Today’s News 10th January 2016

• China Goes Full Keynesian-tard: Demolishes Never-Used Just-Built Skyscraper

  "Growth" meet "mal-investment boom-bust" In a perfect example of the smoke-and-mirror-ness of China's credit-fueled expansion, a 27-storey high-rise building which was completed on November 15th 2015 was just demolished, "having been left unused for too long."

  

  As China People's Daily reports,

  Directional blasting demolition of a high-rise building was completed successfully at 7 a.m. on November 15, 2015 in Xi'an, in northwestern China's Shaanxi province.

   

  

   

  The building was 118 meters high (27 floors) with a total construction area of over 37000 square meters.

   

  

   

  Having been left unused for too long, the building could not be brought back into use so local government decided to demolish it.

   

  

   

  It is reported to be the highest building that has ever been demolished in China.

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  The silver-lining – now workers can clean up the mess, dig a bigger hole… and fill that in – all in the name of Keynesian "growth."

  

  

  

  

  

• Saturday Humor: Kim Jong-Un Watches North Korean Submarine Launch Missile

  With North and South Korea “on the brink of war” following Pyongyang’s “successful” H-bomb test and the resumption of anti-Kim propaganda broadcasts across the DMZ, the young Supreme Leader is keen on demonstrating his country’s military prowess.

  Below, find a video which purports to show a fedora-donning Kim watching a North Korean submarine launch a missile. To truly appreciate why this may be the most epic 28-second clip ever recorded, make sure to watch it with the sound turned up.

  By the way, Friday was Kim’s birthday.

  

  

  

  

  

  

• How The Feds Got All That Western Land (and Why It's A Problem)

  Submitted by Ryan McMaken via The Mises Institute,

  Government owned and subsidized lands in the American West have been a source of conflict among competing interest groups since the 19th century. Since the very beginning of white settlement, lands have been used by the federal government as part of a political scheme to subsidize and reward certain groups while punishing others. 

  The current standoff between ranchers and federal officials in Oregon is simply the latest chapter in a long contentious and sometimes bloody history of groups competing for control over government-owned lands in the West, and by ensuring that lands continue to be allocated by political means rather than through the market, government ownership of lands simply perpetuates conflict in the region. 

  The Origins of Government Ownership in the West 

  Why is it that so much land is controlled by the federal government in Western states in contrast to the rest of the county? 

  The troubles initially began with the Louisiana Purchase which established the federal government as the direct administrator of immense amounts of non-state land. However, the ideological justification for permanent federal ownership really began to gain influence by the late 19th century as many Americans, including influential economists of the time, began to adopt ideologies that saw centralized government as necessary for regulating the economy. We see these ideological leanings in the creation of the Interstate Commerce Commission in 1887 which was initially created to regulate the railroads. Over time, the ICC became the inspiration for a host of other federal regulatory agencies that began to appear by the early 20th century. 

  As with the railroads, land in the west began to be seen as a "public resource" that required federal regulation as well. 

  But ideology was just one factor. The widespread nature of federal lands can also be attributed to mere administrative, historical, and geographic accidents that led to an expansion of federal land ownership well beyond what anyone had expected. 

  First of all was the fact of Indian settlement on Western lands. It may strike many as hard to believe, but the treatment of the Indian tribes west of the Mississippi was actually more restrained than it had been in Eastern states. 

  In earlier generations, for example, Indian settlements were completely destroyed with all the inhabitants killed or forcibly removed to locations west of the Mississippi. In other words, the tribes of the east were more completely decimated than were many tribes further West. 

  Much of this is due to the fact that whites populated the West more slowly and in smaller numbers than in, say, the Great Lakes area, but some of it is also due to the fact that the tribes often received better treatment from federal troops than they did from the ad hoc local militias they encountered in the Eastern states. 

  This is why Kit Carson saw his U.S. Army work in forcing Indians onto reservations as a "humanitarian" mission. Based on experiences in the east (and in early West Coast settlements), Carson surmised that the Indian tribes of the west would be completely destroyed if left to the "mercy" of locally based militias.   

  Over time — and contrary to past efforts of this sort — the removal of the tribes to reservations came to be dominated by the federal government. With this came what were effectively federally owned reservations. Legally, the reservations were sovereign lands guaranteed by the law of treaties. But the reality of US military domination meant the lands were really federal lands. 

  The Overrated Homestead Act 

  At the same time the federal government was moving the tribes onto reservations, it was attempting to encourage settlement by whites on those same lands. This was important to the federal government for  military reasons. It was important to the federal government that whites with an allegiance to the US settle the lands instead of, say, Canadians or Mexicans, and it was important toward making sure that the Indians did not attempt to re-settle the land. 

  The Homestead program was also a clever welfare scheme that provided nearly-free land to new settlers who were paying nowhere near what the cost of acquiring the land had actually been. The taxpayers back East had already covered much of the immense cost of Indian removal and infrastructure construction. The new homesteaders paid but a small fraction of this cost. But from the federal government's perspective, it was worth it since the cheap land meant pro-American settlers were keeping others out. 

  The homestead act is often romanticized and praised by free-market types, but it should not be. The Homestead program was, ultimately, a federal land redistribution scheme, and it worked about as well as anyone skeptical of federal competence might expect. It also further expanded the role of the federal government.

  Homesteading, as defined by federal law, worked relatively well in places like eastern Kansas or in the eastern Dakotas where it still rained enough to allow for crops without irrigation. 

  Further west — west of the 100th meridian — things were much drier, and the small acreage plots dictated by the Homestead Act made very little sense. Not surprisingly, Congress had written laws without bothering to check to see if they made any sense in light of geographic realities. 

  With so little water out west, and with fragile ecosystems that could not support anywhere near the agricultural population density that the Homestead Act envisioned, conflicts quickly arose over resources. Devastating boom-bust cycles like the Great Dakota Boom took shape in which new settlers flooded new lands only to find that they could not make a living on such small plots and with so little water. The lands were later abandoned. 

  In the wake of these new realities came rampant fraud in which large wealthy interests bent or broke the law to acquire large swaths of land that had been intended for small-scale settlement. Water rights became frequent bones of contention, and all the while, federal intervention became the tool of competing special interests who used federal power to gain lands and water rights for themselves. 

  The Spread of "Public" Lands 

  As it became clear that it was impossible to impose the eastern settlement model on the west, politicians and activists continued to cling to the idea that land ownership should still consist of only small parcels, even when such a plan made no sense at all in arid lands with sparse grass. 

  As a Plan B, the feds began to encourage the use of "open range" and the idea of public lands in which large numbers of small landowners would share water and grazing resources. 

  Eventually, neither the government nor the settlers wanted these lands to be privatized. Each interest group — homesteaders, ranchers, and water owners — wanted the lands to continue to be public since each group assumed it would be able to use its own political power to gain de facto use and control of the lands.

  Thus, today, we are living with the results of this system throughout the west. Federally-owned lands continue because interest groups would rather battle for control of the lands through political means than allow the lands to be privatized and pass outside the control of special interests. Meanwhile, the public in general tolerates this state of affairs because so many view markets as damaging to both the environment and ordinary citizens. For all its faults, they reason, federal ownership of the land must be less bad that private or even local-government ownership. 

  Eastern Oregon as Microcosm 

  In the current controversy over public lands in eastern Oregon, we're witnessing just another conflict between interest groups over how federal lands should be used, and the history of land politics in eastern Oregon tends to mirror the West overall. 

  In eastern Oregon as elsewhere, an important step in giving the Federal government a larger role in the local economy was in turning reservation lands into "public" lands for use by whites. 

  William N. Grigg has recently explored how conflicts between ranchers and Piute Indians in eastern Oregon led to demands by the ranchers for a larger federal role in the area. And, when the Piute Indians were finally forced out of Oregon, this paved the way for more federal control over lands in the region as what were once Indian lands became federally managed "public lands."

  But the drive among interest groups to control federal lands extends well beyond conflicts with Indians. Throughout the West  in the late 19th century, cattle ranchers were engaged in regular feuds with sheep herders and farmers over who could use and control federal lands. Oregon was no different. 

  In her book Forest Dreams, Forest Nightmares, Nancy Langston looks at how conflict among competing groups vying for control of the land in eastern Oregon led to ranchers calling for more federal involvement. Following the expulsion of the Piutes, the public lands quickly began to be overgrazed both on old Indian lands and in other public lands as well. 

  According to Langston, "law and custom specified that the range was supposed to be open to all, and not the exclusive property of the wealthy. Grass in the mountains was free and belonged to those who got their first: the Enclosures Act of 1873 stated to t no one could legally fence public domain."

  As is typical with any "commons," the resources in public lands were immediately strained to the point of making the land unusable. This then led to violence as each group attempted to exclude all other groups from the land. Langston explains: 

  Tensions finally spilled over into cattle and sheep wars throughout eastern oregon. In Union county, cattle owners formed a group called the Sheep Shooters Association. They ran advertisements in the La Grande Gazette identifying certain cattle ranges where sheepherders were advised not to cross recognizable boundaries … they also announced they would be placing lethal saltpeter mixed with stock salt in certain hotly contested range areas. Jon Skovline wrote that "Andy Sullivan, who ran horses on the flats below the Campbell Brothers, homestead burned out several night corrals built by itinerant sheep owners along what is now called Burnt Corral Creek. It is very likely that Sullivan also burned the accompanying tented camps of the herders. Lew McCarty was shot by unknown assailants." Thousands of sheep were also killed in grant county where feelings were strongest because summer range was in shortest supply.

  Meanwhile, homesteaders attempted to drive away cattle ranchers when they "fenced the creek bottoms to cut off the water supply from the large stockmen…Bitter feuds resulted." 

  Violent fueds between sheep herders and cattle ranchers continued for years until, by 1903, Langston writes, " local sheepmen as well as cattlemen were ready for regulation, even though [the sheepmen] feared the government would rule in favor of cattle over sheep … Ranchers were ready for an end to the disputes and  increasingly welcomed government intervention." 

  The "Sheep Wars," as they are known today, were hardly unique to eastern Oregon, nor were the range wars between homesteading farmers and cattle ranchers.

  For the most part, the cattle ranchers, through more effective use of fear and intimidation, won these political conflicts, and throughout the first half of the 20th century, the "Cattlemen's Associations" dominated state legislatures and the land use bureaucracies that regulated land use throughout the West. They've even passed laws making it illegal to criticize cattle ranchers. 

  In a familiar story of regulatory capture in which the regulated interest group actually controls the regulators, the cattle industry has long shaped debate over the use of public lands for grazing purposes. 

  Since the 1960s, however, the cattlemen have been increasingly eclipsed by other interests including environmentalists and urban residents looking for expanded access to water. The EPA has assumed an expanding role in managing federal lands and neighboring areas, and with it comes greater regulation on ranchers and on land use in general. Environmentalists are relishing their relatively newfound power, and ranchers don't like it when they're unable to exercise the same amount of influence to which they have been historically accustomed.

  It is this new ideological and political conflict that is fueling today's battles between federal land agencies and ranchers. 

  However, it should be remembered that, generally speaking, ranchers who use federal lands have never been opposed to the existence of federal lands. After all, federal subsidization of water projects and federal control of watersheds has furnished ranchers with cheap water for years, at the expense of taxpayers and urban dwellers. In dry and high-altitude areas especially, cattle are reliant on alfalfa crops and on other non-forage feed, which means their need for water is immense. 

  Why We Need Decentralization Now 

  If we wish to defuse national conflicts over land use, the only answer is to decentralize the land itself. It should be no concern of people in Washington, DC — 3,000 miles away  — as to how a handful of ranchers want to use a tiny corner of land in rural Oregon. Similarly, taxpayers in, say, Ohio (a net taxpayer state) should not be paying to mitigate the effects of overgrazing by ranchers in Oregon, or to build their water projects. 

  There are, of course, many legal and constitutional obstacles to decentralizing land ownership, but the political obstacles are numerous as well. For example, many ranchers oppose ending federal ownership of grazing lands because it would likely mean an increase in grazing fees. 

