Today’s News 22nd March 2016

• Will The American People Succeed In Clawing-Back Their Democracy?

  Authored by Paul Craig Roberts,

  With much help from the failures of neoliberal economic policy and neoconservative foreign policy, we are changing the world.

  Look at Bernie Sanders’ inroads on the corrupt Clintons’ control of the Democratic Party. Look at how easily Donald Trump defeated the Republican establishment’s candidates. Some Americans are catching on, shedding their unawareness. I am not confident that Sanders or Trump could bring change. In The Deep State (2016), Mike Lofgren concludes that powerful private interest groups, such as the military/security complex and the financial sector, have hijacked democracy. Still, voters’ interest in Sanders and Trump, despite the beating they receive in the media, is a positive sign. Voters are supporting them not so much for their positions on issues as for the fact that neither are part of the Washington establishment. Many voters now understand that the political establishment represents the One Percent, not them.

  A New Russia has appeared on the scene and demonstrated to the entire world its power to checkmate the hegemonic ambition of the crazed neoconservatives who have controlled the US government since Bill Clinton. The world now understands that the leadership for peace comes from Russia not from warmonger Washington.

  Washington’s vassals in Europe are in disarray, with the Northern European EU members plundering the Southern EU members, with all of Europe overrun with refugees fleeing Washington’s hoax “war against terrorism.” Europeans are beginning to realize that the establishment political parties that they have blindly supported since World War 2 are nothing but agents of Washington, who serve Washington and not Europeans. Merkel, Cameron, Hollande are puppets of Washington, not leaders of the German, British, and French people.

  The Chinese government is finally beginning to realize that the neoliberal American economic policies that it has so slavishly been copying have led it into economic difficulties. Perhaps China will now cease to follow America into oblivion.

  The Russians have learned that being part of the Western system subjects them to economic sanctions and makes it easy for Washington to interfere in Russian internal affairs. The Russians are beginning to show that their desire for their independence is greater than their desire to be accepted by a corrupt, immoral, decadent, and failing West.

  Donald Trump and Bernie Sanders speak to Americans’ loss of economic opportunity and financial independence. Today the 99 Percent are slaves to their debt burdens and lack of productive employment, while those who deceived them into these burdens and lowly-paid employment in domestic services are reveling in multi-million dollar annual paychecks.

  The US Treasury, Federal Reserve, and financial regulators are corrupted by the private financial interests that control them. The US government serves only the One Percent. Despite this obvious fact, many Democratic Party voters—-traditionally the less well off, union members, and American blacks—-are turning out for Hillary Clinton, a tried and proven representative of the One Percent. The Clintons have been enriched to the amount of $153 million by the ruling One Percent who own the Clintons lock, stock, and barrel. Yet the dispossessed vote for Hillary.

  Clearly, many American voters, as Thomas Frank made clear in his book, What’s the Matter with Kansas?, still have no clue as to their own interests and vote to elect their worst enemies.

  Many Americans are still trapped in The Matrix and kept there by the propaganda that masquerades in the US as “news.”

  Consider the possible implications if Americans were to enable Hillary Clinton to become President. Trump has said that he would work things out with Vladimir Putin, but Hillary has declared the President of Russia to be “the new Hitler.” How can Hillary work anything out with “the new Hitler”? She cannot.

  It is a great irony that the American lower class, traditionally served by the Democratic Party, could put in the White House not only a person who only represents the super-rich but also a person who cannot escape confict with Russia, a country with possibly the most capable military force on the planet.

  The psychopathic Washington neoconservatives who have controlled US foreign policy since the Clinton regime, misintepret Vladimir Putin’s peaceful diplomacy as a sign of Russian weakness. The neocons say: “See Putin is weak. He is pulling out of Syria.” But what Putin says is different. Putin says: “We have created the conditions for peace in Syria.” If Washington abuses these conditions, “Russia can, in several hours, build up its forces in Syria to a size capable of dealing with an escalating situation and use the entire range of means at its disposal.”

  Putin adds: “We hope the parties involved would show common sense.”

  From a position of strength, Putin has rolled the dice. Is there common sense in the West? I fail to see any. I see arrogance, hubris, idiocy, immorality, inhumanity, complete and total stupidity. These are the characteristics of Western governments. They amount to a deranged criminal enterprise organized against humanity.

