- American Democracy? – Money, Super-Delegates, & Hacked Voting Machines
Authored by Cynthia McKinney, Op-Ed via RT.com,
Jesus once remarked to a wealthy man that “it is easier for a camel to pass through the eye of a needle than it is for a rich man to go to heaven.”Today, we could amend the words of that Biblical reference with the US presidential race underway:
“It is easier for a camel to go through the eye of a needle than for a voter in the US to know and understand the rules regulating the administration of all elections, including elections for President of the United States.”
Let’s start with the phenomenon of what is called a “minority president.” No, that is not a president who identifies as an ethnic or racial minority in the US. A minority president is one who has failed to win a plurality of the votes cast in the race for president, and yet is still able to become President of the United States. This is the exact opposite of what a true democracy would require; perhaps not even a pure democracy would entertain such a position such as the 'Office of the Presidency'. But that is an entirely different matter.
The United States has actually had several minority presidents in its history, while the 21st century began ominously enough with yet another minority President: George W. Bush, the Republican who failed to secure the most votes cast by the people [in the 2000 election, the Supreme Court, in a 5-4 ruling, decided the victor of the race after moving to halt the recount process in the state of Florida].
Both the US House and the US Senate are charged with counting the Electoral College votes, and this is a process in which I have participated. The constitutionally mandated process was circumvented by the precedent-setting Bush v. Gore Supreme Court ruling that instructed future Courts not to use the decision as a precedent!
As this case aptly proved, it’s not the people who have the last word in US elections. It’s a non-democratic construct called the Electoral College that does, except in those rare instances when it doesn’t.
The Electoral College was created by the framers of the US Constitution to ensure that the votes of the plebes did not supersede the interests of the landed gentry. That’s not just my opinion. For example, according to FairVote, an organization with which I have worked in the 2000 Presidential election, a whopping 78 percent of the votes cast were rendered unimportant due to the arcane rules of the Electoral College. They estimate that in 2008, the figure still topped 70 percent.
In order to be declared the winner of the presidency, 270 Electoral College votes are required. But the process is not what could be called transparent. For example, veteran Pro Se litigator Asa Gordon has demonstrated how the Black vote in the US is rendered less relevant by the arcane apportionment rules of the Electoral College. And when the Electoral College is deadlocked, which has happened before, then the matter falls to the United States House of Representatives to decide who will be allowed to serve in the White House.
Hacking Democracy
Add to the above debacles, the US Congress and the election authorities in the 50 states have authorized and encouraged the use of hackable electronic voting machines that are used for vote casting and vote tabulation. Bev Harris and her company, Black Box Voting, has accumulated horror stories surrounding the non-transparency of US elections. I have worked closely with Harris because the danger of these machines is self-evident to everyone except the officials who continue to purchase them for millions of dollars, putting millions of voters’ most precious political asset at risk.
Bernie beat Hillary by 22% but she'll break even in New Hampshire because of SuperDelegates. That is not democracy. The system is rigged.
— John Dardenne (@johndardenne) February 10, 2016
Such a scenario is what led former President Jimmy Carter to comment he “absolutely” could not be elected today under such conditions, going so far as to characterize the United States as an oligarchy, not a democracy.
‘Hacking Democracy’ is only one of the many documentaries to expose the fallibility of the actual voting process in the US. Other documentaries focus on how private money has corrupted its election process.
In addition to the insecure hardware, I am sorry to write that the voter list is kept on an electronic device and if the voter’s name fails to appear on the list, the voter has little recourse.
In the US, votes and vote tabulation processes are done without any traceable back-up procedures. In other words, there is no paper trail – no receipt of a vote, as it were – whatsoever. In one of my Congressional elections in which the electronic voting machines “failed,” not only was I unable to obtain the election data despite a lawsuit having been filed, an expert witness for the state of Georgia testified that voters have to simply “trust” that the announced winner is the actual winner. Meanwhile, candidates have no access to the raw election data because that information is “owned” by Diebold—the company that produced the electronic voting machines and the software used by them (The documentary ‘American Blackout’ tells my own personal story with US elections). It is difficult to place trust in the US election system when we learn about the number of votes cast that go uncounted. In the 2000 Presidential election between Bush and Gore, between two million and five million Americans went to the polls and voted, yet their votes were thrown out, disqualified for any number of reasons. Half of those uncounted votes were cast by Black Americans.
Money, money, money
Add to these procedural vagaries, the influence of private money in US elections and even the pretense of holding transparent, free, and fair elections is stood completely on its head. As I wrote in a previous post, the rules have given rise to super-wealthy individuals who lurk in the shadows while becoming the power behind the public faces of candidates: Marco Rubio has Norman Braman as his closest and most important backer. Hillary Clinton has Haim Saban as one of her top donors; Sheldon Adelson is a “player” at the Presidential level in US politics. Billionaire Donald Trump self-finances his Presidential bid and former New York Mayor Michael Bloomberg is rumored to be willing to spend one billion dollars in his still-to-be-announced independent presidential run.
The situation is so dire that one wealthy individual could legally bankroll an entire Congressional campaign and a roundtable of them could do the same with the US Presidency. So-called campaign finance reform blew the existing loopholes wide open instead of closing them. The Citizens United Supreme Court ruling stood the revered Freedom of Speech First Amendment to the US Constitution on its head by allowing a few wealthy donors to have more 'free speech' than 300 million other Americans.
The sad truth is that much of what takes place resembles a horse race, or some kind of political theater designed specifically for public consumption. Each step of the process, whether it’s the hunt for delegates in the political party primary or the hunt for Electoral College votes after nominations have taken place, the real action takes place in the darkest recesses of the system, out of view. One could go so far as to say that the real action of US “democracy” takes place in the shadows.
So, what we are witnessing for public consumption is the hunt for delegates among the presidential contenders in the Republican Party and between Hillary Clinton and Bernie Sanders in the Democratic Party. Until February 1, everything was basically kabuki theatre, advertising in order to lure an ample audience to enhance the profits of the major television, radio broadcasters and newspaper publishers. Donald Trump made this point repeatedly just before he decided to not participate any longer in the pre-February Republican Party Primary debates. He challenged CNN to donate some of its profits from debate ad sales to veterans’ charities—which, of course, CNN refused to do.
On February 1, the first popular voting actually took place. The Iowa Caucuses kicked off the delegate hunt. The Democratic candidates are trying to garner 2,382 delegates to win the nomination; Republican candidates need 1,144. Across the state of Iowa, registered voters gathered to cast their vote for their preferred party primary candidate. Yet the rules for the caucuses are far from straightforward, as are the rules for counting of votes and assignment of delegates.
Thus, several results in the Iowa Democratic caucuses were actually decided by a coin toss; one Clinton precinct captain didn’t even live in the precinct to whose caucus he had been assigned to manage. As a result of the massive confusion as to who actually won the Iowa Caucuses, the Sanders campaign has launched a quest to get the raw vote totals—as yet unavailable from the Iowa or national Democratic Party that declared Clinton the winner.
The next vote took place in the New Hampshire primary, which is different than a caucus. And there, too, the rules change by state for which primary voters are eligible to vote.
The next round of voting will take place on what is called ‘Super Tuesday’ when a number of states allow their voters to express their presidential preferences in primaries. But, that’s only if your preferred presidential candidate has been able to secure ballot access. Not all of the candidates are able to run in all states because each state has its own requirements for gaining ballot access. This is not a problem for either the Democratic or Republican parties, but is a huge issue for other parties. Therefore, most American voters don’t even get to see the full range of candidates and political parties on their ballots!
All of this popular voting is to assign delegates to each candidate. Those delegates will represent their candidate at the political party’s nominating convention. Or at least that’s the way it’s supposed to work. And so, the candidate with the most delegates will win the party’s nomination, right? Well, not necessarily, due to something called “super delegates” who are not bound by the popular vote. So, theoretically, unless Bernie Sanders wins the popular vote by a commanding margin in the Democratic Party primary, Hillary Clinton could actually walk away with the party’s nomination, due to the power of superdelegates whose role is similar to that of the Electoral College—to make sure that the plebes don’t ever really think they are in control. However, if something like that were to occur, the credibility of the Party might take a beating.
So, there you have it. When there is no challenge to the shadow players, everything rolls just fine and the flaws in the system are not clearly evident. But, for candidates who do not have shadow blessing, the election process can become a nightmare. Imagine then, America's increasingly alienated voters trying to overcome all of the information and process hurdles.
And, by the way, not all adult citizens in the US are eligible to vote. In some states, people in the criminal justice system with felonies may forfeit their right to vote altogether. At the same time, some states require state-issued identification cards in order to vote. Even voting machines are positioned by precinct history, not by need. Thus, Blacks voting in Ohio and other places around the country waited for hours to vote while White majority precincts had no wait at all to vote.
It is little wonder, then, that so few citizens of voting age actually participate in the process. According to one study, only approximately 55 percent of the voting age population actually voted in 2012. For citizens tying to unravel all of the rules and regulations, how a candidate moves through the process to become a nominee and then incumbent is “a riddle wrapped in a mystery inside an enigma.”
So the next time the victor of a US presidential race system says that he or she will destabilize a foreign government or wage a war against a foreign country in order to 'fight for democracy', the entire world, led most of all by the voters of the United States, should greet the news with a hearty laugh.
- China Created A Record Half A Trillion Dollars Of Debt In January
Yes, you read that right. Amid a tumbling stock market, plunging trade data, weakening Yuan, and soaring volatility, China's aggregate debt (so-called total social financing) rose a stunning CNY3.42 trillion (or an even more insane-sounding $520 billion) in January alone.
In fact, since October, China has added over 1 trillion dollars of credit… and has nothing but margin calls, ghost-er cities, and over-supplied commodity-warehouses to show for it… oh and even-record-er debt-to-GDP ratio.
This is what the unprecedented addition of half-a-trillion dollars in one month looks like – Hyman Minsky called, he wants his chart back.
For context, consider this…
China did half a QE3 in one month
— zerohedge (@zerohedge) February 16, 2016
Why is China doing this? Because as we showed three years ago, China needs ever greater stimuli to achieve the same effect:
This is what else we said back in April 2013 which by now seems painfully (and plainfully) obvious:
What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults.
This could be the end as the last bubble standing (in China corporate debt) has begun to burst amid the over-supply of credit.
What happens next?
