, what about the pastor who faces only four months for molesting a little girl. Yes, you read that right. Our society is so completely fucked up, that two people irresponsibly making love in public will have their lives ruined, while a religious authority caught molesting a little girl receives a slap on the wrist. From RawStory:

  A northern California pastor will serve no more than four months in jail for molesting a 9-year-old girl multiple times.

   

  Venije Singkoh, a pastor at churches in San Francisco and Concord who also held services at his Daly City home, pleaded no contest to a misdemeanor count of child sexual annoyance.

   

  He had initially been charged with three felony counts of child molestation after investigators said he held the girl on his lap and kissing her inappropriately.

   

  The girl told her mother and father that the 70-year-old Singkoh used his tongue while kissing her, and the family called a church meeting to confront the pastor.

  Examples of the criminal application of “justice” is an everyday occurrence in America today. I’ve outlined too many examples to list them all, but here are a few:

  The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally

  American Justice – FBI Lab Overstated Forensic Hair Matches in 95% of Cases, Including 32 Death Sentences

  New Report – The United States’ Sharp Drop in Economic Freedom Since 2000 Driven by “Decline in Rule of Law”

  DEA Agents Caught Having Drug Cartel Funded Prostitute Sex Parties Received Slap on the Wrist; None Fired

  TSA Agents Caught Gaming System so Male Screener Could Grope Attractive Passengers; No Criminal Charges Filed

  

  

  
  
  

  

• Wynn Calls "Big" Recovery "Complete Dream" As Gaming Revenues Collapse

  Last month, courtesy of Andrew Zatlin’s Vice Index, we flagged the disturbing Q1 rise in traveling hookers. We call the trend disturbing not because we have a prima facie inclination to look with disdain upon all things escort-related but because, as Zatlin notes, when escorts are forced to take their show on the road it means the phones have stopped ringing locally, and if you’re inclined to believe that trends in all-cash businesses are a good leading indicator for trends in consumer spending in general, depressed spending on gambling, alcohol, and other “fun” things does not bode well for economic growth going forward. As you can see from the graph below, The Vice Index hit its lowest level in more than a year in March:

  

  Given this — and given the fact that whatever discretionary income Americans do have is apparently being chanelled into TD Ameritrade accounts — it should perhaps come as no surprise that gaming revenue on the Las Vegas strip fell nearly 10% in March after sliding 4.4% in February. 

  

  Meanwhile, the situation in Macau continues to deteriorate at a rather remarkable pace, as gaming revenue fell 39% last month, the eleventh consecutive monthly decline which looks good only in comparison to March’s 39.4% decline and February’s 49% drop. Of course in the deluded minds of China’s millions of newly-minted day traders, a 39% decline represents “stabilization” and so, as Bloomberg reports, casino shares rose in Hong Kong on the news:

  Wynn Macau Ltd. rose 4.8 percent to HK$16.54 by the close of trading, the biggest gain since April 9. Sands China Ltd. gained 3.3 percent and Galaxy Entertainment Group Ltd. advanced 3.1 percent, while the Hang Seng Index was little changed.

   

  Gross gaming revenue in the world’s largest gambling hub fell 39 percent to 19.2 billion patacas ($2.4 billion) last month, meeting a median estimate of a 39 percent decline from eight analysts surveyed by Bloomberg. The drop has slowed for a second consecutive month.

   

  “Investors are really just focused on trying to find stabilization or a bottoming,” said Vitaly Umansky, an analyst at Sanford Bernstein. “As long as things aren’t deteriorating, things seemed to be fairly consistent, that’s probably a decent sign from an investor’s perspective.”

  Right. As long as things “aren’t deteriorating” and revenues are only falling by 40% that’s a “decent sign.” Unfortunately, some industry heavyweights don’t seem to share the view that the market is set to turn the corner any time soon. Take Steve Wynn for instance who, on the way to slashing WYNN’s dividend by nearly 70%, had the following to say about the company’s outlook for Vegas and Macau and about the so-called “recovery” in the US economy:

  Well, the numbers in the first quarter are out. I think the trends in Macau were beginning to be very visible in the fourth quarter, but our hopes for an improvement in the Chinese New Year turned out to be incorrect. And the repositioning of the market and the degradation of the volumes in VIP, have continued even into April. Most of my remarks now are going to include what we’ve seen in the first four months, not just the first three months, because the trends that were clear in January, February and March have continued into April and as we look at the whole year in Las Vegas and Macau, certain simple truths emerge.

   

  It is no secret that there’s been a change in mainland China in attitudes towards a number of things that have impacted Macau. That has not – nothing has changed since this all began last October. And the depression of the VIP market continues…

  So as we look backwards for the fourth quarter and especially during the last four months, and understand what’s happening, both in Las Vegas because of the Asian impact on Baccarat, and we look back and then we extrapolate and try predict the future, or at least understand what most likely will be the future, it is foolhardily and immature and unsophisticated to issue dividends on borrowed money. We only distribute money that’s free cash flow based upon our earnings that trail…

   

  If you were to ask me, since we’re making forward-looking statements, what will the second quarter look like in Las Vegas? Weak. Do you hear me? Weak. So I’m trying to lower expectations here. This notion of a big recovery is a complete dream. I don’t think Las Vegas is experiencing a great recovery. I think it’s still very patchy and I think that that’s probably our non-casino revenue in the first quarter was flat. I’d be thrilled if it was flat in the second quarter.

  Besides being a stinging indictment of the pitiable state of the US economy, that’s a fairly unambiguous message from someone who knows a thing or two about this industry and even as the likes of Deutsche Bank called the Las Vegas commentary “overdone”, the bank had the following to say about the outlook for the gaming industry:

  [With] market trends showing very limited signs of improving, and more headwinds than tail winds on the horizon (potential visitor traffic curbs, a full smoking ban, and uncertainty around table allocations), visibility is worse than ever in our view. 

  Despite the malaise and despite the fact that, as we noted earlier this year, Beijing’s corruption crackdown has likely motivated China’s habitual (and filthy rich) gamblers to move permanently away from the dark-lit Macau gambling parlors to multiple-monitor lit trading desks, there will always, always be BTFDers  — especially when you’re talking about Hong Kong-listed shares. With that in mind, we’ll close with this quote provided to Reuters by Matthew Ossolinski, chairman of Ossolinski Holdings:

  “What is the worst that could happen? [Gaming] stocks go down before they go up. But they will go up. We are preparing for a 100 percent increase in shares within the next three years.”

  

  

  
  
  

  

• Hong Kong 'Loophole' May Have Flooded China With Radioactive Japanese Foods

  And the ‘incidents’ just keep coming for Japan. Lax safety checks at Kwai Chung container terminal – the only sea entry point for food from overseas – have allowed banned imports from Japan to enter Hong Kong, according to Democratic Party lawmaker Helena Wong Pik-wan. As The South China Morning Post reports, radioactive contaminated food may have been entering the city unnoticed for years because of deficiencies in safety controls on fresh produce since the ban following the Fukushima nuclear power plant incident in 2011.

   

  

   

  Democratic Party lawmaker Helena Wong Pik-wan said, as The Soth China Morning Post reports, food safety surveillance was too relaxed at the Kwai Chung container terminal – the only sea entry point for food from overseas – as it relied heavily on the importer taking the initiative.

  Radioactive contaminated food may have been entering the city unnoticed for years because of deficiencies in safety controls on fresh produce brought in by sea.

   

  Food imported by sea does not go through routine checks at the dock as the Food and Environmental Hygiene Department has no food inspection checkpoint at the terminal. Food imported by air, however, is tested for radiation at the airport.

   

  Food imported by sea is inspected by health officers only when it is moved to storage areas by importers, according to the department. This would allow some food importers to avoid inspection, Wong said.

   

  She cited a case in January, when 10 boxes of Japanese carrots from Chiba, one of five prefectures from which imports of vegetables and fruits have been banned since the Fukushima nuclear power plant incident in 2011, entered the city by sea.

   

  One box was sold and two other boxes were found for sale in the Yau Ma Tei wholesale fruit market when food safety officers acted on a complaint.

   

  “It has exposed… loopholes in our food safety system,” Wong said. “We do not know if there is more banned food being sold in the city that has not been discovered by the government.”

  The loophole is significant…

  Since importers are only required to complete the import declarations within 14 days after the importation under the Import and Export Ordinance, “some small importers” would not bother to alert food inspectors and simply sell their perishable produce before health officers obtained the details of the declaration, a source said.

   

  “If the health officers want to conduct checks after getting the details of the import declaration, but the imported food is already distributed in the market for sale, how can the health officers trace the food and conduct checks?” the source said.

  Hong Kong imported 15,093 tonnes of vegetables and fruit from Japan by sea last year, about 0.8 per cent of total vegetables and fruit imports by sea.

  Since March 2011, the department had stepped up surveillance of fresh produce imported from Japan such as milk, vegetables and fruits, to examine radiation levels, a spokesman said.

   

  Kowloon Fruit and Vegetable Merchants Association vice-chairman Cheung Chi-cheung said importers had to notify the department for inspection whenever they picked up the goods. He also did not comment on whether there might be a loophole in the inspection system.

  *  *  *

  Once again it seems Japanese falsehoods are at the center of another potential international issue… no we are not devaluing our currency… no Fukushima is safe… no radiation leaks are under control… no the economy is proceeding on a moderate pace of recovery… no the US alliance is not antagonistic, we are pacifists… and now no the food we sent you is not radioactive…

  

  

  
  
  

  

• The Mistake Everyone Is Making About Fed Rate Hikes

  Submitted by Lance Roberts via STA Wealth Management,

  With the Federal Reserve now indicating that they are "really serious" about raising interest rates, there have come numerous articles and analysis discussing the impact on asset prices. The general thesis is based on averages of historical tendencies as discussed recently by David Rosenberg in his daily commentary:

  "Equity bull markets never die simply of old age.  They die of excessive Fed monetary restraint – but the Fed hasn't even started to raise rates yet.

   

  In the past six decades, the average length of time from the first tightening to the end of the business cycle is 44 months; the median is 35 months; and the lag from the initial rate hike to the end of the bull equity market is 38 months for the average, 40 months for the media."

  So, why fear a Fed rate hike at this point? According to Rosenberg, there are still at least three years left to the current business cycle. Right? Maybe not.

  First, averages and medians are great for general analysis but obfuscate the variables of individual cycles. To be sure the last three business cycles (80's, 90's and 2000) were extremely long and supported by a massive shift in financial engineering and credit leveraging cycle. The post-Depression recovery and WWII drove the long economic expansion in the 40's, and the "space race" supported the 60's.

  

  Currently, employment and wage growth is extremely weak, 1-in-4 Americans are on Government subsidies, and the majority of American's living paycheck-to-paycheck. This is why Central Banks, globally, are aggressively monetizing debt in order to keep growth from stalling out. If the Fed starts hiking rates in September and the next recession doesn't occur for another three years, as David suggests, this would be the single longest economic expansion in history based on the weakest economic fundamentals.

  Secondly, what David's analysis misses is the level of economic growth at the beginning of interest rate hikes. The Federal Reserve uses monetary policy tools to slow economic growth and ease inflationary pressures by tightening monetary supply. For the last six years, the Federal Reserve has flooded the financial system to boost asset prices in hopes of spurring economic growth and inflation. Outside of inflated asset prices there is little evidence of real economic growth as witnessed by an average annual GDP growth rate of just 1.2% since 2008, which by the way is the lowest in history….ever.

  While David is statistically correct in his analysis, it is based on nominal GDP. The chart and table below compares real, inflation-adjusted, GDP to Federal Reserve interest rate levels. The vertical red bars denote the quarter of the first rate hike to beginning of the next rate decrease or onset of a recession.

  

  If I look at the underlying data, which dates back to 1943, and calculate both the average and median for the entire span, I find:

  • The average number of quarters from the first rate hike to the next recession is 11, or 33 months.
  • The average 5-year real economic growth rate was 3.08%
  • The median number of quarters from the first rate hike to the next recession is 10, or 30 months.
  • The median 5-year real economic growth rate was 3.10%

  However, note the BLUE arrows. There have only been TWO previous points in history where real economic growth was below 2% at the time of the first quarterly rate hike – 1948 and 1980. In 1948, the recession occurred ONE-quarter later and THREE-quarters following the first hike in 1980.

  The importance of this reflects the point made previously, the Federal Reserve lifts interest rates to slow economic growth and quell inflationary pressures. There is currently little evidence of inflationary pressures outside of financial asset prices, and economic growth is weak to say the least.

  Therefore, rather than lifting rates when average real economic growth was at 3%, the Fed will not start this process at less that half that rate.

  

  Think about it this way. If it has historically taken 11 quarters to go fall from an economic growth rate of 3% into recession, then it will take just 1/3rd of that time at a rate of 1%, or 3-4 quarters. This is historically consistent with previous economic cycles, as shown in the table to the left, that suggests there is much less wiggle room between the first rate hike and the next recession than currently believed.

  Recessions & Bear Markets

  Rosenberg's premise is that if historical averages hold, and since major bear markets in equities coincide with recessions, that the current bull market in equities has three years left to run. But this also may be a bit overly optimistic.

  Another David, David Bianco, weighed in on this issue previously. To wit:

  "'Stocks typically sell-off on the first of a series of rate hikes, but the magnitude and duration of the sell-off depend on conditions. During early cycle hikes the initial sell-off was generally small, quickly recovered and further S&P gains came in next three months and longer (like 2004, 1983, 1972). But many sell-offs on late cycle hikes became corrections or even bear markets. Unfortunately, it's only in hindsight do we know where we are in the cycle."

  While the markets, due to momentum, may ignore the effect of "monetary tightening" in the short-term, the longer-term has been a different story.

  As shown in the table below, the bulk of losses in markets are tied to economic recessions. However, there are also other events such as the Crash of 1987, the Asian Contagion, Long-Term Capital Management, and others that led to sharp corrections in the market as well.

  

  The point is that in the short-term the economy and the markets (due to momentum) can SEEM TO DEFY the laws of gravity as interest rates begin to rise. However, as rates continue to rise they ultimately act as a "brake" on economic activity. Think about the all of the areas that are NEGATIVELY impacted by rising interest rates:

  1) Debt servicing requirements reduce future productive investment.

  2) The housing market. People buy payments, not houses, and rising rates mean higher payments. (Read "Economists Stunned By Housing Fade" for more discussion)

  3) Higher borrowing costs which leads to lower profit margins for corporations.

  4) Stocks are cheap based on low-interest rates. When rates rise, markets become overvalued very quickly.

  5) The economic recovery to date has been based on suppressing interest rates to spur growth.

  6) Variable rate interest payments for consumers

  8) Corporate share buyback plans, a major driver of asset prices, and dividend issuances have been done through the use of cheap debt.

  9) Corporate capital expenditures are dependent on borrowing costs.

  Well, you get the idea. If real economic growth was near historical norms of 3%, then I would completely agree with Mr. Rosenberg. However, at current levels, the window between a rate hike and recession has likely closed rather markedly.

  Lastly, it isn't just recessions that have impacted stocks prices in the past. This is something that I addressed more deeply in "Don't Fear Rising Interest Rates? Really?"

  "Do Rising Interest Rates Lead To Higher Stock Prices? This claim falls into the category of 'timing is everything.' The chart below has been circulated quite a bit to support the "don't fear rising interest rates" meme. I have annotated the chart to point out the missing pieces.

  

  While rising interest rates may not "initially" impact asset prices, it is a far different story to suggest that they won't. In fact, there have been absolutely ZERO times in history that the Federal Reserve has begun an interest rate hiking campaign that has not eventually led to a negative outcome.

  What the majority of analysts fail to address is the "full-cycle" effect from rate hikes. While equities may initially provide a haven from rising interest rates during the first half of the rate cycle, they have been a destructive place to be during the last half.

  What is clear from the analysis is that bad things have tended to follow the Federal Reserve's first interest rate increase. While the markets, and economy, may seem to perform okay during the initial phase of the rate hiking campaign, the eventual negative impact will push most individuals to "panic sell" near the next lows. Emotional mistakes are 50% of the cause as to why investors consistently underperform the markets over a 20-year cycle.

  For now the bullish trend is still in place and should be "consciously" honored. However, while it may seem that nothing can stop the markets current rise, it is crucial to remember that it is "only like this, until it is like that." For those "asleep at the wheel,"there will be a heavy price to pay when the taillights turn red.

   

  

  

  
  
  

  

• China Faces End Of "Migrant Miracle" As Demographic Ceiling Imperils Economy

  Exactly four years ago we began to discuss the idea that China is fast approaching its so-called “Lewis Turning Point,” which is defined simply as the moment in time when surplus rural labor is fully absorbed into the urbanizing economy leading to rising wages and falling productivity. At the time, SocGen suggested that “China [was] still some time away from reaching the type of urbanisation rates that characterised Lewis turning points in Japan and South Korea during their most rapid periods of industrialisation and wage growth.” 

  We revisited the issue in 2013, and began to discuss the idea that although urbanization had indeed contributed to productivity gains, the country faced offsetting demographic headwinds in the form of a shrinking working-age population. Additionally, we pointed to research from SocGen which suggested that from 2015 forward, the labor force in China is expected to contract. 

  Here we are in 2015 and sure enough, demographics in China are once again set to become a talking point, as the two trends mentioned above (urbanization and a decline in the working age population) play out against — and feed into — slumping economic growth. Here’s FT with more:

  China’s labour force is shrinking and the “migrant miracle” that powered its industrial rise is mostly exhausted, removing the factors that propelled the country’s meteoric development, according to leading economists.

   

  The transformation will lead to slower growth, reduced investment and a loss of export competitiveness, they warn, increasing the urgency of implementing ambitious economic reforms aimed at finding new sources of expansion.

   

  “Now we are at the so-called Lewis inflection point. I made this forecast in 2006, and today there is no need to change it,” said Ha Jiming, chief investment strategist for private wealth management at Goldman Sachs in Hong Kong…

   

  “The working-age share of China’s population peaks this year at 72 per cent, then it will start to fall rapidly, even more rapidly than what we saw in Japan in the 1990s,” he added.

   

  Cai Fang, vice-president of the Chinese Academy of Social Sciences, a think-tank that advises the government, estimates that China’s potential gross domestic product growth decreased from 9.8 per cent in 1995-2009 to 7.2 per cent in 2011-15 and 6.1 per cent from 2016-20.

   

  A shrinking labour force is one of the main drivers. Since Deng Xiaoping launched market reforms in 1978, 278m migrant workers from rural villages have moved to work in the cities.

   

  But reallocating labour from farm to factory — resulting in higher overall growth as workers’ productivity soars — is now mostly complete.

   

  “From 2005 to 2010, the growth rate of migrant workers was 4 per cent. Last year it was only 1.3 per cent. Maybe this year it will contract,” said Mr Cai.

  For China’s economy — which, you’re reminded, may be growing far less rapidly than the official numbers suggest even as the official figures represent the slowest growth rate in six years — the above has serious ramifications. First it stands to reason that as the supply of new low wage workers shrinks, wages will rise, an eventuality which forces producers to pass higher costs on to customers thus undercutting export competitiveness at a time when exports are already under pressure from slumping global demand and the yuan’s link to the dollar. 

  This dynamic is exacerbated by a projected decline in the overall number of working-age citizens. Here’s FT again:

  The dwindling flow of migrants is one aspect of China’s shrinking labour force. But the slowdown in urbanisation is coinciding with a rapid ageing of the population, another key shift underlying the Lewis Turning Point.

   

  China’s one-child policy created a “demographic dividend” for the economy between roughly 1980 and 2014. Now that dividend is turning into a deficit. The population of Chinese aged between 15 and 64 peaked in 2013, Mr Cai notes. The ratio of children and elderly to working-age Chinese — the dependency ratio — began rising in 2011. 

   

  The one-child policy was introduced in 1979, but the birth rate kept rising into the 1980s. Annual births in China hit 25m in 1987 and have steadily dropped ever since, hitting about 20m a year by 1997 and falling to 16m last year.

   

  “Starting in two or three years, you’re going to see another substantial, precipitous drop in young labour entering the labour market,” says Wang Feng, an expert on Chinese demographics at the University of California Irvine and Fudan University in Shanghai.

  Putting all of this together, China is faced with a new reality wherein the very conditions that have supported the country’s rapid economic growth may now be set for a wholesale reversal, as rising wages and a shrinking labor pool transform the industry-based economy (previously characterized by large trade surpluses and widespread inequality) into a service and consumption-based economy characterized by declining export competitiveness and falling rates of savings and investment. FT notes that the acceleration of economic reforms can help to ameliorate what is likely to be a painful transition and as you’ll see in the video below, the suggested solutions echo those we highlighted two years ago — namely, the creation of a sustainable social safety net, and the facilitation of labor mobility. 

   

  

  

  
  
  

  

• What Happens If You Defy Curfew: A Shocking 90-Second Clip From The Streets Of Baltimore

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  On Saturday night, a man whose name still seems to be unknown, but who was wearing a “F##k the Police” t-shirt, came out in front of police past the official curfew. This is what happened next:

   

  As Mike noted previously, the situation in Baltimore is very serious and all Americans should be paying very close attention; but Baltimore is just a Microcosm of America.

  Baltimore, Maryland is in many ways the perfect microcosm for these United States of America. If you still don’t get that, you’ll be in for a rude awakening in the years ahead.

  A gradual erosion of the Constitution and the civil rights of the citizenry, the abuse of power by people in authority, perverse financial incentives that lead to horrible outcomes, zero accountability, and a ubiquitous surveillance state apparatus; Baltimore has it all. Yet all of these troubling traits have also come to characterize early 21st century America.