  In the awards of medals to those Russians who served against ISIS, Putin stated: “Our uncompromising attitude to terrorism remains unchanged.” If we take this statement broadly, it means not merely Muslim jihadists but the terrorism of the West—-the destruction of seven or more countries by the US and its vassals in the 21st century, the long-term sanctions against Iran, Russia, and a number of other countries whose governments do not comply with Washington’s dictates. Putin has told Washington and Washington’s European puppets, Cameron, Merkel, Hollande, that he has had enough of them. They must reform themselves, become honorable governments committed to the welfare of humanity, and abandon self-serving policies of plunder.

  Considering the total failure of the United States to subdue after 15 years a few thousand lightly armed Taliban, the American people need to understand that the US military, corrupted by privatizations to enhance former vice president Dick Cheney’s stock options in Halliburton and by over-cost weapons systems that serve the profits of the armaments industries and not the military competence of the fighting force, has lost its edge in weapons superiority. The latest over-cost American fighter jet, for example, according to the Air Force’s own conclusions cannot match the old figher it is intended to replace, whereas the lastest Russian fighter is said to have the capability to electronically shut down American control systems, track simultaneously 24 enemy fighters and lock on 10 simultanteously for unavoidable destruction. Members of the US military command have expressed concern over the high quality of Russian weapon systems.

  Everyone needs to understand that the establishments of the two American political parties, the Republicans and the Democrats, are less interested in winning the election than in continuing to control the party. Trump and Sanders are hated by the party establishments, because Trump and Sanders are not members of the establishment. Control over the party by the party establishment is so important that we have many members of the Republican establishment declaring that if Trump wins the Republican nomination, they will vote for the Democrat. This has happened before. It was Republicans who denied the presidency to Republican candidate Barry Goldwater.

  The United States is a failing society. Citizens’ hopes are being snuffed out. There are few good jobs or enough jobs of any kind, as the collapse of the labor force participation rate confirms. People are drowning in debts that they have no prospect of ever paying off. Young adults cannot form independent households. The oligarchy that rules and controls the country has committed America to massively expensive wars and privacy invasions for the purpose of establishing a hegemony that enriches elite private interests.

  The corupt and unrepentant financial sector, having survived its mortgage-backed security fiasco without prosecution or correction has repeated its previous folly with a new weapon of potential financial mass destrution. Speculators have bought up distressed properties and rented them. The rental streams are bundled into financial instruments, as were the mortgage payments previously, and sold to investors. Is a renter more committed and better able to pay than a person with a mortgage?

  Jobs offshoring and financialization have drained the US economy of the ability to grow. The ladders of upward mobility have been dismantled, and the service of debt curtails consumer demand for goods and services. The wage saving from offshoring jobs raises corporate profits and brings executive bonuses and capital gains to the One Percent. Financialization divests consumer purchasing power into the service of debt. The result is stagnation and decline.

  Foreign policy based on threats and coercion means constant conflict. The US has been in constant conflict since the Clinton regime overthrew the government in Serbia. Constant conflict is expensive, and Americans have had these expensive costs imposed on them simultaneously with the costs of jobs offshoring and financialization.

  It was 20 months ago that Malaysian Airlines flight 17 was destroyed over Ukraine. Despite the inability of the investigation to come to a conclusion, from the first moment Western propaganda has blamed the loss of 298 lives on Russia. Three days after the airliner’s destruction, US Secretary of State John Kerry set in stone the blame on Russia with his claim that “we saw the take-off [of the Buk missile]. We saw the trajectory. We saw the hit. We saw this airplane disappear from the radar screens. So there is really no mystery about where it came from and where these weapons have come from.”

  If the US has all the evidence, why hasn’t the US government released it? Obviously, there is no such evidence. Why would Washington fail to release evidence that proved Russian responsibility? Kerry’s evidence no more exists than the alleged evidence the US government claims to have from numerous security cameras that a passenger airliner hit the Pentagon on 9/11. If the government had such evidence why has the government refused to release it for almost 15 years? If the government produced this evidence, it would be a death blow to the 9/11 Truth movement. The evidence no more exists than the alleged evidence that Saddam Hussein had weapons of mass destruction, that Iran had a nuclear weapons program, that Assad used chemical weapons, that Russia invaded Ukraine.

  The terms of the last three US presidents have been used to squander trillions of dollars on pointless wars and construction of a domestic police state on the basis of a non-existant “terrorist threat.” This alleged threat has been reinforced with false flag events and a fake history spun from lies repeateded endlessly by government and its presstitutes.