- Here's Why (And How) The Government Will "Borrow" Your Retirement Savings
Submitted by Simon Black via SovereignMan.com,
According to financial research firm ICI, total retirement assets in the Land of the Free now exceed $23 trillion.
$7.3 trillion of that is held in Individual Retirement Accounts (IRAs).
That’s an appetizing figure, especially for a government that just passed $19 trillion in debt and is in pressing need of new funding sources.
Even when you account for all federal assets (like national parks and aircraft carriers), the government’s “net financial position” according to its own accounting is negative $17.7 trillion.
And that number doesn’t include unfunded Social Security entitlements, which the government estimates is another $42 trillion.
The US national debt has increased by roughly $1 trillion annually over the past several years.
The Federal Reserve has conjured an astonishing amount of money out of thin air in order to buy a big chunk of that debt.
But even the Fed has limitations. According to its own weekly financial statement, the Fed’s solvency is at precariously low levels (with a capital base of just 0.8% of assets).
And on a mark-to-market basis, the Fed is already insolvent. So it’s foolish to think they can continue to print money forever and bail out the government without consequence.
The Chinese (and other foreigners) own a big slice of US debt as well.
But it’s just as foolish to expect them to continue bailing out America, especially when they have such large economic problems at home.
US taxpayers own the largest share of the debt, mostly through various trust funds of Social Security and Medicare.
But again, given the $42 trillion funding gap in these programs, it’s mathematically impossible for Social Security to continue funding the national debt.
This reality puts the US government in rough spot.
It’s not like government spending is going down anytime soon; it already takes nearly 100% of tax revenue just to pay mandatory entitlements like Social Security, and interest on the debt.
Plus the government itself estimates that the national debt will hit $30 trillion within ten years.
Bottom line, they need more money. Lots of it. And there is perhaps no easier pool of cash to ‘borrow’ than Americans’ retirement savings.
$7.3 trillion in US IRA accounts is too large for them to ignore.
And if you think it’s inconceivable for the government to borrow your retirement savings, just consider the following:
1) Borrowing retirement funds is becoming a popular tactic.
Forced loans have been a common tactic of bankrupt governments throughout history.
Plus there’s recent precedent all over the world; Hungary, France, Ireland, and Poland are among many governments that have resorted to ‘borrowing’ public and private pension funds.
2) The US government has already done this with federal pension funds.
During the multiple debt ceiling fiascos since 2011, the Treasury Department resorted to “extraordinary measures” at least twice in order to continue funding the government.
What exactly were these extraordinary measures?
They dipped into federal retirement funds and borrowed what they needed to tide them over.
In fact, the debt ceiling debacles were only resolved because the Treasury Department had fully depleted available retirement funds.
3) They’ve been paving the way to borrow your retirement savings for a long time.
Two years ago the government launched a new initiative to ‘help Americans save for retirement.’
It’s called MyRA. And the idea is for people to invest retirement savings ‘in the safety and security of US government bonds’.
Since then they’ve gone on a marketing offensive involving the President, Treasury Secretary, and other prominent politicians.
(Most recently Nancy Pelosi published an Op-Ed in the San Francisco Chronicle a few days ago promoting the program.)
They’ve also proposed a number of legislative reforms to ‘encourage’ American businesses to sign their employees up for MyRA.
Just last week, Congress introduced the “Making Your Retirement Accessible”, or MyRA Act, which would charge a penalty to employers whose workers don’t have a retirement account.
The proposed penalty is $100. Per worker. Per day.
Imagine a small business with, say, 10 employees who don’t have retirement accounts. The penalty to Uncle Sam would be a whopping $30,000 PER MONTH.
There’s a word for this. It’s called extortion.
Obviously when facing a $30,000 monthly penalty, an employer will pick the easiest option.
Given the absurd amount of government regulation on the rest of the financial industry, MyRA is the fastest choice.
This isn’t about fear or paranoia. It’s about facts.
And the reality is that the government in the Land of the Free is moving in the direction of borrowing more and more of your retirement savings.
If you still remain skeptical, remember that last year the government stole more from its citizens through Civil Asset Forfeiture than thieves in the private sector.
Or that just 45-days ago a new law went into effect authorizing the government to strip you of your passport if they believe in their sole discretion that you owe them too much tax.
No judge. No jury. No trial. They just confiscate your passport.
- "They're All Bandits!" Russia Will Not Stop Syria Airstrikes Regardless Of Ceasefire
Once upon a time, the CIA and Washington’s Mid-East Sunni allies had an idea.
The American forces occupying Iraq were handed a bit of a lemon in 2004 when Abu-Mus’ab al-Zarqawi pledged allegiance to Osama Bin Laden and took command of the al-Qaeda cell in Iraq, which grew by recruiting from the ranks of Saddam’s scattered security apparatus.
But you know what they say, “when absurd Mid-East foreign policy decisions end up handing you lemons, make sectarian lemonade,” and so Washington, Riyadh, and Doha eventually decided that AQI might just have a part to play in toppling the Alawite government in neighboring Syria.
And then, somewhere along the way, things went horribly awry. AQI became Islamic State and the “oust Assad” narrative took a backseat to the group’s new goal: establishing a medieval caliphate. Now, a decade after al-Zarqawi’s death, ISIS has metamorphosed into a black flag-waving, sword-wielding, white basketball shoe-wearing, slave-taking, flesh-eating band of marauding desert bandits in what is easily the worst case of blowback in the history of US foreign policy.
Of course Islamic State aren’t the only “bandits” running amok in Syria. The Pentagon as well as the Saudis and the Turks are backing all manner of Sunni extremists in the country and rather than try to identify who’s who, Russia’s strategy is simple: if you are firing assault rifles at government forces, you’re a terrorist and that means you are the target of the Russian air force.
Over the weekend, Russian Prime Minister Dmitri Medvedev made it clear that even if there’s some manner of agreement with the “moderate opposition” in Geneva, any ceasefire will not apply to “terrorists.” But again, they’re all terrorists in Russia’s eyes so there will be no cessation of strikes until either the opposition surrenders or until they’re all killed.
Medvedev, who racked up a string of headline-worthy quotes at the 52nd Munich Security Conference over the weekend (see here), granted an exclusive interview with TIME and it contains a number of quotable moments including a particularly amusing passage wherein the PM says the following about the Syrian opposition:
“People who run around with automatic weapons should be fair game — not only the terrorists of the Islamic State of Iraq and Greater Syria. They are all bandits and terrorists. They move around amongst themselves for various reasons: They get paid more somewhere else, or somebody has a falling out with somebody else. So it is very difficult for us to tell the difference between the very moderate ones and the not-so-moderate ones, the good from the bad.”
* * *
From TIME’s writeup:
Medvedev left little room to hope that the peace deal would actually take hold. Its hard-won provisions, he said, “at least give us grounds for some cautious optimism in the hope that we will be able to reach an agreement about the future, about the way the resolution process in Syria will go, about intra-Syrian dialogue, its principles, its participants.” He paused before adding, “And about a cease-fire.”
The conditions he listed for such a peace indicate how far out of reach it remains. First, Syrian President Bashar Assad would have to sit down at the negotiating table with the rebel forces “who are capable of reaching an agreement,” Medvedev said. “That circle of people still has to be determined.” After that, the negotiating parties would have to agree on Syria’s political structure and the process of democratic reforms. They would also have to figure out Assad’s role in a future Syria, “because otherwise it would be strange,” Medvedev said. “At that moment,” he added, the fighting “should come to an end.”
Medvedev would not directly answer TIME’s question about whether Russia shares this goal with Assad. “He is not the one who will determine the extent of Russia’s military presence over there,” Medvedev said. The Prime Minister did, however, suggest that Moscow would resist any division of Syria between Assad and the opposition.
“We would like Syria to stay within its historic borders as a unified country,” he said, adding: “None of us need another Libya, which broke up into several pieces, nor do we need the kind of chaos in which various territories are under the control of field commanders or, to put it plainly, bandits, regardless what religious rhetoric they use as cover.”
Continuing on the subject of uncomfortable alliances, the Prime Minister noted that a variety of corrupt and violent despots have enjoyed U.S. support over the years. To make the point, he invoked the famous phrase—“He’s a son of a bitch, but he’s our son of a bitch”— that President Franklin Roosevelt is alleged to have said of the Nicaraguan dictator Anastasio Somoza in 1939.
The Russian alliance with Syria may not be much different, Medvedev suggested. “Of course, we do our best to honor our contractual obligations. If someone asks us for help, we try to assist. Do we use the famous formula of the United States, about our son of a bitch? Not always,” he said, chuckling. “That’s an American idea.”
Even so, Medvedev warned the U.S. and its Arab allies not to send ground troops into Syria to support any of the opposition forces. “Let’s remember what happened in Afghanistan,” he said, referring to the U.S. invasion of that country in 2001. “They still can’t leave. So, as soon as a conflict moves to the point of ground operations, it becomes endless. This is what’s dangerous. So don’t do it. Don’t even use it as a scare tactic.”
* * *
“Bandits”…
- Chinese Brokers' Profits Plunge 98% As Traders Flee Rigged, Burst Bubble Markets
While both sellside analysts and buyside investors are panicking over the collapse in bank stock prices and the evaporation of market liquidity as virtually nobody trades any more, perhaps it is time someone looked further east, specifically in China where in January the results reported by local brokerages have confirmed what we have been warning about, namely the local investors – disgusted with China’s stock “market” which is not only a burst bubble now but also rigged beyond any measure – have pulled their money en masse, and left China’s brokerage to disintergated into a revenueless, profitless mess.
Red Pulse has more:
Twenty-three listed securities companies had reported January financial results through February 5, showing steep declines in earnings. The brokers collected a combined RMB6bn in revenue and RMB200m in net profits in January, decreasing 83% and 98% MoM, respectively. Overall the industry recorded a loss in January.
Brokers’ key securities trading business has been impacted by low trading inactivity as markets got off to a rocky start in 2016, falling 22% in January. Daily January trading volume was RMBS38.7bn, down 32% MoM. Margin lending balance at the 23 listed securities companies dropped to RMB915.4bn at the end of January, down 22% MoM and the lowest level in 14 months. Net assets of the 23 securities companies increased by RMB9.1bn at the end of January. However, net assets of these companies actually fell RM1311bn if the additional RMB20bn in share issuance from Industrial Securities, Pacific Securities and Soochow Securities were excluded.