  Moreover, federal rules mean ranchers can often maintain their federal leases indefinitely without having to worry about prices ever being driven up by competitors. 

  Were grazing lands to be taken over by states or localities — or privatized — ranchers would have to compete with other ranchers, outdoor-recreation proprietors, and conservationist billionaires on the open market. Ranchers may quickly find that their formerly cozy grazing arrangements are now unaffordable. For many ranchers, a federal bird in hand is still better than two private-sector birds in the bush. 

  At the same time, environmentalists want perpetual federal control because they are convinced that any decentralization or privatization would mean that lands will be taken over by rapacious ranchers and miners. 

  But would they?  

  It is not at all clear that markets or local governments would prefer that land be used for agricultural purposes as opposed to other purposes. For example, were Rocky Mountain National Park to become a locally-controlled park or state park, there is, realistically speaking, zero chance that it would be handed over to ranchers or miners. The park is far too valuable to the local economy as part of the recreation and tourism industries. To turn the park into  range land would devastate the economies of the local communities, many of which contain wealthy and influential voters. 

  But, say that the park were broken up into parcels and sold to a  number of private owners. (We're in the realm of pure fantasy at this point.) It would make little sense to use the land for mining or ranching even in this case. Given the infrastructure in place and the relative closeness to a major metropolitan area, the lands in and around the Park are likely far more lucrative for recreational purposes than for mining or ranching. 

  So, when we ask the question of "if it's privatized/decentralized, won't those people take over the land?"  The answer is: "It depends." 

  Yes, some remote or otherwise unattractive areas will lend themselves to ranching and strip mining, and some areas (especially those less remote from where people live) will lend themselves to being preserved as parks and recreational facilities. The lands in the American west are incredibly diverse and different areas will be ideal for different purposes. 

  And, in an age of growing eco-tourism and outdoor recreation, there's a lot more to the west than ranching and mining. 

  But let us never forget that were it not for federal infrastructure such as dams, military bases, and federal highways, the West would have far fewer people and much less development than it does today. As has been demonstrated by numerous scholars of the West — especially Gerald Nash in his economic history of the West, The Federal Landscape — the development of the West has been largely dependent on federal spending — and we're talking about spending far above and beyond the initial federal efforts that cleared out the original inhabitants and laid down the first intercontinental railroad. The modern West as we know it today is a result of immense federal spending done during the Depression and the Cold War. 

  Likewise, it has been the federal government that has created the billion-dollar mega-dams, dumped plutonium into the ground, and failed miserably at fire suppression. The footprint of the federal government is everywhere in the west, and it could very well be that in a world with a smaller federal government, the West would look very different indeed. 

  The Democracy of the Marketplace 

  Ultimately, however, its the democracy of the marketplace that is best suited to determine how lands should be used in the west. 

  The perennial conflicts in the West over land seizures by environmentalists, regulatory battles, micromanagement, and overgrazing all illustrate how much of a failure the federal land ownership scheme has been. 

  With control over such immense resources, the far away federal government does not respond to local needs or local demand, but to national interest groups. 

  If we truly wish to democratize the use of land in the west, we would privatize it, or at the very least make it responsive to local populations instead of national interests. It is the marketplace, and not politics, that truly reflects the desires and needs of the people who wish to use lands and reward or punish those who own it. 

  In his book Bureaucracy, Ludwig von Mises long ago explained how it is the consumers who decide how economic inputs (such as land) are to be used:

  The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy. 

  In the absence of bailouts, subsidies, and government protections, only those who use the land in a way that benefits others will be rewarded accordingly, at the expense of their competitors. 

  What will land use in the West look like for the next 100 years? Will it be just another century of unaccountable federal bureaucrats picking winners and losers? Or will the democracy of the marketplace be permitted and thus allow the people who use the land and depend upon it to have a say? 

   

  

  

  

  

  

• Visualizing The Most Valuable Substances By Weight

  While gold is undoubtedly one of the most traded substances on earth, it also happens to be one of the most valuable substances by weight. Although prices fluctuate, one gram of gold will cost you on average around $35. This got us thinking about how much other primarily naturally occurring substances out there cost.

  This new infographic, via ValueWalk, explores how much you would pay for a gram of everything from saffron, widely recognised as the world’s most expensive spice, to platinum and rhodium. While the market for these goods can’t match the sizeable gold market, whose depth and liquidity is unparalleled, the trading prices of these substances can widely surpass that of gold; though like gold, the prices of these substances are subject to fluctuations.

  

  BullionVault.com's infographic below shows just how much a gram of Iranian Beluga caviar would set you back, and how much you should expect to pay for the radioactive chemical plutonium.

  

  click on image for huge legible version.

  

  

  

  

  

• The Looming Recession & The Muted Delight Of Janet Yellen's Epic Failure

  Submitted by MN Gordon via EconomicPrism.com,

  One week down.  Fifty-one more to go.  No doubt, this has been a wild start to the New Year.  We expect many more to follow.

  For example, on Monday, Chinese investors overloaded the Shanghai Stock Exchange.  An abundance of traders hit the sell button in unison and nearly shorted out the sell side circuit.  By early afternoon the breakers had tripped to prevent a full market meltdown.  Here are the particulars, as reported by Bloomberg…

  “The worst-ever start to a year for Chinese shares triggered a trading halt in more than $7 trillion of equities, futures and options, putting the nation’s new market circuit breakers to the test on their first day.

   

  “Trading was halted at about 1:34 p.m. local time on Monday after the CSI 300 Index dropped 7 percent.  An earlier 15-minute suspension at the 5 percent level failed to stop the retreat, with shares extending losses as soon as the market re-opened.”

  Data showing Chinese manufacturing contracted for a fifth straight month was cited as having prompting the mass selloff.   Yet then, wouldn’t you know it, on Thursday Chinese traders fried the system again.  Circuit breakers were triggered for the second time this week.  Trading was again halted for the rest of the day.

  Reality and the Fed’s Portrayal of Reality

  Here in the U.S. stocks tripped over themselves all week too.  From market open on Monday to close on Thursday, the DOW dropped 891 points.  By our back of the napkin calculation that comes out to a loss of over 5 percent.  Like in China, U.S. manufacturing data reported on Monday may – or may not – have had something to do with it.

  “The U.S. economy’s manufacturing sector contracted further in December, according to an industry report released on Monday,” reported CNBC.  “The Institute for Supply Management (ISM) said its index of national factory activity fell to 48.2 from 48.6 the month before.”  An ISM reading below 50 indicates contraction.

  However, it wasn’t just manufacturing that started off 2016 with a bad report.  According to the Department of Commerce, construction spending during November 2015 dropped 0.4 percent.  This amounted to the biggest drop in construction spending since June 2014.

  Then, on Wednesday, the Commerce Department reported that both U.S. imports and exports ran aground.  Specifically, exports fell 0.9 percent and imports fell 1.7 percent.   What to make of it?

  The popular theme for the economy portrayed by the Fed is that economic activity is expanding and that the economy is sound.  San Francisco Fed President John Williams thinks the economy currently has strong fundamentals and a really strong trajectory.  He anticipated there being three to five rate hikes this year.  Williams also forecasts 2.25 percent growth.

  His counterpart, Cleveland Fed President Lorretta Mester, expects the U.S. economy will grow by 2.5 to 2.75 percent.  She also thinks we’re in “very good shape” because of “very aggressive monetary policy actions” that were taken.

  The Muted Delight of the Forthcoming Recession

  Perhaps weak manufacturing, construction, and trade data are mere outliers.  Maybe the Fed can see beyond the fog to clearly capture the big picture.  Or maybe the Fed has lost its marbles.  Their outlook doesn’t jive with that of the regular working stiff.  Nor does it mesh with the outlook of Deutsche Bank economists.

  "Deutsche Bank economists on Tuesday reduced their forecast on U.S. economic growth in the fourth quarter of 2015 and first quarter of 2016 due to recent disappointing data on trade, construction spending and manufacturing activity.

   

  They said in a research note they pared their view on domestic gross product in the last three months of last year by 1 percentage point to 0.5 percent, which they added "still might be too high in light of what could be much larger inventory liquidation than what we have assumed."

  Obviously, GDP can’t go much below 0.5 percent before it goes negative.  Hence, if 0.5 percent is too high, there’s a chance the U.S. economy is close to, or already in recession.

  Of course, we won’t know for sure until after the fact.  Technically speaking, a recession requires two consecutive quarters of negative economic growth.  Thus the economy must be in recession for at least six months before it can be formally declared a recession.

  One of the many delights in life is watching a public figure step up to the plate, pound their chest, let out a bellow, and fail spectacularly.  In this regard, we may be witnessing an epic fail by Fed Chair Janet Yellen.  For she may be hiking rates at the very moment the economy’s entering recession.

  Unfortunately, in this instance, the delight is muted by the destruction being heaved upon the broad populace.

  

  

  

  

  

• Texas Governor Calls For Constitutional Convention To "Wrest Power" From Obama

  When it comes to Texas’ relationship with the Federal government, the word “rocky” comes to mind. And nobody embodies said rockiness better than Texas governor Greg Abbott, who recently made headlines after announcing that irrelevant of D.C.’s demands, Texas would refuse to accept any Syrian refugees.

  This followed his announcement earlier this summer 2015 when fears over nebulous Federal intentions with operation “Jade Helm” were running high, that “to address concerns that Texas citizens and to ensure that Texas communities remain safe, secure, and informed about military procedures occurring in their vicinity, I am directing the state guard to monitor Operation Jade Helm 15.”

  Prior to this, Abbott was again in the news back in June when he signed a bill into law that would allow Texas to build a gold and silver bullion depository, which would allow Texas to repatriate $1 billion worth of bullion from the New York Fed to the new facility once completed.

  In short: the Federal government and the state of Texas have been on collision course of many months, one which culminated on Friday when Abbott called for a Constitutional Convention of states, spearheaded by Texas, and which would amend the U.S. Constitution to wrest power from a federal government “run amok.”

  To achieve that, Abbott proposed nine amendments to “restore the Rule of Law and return the Constitution to its intended purpose.”

  

  “If we are going to fight for, protect and hand on to the next generation, the freedom that [President] Reagan spoke of … then we have to take the lead to restore the rule of law in America,” Abbott said, cited by the Dallas News, during a speech at the Texas Public Policy Foundation’s Policy Orientation that drew raucous applause from the conservative audience. He said he will ask lawmakers to pass a bill authorizing Texas to join other states calling for a Convention of States.

  According to the Hill, Abbott said that “the increasingly frequent departures from Constitutional principles are destroying the Rule of Law foundation on which this country was built,” said Abbott in a statement. We are succumbing to the caprice of man that our Founders fought to escape. The cure to these problems will not come from Washington D.C. Instead, the states must lead the way.”

  Along with the speech, Abbott released a nearly 70-page plan – part American civics lesson, part anti-Obama diatribe – detailing nine proposed constitutional amendments that he said “would unravel the federal government’s decades-long power grab and restore authority over economic regulation and other matters to the states.”

  “The irony for our generation is that the threat to our Republic doesn’t come just from foreign enemies, it comes, in part, from our very own leaders,” Abbott said in a speech that took aim at President Obama, Congress and the judicial branch.

  Abbott’s nine proposed amendments are:

  • Prohibit congress from regulating activity that occurs wholly within one state.
  • Require Congress to balance its budget.
  • Prohibit administrative agencies from creating federal law.
  • Prohibit administrative agencies from pre-empting state law.
  • Allow a two-thirds majority of the states to override a U.S. Supreme Court decision.
  • Require a seven-justice super-majority vote for U.S. Supreme Court decisions that invalidate a democratically enacted law
  • Restore the balance of power between the federal and state governments by limiting the former to the powers expressly delegated to it in the Constitution.
  • Give state officials the power to sue in federal court when federal officials overstep their bounds.
  • Allow a two-thirds majority of the states to override a federal law or regulation.

  For those unfamiliar, a Constitutional Convention is one of two ways that the U.S. Constitution can be amended, and it’s described in Article V. One way is that Congress can propose amendments approved by two-thirds of the members of both chambers. The other method allows two-thirds of the state legislatures to call for a convention to propose amendments. Republicans backing the idea are confident that because they control state government in a majority of states, their ideas would prevail.