  In 1994 Christopher Lasch wrote in The Revolt of the Elites: “In our time, the chief threat seems to come from those at the top of the social hierarchy.” As Lasch said, the greed of the elites for money and power have undermined the constitutional basis of the United States. The elites have used their power to betray democracy. Will the American people succeed in clawing back their democracy?

  

  

  

  

  

• Soon After We Sounded The Alarm, Canada's Regulator Warns Local Banks Are Underreserved To Energy Losses

  Back in early February, Zero Hedge laid out what was the biggest crisis facing Canada’s banks: a chronic under reserving to potential (and soon, realized) oil and gas loan losses.

  As we said nearly two months ago, “for Canada, it’s not only raining, it’s pouring for the country’s energy industry, a downpour which is about to migrate into its banking sector. Which is why it is indeed time to take a somewhat deeper dive into the Canadian banks’ balance sheets, where we find something very troubling, and something which prompts us to wonder if the time of freaking out about European banks is about to be replaced with comparable panic about Canadian banks.

  The following chart from an analysis by RBC shows that when compared to US banks’ (artificially low) reserves for oil and gas exposure, Canadian banks are…not. Here is the one chart showing why the time to panic about Canadian banks may have finally arrived:

  

   

  Two months later, we are happy to announce that Canada’s regulator has caught up to our warning, and as the WSJ reported, “Canada’s banking regulator is urging the country’s major banks to review their accounting practices to ensure they have sufficient reserves as the commodity-price collapse takes a toll on the economy.”

  As we first suggested in early February, Canada’s Office of the Superintendent of Financial Institutions is now warning local lenders should scrutinize their collective allowances and reserve funds that act as cushions to absorb potential future loan losses, the regulator’s chief said in an interview.

  “We want them to take a good look at their accounting practices,” said Superintendent of Financial Institutions Jeremy Rudin. “They should support loss-absorbing capacity and the ability to manage through difficult times in general,” he added.

  
  

  Some of the banks laughed at us when we suggested they are purposefully masking their exposure to distressed loans; we wonder if they will also laugh when their regulator tells them to do precisely that. As the WSJ further writes, “Canada’s regulator is giving the country’s six biggest banks this guidance on their accounting as they face mounting criticism from some analysts that they haven’t amassed enough reserves to cover soured loans to the energy sector. That criticism was a recurring theme during calls following their fiscal first-quarter results, in which many banks warned of rising provisions for credit losses but assured investors their rainy-day cushions were adequate.”

  Here is the WSJ chart released today which is oddly identical to the one we showed many weeks ago:

  

   

  Next, the WSJ summarizes the details of what is known about Canadian loan exposure:

  Energy loans totaled 49.7 billion Canadian dollars ($38.2 billion) for the country’s six biggest banks during the November-to-January quarter, according to a report by TD Securities Inc.  Bank of Nova Scotia, Canada’s third-largest bank by assets, has the biggest direct oil and gas exposure at 3.6% of total loans.

   

  Some analysts are skeptical about the lenders’ reserving practices in part because U.S. banks, including J.P. Morgan Chase & Co. and Wells Fargo & Co., have set aside millions more for their reserves as they brace for bigger energy-related losses.

   

  Mr. Rudin declined to say whether Canadian banks are under-reserved compared with their U.S. peers. Nor did he offer an opinion on whether analysts voicing such criticisms were misinformed.

  Actually, that is only half the picture: as we explained in “The Next Cockroach Emerges: Including Undrawn Loans, Canadian Banks Exposure To Oil Doubles” if one includes undrawn (but committed) bank exposure, the number doubles. Indeed, when adding “untapped loans in the form of undrawn revolvers and other committed but unused credit facilities, Canadian banks’ exposure to the struggling oil-and-gas industry more than doubles from the current C$50 billion in outstanding loans generally highlighted by Royal Bank of Canada, Toronto-Dominion Bank and the country’s four other large lenders in quarterly earnings calls and presentations, to C$107 billion ($80 billion).“

  We expect the WSJ to catch up with this critical angle of the story in the next 4-weeks, one which would imply the all-in loss reserves are about 50% lower than the already alarming estimates. For now, however, what we do know is that most banks declined to comment, including on how they have responded to the regulator’s guidance. “We have no comment on this specifically, but are confident in our current provisioning practices,” said Ali Duncan Martin, a spokeswoman for Toronto-Dominion Bank, Canada’s No. 2 lender by assets, in an email.