- Yuan Tumbles Most In A Month; Stocks, Crude Maintain Gains
Having rallied all the way back to unchanged for the year thanks to yesterday's China re-opening "adjustment," the Yuan selling has resumed with onshore down by the most in a month and offshore fading also.
With Crude and USDJPY holding gains (for now)…
US and Asian equities are in the green as hope springs eternal that tomorrow's oh-so-secret Russia-OPEC meeting solves the world's energy problems.
- Where Deflation Comes From
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,
Financial bubbles blown on the back of massive amounts of debt, of necessity lead to debt deflation (it’s just entropy, really). Fighting this is futile, and grossly costly to boot. The only sensible thing to do is to guide the process as best you can and try to minimize the damage, especially at the bottom rungs of society, because that’s where the deflation first takes hold, and where it spreads out from.
Attempting to boost inflation, or boost demand, before letting the debt deflation run its course through restructuring and defaults (perhaps even a -partial- jubilee) leads only to -further- distortion, and -further- impoverishes society’s poorer (at some point to a large extent the former middle classes) whose lower spending, as nary a soul seems to comprehend, is the origin of the deflation to begin with.
All the attempts by central bankers to boost inflation that we’ve seen so far squarely ignore this, and operate on the false assumption that if only prices for financial assets and real estate can be raised even higher -artificially-, deflation can be warded off.
Thing is, deflation starts not at the top, it starts at the bottom. It’s not the banks or the bankers or the well-off who are maxed out and stop spending, but the people in the street.
They are responsible for most of the spending in an economy, and therefore for the velocity with which money moves in a society. And if the velocity of money falls below a critical point, no increase in the other side of the inflation/deflation equation -the money/credit supply- can make up for the difference. There is a point where all of the King’s horses and all of the King’s central bankers can’t put Humpty Dumpty together again.
The people in the street are not just maxed out in the sense that they have no money, they have less than no money, since they’re deep in debt. An increasing part of whatever they do still have, and what they make in their ever lower paying jobs, goes toward debt payments. Yeah, that’s the giant sucking sound.
QE and other ‘plans’ like it don’t address this even in the slightest, and are necessarily failures before they even start.
Central bank stimulus measures are all exclusively targeted at the upper rungs, and therefore miss their aim entirely. Or perhaps we should say ‘alleged’ aim, since it takes quite a leap of faith to presume that all the world’s central bankers fail to understand their own field so thoroughly that all they can all come up with is failures.
However, given that they all studied the same faulty economics textbooks, we can’t rule out this possibility. It is certainly strongly suggested -once again- by Steve Keen in Our Dysfunctional Monetary System.
Rather than effective remedies, we’ve had inane policies like QE, which purport to solve the crisis by inflating asset prices when inflated asset prices were one of the symptoms of the bubble that caused the crisis. We’ve seen Central Banks pump up private bank reserves in the belief that this will encourage more bank lending when (a) there’s too much bank debt already and (b) banks physically can’t lend out reserves.
What may also play a role is that the upper rungs tend to be blind to anything outside of their own circles, that because they 1) have their hands on a nation’s wallets and 2) they see themselves as the most important segment of any given society, they elect to try and solve the problem inside their own circles -and truly believe this is feasible-.
This can of course not possibly work. Because they’re hugely outnumbered. They don’t have nearly enough influence on money flows in their societies. If they can’t sell the bottom, let’s take a number, 80%, of society sufficient produce or gasoline or homes or trinkets, the entire society seizes up the way an engine does that runs out of oil.
The top makes its fortune for a while getting the bottom ever deeper into debt, only to inevitably find that this kills off the entire economy. Then they do some more of the same, and find ever more of their own kind becoming part of the bottom.
The problem for the rich is simple: there’s not enough of them. Well, that and they don’t understand how societies function. Let alone economies. Scraps off the table won’t do the trick. Next stop pitchforks.
Any deflationary period would have been hard no matter what. Still, none would have had to lead to what we’re facing now.
But look out there at what’s happening in politics, at who’s popular in various places. It’s all geared towards more inequality, not less, like some tooth and claw Darwin version were the world’s economics teacher, wherever you look it’s all the well-off making ever surer they will remain well-off or better.
And even if you look for instance at Bernie Sanders in the US, he wants more for the bottom of society, but that seems more for sentimental or ideological reasons than a sign he actually understands why it would raise the odds of the States being a going concern going forward.
The actual Darwin could have taught us all a lesson or two three about the role of balances in ecosystems, and in human societies. But then he actually studied them. Economists, politicians and central bankers have not.
- "What Goes Up Can Also Come Down"
Submitted by Keith Dicker of IceCap Asset Management
What goes up can also come down
Whether unknowingly or not, the media and the investment industry has created an information gap wedging the 2008 debt crisis with today’s debt crisis. Chart 4 shows the difference in debt outstanding from 2008 compared to today. The Public Sector consists of government and tax payers, while the Private Sector is made up of individuals and companies.
Notice the enormous gap that has developed between the two groups over the last 6 years. This is the part that isn’t talked about by the big banks, fund companies and advisors with their clients. The debt crisis was never really resolved. Instead, governments decided to simply transfer the debt problem from the private sector to the public sector.
This is important as it is one of the key reasons for the current crisis.
As a result, capital markets were never allowed to reset. Instead, our governments and central banks have created a financial environment where traditional savers receive little to no interest on their cash deposits, and an economic environment whereby sophisticated investors are slowly withdrawing investment.
This combination is creating deflationary trends around the world, and it is causing the Velocity of Money to plummet. Ironically, this central-bank induced economic combination, is causing central banks and governments to do even more of the same. Insanity at its best.
At some point very soon, this financial-spin-top will lose a few riders and the key one to watch is the government bond sector. Chart 5 illustrates the size and difference between the bubbles in our all too recent past.
And as they say in California – the next one will be a big one. As the bubble in government bonds blows higher and higher, the following investment groups will become considerably risky:
– Government bonds
– Bank & insurance stocks
– Pension funds
– Target Date Mutual FundsPractically every investor in the world has exposure to the bond market, as well as bank and insurance stocks. Some investors have little exposure while others have a lot of their eggs in this seemingly low-risk basket.
We’ll next explain why we are nervous about these, 4 investment groups (page 9) and then go into greater detail about each one in future Global Market Outlooks.
First, note the following amount of global debt outstanding.
Next, note that over $58 TRILLION is owed by governments, and over $45 TRILLION is owed by banks and insurance companies.
Also, understand that banks and insurance companies are required by regulators to hold safe investments as their capital.
And finally, understand that regulators say government bonds are recognised as risk-free investments and therefore should make up the majority of a bank’s capital.
So, if you accept our view that government bonds are in a bubble phase and that eventually this bubble will burst, governments as well as anyone holding government bonds will be affected the most.
And because banks and insurance companies invest their required capital in government bonds, they are extremely vulnerable to a popping of the government bond market. To summarise, the groups who hold a whole bunch of government bonds include:
– Bank & insurance companies
– Pension funds
– Target Dated Mutual Funds* * *
Continue reading below
- According To These 2 Charts, A Default Cycle In The US Is Now Inevitable
“What is going on?”, Deutsche Bank asks, in the bank’s latest European equity strategy snapshot.
Investors, Deutsche says, can’t seem to figure out why it is that European equities have plunged by some 20% since peaking in November. The usual suspects are trotted out (China, renewed concerns about NPLs, and the shocking realization that central bankers’ are more impotent than they are omnipotent) but the real problem, the bank says, is threefold: 1) there’s a very real risk that China finally throws in the towel on the whole “controlled,” “orderly” devaluation thing in the face of worsening capital flight and simply moves to a float to relieve the pressure, 2) global growth is stuck in the doldrums, and 3) the US is about to enter a default cycle thanks to the fact that the country’s uneconomic energy producers are all about to go bankrupt in the face of shrinking borrowing bases and a HY primary market that is suddenly slammed shut.
Remember, this is a collection of companies who are and pretty much always have been insolvent. The whole damn space is cash flow negative, which means if someone doesn’t step in to plug the funding gap, the music stops. No more drilling. No more pumping. No more coupon payments. Game over.
Until now, Wall Street has stepped up to the plate with cheap cash and by providing access to what until recently were wide open capital markets. Now, all that’s changed. There’s not enough yield in the world to entice investors to buy new issuance from US HY energy producers and the revolver raids that started in October will likely continue in April.
Barring some sort of dramatic turnaround in oil prices, the defaults are coming, and as Deutsche goes on to note, once the speculative default rate hits 4%, it’s almost guaranteed to shoot up to 10%. Although we’re only at 3% now, spreads are already at levels consistent with a speculative default rate of 5%.
Have a look at the following two charts which suggest that the US is indeed entering a default cycle and if history is any guide, it’s about to get very messy, very quickly.
* * *
From Deutsche Bank
Over the past 100 years, when defaults have risen above 4%, they have typically continued to rise close to 10% (i.e. a full default cycle). This is because of the tendency for credit stress to become self-fuelling: a rise in expected defaults pushes up financing costs, which tips some marginal borrowers over the edge, further increasing defaults and so on. With non-energy spreads rising in line with overall spreads and issuance down sharply, this process seems to be under way (and explains the sharp underperformance by banks).
- The War On Paper Currency Begins: ECB Votes To "Scrap" 500 Euro Bill
Update: in case there was any doubt about the ECB’s true intentions, we just got the official “denial”:
- DRAGHI: ANY ECB ACTION ON EU500 NOTE IS NOT ABOUT REDUCING CASH
Translation: the ECB action is only about reducing physical cash, some 30% of it to be specific.
* * *
The first shot in the global war on cash was just fired, by none other than the ECB, which moments ago Handelsblatt reported…
ECB wants to stop issuing 500 Euro bills – our exclusive https://t.co/LLe2qyhBjK
— Daniel Schäfer (@schaeferdaniel) February 15, 2016
… and Bloomberg confirmed – ECB COUNCIL VOTES TO SCRAP EU500 NOTE: HANDELSBLATT – has voted to scrap the second highest denominated European bank note in circulation:
… after the CHF 1000 note.
So what, big deal, eliminate it. The people will still have 5, 10, 20, 50, 100 and 200 euro bills right.
As we wrote just one week ago, the answer is not that simple at all. Recall that the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising as shown in this BofA chart:
Furthermore, as a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.
This is what we said last Thursday:
In other words, if overnight the €307 billion worth of €500 bills were eliminated, the notional value of the entire amount of European physical currency in circulation would decline by 30% to €700 billion!