  In both cases, the amendments become effective only if ratified by three-fourths of the states. Indicatively, of the 27 times the Constitution has been amended, none was generated by a constitutional convention.

  Abbott is not the first to propose a convention: the idea has been gaining traction among some among conservative Republicans, comes just as the GOP presidential candidates begin to make forays into Texas ahead of the March primary election. The state, with 155 delegates up for grabs, will certainly be a key player in the party’s nominating process.

  Earlier this week presidential contender Marco Rubio published a piece in USA Today endorsing the idea of a convention to amend the Constitution and restore limited government. In April, 27 active petitions had been filed with Congress seeking a convention to amend the constitution to require that Congress adopt a balanced budget.

  Congress would be forced to act once 34 states joined the effort. So far, Cruz hasn’t endorsed the idea.

  A convention, Abbott wrote, would force the federal government to “take the Constitution seriously again… The only true downside comes from doing nothing and allowing the federal government to continue ignoring the very document that created it,” Abbott wrote.

  To be sure many conservatives agree with Abbott’s posture that the only way to limit the powers of the Federal government is to resuscitate state power .

  Of course, whereas Republicans are seeking to limit the role and power of government, Democrats demand just the opposite, and were quick to denounce Abbott’s plan Friday, saying the governor has misplaced priorities.

  “America added 292,000 new jobs in December. But under Abbott, Texas fell to sixth in job creation, remains the uninsured capitol of the nation, wages and incomes remain far too low for hardworking families, our neighborhood schools are still underfunded, and college education is slipping out of reach,” Texas Democratic Party Deputy Executive Director Manny Garcia said in a statement. “Texas families deserve serious solutions, not Tea Party nonsense.”

  What Manny Garcia did not add is that while oil was above $100, Texas was the state that had generated the most jobs under the Obama administration, and if it hadn’t been for the Kerry-Saudi Arabia secret meetings which put into play the collapse in the price of oil, meant to cripple Russia but crushing US shale instead, Texas would continue to create record numbers of jobs.

  However, since this is high politics, facts be damned, and the American Civil Liberties Union of Texas issued a statement with similar sentiment. “Governor Abbott, as Texans, we prefer the Framers’ plan. Don’t mess with the Constitution,” said Terri Burke, executive director of the ACLU of Texas.

  A small but vocal Republican minority has also opined against the idea of a constitutional convention: last year, House legislators filed measures calling for such a convention. Texas senator Craig Estes unleashed a screed against the proposal when it came before the Senate State Affairs Committee in May. He compared the idea to “a petulant teenager who’s lost a few basketball games and plans to burn down the gymnasium.”

  “The constitution has served us well for over 200 years. The problem is not the constitution,” Estes said, adding that the solution is to elect more conservative lawmakers. “Slap a bumper sticker for Ted Cruz on your car and get after it and knock yourself out.”

  Estes went on to promise a filibuster if the measure came to the Senate floor.

  Whether Abbott’s proposal will gain steam and ultimately succeed is unknown, but it is virtually certain that the more the Obama administration governs via executive orders and other means to bypass the Legislative and short circuit the US government, the more powerful the grass-roots response at the state level will be, until eventually there is enough anger at the dysfunctional U.S. government at the 34 required states to do precisely as the Texan wants… that, or Trump is voted into the Oval Office as a protest against everything that is broken with the current political status quo.

  

  

  

  

  

• Clinton Email Hints that Oil an Gold Were Behind Regime Change In Libya

  On New Year’s Eve, 3,000 emails from Hillary Clinton’s private email server were released.

  One of them confirms – an email dated April 2, 2011 to Clinton from her close confidante Sidney Blumenthal – that:

  Qaddafi’s government holds 143 tons of gold, and a similar amount in silver.

   

  ***

   

  This gold was accumulated prior to the current rebellion and was intended to be used to establish a pan-African currency based on the Libyan golden Dinar. This plan was designed to provide the Francophone African Countries with an alternative to the French. franc (CFA).

   

  (Source Comment [This is in the original declassified email, and is not a comment added by us]: According to knowledgeable individuals this quantity of gold and silver is valued at more than $7 billion. French intelligence officers discovered this plan shortly after the current rebellion began, and this was one of the factors that influenced President Nicolas Sarkozy’s decision to commit France to the attack on Libya. According to these individuals Sarkozy’s plans are driven by the following issues:

   

  1. A desire to gain a greater share of Libya oil production,
  2. Increase French influence in North Africa,
  3. Improve his internal political situation in France,
  4. Provide the French military with an opportunity to reassert its position in the world,
  5. Address the concern of his advisors over Qaddafi’s long term plans to supplant France as the dominant power in Francophone Africa)

  This may confirm what some of us have been saying for years.

  The REAL Reason Sunni Governments Like Saudi Arabia Are At War Against the Shias

  While the Sunnis and Shias have been competing for more than a thousand years, they have largely co-existed peacefully until recently.

  Why are they involved in an open war across multiple countries now?

  Much of modern geopolitics is driven by hydrocarbons … i.e. oil and gas.

  Is this true of the Sunnis-Shia war?

  Yes, the U.S. and its allies are backing the Sunnis against the Shias … in order to wage war for oil.

  And it turns out that the lion’s share of oil in the Middle East happens to be located in Shia countries … and in the Shia-minority sections of Sunni-majority countries.

  Specifically, as Jon Schwartz reports this week at the Intercept:

  Much of the conflict can be explained by a fascinating map created by M.R. Izady, a cartographer and adjunct master professor at the U.S. Air Force Special Operations School/Joint Special Operations University in Florida.

   

  What the map shows is that, due to a peculiar correlation of religious history and anaerobic decomposition of plankton, almost all the Persian Gulf’s fossil fuels are located underneath Shiites. This is true even in Sunni Saudi Arabia, where the major oil fields are in the Eastern Province, which has a majority Shiite population.

   

  As a result, one of the Saudi royal family’s deepest fears is that one day Saudi Shiites will secede, with their oil, and ally with Shiite Iran.

   

  This fear has only grown since the 2003 U.S. invasion of Iraq overturned Saddam Hussein’s minority Sunni regime, and empowered the pro-Iranian Shiite majority. Nimr himself said in 2009 that Saudi Shiites would call for secession if the Saudi government didn’t improve its treatment of them.

  

  The map shows religious populations in the Middle East and proven developed oil and gas reserves. Click to view the full map of the wider region. The dark green areas are predominantly Shiite; light green predominantly Sunni; and purple predominantly Wahhabi/Salafi, a branch of Sunnis. The black and red areas represent oil and gas deposits, respectively.

   

  Source: Dr. Michael Izady at Columbia University, Gulf2000, New York

  As Izady’s map so strikingly demonstrates, essentially all of the Saudi oil wealth is located in a small sliver of its territory whose occupants are predominantly Shiite. (Nimr, for instance, lived in Awamiyya, in the heart of the Saudi oil region just northwest of Bahrain.) If this section of eastern Saudi Arabia were to break away, the Saudi royals would just be some broke 80-year-olds with nothing left but a lot of beard dye and Viagra prescriptions.

   

  Nimr’s execution can be partly explained by the Saudis’ desperation to stamp out any sign of independent thinking among the country’s Shiites.

   

  The same tension explains why Saudi Arabia helped Bahrain, an oil-rich, majority-Shiite country ruled by a Sunni monarchy, crush its version of the Arab Spring in 2011.

   

  Similar calculations were behind George H.W. Bush’s decision to stand by while Saddam Hussein used chemical weapons in 1991 to put down an insurrection by Iraqi Shiites at the end of the Gulf War. As New York Times columnist Thomas Friedman explained at the time, Saddam had “held Iraq together, much to the satisfaction of the American allies Turkey and Saudi Arabia.”

  So the Sunni Gulf monarchies in Saudi Arabia, Bahrain, Oman, the United Arab Emirates, Qatar and Kuwait are single-mindedly going after Iran and the Shia world – because the Shias are sitting on the oil and gas resources – and doing everything they can to start a Sunni-Shia war across the entire MENA area (Middle East and North Africa) in order to “justify” a resource grab.

  

  

  

  

• Gold In 2016: "Economic Power Is Shifting"

  Submitted by Alasdair Macleod via GoldMoney.com,

  Advance signs of a global slump in economic activity emerged in 2015.

  Furthermore, the dollar's strength, coupled with widening credit spreads confirms a global tendency for dollar-denominated debt to contract. These developments typically precede an economic and financial crisis that could manifest itself in 2016, partially confirmed by the disappointing performance of equity markets. If so, demand for physical gold can be expected to escalate rapidly as a financial crisis unfolds.

  Introduction

  Gold has now been in a bear market since September 2011. Major central banks in the advanced economies have implemented policies that have covertly suppressed the gold price, while they have overtly inflated asset prices. This has led to valuation extremes in all asset markets, including gold, that would never be seen in free markets backed with sound money. We can be certain that today's unprecedented build-up of price distortions will be corrected eventually by market forces, probably in the coming months. The commencement of a crisis has already been evidenced by the collapse in energy and industrial-commodity prices, causing major problems for nations and international companies with US dollar obligations and suddenly finding they lack the revenue to service them. The scale of commodity-related losses is not generally understood, but cannot be ignored for much longer.

  The rapid expansion of central bank balance sheets since the Lehman crisis is the ultimate phase of a process that can be traced back to at least the 1980s. Starting in London, US and European banks at that time took control of securities markets. Since then, they have increasingly directed bank credit at the expansion of those securities markets, principally through the development of over-the-counter (OTC) derivatives, but also by dominating bond and equity markets, and regulated derivatives.

  The expansion of bank credit aimed towards financial activities has had the triple effect of inflating financial assets, suppressing commodity prices below where they would otherwise be, and enhancing international demand for the US dollar as the main pricing currency. The result has been an unprecedented peace-time expansion of global debt, while confidence in the reserve currency has been maintained. However, there are indications that this period of expansion is now at an end. According to the Bank for International Settlements' statistical releases, the gross value of bank-held derivatives has been contracting since 2013. Notional amounts of outstanding OTC contracts peaked at end-2013 at $711 trillion, and by June 2015 had declined to $553 trillion.

  This is an important point, because an unseen bubble at the heart of the financial system is deflating with unknown consequences. When bubbles deflate, and here we are talking about one in the hundreds of trillions, bad debts are usually exposed. Even though much of the reduction in outstanding OTC derivatives is due to consolidation of positions following the Frank Dodd Act, much of it is not.

  When free markets reassert themselves, and they always do, the disruption promises to be substantial. We appear to be in the early stages of this event.

  Dollar and European dangers

  As noted above, the rising value of the dollar measured against commodities is a major problem. In the short-term the dollar is extremely over-bought against record levels of commodity short positions. Most notable is the dollar price of oil, with West Texas Intermediate having fallen from $105 in June 2013 to $32 today. While much of the fall can be attributed to lower demand from a slowing global economy, some of it is undoubtedly due to the strength of the dollar itself. Bad and potential bad debts, many commodity-related and denominated in dollars, are a global issue, and the US banks are trying to control their international loan exposure. Consequently, international borrowers with dollar-denominated debt are being forced to sell down local currencies to buy dollars in order to cover their dollar obligations. The problem has been aggravated further by speculators bidding up the dollar against these distressed buyers.

  The dollar's overvaluation is also supported by the belief that the US economy is healthy and performing relatively well. With official unemployment down to 5%, demand for domestic credit, while patchy, is basically sound and growing at a moderate pace. However, nominal GDP growth is entirely due to monetary stimulus being not yet offset by lagging price inflation, and is not the well-founded economic recovery generally supposed. But for dollar bulls, the apparent strength of the US economy is another reason to believe the dollar will remain strong, given the prospect of a rising interest rate trend. There are considerable dangers to this bullish view for the dollar, not least the degree to which it is already discounted in current prices.