  For their part, Canad’s banks did what they also do: float in a sea of denial. A spokeswoman for an industry group representing the lenders, the Canadian Bankers Association, said that Canadian banks aren’t under-reserved. Well, they clearly are, but admitting as much would unleash the market’s realization just how wrong its valuation of Canadian banks has been. 

  Not only are Canadian banks under-reserved, they are also purposefully opaque to prevent investors from making a comprehensive health assessment:

  Canadian banks tend to disclose their energy exposures as a percentage of total loans, but it is difficult to make a direct comparison with U.S. lenders. For instance, Canadian portfolios include large amounts of insured residential loans that are essentially risk-free because they are backstopped by the federal government.

   

  Canada’s banks have also been criticized by analysts for providing varying degrees of detail about their energy lending books—such as the proportion of reserve-based loans and the amount considered “investment grade”—and about their stress-testing of loan portfolios.

   

  “I’m concerned about this,” said  James Shanahan, an equity analyst with Edward Jones, in a recent interview. “The banks aren’t really saying a whole lot about the true underlying quality of these [energy] portfolios,” he later added. He’s among the analysts calling on Canadian banks to provide more disclosure on their energy exposure, including how much covenant relief is being provided to distressed borrowers.

  He almost certainly won’t get it, unless for some reason, the Dallas Fed make it explicit that Canadian banks have to be more transparent in a few weeks when bank borrowing base redeterminations are made in negotiations which will include not only Canadian and US commercial banks, but the Dallas Fed as well as the US OCC.

  That could prove to be a key issue in the spring borrowing base redeterminations. Mr. Rudin declined to specify what role, if any, OSFI would play in those upcoming reviews, saying only banks are expected to have a “robust credit assessment process” that is frequently reviewed by the regulator. Issues, such as covenant relief, are “business decisions” best left to the individual banks, he added.

  We can tell Mr. Rudin what will happen: the OSFI will play the same role that the US OCC played in recent preliminary, if quite definitive, discussions between US lenders and shale producers, the same discussions which the Dallas Fed denied ever took place even though both Credit Suisse and the WSJ confirmed our story: discussions which made it clear to US banks not to force defaults, but to suspend MTM until the local lenders can force the underlying company to issue debt (just like Weatherford) and use the proceeds to take out the secured lender bank.

  Expect precisely the same in Canada over the next few months as Canada’s lenders are told to quietly, if aggressively, unwind their exposure to all Canadian oil and gas companies.

  

  

  

  

  

• Turkey Is Now Paying The Price For "Creating ISIS Monster It Can No Longer Control"

  Op-Ed via RT.com,

  It was expected ISIS would turn against the Ankara regime at some point, and Turks are now paying the price for creating and training a monster like this, political analyst Roula Talj told RT. The worst has started between Turks and IS, she concluded.

  Turkish Interior Minister Efkan Ala said Islamic State (IS, formerly ISIS/ISIL) is linked to Saturday's terror attack in Istanbul. The suicide bomber, who carried out the atrocity killing four, has been identified as Mehmet Ozturk. The incident happened in a crowded tourist shopping area killing people from a number of different countries.

  

   

  RT: Turkey confirmed it thinks ISIS is behind the bombing in Istanbul? Was this expected?

  Roula Talj: Of course it was expected. When you look at the number of ISIS members who entered Syria in the last few years, and then you see that the number of Turkish members went up to 25,500 fighters, you cannot expect to train a monster like this in Turkey and expect to use it against your enemies alone. One should expect that ISIS would turn against the regime in Ankara and in Turkey at some point.

  RT: Why is Turkey becoming an ISIL target, and how do you expect Ankara to react?

  RTj: Maybe Ankara is under pressure now from the Western community, especially the Europeans who are concerned about the amount of ISIS members trying to escape, or to take over Europe from Turkey. So probably they are under pressure and this is the response of ISIL to put pressure on Ankara. Maybe the worst has started between the Turks themselves and ISIS, and this is coming to the surface now.

  RT: Turkey's been accused of both supporting ISIL by allegedly buying the terrorists’ oil, but also being part of the anti-ISIL coalition. Do you think Turkey's anti-ISIL efforts are genuine?

  RTj: No, I don’t think so. It is known to everyone that the major ISIS training camps were in Turkey. Turkey’s intelligence knew very much [about] the number of ISIS members crossing to Syria and to other borders from Turkey. So, if they were genuine, they would have done something about it a while ago.