And there you have it: while it may not be banning all European cash outright, we are confident the ECB would be delighted if one third of it was to start, while pretending to be fighting financial crime, terrorism, corruption and drug dealers.
Of course, what Europe would be truly doing is setting the scene for ever more aggressive NIRP, and by removing the highest denomination bank notes, it would make evading negative that much more difficult and costly (albeit would certainly favor gold).
That’s not all: as Bank of America pointed out, abolishing the €500 note may even end up even weakening the European currency:
… we would expect that abolishing a note that represents almost 30% of the total Euros in circulation would be negative for the currency, keeping everything else constant. The share of the €500 note in the total value of Euros in circulation has been falling since 2009 and this has coincided with a weakening Euro in real effective terms. This is not evidence of causality, but we should not ignore it.
If we are right, the Euro will weaken, primarily against the USD and the CHF. The USD is the most liquid currency and we would expect it to capture a large share of the drop in the demand for the Euro as a store of value. However, the CHF could also benefit, having the largest note denomination in G10 economies. Indeed, the CHF1000 note is already very popular, representing more than 60% of the CHF notes in circulation, unless the SNB follows the example of the ECB and also abolishes the CHF1000 note.
BofA is right, unless of course, in this global race to the bottom where every central bank tit has other central bank tats as a direct response, first the SNB “scraps” the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard “scholar” and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would “deter tax evasion, financial crime, terrorism and corruption.”
Go ahead and cut, then: after all who really needs the Benjamins, right? Well, here’s the thing:
As the Treasury chart above shows, $100 bills account for for $1.08 trillion of the $1.38 trillion total in circulation. So should the Fed react to the ECB’s “scrapping” of the €500 bill, which accounts for 30% of the value of currency in circulation, then the Fed would respond in kind, by eliminating 78% of all paper currency in circulation by value.
Not a bad way to launch a global ban on paper currency ahead of a global NIRP regime, and all, of course, in the name of fighting “tax evasion, financial crime, terrorism and corruption.”
- "A Dramatic Escalation Appears Imminent" In Syria
Originally posted at The Saker,
The situation in Syria has reached a watershed moment and a dramatic escalation of the war appears imminent. Let’s look again at how we reached this point.
During the first phase of the operation, the Syrian armed forces were unable to achieve an immediate strategic success. This is rather unsurprising. It is important to remember here that during the first weeks of the operation the Russian did not provide close air support to the Syrians. Instead, they chose to systematically degrade the entire Daesh (Note: I refer to *all* terrorist in Syria as “Daesh”) infrastructure including command posts, communication nodes, oil dumps, ammo dumps, supply routes, etc. This was important work, but it did not have an immediate impact upon the Syrian military. Then the Russians turned to two important tasks: to push back Daesh in the Latakia province and to hit the illegal oil trade between Daesh and Turkey. The first goal was needed for the protection of the Russian task force and the second one hit the Daesh finances. Then the Russians seriously turned to providing close air support. Not only that, but the Russians got directly involved with the ground operation.
The second phase was introduced gradually, without much fanfare, but it made a big difference on the ground: the Russians and Syrians began to closely work together and they soon honed their collaboration to a quantitatively new level which allowed the Syrian commanders to use Russian firepower with great effectiveness. Furthermore, the Russians began providing modern equipment to the Syrians, including T-90 tanks, modern artillery systems, counter-battery radars, night vision gear, etc. Finally, according to various Russian reports, Russian special operations teams (mostly Chechens) were also engage in key locations, including deep in the rear of Daesh. As a result, the Syrian military for the first time went from achieving tactical successes to operational victories: for the first time the Syrian began to liberate key towns of strategic importance.
Finally, the Russians unleashed a fantastically intense firepower on Daesh along crucial sectors of the front. In northern Homs, the Russians bombed a sector for 36 hours in a row. According to the latest briefing of the Russian Defense Ministry, just between February 4th and February 11th, the Russian aviation group in the Syrian Arab Republic performed 510 combat sorties and engaged 1’888 terrorists targets. That kind of ferocious pounding did produce the expected effect and the Syrian military began slowly moving along the Turkish-Syrian border while, at the same time, threatening the Daesh forces still deployed inside the northern part of Aleppo. In doing so, the Russians and Syrian threatened to cut off the vital resupply route linking Daesh to Turkey. According to Russian sources, Daesh forces were so demoralized that they forced the local people to flee towards the Turkish border and attempted to hide inside this movement of internally displaced civilians.
This strategic Russian and Syrian victory meant that all the nations supporting Daesh, including Turkey, Saudi Arabia and the USA were facing a complete collapse of their efforts to overthrow Assad and to break-up Syria and turn part of it into a “Jihadistan”. The Americans could not admit this, of course, as for the Saudis, their threats to invade Syria were rather laughable. Which left the main role to Erdogan who was more than happy to provide the West with yet another maniacal ally willing to act in a completely irresponsible way just to deny the “other side” anything looking like a victory.
Erdogan seems to be contemplating two options. The first one is a ground operation into Syria aimed at restoring the supply lines of Daesh and at preventing the Syrian military from controlling the border. Here is a good illustration (taken from a SouthFront video) of what this would look like:
According to various reports, Erdogan has 18’000 soldiers supported by aircraft, armor and artillery poised along the border to execute such an invasion.
The second plan is even simpler, at least in theory: to create a no-fly zone over all of Syria. Erdogan personally mentioned this option several times, the latest one on Thursday the 11th.
Needless to say, both plans are absolutely illegal under international law and would constitute an act of aggression, the “supreme international crime” according to the Nuremberg Tribunal, because “it contains within itself the accumulated evil of the whole.” Not that this would deter a megalomaniac like Erdogan.
Erdogan, and his backers in the West, will, of course, claim that a humanitarian disaster, or even a genocide, is taking place in Aleppo, that there is a “responsibility to protect” (R2P) and that no UNSC is needed to take such clearly “humanitarian” action. It would be “Sarajevo v2” or “Kosovo v2” all over again. The western media is now actively busy demonizing Putin, and just recently has offered the following topics to ponder to those poor souls who still listen to it:
- Putin ‘probably’ ordered the murder of Litvinenko.
- Putin ordered the murder of Litvinenko because Litvinenko was about to reveal that Putin was a pedophile (seriously, I kid you not – check for yourself!).
- WWIII could start by Russia invading Latvia.
- According to the US Treasury, Putin is a corrupt man.
- According to George Soros, Putin wants the “disintegration of the EU” and Russia is a bigger threat than the Jihadis.
- Russia is so scary that the Pentagon wants to quadruple the money for the defense of Europe.
- The Putin is strengthening ISIS in Syria and causing a wave of refugees.
There is no need to continue the list – you get the idea. It is really Bosnia, Kosovo, Iraq, Libya all over again, with the exact same “humanitarian crocodile tears” and the exact same rational for an illegal aggression. And instead of Sarajavo “martyr city besieged by Serbian butchers” we would now have Aleppo “martyr city besieged by Syrian butchers”. I even expect a series of false flags inside Aleppo next “proving” that “the world” “must act” to “prevent a genocide”.
The big difference, of course, is that Yugoslavia, Serbia, Iraq and Libya were all almost defenseless against the AngloZionist Empire. Not so Russia.
In purely military terms, Russia has taken a number of crucial steps: she declared a large scale “verification” of the “combat readiness” of the Southern and Central military districts. In practical terms, this means that all the Russian forces are on high alert, especially the AeroSpace forces, the Airborne Forces, the Military Transportation Aviation forces and, of course, all the Russian forces in Crimea and the Black Sea Fleet. The first practical effect of such “exercises” is not only to make a lot of forces immediately available, but it is also to make them very difficult to track. This not only protects the mobilized forces, but also makes it very hard for the enemy to figure out what exactly they are doing. There are also report that Russian Airborne Warning and Control (AWACS) aircraft – A-50M – are now regularly flying over Syria. In other words, Russia has taken the preparations needed to go to war with Turkey.
Needless to say, the Turks and the Saudis have also announced joint military exercises. They have even announced that Saudi aircraft will conduct airstrikes from the Incirlik air base in support of an invasion of Syria.
At the same time, the Russians have also launched a peace initiative centered around a general ceasefire starting on March 1st or even, according to the latest leaks, on February 15th. The goal is is transparent: to break the Turkish momentum towards an invasion of Syria. It is obvious that Russian diplomats are doing everything they can to avert a war with Turkey.
Here again I have to repeat what I have said already a million times in the past: the small Russian contingent in Syria is in a very precarious position: far away from Russia and very close (45km) to Turkey. Not only that, but the Turks have over 200 combat aircraft ready to attack, whereas the Russians probably has less than 20 SU-30/35/34s in total. Yes, these are very advanced aircraft, of the 4++ generation, and they will be supported by S-400 systems, but the force ratio remains a terrible 1:10.
Russia does, however, have one big advantage over Turkey: Russia has plenty of long-range bombers, armed with gravity bombs and cruise missiles, capable of striking the Turks anywhere, in Syria and in Turkey proper. In fact, Russia even has the capability to strike at Turkish airfields, something which the Turks cannot prevent and something which they cannot retaliate in kind for. The big risk for Russia, at this point, would be that NATO would interpret this as a Russian “aggression” against a member-state, especially if the (in)famous Incirlik air base is hit.
Erdogan also has to consider another real risk: that, while undoubtedly proficient, the Turkish forces might not be a match for the battle-hardened Kurds and Syrians, especially if the latter are supported by Iranian and Hezbollah forces. The Turks have a checkered record against the Kurds whom they typically do overwhelm with firepower and numbers, but whom they never succeeded in neutralizing, subduing or eliminating. Finally, there is the possibility that Russians might have to use their ground forces, especially in the task force in Khmeimim is really threatened.
In this regard, let me immediately say that the projection of, say, an airborne force so far from the Russian border to protect a small contingent like the one in Khmeimim is not something the Airborne Forces are designed for, at least not “by the book”. Still, in theory, if faced with a possible attack on the Russian personnel in Khmeimin, the Russians could decide to land a regimental-size airborne force, around 1’200 men, fully mechanized, with armor and artillery. This force could be supplemented by a Naval Infantry battalion with up to another 600 men. This might not seem like much in comparison to the alleged 18’000 men Erdogan has massed at the border, but keep in mind that only a part of these 18’000 would be available for any ground attack on Khmeimin and that the Russian Airborne forces can turn even a much larger force into hamburger meat (for a look at modern Russian Airborne forces please see here). Frankly, I don’t see the Turks trying to overrun Khmeimin, but any substantial Turkish ground operation will make such a scenario at least possible and Russian commanders will not have the luxury of assuming that Erdogan is sane, not after the shooting down of the SU-24. After that the Russians simply have to assume the worst.