  A second global problem is the financial and economic condition of the Eurozone. 2015 saw the Greek crisis deferred, but for 2016 we have the prospect of trouble from Spain and Portugal, with government debt as a percentage of GDP estimated at 100% and 130% respectively. In the Spanish general election in December an anti-austerity combination of the left-wing Podemas and PSOE political parties won 159 seats against the ruling party's 123. Negotiations are now underway, but it looks like an anti-austerity coalition will form the next government. Greece was difficult enough, but Spain is many times greater in terms of its economic impact and the amount of government debt involved. Also, Portugal, whose economy is about the same size as that of Greece, had its general election in October, and the ruling party lost its overall majority, suggesting that anti-austerity pressures will increase in Lisbon as well. And Greece has not gone away.

  Greece in 2015 was the warm-up act for what's ahead in the Eurozone. Meanwhile, €3 trillion of government bonds in Europe now trade with negative yields, an unprecedented situation, which illustrates how overvalued European government bonds in general have become, particularly when taking into account the parlous condition of some major governments' finances. The Eurozone banks are also financially precarious, having an average Tier 1 capital ratio to tangible assets of 5.1%, dropping to 4.1% when off-balance sheet items are included. Furthermore, the netting off of credit default swaps permitted under new Basel Committee rules has allowed the banks to conceal their true loan risk. The combination of European banks gaming the system, average core balance sheet leverage (including off-balance sheet obligations) of 24:1, and their balance sheets laden with wildly overvalued government bonds, has the makings of a crisis in search of a trigger.

  A European banking crisis could escalate very rapidly if and when it starts, and would be an event beyond the direct control of an alarmingly undercapitalised ECB. The initial effect might be to drive the dollar higher in the foreign exchanges, particularly against the euro, and instigate a further markdown of commodity prices, as markets try to discount the economic implications of a systemic problem in the Eurozone. If an event such as this occurs, it would be impossible to limit it to a single geographical area. The major central banks would be forced into a coordinated rescue programme, involving a major expansion of all their balance sheets, on top of the post-Lehman crisis expansion.

  Once initial uncertainties are out of the way, the prospect of escalating systemic risk should be very positive for gold, which is the only certain hedge against these events. To determine the potential for the gold price, its current value should be assessed by looking at the long-run inflation of fiat dollars relative to the increase of above-ground gold stocks, and adjusting the dollar price of gold accordingly.

  FMQ and gold

  The fiat money quantity represents the total fiat money that has been produced by the US banking system. It includes fiat currency not in circulation, being mainly bank reserves sitting on the Fed's balance sheet. The chart below shows the monthly accumulation of US dollar FMQ since 1959.

  

  Following the Lehman crisis, the dollar-price of gold fell initially before recovering and gaining all-time highs in September 2011. With the benefit of hindsight, we can surmise that the immediate effect of the Lehman crisis was to trigger a flight into the dollar, before it became evident that the Fed's actions aimed at stabilising the financial sector were succeeding at the expense of monetary inflation. This also provides an explanation as to why, in order to maintain confidence in the dollar, the gold price had to be subsequently suppressed. Judging by all the circumstantial evidence following the Cyprus crisis, the most notable suppression exercise was in April 2013, and close study of market actions and volumes reveals that other less dramatic price suppressions have from time to time also taken place.

  Given this experience, it would be wrong to rule out another attempt by the western central banks to suppress the price of gold in the event of a crisis. However, it is becoming clear that they can only suppress the price through the paper markets, given the relative scarcity of physical bullion in western central bank vaults, and the reluctance of individual central banks to compromise their bullion holdings any further. These short-term uncertainties cannot be quantified, but we can have a clear idea as to gold's current true value, expressed in US dollars. This is the subject of our next chart.

  

  The chart shows the price of gold deflated by both the increase in FMQ over the years and by the expansion of above-ground gold stocks, since the price was fixed at $35 in 1934 by President Roosevelt. Adjusted by these two factors, gold at end-December 2015 was priced at the equivalent of $3.25 in 1934 dollars, less than 10% of the 1934 price. The only occasion the adjusted price has been lower was in 1971, just months before the Nixon shock, when the Bretton Woods system finally collapsed. The adjusted price stood at $3.13 in March that year.

  The next chart shows the same price adjustments applied to the gold price, this time from August 2008, when the Lehman crisis broke and the nominal gold price was $918.

  

  The adjusted price, reflecting the expansion of both the FMQ and above-ground gold stocks, now stands at $402, a decline of 56% in real terms since Lehman.

  On value considerations, we can therefore conclude the following:
  • Gold is cheaper than it has ever been against the world's reserve currency, with the single exception of the time when it was so under-priced that the US Government was forced to scrap its peg at $35 and abandon the Bretton Woods Agreement.
  • Compared with the situation at the time of the Lehman crisis, gold is significantly cheaper today, which is wholly at odds with the continuing systemic risk to fiat currencies from undercapitalised banks, unprepared for the prospect of markets normalising.

  Many contemporary financial analysts would argue that gold is not relevant to these issues, because gold is no longer money. This line of reasoning ignores the fact that ordinary people in the west do not get this message and are accumulating gold coins and small bullion bars at increasing rates. And more importantly, economic power is shifting from countries where this Keynesian view is prevalent to countries where it is not. The next section looks at the geostrategic implications of the shift in the ownership and pricing of gold from west to east.

  China, India and the rest of Asia

  China and India, together with all the other countries in mainland Asia, have been draining the west's vaults of above-ground gold stocks for far longer than most people in western capital markets realise. China first delegated the management of gold policy to the Peoples Bank by regulations adopted in 1983, in a move that followed the post-Mao reforms of 1979/82. The intention behind these regulations was for the state to acquire substantial amounts of gold, to develop gold mining, and to control all processing and refining activities. At that time the west was doing its best to suppress gold in order to enhance the credibility of paper currencies, by releasing large quantities of vaulted bullion through leasing and outright sales. This is why the timing is important: it was an opportunity for China, with its one-billion plus population in the throes of rapid economic reform, to diversify growing foreign currency surpluses, in the same way as the Arab nations did earlier and contemporaneously between 1973-1990 following the oil price boom.

  When China set up the Shanghai Gold Exchange in 2002 and encouraged its private sector to accumulate gold, the state had obviously acquired enough bullion for its own strategic purposes. We cannot know how much the state has actually accumulated, or indeed to what extent the gold she has mined has been taken into state ownership since, but the amount is likely to be very substantial. We do know that gross deliveries into public hands since 2002, satisfied mainly by imports from western vaults, exceed 11,000 tonnes to date. It is therefore quite possible that China and its citizens now have more gold than all the other central banks put together, given that some official gold is currently leased by western central banks and some has been secretly sold to suppress the price.

  The monthly statements about China's gold reserve additions are therefore meaningless. However, Russia is now accumulating official reserves as well, and the Indian state is trying to acquire her citizen's gold by stealth, having been frozen out of the market through lack of supply. The bulk of Asia is, or will be, bound together through the Shanghai Cooperation Organisation, an economic partnership dominated by China and Russia, encompassing more than half the world's population, and which accepts physical gold as the ultimate form of money. And what clearly emerged in 2015 is that the dominant trade currency in this bloc will unquestionably be the Chinese yuan, the currency of the country that has now cornered the world's physical gold market.

  The future for the world's money is rapidly developing, as will become increasingly apparent in 2016. The era of dollar supremacy is coming to an end, no doubt hastened by the Fed's ultimately destructive monetary policies. The threat to the dollar's primacy is also a threat to the other great paper currencies: the euro, the yen and sterling. Whether or not these fail before, with or after the dollar, is only a matter for timing. China must have foreseen this possible outcome, otherwise she would not have embarked on a policy of accumulating gold as long ago as 1983, invested substantial resources into gold mining and refining, actively encouraged her citizens to own it, and is today promoting use of her currency for global trade and the pricing of gold.

  Western market observers seem to be unaware of how advanced China's currency policy is today. Instead, they expect a full-blown credit crisis, the result of the credit expansion of recent years being undermined by a rapidly slowing economy. Furthermore, they argue that Chinese labour costs have increased and require a much lower yuan exchange rate to become competitive again. Based on western-style macroeconomic analysis, they naturally conclude that China will require a substantial currency devaluation to contain these problems.

  While it is a mistake to gloss over the considerable economic difficulties, this analysis is flawed on two counts. Firstly, the state owns the banks, so a credit crisis stops with the debtors. And secondly, under the thirteenth five-year plan, China is embarking on a redirection of economic resources from being the cheap manufacturer for the rest of the world to serving its growing middle class and developing trans-Asian infrastructure. China's unemployment rate is estimated to be about 5%, so workers employed on current production lines will need to be redeployed, if the state's economic strategy is to progress. A substantial devaluation is therefore counterproductive, though the central bank does move the yuan's peg against the dollar from time to time.

  The purpose behind China's accumulation of gold can only be to eventually make the yuan a reliable store of value. China will need to see a higher gold price in yuan, probably at a time dictated by external events, which she will patiently await. This is why, having developed the Shanghai Gold Exchange into the world's most important physical gold market, China plans to price gold in yuan, with the objective that the yuan-gold peg will eventually supersede yuan-dollar peg.

  We will surely end 2016 with a wider appreciation that the dollar is no longer king, and that the future for money lies in Asia, the yuan, and gold.

  Conclusion

  In the near-term, paper gold is extremely oversold, reflecting the expression of western establishment sentiment in the paper markets. Futures and forward markets are short of paper gold to an extraordinary degree. Whether or not this leaves open the possibility of further falls in the dollar price of gold in the next few months is a moot point. More importantly, on longer-term considerations, gold has not been this undervalued since the events leading to the collapse of the Bretton Woods agreement. If current events lead to a systemic crisis in western capital markets in 2016, which given the global slump in economic activity looks increasingly likely, a further expansion of central bank balance sheets on top of the post-Lehman expansion seems certain. If this happens, it is unlikely the purchasing power of the dollar and the other major currencies will remain at current levels. And if the dollar loses purchasing-power, price inflation will rise along with nominal interest rates, and a wider debt liquidation in western capital markets becomes a real possibility.

  China and her SCO partners have taken steps to be protected from this outcome and have cornered the gold market. A wise person should take note and think seriously about the implications.

  Enjoy 2016.

  

  

  

  

  

• Caught On Tape: Iran Conducts Live-Fire Rocket Drill Next To US Carrier

  Late last month, amid heightened tensions between Washington and Tehran, Iran conducted a live-fire exercise in the Strait of Hormuz in close proximity to the USS Harry Truman, one of Ash Carter’s fleet of aircraft carriers.

  The US called the incident a “provocation” as the rockets landed a mere 1,500 yards from two US ships.

  “Firing weapons so close to passing coalition ships and commercial traffic within an internationally recognized maritime traffic lane is unsafe, unprofessional, and inconsistent with international maritime law,” US CentCom said, in a statement.

  The brazen move infuriated US lawmakers opposed to the Iran nuclear accord. John McCain for instance, accused The White House of “turning a blind eye to Iranian saber rattling for fear Iran will walk away from the nuclear deal.”

  The maritime mishap came amid (loud) calls for fresh sanctions against Tehran in connection with Iran’s test of a next gen surface-to-surface ballistic missile (the Emad).

  On Saturday, the US released footage of the Iranian rocket drill in a conveniently-timed move that coincides with a historic spat between Tehran and Washington’s allies in Riyadh. The video is below.

  

  

  

  

  

• What The Charts Say: "US Stocks Are In Riskiest Position In Seven Years"

  Via John Murphy,

  MAJOR STOCK INDEXES ENTER CORRECTION TERRITORY… After suffering the worst start to a new year in history, the U.S. stock market has entered correction territory which is defined by a drop of 10% from its old high. The charts pretty much speak for themselves. All three major stock indexes fell to three month lows in heavy trading. The next downside target is the two lows formed in August and late September.

  

  What the indexes do from there will determine whether the current downturn is just a correction or something more serious. Unfortunately, some portions of the market have already broken those support levels.