  As tends to be the case, the populations that have been victimized the longest and most systemically — in Baltimore and across the U.S. — are the poor, weak and disenfranchised.  Like a cancer, corruption, theft, and blatant abuse of the citizenry by the powerful will spread and spread until it consumes everything unless the tumor is removed. It has now spread so deeply and so dangerously throughout American life, the general public will soon have no choice but to confront it and do something about it, or face a total extinction of opportunity and suffer the same desperate fate as the people out in the streets of Baltimore.

  David Simon, creator of the excellent hit HBO series “The Wire,” recently sat down for an interview with former New York Times reporter Bill Keller to explain the situation in Baltimore as he sees it; its origins and what is needed to fix it. As you read, think about the many parallels to the U.S. economy in general; the endless criminal maneuverings within the centers of power in Washington D.C. and Wall Street, the forever spinning revolving door of corruption, the marauding gangs of cronies making impossibly large piles of money based on connections, fraud and rigged markets as opposed to adding value, the idiocy of the war on drugs, the fraudulent accounting, and the overbearing surveillance state. Increasingly, when America looks in the mirror Baltimore and Ferguson are staring right back. We just haven’t admitted it yet.

  Now, from the Marshall Project:

  Bill Keller: What do people outside the city need to understand about what’s going on there — the death of Freddie Gray and the response to it?

   

  David Simon: I guess there’s an awful lot to understand and I’m not sure I understand all of it. The part that seems systemic and connected is that the drug war — which Baltimore waged as aggressively as any American city — was transforming in terms of police/community relations, in terms of trust, particularly between the black community and the police department. Probable cause was destroyed by the drug war.

   

  Probable cause from a Baltimore police officer has always been a tenuous thing. It’s a tenuous thing anywhere, but in Baltimore, in these high crime, heavily policed areas, it was even worse. When I came on, there were jokes about, “You know what probable cause is on Edmondson Avenue? You roll by in your radio car and the guy looks at you for two seconds too long.” Probable cause was whatever you thought you could safely lie about when you got into district court.

   

  Then at some point when cocaine hit and the city lost control of a lot of corners and the violence was ratcheted up, there was a real panic on the part of the government. And they basically decided that even that loose idea of what the Fourth Amendment was supposed to mean on a street level, even that was too much. Now all bets were off. Now you didn’t even need probable cause. The city council actually passed an ordinance that declared a certain amount of real estate to be drug-free zones. They literally declared maybe a quarter to a third of inner city Baltimore off-limits to its residents, and said that if you were loitering in those areas you were subject to arrest and search. Think about that for a moment: It was a permission for the police to become truly random and arbitrary and to clear streets any way they damn well wanted.

   

  How does race figure into this? It’s a city with a black majority and now a black mayor and black police chief, a substantially black police force.

   

  What did Tom Wolfe write about cops? They all become Irish? That’s a line in “Bonfire of the Vanities.” When Ed and I reported “The Corner,” it became clear that the most brutal cops in our sector of the Western District were black. The guys who would really kick your ass without thinking twice were black officers. If I had to guess and put a name on it, I’d say that at some point, the drug war was as much a function of class and social control as it was of racism. I think the two agendas are inextricably linked, and where one picks up and the other ends is hard to say. But when you have African-American officers beating the dog-piss out of people they’re supposed to be policing, and there isn’t a white guy in the equation on a street level, it’s pretty remarkable. But in some ways they were empowered.

   

  Back then, even before the advent of cell phones and digital cameras — which have been transforming in terms of documenting police violence — back then, you were much more vulnerable if you were white and you wanted to wail on somebody. You take out your nightstick and you’re white and you start hitting somebody, it has a completely different dynamic than if you were a black officer. It was simply safer to be brutal if you were black, and I didn’t know quite what to do with that fact other than report it. It was as disturbing a dynamic as I could imagine. Something had been removed from the equation that gave white officers — however brutal they wanted to be, or however brutal they thought the moment required — it gave them pause before pulling out a nightstick and going at it. Some African American officers seemed to feel no such pause.

  This is another fascinating microcosm considering how Barack Obama has done absolutely nothing to help the black community or poor in this country. It took a black President to so shamelessly hand everything to a handful of oligarchs and further oppress black communities.

  What the drug war did, though, was make this all a function of social control. This was simply about keeping the poor down, and that war footing has been an excuse for everybody to operate outside the realm of procedure and law.

   

  “The drug war began it, certainly, but the stake through the heart of police procedure in Baltimore was Martin O’Malley.”

  In case you aren’t aware, Martin O’Malley was the ambitious Mayor of Baltimore who had his eyes dead set on the Governor’s seat. So much so that he cooked the crime books of Baltimore to create a crime “miracle,” and destroyed city police work in the process. Mr. O’Malley has recently discussed possibly running against Hillary in the 2016 Democrat primary.

  But that wasn’t enough. O’Malley needed to show crime reduction stats that were not only improbable, but unsustainable without manipulation. And so there were people from City Hall who walked over Norris and made it clear to the district commanders that crime was going to fall by some astonishing rates. Eventually, Norris got fed up with the interference from City Hall and walked, and then more malleable police commissioners followed, until indeed, the crime rate fell dramatically. On paper.

   

  How? There were two initiatives. First, the department began sweeping the streets of the inner city, taking bodies on ridiculous humbles, mass arrests, sending thousands of people to city jail, hundreds every night, thousands in a month. They actually had police supervisors stationed with printed forms at the city jail – forms that said, essentially, you can go home now if you sign away any liability the city has for false arrest, or you can not sign the form and spend the weekend in jail until you see a court commissioner. And tens of thousands of people signed that form. 

  Unsurprisingly, the rule of law often dies at the hands of an ambitious politician.

  The situation you described has been around for a while. Do you have a sense of why the Freddie Gray death has been such a catalyst for the response we’ve seen in the last 48 hours?

   

  Because the documented litany of police violence is now out in the open. There’s an actual theme here that’s being made evident by the digital revolution. It used to be our word against yours. It used to be said — correctly — that the patrolman on the beat on any American police force was the last perfect tyranny. Absent a herd of reliable witnesses, there were things he could do to deny you your freedom or kick your ass that were between him, you, and the street. The smartphone with its small, digital camera, is a revolution in civil liberties.

   

  In these drug-saturated neighborhoods, they weren’t policing their post anymore, they weren’t policing real estate that they were protecting from crime. They weren’t nurturing informants, or learning how to properly investigate anything. There’s a real skill set to good police work. But no, they were just dragging the sidewalks, hunting stats, and these inner-city neighborhoods — which were indeed drug-saturated because that’s the only industry left — become just hunting grounds. They weren’t protecting anything. They weren’t serving anyone. They were collecting bodies, treating corner folk and citizens alike as an Israeli patrol would treat Gaza, or as the Afrikaners would have treated Soweto back in the day. They’re an army of occupation. And once it’s that, then everybody’s the enemy. The police aren’t looking to make friends, or informants, or learning how to write clean warrants or how to testify in court without perjuring themselves unnecessarily. There’s no incentive to get better as investigators, as cops. There’s no reason to solve crime. In the years they were behaving this way, locking up the entire world, the clearance rate for murder dove by 30 percent. The clearance rate for aggravated assault — every felony arrest rate – took a significant hit. Think about that. If crime is going down, and crime is going down, and if we have less murders than ever before and we have more homicide detectives assigned, and better evidentiary technologies to employ how is the clearance rate for homicide now 48 percent when it used to be 70 percent, or 75 percent?

   

  Because the drug war made cops lazy and less competent?

   

  How do you reward cops? Two ways: promotion and cash. That’s what rewards a cop. If you want to pay overtime pay for having police fill the jails with loitering arrests or simple drug possession or failure to yield, if you want to spend your municipal treasure rewarding that, well the cop who’s going to court 7 or 8 days a month — and court is always overtime pay — you’re going to damn near double your salary every month. On the other hand, the guy who actually goes to his post and investigates who’s burglarizing the homes, at the end of the month maybe he’s made one arrest. It may be the right arrest and one that makes his post safer, but he’s going to court one day and he’s out in two hours. So you fail to reward the cop who actually does police work. But worse, it’s time to make new sergeants or lieutenants, and so you look at the computer and say: Who’s doing the most work? And they say, man, this guy had 80 arrests last month, and this other guy’s only got one. Who do you think gets made sergeant? And then who trains the next generation of cops in how not to do police work? I’ve just described for you the culture of the Baltimore police department amid the deluge of the drug war, where actual investigation goes unrewarded and where rounding up bodies for street dealing, drug possession, loitering such – the easiest and most self-evident arrests a cop can make – is nonetheless the path to enlightenment and promotion and some additional pay. That’s what the drug war built, and that’s what Martin O’Malley affirmed when he sent so much of inner city Baltimore into the police wagons on a regular basis.

  So much of what was said there characterizes the perverted culture in Washington D.C. and on Wall Street. People are financially incentivized to commit fraud, crime and deceive customers. Those people are then promoted and train the next class. And the beat goes on…

  The second thing Marty did, in order to be governor, involves the stats themselves. In the beginning, under Norris, he did get a better brand of police work and we can credit a legitimate 12 to 15 percent decline in homicides. Again, that was a restoration of an investigative deterrent in the early years of that administration. But it wasn’t enough to declare a Baltimore Miracle, by any means.

   

  What can you do? You can’t artificially lower the murder rate – how do you hide the bodies when it’s the state health department that controls the medical examiner’s office? But the other felony categories? Robbery, aggravated assault, rape? Christ, what they did with that stuff was jaw-dropping.

  Now for the accounting fraud. Looks like Baltimore authorities learned well from Wall Street.

  So they cooked the books.

   

  Oh yeah. If you hit somebody with a bullet, that had to count. If they went to the hospital with a bullet in them, it probably had to count as an aggravated assault. But if someone just took a gun out and emptied the clip and didn’t hit anything or they didn’t know if you hit anything, suddenly that was a common assault or even an unfounded report. Armed robberies became larcenies if you only had a victim’s description of a gun, but not a recovered weapon. And it only gets worse as some district commanders began to curry favor with the mayoral aides who were sitting on the Comstat data. In the Southwest District, a victim would try to make an armed robbery complaint, saying , ‘I just got robbed, somebody pointed a gun at me,’ and what they would do is tell him, well, okay, we can take the report but the first thing we have to do is run you through the computer to see if there’s any paper on you. Wait, you’re doing a warrant check on me before I can report a robbery? Oh yeah, we gotta know who you are before we take a complaint. You and everyone you’re living with? What’s your address again? You still want to report that robbery?

   

  They cooked their own books in remarkable ways. Guns disappeared from reports and armed robberies became larcenies. Deadly weapons were omitted from reports and aggravated assaults became common assaults. The Baltimore Sun did a fine job looking into the dramatic drop in rapes in the city. Turned out that regardless of how insistent the victims were that they had been raped, the incidents were being quietly unfounded. That tip of the iceberg was reported, but the rest of it, no. And yet there were many veteran commanders and supervisors who were disgusted, who would privately complain about what was happening. If you weren’t a journalist obliged to quote sources and instead, say, someone writing a fictional television drama, they’d share a beer and let you fill cocktail napkins with all the ways in which felonies disappeared in those years.

   

  I mean, think about it. How does the homicide rate decline by 15 percent, while the agg assault rate falls by more than double that rate. Are all of Baltimore’s felons going to gun ranges in the county? Are they becoming better shots? Have the mortality rates for serious assault victims in Baltimore, Maryland suddenly doubled? Did they suddenly close the Hopkins and University emergency rooms and return trauma care to the dark ages? It makes no sense statistically until you realize that you can’t hide a murder, but you can make an attempted murder disappear in a heartbeat, no problem.

   

  But these guys weren’t satisfied with just juking their own stats. No, the O’Malley administration also went back to the last year of the previous mayoralty and performed its own retroactive assessment of those felony totals, and guess what? It was determined from this special review that the preceding administration had underreported its own crime rate, which O’Malley rectified by upgrading a good chunk of misdemeanors into felonies to fatten up the Baltimore crime rate that he was inheriting. Get it? How better than to later claim a 30 or 40 percent reduction in crime than by first juking up your inherited rate as high as she’ll go. It really was that cynical an exercise.

   

  So Martin O’Malley proclaims a Baltimore Miracle and moves to Annapolis. And tellingly, when his successor as mayor allows a new police commissioner to finally de-emphasize street sweeps and mass arrests and instead focus on gun crime, that’s when the murder rate really dives. That’s when violence really goes down. When a drug arrest or a street sweep is suddenly not the standard for police work, when violence itself is directly addressed, that’s when Baltimore makes some progress.

  But nothing corrects the legacy of a police department in which the entire rank-and-file has been rewarded and affirmed for collecting bodies, for ignoring probable cause, for grabbing anyone they see for whatever reason. And so, fast forward to Sandtown and the Gilmor Homes, where Freddie Gray gives some Baltimore police the legal equivalent of looking at them a second or two too long. He runs, and so when he’s caught he takes an ass-kicking and then goes into the back of a wagon without so much as a nod to the Fourth Amendment.

   

  So do you see how this ends or how it begins to turn around?

   

  We end the drug war. I know I sound like a broken record, but we end the fucking drug war. The drug war gives everybody permission to do anything. It gives cops permission to stop anybody, to go in anyone’s pockets, to manufacture any lie when they get to district court. You sit in the district court in Baltimore and you hear, ‘Your Honor, he was walking out of the alley and I saw him lift up the glassine bag and tap it lightly.’ No fucking dope fiend in Baltimore has ever walked out of an alley displaying a glassine bag for all the world to see. But it keeps happening over and over in the Western District court. The drug war gives everybody permission. And if it were draconian and we were fixing anything that would be one thing, but it’s draconian and it’s a disaster.

  This is true about the drug war, but even more true about the “war on terror.” Also endless, also used to justify anything.

  Medicalize the problem, decriminalize — I don’t need drugs to be declared legal, but if a Baltimore State’s Attorney told all his assistant state’s attorneys today, from this moment on, we are not signing overtime slips for court pay for possession, for simple loitering in a drug-free zone, for loitering, for failure to obey, we’re not signing slips for that: Nobody gets paid for that bullshit, go out and do real police work. If that were to happen, then all at once, the standards for what constitutes a worthy arrest in Baltimore would significantly improve. Take away the actual incentive to do bad or useless police work, which is what the drug war has become.

  So much of what’s been happening in Baltimore for decades is now also business as usual within the highest corridors of American power. As I’ve said time and time again, incentives are the key variable here. If you’re rewarded for fraud and white collar crime, you will get more of it. If you jail the perpetrators of it, you’ll get less of it. TBTF Wall Street execs and private equity guys don’t want to sit in a jail cell for a decade, believe me. They’d sell 50 Picassos and 30 sharks soaked in formaldehyde before that ever happened.

  The sad part is we aren’t even trying to change the incentive structure of status quo criminality. This is because the current generation of power players were trained and molded by the same types before them. This is all they know. Money and power are their gods. Crime is their religion. We have no choice but to stop them.

  

  

  
  
  

  

• Rant Time

  May 5 – Gold $1193.80 up $6.20 – Silver $16.56 up 14 cents

  Rant Time

  “When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost.” … Billy Graham

  GO GATA!

  As is almost always the case, the price of gold was leaned on at the standard PLAN A time in London when The Gold Cartel traders reported for work, but their nudge was thwarted pretty quickly. Gold took off again going into the Comex trading hours and managed to reach $1200 where it was stopped dead in its tracks. James Mc early this morning…

  Rules are rules

  Bill,
  Yesterday’s circled number was $1186.30, and while gold slightly exceeded it, and the 1% rule at the end of the day there was a clear gravitational pull bringing it back. After the 6:00 PM access trade opened it was clearly being held in check for the next 7 hours right around $1186. Cartel rule #1 is also apparent today; with the high tick so far exactly today’s circled number of $1198.70. As of 10:10 AM gold is getting the kitchen sink thrown at it at +1%. As always any big nearby number such as $1200 is irrelevant. It’s all about control, and the fact that $1200 is nearby is just coincidence. The cartel has proven over and over they will stop gold rallies at ANY number, as long as it is the prescribed percentage.

  As tiresome as it is to talk about there are 2 big looming potholes for gold. The first arrives this week in the form of NFP Friday which is usually a cartel biggie. The next one arrives 3 weeks from today on May 26th, which is June option expiration. If history is a guide I am issuing a full Washington General warning for both days. Fleecing idiots trading paper gold and executing MOPE to perfection has been the winning formula for the crooks. Never mind an exploding trade deficit (with the implications of negative GDP leading to QE-MOAR) or any other bullish news for gold. For the cartel rules are rules.

  The outrageous manipulation on a daily basis has rendered all analysis akin to being on a ride through a carnival funhouse. The cartel’s use of distorted mirrors, strobe lights and smoke make any critical examination virtually useless. Is COT data accurate? Is Comex warehouse inventory data accurate? What % of Comex trading is merely HFT algos disrupting flow? What % of the commercials are cartel banks, and what portion are true hedgers and/or mines? Who is behind the gigantic O.I. in silver? Who is behind the enforcement of the cartel rules? Just what the hell is going on at Ft. Knox, or anywhere gold is allegedly stored? As CP pointed out years ago gold secrets are a higher priority than even nuclear secrets.
  James Mc

  The silver action is intriguing, when not annoying. Much focus here of late on that price action and what it all might mean. The biggie today is that it was stopped again, like yesterday, right at its massive downtrend line…

  

  After making a $16.68 high, JPM and allies put the damper on the price for the rest of the Comex session, like they did yesterday. CLEARLY, it must blow through $16.70 to BEGIN to do what so many of us are waiting for. To get back into the big leagues silver must then take out $18.50, with the next stop at $22. Once those objectives have been cleared, silver will have completed one of the largest bases imaginable, which should support a MOON SHOT.

  The next three hours of trading on the Comex will be a predictable yawn … you can take that one to the bank. The good news is that this week has been a winner so far and each time the bums slam the gold/silver prices, they refuse to stay down.

  The AM Fix: $1187.40. The PM Fix: $1197.

  The gold open interest fell 9002 contracts to 401,699. The silver open interest was down 2436 contracts to 175,374.

  With hours to kill as gold and silver have no chance of getting anywhere further, it is rant time.

  Another six degrees of separation story that might hit home with some Café members. First off…

  Six degrees of separation is the theory that everyone and everything is six or fewer steps away, by way of introduction, from any other person in the world, so that a chain of “a friend of a friend” statements can be made to connect any two people in a maximum of six steps. It was originally set out by Frigyes Karinthy in 1929 and popularized by a 1990 play written by John Guare.

  ***

  Perhaps this ramble may be of assistance and value to Café members. There is no doubt that Six Degrees theory is valid in so many different ways.

  Friday night I began to have a pain in my abdomen and it was hard to sleep. On Saturday morning the pain was intense on the lower right side of the abdomen and appeared to be spreading. As a former pro football athlete, you are trained to overcome pain and move on. Figuring it would go away, I lifted weights for an hour and then walked a few miles to pick up a pair of new sneakers (sorely needed).

  After having some trouble sleeping Saturday night, the pain was worse when I got up early on Sunday. I wished I could call my superb doctor of many years (still a competitive rower and only a few years younger than me). That is what I would have done if he was open, but not the case on Sunday.

  I hate going to hospitals and seeing doctors … did not even have health insurance until a few years ago. But, had nothing else to do on Sunday morning, so I thought I should go to Baylor Hospital’s Emergency room after all the whackos had cleared out from too much nonsense on Sat night.

  Never have been to an emergency room in my life. Was clueless what to expect. Figured to be hanging around for hours waiting to be seen … was prepared for anything. Never was so surprised … the efficacy of their operation at Baylor was THE BEST. Was seen after 15 minutes. No filling out a zillion pieces of paper, just the basics of who I was and on to what my so-called emergency was.

  They got me a room quickly, which had to be rearranged because the last patient was a psycho and they had taken most everything out of the room that the nutcase could use to hurt the staff. It was amusing watching the orderly move so much back in to make it feel more than a detention cell.

  When taking my shirt off to put on my nightgown, the attending nurse (who had been asking me numerous health questions) noticed a rash on my lower back on the right side. “What rash?” I queried. She showed me. Immediately, she said, “SHINGLES,” which made no sense to me. The pain was in my abdomen, but it WAS only on my right side.

  This cool young doctor came in and told me what the drill would be … an MRI and all blood tests imaginable, and that it would take hours. So, I ended up watching Law and Order on the tube and enjoyed the morning after being wheeled around to get MRI’d in this big tube thing.

  Thought I was handling it all quite well … possibly in wait for the doctor to come back and tell me I have an inoperable cancer of the stomach, or that I would need to be admitted immediately for some other urgent surgery. Handling it well, right?…

  *My blood pressure was sky high on the first go around and the doctor was concerned (it went back down to a normal area, which it has been for some time).

  *Then could not get into the men’s room near me because of a lady in distress, so I went to the next one. Got lost coming out and ended up at the other side of the ER layout. When asking where to go, I kept getting sent to another room, where this lady was dealing with her own issue. What the heck? Turns out she was a Murphy too. What are the odds of that?

  After a few laughs, I was led back to my room and waited for the doctor. The first few words out of his mouth could change my life forever and there was nothing to do but wait to hear what the pain was all about.

  Before I could think “the dread” further, he opened the door and quickly said, “All your tests are NORMAL.” They were the sweetest words I ever heard. BUT, he said he thought the nurse was right that it was SHINGLES, so he gave me some medicine to be taken immediately.

  No matter, I was not going on Death Row and didn’t have to quickly go home and get my laptop to do my daily commentary when I woke up from a surgery. (I actually almost brought it to the ER when I first went in anticipation of the worst.)

  Now, I know how painful shingles is supposed to be. Everyone, for the right reasons, shudders on hearing of it because it is so painful … BUT compared to hearing my pancreas, appendix, liver, or kidney was blowing up, this news was a delight to hear.