What is clear is that in any war between Russia and Turkey NATO will have to make a key decision: is the alliance prepared to go to war with a nuclear power like Russia to protect a lunatic like Erdogan? It is hard to imagine the US/NATO doing something so crazy but, unfortunately, wars always have the potential to very rapidly get out of control. Modern military theory has developed many excellent models of escalation but, unfortunately, no good model of how de-escalation could happen (at least not that I am aware of). How does one de-escalate without appearing to be surrendering or at least admitting to being the weaker side?
The current situation is full of dangerous and unstable asymmetries: the Russian task force in Syria is small and isolated and it cannot protect Syria from NATO or even from Turkey, but in the case of a full-scale war between Russia and Turkey, Turkey has no chance of winning, none at all. In a conventional war opposing NATO and Russia I personally don’t see either side losing (whatever ‘losing’ and ‘winning’ mean in this context) without engaging nuclear weapons first. This suggests to me that the US cannot allow Erdogan to attack the Russian task force in Syria, not during a ground invasion and, even less so, during an attempt to establish a no-fly zone.
The problem for the USA is that it has no good option to achieve its overriding goal in Syria: to “prevent Russia from winning”. In the delusional minds of the AngloZionist rulers, Russia is just a “regional power” which cannot be allowed to defy the “indispensable nation”. And yet, Russia is doing exactly that both in Syria and in the Ukraine and Obama’s entire Russia policy is in shambles. Can he afford to appear so weak in an election year? Can the US “deep state” let the Empire be humiliated and its weakness exposed?
The latest news strongly suggests to me that the White House has taken the decision to let Turkey and Saudi Arabia invade Syria. Turkish officials are openly saying that an invasion is imminent and that the goal of such an invasion would be to reverse the Syrian army gains along the boder and near Aleppo. The latest reports are also suggesting that the Turks have begun shelling Aleppo. None of that could be happening without the full support of CENTCOM and the White House.
The Empire has apparently concluded that Daesh is not strong enough to overthrow Assad, at least not when the Russian AeroSpace forces are supporting him, so it will now unleash the Turks and the Saudis in the hope of changing the outcome of this war or, if that is not possible, to carve up Syria into ‘zones of responsibility” – all under the pretext of fighting Daesh, of course.
The Russian task force in Syria is about to be very seriously challenged and I don’t see how it could deal with this new threat by itself. I very much hope that I am wrong here, but I have do admit that a *real* Russian intervention in Syria might happen after all, with MiG-31s and all. In fact, in the next few days, we are probably going to witness a dramatic escalation of the conflict in Syria.
- Hong Kong Real Estate Price Plunges 70% In Latest Government Land Sale
Two weeks ago, in our latest report on the Hong Kong housing market, we observed that according to the local Centaline Property Agency total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history.
Centaline estimated that only 3,000 transactions will have registered with developers slowing down new launches, while only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.
But while the number of transactions was crashing, prices – while down 10% from the recent all time highs…
… have been relatively tame, as sellers have not been desperate enough to hit the collapsing bids, yet.
Yet one place that provides some glimpse into true price discovery was the just completed government tender, in which a parcel of land sold by the government in the New Territories went for nearly 70% less per square foot than a similar transaction in September.
In the deal that could not be postponed “because the seller waits for a better market”, the 405,756 square foot (37,696 square meter) site in Tai Po sold for HK$2.13 billion ($274 million) or HK$1,904 per square foot, in a tender that closed on Feb. 12, according to the Hong Kong Lands Department website. According to Bloomberg, the buyer was Asia Metro Investment Ltd., a subsidiary of China Overseas Land & Investment Ltd.
As we have noted previously, the Hong Kong housing bubble has already suffered a “spectacular collapse”, and all that is left now is confirmation not only in terms of transactions, but prices. We already had the former; now we have the latter.
Hong Kong home prices surged 370 percent from their 2003 trough through the September peak before the correction began, spurred by a rising supply of housing and a slowdown in China. As Bloomberg notes, lower prices paid for land could eventually lead to cheaper home prices down the road, and are viewed as a leading indicator of the negative sentiment on the market.
Making matters worse is that just like in the oil market, Hong Kong is now facing a spike in supply: “adding to the downward pressure on prices was the government on Jan. 13 raising its five-year target for new housing supply to 97,100 new homes, up from a previous estimate of 77,100 units.“
It is unclear who will be the biggest victims of Hong Kong’s housing bust: recent land sales have been dominated by mainland Chinese developers. Hong Kong property companies have been less active, as they’re struggling to sell existing units in their inventories and offering discounts of more than 12 percent to entice new buyers.
Yet stunningly, even the bursting of the Hong Kong housing bubble will not be fully clear as Chinese construction companies are merely using the HK real estate market as yet another way to circumvent Chinese capital controls and park their funds offshore: according to Nicole Wong, head of property research at CLSA Ltd. said mainland companies are outbidding their Hong Kong counterparts because they expect lower margins and are also anxious to park money offshore given the devaluation of the yuan.
One can imagine where HK real estate prices would be, if it weren’t for the ingenuity of mainlanders to park hot money into one of the few remaining venues willing to accept it, and that hasn’t been blocked by Beijing.
Still, local real estate experts remain “cautiously optimistic” even in the face of a property tsunami:
Wong cautioned against drawing conclusions on the basis of two land transactions, as it’s impossible to find two sites that are identical. She estimates land prices overall have fallen about 15 percent since their peak, based on the assumption that housing prices have fallen about 10 percent and land accounts for about 60 percent of overall development costs.
Ironically, it was Hong Kong Chief Executive Leung Chun Ying who introduced a raft of measures to cool the property market since 2012 after a rally in home prices fueled complaints of a widening wealth gap. Well, can now now undo those measures. Now that prices are finally starting to fall, property analysts including Raymond Ngai of Bank of America Corp.’s Merrill Lynch unit expect the government will ease the measures and pray to reflate the bubble once more.
However, one way to be absolutely certain that the housing crash will be far worse before all is said and done, comes courtesy of Standard & Poor’s which just issued a report today projecting a 10% to 15% decline in property prices, and said that they would need to fall 30 percent before triggering a ratings downgrade on Hong Kong developers. With S&P’s track record, a 50% collapse is now virtually assured.
The ultimate winner, however, from the bursting of the HK housing bubble are local residents, for whom housing may finally become affordable once again: Hong Kong ranked as the most expensive housing market among 87 major metropolitan regions, according to the annual Demographia International Housing Affordability Survey, which used data from the third quarter of 2015. The median home in Hong Kong costs 19 times the median annual pretax household income, the highest multiple Demographia has measured, and up from 17 in last year’s report, according to the company’s website.
Now if only the Chinese would stop buying up every piece of real estate in the US and Canada as well…
- What Markets Are Telling Us
Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,Last week US stock markets tumbled yet again, leaving the Dow Jones index down almost 1500 points for the year. In fact, most major world markets are in negative territory this year. There are many Wall Street cheerleaders who are trying to say that this is just a technical correction, that the bottom is near, and that everything will be getting better soon.They are ignoring the real message the markets are trying to send: you cannot print your way to prosperity.
People throughout history have always sought to acquire wealth. Most of them understand that it takes hard work, sacrifice, savings, and investment. But many are always looking for that “get rich quick” scheme. Monetary cranks throughout history have thought that just printing more money would result in greater wealth and prosperity. Every time this was tried it resulted in failure. Huge economic booms would be followed by even larger busts. But no matter how many times the cranks were debunked both in theory and practice, the same failed ideas kept coming back.
The intellectual descendants of those monetary cranks are now leading the world's central banks, which is why the last decade has seen an explosion of money creation. And what do the central bankers have to show for it? Lackluster employment numbers that have not kept up with population growth, increasing economic inequality, a rising cost of living, and constant fear and uncertainty about what the future holds.
The past decade has been a lot like the 1920s, when prices wanted to drop but the Federal Reserve kept the price level steady through injections of easy money into the economy. The result in the 1920s was the Great Depression. But in the 1920s prices were dropping because of increased production. More goods being produced meant lower prices, which the Fed then tried to prop up by printing money. Unlike the “Roaring 20s” however, the economy isn't quite as strong today. It's more of a gasp than a roar.
Production today is barely above 2007 levels, while heavily-indebted households already hurt during the financial crisis don't want to keep spending. The bad debts and mal-investments from the last Federal Reserve-induced boom were never liquidated, they were merely papered over with more easy money. The underlying economic fundamentals remain weak but the monetary cranks who run the Fed keep trying to pump more and more money into the system. They fail to realize that easy money is the cause, not the cure, of recessions and depressions. They didn't realize that prices needed to drop in order to clear all the bad debt and mal-investments out of the system. Because they don't realize that, we are on the verge of yet another financial crisis.
Don't be confused by any stock market rallies over the next few months and think that the worst is over. Remember that after Black Tuesday in 1929 the Dow Jones rallied over the next year before it began slowly and steadily to sink again. The central bankers will do everything they can to delay the inevitable. If they had allowed housing prices to fall in 2008 and hadn't bailed out the big Wall Street banks, the economy would have corrected itself. Yes, it would have been a severe correction, but it would have been nothing compared to the inevitable correction that will present itself when the Fed runs out of easy money options. The Fed may try to cut interest rates again, maybe even going negative, or it will do more quantitative easing, but that won't work. Creating more money does not lead to economic growth and well-being. The more money the Federal Reserve creates, the more ordinary Americans will end up suffering.
- Why Tomorrow's "Secret" Meeting Between Russian, Saudi Oil Ministers Will Not Lead To A Cut In Production
For the past two weeks recurring flashing red headlines of an agreement, or at least a meeting, between Russia and Saudi Arabia – the world’s two largest oil producers – have led to aggressive short-covering rallies in oil on just as recurring hopes that the Saudi strategy of flooding the market with excess supply (by its own calculations as much as 3 million barrels daily) adopted during the 2014 Thanksgiving Day OPEC massacre, will come to an end.