  SMALL AND MIDCAPS BREAK SUPPORT… Relative weakness in small and midsize stocks gave early warnings in December that the yearend rally was mainly a large cap affair and too narrow to continue. That situation has gotten a lot worse since then. Charts 4 and 5 show the Russell 2000 Small Cap and the S&P 400 Mid Cap indexes falling below their 2015 lows. That puts them at the lowest level since October 2014.
   

  

  That's another important test for them and the rest of the market.  

  TRANSPORTS ENTER BEAR MARKET TERRITORY… Chart 6 shows the Dow Jones Transportation Average falling to the lowest level in two years. It has lost -25% from its late 2014 high which puts it into bear market territory. What's surprising is that the transports haven't gotten any help from plunging energy prices. That may carry bad news for Dow Theorists who link the direction of the transports with the Dow Industrials.

  

  It may carry good news for the Dow Utilities, however, which are showing more resilience. Chart 7 shows the Dow Utilities holding up a lot better than everything else.

  

  It was the only market sector to register a gain during the week. Its relative strength line (top of chart) is rising as well. Since utilities are considered bond proxies, their relative strength large reflects the recent rotation out of stocks and into bonds.

  BOND/STOCK RATIO FAVORS BONDS… As usually happens when stocks fall, bond prices are rising. That's especially true of longer-dated Treasury bonds. The green line in Chart 8 is a ratio of the 7-10 Year Treasury Bond ishares divided by the S&P 500 SPDRs. The ratio spiked last August when stocks tumbled.

  

  The ratio has spiked again to the highest level in three months. Bond prices are also benefitting from the deflationary impact from falling commodity prices. Two other assets attracting safe haven buying are gold and the Japanese yen. Some measures of foreign stocks (both developed and emerging) have already fallen to 52-week lows. That doesn't bode well for U.S. stocks which are now in the riskiest position since the bull market started seven years ago.

  

  

  

  

  

• Explaining American Men's 'Electile' Dysfunction In 1 Serious Chart

  Did we just cross “the tipping point” for faith in the American dream?

   

  

   

  Having fallen consistently from almost 90% particpation in the labor force in 1948 to just 68.5% in 2015, it appears that crossing below the 70% participation rate has pushed American men to their limit of faith in career politicians.

  

  

  

  

  

• Newsflash From The December 'Jobs' Report – The US Economy Is Dead In The Water

  Submitted by David Stockman via Contra Corner blog,

  Here’s a newsflash that CNBC didn’t mention. According to the BLS, the US economy generated a miniscule 11,000 jobs in the month of December.

  Yet notwithstanding the fact that almost nobody works outside any more, the BLS fiction writers added 281,000 to their headline number to cover the “seasonal adjustment.” This is done on the apparent truism that December is generally colder than November and that workers get holiday vacations.

  Of course, this December was much warmer, not colder, than average.  And that’s not the only deviation from normal seasonal trends.

  The Christmas selling season this year, for example, was absolutely not comparable to the ghosts of Christmas past. Bricks and mortar retail is in turmoil and in secular decline due to Amazon and its e-commerce ilk, and this trend is accelerating by the year.

  So too, energy and export based sectors have been thrown for a loop in the last few months by a surging dollar and collapsing commodity prices. Likewise, construction activity has been so weak in this cycle—-and for the good reason that both commercial and residential stock is vastly overbuilt owing to two decades of cheap credit—–that its not remotely comparable to historic patterns.

  Never mind. The BLS always adds the same big dollop of jobs to the December establishment survey come hell or high water. In fact, the seasonal adjustment has averaged 320,000 for the last 12 years!

  For crying out loud, folks, every December is different—–and not just because of the vagaries of the weather. Capitalism is about incessant change and reallocation of economic activity and resources. And now the globalized ebbs and flows of economic activity have only accentuated the rate and intensity of these adjustments.

  Yet the statistical wizards at the BLS think they can approximate a seasonal adjustment factor for December that at +/- 300k amounts to just 0.2% of the currently reported 144.2 million establishment survey jobs, and an even smaller fraction of the potential adult work force which is at least 165 million.

  But that’s a pretentious stab in the dark. The December seasonal adjustment (SA) could just as easily be 0.3% of the job base or 0.1%, depending upon the specific point in the business cycle and structural trends roiling the economy.

  Indeed, these brackets alone would vary the headline SA number by 150k to 450k. The fact that the seasonal adjustment factor for December has oscillated tightly around 300,000 for the last 12 years proves only one thing—–namely, that the bureaucrats at the BLS have chosen to invent the same guesstimate year after year; its not science, its political fiction.

  The fact is, the seasonal adjustment factors are about the closest thing there is to pure noise among all the dubious “incoming” data that the Fed and Wall Street obsess over.

  Here’s a better take on the matter. We are now in the 78th month since the June 2009 recession bottom, and are reaching the point where this so-called business cycle expansion is getting very long in the tooth by all historical standards.

  

  Historical Length of Recoveries

  So what happened to the non-seasonally adjusted (NSA) job count in December at similar points late in the course of prior cycles? Well, in December 1999 about 140,000 jobs were added and in December 2007 there was a NSA gain of 212,000. This time we got the magnificent sum of 11,000, and by the way, last year was only 6,000.

  The real news flash in the December “jobs” report, therefore, is that even by the lights of the BLS’ rickety, archaic and virtually worthless establishment survey, the domestic economy is dead in the water. We are not on the verge of “escape velocity”, as our foolish monetary politburo keeps insisting; the US economy is actually knocking on the door of recession.

  And that’s why the retail sheep have been led to the slaughter once again in the Wall Street casino. The cats who run it have embraced the nonfarm payroll report as the primo macroeconomic indicator because they know that it drastically lags the real drivers of main street activity and has an abysmal record of forecasting turns in the macroeconomic cycle.

  Stated differently, these fictional monthly SA jobs numbers are extremely useful to the Wall Street sell side. They keep the rubes hitting the “buy” button until the fast money can slowly dump its holdings and get out of Dodge; or even pivot and reload to the short side.

  That’s right. We are not talking tin foil hats here. It is plain as day that the BLS’ seasonal adjustments are a completely stupid waste of time. During the winter season especially, it might as well just use a random numbers generator.

  Indeed, here’s what the Steve Liesman’s of the world never tell you—–undoubtedly because they don’t know. Fully two-thirds or 200,000 of the 300,000 December seasonal adjustment is in the construction sector!

  So the whole December SA is essentially a weather proxy designed to adjust a survey taken during the middle week of the first month of winter. Could weather fluctuations impact the number of construction workers on the job by a mere 2% (150,000) around the week of December 15?

  Well, yes it could. And that means we really don’t know whether 292,000 “jobs” were created in December or whether it was only 142,000.

  Once again, loose the SA noise in the construction sector job count.  This category alone accounted for 45,000 of the headline gain, but that was owing to the fact that the 6.538 million figure reported for the construction category was flattered by a 196,000 seasonal adjustment.

  Instead, look at the non-seasonally adjusted (NSA) number compared to the same point in the cycle from prior history. Thus, at the December 2006 peak the number of construction jobs was 7.585 million, meaning we are still down by 1.1 million jobs or 15% from the prior cycle high.

  And in December 2000, there were actually 6.7 million construction jobs. That is, we have not yet returned to the cyclically comparable level that prevailed at the turn of the century.

  In short, the December jobs report was not evidence of a “strong” economy. It was just another emission from the government’s SA noise factory that obscures the actual state of the main street economy.

  So here’s the real truth. Construction jobs are breadwinner jobs. The average annualized pay rate for the category is $57,000, but the US economy is not actually generating new construction jobs any longer.

  What’s happening is that the BLS is simply reporting “born again” jobs and thereby enabling the Keynesian chorus to claim “progress” and “strength”, and for its Wall Street section to blather about “blow-out numbers”. Indeed, the latter has embraced the Keynesian model lock, stock and barrel precisely because its so useful in the stock peddling business.

  The Keynesian model is about deltas, not levels. For reasons we will amplify below that’s almost always misleading in the context of monetary central planning and the bubble finance cycles that flow from it.

  In fact, the only valid measure of economic strength and the main stream economy’s capacity to support sustainable profit growth and higher stock prices is the change in levels over time at cyclically comparable points.

  That gets us to the larger story embedded in the above observations about the construction sector jobs series. Namely, just as there have been no trend gains in the level of construction jobs since the turn of the century, the same is true of the much wider swath of what we have called “breadwinner jobs”.

  These jobs in construction, energy and minerals, manufacturing, FIRE, the white collar professions, business management, information technology and trade/distribution account for 50% of all nonfarm payroll slots, pay upwards of $50,000 per year on average and account for more than 66% of total wage and salary disbursements.

  Yet the December 2015 number of breadwinner jobs was still 1.1 million jobs below that posted for the first month of this century!

  

  Needless to say, that’s not “strength”. It’s actually a profound indictment of the archaic convention embedded in the monthly employment report that counts job slots, not the variable gigs and hours on which employment in the contemporary US economy is actually based.

  Indeed, all the Jobs Friday hoopla is based on your grandfather’s BLS survey, which arose at a time when everyone punched the clock at the Ford factory 40-50 hours per week, including overtime. By contrast, now the greeters and cash register operators at Wal-Mart are computer-scheduled in 15 minute increments.

  Since average pay for the bartenders and waiters category is less than $20,000 on an annualized basis owing to an average of 26 hours per week and $13/hour pay rates, you need 2.5 of these gigs to get the equivalent of one breadwinner job. Yet on Jobs Friday its all one job, one vote.

  So what is actually happening beneath the surface is a great swap out. The very highest productivity jobs in goods production are disappearing on a trend basis; the monthly deltas reported so breathlessly on bubble vision actually embody purely “born again” employment slots that represent the partial recovery of jobs lost during each crash of the Fed’s serial financial bubbles.

  But the cyclically adjusted trend is down, not up. It represents economic weakness and reduced capacity to generate productivity, income and profits, not strength.

  In fact, not withstanding the “blow-out” December numbers, the US economy still has 11% fewer jobs in goods production—-mining, energy, manufacturing and construction—–than it did at the December 2007 cyclical peak, and 21% fewer than at the turn of the century.

  

  By contrast, what is being swapped in are what we have called Part-Time Economy jobs, where there have been modest cyclically comparable gains in job levels during the past 15 years. Needless to say, however, the average annualized pay rate in this category is less than $20,000.

  

  But even these trend level gains are heavily concentrated in the lowest quality quadrant. That is, in what we have called the “Bread and Circuses Economy”—–bartenders, waiters, bellhops, maids, parking attendants, hot dog vendors and the like.

  The fact is, this category accounts for full 70%, or 1.8 million, of the 2.59 million gain in Part Time Economy jobs since the pre-recession peak in December 2007.

  

  Another factor obscured by the BLS’ archaic job slot counting convention is the root wealth and productivity contribution of the job count at any point in time. Generally, private sector jobs financed by consumers add to wealth and productivity at varying degrees, depending on the sector.

  By contrast, taxpayer financed jobs—–directly through government outlays or indirectly through heavy tax subsidies and preferences—–do not add to wealth, and, not to put too fine a point on it, may well subtract from it. And that gets us to the HES Complex (health, education and social services).

  This is the fastest growing job category since the turn of the century, yet it now depends upon more than $2 trillion per year of Medicare, Medicaid and other government health spending—–plus another $250 billion or so of tax expenditures for employer health plans and tax credits for education.

  

  Yes, it can be argued that a some part of the current 32.6 million jobs in the HES Complex add to long-run productivity via education and health status improvement of the working age population. But that point does not get you too far if you recognize the abject and worsening failure of public education in the US and the gross inefficiency of our third-party payment dominated health care system.

  Far more relevant is this fact. For the entirety of this century there has been only a 3.7%  net gain in even the gross number of job slots in the US economy outside of the HES Complex, and that measurement includes the Part Time Economy and its Bread and Circuses subset.

  Stated differently, on a trend level basis, the US economy has only generated 21,000 jobs per month over the last 15 years that were not funded by the public fisc, and therefore indirectly by the $10 trillion gain in public sector debts since the turn of the century.