  Trying to keep this as short as possible, the doctor gave me two meds (pills) for shingles, which I began to take immediately. One was a steroid of sorts. What an eye opener. Feeling very good yesterday, I went to my gym. My weightlifting was the strongest in memory. My bike ride was the fastest in a long time. No wonder some of these famous athletes hit so many home runs. No wonder Lance Armstrong did what he did. What I took were three rinky-dink pills and I could feel the new strength in 24 hours. What a stunner!

  On my way out of the gym, I ran into this sharp lawyer whom I have gotten to know and we did the usual cordial hellos and “How are you doing?” This time when he did his friendly query, I responded by saying I spent four hours in the ER at Baylor on Sunday. Naturally, he scrambled over to find out what was going on.

  So glad I brought it up. He then told me that his wife, whom I have met briefly, had the same thing … shingles, and that the pain was nowhere near where her rash was, just like me if that is what I have. He went on to say how painful it was, but she beat it. And, if that is what I have, so will I … no matter what lifestyle changes that requires.

  While in purgatory here, waiting to find out really what I have, my hope it is that it is SHINGLES, because that is something I can deal with and it is up to me to beat any immune issues that caused the problem.

  What I have learned in this process and perhaps might be of help down the road to some Cafe member…

  *Go to Google about any ailing symptoms you might have. When it came to what to do about stomach pain, they said follow your gut about whether to go to an emergency room. What a true hoot that was. The Google drill can give you some greater clarification of what you are dealing with and how to respond without wasting time.

  *When you have terrible, unexplained pain, deal with it and don’t wish it away. The faster we confront our health demons, which we all have, the better chance of a satisfactory outcome.

  *Don’t be afraid of the ER at a major hospital, silly as that may sound to most of you. I was shocked at how good the experience was. Baylor got right to my ER issue.

  *Thank goodness for quality health insurance. How lucky I was all those years with my own self insurance program. That could have been a distant memory, very quickly. My entire ER experience cost $69.

  That’s it. If all I have is SHINGLES, I am a lucky guy. It can be beat. Perhaps that old football slogan of “no pain, no gain,” learned all too well making it to a starting wide receiver with the Patriots so long ago, will take on a new meaning after all these years.

  As for Six Degrees of Separation … when I can be directed into another patient’s room by mistake twice, another Murphy, how can this not relate so quickly to all of us and confirm that fabulous notion. Most important to me is that it appears that I will be around to do all I can on behalf of GATA to defeat The Gold Cartel and their heinous price suppression, market manipulation maneuvers.

  On that note, it is ironic that the more GATA is proved correct, the more we are shunned. It appears that Jack Nicholson’s famous quote, “You can’t handle the truth!!” in the movie A Few Good Men, is so apropos for the mainstream media gold world, leading gold/silver company executives, and most of the entire gold/silver industry.

  And that is the way it appears it will be until this market manipulation nonsense blows up and the decimated U.S. public is clamoring for answers. An essence of what GATA has had to say all along is that interference in the free market process, by manipulating the prices of gold and silver, was going to end badly because it has ruined free market price discovery. It has been deliberate and nefarious.

  GATA was initiated back early in 1999 to expose the price manipulation scheme, to inform the public in a myriad of ways … one of those being going to Congress numerous times. Can you say House Speaker Hastert, or James Saxton of the Joint Economic Committee, or Ron Paul? We have been there and done that …including a visit with James Silvia of the Senate Banking Committee.

  The meeting with Hastert was on May 10, 2000, nearly 15 years ago…

  GATA Delegation Makes Significant Progress in Washington

  On Wednesday at 11:30, the Gold Anti-Trust Action Committee consisting of Chris Powell, Reginald Howe, Frank Veneroso, a State Senator and myself met with one of the most powerful politicians in Washington. It was only going to be a 15 minute meeting. It lasted 45 minutes.

  At the end of the meeting, we were excused from the room for several minutes. When the people we met with returned, we were told that they were going to try and set up a meeting with another influential politician at 2 o’clock, but that we would have to call at 1:30 to confirm.

  We were stunned to learn at 1:30 that this politician had said, “I am aware of the issue,” and that he wanted to meet with the GATA delegation. The meeting took place and six members of his staff also attended. What was most remarkable is that this politician left the floor of Congress to attend our hastily arranged, unscheduled meeting.

  This politician asked many questions and was very focused on what we had to say. So much so, that he was annoyed when a staff member left to deal with some other pending issue, saying that this was more important. He told us he had read our biographies before coming to the meeting and was a bit taken aback when he was handed the “Gold Derivative Banking Crisis” document to him with his name and state on it.

  This knowledgeable politician said that he and his staff would look into our contentions and suggested that we might meet again. After this very intense one hour meeting, he returned to Congress which was in session.

  From there, we went on to meet with Dr. John Silvia, the Chief Economist of the Senate Banking Committee. I could tell he had spent some time on our presentation because he had highlighted material that I had sent to him. Frank, Reg and Chris did a terrific job (as they did in all the meetings) explaining what we have learned through our extensive research. That meeting also lasted an hour and Dr. Silvia took copious notes.

  Yesterday, I passed out 88 of the documents to the staff of all the Senators and Representatives on the banking committees. They were told to look for an open letter to all of them in Monday’s Roll Call.

  That was some schlep. For the Senate I went to the Dirksen, Russell and Hart buildings. For the House I went to the Rayburn, Longworth and Cannon buildings. It took me the entire day, but was well worth it. Congressman Lee Terry of Nebraska could not have been nicer and said he would read the document on his way back to his native state this weekend.

  I was struck by how different all the buildings were. AND HOW BIG. Most were about 100 yards long and were circular for traffic flow. I made the mistake of buying new shoes for the trip. Now, my feet are all blistered. Big booboo.

  My last stop was the Rayburn Building and I smiled as I went by The Gold Room.

  It was the opinion of the entire Gold Anti-Trust Action Committee delegation that the trip was far more fruitful than any one of us dreamed possible. However, as we all know, that was just our first salvo. There is much to be done to win the day and we are already planning our next course of action.

  When our adversaries realize how far we have come, we know that they will go all out to discredit us. If yesterday’s meetings were any indication of making a serious impact on those who count in Washington, the other side has their work cut out for them!

  Bill Murphy

  ***

  Our afternoon meeting was with Spencer Bachus, Chairman of the House Subcommittee on Domestic and International Monetary Policy at the time.

  So where are we now, almost 15-years later? That will depend on who you talk to.

  Taking on the richest and most powerful people in the world is not an easy task. Never in my wildest dreams did I believe GATA could have come up with so much documentation about how valid our claims are and have it so ignored. No one in the world could have done a better job at documenting the evidence of the gold price suppression scheme than Chris Powell. No finer guy than him, or more dedicated and diligent in getting the facts out there.

  Think about it. GATA has held four incredibly successful conferences; in Durban, South Africa; in Dawson City in The Yukon; right outside of Washington, D.C.; and in London at the Savoy Hotel, which 400 people attended from 38 countries. To a person they said it was the finest conference they ever attended.

  Little did all of us know at the time what The Gold Cartel had in mind, as that was in August of 2011. One month later, gold soared more than $260 to over $1900 and has been going down ever since.

  At the same time, other asset prices have soared due to money creation. What no one EVER asks in the mainstream Muppet world is why would gold and silver get bombed at the same time other assets as stocks, diamonds, real estate, and art took off? The incongruity of it all makes no sense, unless you know what GATA knows and the enormous effort that The Gold Cartel is doing to affect their own reality. That (their) reality will go on until the blowup, which is only a matter of time.

  So, GATA carries on to win the day on all this nonsense, which is going to hurt so many innocent people who have no idea what the rich and powerful have done to enrich their own fortunes. Few seem to care at the moment what GATA has to say, BUT THEY WILL when all heck breaks loose.

  GATA will win the day in the end and we need your support to carry on. What we are dealing with is historic… and will DWARF the Madoff and Enron scandals, etc. in terms of the enormity of it all.

  At some point GATA’s efforts are going to prove out by revealing how thwarting the free market process was disastrous. You never know exactly when our efforts will pay off for all of us who believe in exposing the truth about the financial world’s machinations. With all so copacetic for the moment, few care. As said, that is all going to change.

  GATA needs your help to spread awareness about what is really going on behind the scenes. Most everyone is clueless. Despite what we are encountering, GATA intends to carry on … and, as we do, it will expose the biggest financial scandal in American history.

  The facts could not be clearer right now of what GATA explained when we went to Washington in 2000. Back then this topic was not even on the radar screen. To win the day we need your support to keep on keepin’ on. Having stayed on this obvious mission for so long, it is only a matter of time now before the importance of what GATA has claimed for so long makes it to center stage. The rich and powerful will not change their stance, but as things get ugly for the regular people like you and me, they are going to demand answers to the dramatic chaos.

  We need some firepower to deliver that message to the world as it manifests itself. The world will want to know what happened and why, hopefully so it does not happen again. From what I know, all of us support various causes because we believe it will make a difference. While so few care now, thanks to the decimation of the gold/silver industry, courtesy of the antics of The Gold Cartel, GATA is still standing tall and telling it like it is.

  If you agree and want to support GATA’s efforts, go here:

  http://www.gata.org/node/16Going to send this to zerohedge because it is a prominent truth teller and a brilliant resource. May this be another feather in their cap. If anyone in zerohedge land would like to chat further on this monumental issue, you can reach me at midasnh@aol.com.

  ***

  As expected many hours ago, it was a vintage Gold Cartel day … total lockdown … and that was despite a weak dollar, oil rising above $60 per barrel, and a stock market that was crushed. As usual, nothing matters except what The Gold Cartel can get away with. James Mc had it pegged at 9:30 this morning.

  The shares didn’t like the action either. The XAU lost .53 to 72.93. The HUI lost 1.30 to 178.71.

  Guess it was a good day for a rant.

  MIDAS

  Bill Murphy
  www.Lemetropolecafe.com

  

  
  
  

  

• CFR Says China Must Be Defeated And TPP Is Essential To That

  Submitted by Eric Zuesse

  CFR Says China Must Be Defeated And TPP Is Essential To That
  

  Wall Street’s Council on Foreign Relations has issued a major report, alleging that China must be defeated because it threatens to become a bigger power in the world than the U.S.

  This report, which is titled “Revising U.S. Grand Strategy Toward China,” is introduced by Richard Haass, the CFR’s President, who affirms the report’s view that, “no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China.”

  Haass gives this report his personal imprimatur by saying that it “deserves to become an important part of the debate about U.S. foreign policy and the pivotal U.S.-China relationship.” He acknowledges that some people won’t agree with the views it expresses.

  The report itself then opens by saying: “Since its founding, the United States has consistently pursued a grand strategy focused on acquiring and maintaining preeminent power over various rivals, first on the North American continent, then in the Western hemisphere, and finally globally.” It praises “the American victory in the Cold War.” It then lavishes praise on America’s imperialistic dominance: “The Department of Defense during the George H.W. Bush administration presciently contended that its ‘strategy must now refocus on precluding the emergence of any potential future global competitor’—thereby consciously pursuing the strategy of primacy that the United States successfully employed to outlast the Soviet Union.”

  The rest of the report is likewise concerned with the international dominance of America’s aristocracy or the people who control this country’s international corporations, rather than with the welfare of the public or as the U.S. Constitution described the objective of the American Government: “the general welfare.”

  The Preamble, or sovereignty clause, in the Constitution, presented that goal in this broader context: “in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.”

  The Council on Foreign Relations, as a representative of Wall Street, is concerned only with the dominance of America’s aristocracy. Their new report, about “Revising U.S. Grand Strategy Toward China,” is like a declaration of war by America’s aristocracy, against China’s aristocracy. This report has no relationship to the U.S. Constitution, though it advises that the U.S. Government pursue this “Grand Strategy Toward China” irrespective of whether doing that would even be consistent with the U.S. Constitution’s Preamble.

  The report repeats in many different contexts the basic theme, that China threatens “hegemonic” dominance in Asia. For example:

  “China’s sustained economic success over the past thirty-odd years has enabled it to aggregate formidable power, making it the nation most capable of dominating the Asian continent and thus undermining the traditional U.S. geopolitical objective of ensuring that this arena remains free of hegemonic control.”

  The report never allows the matter of America’s “hegemonic control” to be even raised. Thus, “hegemony” is presumed to be evil and to be something that the U.S. must block other nations from having, because there is a “traditional U.S. geopolitical objective of ensuring that this arena remains free of hegemonic control.” In other words: the U.S. isn’t being “hegemonic” by defeating aspiring hegemons. The report offers no term to refer to “hegemony” that’s being practiced by the U.S.

  The report presents China as being supremacist, such as what (to quote again from the report) “historian Wang Gungwu has described as a ‘principle of superiority’ underwriting Beijing’s ‘long-hallowed tradition of treating foreign countries as all alike but unequal and inferior to China.’ Consistent with this principle, Henry Kissinger, describing the traditional sinocentric system, has correctly noted that China ‘considered itself, in a sense, the sole sovereign government of the world.’” America’s own ‘Manifest Destiny’ or right to regional (if not global) supremacy is not discussed, because supremacism is attributed only to the aristocracies in other countries, not to the aristocracy in this country.

  Rather than the “general welfare,” this document emphasizes “U.S. Vital National Interests,” which are the interests of America’s aristocrats, the owners of America’s large international corporations.

  This report urges:

  “The United States should invest in defense capabilities and capacity specifically to defeat China’s emerging anti-access capabilities and permit successful U.S. power projection even against concerted opposition from Beijing. … Congress should remove sequestration caps and substantially increase the U.S. defense budget.”

  In other words: the Government should spiral upward the U.S. debt even more vertically (which is good for Wall Street), and, in order to enable the increased ‘defense’ expenditures, only ‘defense’ expenditures should be freed from spending-caps. Forget the public, serve the owners of ‘defense’ firms and of the large international corporations who rely on the U.S. military to protect their property abroad.

  The report says that China would have no reason to object to such policies: “There is no reason why a China that did not seek to overturn the balance of power in Asia should object to the policy prescriptions contained in this report.” Only a “hegemonic” China (such as the report incessantly alleges to exist, while the U.S. itself is not ‘hegemonic’) would object; and, therefore, the U.S. should ignore China’s objections, because they would be, by definition ‘hegemonic.’ Or, in other words: God is on our side, not on theirs.

  “Washington simply cannot have it both ways—to accommodate Chinese concerns regarding U.S. power projection into Asia through ‘strategic reassurance’ and at the same time to promote and defend U.S. vital national interests in this vast region.”

  The authors make clear that U.S. President Obama is not sufficiently hostile toward China: “All signs suggest that President Obama and his senior colleagues have a profoundly different and much more benign diagnosis of China’s strategic objectives in Asia than do we.”

  Furthermore, the report ends by portraying Obama as weak on the anti-China front: “Many of these omissions in U.S. policy would seem to stem from an administration worried that such actions would offend Beijing and therefore damage the possibility of enduring strategic cooperation between the two nations, thus the dominating emphasis on cooperation. That self-defeating preoccupation by the United States based on a long-term goal of U.S.-China strategic partnership that cannot be accomplished in the foreseeable future should end.”

  The report’s “Recommendations for U.S. Grand Strategy Toward China” urges Congress to “Deliver on the Trans-Pacific Partnership, … as a geoeconomic answer to growing Chinese economic power and geopolitical coercion in Asia,” but it fails to mention that the Obama Administration has already embodied the authors’ viewpoint and objectives in the TPP, which Obama created, and which cuts China out; it could hardly be a better exemplar of their agenda. The authors, in fact, state the exact opposite: that Obama’s objective in his TPP has instead been merely “as a shot in the arm of a dying Doha Round at the World Trade Organization (WTO).” They even ignore that Obama had cut China out of his proposed TPP.

  Furthermore, here is what President Obama himself told graduating West Point cadets on 28 May 2014:

  “Russia’s aggression toward former Soviet states unnerves capitals in Europe, while China’s economic rise and military reach worries its neighbors. From Brazil to India, rising middle classes compete with us, and governments seek a greater say in global forums.” He was saying that these future military leaders will be using guns and bombs to enforce America’s economic dominance. This is the same thing that the CFR report is saying.

  His speech also asserted: “I believe in American exceptionalism with every fiber of my being. … The United States is and remains the one indispensable nation. That has been true for the century passed and it will be true for the century to come.” (That even resembles: “Henry Kissinger, describing the traditional sinocentric system, has correctly noted that China ‘considered itself, in a sense, the sole sovereign government of the world.’” Obama is, in a sense, saying that America is the “sole sovereign government in the world.”)

  He made clear that China is “dispensable,” and that the U.S. must stay on top.

  However, there is a difference between Obama and the CFR on one important thing: Obama sees Russia as the chief country over which the U.S. must dominate militarily, and China as the chief country to dominate economically. But in that regard, he is actually old-line Republican, just like his 2012 opponent Mitt Romney is. The only difference from Romney on that is: Obama wasn’t so foolish as to acknowledge publicly a belief that he shared with Romney but already knew was an unpopular position to take in the general election.

  Furthermore, whereas the CFR report ignores the public’s welfare, Obama does give lip-service to that as being a matter of concern (just as he gave lip-service to opposing Romney’s assertion that Russia is “our number one geopolitical foe”). After all, he is a ‘Democrat,’ and the authors of the CFR report write instead as if they were presenting a Republican Party campaign document. No ‘Democrat’ can be far-enough to the political right to satisfy Republican operatives. The pretense that they care about the public is therefore far less, because the Republican Party is far more open about its support of, by, and for, the super-rich. Mitt Romney wasn’t the only Republican who had contempt for the lower 47%. But even he tried to deny that he had meant it. In that sense, the CFR’s report is a Republican document, one which, quite simply, doesn’t offer the public the lip-service that Obama does (and which he politically must, in order to retain support even within his own party).

  Perhaps on account of the CFR report’s condemning Obama for not being sufficiently right-wing — even though he is actually a conservative Republican on all but social issues (where China policy isn’t particularly relevant) — the report has received no mention in the mainstream press, ever since it was originally issued, back in March of this year. For whatever reason, America’s ‘news’ media ignored the report, notwithstanding its importance as an expression of old-style imperialistic thinking that comes from what many consider to be the prime foreign-affairs mouthpiece of America’s aristocracy — the CFR. The report’s first coverage was on 2 May 2015 at the World Socialist Web Site, which briefly paraphrased it but didn’t even link to it. Then, two days later, Stephen Lendman wrote about the CFR report. He briefly paraphrased it and passionately condemned it. He did link to the report. But he didn’t note the WSWS article, which had first informed the public of the CFR report’s existence — an existence which, until the WSWS article, all of America’s ‘press’ had simply ignored.

  The present article is the first one to quote the CFR report, instead of merely to paraphrase and attack it. The quotations that were selected are ones presenting the report’s main points, so that readers here can see these points stated as they were written, rather than merely as I have interpreted them. My interpretation is in addition to, rather than a substitute for, what the report itself says.

  

  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.

  

  

  
  
  

  

• Is the Next Round of the Crisis at Our Doorstep?

  Stocks have officially entered their worst period of the year.

   

  The old adage “sell in May and go away” does have some merit. According to the Ned Davis (NDR) database, had you invested $10,000 in the S&P 500 every May 1st starting in 1950 and sold October 31 of the same year, your initial position would only be worth $10,026 as of 2008. Put another way, by investing only from May through October, a $10,000 stake invested in 1950 would have only made $26 in 57 years.

   

  In contrast, $10,000 invested in the S&P 500 on November 1st and sold April 30th over the same time period would have grown to $372,890. Out of 58 years, you would have had 45 positive and only 13 negative.

   

  Put simply: the period from May to November has historically been a very weak one for stocks. All traders and trading models know this. It is not surprising that after failing to force stocks to breakout to the upside before May, we’re now seeing a sharp sell-off.

   

  The S&P 500 is now at the lower trendline for the bearish rising wedge pattern that it has been carving out since November. This is critical support and we need to hold here otherwise 2050 comes into play very quickly.

   

  

   

  The Fed’s FOMC meeting has come and gone, and the Fed has pretty much broadcast that any rate hikes that might be coming will do so later this year, i.e. not in June. This leaves verbal intervention to hold stocks up. Look for some Fed official to come forward with a blatantly dovish comment in the next few days.

   

  The bigger issue concerns the fact that bond yields are rising across the board. The UK’s Gilts, US Treasuries, and German Bunds have all dropped sharply in the last month, pushing their yields higher.

   

  

   

  Remember, the biggest issue for global Central Banks is containing the $100 trillion bond bubble. Most developed nations need rates to remain next to zero for their debt loads to be serviceable.

   

  So if bond yields begin to rise, it can very quickly become a real mess. Indeed, we fully believe that when this happens we will have officially entered the second round of the Great Crisis that began in 2008.

   

  Watch this situation closely!

   

  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

   

   

  

  
  
  

  

• US Economic Confidence Crashes Most Since July To Lowest Since December

  Despite record-er stock prices, weather excuses for current economic weakness, and The Fed promising that growth is here and everything will be awesome, it appears the message has not reached the US Consumer. Gallup's U.S. Economic Confidence Index plunged 9 points last week (the largest week-to-week drop since last July) to its lowest weekly score since December. The main driver was a collapse of hope as 'outlook' fell to November lows.

   

  

   

  Americans' Ratings of Current Conditions, Economic Outlook Both Down

  Gallup's Economic Confidence Index is the average of two components: Americans' ratings of current economic conditions and their views of whether the economy is improving or getting worse. The theoretical maximum of the index is +100, if all Americans say the economy is "excellent" or "good" and "getting better." The theoretical minimum is -100, if all Americans say the economy is "poor" and "getting worse."