  I think Turkey was using ISIS in its proxy war in Syria, and at some point it came under the pressure of Europeans and the international community, who is not going to make it easy anymore on those sponsoring ISIS and other extremist groups in the region, because it is no longer about Syria, it is about the entire world security. So Turkey now is paying the price of playing with a devil and creating a monster that it cannot control anymore.

  ISIS doesn’t need Turkey or anybody, they are self-sustainable. When Turkey was buying the oil from ISIL, it knew very well that was a way… to finance ISIL.

  

  

  

  

  

• FBI "Increasingly Certain" Hillary Broke The Law, Stone-Walled By White House

  Following the granting of immunity to Hillary Clinton's top IT guy, it appears the law – which has so conveniently until now been above – is beginning to catch up to the prospective US president. As The Washington Examiner reports,

  The Federal Bureau of Investigation is losing confidence in Hillary Clinton and her mishandling of a private email server, a New York Post columnist suggested on Sunday.

   

  "FBI chief James Comey and his investigators are increasingly certain presidential nominee Hillary Clinton violated laws in handling classified government information through her private e-mail server," Charles Gasparino said career agents had told him.

   

  "Some expect him to push for charges, but he faces a formidable obstacle: the political types in the Obama White House who view a Clinton presidency as a third Obama term," Gasparino added. "With that, agents have been spreading the word, largely through associates in the private sector, that their boss is getting stonewalled, despite uncovering compelling evidence Clinton broke the law."

   

  Clinton is facing a federal indictment over charges that she mishandled classified information during her tenure as secretary of state by storing it on a personal email server. The FBI earlier this month granted immunity to Bryan Pagliano, a Clinton aide who helped to establish the server in the basement of her Chappaqua, New York home, as part of its investigation into the matter.

   

  "You don't start granting people close to Clinton immunity unless you are seriously looking at charges against your target," Gasparino quoted one former official as saying.

  As we noted previously, intelligence sources described the morale of agents as "very good and nobody is moping around which is the first sign a big case is going south."

  *  *  *

  Keep on running…

  

  

  

  

  

  

• This Critical Consumer Is Buying Gold For The First Time In Three Weeks

  Submitted by Dave Forrest of Pierce Points

  The First Gold Buying In 3 Weeks Happening For This Critical Consumer

  Major news in the gold market over the weekend. With the world’s largest gold-consuming nation reaching an agreement to resume metal sales for the first time in nearly three weeks.

  That’s in India. A critical gold consumer globally, where buying had been idled since the beginning of March by a nation-wide strike by the jewelry sector. 

  But that strike is now officially over. With the president of India Bullion and Jewelers Association, Mohit Kamboj, announcing late Saturday that jewellers have reached an agreement with the government to return to work. 

  Details are still emerging, but here’s one of the most critical takeaways: as part of the back-to-work deal, the Indian government will not roll back the 1% sales tax on gold that it announced in a surprise move as part of its February 29 budget. 

  That sales tax had been the major trigger for the jewellers strike. But it appears that India’s gold sellers have relented on demands that the government shelve the extra levy.

  Instead, reports suggest that jewellers had been appeased by assurances from the government that they would not be “harassed” over the collection of the new tax.

  It’s difficult to know exactly what this means. Although it could suggest that tax officials may not push collection of the sales tax — rendering this more of a cosmetic measure than a practical one. 

  Whatever the case, the good news for the gold market is that India will now be buying again — for the first time since February. Which should give a lift to gold prices — especially with reports suggesting there is a lot of “pent up” demand here after the 19-day strike. 

  Watch for imports into India to rise for the coming weeks, and potentially lift the gold price. And keep an eye out for more details on how the 1% sales tax will be implemented — with this measure having the potential to dampen gold sales here in the longer term.

  Here’s to a triumphant return.

  

  

  

  

  

  

• Whose Bright Idea Was It To Show A Naked Melania Trump In An Attack Ad?

  There is nothing wrong with attack ads: Trump’s first attack ad against Hillary Clinton was creative, original, imaginative – it included Jihadi John, a barking Hillary Clinton and a cackling Putin. It promptly went viral. Hillary’s retort was basically a duller version of the original Trump ad; it was ok although Hillary’s SuperPAC will have to do much better to keep the entertainment level on par.

  However, when a conservative, anti-Trump group decided to run Facebook ads which showcased naked photos of Melania Trump, we wonder: what were they thinking?