  

  So whatever is embedded in the BLS payroll count, don’t call it recovery, strength or progress. Instead, call it a propaganda cloud that serves the interests of Wall Street and the monetary central planners, alike.

  Here’s the thing. You can not sell stock if you tell customers that a recession is coming and earnings are going to be heading sharply in a southerly direction. So Wall Street never does.

  By the spring of 2008, for example, after the subprime mortgage implosion was already well underway, Countrywide Financial had already failed, AIG was hitting the rocks, Bear Stearns was gone, and housing sales and starts were sliding rapidly from their towering peaks, the Wall Street consensus ex-items hockey stick still pointed to S&P earnings of $115 per share.

  As it happened, the actual result was $15 per share. And the homegamers who stayed in the market on that assurance were treated, instead, to a bloodbath in which they lost trillions in the 401k and brokerage accounts.

  Likewise, the monetary central planners at the Fed and their economist cheerleaders have never forecast a recession. That’s because they embrace the cardinal Keynesian Error, which holds that private capitalism is inherently unstable and prone to extreme cyclical swings—-even a tendency toward depressionary black holes.

  So they assume that their policy tools and maneuvers are not only doing gods work of keeping private capitalism on the straight and narrow. Indeed, the arrogant and foolish professor from Princeton, Ben Bernanke, called it The Great Moderation in March 2004 just as the greatest bubble and bust in modern history was working up a head of steam.

  Notwithstanding the thumping repudiation of that conceit which occurred during the great financial crisis and recession, the predicate remains that this time is different. To wit, the monetary central planners now have it right and will steer the US economy deftly to the nirvana of permanent Full Employment, world without end.

  

  

  

  

  

• Global Central Banks Are Facing a Crisis Larger Than 2008… And With Little to No Fire Power Left!

  There is talk of another 2008 hitting the markets.

   

  However, what’s coming will not be another 2008. It will be worse than 2008.

   

  There are several reasons for this.

   

  Firstly, today, there is over $20 trillion more debt in the financial system than there was in 2008. If 2008 was a debt bubble that needed to burst; today the bubble is even larger.

   

  Secondly, Central Bankers have already employed both ZIRP and NIRP for years. In 2008, we had only just begun to experience ZIRP in the West and NIRP was still considered a “nuclear option” that bordered on insanity.

   

  Today both ZIRP and NIRP are commonplace. Indeed, the EU has cut rates into NIRP three times in the last 18 months. The world has watched as these actions have barely resulted in an uptick in the EU’s inflation.

   

  

   

  Central Bankers have also employed Quantitative Easing, another “nuclear option” that had yet to be unleashed back in 2008 (the Fed launched the first QE program in December 2008).

   

  To date, global Central Banks have printed over $14 trillion in new money to buy bonds via QE. Even banking systems in which the legality of QE was questionable, such as the EU, have launched QE programs that are €1 trillion or larger.

   

  These programs have been massive in scope. In Japan, a single QE program equal to 25% of GDP was launched in April 2013. Japanese GDP growth barely moved higher before once again rolling over.  Even an expansion of this already incredible monetary policy in October 2014 failed to ignite significant growth for Japan’s economy.

   

  

   

  Finally, today, Central Bank balance sheets are already bloated to the point of being larger than even some of the larger countries’ economies.

   

  The Fed’s balance sheet is over $4.5 trillion, larger than the economy of Germany and just smaller than the economy of Japan. The ECB’s balance sheet is €2.7 trillion, larger than the economies of France or Brazil.  The Bank of Japan’s balance sheet is over $3 trillion, larger than the economy of the UK.

   

  And on and on.

   

  With Central Bank balance sheets so massive already, the marginal effect of more expansion, (even via massive new QE programs) will be much less than it was in 2008. In 2008, Central Bank balance sheets had ample room to grow. Today, investors have already seen what a 200% or 300% expansion of a Central Bank’s balance sheet can buy.

   

  In short, Central Banks are in far worse shape than they were in 2008 to deal with another crisis. And that’s too bad, because the coming crisis will be significantly larger than that of 2008 (again there is over $20 trillion MORE debt in the system than there was then).

   

  Smart investors are preparing now.

   

  We just published a 21-page investment report titled Stock Market Crash Survival Guide.

   

  In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

   

  We are giving away just 1,000 copies for FREE to the public.

   

  To pick up yours, swing by:

  https://www.phoenixcapitalmarketing.com/stockmarketcrash.html

   

  Best Regards

   

  Graham Summers

  Chief Market Strategist

  Phoenix Capital Research

   

   

   

   

   

   

  

  

  

  

• Angry Bond Insurers Sue Puerto Rico Over "Clawback" Boondoggle

  On December 1, Puerto Rico governor Alejandro Garcia Padilla was staring down a $354 million debt payment he couldn’t make.

  If the commonwealth defaulted on the GO portion, a cascade of messy litigation would follow and the island’s reputation with creditors would suffer irreparable harm.

  That afternoon, on the heels of a visit to Capitol Hill where the governor attempted to explain to Congress why Puerto Rico should be allowed to take advantage of bankruptcy laws, the island made the payment, avoiding default.

  Padilla “found” the money by using what we called an “absurd” revenue clawback mechanism.

  Essentially, Puerto Rico diverted money earmarked for non-GO creditors and used it to pay the island’s GO bonds. As you can imagine, the bond insurers for the debt involved in the clawback were not happy. Ambac, for instance, called the clawback “illegal” and claimed that Padilla actually began siphoning funds well before the December 1 payment, a charge the governor denied.

  On January 1, Puerto Rico defaulted on some $36 million in Prifa bonds.

  Now, Ambac, along with  Assured Guaranty, are suing. “Insurance companies that guarantee Puerto Rico municipal debt filed a lawsuit challenging the commonwealth’s decision to divert revenue designated for some bonds to pay other creditors,” Bloomberg reports, adding that the monolines “said the clawback of revenue pledged to bond issues violates the U.S. Constitution by interfering with debt-holders’ contractual rights.” Here’s more:

  The suit filed in U.S. District Court in Puerto Rico seeks to have the clawback declared unlawful and asks the court to issue an injunction against implementation, according to a statement.

   

  “The commonwealth has committed itself to a ‘scorched earth’ strategy of blaming its fiscal and structural problems on lenders, Congress and others, in an effort to deflect responsibility and obtain retroactive application of bankruptcy laws,” Nader Tavakoli, chief executive officer of Ambac, said in the statement late Thursday.

   

  
  

   

  The insurers are the first to sue over the diversion. They claim a clawback can only be implemented if the commonwealth’s funds are insufficient to cover general-obligation debt service. Puerto Rico estimates approximately $9 billion of available resources in the fiscal year ending June 30, 2016, which vastly exceeds debt service on the public debt of approximately $1.85 billion, according to Ambac.

  So, while bondholders may have little in the way of recourse, the monolines are taking this lying down and that means a protracted battle among stakeholders for limited cash is about to ensue. “The lawsuit is an opening salvo in what could be a long and expensive court fight over Puerto Rico’s efforts to restructure its debt,” Reuters wrote on Friday. “They also said Puerto Rico is wrongfully using clawbacks to fund government services, and is diverting bondholders’ collateral in violation of the Takings and Due Process clauses of the U.S. constitution.”

  In other words, the insurers don’t think Padilla should have the option of choosing to provide public services over paying creditors. We predicted as much back in Novermber when we said the following:

  Ultimately, the decision will be between paying bondholders and ensuring that the government can continue to provide public services, and just as Greece prioritized pensions over IMF payments last summer, Padilla isn’t likely to sacrifice the public interest at the altar of the island’s creditors.

  The lawsuit comes just weeks after MBIA and Assured Guaranty struck a deal with the commonwealth to restructure $8.2 billion in PREPA debt.

  That agreement marked the largest ever muni restructuring and raised questions as to Padilla’s contention that bankruptcy is the only way for the island to efficiently get out of trouble. Padilla contends that restructuring the rest of Puerto Rico’s debt will be far more difficult. “The vast number of creditors with differing interests across all issuing entities would result in negotiations that are lengthy, costly and chaotic. Access to legal, broad restructuring authority would allow us to undertake these in an orderly manner,” he said last month.

  

  PREPA isn’t subject to the clawback, but the Prifa default has Assured Guaranty on edge. “These actions stand in contrast to the consensual agreement that we and other creditors recently reached with Puerto Rico’s electric utility, Prepa,” Dominic Frederico, Assured Guaranty’s president and chief executive officer, said in a statement Thursday.

  As you can see, this is about to get very messy, very quickly and the angrier the monolines get, the more difficult it will be for the island to restructure its obligations (recall that it was the insurers who held up the PREPA deal).

  

  But don’t worry, the holiday bonuses aren’t in jeopardy – yet.

  *  *  *

  Full Ambac statement

  Ambac Financial Group, Inc. (Nasdaq:AMBC) (“Ambac”), a holding company whose subsidiaries, including Ambac Assurance Corporation (“Ambac Assurance”), provide financial guarantees and other financial services, today announced that Ambac Assurance has filed a lawsuit to protect its rights against the illegal clawback of certain revenue by the Commonwealth of Puerto Rico.  The Complaint for Declaratory and Injunctive Relief was filed in U.S. District Court, District of Puerto Rico, with co-plaintiffs Assured Guaranty Corp. and Assured Guaranty Municipal Corp.

  In December 2015, the Commonwealth of Puerto Rico announced that it would clawback revenues pledged to other bonds to fund obligations to its general obligation (“GO”) bonds.  Although the Commonwealth of Puerto Rico, under its constitution, has the right to clawback certain revenues to service its GO bond payments, that right is subject to important preconditions.  One key precondition is that the revenues can only be clawed back if no other revenues or moneys are available to pay the GO bond payments. For fiscal year 2016, the Commonwealth forecasts approximately $9.0 billion of available resources, which vastly exceeds debt service on the public debt of approximately $1.85 billion.

  The targeted clawback revenues include those of Puerto Rico Highways and Transportation Authority (“HTA”), the Puerto Rico Convention Center District Authority (“PRCCDA”) and the Puerto Rico Infrastructure Financing Authority (“PRIFA”).  The implementation of the clawback contributed to the government’s default on January 1, 2016 on $36 million of interest on PRIFA bonds, and will eventually cause a default on HTA and PRCCDA bonds. Ambac Assurance satisfied its obligation to make timely payment on approximately $10 million of claims related to PRIFA bonds it insures.

  Commenting on today’s announcement, Nader Tavakoli, President and Chief Executive Officer of Ambac said, “Over the last several months, we have attempted to engage the Commonwealth in consensual conversations toward finding amicable solutions for their asserted liquidity issues, only to be rebuffed.  Instead the Commonwealth has committed itself to a ‘scorched earth’ strategy of blaming its fiscal and structural problems on lenders, Congressand others, in an effort to deflect responsibility and obtain retroactive application of bankruptcy laws.  Serious issues have been raised by the Governor himself as to whether the Commonwealth historically misrepresented its financial condition to fool the very lenders it now seeks to punish.”

  Mr. Tavakoli continued, “Most recently, the Commonwealth unlawfully diverted tax revenues collected by the U.S. government, which are collected for the specific purpose of supporting PRIFA bonds, in order to finance the government’s general accounts.  We remain hopeful that the Commonwealth will abandon these illegal tactics, and turn instead toward good faith negotiations aimed at solutions instead of confrontation.  While we are optimistic that the government of Puerto Rico will begin to act responsibly, at this time we have no choice but to protect our stakeholders through judicial recourse.”

  *  *  *

  

  

  

  

  

  

• The Bankers' India Gold Grab: An Update

  Submitted by Jeff Nielsen via SprottMoney.com,

  In previous commentaries , readers were warned that Western bankers were once again targeting the gold market of India with more of their fiendish plans. This time, they convinced (bribed?) India’s new, corrupt government – the Modi regime – into orchestrating a scheme to steal the gold from its own people.

  The nexus of this scam was what was announced as “the gold deposit scheme.” Even the Conspirators themselves were unable to come up with a name to make this naked fraud sound legitimate. The fraud itself is simple, indeed utterly simplistic.