   

  

   

  For the week ending May 3, 24% of Americans said the economy is excellent or good while 29% said it is poor, resulting in a current conditions score of -5 — down four points from the previous week and the lowest current conditions score since December. The economic outlook score saw a sharper drop of eight points, to -12 — its lowest reading since November. The latest outlook score is the result of 42% of Americans saying the economy is getting better, and 54% saying it is getting worse.

  The recent dip in Americans' economic confidence — which is being dragged down largely by the lower economic outlook component — is likely the culmination of a variety of economic factors.

  Though stocks rebounded by last Friday, the previous week had been fraught with market losses in the Dow Jones industrial average and Standard & Poor's 500 market indexes. Meanwhile, the prices Americans were paying for gas increased in the latter half of April, with the U.S. Energy Information Administration reporting an increase of 17 cents per gallon over two weeks. Gallup has found that Americans' confidence in the economy is related to how much they pay at the pump. Additionally, the recent report that the nation's GDP grew a lackluster 0.2% in the first quarter — a disappointing figure compared with previous quarterly growth — may have dampened consumers' economic hopes.

  Source: Gallup

  

  

  
  
  

  

• OFFiCiaL BLoGGeR BeN SeaL AND FiLe PHoTo..

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• SEC Commissioner Furious At Deutsche Bank's "Decade Of Lying, Cheating, And Stealing"

  Last week we commented on the latest travesty in the legal system when Deutsche Bank paid $2.5 billion to settle charges that it had manipulated LIBOR, EURIBOR and various other -BORs. As usual in situations such as this one, not a single banker went to prison, but there was some hope that Deutsche Bank’s gross criminal conduct would at least land it on the SEC’s “bad actors” list, which is like the Dodd-Frank equivalent of ‘time out’ and restricts the offender from participating in exempt securities offerings.

  Not to worry: as we reported as part of its settlement, Deutsche Bank, as well as every other criminal financial institution, had – deep in the fine print – inserted language that exempted the offender from such stigma. As the WSJ noted, “the language allows the banks to avoid asking the SEC for a waiver—a process that has become fraught with uncertainty amid commissioner disagreements over whether to allow financial firms to avoid a “bad actor” ban…”

  

  We concluded that “It’s good to be TBTF” because clearly no matter how many laws are violated and how much money is stolen (LIBOR was the reference security for nearly $1 quadrillion in global rate-sensitive derivatives), i) nobody ever goes to prison, ii) there are absolutely no negative consequences, and iii) the cost of running a criminal organization is tiny – the settlement usually amounts to far less than 1% of the gains reaped from years of illegal activities.

  Frankly, at this point one should just sit back and watch in amusement, because until the revolution and/or war predicted by Paul Tudor Jones arrives and the guillotines start working overtime, nobody in a position of wealth or power will be held accountable.

  That same message was, in rough terms, what prompted SEC commissioner Kara Stein, a Democrat, to write her “dissenting statement” regarding granting Deutsche Bank the waiver for ineligible issuer status.

  Here are the choice excerpts:

  I respectfully dissent from the Commission’s Order (“Order”), approved on May 1, 2015, by a majority of the Commission. The Order grants Deutsche Bank AG a waiver from ineligible issuer status triggered by a criminal conviction of its subsidiary, DB Group Services (UK) Ltd. (collectively with Deutsche Bank AG, “Deutsche Bank”), for manipulating the London Interbank Offered Rate (“LIBOR”), a global financial benchmark. This waiver will allow Deutsche Bank to maintain its well-known seasoned issuer (“WKSI”) status, which would have been automatically revoked as a result of its criminal misconduct absent a Commission waiver.

   

  With these WKSI advantages comes a modicum of responsibility. WKSIs must meet the very low hurdle of not being ineligible. This means that, among other things, they have not been convicted of certain felonies or misdemeanors within the past three years. In granting this waiver, the Commission continues to erode even this lowest of hurdles for large companies, while small and mid-sized businesses appear to face different treatment.

   

  This criminal scheme involving LIBOR manipulation was designed to inflate profits, and it was effective. It created the impression that Deutsche Bank was more creditworthy and profitable than it actually was. Accordingly, the conduct affected its financial results and disclosures. Because LIBOR plays such an important role in the worldwide economy, manipulation of it goes to the heart of many aspects of Deutsche Bank’s disclosures. Interest rates represented to clients and the public also were clearly false. Based on this conduct, I do not find any basis to support the assertion that Deutsche Bank’s culture of compliance is dependable, or that its future disclosures will be accurate and reliable.

  Even the SEC is shocked that the CFTC is an organization that caters exclusively to keeping criminal bankers out of prison, rather than getting them in it:

  In addition, the Commission adopted rules disqualifying felons and other “Bad Actors” from Rule 506 offerings on July 10, 2013. Based on the criminal conduct in this case, I expected to receive a request from Deutsche Bank AG for a waiver from the automatic disqualification contained in Rule 506. After all, the final CFTC order was “based on a violation of any law that prohibits fraudulent, manipulative, or deceptive conduct.” It should therefore trigger an automatic disqualification absent a waiver.

   

  However, based on a loophole contained in Rule 506(d)(2)(iii), the CFTC has intervened and prevented the bad actor disqualification question from even coming before the Securities and Exchange Commission. The CFTC saw fit to opine on the SEC’s Rule 506 jurisprudence about whether Deutsche Bank AG should receive a waiver from automatic disqualification under SEC rules. It is unclear to me what, if any, analysis went into this decision and what prompted the CFTC to insert language into its final order stating that a bad actor disqualification “should not arise as a consequence of this Order.”The implications of the CFTC’s actions here — and in other actions — are deeply troubling. The Commission should closely review this provision and how it is being used.

  Don’t worry: former CFTC chief Gary Gensler will soon be US Treasury Secretary – then it will be his job to make sure no criminal with a net worth over a few million dollars ever has to face the US “judicial” system.

  In the meantime, the CFTC will never do its actual jobs and root out maniupulation and rigging in precious metal markets…

  The @CFTC Closes Investigation Concerning the Silver Markets. http://t.co/JZRliwfW6P

  — CFTC (@CFTC) September 25, 2013

  … instead leaving it to fringe blogs):

  As for the piece de resistance:

  Deutsche Bank’s illegal conduct involved nearly a decade of lying, cheating, and stealing. This criminal conduct was pervasive and widespread, involving dozens of employees from Deutsche Bank offices including New York, Frankfurt, Tokyo, and London. Deutsche Bank’s traders engaged in a brazen scheme to defraud Deutsche Bank’s counterparties and the worldwide financial marketplace by secretly manipulating LIBOR. The conduct is appalling. It was a complete criminal fraud upon the worldwide marketplace.

  Dear Kara, are you really confused why “complete criminal fraud” by a bank goes unpunished? Here is a hint: go to OpenSecrets, type in Deutsche Bank, and you will find just who the German bank paid off to avoid any true penalty. To your great surprise you may even find that the biggest beneficiary of DB’s generosity in 2014 is, drumroll, the Democratic National Convention…

  

   

  … not to mention over $3 million donated in the last two decades to America’s “two” parties (of which 61% went to democrats).

  

  

  

  
  
  

  

• 96% Of Americans Expect More Civil Unrest In U.S. Cities This Summer

  Submitted by Michael Snyder via The Economic Collapse blog,

  Are you ready for rioting, looting and mindless violence in major U.S. cities all summer long?  According to a brand new Wall Street Journal/NBC News poll, 96 percent of all Americans believe that there will be more civil unrest in America this summer.  That leaves only 4 percent of people that believe that everything will be just fine.  In this day and age, it is virtually impossible to get 96 percent of Americans to agree on anything.  So the fact that just about everyone agrees that we are going to see more civil unrest should really tell you something. 

  The anger that has been building under the surface for so many years in this country has finally started to erupt.  If you have been following us for a while, you know that this is something that I have been warning about for a very long time.  Many people may have thought that I was exaggerating when I talked about the civil unrest that was coming to American cities.  But I was not exaggerating at all.  In fact, if anything I was downplaying it.  In the years to come, we are going to see things happen in our cities that are going to absolutely shock the world.

  Ever since the violence first erupted in Baltimore, what has surprised me more than anything has been the level of hate that I am seeing all over the Internet.  I am seeing white people openly proclaim how much they hate black people.  I am seeing black people openly proclaim how much they hate white people.  I am seeing things said about the police that are absolutely horrifying.  Yes, there has been a tremendous amount of police brutality in this nation.  In fact, I have been one of the leaders in writing about it.  But most police officers are just trying to serve their communities the very best that they can.  So why is there so much hate for anyone that is a police officer these days?

  If all of this hate continues to grow, it is going to eat our nation alive.  Why can’t we just learn to forgive one another, love one another and work together to rebuild our once great nation?

  I know that what I just said is going to mostly fall on deaf ears.  But it needs to be said.

  I wish that we could change course as a nation and avoid all of the rioting, looting and senseless violence that is coming.  Unfortunately, I don’t see that happening, and neither does the rest of the country…

  Americans are bracing for a summer of racial disturbances around the country, such as those that have wracked Baltimore, with African Americans and whites deeply divided about why the urban violence has occurred, a new Wall Street Journal/NBC News poll has found.

   

  A resounding 96% of adults surveyed said it was likely there would be additional racial disturbances this summer, a signal that Americans believe Baltimore’s recent problems aren’t a local phenomenon but instead are symptomatic of broader national problems.

  What happened in Ferguson set the precedent, and now what has happened in Baltimore has provided the spark for a national movement.  Similar “demonstrations” are popping up all over the nation, and a number of them have already turned violent.

  For example, check out what happened in Seattle on Friday night…

  Demonstrations turned violent in Seattle after night fell, with police reporting that protesters hurled rocks and wrenches at officers and damaged 25 vehicles. Police reported that an “explosive device” was thrown at officers, and a trash bin was pushed down a hill toward police.

   

  Three officers were injured, two seriously enough that they were taken to a hospital, Seattle police said on Twitter. At least 16 people were arrested Friday night, police said.

  And just down the coast in Portland, we also witnessed some very ugly violence…

  One Portland, Oregon, police officer was injured by a protester, according to police. Portland Police reported on Twitter that protesters were throwing “projectiles” and “incendiary devices” at officers.

   

  Police used pepper spray on protesters who tried to march on a bridge Friday afternoon and later sheriff’s deputies used stingballs, filled with tiny rubber balls, on protesters who were throwing chairs at police, according to the department.

  These protesters are just copying what they saw in Baltimore.  And things would not have ever gotten so bad in Baltimore if the police had not been ordered to stand down and let the riots spiral out of control.  Now, we have learned that many police officers were so outraged by this that they want Baltimore Mayor Stephanie Rawlings-Blake to immediately resign…

  During a Baltimore-based radio talk show on Thursday, a man who identified himself as a Baltimore police officer named “Jeff” called into the program and said fellow police officers were organizing to push out the city’s mayor.

   

  “There is right now over 50 of us officers who are immediately asking for [Baltimore Mayor] Stephanie Rawlings-Blake to step down for what she did to us Monday,” the caller told WBAL radio host Derek Hunter.

   

  The Baltimore mayor has denied giving “stand down” orders and blamed the media for misinterpreting her comments about providing “a space” for protesters to loot.

   

  “Any other time in my career, if somebody were to throw a brick or a block at me, we would take immediate actions to pull our weapons on them. Numerous times on Monday when our officers were being injured, our commanders are telling us ‘stand down, stand down.’  You had no idea what it did to us as police officers to sit there,” said the self-described “21-year veteran” of the Baltimore police department.

  Scenes of protesters attacking police were broadcast all over the nation, and it was inevitable that we would start to see “copycat attacks” against the police start to happen.  In New York City, a plainclothes police officer was shot in the head on Saturday…

  A plainclothes New York City police officer was shot in the head and critically injured while in an unmarked police car Saturday as he and his partner attempted to stop and question a man they suspected of carrying a gun, officials said.

   

  Officer Brian Moore and his partner, Erik Jansen, noticed Demitrius Blackwell “walking and adjusting an object in his waistband” when they pulled up on him in their car, exchanging words with him before he turned and suddenly fired at least two rounds into the car, police Commissioner William Bratton said.

   

  “The man immediately removed the firearm from his waistband and turned in the direction of the officers and deliberately fired several times at the vehicle, striking Officer Moore in the head,” Bratton said at a press conference at a Queens hospital. The 25-year-old Moore was undergoing surgery but listed in stable condition.

  We are seeing the same thing when it comes to racially-motivated violence.  This is something that we witnessed in Baltimore, and now all over the nation people are being attacked just because of the color of their skin.

  For instance, one young man in California attacked a random passerby with a baseball bat…

  A Fontana man accused of beating a passerby with a bat in an apparently random attack in Rialto, leaving the victim with life-threatening injuries that he was not expected to survive, was charged Wednesday with attempted murder allegedly committed as a hate crime.

   

  Jeremiah Ajani Bell, 22, was arrested Monday, a day after a daylight assault on 54-year-old Armando Barron, who was walking down the street when he was attacked.

  So why did this happen?  Well, apparently it was because the passerby had the wrong skin color…

  “It appears he was targeting anybody who wasn’t black,” Rialto police Detective Sgt. Paul Stella said Wednesday.

  We witnessed an even more disturbing example of racially-motivated violence just the other day in South Carolina…

  Witnesses and police say a mob of 60 black teens took to the streets of Charleston, South Carolina, to unleash attacks on unsuspecting drivers and pedestrians, all but one of whom were white.

  And of course police in some areas of the country are also using unnecessary violence.  Just consider what happened to a group of peaceful protesters in Denver on Wednesday…

  With much of the nation focused on the police abuse protests happening in Baltimore and New York City, the Denver police and their actions against a group of protesters on Wednesday has largely gone unnoticed.

   

  But police were dressed for war. Paramilitary style. And they weren’t going home without using a few cans of pepper spray and filling up a paddy wagon.

   

  Video that surfaced shows a group of about 100 protesters walking the streets of downtown Denver where they were met with line of motorcycle cops who forced the group on to the sidewalk.  One overzealous officer can be seen breaking away from the pack chasing down pedestrians, using his motorcycle as a large weapon.

  It’s war on the streets of America, and this is only just the beginning.

  As we enter the next major economic downturn, people are going to become angrier and even more desperate.  And desperate people do desperate things.  The next few years are not going to be a good time to be living in urban areas.  Even if you only have peace and love in your heart, that doesn’t mean that you won’t get caught in the crossfire as the violence escalates.

  For years, most of our politicians have been preaching hate and division.  For years, the mainstream media has been preaching hate and division.  For years, Hollywood has been preaching hate and division.

  Now we have a nation that is deeply, deeply divided and that is filled with hate.

  Things didn’t have to turn out this way, but they did.  I hope that you are getting ready for what comes next.

  

  

  
  
  

  

• Israeli Soldiers Describe How They "Shot Innocent Civilians Because They Were Bored"

  On July 12 of 2014 we reported that “after conducting countless sorties and bombing raids aimed at Hamas operatives in Gaza during the fifth day of Operation Protective Edge, but resulting in well over a hundred innocent civilian deaths in the past week, Israel, realizing it is not generating any brownie points with the international “humanitarian” media, finally did what it had threatened to do over the last few days – launch a ground assault.”

  The ground assault promptly led to a mini-war in the Gaza Strip that left more than 2,100 Palestinians dead, of which 80% civilians, and reduced vast areas to rubble: a “war” which many speculated was a predetermined massacre by highly skilled, trained, and ethically drained Israeli soldiers who used civilians for target practice.

  Yesterday we got confirmation of that when a group of Israeli veterans released what the WaPo describes as “sobering testimony from fellow soldiers that suggests permissive rules of engagement coupled with indiscriminate artillery fire contributed to the mass destruction and high numbers of civilian casualties in the coastal enclave.”

  In a 242-page report titled “This is How We Fought in Gaza 2014” which was accompanied by videotaped confessions that aired on Israeli TV, the organization of active and reserve duty soldiers, called Breaking the Silence, gathered testimonies from more than 60 enlisted men and officers who served in Gaza during Operation Protective Edge.

  What they described was nothing short of mass butchery of civilians and a flaunting of the Fourth Geneva Convention: among the actions described by the soldiers are “reducing Gaza neighborhoods to sand, firing artillery at random houses to avenge fallen comrades, shooting at innocent civilians because they were bored and watching armed drones attack a pair of women talking on cellphones because they were assumed to be Hamas scouts.”

  According to the Washington Post, the director of the group, Yuli Novak, called the rules of engagement in the offensive “the most permissive” it has seen and amounted to an “ethical failure . . . from the top of the chain of command.” Novak called for an independent investigation.

  Some more details from the narrative that may have been fit for a barbaric middle-age crusade but has no place in our “civilized” times:

  The soldiers said they were told by commanders to view all Palestinians in the combat zones as a potential threat, whether they brandished weapons or not. Individuals spotted in windows and rooftops — especially if they were speaking on cellphones — were often considered scouts and could be shot.

   

  A first sergeant serving in the Mechanized Infantry in Gaza told the group, “If we don’t see someone waving a white flag, screaming, ‘I give up’ or something — then he’s a threat and there’s authorization to open fire.”

  The Israeli army, the IDF, promptly tried to downplay the claims stating that the testimonies in the report are anonymous and impossible to independently verify. The Israel Defense Forces (IDF) declined to address details in the report and said that Breaking the Silence “does not provide IDF with any proof of their claims.”

  “This pattern of collecting evidence over an extended period of time and refusing to share it with the IDF in a manner which would allow a proper response, and if required, investigation, indicates that contrary to their claims this organization does not act with the intention of correcting any wrongdoings they allegedly uncovered,” the Israeli military stated.

  Just like in the case of Edward Snowden, the natural response was to attack the messenger: members of Breaking the Silence are viewed by many Israelis as “anti-military”, which it appears is a bad thing. 

  The group says its mission is to tell the Israeli public what the IDF hides and what serving in the occupied West Bank and in wars in Gaza and Lebanon is really like. After graduating from high school, all Israeli men and women — except those who get deferments because of religious study or for medical reasons — must serve in the military.

  Develop a conscience, however, is clearly frowned upon.

  In an interview with The Washington Post, a young tank gunner whose testimony is included in the report described how he and others fired cannon and machine gun bursts at random travelers on a main Gaza highway simply because they were bored and wanted to prove how good their aim was.

  “I am ashamed of this,” said the 21-year-old, who served in a Hamas hot spot near the town of Al Bureij in central Gaza.

  The gunner said he fired his Browning machine gun at a man pedaling a bicycle but missed because of the distance.

  “War crime is a big word,” he said in an interview at a Tel Aviv apartment Sunday. “I didn’t rape and kill anybody, but yeah, I shot at random civilian targets sometimes, just for fun, so yeah.”

   

  The same soldier said a friend in his unit was killed by shrapnel to the neck from a Palestinian mortar round and described how a burst of small-arms fire once breezed by his head.

  Yehuda Shaul of Breaking the Silence conceded that Gaza was a dangerous,
  chaotic landscape for Israeli troops. But he said the military had
  contributed to needless death and destruction with “a guiding military
  principle of minimum risk to our forces, even at the cost of harming
  innocent civilians.”

  In other words, all out, brutal war, without the pleasantries of sparing civilians – a war passed on by countless generations, and in which both sides have no interest in taking the first step to end. Which is why it never will.

  Below is a sampling of the soldiers’ quotes explaining how they fought in Gaza:

  • “If you shoot someone in Gaza it ?s cool, no big deal”
  • “The lives of our soldiers come before the lives of enemy civilians”
  • “Rules of engagement were, in effect, to shoot to kill upon any identification”
  • “The instructions are to shoot right away… Be they armed or unarmed, no matter what”
  • “The civilian was laying there, writhing in pain”
  • “I really, really wanted to shoot her in the knees”
  • “We expect a high level of harm to civilians”
  • “Go ahead – his wife and kid are in the car too? Not the end of the world”
  • “People that look at you from the window of a house, to put it mildly, won ?t look anymore”
  • “We want to make a big boom before the ceasefire”
  • “They were fired at – so of course, they must have been terrorists…”
  • “Lots of innocent people were hurt in that incident, lots”
  • “What the hell, why did you have to shoot him again?”

  Full report (pdf)

  

  

  
  
  

  

• "We Will Evolve Through Crisis, Not Proactive Change…"

  Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

  I very rarely read back any of the essays I write. But maybe that’s not always a good thing. Especially when they deal with larger underlying issues beneath the problems we find ourselves in, why these problems exist in the first place, and what we can and will do to deal with them. Not all of these things can and perhaps should be re-written time and again. Commentary on daily events calls for new articles, but attempts to define the more in-depth human behavior behind these events should, if they are executed well, be more timeless.

   

  Not that I would want to judge my own work, I’ll leave that to others, but I can still re-read something and think: that’s something I would like to read if someone else had written it. Since a friend yesterday sent me an email that referenced the essay below, I did go through it again and thought it’s worth republishing here. It’s from New Year’s Day 2013, or almost 2.5 years old, which should be a long enough time gap that many present day readers of The Automatic Earth haven’t read it yet, and long enough for those who have to ‘enjoy’ it all over again.

   

  I am not very optimistic about the fate of mankind as it is, and that has a lot to do with what I cite here, that while our problems tend to evolve in exponential ways, our attempts at solving them move in linear fashion. That is true as much for the problems we ourselves create as it is for those that – seem to – ‘simply happen’. I think it would be very beneficial for us if we were to admit to our limits when it comes to solving large scale issues, because that might change the behavior we exhibit when creating these issues.

   

  In that sense, the distinction made by Dennis Meadows below between ‘universal problems’ and ‘global problems’ may be very useful. The former concerns issues we all face, but can -try to – solve at a more local level, the latter deals with those issues that need planet-wide responses – and hardly ever get solved if at all. The human capacity for denial and deceit plays a formidable role in this.