Tomorrow this endless “headline hockey” will come to an end, following what is now a confirmed “secret” meeting between the two oil superpowers when, as Bloomberg reports, Saudi Arabia’s oil minister will meet with his Russian counterpart in Doha on Tuesday “to discuss the oil market.”
According to Bloomberg, Ali al-Naimi, the most senior oil official of the world’s biggest crude exporter, will speak with Russia’s Alexander Novak in the Qatari capital, “according to the person, who asked not to be identified because the talks are private.” The person didn’t say what the agenda of the meeting will be, which will also be attended by the kingdom’s fellow OPEC member Venezuela. The energy ministries of Russia and Saudi Arabia declined to comment.
Going into the meeting, one thing is certain: over the past 15 months Saudi Arabia has never once indicated any interest in curtailing production: after all, that would go against its unstated directive of putting marginal oil producers, read US shale companies, out of business:
Saudi Arabia has insisted that it won’t reduce production to tackle the global oil glut unless major producers outside the Organization of Petroleum Exporting Countries co-operate. While Novak has said he could consider output cuts if other producers joined in, Igor Sechin, chief executive officer of the country’s largest oil company Rosneft OJSC, said last week he would defend traditional markets and expressed doubts over coordinated action.
To be sure, the Saudis have felt the pain from collapsing oil prices resulting in a record budget deficit, accelerating austerity at home, and the alleged liquidation of Saudi FX reserves, including European financial stocks and potentially US and other sovereign bonds. The market has gone as far as pricing in a very high probability of a Saudi Riyal devaluation as expressed by the currency’s forward market as observed here previously.
It is this “pain” that has made the market doubt Saudi’s steadfastness in sticking to its excess production plan: “the slightest signs of an accord have roiled oil markets. West Texas Intermediate futures rallied 12 percent on Feb. 12, the biggest surge since 2009, after the United Arab Emirates reiterated OPEC’s long-held position that the group is prepared to engage with non-members.”
But even if the Saudis are receptive to some token compromise, Russia itself may be unable to cut production. As Bloomberg writes in a separate piece, “neither a recession nor a collapse in revenue has yet been enough to convince Russian President Vladimir Putin that it’s time to join with OPEC in cutting oil output to boost prices. His reasons may be pragmatic rather than political.”
As Russia’s oil minister meets his Saudi Arabian counterpart in Doha on Tuesday, the world’s second-largest crude producer faces numerous obstacles in cooperating on such a deal even if Putin decides it’s in the national interest. Reducing the flow of crude might damage Russia’s fields and pipelines, require expensive new storage tanks or simply take too long.
To be sure, the jawboning on Russia’s side has been quite loud: energy minister Alexander Novak has said he could consider reductions if other producers joined in. Igor Sechin, chief executive officer of the country’s largest oil company Rosneft OJSC and a close Putin ally, said last week in London that coordination would be difficult because no major producer seems willing to pare output.
Still, many are skeptical that just like in the case of Mario Draghi, talk will escalate into actions: “The history of relations with OPEC suggests that Russian companies are not keen to cut production,” James Henderson, an oil and gas industry analyst at the Oxford Institute for Energy Studies, said by phone. “There are certain practical difficulties, and the companies would rather somebody else did that, and they could benefit once the price goes up.”
Here are some of the all too practical challenges facing Russia should it indeed plan to cut production:
In Siberia, Russia’s main oil province, winter temperatures can go below minus 40 degrees Celsius (minus 40 Fahrenheit). That’s a challenge for anyone thinking of turning off the taps.
The oil and gas that flows from wells always contains water, so once pumping stops, pipes may freeze, Mikhail Pshenitsyn, who has worked for more than 10 years in the Russian oil industry, said by e-mail. The problem goes away in summer, but there’s still the risk of a long-term reduction in output because a halted reservoir can become polluted with salts and residues, he said. Production from a shut-in well might never be restored in full, Maxim Nechaev, director for Russia at consulting firm IHS Inc., said by phone.
Furthermore, Russia is running into a problem that is facing both the U.S. and China: running out of land-based storage space:
Russia could reduce exports to global markets without cutting production simply by putting more crude into long-term storage. Trouble is, the country has too few facilities.
The bulk of onshore storage capacity in Russia is owned by pipeline company AK Transneft OAO and already in full use to ensure steady flows to refineries and ports, Vladimir Feigin, head of the Moscow-based Institute for Energy and Finance, said by phone. Building the massive new reservoirs required to store a significant proportion of production for an extended period would cost billions of dollars and couldn’t be done quickly, he said.
Additionally, unlike the U.S., Russia has little offshore storage: while crude can be stored in vessels moored just offshore, Russia has “only seven tankers — four products and three crude — in floating storage,” Antonia Mitsana, marketing manager at London-based Drewry Maritime Advisors, said by e-mail. Their total capacity is just over 643,000 metric tons, according to Drewry, or about 0.1 percent of the nation’s production last year.”
And while chartering foreign vessels to store significantly more oil could be done, it would be very expensive. Freight rates are up in the short-term tanker market and ships in limited supply, Mitsana said. Also, keep in minda that this is a Russia which is now considering dumping diamonds in the market just to sporadically fill holes in its budget.
Ironically, when taking Russia’s deteriorating financial situation in consideration, Russia actually has an incentive to boost not reduce production: the government is seeking ways to increase revenues from the energy industry, which generates more than 40 percent of the national budget. Finance Minister Anton Siluanov suggested cutting the price threshold for oil exempt from production taxes to $7.50 a barrel from $15, according to a report from RIA Novosti, a domestic news agency. More production therefore would mean more taxes; less production would lead to an immediate hit to the Russian budget.
Also, as Bloomberg notes, changing the tax regime is a slower process than the “emergency” response Venezuela is seeking. “Usually such big tax changes would come into force from January of the next year” if they were included in the annual draft budget due in October, Sergei Likhachev, associate director for tax practice at Moscow-based law firm Goltsblat BLP, said by phone.
Finally, as a reminder, after his recently concluded meetings in Moscow and Tehran, Venezuelan Oil Minister Eulogio del Pino said six nations were ready to meet and discuss output cuts. The problem is that as the above demonstrates, the probability of such an agreement including Russia remains distant.
“Last year, things didn’t move beyond talks,” said IHS’s Nechaev. “I am sure the same is going to happen this year.”
Which means that all that will happen tomorrow is that the biggest short squeeze trigger, the threat of an imminent production cut and recurring flashing headlines hinting at this, will be eliminated. At that point the market can focus on the real underlying dynamics: not only excess supply but clearly slowing global demand…
… and U.S. oil land storage, which as we and the market have been warning, is about to overflow.
- Trump Vs Sanders Explained (With Hats)
- Turkey Vows "Harshest Reaction" To Kurdish Advance In Syria As Missiles Hit Hospitals, School
Over the weekend, the biggest story in the geopolitical world was Turkey’s escalation in Syria.
With the Sunni-backed opposition on its last legs in Aleppo and under near constant bombardment by Russia from the air and Hezbollah on the ground, Ankara and Riyadh have a decision to make: intervene or allow the rebellion to be crushed.
We’ve spilled quite a bit of digital ink explaining why allowing the rebels to be routed really isn’t an option. It would represent a key victory for Iran at a time when the country is already on a roll. International sanctions have been lifted, oil revenue is set to quintuple by year end, and Tehran’s grip on Iraqis military and politicians is stronger than ever. A victory in Syria would be an embarrassment for the Saudis who have funded and armed the opposition and a win at Aleppo would give the Iranians sectarian bragging rights at a time when tensions between Riyadh and Tehran are already running high thanks to the execution of prominent Shiite cleric Nimr al-Nimr.
And so, with the stakes high, the Saudis sent warplanes to Turkey’s Incirlik air base and Turkey promised an imminent “escalation.” The problem, we said, is this: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.
Well that problem hasn’t been solved, but Turkey doesn’t seem to care. Ankara began shelling YPG positions over the weekend at Menagh air base, which the Kurds seized from Turkey-backed rebels just days ago.
Turkey claims this is about self defense. Erdogan equates the YPG (which is supported overtly by the US) with the PKK, Ankara’s arch enemy that’s recognized by Washington as a “terrorist” group.
The YPG have consolidated gains in northern Syria and are essentially trying to bridge the territory they hold east of the Euphrates with their territory in the west. That, Turkey says, isn’t going to happen. “YPG elements were forced away from around Azaz. If they approach again they will see the harshest reaction,” Turkish PM Ahmet Davutoglu said on Monday. “We will not allow Azaz to fall.”
Of course Azaz already “fell” – to Islamist rebels backed by the Turks who are aiming to usurp the government of a sovereign state.
In any event, more than a dozen civilians were killed in Azaz on Monday when missiles hit a children’s hospital. “At least 14 civilians were killed when missiles hit a children’s hospital, a school and other locations in the rebel-held Syrian town of Azaz near the Turkish border,” Reuters reports. “At least five missiles hit the hospital in the town center and a nearby school, where refugees fleeing a major Syrian army offensive were sheltering [and] another refugee shelter south of the town was also hit by bombs dropped by jets believed to be Russian.”
Yes, the jets are “believed to be Russian,” although Davutoglu just finished explaining how the YPG will face “the harshest reaction” if it advances on the town.
We suppose it’s not at all possible that the Turkish army made a little targeting “mistake” with some mortars.
Also on Monday, another MSF affiliated hospital was destroyed in Idlib. “This appears to be a deliberate attack on a health structure,” Massimiliano Rebaudengo, the Doctors Without Borders head of mission in Syria said. “The destruction of the hospital leaves the local population of around 40,000 people without access to medical services in an active zone of conflict.” Here’s what was left of the building after the strike:
As Reuters goes on to note, “tens of thousands of people have fled to Azaz, the last rebel stronghold before the border with Turkey.”
“We have been moving scores of screaming children from the hospital,” one medic said.
According to Davutoglu, the school and the hospital were hit by “a Russian ballistic missile.” The PM also said Russia and the YPG have closed the “humanitarian border” north of Aleppo. In reality, Russia and Iran have closed Turkey’s supply line to the rebels. It has nothing to do with “humanitarian aid.” Moscow and Tehran have no interest in starving the people of Aleppo. They do, however, have an interest in starving the rebels of guns.
That’s what the weekend’s hostilities were all about. Turkey hasn’t figured out exactly how to intervene at Aleppo without getting into an open confrontation with Russia, but everyone knows Erdogan hates the YPG, so Ankara figured shelling the Syrian Kurds advancing on Azaz from the west would effectively kill two birds with one stone: it would help keep supply lines to the rebels open, and some Kurds would be killed in the process. And no one, Turkey figures, is going to get too bent out of shape about it because let’s face it, Turkey has been shelling the Kurds in Syria for months anyway.