  Indians “deposit” their gold into the clutches of their thieving government and are paid (paper) “interest” on those deposits. The fact that this was a naked fraud was immediately apparent. As the bankers tell us all the time, “gold generates no income.” How could India’s government pay the interest on the gold coins/bars/jewelry sitting in its vault supposedly held in trust for its depositors?

  There was no immediate answer to that question, because there could be no (legitimate) answer to the question. Indeed, in legitimate bullion storage arrangements, depositors pay a fee to have their bullion safely stored for them, because while the gold generates no income, the costs of storing such gold are significantly greater than zero.

  Finally, reluctantly, the Conspirators made explicit what was already totally obvious:

  The deposited gold will be auctioned off from time to time to meet domestic demand for jewellery and coins. [emphasis mine]

  The scam was now completely exposed.

  a) Indians “deposit” their gold.

  b) Indians receive (paper) “interest” on their gold while their deposited gold is sold off.

  c) Indians end up with the paper interest – and no gold.

   

  d) India’s jewellers and coin-makers then sell the gold they purchased at these auctions back to the same Chumps who originally deposited that gold.

  In the eyes of Western bankers, it was the perfect “scheme” – hence their label for the plan. In the eyes of any sane, rational, human being, it was/is the most naked, clumsy fraud that one could possibly imagine. But the corporate media assured us there was considerable enthusiasm amongst India’s population for this scam.

  With enormous media and government fanfare, the “scheme” was officially launched at the beginning of November. However, these same media and government mouthpieces were much, much quieter a couple of weeks later when they released details on the initial response to this obvious fraud.

  A gold deposit scheme launched amid fanfare by Indian Prime Minister Narendra Modi two weeks ago has so far attracted only 400 grammes, an industry official said on Thursday, out of a national hoard estimated at 20,000 tonnes.

  For those readers still less-than-comfortable with the metric system, let’s convert these numbers to the Imperial system of measurement. In two weeks, out of a population of more than one billion people, holding an estimated 40 million pounds of gold, the Conspirators only managed to net roughly one pound of gold from their intended victims.

  Expressing these results in percentage terms, the Conspirators managed to steal less than 0.000002% of India’s privately held gold. At that rate, it would take India’s government (and the bankers) more than one million years to steal all of India’s gold.

  The thieves were not daunted, at least not publicly. The media offered assorted excuses for the “slow” initial response to the scam. India’s government immediately added new inducements for the scam and pledged a “high-level meeting” to plot even more changes.

  Last week, the government announced several steps to make the scheme more attractive for consumers, including measures such as eliminating capital gains and income taxes on the interest earned. The meeting on Tuesday is expected to focus on incentives for banks.

  “Capital gains and income taxes”? Indians are having their gold stolen from them. They receive paper interest equal to a fraction of the value of that gold in return. And the media/government liars have the audacity to call this interest a “gain” or “income”? How magnanimous of India’s government to announce that it wouldn’t tax those “profits.”

  With these new inducements in place, the Conspirators sat back and waited for the gold to start flowing into their vaults. Two weeks later, we got our next update :

  The scheme has only attracted about one kilogramme [two pounds] in a month, prompting the government to nudge temples through banks to hand over their treasures …

  First we get news that the thieves managed to net another, whole pound of gold during the second half of the month, and were still on-pace to steal all of India’s gold in 1,000,000+ years. Then the language (and imagery) descends to surreal comedy.

  We’re now told that India’s government sees “temple gold” as its best/easiest target for stealing. But then we’re told that India’s government isn’t going to approach the temples directly, despite its boasts of what a “great opportunity” the gold-deposit scam represented. Instead, we’re told that India’s government plans on sending in bankers to “nudge” the temples to “hand over their treasures.” Why?

  Once upon a time, those individuals who could liberate the most wealth from institutions in the least amount of time were known as “bank robbers.” But those days are ancient history. This is the 21 ^st century, or as the corporate media likes to call it, all the time, “the New Normal.”

  In the New Normal , the world’s premier wealth liberators are no longer bank robbers but rather bank er robbers. These wealth liberators of the 21 ^st century make the bank robbers of the 19 ^th and 20^th century appear as nothing but rank amateurs.

  Observe. First a banker (and bank) is given custody of (someone else’s) financial assets in order to “manage” those assets. Then, a blink of an eye later, the bank/banker proudly proclaims that the bank now owns those assets. The bankers call this method of wealth liberation “a bail-in.”

  However, in this case, India’s new government was not calling upon its friends, the bankers, to engage in any direct wealth liberation. Rather, they were being sent in to engage in persuasion. Presumably the “bankers” assigned to that task had names like Butch and Knuckles, and instead of carrying briefcases, they were brandishing “implements of persuasion.”

  A mere three days after India’s government sent in the bankers, the following announcement appeared:

  Mumbai’s Siddhivinayak temple to deposit 40 kg of gold in monetization scheme

  Here’s what is interesting about that announcement. First of all, the bankers had already invested many years of time and effort looking for some means to “gather” some of the thousands of tonnes of gold held by India’s temples – and failed. Meanwhile, just three days earlier, we had been told the following.

  But Mumbai’s Shree Siddhivinayak temple, which is devoted to the Hindu elephant god Ganesha, said it remained unconvinced about the benefits.

  What could have been said to (or done to) the leaders of this temple in order to get them to suddenly reverse themselves after years of resisting all efforts by the bankers to “gather” their gold? Only Butch and Knuckles can answer that question – but they probably won’t.

  The strategy in strong-arming at least one of India’s temples out of a small portion of its gold is obvious. “Look!” hiss the bankers, “Your religious leaders are giving us their gold. That means that it must be a good idea.” Including the 40 kg of gold liberated from the Shree Siddhivinayak temple, this brings the total haul in the gold-deposit scam to 41 kg to date. Put in different terms, the total amount stolen has now risen from 0.000002% of the gold of India’s people all the way to 0.00008%.

  Will the scheme by the One Bank and India’s government to steal some/most/all of the 20,000 tonnes of privately held gold in India be successful? If so, Butch and Knuckles will have to engage in a lot more persuading.

  

  

  

  

  

• It Begins: FXCM Doubles Yuan Margins, Warns Of Market "Disruption And Highly Illiquid Conditions"

  The last time FX brokers, still hurting from the Swiss National Bank’s revaluation shocker from last January which forced brand names such as FXCM to seek an urgent bailout, scramble to hike margins was in late June just ahead of the Greek “event risk” weekend, when  numerous brokers either hiked margins on EUR positions or went to “close only” mode due to “uncertainty surrounding the Greek debt negotiations… that could lead to high volatility on the market.”

  So, barely one week into the new year, one which has seen the stock market suffer its worst ever first week of trading, some FX brokers are not taking chances, and in the aftermath of the aggressive plunge in the Yuan (one we warned about a month ago), have decided to minimize client stop-out risk by hiking margins.

  Case in point, here is FXCM with a just released warning about upcoming “highly illiquid conditions” leading to a doubling in Yuan margins:

  Dear Client,

   

  We believe there is a chance of disruption and highly illiquid conditions in the forex market during the coming weeks (and/or months). Please be aware that market gaps tend to occur over the weekend – that is, currencies trade at prices considerably distant from previous levels.

   

  *IMPORTANT UPDATE*  

   

  Margin requirements will double on the USD/CNH pair after market close on January 15, 2016. See a Complete List of New Margin Requirements

   

  Please review your account to ensure that you have enough available margin to support any new positions. You may deposit additional funds at www.myfxcm.com or close positions as needed.

  Follows the traditional disclaime which FXCM itself probably should have taken to heart one year ago when after the SNB’s de-pegging the firm suffered tremendous losses:

  Remember that forex trading can result in losses that could exceed your deposited funds and therefore may not be suitable for everyone, so please ensure that you fully understand the high level of risk involved.

  The paradox here is that pre-emptive, if correct, warnings such as this one, tend to quickly become self-fulfilling prophecies as other brokers immediately follow suit and likewise increase margin requirements, which helps mitigate total loss potential but just as quickly soaks up liquidity from the market, leading to an even more fragmented market, prone to sudden, and quite dramatic moves.

  The full list of FXCM margin increases is shown below; expect every other FX brokerage to promptly jump on the bandwagon.
  

  

  

  

  

  

• One Map That Explains The Dangerous Saudi-Iranian Conflict

  Submitted by Jon Schwartz via The Intercept,

  The Kingdom of Saudi Arabia executed Shiite Muslim cleric Nimr al-Nimr on Saturday. Hours later, Iranian protestors set fire to the Saudi embassy in Tehran. On Sunday, the Saudi government, which considers itself the guardian of Sunni Islam, cut diplomatic ties with Iran, which is a Shiite Muslim theocracy.

  To explain what’s going on, the New York Times provided a primer on the difference between Sunni and Shiite Islam, informing us that “a schism emerged after the death of the Prophet Muhammad in 632” — i.e., 1,383 years ago.

  But to the degree that the current crisis has anything to do with religion, it’s much less about whether Abu Bakr or Ali was Muhammad’s rightful successor and much more about who’s going to control something more concrete right now: oil.

  In fact, much of the conflict can be explained by a fascinating map created by M.R. Izady, a cartographer and adjunct master professor at the U.S. Air Force Special Operations School/Joint Special Operations University in Florida.

  What the map shows is that, due to a peculiar correlation of religious history and anaerobic decomposition of plankton, almost all the Persian Gulf’s fossil fuels are located underneath Shiites. This is true even in Sunni Saudi Arabia, where the major oil fields are in the Eastern Province, which has a majority Shiite population.

  As a result, one of the Saudi royal family’s deepest fears is that one day Saudi Shiites will secede, with their oil, and ally with Shiite Iran.

  This fear has only grown since the 2003 U.S. invasion of Iraq overturned Saddam Hussein’s minority Sunni regime, and empowered the pro-Iranian Shiite majority. Nimr himself said in 2009 that Saudi Shiites would call for secession if the Saudi government didn’t improve its treatment of them.

  

  The map shows religious populations in the Middle East and proven developed oil and gas reserves. Click to view the full map of the wider region. The dark green areas are predominantly Shiite; light green predominantly Sunni; and purple predominantly Wahhabi/Salafi, a branch of Sunnis. The black and red areas represent oil and gas deposits, respectively.

  Source: Dr. Michael Izady at Columbia University, Gulf2000, New York

  As Izady’s map so strikingly demonstrates, essentially all of the Saudi oil wealth is located in a small sliver of its territory whose occupants are predominantly Shiite. (Nimr, for instance, lived in Awamiyya, in the heart of the Saudi oil region just northwest of Bahrain.) If this section of eastern Saudi Arabia were to break away, the Saudi royals would just be some broke 80-year-olds with nothing left but a lot of beard dye and Viagra prescriptions.

  Nimr’s execution can be partly explained by the Saudis’ desperation to stamp out any sign of independent thinking among the country’s Shiites.

  The same tension explains why Saudi Arabia helped Bahrain, an oil-rich, majority-Shiite country ruled by a Sunni monarchy, crush its version of the Arab Spring in 2011.

  Similar calculations were behind George H.W. Bush’s decision to stand by while Saddam Hussein used chemical weapons in 1991 to put down an insurrection by Iraqi Shiites at the end of the Gulf War. As New York Times columnist Thomas Friedman explained at the time, Saddam had “held Iraq together, much to the satisfaction of the American allies Turkey and Saudi Arabia.”

  Of course, it’s too simple to say that everything happening between Saudis and Iranians can be traced back to oil. Disdain and even hate for Shiites seem to be part of the DNA of Saudi Arabia’s peculiarly sectarian and belligerent version of Islam. In 1802, 136 years before oil was discovered in Saudi Arabia, the ideological predecessors to the modern Saudi state sacked Karbala, a city now in present-day Iraq and holy to Shiites. The attackers massacred thousands and plundered the tomb of Husayn ibn Ali, one of the most important figures in Shiite Islam.

  Without fossil fuels, however, this sectarianism toward Shiites would likely be less intense today. And it would definitely be less well-financed. Winston Churchill once described Iran’s oil – which the U.K. was busy stealing at the time — as “a prize from fairyland far beyond our brightest hopes.”