  According to Buzzfeed, with Tuesday’s presidential primary contests in Utah and Arizona just one day away, the anti-trumpers are running Facebook ads aimed at rallying Mormon voters against the billionaire frontrunner. Not surprisingly following Mitt Romney’s relentless bashing of Trump, members of the Church of Jesus Christ of Latter-day Saints – a solidly Republican demographic in most elections – have shown a uniquely strong aversion to Donald Trump this year. According to a poll released over the weekend shows Trump running a far-distant third in Utah, garnering just 11% of the vote. And a new Deseret News/KSL poll shows Trump losing Utah, one of the reddest states in the country, to both Hillary Clinton and Bernie Sanders in the general election.

  Ok, so Trump is going to lose Utah. Where it gets strange, however, is that Liz Mair – a Republican strategist whose anti-Trump super PAC Make America Awesome launched a Facebook anti-Trump campaign last week, said each ad is expected to reach around 10,000 Mormons of voting age a day. The goal is twofold: increase turnout among LDS voters, and urge them to strategically consolidate around Ted Cruz, who is close to the 50% winner-take-all threshold in Utah.

  Mair said this is the first time the group has run ads urging voters to back a specific candidate. In Utah and Arizona, polls show Cruz with a much better chance than John Kasich of beating Trump. And Mair, who has Mormon family members, believes she could bring some expertise in the effort to court LDS voters.

   

  “We think the Cruz campaign has turned evangelical outreach into something of a fine art,” Mair said. “We’re not so sure he has LDS outreach locked down, though, and this is an area where we have a little bit of experience and knowledge over and above some Republican operatives, so it’s something we’ve decided to delve into for these contests, at least.”

  To achieve its anti-Trump goals, the group is running three ads:

  • one that features Mitt Romney,
  • one that emphasizes Trump’s past support for pro-choice policies,
  • a third that shows Melania Trump posing nude.

  The Melania ad, which is by far the most provocative, invites viewers to meet “your next First Lady.” Mair said that one is being promoted on Instagram as well, but only to LDS women.

  It is also the one that makes us wonder just what Mair et al were thinking: imagine if someone were to show naked photos of one of the other potential first ladies (or of Bill Clinton for that matter) – the media response would be loud, instant and piercing.

  But the real question is just how badly will this approach backfire: it may come as a surprise to the organizers, but showing a naked Melania Trump, a successful, multi-lingual supermodel and undoubtedly the most attractive first lady America would ever have, is not exactly an attack ad, the moment men end up seeing the ad.

  Here are the ads in question:

  Romney

  

   

  Pro-choice

  

   

  And Melania naked

  

  If anything, this ad could lead to a surprising last minute surge for Trump. And yes, if the democrats (and non-Trump republicans) want to desperately lose the national election, they should certainly show more naked photos of Melania Trump on social networks and/or TV. 

  Source: Make America Awesome

  

  

  

  

  

• Misplaced Confidence In The ECB – Lessons From John Law's Mississippi Bubble

  Submitted by Alasdair Macleod via GoldMoney.com,

  Last week, the ECB extended its monetary madness, pushing deposit rates further into negative figures.

  It is extending quantitative easing from sovereign debt into non-financial investment grade bonds, while increasing the pace of acquisition to €80bn per month. The ECB also promised to pay the banks to take credit from it in "targeted longer-term refinancing operations".

  Any Frenchman with a knowledge of his country's history should hear alarm bells ringing. The ECB is running the Eurozone's money and assets in a similar fashion to that of John Law's Banque Generale Privée (renamed Banque Royale in 1719), which ran those of France in 1716-20. The scheme at its heart was simple: use the money-issuing monopoly granted to the bank by the state to drive up the value of the Mississippi Company's shares using paper money created for the purpose. The Duc d'Orleans, regent of France for the young Louis XV, agreed to the scheme because it would provide the Bourbons with much-needed funds.

  This is pretty much what the ECB is doing today, except on a far larger Eurozone-wide basis. The need for government funds is of primary importance today, as it was then.

  In Law's day, France did not have a central bank, such as the Bank of England, managing the issue of government debt, let alone a functioning government bond market. The profligate spending of Louis XIV had left the state three billion livres in debt, which was the equivalent of 1,840 tonnes of gold. This was about 85% of the world's estimated gold stock at that time, at the livre's conversion rate into Louis d'Or. John Law would almost double that by June 1720, with unbacked livre notes issued by his bank.