   

  I know that this is not a generally accepted paradigm, but that I put down to the same denial and deceit. We like to see ourselves as mighty smart demi-gods capable of solving any problem. But that is precisely, I think, the no. 1 factor in preventing us from solving them. And I don’t see that changing: we’re simply not smart enough to acknowledge our own limitations. Therefore, as Meadows says: “we are going to evolve through crisis, not through proactive change.” Here’s from January 1 2013:

  *  *  *

  Ilargi: I came upon this quote a few weeks ago in an interview that Der Spiegel had with Dennis Meadows, co-author of the Limits to Growth report published by the Club of Rome 40 years ago. Yes, the report that has been much maligned and later largely rehabilitated. But that’s not my topic here, and neither is Meadows himself. It’s the quote, and it pretty much hasn’t left me alone since I read it.

  Here’s the short version:

  [..] … we are going to evolve through crisis, not through proactive change.

  And here it is in its context:

  ‘Limits to Growth’ Author Dennis Meadows ‘Humanity Is Still on the Way to Destroying Itself’

  SPIEGEL ONLINE: Professor Meadows, 40 years ago you published “The Limits to Growth” together with your wife and colleagues, a book that made you the intellectual father of the environmental movement. The core message of the book remains valid today: Humanity is ruthlessly exploiting global resources and is on the way to destroying itself. Do you believe that the ultimate collapse of our economic system can still be avoided?

  Meadows: The problem that faces our societies is that we have developed industries and policies that were appropriate at a certain moment, but now start to reduce human welfare, like for example the oil and car industry. Their political and financial power is so great and they can prevent change. It is my expectation that they will succeed. This means that we are going to evolve through crisis, not through proactive change.

  I don’t really think that Dennis Meadows understands how true that is. I may be wrong, but I think he’s talking about a specific case here . While what he makes me ponder is that perhaps this is all we have, and always, that it’s a universal truth. That we can never solve our real big problems through proactive change. That we can only get to a next step by letting the main problems we face grow into full-blown crises, and that our only answer is to let that happen.

  And then we come out on the other side, or we don’t, but it’s not because we find the answer to the problem itself, we simply adapt to what there is at the other side of the full-blown crisis we were once again unable to halt in its tracks. Adapt like rats do, and crocodiles, cockroaches, no more and no less.

  This offers a nearly completely ignored insight into the way we deal with problems. We don’t change course in order to prevent ourselves from hitting boundaries. We hit the wall face first, and only then do we pick up the pieces and take it from there.

  Jacques Cousteau was once quite blunt about it:

  The road to the future leads us smack into the wall. We simply ricochet off the alternatives that destiny offers: a demographic explosion that triggers social chaos and spreads death, nuclear delirium and the quasi-annihilation of the species… Our survival is no more than a question of 25, 50 or perhaps 100 years.

  Without getting into specific predictions the way Cousteau did: If that is as true as I suspect it is, the one thing it means is that we fool ourselves a whole lot. The entire picture we have created about ourselves, consciously, sub-consciously, un-consciously, you name it, is abjectly false. At least the one I think we have. Which is that we see ourselves as capable of engineering proactive changes in order to prevent crises from blowing up.

  That erroneous self-image leads us to one thing only: the phantom prospect of a techno-fix becomes an excuse for not acting. In that regard, it may be good to remember that one of the basic tenets of the Limits to Growth report was that variables like world population, industrialization and resource depletion grow exponentially, while the (techno) answer to them grows only linearly.

  First, I should perhaps define what sorts of problems I’m talking about. Sure, people build dams and dikes to keep water from flooding their lands. And we did almost eradicate smallpox. But there will always be another flood coming, or a storm, and there will always be another disease popping up (viruses and bacteria adapt faster than we do).

  In a broader sense, we have gotten rid of some diseases, but gotten some new ones in return. And yes, average life expectancy has gone up, but it’s dependent entirely on the affordability and availability of lots of drugs, which in turn depend on oil being available.

  And if I can be not PC for a moment, this all leads to another double problem. 1) A gigantic population explosion with a lot of members that 2) are, if not weaklings, certainly on average much weaker physically than their ancestors. Which is perhaps sort of fine as long as those drugs are there, but not when they’re not.

  It’s quite simple, isn’t it? Increasing wealth makes us destroy ancient multi-generational family structures (re: the nuclear family, re: old-age homes), societal community structures (who knows their neighbors, and engages in meaningful activity with them?), and the very planet that has provided the means for increasing our wealth (and our population!).

  And in our drive towards what we think are more riches, we are incapable of seeing these consequences. Let alone doing something about them. We have become so dependent, as modern western men and women, on the blessings of our energy surplus and technology that 9 out of 10 of us wouldn’t survive if we had to do without them.

  Nice efforts, in other words, but no radical solutions. And yes, we did fly to the moon, too, but not flying to the moon wasn’t a problem to start with.

  Maybe the universal truth I suspect there is in Meadows’ quote applies “specifically” to a “specific” kind of problem: The ones we create ourselves.

  We can’t reasonably expect to control nature, and we shouldn’t feel stupid if we can’t (not exactly a general view to begin with, I know). And while one approach to storms and epidemics is undoubtedly better than another, both will come to back to haunt us no matter what we do. So as far as natural threats go, it’s a given that when the big one hits we can only evolve through crisis. We can mitigate. At best.

  However: we can create problems ourselves too. And not just that. We can create problems that we can’t solve. Where the problem evolves at an exponential rate, and our understanding of it only grows linearly. That’s what that quote is about for me, and that’s what I think is sorely missing from our picture of ourselves.

  In order to solve problems we ourselves create, we need to understand these problems. And since we are the ones who create them, we need to first understand ourselves to understand our problems.

  Moreover, we will never be able to either understand or solve our crises if we don’t acknowledge how we – tend to – deal with them. That is, we don’t avoid or circumvent them, we walk right into them and, if we’re lucky, come out at the other end.

  Point in case: we’re not solving any of our current problems, and what’s more: as societies, we’re not even seriously trying, we’re merely paying lip service. To a large extent this is because our interests are too different. To a lesser extent (or is it?) this is because we – inadvertently – allow the more psychopathic among us to play an outsize role in our societies.

  Of course there are lots of people who do great things individually or in small groups, for themselves and their immediate surroundings, but far too many of us draw the conclusion from this that such great things can be extended to any larger scale we can think of. And that is a problem in itself: it’s hard for us to realize that many things don’t scale up well. A case in point, though hardly anyone seems to realize it, is that solving problems itself doesn’t scale up well.

  Now, it is hard enough for individuals to know themselves, but it’s something altogether different, more complex and far more challenging for the individuals in a society, to sufficiently know that society in order to correctly identify its problems, find solutions, and successfully implement them. In general, the larger the scale of the group, the society, the harder this is.

  Meadows makes a perhaps somewhat confusing distinction between universal and global problems, but it does work:

  You see, there are two kinds of big problems. One I call universal problems, the other I call global problems. They both affect everybody. The difference is: Universal problems can be solved by small groups of people because they don’t have to wait for others. You can clean up the air in Hanover without having to wait for Beijing or Mexico City to do the same.

  Global problems, however, cannot be solved in a single place. There’s no way Hanover can solve climate change or stop the spread of nuclear weapons. For that to happen, people in China, the US and Russia must also do something. But on the global problems, we will make no progress.

  So how do we deal with problems that are global? It’s deceptively simple: We don’t.

  All we need to do is look at the three big problems – if not already outright crises – we have right now. And see how are we doing. I’ll leave aside No More War and No More Hunger for now, though they could serve as good examples of why we fail.

  There is a more or less general recognition that we face three global problems/crises. Finance, energy and climate change. Climate change should really be seen as part of the larger overall pollution problem. As such, it is closely linked to the energy problem in that both problems are direct consequences of the 2nd law of thermodynamics. If you use energy, you produce waste; use more energy and you produce more waste. And there is a point where you can use too much, and not be able to survive in the waste you yourself have produced.

  Erwin Schrödinger described it this way, as quoted by Herman Daly:

  Erwin Schrodinger [..] has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment — that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatim as a physical description of our economic process. A corollary of this statement is an organism cannot live in a medium of its own waste products.

  The energy crisis flows seamlessly into the climate/pollution crisis. If properly defined, that is. But it hardly ever is. Our answer to our energy problems is to first of all find more and after that maybe mitigate the worst by finding a source that’s less polluting.

  So we change a lightbulb and get a hybrid car. That’s perhaps an answer to the universal problem, and only perhaps, but it in no way answers the global one. With a growing population and a growing average per capita consumption, both energy demand and pollution keep rising inexorably. And the best we can do is pay lip service. Sure, we sign up for less CO2 and less waste of energy, but we draw the line at losing global competitiveness.

  The bottom line is that we may have good intentions, but we utterly fail when it comes to solutions. And if we fail with regards to energy, we fail when it comes to the climate and our broader living environment, also known as the earth.

  We can only solve our climate/pollution problem if we use a whole lot less energy resources. Not just individually, but as a world population. Since that population is growing, those of us that use most energy will need to shrink our consumption more every passing day. And every day we don’t do that leads to more poisoned rivers, empty seas and oceans, barren and infertile soil. But we refuse to even properly define the problem, let alone – even try to – solve it.

  Anyway, so our energy problem needs to be much better defined than it presently is. It’s not that we’re running out, but that we use too much of it and kill the medium we live in, and thereby ourselves, in the process. But how much are we willing to give up? And even if we are, won’t someone else simply use up anyway what we decided not to? Global problems blow real time.

  The more we look at this, the more we find we look just like the reindeer on Matthew Island, the bacteria in the petri dish, and the yeast in the wine vat. We burn through all surplus energy as fast as we can find ways to burn it. The main difference, the one that makes us tragic, is that we can see ourselves do it, not that we can stop ourselves from doing it.

  Nope, we’ll burn through it all if we can (but we can’t ’cause we’ll suffocate in our own waste first). And if we’re lucky (though that’s a point of contention) we’ll be left alive to be picking up the pieces when we’re done.

  Our third big global problem is finance slash money slash economy. It not only has the shortest timeframe, it also invokes the highest level of denial and delusion, and the combination may not be entirely coincidental. The only thing our “leaders” do is try and keep the baby going at our expense, and we let them. We’ve created a zombie and all we’re trying to do is keep it walking so everyone including ourselves will believe it’s still alive. That way the zombie can eat us from within.

  We’re like a deer in a pair of headlights, standing still as can be and putting our faith in whoever it is we put in the driver’s seat. And too, what is it, stubborn, thick headed?, to consider the option that maybe the driver likes deer meat.

  Our debt levels, in the US, Europe and Japan, just about all of them and from whatever angle you look, are higher than they’ve been at any point in human history, and all we’ve done now for five years plus running is trust a band of bankers and shady officials to fix it all for us, just because we’re scared stiff and we think we’re too stupid to know what’s going on anyway. You know, they should know because they have the degrees and/or the money to show for it. That those can also be used for something 180 degrees removed from the greater good doesn’t seem to register.

  We are incapable of solving our home made problems and crises for a whole series of reasons. We’re not just bad at it, we can’t do it at all. We’re incapable of solving the big problems, the global ones.

  We evolve the way Stephen Jay Gould described evolution: through punctuated equilibrium. That is, we pass through bottlenecks, forced upon us by the circumstances of nature, only in the case of the present global issues we are nature itself. And there’s nothing we can do about it. If we don’t manage to understand this dynamic, and very soon, those bottlenecks will become awfully narrow passages, with room for ever fewer of us to pass through.

  As individuals we need to drastically reduce our dependence on the runaway big systems, banking, the grid, transport etc., that we ourselves built like so many sorcerers apprentices, because as societies we can’t fix the runaway problems with those systems, and they are certain to drag us down with them if we let them.

  

  

  
  
  

  

• Government Using Subprime Mortgages To Pump Housing Recovery – Taxpayers Will Pay Again

  Submitted by Jim Quinn via The Burning Platform blog,

  

  It seems hard to believe, but your government is purposely recreating the mortgage debacle of 2007 and putting you on the hook for the billions in losses coming down the road. In their frantic effort to generate the appearance of economic recovery they are willing to gamble with taxpayer’s money while luring unsuspecting blue collar folks into buying houses they can’t afford. During the previous housing bubble, greedy Wall Street bankers, deceitful mortgage brokers, and corrupt rating agencies colluded to commit the greatest control fraud in the history of mankind. This time it is your government, aided and abetted by the Federal Reserve, that is actively promoting the lending of money to people incapable of paying it back. And again, you the taxpayer will be on the hook when it predictably blows up.

  The FHA, created during the first Great Depression, is supposed to be self-sustaining through mortgage insurance premiums charged to homeowners, just like Fannie, Freddie, Medicare, Social Security, and student loan lending were supposed to be self- sustaining through taxes, fees, and interest. This agency was supposed to promote homeownership for lower income Americans, but has been used by politicians as a tool to capture votes, payoff crony capitalist benefactors, and as a Keynesian stimulus tool designed to kindle a fake housing recovery. They entered the fray at the tail end of the last Fed/Wall Street created housing bubble, insuring a huge number of subprime mortgage loans from 2007 through 2009. The taxpayer has already had to bail out this incompetent, politically motivated, joke of an agency to the tune of $1.7 billion in 2014.

  Edward J. Pinto, a former Fannie Mae official, estimates that under standard accounting practices the agency is already insolvent to the tune of $25 billion. Mark to fantasy accounting hasn’t just benefitted the criminal Wall Street cabal, but also the bloated pig government housing agencies – Fannie, Freddie and the FHA. The FHA’s share of new loans with mortgage insurance stood at 16.4% in 2005 and currently stands at 44.3%. This is a ridiculously high level considering the percentage of first time home buyers is near all-time lows and low income buyers have lower real median household income than they had in 2005. Distinguished congresswoman Maxine Waters, who once declared: “We do not have a crisis at Freddie Mac, and particularly Fannie Mae, under the outstanding leadership of Frank Raines.”, prior to them imploding and costing taxpayers $187 billion in losses, thinks the FHA is doing a bang up job. Her financial acumen is unquestioned, so you can expect another bailout in the near future.

  “Above all, we must strive to have a healthy, viable FHA that can continue to facilitate homeownership for first-time and low-income home buyers, while standing ready in the unfortunate event of another housing downturn.”

  How could politically motivated government apparatchiks insuring subprime mortgages with down payments of 3.5%, using weak underwriting standards, easing restrictions on borrowers with past foreclosures, in a housing market poised to drop by 20% when this next Fed/Wall Street housing bubble pops possibly go wrong? The entire faux housing recovery, which has driven average home prices up 30% since 2012, has been driven on the high end by The Wall Street hedge fund buy foreclosures in bulk and rent scheme, along with hot money cash from Chinese and Russian oligarchs, while the low end is being propped up by Fannie, Freddie, and the FHA with their brilliant idea to insure 3.5% down payment mortgages to future foreclosure aspirants.

  We have the employment to population ratio at 35 year lows. We have had stagnant real wage growth since 2008 as low paying service Obama jobs have replaced higher paying production jobs. We have real median household income at 1989 levels and still 9% below the 2008 peak. We have mortgage applications 56% below the 2005 peak and hovering at 1996 levels. We still have 4 million homeowners underwater in their mortgages. We have housing starts languishing 40% below the long-term average. We have the home ownership rate of 63.8% at quarter of a century lows. We have mortgage rates at all-time lows. And we have home prices soaring far above the inflation rate and wages because the Federal Reserve, in collaboration with the Federal government decided to create another housing bubble (along with stock and bond bubbles) to rectify the disastrous consequences of their last housing bubble.

  

  This is the absolute perfect point in time when the FHA thinks it is necessary for them to lure low income, low IQ, credit challenged dupes into the housing market. Risky mortgages are increasingly being underwritten by thinly capitalized non-banks and guaranteed by the FHA. In 2012 the large Wall Street banks represented 65.4% of FHA-backed loans. That number is now 29.6%, as even the risk seeking Wall Street criminal banks have come to their senses and realize loaning money to people that won’t be able to repay them will end badly – AGAIN. In their place, dodgy mortgage brokers (non-banks) now represent 62.2% of the FHA lending. Of course, once these low life mortgage brokers make the loans, Wall Street will package them, get a AAA rating from their bitches at S&P or Moodys, and then peddle them to yield seeking pension plans and life insurance companies. Sound familiar?

  If you thought the FHA was supposed to help young, employed, first time home buyers who have a limited credit history, you would be badly mistaken. There is a reason first time home buyers only make up 29% of all home buyers, near the all-time low. Over history, when the housing market was not being manipulated by warped Federal Reserve monetary policies and government intervention, first time home buyers accounted for 40% to 45% of all home sales. Even with all-time low mortgage rates, courtesy of the Fed’s ZIRP, the lack of jobs, crushing student loan debt, low wages, and over-priced homes has kept traditional young buyers out of the market. But, the FHA’s goal is to convince anyone who can fog a mirror to get into the housing market before it’s too late.

  

  To get some perspective on how the FHA is actively creating the next multi-billion dollar taxpayer bailout, you need to understand FICO credit scoring. Here are the categories:

  • Excellent Credit: 781 – 850
  • Good Credit: 661-780
  • Fair Credit: 601-660
  • Poor Credit: 501-600
  • Bad Credit: below 500

  The average FICO score of all Americans is 687, barely above the Fair Credit level. The average for Americans getting a mortgage is 724, down from 750 in 2012, as the reckless mortgage brokers have taken share from the banks. It is only rational that people with good credit should be the only people borrowing hundreds of thousands of dollars for 30 years. Not in the eyes of the FHA and their politician overseers, who buy votes by doling out free shit to their constituents. Why not houses? You can get an FHA loan with a credit score as low as 500, so long as you have a 10% down payment. And once you hit a 580 credit score, you only need a 3.5% down payment. Credit scores below 600 mean that you have significant derogatory information on your credit report. In other words, you have proven to be a deadbeat. Credit scores below 600 are the result of missing multiple payments on credit cards and auto loans; having multiple collection items or judgments; and potentially having a very recent bankruptcy or foreclosure. Sounds like someone I’d loan money to.

  After financial institutions lost hundreds of billions (covered by American taxpayers at the point of a gun through TARP) by peddling low or no down payment mortgages for $500,000 McMansions to deadbeats with no willingness or means of repaying, the percentage of low down payment mortgages rationally plunged from 77% to 60% for first time buyers. Low down payment mortgage loans are a high risk proposition. It wasn’t that long ago when a borrower had to put up 10% to 20%. If you can’t save enough for a 10% down payment then you probably shouldn’t own a house. If your down payment is less than 8%, you are immediately underwater as the costs to sell a home usually total 8% of the selling price. The percentage of first time buyer mortgages with a low down payment mortgage has risen to 66% in the last year and is headed higher, as the FHA is pushing hard on their 3.5% down payment loans.

  

  As a general risk guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28% of your gross monthly income. Total debt to income generally cannot exceed 43% of your gross monthly income. These guidelines have worked for decades in assessing whether a borrower can afford a mortgage. Why would an arrogant bureaucratic agency, controlled by politicians like Mel Watt and Maxine Waters, follow standard industry risk standards when they are only gambling with taxpayer funds? The FHA is exempt from the qualified mortgage requirement of a 43% debt-to-income ratio. Many loans have a debt-to-income ratio above 55%. Even worse, the FHA only looks at mortgage payments in their calculation. What do you think the odds are of a borrower with a 580 credit score, making $3,000 per month with a $1,500 monthly mortgage payment, of defaulting? They would be high under normal circumstances, and will be off the charts after the next financial bubble bursts and millions are put out of work again.

  People who are serial defaulters with 580 credit scores cannot expect to get the lowest rates. They should expect to see interest rates that are at least three percent higher than interest rates awarded to borrowers with good credit. Even the 3.5% down payment requirement is flexible for the FHA. The FHA is perfectly willing to accept a gift or inheritance as a down payment. So, you could have no savings, a 580 FICO, a 50% debt-to-income ratio and a gift from your parents and that would be sufficient to get you a loan. And it gets better. The transaction can be designed with the buyer paying a higher price but getting a credit for closing costs that covers the 3.5% down payment and other fees. Therefore, a serial deadbeat can purchase a house with a government guarantee without putting up one dime of their own cash. Sounds like a great deal for the taxpayer.

  I have personal experience with a current FHA mortgage transaction as my 79 year old widowed mother is in the midst of selling the 900 square foot row home that she has lived in for 58 years in the first ring of suburbs outside of Philadelphia. It was once a vibrant middle class neighborhood of working folk, but has been gradually decaying as the old guard dies off and is replaced by lower class Section 8 tenants. She is selling ten years too late as prices have dropped 30% since 2005. She asked $72,900 and received an offer within two weeks of $66,000, with a $4,000 closing credit. My siblings and I didn’t expect her to get an offer in the 60s, as the dump next door was sold for $30,000 and went Section 8 a couple years ago. Anyone buying this house is destined for another 30% loss over the next ten years. So we told her to take the offer before it was too late.

  My brother and I met the realtor at her house after work a couple weeks ago. We sat around the dining room table that had seen so many family gatherings over the last half century and discussed the particulars of the deal and the buyer’s background. It was an enlightening glimpse into the Federal government’s futile attempt to engineer a housing recovery on the backs of hard working tax payers with good credit. The buyer is a 20 something guy living with his parents, with a girlfriend and a young kid. He reportedly makes $29,000 per year. His girlfriend was not on the mortgage application. The only logical explanation is she has bad credit. He is putting 3.5% down and getting an FHA guaranteed mortgage. The $4,000 closing credit will cover his 3.5% down payment and closing costs. He evidently has no money to put down when purchasing this home. Sounds promising.