Whoever was responsible for the multiple civilian casualties that unfolded across the country on Monday, it’s not going to deter the Russians from routing the opposition… er… “the terrorists.” “We are fighting with the terrorist groups (Islamic State), Nusra Front, and others linked to al Qaeda,” Russian Deputy Foreign Minister Gennady Gatilov said in an interview with Der Spiegel. “Strikes on terrorist groups will continue in any case, even if a cease-fire is agreed upon in Syria.”
“Moscow’s aim is to leave the international community with just two options in Syria: President Bashar al-Assad or Islamic State,” Davutoglu said on Monday.
Why, one might fairly ask, does the “international community” have a say in this at all? Had Syria been left to handle its own affairs five years ago, we wouldn’t be in this mess and the world wouldn’t be teetering on the edge of a global conflict. Well, at least not over Syria.
- Finally, China’s Alan Greenspan Speaks Out
Submitted by PandaHedge
Finally, China’s Alan Greenspan speaks out
Finally, China’s Alan Greenspan, Mr. Zhou Xiaochuan speaks out in an interview with Caixin Magzine. The market has been waiting for his comment on Yuan since the RMB exchange rate reform in Aug 2015. However, he has been hiding and did not “give a clear message” as asked by IMF chief Lagarde. Just before the lunar new year holiday, even the Chinese local media started to ask him to show up, which is really unusual in China. And last Friday, Caixin published its 12000 words interview with Mr. Zhou Xiaochuan. This is the most important interview for China’s economy and Yuan in 2016. I translate the key Q&A points as below and add my comment in blue:
- How do you see China’s GDP slowing and hard landing potential?
- In 2009 and 2010, China contributes more than 50% of global GDP growth while its GDP only accounts for less than 10% of global GDP. We must realize that’s unusual situation in an unusual period of time. Now China still contributes around 25% of global GDP growth, so it’s unfair to say China is hard landing;
- A country’s currency has no strong relationship with the GDP or GDP growth. Actually current account is the most important factor, and China still has high current account surplus in 2015 (goods trades surplus stands at record high $600B). In addition, China’s CPI is only 1.4%, which is good for stable exchange rate
- Which international factors are important to RMB exchange rate?
- Yuan has been following US dollar to appreciate with other currencies (such as Euro and Yen) in the last two years. The market believes Yuan has to “catch up with other currencies” to depreciate.
On surface it’s a USD appreciation story, but the reality is ECB and BOJ’s “currency war”. The downside potential for Yuan would be much lower in USD terms if DXY starts to depreciate, as the Fed may have to cut the rate and even pushes for QE4. That’s one of the reasons why I don’t buy in the “big collapse of Yuan” argument. Yuan will depreciate over time but not act like a collapse.
2.The change of US Fed’s policy in 2013 and 2014 has made huge impact to other EM countries but not too much impact to China. However, the Fed’s interest raise in Dec 2015 is a huge shock to China.
Since Bernanke announced the end of QE3, USD’s negative impact to RMB already started. PBOC underestimated the power of USD’s appreciation (or how “easy” are ECB and BOJ). But now, PBOC implies that Fed’s raise is “policy error” and it would not tolerate a further appreciation of USD.
3. There are a lot of speculative funds shorting China recently. As the central bank of China, we have confidence of China’s economy, but we also need patience as we have to wait for the data speaking for themselves continuously. However, for those speculative funds who already made the bet, they are trying to make profit as soon as possible, and that’s why they spread out rumors and create noises in the market.
Yes, that’s how the “$200B decline of foreign reserve in Jan 2016” rumor begins. PBOC has come out an approach to fight with those speculative funds: increase the volatility of CNH and CNY to increase short sellers’ cost.
4. Since 2008, global central banks have adopted easing monetary policies which have boost asset bubbles around the world. The asset price need to adjust, and the process is painful. Everyone tries to find someone to blame for, and they pick China as the unlucky one.
Chinese government and PBOC are already sick of being accused because everyone points China as the major reason of global sluggish growth.
5. In general, when people analyze the depreciation of RMB to USD, they should consider the appreciation of USD to other currencies and short term market sentiment. People may worry that China will join the “currency war” to improve export. However, as the net export already contribute a significant part to GDP, we don’t need to depreciate RMB to boost export. In addition, China imports more commodity in terms of volume (although the value drops because of lower prices), so it’s unfair to say the commodity bear market is driven by lower China demand.
PBOC tries to avoid using the word “currency war”. However, as the world’s NO.2 economy, it’s inevitable that RMB will have impact to other countries’ economy. PBOC should consider Yuan’s future with a global view as the value of currency is the power balance between countries.
- Does PBOC has estimation of the size of “hot money”
- There’s no clear definition of “hot money”. The speculative money (aka hot money) is not the major force to impact the balance of payment. The major speculative money plays their games in the offshore market, but their behavior will have negative influence on the onshore market sentiment;
- Export companies are influenced by this kind of depreciation expectation, and thus adjust their FX strategy and operation (such as buying foreign currencies in advance). However, as they eventually need to pay the expense and cost through Yuan, this kind of adjustment will end pretty soon.
- Local Chinese companies may adjust their foreign debt with the depreciation expectation. Their foreign debt balance is around USD 800B at the end of 2014. Right now it’s easy for them to get cheap RMB debt to replace the foreign debt, and it’s their own decision to make it or not. This kind of adjustment will see a bottom soon.
There are three reasons behind the capital outflow since 2014: a. domestic corporates and residences increase holding of foreign assets; b. corporates pay down USD debt; c. speculative funds. The major reason is the first one, so it’s “internal problem”. PBOC is comfortable to let Chinese residences to keep foreign currencies on their hands, just like China let residences hold gold by themselves. PBOC seems confident that corporate and individuals will adjust their behavior when the Yuan return to relatively stable stage.
- Will PBOC reinforce capital control?
- We hope the process of RMB internationalization will move smoothly. However, it is a back and forth process in reality. When the speculative funds become a major issue and the FX is volatile, we may hold off the internationalization process and focus our power to handle them. When the FX markets come back to stable stage, then we will continue to push the internationalization of RMB.
This is PBOC’s bottom line. To protect the domestic economy, it’s possible to delay the process of RMB internationalization. For example, PBOC may delay loosening its capital account. I believe it’s an appropriate approach after we see the incompetent policies in A share market pushed by China’s financial officials. It’s hard to believe these officials have ability to control a potential currency chaos after the capital account is opened, especially when China’s economy still would experience restructuring in the next couple year. The right way is to set up a more comprehensive financial system and resolve China’s own economy problems (such as overcapacity and overleveraged) before PBOC let Yuan become a free circulated currency
2. We have tightened the control of foreign currency exchange with the aim to ban the illegal fund transfers such as money laundering and fake merchandise trades. For legal and normal request of currency exchange, we always will meet their needs.
PBOC is not stupid. The biggest power to consume China’s foreign reserve is the domestic corporations and residences. If PBOC bans their normal needs of foreign currencies, they will have stronger depreciation expectation and accelerate the pace of capital outflow
3. Financial market is different than the real economy, as confidence plays a very important role in the former one. Speculative funds spread rumors to help their trade. For example, there’s rumor that the foreign companies cannot transfer their earning out of China. It’s actually a current account item but not a capital account item, so there’s no way SAFE will block this kind of action. Even for capital account items, companies are able to get foreign exchange as long as they follow the rules.
Honestly, I don’t think any hedge funds in the world has the power to fight with PBOC. The size difference is so huge, and I think the smart hedgies understand this well. So they leverage market sentiment to put pressure on Yuan. Actually, the Yuan is not their main battle field. The size and liquidity of Yuan is so small, and the hedgies are easily squeezed by PBOC. The smart hedgies actually target other weaker countries who compete with China in the global export market. As the expectation of Yuan depreciation rises, those competitors’ currencies will see more pressure, and their central banks have much weaker power than PBOC to defend their currencies.
4. Capital control does not work in an open economy. In addition, it is more effective to control capital inflow rather than capital outflow. China is a big open economy and relies on international trades more than other major economies. Every year, China has around $4trn trade transactions which involve more than one million companies. China also has around 100 million outbound travelers now. Therefore, any improper capital will have negative impact on confidence and balance of payment.
- Many people have concerns about the decline of foreign reserve. How PBOC views and handles the speculative funds?
- It’s difficult to differentiate between speculative funds and normal risk management transactions. China has the biggest foreign reserve in the world, and we would not let speculative funds lead the market sentiment. As long as China’s fundamentals have no big issues, foreign reserve will not be a problem even the balance will vary from time to time.
- Although we will not let speculative funds lead the market sentiment, it does not mean we will fight with them face to face. We have to consider how to use our reserve more effectively and find a lowest cost approach. The RMB exchange reform enables us to handle the speculative funds with more flexibility as we do not focus on USD only anymore.
- What will be the direction and pace of RMB exchange rate regime reform going forward?
- We will continue the RMB exchange rate regime reform in the next five years. The direction is to build an effective floating exchange rate mechanism which is based on market’s supply/demand and refers to a basket of currencies (not only focus on USD).
A reasonable expectation for internationalization of RMB is at least five years.
2.We emphasize the importance of market’s supply and demand of RMB. Although there are some speculative funds participating the FX market, we still need to respect the market. We don’t have a model to come out a perfect exchange rate for RMB. We like to keep the RMB in a relatively stable stage which is close to reasonable balanced level
3. Referring to a basket of currencies is an inevitable process to RMB as China has so many trade partners. We did not do a good job before as RMB focus too much on USD. In the future we will rely more on reference to a basket of currencies. The result of this direction is that RMB will be relatively stable to a basket of currencies but become more volatile to USD.
The market was used to a stable appreciation path of RMB to USD. PBOC tries to break this kind of expectation and push the volatility higher. It’s a normal case for major currencies in the world, so I don’t think the market should panic about this. Higher volatility also means higher cost for short sellers.
- How PBOC can improve its communication with the market?
- The current financial market has many uncertain factors and participants hope the central banks will come out to comfort them. However, central banks are not God. Therefore sometimes we have to say: ”wait a minute, we need more data”
- For forward guidance, we have to consider couple issues: Whether central banks have better information than the market? Whether central banks have a better forecast model than the market? If central banks themselves cannot align opinions internally, whether the forward guidance really can relive the markets’ concerns?