  Churchill was right, but didn’t realize that this was the kind of fairytale whose treasures carry a terrible curse.

  

  

  

  

  

• North, South Korea "At The Brink Of War" As Loudspeaker Dispute Spirals Out Of Control (Again)

  Back in August, the Korean Peninsula nearly plunged back into war when Kim Jong-Un reached his limit with the anti-North propaganda being blasted across the DMZ by loudspeakers installed by the South.

  For those who missed it, or for anyone in need of a refresher, here’s our account of what happened:

  North Korea’s Kim Jong-un – the world’s sabre rattler par excellence – doesn’t like to stray too far from the spotlight when it comes to global conflict, which is why we weren’t terribly surprised when, a few days ago, the pariah state threatened to invade the US mainland and use “weapons unknown to the world.”

   

  Of course a lot of what goes on inside the country is “unknown to the world”, much as the world is largely “unknown” to North Koreans and that’s just fine with Kim, whose regime depends on a combination of propaganda and censorship to keep the populace transfixed in a perpetual state of hypnotic hero worship. Of course the West and its allies – and now even China – have a tendency to dismiss Kim’s threats as the ravings of a delusional child, which is why occasionally, Pyongyang will actually fire a missile into the ocean or execute a member of the military top brass with an anti-aircraft gun just to remind everyone that the regime isn’t totally bluffing.

   

  Given Pyongyang’s propensity for lobbing bombastic threats that, were they to emanate from virtually any other government on the planet would be met with a sharp rebuke, it’s something of a miracle that sour relations between Kim and US ally South Korea haven’t already produced an armed conflict. That may be about to change because as Bloomberg reports, the “maiming” of two South Korean soldiers along the DMZ and subsequent “blaring of propaganda through loudspeakers” by the South culminated in the exchange of artillery fire, marking the worst escalation between the two countries in five years.

  In short, the South blamed the North for planting mines that injured soldiers and in response, persisted in the broadcasting of propaganda. Subsequently, The North threatened to “blow up” the speakers and eventually took a pot shot at one. Next came the artillery exchange and shortly thereafter, Kim declared a state of war. 

  Tensions eventually eased in what Kim hailed as a kind of diplomatic victory for Pyongyang.

  

  Fast forward four months and the North was busy conducting its fourth nuclear test. As we documented on Wednesday, Pyongyang “successfully” tested what it swears was an H-bomb on Tuesday, drawing universal condemnation from virtually every country on the planet. The North needs an H-bomb, Pyongyang explained, because the US “is a gang of cruel robbers.”

  

  Well, in the wake of the nuke test, the South resumed its propaganda broadcasts across the DMZ. The loudspeakers were fired back up on Friday just a day after reports indicated that South Korea is in talks with the US for the deployment of strategic weapons to the Peninsula. The broadcasts “are likely to infuriate” Kim, Reuters wrote.

  Sure enough, the North now says the resumption of the broadcasts (which Pyongyang considers to be an “act of war”) have brought the two countries to “the brink of war.” Here’s AP with the absurd details:

  North Korea warned of war as South Korea on Saturday continued blasting anti-Pyongyang propaganda across the rivals’ tense border in retaliation for the North’s purported fourth nuclear test.

   

  North Korean propaganda is filled with threats of violence, but the country is also extremely sensitive to criticism of its authoritarian leadership, which Seoul resumed in its cross-border broadcasts on Friday for the first time in nearly five months. Pyongyang says the broadcasts are tantamount to an act of war. When South Korea briefly resumed propaganda broadcasts in August after an 11-year break, Seoul says the two Koreas exchanged artillery fire.

   

  Speaking to a massive crowd at Pyongyang’s Kim Il Sung Square, a top ruling party official said the broadcasts, along with talks between Washington and Seoul on the possibility of deploying in the South advanced U.S. warplanes capable of delivering nuclear bombs, have pushed the Korean Peninsula “toward the brink of war.”

   

  Pyongyang’s rivals are “jealous” of the North’s successful hydrogen bomb test, Workers’ Party Secretary Kim Ki Nam said in comments broadcast on state TV late Friday.

   

  South Korean troops, near about 10 sites where loudspeakers started blaring propaganda Friday, were on the highest alert, but have yet to detect any unusual movement from the North Korean military along the border, an official from Seoul’s Defense Ministry, who refused to be named, citing office rules, said Saturday.

   

  The South’s Yonhap news agency said Seoul had deployed missiles, artillery and other weapons systems near the border to swiftly deal with any possible North Korean provocation, but the ministry did not confirm the reports.

   

  Officials say broadcasts from the South’s loudspeakers can travel about 10 kilometers (6 miles) during the day and 24 kilometers (15 miles) at night. That reaches many of the huge force of North Korean soldiers stationed near the border and also residents in border towns such as Kaesong, where the Koreas jointly operate an industrial park that has been a valuable cash source for the impoverished North.

   

  Seoul also planned to use mobile speakers to broadcast from a small South Korean island just a few kilometers (miles) away from North Korean shores.

   

  While the South’s broadcasts also include news and pop music, much of the programming challenges North Korea’s government more directly.

   

  “We hope that our fellow Koreans in the North will be able to live in (a) society that doesn’t invade individual lives as soon as possible,” a female presenter said in parts of the broadcast that officials revealed to South Korean media. “Countries run by dictatorships even try to control human instincts.”

  And here’s an image which purports to depict two South Korean soldiers fine tuning the speakers:

  

  Although we’re quite sure the humor inherent in the above isn’t lost on readers, we’d be remiss not to highlight the fact that this is just about the most irksome thing someone could do to a man like Kim.

  The Supreme Leader is desperate to defend the legitimacy of his government and to preserve the legacy of his father and grandfather. That means keeping the public in a perpetual state of awe and conveying an air of divine authority, unshakable will, and absolute power. The fact that the South sets up loudspeakers on his border and blasts a mishmash of South Korean pop music and anti-Pyongyang agitprop loud enough to be heard 15 miles away is just about the most irritating slap in the face imaginable for the young leader. 

  Adding insult to injury: Friday was Kim’s birthday.

  But just because Kim likely knows he can’t realistically challenge the South militarily without provoking big brother in Washington doesn’t mean an “accident” across the DMZ couldn’t inadvertently bring the two countries to blows. And all over some speakers…

  

  

  

  

  

  

• Americans' Positive Perception Of NRA Soars As Obama Escalates Gun-Control Agenda

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  When pollsters asked people three decades ago how they felt about the National Rifle Association, 27% said they strongly supported the gun lobby. By last month, that share had grown 38%, an 11-point increase. Meanwhile, the share that didn’t side with the NRA declined.

   

  By an 8-point, registered voters in the Journal/NBC survey last month said they were more concerned that the government would go too far in restricting gun rights than that it fail to do enough to regulate access to firearms. When adults were asked the same question in 1995, the greater fear was that access to firearms was too widespread.

   

  In July polling, the Journal/NBC survey found that 43% of the public had a positive image of the NRA and 32% a negative one—a more favorable view than the public held of the Supreme Court or either political party. By a 15-point margin, political independents, also viewed the NRA more positively than negatively.

   

  – From the Wall Street Journal article: Rising Support for NRA Stymies Obama

  Love guns or hate guns, one thing is becoming perfectly clear. The American public’s perception of guns and the NRA is moving in the exact opposite direction of Barack Obama’s message and agenda.

  To hear Obama speak, you’d think the NRA is simply using boatloads of money and propaganda to thwart the impassioned gun control desires of the American public. In reality, nothing could be further from the truth. First, let’s take a look at some powerful charts from the Wall Street Journal.

   

  

  As you can clearly see, the numbers regarding NRA support have virtually flipped over the past thirty years. This is also consistent with a recent ABC News poll which showed for the first time that a majority of American are against an assault weapons ban. From the post, A Majority of Americans Oppose “Assault Weapons Ban” – Highest Number on Record:

  A majority of Americans oppose banning assault weapons for the first time in more than 20 years of ABC News/Washington Post polls, with the public expressing vast doubt that the authorities can prevent “lone wolf” terrorist attacks and a substantial sense that armed citizens can help.

   

  Indeed, while the division is a close one, Americans by 47-42 percent think that encouraging more people to carry guns legally is a better response to terrorism than enacting stricter gun control laws. Divisions across groups are vast, underscoring the nation’s gulf on gun issues.

  Now here’s another chart from the same Wall Street Journal article, which is even more compelling.

  

  Although Democrats hate the NRA (the same group that supports Hillary for President despite admitting she’s untrustworthy), Independents show strong support. Why is this important? Because according to a recent Gallup poll, a record 43% of Americans identify as Independents.

  From Gallup:

  PRINCETON, N.J. — An average 43% of Americans identified politically as independents in 2014, establishing a new high in Gallup telephone poll trends back to 1988. In terms of national identification with the two major parties, Democrats continued to hold a modest edge over Republicans, 30% to 26%.

   

  Since 2008, the percentage of political independents — those who identify as such before their leanings to the two major parties are taken into account — has steadily climbed from 35% to the current 43%, exceeding 40% each of the last four years. Prior to 2011, the high in independent identification was 39% in 1995 and 1999.

   

  The recent rise in political independence has come at the expense of both parties, but more among Democrats than among Republicans. Over the last six years, Democratic identification has fallen from 36% — the highest in the last 25 years — to 30%. Meanwhile, Republican identification is down from 28% in 2008 to 26% last year.

  Now here’s the chart. There’s a well defined bull market in Independent-identifying Americans:

  

  Finally, let’s end this post with some excerpts from the Wall Street Journal article from which the previously highlighted charts were pulled:

  When pollsters asked people three decades ago how they felt about the National Rifle Association, 27% said they strongly supported the gun lobby. By last month, that share had grown 38%, an 11-point increase. Meanwhile, the share that didn’t side with the NRA declined.

   

  That is just one measure of the challenge that has forced President Barack Obama to sidestep Congress and put in place new gun regulations through executive action. Mr. Obama knows through hard experience that lawmakers have little appetite for passing tougher gun laws. Polling shows that skepticism is rooted among the broader public, as well.

  So there you go. King Obama sees political trends he doesn’t like, knows that Congress can’t do anything about it because the public doesn’t want it to, so he does it by himself by executive decree.

  As I noted on Twitter the other day:

  Yeah, then this will flip once Trump is elected, and Obama supporters will suddenly discover the Constitution: pic.twitter.com/O6x0U8cA0B

  — Michael Krieger (@LibertyBlitz) January 6, 2016

  Now back to the WSJ:

   

  By an 8-point, registered voters in the Journal/NBC survey last month said they were more concerned that the government would go too far in restricting gun rights than that it fail to do enough to regulate access to firearms. When adults were asked the same question in 1995, the greater fear was that access to firearms was too widespread. 

   

  But as Mr. Obama seeks any small patch of common ground, one of the most powerful forces he must deal with is skepticism of any new laws—even the widely backed expansion of background checks. A majority in Gallup polling said background checks would have little or no effect in reducing mass shootings. And a majority believed the country would be safer if more people carried concealed weapons—a finding in tune with the NRA’s contention that “the only thing that stops a bad guy with a gun is a good guy with a gun.’’

   

  While support for the NRA skews Republican, it is not exclusively Republican. Some 41% of political independents rate themselves as highly supportive of the gun lobby, more than twice the share that doesn’t support the group, December’s Wall Street Journal/NBC News survey found.

   

  In July polling, the Journal/NBC survey found that 43% of the public had a positive image of the NRA and 32% a negative one—a more favorable view than the public held of the Supreme Court or either political party. By a 15-point margin, political independents, also viewed the NRA more positively than negatively.

   

  “The gun lobby may be holding Congress hostage right now, but they cannot hold America hostage,’’ Mr. Obama said in announcing his new gun regulations. But in going up against the NRA, he is working against a force that is not only powerful but popular among many in the country.

  Substitute “the American public” for “the gun lobby,” and you’ll find out what’s really irking King Barry.

  

  

  

  

  

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