  As a high risk borrower he will be lucky to get a 5.5% rate mortgage. In a world where risk mattered, it should be 7.5%. He should thank Ben and Janet for encouraging this type of mal-investment across the country with their 0% interest rate policy. His monthly cost to own this home would be approximately $800, or about 33% of his monthly gross income. Of course, no one brings home their gross income. The $800 would be about 40% of his take home pay after taxes. He did arrive at the house in a nice car, so it is very likely he has at least one auto loan of $20,000 or more. If he doesn’t have a dime to put down on the house, he is likely acting like a true American and rolling a $10,000 credit card balance at 17% interest. His total debt payments assuming a six year auto loan at 3% and making the minimum payments on his credit card would total at least 55% of his monthly gross income. Lucky for him, the FHA doesn’t worry about his non-mortgage debt payments.

  So this guy comes home each month with about $2,000 of income and pays out $1,300 in debt payments, leaving him $700 to pay for health insurance, food, utilities, cable, cell phones, entertainment, and any vices he and his baby momma may have. If this isn’t a recipe for default, nothing is. No bank in their right mind would loan this man $66,000 for 30 years at 5.5%. That’s where the crooked nonbank mortgage companies enter the scene, just as they did when their patron saint Angelo “the tan man” Mozilo was roaming the land doling out billions in subprime mortgages while cashing in his stock options in 2005. Remember back in the glory days from 2002 through 2007 when mortgage company fronts, staffed by used car salesmen, pizza delivery guys, and convicted criminals peddled no-doc, negative amortization, liar loan, subprime slime to every Juan, Bubba and Lakeisha, filling the derivative pipeline for Wall Street to destroy the financial system? They’re back.

  These parasites don’t worry about individual risk, financial risk, or systematic risk. They care about upfront fees and their ability to package their toxic subprime mortgages and dump the risk on someone else before it all blows up again. They are willing to issue mortgages to people unlikely to repay because there is a big difference between the risk that faces the company, and the risk that faces the blood sucking founder of the mortgage front. It’s a perfect opportunity for shysters and scumbags. You set up a mortgage company, and take extraordinarily opulent commissions on all loans you book. In this Fed created paradise of low interest rates, investors are desperate for yield. An FHA loan provides the opportunity for an investor to receive a good yield and a guarantee from the Federal government – aka YOU THE TAXPAYER.

  The conscienceless CEO and executives of these MBS machines revel in the vast commission revenue as the loans are booked. These companies retain little or no capital on their balance sheets. Instead, they pay dividends to the owners as quickly as possible, before the bottom drops out. When the next Fed induced financial crisis happens the mortgage company will go bankrupt, but the slimy owners will walk away unscathed. These fly by night operations are booking as much business as possible before the music stops playing. When the music stops, the taxpayer will be on the hook again, as the FHA will need a $25 billion to $50 billion bailout. The FHA is flying under the radar, still in the shadow of equally insolvent Fannie and Freddie. Their mission is supposedly to help lower income people achieve the American Dream, but their politically motivated actions today will lead to millions of borrowers experiencing an American Nightmare and taxpayers footing the bill for their crackpot Keynesian scheme, aided and abetted by the Janet Yellen and her Fed cronies.

  

  The FHA has $64 billion of liabilities on their balance sheet supported by $3 billion of capital. They are currently accelerating their guarantees to subprime borrowers with 3.5% down mortgages. Fannie and Freddie will purchase mortgages with only 3% down payments. Wall Street issued $1 trillion of mortgage backed securities last year, with the Fed buying 20% of the issuance as part of QE3. If this sounds like a replay of the waning days of the last Fed induced housing bubble, it’s because it is. Both debacles have been fueled by the mal-investment created by an easy money, excessively low interest rate environment, designed to benefit bankers, billionaires, politicians and mega-corporations. The Fed already has $1.7 trillion of Wall Street generated toxic mortgage debt on its bloated balance sheet. By the time this imminent catastrophe runs its course, there will be another trillion of toxic mortgages polluting their insolvent balance sheet.

  To paraphrase H.L. Mencken, anyone who wants the government and Federal Reserve to create a housing recovery, deserves to get it good and hard, like a four by four to the side of their head. Subprime mortgages, subprime auto loans, and subprime student loans driven by preposterously low interest rates are the liquefying foundation of this fake economic recovery. Most rational people would agree that loaning money to people who will eventually default is not a good idea. But it is the underpinning of everything the Fed and government apparatchiks have done to keep this farce going a little while longer. It will not end well – Again.

   

  

  

  
  
  

  

• Following "Terrorist-Fighting" Ban On Cash, France Passes "Le Patriot Act"

  In its efforts to 'protect' its citizens from terrorists, France deemed it necessary in March to "fight against the use of cash and anonymity in the French economy,"  and drastically reduced the public's freedom and privacy to spend. Today, that freedom and privacy took another blow as the French government passed "Le Patriot Act" dramatically beefing up the government's spying powers.

   

  First a ban on cash… French Finance Minister Michel Sapin brazenly stated  that it was necessary to "fight against the use of cash and anonymity in the French economy." He then announced extreme and despotic measures to further restrict the use of cash by French residents and to spy on and pry into their financial affairs.

  These measures, which will be implemented in September 2015, include:

  Prohibiting  French residents from making cash payments of more than 1,000 euros, down from the current limit of  3,000 euros.

   

  Given the parlous state of the stagnating French economy the limit for foreign tourists on currency payments will remain higher, at 10,000 euros down from the current limit of 15,000 euros.

   

  The threshold below which a French resident is  free to convert euros into other currencies without having to show an identity card will be slashed from the current level of 8,000 euros to 1,000 euros.

   

  In addition any cash deposit or withdrawal of more than 10,000 euros during a single month will be reported to the French anti-fraud and money laundering agency Tracfin.

   

  French authorities will also have to be notified of any freight transfers within the EU exceeding 10,000 euros, including checks, pre-paid cards, or gold.

  *  *  *

  And now, as Bloomberg reports, a 'ban' on personal privacy…

  A proposed French law beefing up the government’s spying powers following the Charlie Hebdo terrorist attacks in Paris sailed through the lower house of parliament.

   

  The National Assembly said 438 lawmakers voted in favor, 86 against, and 42 abstained. The bill now goes to the Senate which can suggest amendments but not overturn the assembly’s vote.

   

  The wide margin of victory came even as mounting opposition to the bill united business leaders, the Communist Party, Internet activists and lawyers. The country’s two main parties — the ruling Socialists and former President Nicolas Sarkozy’s UMP — back it as necessary to combat terrorism, even though some prominent members of both parties voted against it.

   

  The bill has generated heated rhetoric: the head of the Paris Bar and a former head of the country’s business lobby said it will seriously undermine constitutional liberties while Prime Minister Manuel Valls accused opponents of being naive about the threats facing France. The fallout from the disclosure in 2013 of massive surveillance by U.S. authorities, and the enduring negative reputation of George W. Bush’s 2001 “Patriot Act” have added to the controversy.

   

  “This law doesn’t go as far as the Patriot Act because that was never its founders’ intention and because even if they wanted to copy their American counterparts, the French services lack the means to listen to everyone permanently,” said Eric Denece, director of the French Center for the Study of Intelligence.

  The proposed law sets rules on how investigators can tap phone lines, locate people through mobile phones, intercept e-mails, take secret photographs and enter homes to place microphones without preliminary approval of a judge. It also creates a new independent body overseeing surveillance activities. And for the first time, it gives France’s top administrative court the power to order an end to surveillance.

  Opponents have focused on its supposed lack of effective oversight, its wide definition of threats facing France, and the use of algorithms to analyze communication patterns.

   

  “Serious flaws include expansive powers for the prime minister to authorize surveillance for purposes far beyond those recognized in international human rights law; lack of meaningful judicial oversight; requirements for private service providers to monitor and analyze user data and report suspicious patterns; prolonged retention periods for some captured data; and little public transparency,” Human Rights Watch said in a April 6 statement.

  Don't forget – it's for your own protection.. and if you do not agree – you're a terrorist too:

  Valls rejected the criticism in his speech to parliament.

   

  “The law is strictly focused on preventing serious threats,” he said. “The criticisms and postures that evoke a French Patriot Act or a police state are irresponsible lies.”

  *  *  *

  Feel safer now?

  

  

  
  
  

  

• Oil Rises After API Reports First Inventory Draw In 16 Weeks

  For the first time since the first week of January, API reports a 1.5 million barrel inventory draw (against last week’s 4.2mm build). This also comes with a 336k draw from Cushing following on from last week’s 162k draw. Oil prices have responded by pushing higher, though it appears most of this was priced in.

  If DOE confirms this draw, then this will be the first draw since the first week of Jan…

  

   

  Which appears to have been largely priced in today…

  

   

  Charts: Bloomberg

  

  

  
  
  

  

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• How Chinese Oligarchs Used Fake Trade Invoices To Launder Almost $1 Trillion Globally

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Our estimates show that the developing world lost US$991.2 billion in illicit financial flows in 2012, over ten times the amount of official development aid received by these countries in that year, and greater than the amount of net foreign direct investment received. From 2003 – 2012, US$6.6 trillion left developing country economies illicitly.

   

  Illicit outflows from developing countries increased at a trend rate of 9.4 percent per annum in real terms over the time period from 2003 to 2012. Though growth rates of IFFs tended to be higher before the financial crisis, their volume continues to climb. Over this time period, illicit financial flows were equivalent to 3.9 percent of developing world GDP on average.

   

  Save for a brief slowdown during the financial crisis, illicit financial flows have been allowed to grow unchecked over the past decade. In 2012, illicit outflows reached a staggering new peak of US$991 billion.

   

  – From the Global Financial Integrity Report: Illicit Financial Flows from Developing Countries: 2003-2012

  While the U.S. government loves to target and imprison small time so-called “money launderers” such Bitcoin pioneer Charlie Shrem, the real money launderers, the ones who help drug cartels and pump criminally sourced money into foreign real estate thus pricing out domestic populations worldwide, face no consequences whatsoever. I’ve explored this hypocrisy on many occasions, most recently in the post, Some Money Launderers are More Equal than Others Part 2 – CEO of BitInstant is Arrested. Here’s an excerpt:

  Last May, I wrote an article titled: Some Money Launderers are “More Equal” than Others, which likened the U.S. government to the pigs that ruled the roost in George Orwell’s classic novel Animal Farm. In that article, I decided to compare the way the “authorities” used money laundering laws against Liberty Reserve, versus the way they tip-toed around massive money laundering for Mexican drug cartels that HSBC engaged in. Since I wrote that article, JP Morgan has been fined tens of billions of dollars for a cornucopia of criminal activities. Meanwhile, we have yet to see a single executive arrested or put behind bars. Why?

   

  I think it is quite obvious. The United States’ “economy” has devolved into nothing more than a state-sanctioned criminal racket. A handful of oligarchs and the corporations they control, are immune from prosecution no matter what they do. They have a complete and total license to steal with impunity. Meanwhile, if a peasant is caught stealing 10 dollars or found with a dime bag of weed, it is jail for life. ‘Merica.

   

  So now I turn your attention to the breaking news that Charlie Shrem, the impressive, young and very talented kid behind Bitcoin exchange BitInstant, has been arrested.

  Shrem now sits in a prison cell for his victimless non-crime. This is how the United States Attorney’s Office for the Southern District of New York proudly announced the charges against Shrem:

  

  Yes, you read that right. ONE MILLION DOLLARS. Meanwhile, big banks launder billions for drug cartels, and corrupt Chinese launder trillions into overseas real estate, yet take a look at who ends up in prison. A 24-year old innovator and entrepreneur who harmed no one by “laundering” a million bucks. You only need to ask yourself two questions to understand what is going on here:

  1. Who poses a greater risk to society, Charlie Shrem or HSBC executives?
  2. Who poses a greater risk to the status quo’s rigged system, Charlie Shrem or HSBC executives?

  Now you know why one person sits in jail, while the others remain free. The U.S. justice system is a compete and total joke.

  But I digress. This post is supposed to be about illicit Chinese funds and how it’s basically a total free for all. Much of this money has entered U.S. real estate, helping to price out American families who can barely afford rent at this point (see: 1 in 4 Renters Use Half Their Pay for Housing). I’ve focused on this issue often over the past couple of years. For example, in the post, Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering, I wrote:

  American citizens already have a hard enough time affording a home. Squeezed out by financial oligarchs buying tens of thousands of properties for rental income, and faced with real wages that haven’t budged since the mid-1970s, the demographic of U.S. citizens that historically dominated the new home market has been forced to live in their parents’ basements. Just to kick em’ when they’re down, Americans now face the impossible task of competing with laundered Chinese money.

   

  While this trend may not be new, it is certainly accelerating. According to the National Association of Realtors in its annual report on foreign home purchases, transactions from Greater China (includes Hong Kong and Taiwan) were up 72% in the past year to $22 billion. In some California communities, 90% of real estate buyers are from China. Yes, 90%. Naturally, many of them are buying multi-million dollar homes in “all cash” transactions.

  There have been several studies looking at how this money is laundered, but a report from Global Financial Integrity (GFI) released last December points out that fake trade invoices, i.e., misinvoicing trade transactions or trade-based money laundering, seems to be the primary vehicle used. Quartz dug into the data and provided some interesting commentary and telling charts. Here are a few excerpts:

  China’s capital account might be closed—but it’s not that closed. Between 2003 and 2012, $1.3 trillion slipped out of mainland China—more than any other developing country—says a report (pdf) by Global Financial Integrity (GFI), a financial transparency group. The trends illuminate China’s tricky balancing act of controlling the economy and keeping it liquid.

   

  GFI says the most common way money leaks out in the developing world is through fake trade invoices. The other big culprit is “hot money,” likely due to corruption—which GFI gleans from inconsistencies in balance of payments data.

   

  In China, both activities have picked up since 2009. In fact, $725 billion—more than half of the outflows from the last decade—has left since 2009, just after the Chinese government launched its 4 trillion yuan ($586 billion) stimulus package.

   

  Even after that wound down, the government encouraged investment to boost the economy, prodding its state-run banks to lend. Since loan officers dish out credit to the safest companies—those with political backing—this overwhelmingly benefited government officials and their cronies.

   

  That’s left small private companies so starved for capital that they’ll pay exorbitant rates for shadow-market loans, which a lot of China’s sketchy trade invoicing outflows likely sneaked back in to speculate on shadow finance and profit from the appreciating yuan. Corrupt officials, meanwhile, shifted their ill-gotten gains into overseas real estate and garages full of Bentleys.

  The paragraphs above are particularly telling. Just like in the U.S., the so-called government “stimulus” in China achieved nothing more than to stimulate an oligarch crime spree. Hence the global boom in $100 million real estate, art and everything extremely high-end. As intended, the bailouts and stimulus on a global basis went directly to the 0.0001%.

  Finally, here are a couple of choice passages I found from the GFI report itself:

  This report, the latest in a series of annual reports by Global Financial Integrity (GFI), provides estimates of the illicit flow of money out of the developing world–as a whole, by region, and by individual country–from 2003-2012, the most recent ten years of data availability.

   

  The vast majority of illicit financial outflows is due to trade misinvoicing.

  Can you believe it’s not Bitcoin after all!

  Save for a brief slowdown during the financial crisis, illicit financial flows have been allowed to grow unchecked over the past decade. In 2012, illicit outflows reached a staggering new peak of US$991 billion.

  Read that twice, and then read it again. The banker bailouts bailed out the criminals and their criminal global financial system, which then ramped to new heights of corruption and fraud in the subsequent years.

  Illicit financial flows from developing countries are facilitated and perpetuated primarily by opacity in the global financial system. This endemic issue is reflected in many well-known ways, such as the existence of tax havens and secrecy jurisdictions, anonymous companies and other legal entities, and innumerable techniques available to launder dirty money—for instance, through misinvoicing trade transactions (often called trade-based money laundering when used to move the proceeds of criminal activity).

  Now, here are a couple of the main conclusions from the report:

  Our estimates show that the developing world lost US$991.2 billion in illicit financial flows in 2012, over ten times the amount of official development aid received by these countries in that year, and greater than the amount of net foreign direct investment received. From 2003 – 2012, US$6.6 trillion left developing country economies illicitly.

   

  Illicit outflows from developing countries increased at a trend rate of 9.4 percent per annum in real terms over the time period from 2003 to 2012. Though growth rates of IFFs tended to be higher before the financial crisis, their volume continues to climb. Over this time period, illicit financial flows were equivalent to 3.9 percent of developing world GDP on average.

  That is what Oligarchy looks like.

  *  *  *

  For related articles, see:

  Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering

  Open the Floodgates – Chinese Inquiries on U.S. Real Estate Soar 35% After Easing of Visa Rules

  Corrupt Chinese Politicians are Buying Billions in U.S. Real Estate

  Welcome to Arcadia – The California Suburb Where Wealthy Chinese Criminals are Building Mansions to Stash Cash

  How NYC’s Biggest Real Estate Project in a Generation is Being Financed by Selling Green Cards to the Chinese

  

  

  
  
  

  

• Federal Reserve 1 – 0 Saudi Arabia

  Since we last updated the state of Saudi Arabia’s reserve stash, things have gone from bad to worse. It appears the battle to crush US Shale producers is taking its toll as The FT reports, Saudi Arabia is burning through its foreign reserves at a record rate as the kingdom seeks to maintain spending plans (and thus social stability) despite lower oil prices. All the time The Fed remains ‘easy’, no matter how negative US Shale cashflows are, the muppets will buy their debt and keep the mal-invested market alive. Saudi reserves are now their lowest in almost 2 years (but they have plenty more to chew through to out-wait The Fed).

  Saudi Reserves have dropped to 2 year lows and fallen by the most ever in the last 2 months…

  

   

  As The FT reports,

  The central bank’s foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz al-Saud dips into Riyadh’s rainy-day fund and increases domestic borrowing to fund public sector salaries and large development projects.

   

  The latest data show Saudi’s foreign reserves dropped by $16bn to $698bn in March, driven by public sector bonuses paid by King Salman after he assumed power in January. This follows a fall of $20bn in February. Saudi Arabia has spent $47bn of foreign reserves since October.

   

  As one analyst noted,  “There is a need to rationalise spending,” as King Salman promised a bonus payment for military personnel engaged in the kingdom’s month-long bombardment of Houthi rebels in Yemen, a campaign that itself added pressure to state coffers.

   

  …

   

  “The [military] bonuses are not an encouraging sign,” said Steffen Herthog of the London School of Economics. “It shows the knee-jerk reaction to political challenges is to distribute more money.”

  *  *  *
  The royal family, whose social contract with the people offers cradle-to-grave care in return for loyalty, is seeking to reduce state subsidies without sparking popular anger. But analysts are unclear how quickly the government can move on such a sensitive topic.

  *  *  *

  Simply out, as long as The Fed keeps ZIRP, it will cost Saudi Arabia.

  

  

  
  
  

  

• Ron Paul Warns The "USA Freedom Act" Is Just Another Name For Lost Liberty

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

  Apologists for the National Security Agency (NSA) point to the arrest of David Coleman Headley as an example of how warrantless mass surveillance is necessary to catch terrorists. Headley played a major role in the 2008 Mumbai terrorist attack that killed 166 people.

  While few would argue that bringing someone like Headley to justice is not a good thing, Headley’s case in no way justifies mass surveillance. For one thing, there is no “terrorist” exception in the Fourth Amendment. Saying a good end (capturing terrorists) justifies a bad means (mass surveillance) gives the government a blank check to violate our liberties.

  Even if the Headley case somehow justified overturning the Fourth Amendment, it still would not justify mass surveillance and bulk data collection. This is because, according to an investigation by ProPublica, NSA surveillance played an insignificant role in catching Headley. One former counter-terrorism official said when he heard that NSA surveillance was responsible for Headley's capture he “was trying to figure out how NSA played a role.”

  The Headley case is not the only evidence that the PATRIOT Act and other post-9/11 sacrifices of our liberty have not increased our security. For example, the NSA’s claim that its surveillance programs thwarted 54 terrorist attacks has been widely discredited. Even the president’s Review Group on Intelligence and Communications Technologies found that mass surveillance and bulk data collection was “not essential to preventing attacks.”

  According to the congressional Joint Inquiry into Intelligence Activities before and after the Terrorist Attacks of September 11, 2001 and the 9/11 Commission, the powers granted the NSA by the PATRIOT Act would not have prevented the 9/11 attacks. Many intelligence experts have pointed out that, by increasing the size of the haystack government agencies must look through, mass surveillance makes it harder to find the needle of legitimate threats.

  Even though mass surveillance threatens our liberty, violates the Constitution, and does nothing to protect us from terrorism, many in Congress still cling to the fiction that the only way to ensure security is to give the government virtually unlimited spying powers. These supporters of the surveillance state are desperate to extend the provisions of the PATRIOT Act that are set to expire at the end of the month. They are particularly eager to preserve Section 215, which authorizes many of the most egregious violations of our liberties, including the NSA’s “metadata” program.

  However, Edward Snowden's revelations have galvanized opposition to the NSA’s ongoing violations of our liberties. This is why Congress will soon vote on the USA FREEDOM Act. This bill extends the expiring surveillance laws. It also contains some “reforms” that supposedly address all the legitimate concerns regarding mass surveillance.

  However, a look at the USA FREEDOM Act’s details, as opposed to the press releases of its supporters, shows that the act leaves the government’s mass surveillance powers virtually untouched.

  The USA FREEDOM Act has about as much to do with freedom as the PATRIOT Act had to do with patriotism. If Congress truly wanted to protect our liberties it would pass the Surveillance State Repeal Act, which repeals the PATRIOT Act. Congress should also reverse the interventionist foreign policy that increases the risk of terrorism by fostering resentment and hatred of Americans.