- Central banks should have different communication strategies to various market participants. We would not told our action plan to the speculative funds, but we will deliver reasonable expectation to the organizations (such as merchandise traders) which need to use foreign currencies in their normal business transactions.
PBOC should improve its communication to the market. Central bank should work as a manual of economy, and the market can read through the manual to make their own judgement. The manual should be designed as simple, clear and easy to read, otherwise the market has to guess and may misunderstand central banks.
- Obama OK's First Factory In Cuba In 57 Years
Last week, in “Welcome To Obama’s Recovery: Carrier Moving 1400 Jobs To Mexico,” we showed what happens the moment hundreds of American manufacturing workers learn that their services will no longer be needed thanks to cheap labor south of the border.
Carrier – a unit of United Technologies – is closing two Indiana plants and moving them to Mexico, a move that will ultimately leave more than 2,000 people jobless. The announcement that the Carrier facility on Indianapolis’ west side will be closed was met with angry jeers from a crowd gathered to hear the news and was greeted with profound dismay by city officials.
Today’s surprise announcement was without warning and incredibly disappointing,” mayor Joe Hogsett said. “While I am obviously concerned about the economic impact, my top priority is the well-being of the hardworking families affected by this decision.”
Economists called the move “highly unusual.”
Actually, we said, it’s not “unusual” at all. Here’s why (from The Indianapolis Star): “Carrier’s workers are separated into a two-tier wage system. A quarter of the workers make about $14 an hour, or about $30,000 a year. The rest make about $26 an hour, or about $55,000, but make well above $70,000 a year with overtime.”
Something tells us labor costs will be “slightly” lower south of the border.
On Monday we learn that US companies aren’t just sending jobs to Mexico. They’re sending them to Cuba, where, thanks to the Obama administration’s move to restore diplomatic relations with Raul Castro, US businesses can now operate factories.
Entrepreneurs Horace Clemmons and Saul Berenthal were notified last week by the Treasury Department that they will be allowed build tractors on the island at a $5-$10 million facility.
“Cuban officials already have publicly and enthusiastically endorsed the project,” AP reports, adding that “letting an American tractor company operate inside a Cuban government facility would have been unimaginable before Presidents Barack Obama and Raul Castro declared on Dec. 17, 2014, that they would restore diplomatic relations and move to normalize trade, travel and other aspects of the long-broken bilateral relationship.”
Clemmons and Saul Berenthal plan to commence production by the first quarter of 2017 with 30 Cuban employees, a number they hope will grow to 300 within five years.
“Everybody wants to go to Cuba to sell something and that’s not what we’re trying to do. We’re looking at the problem and how do we help Cuba solve the problems that they consider are the most important problems for them to solve,” Clemmons said. “It’s our belief that in the long run we both win if we do things that are beneficial to both countries.” Here’s a bit more from AP:
The Oggun tractor plant, named after a god in Cuba’s syncretic Santeria religion, will assemble commercially available components into a durable and easy-to-maintain 25-horsepower tractor selling for less than $10,000, Clemmons and Berenthal said. The men believe they can sell hundreds of the tractors a year to Cuban farmers with financing from relatives outside the country and to non-government organizations seeking to help improve Cuban agriculture, which suffers from low productivity due mostly to excessive control of both basic supplies and prices by an inefficient, centrally planned state bureaucracy.
Berenthal said they are optimistic that they will also be able to export Oggun tractors to other Latin American countries, which have low or no tariffs on Cuba products, making them competitive on price. The men expect a 10-20 percent profit on each tractor.
For the project’s first three years, Clemmons and Berenthal say they will export components from the United States for assembly in Cuba.
Clemmons and Berenthal will publish all the schematics of their tractors online in order to allow Cubans and other clients to more easily repair their equipment and come up with designs for other heavy equipment based on the same frame and motor that Cleber can then produce at their Mariel factory.
Berenthal is Cuban-born, so to a certain extent, this is a story about an entrepreneur that wants to give back to his birthplace and that’s certainly understandable. That said, Clemmons is from Alabama and you can bet the headline “Alabama Man To Build Tractor Plant In Cuba Thanks To Obama-Castro Reconciliation” won’t go over well with Donald Trump voters.
The next question is this: how long before John Deere decides that making tractors in Cuba or Mexico might be a whole lot cheaper than building them in America’s heartland?
- The Inevitability Of Dramatic Inflation
Submitted by Jeff Thomas via InternationalMan.com,
No one is very concerned about inflation right now and that’s understandable.
Although inflation exists in some sectors of the economy, the present subject of discussion is deflation. Any depression is inherently deflationary since spending is curtailed, which drives prices down.
Since 2008, despite all the fudged reports emanating from governments, much of the world has been in a depression since 2008 and remains in one. This will continue until such time as there is a true cleansing of the system – a step the leaders of each jurisdiction have avoided as much as possible, choosing instead to extend the party as long as possible before the inevitable collapse occurs.
Since deflation is the problem that’s staring us in the face now, most economic discussion deals with it. But, historically, when deflation occurs, governments do everything they can do reverse the problem and return to inflation.
To the average person, one type of ‘flation is as bad as another type of ‘flation – he merely hopes for economic stability. And so the effort by governments to not only accept inflation but to recommend its existence as policy seems odd. But then, governments (and banks) benefit from inflation.
People can only be taxed so much before they rebel, but inflation acts as a hidden tax and most people don’t recognise that it’s not the number of currency units one possesses that matters, but what level of purchasing power they have. Inflation allows the individual to retain his currency notes, but devalues them so they buy him less in goods and services. Inflation is the unperceived tax.
The US Federal Reserve has done a sterling job of exacting wealth from US citizens. Since it was created in 1913, it has devalued the dollar by roughly 97% and the dollar is now due for replacement.
Through the creation of tremendous debt, the US, EU, and many other countries have created a condition that will result in deflation – the very condition that they most dread. There can be no question that they will do whatever it takes to reverse this trend and return to inflation. Indeed, this is their stated policy. Former Fed Chairman Ben Bernanke is famous for his 2002 speech in which he said he would dump currency from helicopters if necessary when deflation occurred. Since that date, he has reconfirmed his commitment nearly every year, as has his successor, so there can be little doubt as to what the Fed will do to address deflation.
Add to this the fact that the stock and bond markets are in bubbles of historic proportions, assuring the inevitability of crashes in the near future – events that will contribute greatly to deflation.
But, given the choice, wouldn’t we all prefer a bit of inflation to deflation? Yes, in this we would agree with the Fed and the ECB, but worse than either of these possibilities is that green-eyed monster – hyperinflation. At present, we feel we’re so far away from this possibility that, for most people, it’s not even a question. Trouble is, hyperinflation, when it comes, comes very fast and is uncontrollable.
So, how does it happen?
Hyperinflation never occurs spontaneously. It always happens in essentially the same way when governments attempt to artificially manipulate currency. It has occurred on more than twenty occasions around the world in the last hundred years. The most recent occurrence is currently underway in Venezuela.
But a textbook example was the Weimar hyperinflation of 1922–1923. In that instance, the government, along with the central bank of Germany, was facing a collapsing economy, so they did the worst thing possible – they expanded the creation of currency in the belief that if people had more of the stuff, they would spend more and the economy would boom. Unfortunately, the money creation only resulted in rising prices, not greater wealth (True wealth is only created through the creation of more goods and services). So, they printed more. Then more again, and again, and again. With each printing, the problem worsened and the bankers and political leaders reasoned that if they could only print enough, the problem would be solved. It’s important to note that at no time did anyone (not the government, nor the banks, nor private industry, nor the unions) suggest that the printing itself was the problem.
Eventually, inflation became so dramatic that the German people realised that they were better off dumping reichsmarks in favour of goods. As soon as workers were paid, they’d buy anything – food, clothing, anything that wasn’t going up in price as rapidly as the reichsmark was going down.
It is at this point that inflation becomes hyperinflation. It’s never intended by anyone (least of all, governments) to occur but, once the population begins to think of money as something to get rid of instead of something to possess, the monster is born and it happens so quickly that a hamburger that costs $5 today may cost $50 three months later, $500 after a further month, and $5,000 the following week. Soon, a hamburger costs (quite literally) millions.
As hard as this is to imagine, this is what occurs in every case. And in every case, it culminates in a collapse of the monetary system. It’s generally accompanied by a collapse in commerce, riots, food shortages, and famine.
And so, of course, we hope that this time around the leaders of the US, EU, et al, will do the right thing and avoid this eventuality at all costs. Surely, the highly educated folks at the Fed and the ECB will learn from the mistakes of past leaders and not repeat the disastrous mistakes. Hopefully, this time it will be different.
And actually, this time it will be different, but not in the way we would hope. Rather than wait for the crashes and subsequent significant deflation to occur, the Fed and the ECB have already announced a plan to introduce negative interest rates. They describe this plan as being intended to discourage saving and force people to buy goods, causing the economy to boom…just as in Weimar Germany almost one hundred years ago.
But, as discussed above, this is never the outcome. Once a population discovers that dumping currency is preferable to holding it, the green-eyed monster comes knocking.
So, are we around the corner from hyperinflation? No, I believe we have a little breathing time before that, but we’ll be spending that time dealing with the market crashes and deflation that generally come first (unless the leaders decide to pre-empt them by introducing negative interest rates very soon, which they may well do).
Well then, if hyperinflation is not yet a certainty, nor is it necessarily right around the corner, why bother thinking about it?
The reason is that the triggering mechanism of hyperinflation is to be presented to us on a platter in the relatively near future. Its likelihood is now great enough that if we don’t prepare our lives for its eventuality, we’ll be amongst the casualties.
If the German people could have known in 1922 what was coming in 1923, many could have saved their skins. Today, those who choose to internationalise their wealth (however large or small) and even themselves in anticipation of events will have the greatest insulation against the effects of hyperinflation. They have the greatest likelihood to not only survive, but thrive, as the world changes.
Editor’s Note: Negative interest rates are an obvious sign of desperation.
Central bankers are playing with fire and inviting a currency catastrophe, just like they have done so many times in the past.
The sad truth is most people have no idea what really happens when a currency collapses, let alone how to prepare…
How will you protect your savings in the event of a currency crisis? Doug Casey just-released video that will show you exactly how. Click here to watch it now.
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