  Fourteen years after the PATRIOT Act was rushed into law, it is clear that sacrificing liberty does little or nothing to preserve security. Instead of trying to fool the American people with phony reforms, Congress should repeal all laws that violate the Fourth Amendment, starting with the PATRIOT Act.

  

  

  
  
  

  

• "Oh It's Gonna Blow Up Tonight" – Baltimore In Turmoil After Latest Gun 'Incident'

  The latest out of Baltimore appears to be that although police are denying that the man who was taken to the hospital (identified as Robert Tucker) was shot or even injured, no one on the ground trusts anyone else, a situation would has the potential to spontaneously combust at any given time…

  No matter official BPD account, locals say trust so broken w/police they won’t believe anyway. As 1 said, situation here ‘to be continued’

  — Hannah Allam (@HannahAllam) May 4, 2015

  Doctors have withheld information concerning his both his condition and what exactly happened to Tucker. #RobertTucker #BaltimoreUprising

  — Benjamin Jancewicz (@benjancewicz) May 4, 2015

  Sen Pugh has brought #RobertTucker, to his family and he is okay yet is twitching, limping, and unable to speak #BaltimoreUprising

  — Benjamin Jancewicz (@benjancewicz) May 4, 2015

  Update: Baltimore police now claim they did not shoot anyone and the person in question was arrested for handgun possession.

  MORE: #Baltimore PD claims on Twitter man not shot, was only arrested for handgun possession http://t.co/T82pRJ5zrA pic.twitter.com/Gd34AYGmSa

  — RT America (@RT_America) May 4, 2015

   

   

  #Baltimore Police say the man who was arrested for having a revolver was transported to the hospital, but he was not shot or injured.

  — WJZ | CBS Baltimore (@cbsbaltimore) May 4, 2015

  And the video:

   

  Broadcast live streaming video on Ustream

   

  And then this:

  #Baltimore police: Gun discharged, no one shot http://t.co/Li5ouPMWuX — @evanperez reports pic.twitter.com/869YPYaaKM

  — Jake Tapper (@jaketapper) May 4, 2015

  So a gun did go off after all?

  * * *

  Just as things in Baltimore were quieting down, here is McClatchy’s reporter Hannah Allam with an update on what may likely rekindle local violence and push the local riots to the next level.

  At corner of north & penn in Baltimore – police appear to have shot young man. Riot police back on scene, ppl stumbling away w/spray in eyes

  — Hannah Allam (@HannahAllam) May 4, 2015

  ‘here we go again!’ Crowd yelling. #Baltimore pic.twitter.com/AjVXfpUYCM

  — Hannah Allam (@HannahAllam) May 4, 2015

  ‘We’ll be back under martial law tonight!’ EMTs take body away on stretcher. Witnesses saying he’s alive #Baltimore

  — Hannah Allam (@HannahAllam) May 4, 2015

  Bystanders: ‘another black man shot in the back while he was running away.’ ‘Oh it’s gonna blow up tonight’ #Baltimore

  — Hannah Allam (@HannahAllam) May 4, 2015

  Man turns corner and sees huge police presence & angry crowd & cordons: ‘Man, I can’t get home AGAIN?!’ #Baltimore

  — Hannah Allam (@HannahAllam) May 4, 2015

  Videographer & I happened to be here for b-roll for a story. Police chopper was overhead saying to step away from police. Next thing: chaos

  — Hannah Allam (@HannahAllam) May 4, 2015

  Within seconds, vans of police showed up, also EMTs. My colleague got photos of the boy who was shot: ‘he doesn’t look good,’ she said.

  — Hannah Allam (@HannahAllam) May 4, 2015

  Crowd angry Billy Graham ministers on scene: ‘What do you want us to pray for? What?!’ & ‘Jesus ain’t gonna stand between me and a bullet!’

  — Hannah Allam (@HannahAllam) May 4, 2015

  * * *

  Perhaps just to make sure CNN’s ratings spike again, here is the president with a little racially-unifying helping hand:

  • OBAMA: MEN OF COLOR TOO OFTEN FIND INJUSTICE IN LAW ENFORCEMENT

  Well…

  

  

  

  

  
  
  

  

• How The Shanghai Composite Can Rise 461% From Here

  If there’s one capital markets-related story that just never seems to get old it’s the unrelenting rally in Chinese stocks. The country’s equity mania truly is the gift that keeps on giving, and not just for those who are riding the wave, but also for those who, like us, appreciate the humor in a giant, margin-fueled bubble that’s captivated millions upon millions of semi-literate housewives and banana vendors turned day traders. Unfortunately, Chinese regulators threw a bit of cold water on the party last month, suggesting a move to curb margin lending may be in the cards. 

  Nevertheless, a new note from Macquarie suggests the margin madness may be just getting started. Because investors can borrow 86 yuan for every 100 yuan they have in collateral, margin debt could “theoretically” balloon from 1.7 trillion yuan to a hilarious 9.4 trillion yuan, a 461% increase. Here’s more via Bloomberg:

  Openings of Chinese brokerage accounts have surged in recent months as has the take-up of margin accounts which offer investors the ability to borrow against their stock portfolios…

  

   

  How high could the whole thing go, you ask? The Macquarie analysts estimate that, at an extreme, investors could borrow RMB 85.7 for every RMB 100 of collateral in their portfolios. That suggests the theoretical ability to increase margin finance loans from the current 1.7 trillion yuan to as much as 9.4 trillion yuan, or 461 percent higher than the current level. While it’s doubtful that would ever happen (banks, after all, do not have unlimited lending capacity and the government has already instituted some curbs on margin lending) even a moderate increase in margin borrowings could be meaningful. At 3.2 percent of total market cap, China’s margin debt has already eclipsed bubble-era Japan as well as pre-Asian Financial Crisis Korea…

  

  One word: parabolic:

  

  *  *  *

  And, as if on cue, Shanghai Securities News is reporting that some Chinese brokers are set to raise their margin trading requirements: 

  Huatai Securities and Tebon Securities raised margin requirement for margin trading and short selling to control risks, Shanghai Securities News reports, without citing anyone.

  Haitong Securities cut the amount that clients could use securities as collateral for margin trading and short selling.

  We suspect this will not be welcome news to China’s legion of rabid day traders.

  

  

  

  
  
  

  

• Stephen Roach Derides Central Bankers' Mass Delusion

  Authored by Stephen Roach, originally posted at Project Syndicate,

  The world economy is in the grips of a dangerous delusion. As the great boom that began in the 1990s gave way to an even greater bust, policymakers resorted to the timeworn tricks of financial engineering in an effort to recapture the magic. In doing so, they turned an unbalanced global economy into the Petri dish of the greatest experiment in the modern history of economic policy. They were convinced that it was a controlled experiment. Nothing could be further from the truth.

  The rise and fall of post-World War II Japan heralded what was to come. The growth miracle of an ascendant Japanese economy was premised on an unsustainable suppression of the yen. When Europe and the United States challenged this mercantilist approach with the 1985 Plaza Accord, the Bank of Japan countered with aggressive monetary easing that fueled massive asset and credit bubbles.

  The rest is history. The bubbles burst, quickly bringing down Japan’s unbalanced economy. With productivity having deteriorated considerably – a symptom that had been obscured by the bubbles – Japan was unable to engineer a meaningful recovery. In fact, it still struggles with imbalances today, owing to its inability or unwillingness to embrace badly needed structural reforms – the so-called “third arrow” of Prime Minister Shinzo Abe’s economic recovery strategy, known as “Abenomics.”

  Despite the abject failure of Japan’s approach, the rest of the world remains committed to using monetary policy to cure structural ailments. The die was cast in the form of a seminal 2002 paper by US Federal Reserve staff economists, which became the blueprint for America’s macroeconomic stabilization policy under Fed Chairs Alan Greenspan and Ben Bernanke.

  The paper’s central premise was that Japan’s monetary and fiscal authorities had erred mainly by acting too timidly. Bubbles and structural imbalances were not seen as the problem. Instead, the paper’s authors argued that Japan’s “lost decades” of anemic growth and deflation could have been avoided had policymakers shifted to stimulus more quickly and with far greater force.

  If only it were that simple. In fact, the focus on speed and force – the essence of what US economic policymakers now call the “big bazooka” – has prompted an insidious mutation of the Japanese disease. The liquidity injections of quantitative easing (QE) have shifted monetary-policy transmission channels away from interest rates to asset and currency markets. That is considered necessary, of course, because central banks have already pushed benchmark policy rates to the once-dreaded “zero bound.”

  But fear not, claim advocates of unconventional monetary policy. What central banks cannot achieve with traditional tools can now be accomplished through the circuitous channels of wealth effects in asset markets or with the competitive edge gained from currency depreciation.

  This is where delusion arises. Not only have wealth and currency effects failed to spur meaningful recovery in post-crisis economies; they have also spawned new destabilizing imbalances that threaten to keep the global economy trapped in a continuous series of crises.

  Consider the US – the poster child of the new prescription for recovery. Although the Fed expanded its balance sheet from less than $1 trillion in late 2008 to $4.5 trillion by the fall of 2014, nominal GDP increased by only $2.7 trillion. The remaining $900 billion spilled over into financial markets, helping to spur a trebling of the US equity market. Meanwhile, the real economy eked out a decidedly subpar recovery, with real GDP growth holding to a 2.3% trajectory – fully two percentage points below the 4.3% norm of past cycles.

  Indeed, notwithstanding the Fed’s massive liquidity injection, the American consumer – who suffered the most during the wrenching balance-sheet recession of 2008-2009 – has not recovered. Real personal consumption expenditures have grown at just 1.4% annually over the last seven years. Unsurprisingly, the wealth effects of monetary easing worked largely for the wealthy, among whom the bulk of equity holdings are concentrated. For the beleaguered middle class, the benefits were negligible.

  “It might have been worse,” is the common retort of the counter-factualists. But is that really true? After all, as Joseph Schumpeter famously observed, market-based systems have long had an uncanny knack for self-healing. But this was all but disallowed in the post-crisis era by US government bailouts and the Fed’s manipulation of asset prices.

  America’s subpar performance has not stopped others from emulating its policies. On the contrary, Europe has now rushed to initiate QE. Even Japan, the genesis of this tale, has embraced a new and intensive form of QE, reflecting its apparent desire to learn the “lessons” of its own mistakes, as interpreted by the US.

  But, beyond the impact that this approach is having on individual economies are broader systemic risks that arise from surging equities and weaker currencies. As the baton of excessive liquidity injections is passed from one central bank to another, the dangers of global asset bubbles and competitive currency devaluations intensify. In the meantime, politicians are lulled into a false sense of complacency that undermines their incentive to confront the structural challenges they face.

  What will it take to break this daisy chain? As Chinese Premier Li Keqiang stressed in a recent interview, the answer is a commitment to structural reform – a strategic focus of China’s that, he noted, is not shared by others. For all the handwringing over China’s so-called slowdown, it seems as if its leaders may have a more realistic and constructive assessment of the macroeconomic policy challenge than their counterparts in the more advanced economies.

  Policy debates in the US and elsewhere have been turned inside out since the crisis – with potentially devastating consequences. Relying on financial engineering, while avoiding the heavy lifting of structural change, is not a recipe for healthy recovery. On the contrary, it promises more asset bubbles, financial crises, and Japanese-style secular stagnation.

  

  

  
  
  

  

• BaSiC INKSTiNCT…

  

  
  
  

  

• Peak Oil Optimism

  Speculative bets on rising Brent crude oil prices reached a new record last week but under the surface futures and options market positioning among managed money accounts is flashing a very red warning signal…

   

  As Saxobank's Ole Hanson notes, the long/short ratio has reached 6.4 meaning that for each lot of shorts more than 6 lots are long.

  Historically, this looks extreme and on three previous occasions since early 2013 a reading above 6 subsequently triggered sell-offs of which the most recent was last June when the price peaked at $115.

   

  

   

  While the focus remains on geopolitical worries the speculative data are pointing to an increased risk of a setback. A gross long of 322 million barrels only requires a small change in the fundamental or technical picture to turn into a rout. 

  

  *  *  *

  Shortly after this note, it appears Goldman also sees the same thing…

  Goldman strategists John Marshall and Katherine Fogertey, in note, say have seen evidence from option markets that energy/oil positioning has “moved overly bullish in recent days.”

   

  Investors willing to pay increasingly high prices for calls relative to puts, citing decline in put-call skew

   

  Sees shift as “sharp contrast” vs overly bearish positioning from March 18

  *  *  *

  Trade accordingly.

  

  

  
  
  

  

• Ira Sohn Conference Picks And Pans Summary

  In what was perhaps the most uneventful Ira Sohn book-talking conference in years, some of the biggest hedge fund names came, and as expected, talked their book. There were few surprises, perhaps with the exception of David Einhorn who may have pulled an Ackman and revealed his disdain for Pioneer Natural Resources, which sent the name and the fracking sector lower if only briefly. Indicative of the broader state of the “market” Einhorn was also the only person who pitched a short.

  Einhorn’s problem, perhaps in line with all those who hated Chesapeake in 2012 is that he still thinks fundamentals matter when in reality a money-losing corporation can exist in perpetuity if it merely finds enough yield-starved junk bond investors – those who bought the Greek 5 year bonds a year ago shoud suffice – to fund the endless cash drain with other people’s money.

  It remains to be seen if the Pioneer will now surge in an attempt to force squeeze Einhorn, the way Icahn did with Herbalife over Ackman’s infamous short.

  Corvex’ Keith Meister pushed for a breakup of Yum Brands Inc. and Jeffrey Gundlach pitched buying Puerto Rican bonds.

  The following table is a 1 minute summary of what all the market participants pitched or panned.

  

  Curious for more? Both Reuters, and WSJ’s Moneybeat did a comprehensive update for those who still believe alpha exists in centally-planned markets.

  

  

  
  
  

  

• Gates Says Bet On Yuan As IMF Calls Currency Fairly Valued

  We’ve talked extensively about China’s currency conundrum which has put Beijing between a rock and a hard place as it seeks to combat rapidly decelerating economic growth (which, according to some estimates, is running as low as 3.8%). Facing rising capital outflows (totalling $300 billion over the past four quarters alone) on the one hand and falling exports on the other, there appears to be no ‘right’ answer, as devaluing the yuan to prop up exports risks throwing gasoline on the capital outflow fire, but failing to devalue in the face of a dramatic slowdown in the export-driven economy may ultimately prove to be completely untenable. This is all complicated by recent strength in the dollar and perpetual pressure on the euro and yen exerted by the potent one-two monetary insanity punch from the Draghi-Kuroda tag team. Meanwhile, China is keen to give the yuan a more prominent role in the global economy via the AIIB and Silk Road Fund and is also pushing for SDR inclusion by the end of the year. 

  Against this backdrop, the IMF is out suggesting that the currency — which, as we have noted on multiple occasions over the past several months, has appreciated to the tune of 14% on a REER basis in the last 12 or so months — is closing in on being fairly valued. Predictably, Washington does not agree. Here’s more from WSJ:

  The International Monetary Fund is close to declaring China’s yuan fairly valued for the first time in more than a decade, a milestone in the country’s efforts to open its economy that would blunt U.S. criticism of Beijing’s currency policy.

   

  The fund’s reassessment of the yuan—set to be made official in IMF reports on China’s economy due out in the coming months—follows years of IMF censure of Beijing’s management of the currency.

   

  The IMF’s latest view undermines the Obama administration’s pressure on China over its management of the currency and could undercut congressional efforts to inject yuan concerns into pending trade legislation.

   

  “It takes the rug out from under the feet of U.S. critics of Chinese currency policy,” saidEswar Prasad, a Cornell University economist and former China official at the IMF. “The U.S. relied to a significant extent on what was seen as the IMF’s objective assessment.”

   

  The Obama administration disagrees with the IMF, maintaining a view that the yuan, also called renminbi, remains “significantly undervalued.”

   

  The shift at the IMF comes as Beijing is increasingly challenging the established global order. In recent months, China has won broad support for its new Asian Infrastructure Investment Bank, an entity that would rival the World Bank, the IMF’s sister institution. China is also pushing plans to create a modern “Silk Road” by better connecting its economy with those in the rest of Asia, the Middle East, Africa and Europe. Chinese officials have asked the IMF to include the yuan in the elite basket of currencies that comprise the fund’s emergency-lending reserves, a decision the fund will consider later this year.

   

  The yuan is roughly pegged to the dollar, and as the U.S. currency has appreciated against most other major currencies, it has helped push up the value of the yuan. In nominal terms, the yuan’s appreciation has leveled off. But accounting for inflation, the value of the currency has risen by more than 10% in the past year alone.

   

  As China’s economy cools, some economists don’t rule out Beijing depreciating the yuan again to help juice exports and prop up its expansion.

   

  
  

   

  Here’s a bit of color from Barclays on what SDR inclusion means for Beijing in terms of flexibility to devalue…

  On a fundamental basis, the case can be made that China’s “reluctant easing” should include a more significant move in the currency, but our view is that, ahead of the SDR review later this year, China will refrain from devaluing the CNY and even from moving USDCNY fixings notably higher. Such moves might not be welcomed by China’s major trade partners, who might be inclined to see it as currency manipulation. 

  …and here’s a look at the yuan’s rising importance in global trade…

  

  What the above underscores is that although Beijing faces some tough choices in terms of whether or not China will eventually be forced, by slumping economic growth, to devalue, the evidence continues to mount that the yuan will play an increasingly important role in the world economy going forward, an eventuality that try as it may, the US will not be able to head off by branding the country a “currency manipulator.”

  And meanwhile…

  • BILL GATES SAYS `PROBABLY WOULD PICK’ CHINESE CURRENCY: CNBC
  • GATES SAYS HE LOVES DOLLAR, WOULD PUT HIS BET ON YUAN

  

  

  
  
  

  

• The Financial System Broke Last Year… We've Just Yet to Feel It

  Global Central banks’ reputations are on borrowed time.

   

  ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.

   

  The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.

   

  However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.

   

  However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.

   

  In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.

   

  This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until late 2014 that things truly became completely and utterly broken.

   

  We are, of course, referring to the Bank of Japan’s decision to increase its already far too big QE program, not because doing so would benefit the country, but because it would bring economists’ forecast inline with governor Kuroda’s intended inflation numbers.

   

  This was the “Rubicon” moment: the instant at which Central Banks gave up pretending that their actions or policies were aimed at anything resembling public good or stability. It was now about forcing reality to match Central Bankers’ theories and forecasts. If reality didn’t react as intended, it wasn’t because the theories were misguided… it was because Central Bankers simply hadn’t left the paperweight on the “print” button long enough.

   

  At this point the current financial system was irrevocably broken. We simply had yet to feel it.

   

  That is, until, January of 2014, when the Swiss National Bank lost control, breaking a promise, and a currency peg, losing an amount of money equal to somewhere between 10% and 15% of Swiss GDP in a single day, and showing, once and for all, that there are problems so big that even the ability to print money can’t fix them.

   

  Please let this sink in: a Central bank lost control last week. This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.

   

  The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.

   

  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

   

   

   

  

  
  
  

  

• Hillary Loves Bill

  …lots of bills…

   

  

   

  Source: Townhall

  

  

  
  
  

  

• Two-Thirds Of US Millionaires Fear "They Will Lose It All" If The Market Crashes

  It’s not easy being a millionaire in the New Normal.

  No really, because even though over the past 7 years every single Fed action has catered exclusively to the wealthiest 1% within polite US society, desperate to make them wealthier in hopes their combined trilions in net worth will magically “
  “trickle down”, according to another voyeristic UBS study into America’s high net worth public, while “millionaires enjoy a great deal of happiness and appreciation for what they’ve earned… many feel compelled to strive for more, spurred on by their own ambition, their desire to protect their families’ lifestyle and an ever-present fear of losing it all. With memories of the financial crisis still lingering, most millionaires don’t have enough wealth to feel secure. As a result, many feel stuck on a treadmill, without a real sense of how much wealth would make them satisfied enough to get off.”

  It gets better.

  UBS observers that “Millionaires’ constant striving comes mainly from pressure they feel to maintain the high standard of living they have established for their families, whom they value above all else. At the same time, millionaires worry this very lifestyle may be spoiling their children, causing them to lack motivation and feel entitled.”

  And so the Fed is also to blame for a whole generation of spoiled Millennials. But the punchline: “Millionaires feel stuck on a treadmill they can’t get off…” The reason:

  Though two-thirds of millionaires say achieving financial security is the whole point of working to build wealth, only the very wealthy (those with $5 million or more) feel they have enough to be secure. Half of millionaires with less than $5 million—and 63% of those working with children at home—believe that one wrong move, such as a job loss or market crash, would have a major impact on their lifestyle. For individuals with at least $5 million, only 34% feel they couldn’t withstand a setback.

  

   

  And so perhaps the biggest irony of the New Paranormal is revealed, one on which the entire failed central planning experiment was built on: by making the wealthy wealthier by means of a rigged, broken, manipulated market which everyone now realizes has zero basis in reality (stocks jump on bad econ data, soar on catastrophic data out of hopes of even more central bank liquidity), or fundamentals (not a day passes without the CFTC, SEC, or some other regulators humiliated by constant HFT spoofing or quote stuffing), they feel compelled to save even more than if the bulk of their wealth had been accumulated using honest means and ways.

  In other words, instead of facilitating some mutated trickle down, the Fed succeeded in forcing the most upwardly mobile segment of society to spend as little as possible! And then the St. Louis Fed wonders why the US middle class is disappearing, something we first predicted would happen in 2009.

  But what if millionaires had nothing to worry about: what if the Fed could guarantee that the stock market which it nearly singlehandedly tripled from its March 2009 lows would never crash, what would the millionaires above do with all that free time and disposable income?

  UBS’ answer: “the overwhelming majority of millionaires (87%) would do things differently. As much time and energy as they spend on their careers, they would rather enjoy a wider range of experiences, such as traveling and spending time with family. They would also be more likely to take chances, since many regret not taking enough chances in the past. Ultimately, millionaires are unlikely to step off the treadmill unless faced with a major life event (e.g., a health scare, retirement).”

  

   

  Unclear which of these is “blow it all on hookers.”

  Oh wait, for the answer we go to the next panel of questions in which we find that “They regret relationship mistakes and not spending enough time with family”

  

  And there it is: if the Fed wants to boost the sagging Vice index which consists of such components as hookers, booze and gambling – which is precisely what the above millionaires would first and foremost spend their money on – all it has to do is assure America’s depressed millionaires that the market will never again drop. Ever. Pretty much precisely what it has been doing for the past 7 years.

  

  

  
  
  

  

• Leaking Las Vegas: Forced Rationing Looms As Lake Mead Faces Federal "Water Emergency"

  Submitted by Wolf Richter via WolfStreet.com,

  Leak Mead – on your left, when you drive from Las Vegas across the Hoover Dam – is the largest reservoir in the country when at capacity. It’s fed by the Colorado River which provides water for agriculture, industry, and 40 million people in Nevada, Arizona, California, and Mexico, including Los Angeles, San Diego, Phoenix, and Las Vegas. Now after 15 years of drought, the “lake” – a mud puddle surrounded by a huge chalky bathtub ring – is threatening to run dry.

  It’s considered “operationally full” when the water level is at 1,229 feet elevation above sea level. On May 2, the water level was down to 1,078.9 feet above sea level, the lowest since it was being filled in May 1937. It’s down 15 feet from the same day a year ago. Over the last 36 months, the water level has dropped 44.8 feet. It’s down 150 feet from capacity.

  

  If the water level is below 1,075 feet elevation – 4 feet below today’s level – by January 1, 2016, it will trigger a federal water emergency. And water rationing. Las Vegas Review Journal reported that forecasters expect the level to drop to 1073 feet by June, before Lake Powell would begin to release more water. Assuming “average or better snow accumulations in the mountains that feed the Colorado River – something that’s happened only three times in the past 15 years,” the water level on January 1 is expected to be barely above the federal shortage level.

  Even with these somewhat rosy assumptions of “average or better than average snow accumulations,” the water level would begin set new lows next April. But if the next winter is anything like the last few, all bets are off.

  If the level drops below 1050 feet, one of the two intake pipes for the Las Vegas Valley, which gets 90% of its water that way, will run dry. A new $817-million tunnel is being built by the Southern Nevada Water Authority to create a new drain to get the last drop out of the bathtub. It should be ready by September.

  The LA Times explains what water rationing would mean for the states:

  Las Vegas has long been at a disadvantage when it comes to Lake Mead water. A 1922 Colorado River water-sharing agreement among seven Western states — one still in effect nearly a century later — gives southern Nevada the smallest amount of all; 300,000 acre-feet a year, compared with California’s 4.4 million annual acre-feet. An acre-foot can supply two average homes for one year.

   

  This summer, officials will make their projection for Lake Mead water in January 2016. If the estimate is below 1,075 feet, rationing kicks in: Southern Nevada would lose 13,000 acre-feet per year and Arizona would lose 320,000 acre-feet. California’s portion would not be affected.

  Note the last sentence – that California would not be affected. Keeping lawns green in LA is top priority.

  “Between Lake Mead and Lake Powell, you have over 50 million acre feet in storage when they’re full,” explained Pat Mulroy, former general manager of the Southern Nevada Water Authority from 1991 until she retired in 2014. “To have them both go down to a quarter of their capacity is a pretty scary proposition,” she said.

  Here she is, via Brookings, on the water crisis at Lake Mead, with ghostly images of the lake and of Hover Dam sitting high and dry:

   

  To get through the drought, residents and growers in California’s Central Valley have been pumping water from aquifers to take a shower, fill a glass with water, irrigate almond orchards, or do a million other things. But now, it turns out, even those aquifers, whose water levels are already dropping, are threatened by something else.

  

  

  
  
  

  

• Fed Admits Yellen "Met With" FOMC Leaker In 2012, DOJ Probe Begins

  Just two weeks ago we pointed out the fact that The Fed had seemingly ignored Congressional demands for details with regard the 2012 FOMC Statement leak. Now we know why they missed the deadline:

  • *YELLEN SAYS SHE MET WITH MEDLEY GLOBAL ANALYST IN JUNE 2012
  • *YELLEN SAYS SHE DIDN'T GIVE MEDLEY CONFIDENTIAL INFORMATION

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

  

   

  *  *  *

  Some background…as a reminder, ProPublica explains the leak…

  The Federal Reserve sprung a previously unreported leak in October 2012, when potentially market-moving information about highly confidential monetary deliberations made its way into a financial analyst's private newsletter.

   

  The leak occurred the day before the scheduled public release of meeting minutes that shed new light on the Fed's decision to embark on a third round of bond buying to boost the economy, ProPublica has learned.

   

  …

   

  The newsletter containing the leaked material came from an economic policy intelligence firm called Medley Global Advisors whose clients include hedge funds, institutional investors and asset managers. On Oct. 3, 2012, Regina Schleiger, an analyst with the firm, sent clients a "special report" titled "Fed: December Bound."

   

  The report focused on the Sept. 12-13 open market committee meeting, where the panel had approved what's called "QE3," a new program of large-scale purchases of mortgage-backed and Treasury securities.

   

  Typically, the Fed chairman holds a news conference following the meetings to help explain the committee's actions. But when Bernanke did this on Sept. 13, he did not reveal the depth of disagreement within the committee about how effective the bond-buying program would be and whether it was worth the cost.

   

  Schleiger wrote, however, that the minutes due out the next day would reveal "intense debate between Federal Open Market Committee participants."

   

  Schleiger also revealed that the Fed would likely continue buying longer-term Treasury bonds beyond December. As part of a program dubbed Operation Twist, the Fed had been selling short-term Treasuries to buy longer-term ones.

   

  Schleiger wrote that the committee would likely continue buying long-term bonds even after it sold all the shorter-term Treasuries. This information was not contained in the minutes and proved to be accurate.

   

  Her newsletter also explained in uncommon detail both how Fed staff constructed the minutes and various policy options that were recommended and the thinking of the leadership – Bernanke and vice chairs Janet Yellen and Bill Dudley.

   

  "It's not unusual for board staff to pull all-nighters working on the final draft of the policy recommendations, once these has [sic] 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.

  But now, 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.

  *  *  *

  And now we know why they delayed (as Bloomberg adds),

  Federal Reserve Chair Janet Yellen said on Monday that the U.S. Department of Justice has joined the investigation into a leak of confidential monetary-policy information in 2012.

  “The Board’s Inspector General and the Department of Justice are in the midst of an investigation into this matter,” Yellen said in a letter to Representative Jeb Hensarling, chairman of the House Financial Service Committee.

  “We are cooperating fully with them and look forward to the results of their investigation,” she said.

  Yellen said she would also provide the names of Fed personnel who had contact with Medley Global Advisors, which published a report on deliberations of a September 2012 closed door meeting of the Federal Open Market Committee, one day before minutes of the meeting were made public.
   

  *  *  *

  The Justice Department has opened a formal investigation into the FOMC leak (and we suspect sworn testimony coming).

  @zerohedge pic.twitter.com/i2zt2XLTi0

  — Rudolf E. Havenstein (@RudyHavenstein) May 4, 2015

  Full letter below:

  

  

  
  
  

  

• One Man's Message To Americans – "Start Giving A Damn!"

  Submitted by Thad Beversdorf via FirstRebuttal.com,

  I find it shocking how often I have people tell me the Constitution is out of date and is no longer relevant or necessary.  Then there are the vast majority of people that think about the Constitution the same way they think about religion; it makes us feel good to believe in it and we’ll even worship it on a holiday or two   The reality is that those who seem to get very worked up to the point that they are willing to act in defense of the Constitution even against the highest levels of government make up a very small minority of Americans.  This is a real problem.

  You see if people gave a damn the government couldn’t get away with negating the Constitution.  But the vast majority of people just don’t give a damn and so the government very easily provides ridiculous and false legal sounding arguments to explain away why they have become a higher law than the Constitution. Now I’ve tried to understand why it is that we Americans are so damn apathetic about everything the government and government officials do.

  Let me give a couple examples for which our apathy just boggles my mind.   We know they took us into wars on false pretenses resulting in the wrongful deaths of thousands of American soldiers and hundreds of thousands of innocent civilians and yet we’ve prosecuted no one.  Hell they’ve admitted to hacking into millions of our home webcams and downloading videos and pictures of us in our most private moments and maintaining those downloads on government servers and then sharing these files with foreign governments.

  But because today’s American is simply a shell of a citizen none of the criminal atrocities creates even a stir from us.  Sure we all read about these atrocities and we are angered in the moment but it passes rather quickly and we fall back into our self induced ignorant bliss.  Only two things can get Americans to formidably rise up.  The first is a very direct and immediate impediment to our comfort.  For example try cutting back on the monthly social welfare checks.  You’ll have riots.   The second way is if the mainstream media relentlessly instructs us to be upset about a particular issue.  Outside of that there is absolutely nothing the new American won’t move past like water off a duck’s back.

  What we’re finding out is that, and it sounds slightly over-dramatic but isn’t at all, unless we are willing to fight and die to win back the freedom our forefather’s fought and died to secure for us and all future generations we will continue to feel our chains grow heavier and shorter.  The simple reason is because our government is very much willing to kill to keep its ever encroaching control.  A free population is the antithesis to a political class.  And make no mistake the American federal government is the largest and most powerful group of aristocrats the world has known.

  This group of traitors (and I mean that in the very technical sense of the word) not only behave according to a separate set of laws they have actually gone so far as to legislate a separate set of laws.  This in itself is a direct breach of the very Constitution they swear to defend.  Their intent is clear and that my friends is treason.  They are directly negating the very basis of the American concept for their own personal self interest and they are doing so by defrauding American citizens into believing their intent is to represent the will of their constituents.  Treason, Treason, Treason!  What else would you call it?

  Now are you ready to fight and die to win the freedoms back for your children and grandchildren?  Hell No!  No, not at all!  And that’s kinda the problem because again the government is willing to kill to ensure your kids and grandkids don’t have the freedoms Americans were guaranteed.  The fuck of it is Americans have become so damn brainwashed that despite the founding fathers telling us explicitly our government would end up enslaving the rest of us to solidify their own power and wealth we ignore it. These were the guys that figured out the British were effectively enslaving us and decided to rise against it and create the greatest damn nation the world has ever known.  They literally created fucking America!!!  I mean holy shit, imagine having that on your CV.  And we pay them no mind, like they’re bat shit crazy and not relevant in our intellectual new world.

  Today’s legislators rarely discuss the founding fathers or the Constitution beyond the very thin idea that they know we expect them to defend it.  That is, like freedom and apple pie, they love it during the campaign cycle.  However, ask them why then they continue to legislate against the Constitution and well they don’t want to talk about the Constitution anymore.  And we the people ,like apathetic morons , buy into the bullshit they feed us because we simply don’t care.  It’s to the point they can pretty much do anything knowing they can bullshit us with any damn nonsense that pops into their swollen heads.  And so they do things like hack into our webcams, take nude pictures of us and send them to foreign governments and tell us it’s for our own good.  We don’t give a shit because 1. it doesn’t impede our immediate comfort and 2. the press isn’t telling us it’s something to be concerned about.

  The danger of being apathetic until it impacts our immediate day to day is that we allow the government to take away all the freedoms we are not currently using.  What I mean by that is we so far have not had to face what it means to be powerless and in chains.  But only because we haven’t yet ventured out far enough so as to reach the end of our chains.  Like a sleeping dog that isn’t aware he’s been shackled until he wakes and tries to chase a bird, we are asleep and unaware of the shackles placed around our ankles.

  Some will say “wait, it isn’t apathy it is a trade off between safety and freedom”.  But the truth is freedom and safety are not conflictual we’ve only been led to believe so.  Fear has replaced freedom here in America and that is not by chance but by strategy of a government that has its own agenda, separate from its oath to uphold and defend the Constitution.  So while we should have prosecuted these recent governments for treason we’ve instead rewarded them the rights of dictatorship.

  The Constitution is our freedom keeper but once the Constitution is made subordinate the precedent is set and in our legal system precedence is king.  The strength in the Constitution is just that, it’s strength.  Once we allow an exception to the Constitution’s superseding authority it no longer has any authority.  Unfortunately that exception has already been made.  With it, the destruction of the Constitution and the end to a guaranty of freedom.  Our corrupt government has created ‘legislation’ providing them a legal basis to imprison us without due process.  This is a fact.

  This desecrates one of the most important axioms of America, in fact, due process is the very idea we are sold to spend $1 trillion per year fighting multiple simultaneous major theatre wars.  Yet here at home it no longer exists.  But remember our loss of due process is for our own good.  Giving a federal legislator or policy maker absolute discretion over our fate is in our best interest.  You and I have agreed with these propositions.  And you and I will have to adhere to being placed in prison for life if that is the will of our president or any delegate who will benefit by accusing us of being a national security threat.

  Just by the fact the threat exists fulfills its objective.  People will not want to bring attention to themselves and thus will avoid protesting the wants of those who now have the authority to impede their freedom.  That in itself impede’s their freedom.  This is the one thing I really wish people could see.  What seem like issues too narrow or small to get worked up over are just marks of the snake bite.  Two very small holes in the skin but those holes are the gateway for the real killing agent to spread and overtake the whole system.

  In March alone our beefed up and militarized public service workers killed more than 180 citizens they were meant to serve and protect on American soil.  That makes them an infinitely higher risk to our safety than the foreign terrorists to whom we’ve handed our Constitution.  That’s exactly what we’ve done.  If you listen to the terrorists’ videos that was their goal.  They wanted to end the freedom and free will that America seems to be jamming down the throats of societies around the world.  And so they won the moment Americans accepted to trade away its freedoms for safety.  That was their goal and they have achieved it.

  Let’s look at Edward Snowden’s situation to see how one loses one’s freedom.  Snowden is a man that knowingly sacrificed his own freedom to expose the corruption and criminality of our policy makers and their respective agencies.  He is also a citizen that has been deemed a threat to national security.  Why would a man who exposed the criminal enslavement of Americans and citizens around the world be deemed a terrorist rather than a hero??  Because he is a threat to the power and control and really the entire system of those who can now legally classify him as a threat, removing his right to due process.

  In effect, these political criminals can now legally lock away any prosecutor at will.   This is a gross conflict of interest and the hero that exposed this conflict of interest is now a victim of it.  Edward Snowden not only informed America, he recognized that he would be the first example so that Americans would see, first hand, the sort of corruption that has infected our system.  I can only infer he made himself known because he believed seeing it actually happen would get Americans to rise up and correct the moral transgression.  And what did we the people do in response to Snowden’s incredibly brave and patriotic action?  Absolutely nothing!!!  We force this hero to live in exile.  We don’t even demand the corruption to stop.  We do nothing.  How very American of us.  And why do we do nothing?  Because it doesn’t impede our immediate comfort and the media hasn’t told us we need to be concerned about the issue.

  The lives of Americans have become so easy and so secure that we no longer recognize living in a utopia of freedom comes not with costs but with obligations.  We seem to believe that paying taxes indemnifies us of our real obligations as citizens who have been handed a beautiful gift and who are responsible for passing on that precious gift to future generations of Americans.   And that is a mistake that will have historians writing of us as we write of Eve in the garden of Eden.  Our lack of principles resulting in the suffering of all future generations having destroyed a gift we obviously didn’t deserve.

  

  

  
  
  

  

• When Not To Go To Court (Spoiler: When The Judge Is Hungry)

  With social unrest on the rise, knowing more about the judicial system is crucial for everyone…

   

  In the following chart, the dotted line represent food breaks.

  As is very clear, the best time to go to court is right after a food break (the circled points below indicate the first decision in each session)

  

   

  And the worst time to face the judge for your latest ‘strike’ – when he is hungry…

   

  Source: Extraneous Factors In Judicial Decision – PNAS

  

  

  
  
  

  

• ADB "Boosts Firepower" As China-Led Bank Grabs Center Stage

  “I don’t think there will be major change to the world of development finance [because of the creation of the AIIB], although there can be interpretations as to the symbolic meaning of this.”

   — Takehiko Nakao, Japanese head of Asian Development Bank 

   

  One can hardly blame Nakao for putting on a brave face. After all, the China-led Asian Infrastructure Investment Bank represents not only a major shift away from the multilateral institutions that have dominated the post-war global economic order, but also a move by Beijing to establish what we have described as a Sino-Monroe Doctrine. Speaking to the latter point, President Xi Jinping’s recent pledge to invest $46 billion in Pakistan (53% more than the US has invested in 13 years) as part of Beijing’s Silk Road initiative, gives us a window into what the future may hold in terms of China’s growing regional influence.

  But as Washington learned in March, belittling China’s power grabs is a fool’s errand, especially when they are disguised as infrastructure development initiatives. In the end, resistance is futile, but old habits die hard, which is why it’s not surprising that the ADB is now beefing up its lending capacity while simultaneously paying lip service to the AIIB. 

  Via Bloomberg:

  The Japan-led Asian Development Bank unleashed measures that could help it hold its ground as a resource for regional economies, even as China’s Asian Infrastructure Investment Bank gains prominence.

   

  The ADB overhauled a four-decade-old development fund to boost its annual lending and grant approvals by 50 percent, to as much as $20 billion, the bank said at its annual meeting in Baku, Azerbaijan that started May 2. It will also set aside money to support public-private partnership projects and work with the AIIB “for Asia,” the ADB said.

   

  “Now that the China-led AIIB is becoming a reality, the Japan-led ADB wants to ensure that it will still remain a key funder for infrastructure programmes in less developed Asia,” said Wai Ho Leong, a 

   

  Singapore-based economist at Barclays Plc. “Given the development needs across Asia, there is sufficient room for both players.”

   

  For almost 50 years, Asian nations from India to Vietnam and Indonesia have benefited from funding from the ADB, which is dominated by Japan and the U.S. That relationship is set to change as the rise of the AIIB, the first major multilateral development bank in a generation, provides an avenue for China to strengthen its presence in the world’s fastest-growing region.

   

  On its side, the ADB is boosting its own firepower.

   

  In a move it described as “groundbreaking,” the lender said it will combine the lending operations of the bank’s Asian Development Fund with its ordinary capital resources balance sheet, with the merger taking effect in 2017. The fund was established in 1973 to provide concessional loans and grants to poorer countries, while OCR loans are provided to middle-income countries at market-based rates.

   

  The initiative will increase ADB assistance to poor countries by as much as 70 percent, and together with cofinancing, enable the bank’s annual assistance to reach as high as $40 billion in the coming years from $23 billion in 2014, it said.

  Clearly, this looks quite a bit like an institution trying to play catch up now that a competing player has entered the market. Similarly, The White House is now scrambling to correct the ‘misconception’ that Washington tried to demean the initiative and worked behind the scenes to discourage US allies from supporting Beijing. 

  Via WSJ:

  The U.S. never opposed a new China-led infrastructure bank, President Barack Obamasaid Tuesday, challenging a common narrative that Beijing out-maneuvered Washington by persuading key U.S. allies to sign up as founding members.

   

  “We’re all for it” if the Asian Infrastructure Investment Bank incorporates strong financial, social and environmental safeguards, Mr. Obama said…

   

  “Let me be very clear and dispel this notion that we were opposed or are opposed to other countries participating in the Asia infrastructure bank,” he said at a press conference with Japanese Prime Minister Shinzo Abe. “That is simply not true.”

  With that in mind, we’ll leave you with the following quote provided to NY Times last October by a senior Treasury official:

  “How would the new institution add value? How would the Asian Infrastructure Investment Bank be structured so that it doesn’t undercut the standards with a race to the bottom?” 

  Doesn’t sound too much like an administration that was “all for it” to us. 

  *  *  *

  As a reminder, here are all of the countries that have signed on to participate in the China-led institution:

  

  

  

  
  
  

  

• Volumeless Stocks Test Record Highs On Downbeat Data

  Last week's message to TPTB… (appears to have been heard loud and clear)…

   

  Another day, another rally on even weaker volume (with UK and Japan away on holiday) and shitty data… Spot The Difference…

  

   

  Who could have seen this coming?

  But the best news is twofold: volumes continue to be lethargic with both the UK (May Day bank holiday) and Japan closed until Thursday (Golden Week), while the bulk of the S&P500 has now exited the stock buyback quiet period. As such, ignore record equity outflows – all the matters is that corporate CFOs, flush with brand news bond issuance cash, will tell their favorite Wall Street trading desk to buy stocks at just the right inflection point sending the market surging just as shorts once again test the downtrend and the 50 DMA.

  after China's dismal data, Germany's surprise, and US Factory Orders printing weakest YoY growth run since 2008…

  

   

  Small Caps spurted higher at the open – thanks to Gartman's suggestion of shorting – but the excitement faded back as the day wqore on…

  

   

  Social Media never bounced…

  

   

  And Shale plays stumbled on Einhorn but that was an awesome opportunity to BTFD!

  

   

  Credit markets remain less exuberant…

  

   

  Treasury yields ended the day higher once again with the selling poressure coming (once again) during the US session

  

   

  (even as Bunds sold off during the EU session)

  

   

  The dollar closed modestly higher with EUR fading 0.5% – note just how dead USDJPY was – with Japan on Golden Week…

  

   

  Chaos in commodities early on left gold and silver up, crude and copper down

  

   

  From the 8amET "moment" – once again…

  

   

  Some context for Silver's move…

  

   

  Charts: Bloomberg

  

  
  
  

  

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