  Today, the assets being overvalued for the governments' benefit are government bonds themselves, but the principal is the same. There is no need to use a separate, Mississippi-style vehicle, because there is a fully functioning government bond market.

  Banque Generale created the bank credit for France's upper and middle classes to buy Mississippi Company shares, driving up the price and making yet higher prices a certainty. Law had set up a money-making machine for those with a modicum of wealth, but the ten per cent down-payment required to subscribe for Mississippi shares made speculation available to the servant classes as well. The result was virtually everyone in Paris was caught up in the speculative fever, and Mississippi shares increased from the 15 livres deposit to 18,000 livres fully paid at the peak in June 1720. The term "millionaire" dated from that time.

  Today, the ECB is doing things a little differently, creating money to buy government bonds from the banks, enabling governments to continue to spend without the threat of a funding crisis. Basel III banking regulations, which exempt banks from having to apply a risk weighting to government bonds, ensures that the bonds are also in great demand as collateral, further guaranteeing that the banks will continue to buy them.

  However, in common with Law's scheme, the ECB needs new suckers all the time to keep the market from stalling, so the ECB is extending the scheme beyond sovereign debt by buying up investment grade bonds as well. And since it can conjure up money out of thin air, it will also pay the commercial banks interest to borrow from it, ensuring the yields on all bonds purchased with this finance will continue to fall in line with negative interest rates.

  As was surely the case in 1720, the expansion of credit is commonly believed to be a very good thing, as necessary for the welfare of the Eurozone states today as it was for France three hundred years ago. But don't be fooled. For the scheme to continue, more credit has to be issued, and more bonds bought to stop the bond bubble from deflating. That is the real reason behind the ECB's action. And because it cannot be continued for ever, that is why ultimately the bubble will pop.

  The Mississippi bubble came to an end when France ran out of sufficient buyers to keep it inflating. There always comes a point where the temptation to cash in some profit to buy those other things long desired, such as a country estate and a smart Paris residence, becomes too great to resist. And when the Mississippi bubble lost its mojo, the selling escalated. By late 1720, the Banque Royale, as it had been renamed, faced angry note-holders unable to redeem them for specie. Once the run started, the whole scam rapidly imploded.

  It seems extraordinary that in economics, wishful thinking trumps reasoned analysis and common sense so often. The fallacies that have brought the ECB to implement its delusional policies are broadly the same as those in which John Law believed. In both cases, they started by assuming that the state has a duty to ensure money and credit are freely available, unchaining the population from the constraints of free markets. In both cases, their beliefs inevitably adjusted as a result of problems that subsequently arise as the by-products of monetary expansion. And in both cases, yet further monetary expansion then became the only solution to apply as a cure-all for the problems themselves. Unsound money has come to be deployed simply to keep bankrupt governments going.

  We should put to one side all other reasons, justifications and excuses for what has happened, because it was the French state that employed Law to run its bank, and the Eurozone governments that created the ECB. The servant always serves the master. Banque Royale succumbed to a run, while the ECB is still nursing a banking system, that on a reversal of the asset bubble, will almost certainly collapse. In this respect, the ECB is not quite at the Banque Royale's tipping point, but it is edging closer.

  Everyone in the Eurozone believes that the ECB is all-powerful, because to believe otherwise is unthinkable. This was also true of Banque Royale, until it faltered. It was not a loss of confidence in the bank that was responsible for the collapse, it happened as a result of the difficulties encountered in sustaining the bubble. The lesson is that it need not take a loss of confidence in the ECB to start its destruction.

  Let's imagine for a moment, that the bond-market bubble ends and prices start to normalise. We know that it won't take much to create losses that will wipe out the capital of some critically important commercial banks, but we like to think the ECB is on top of this problem. Very few people seem to be are aware of the crisis that falling bond prices would create for the ECB itself.

  The ECB's equity capital at 31 December 2015 was €7.74bn, supporting a balance sheet of €256.645bn, a gearing ratio of over 33 times. The wider euro-system's accounts, where the asset purchases accumulate, has capital and reserves of €98bn supporting a balance sheet of €2,872bn, a gearing ratio of 29 times and rising. As a rough guide, an interest rate increase of less than two per cent, to as little as one and a half per cent, would undermine the value of bonds and related risks at both the ECB and in the euro-system, to the point where they would require further capital injections. For some context, if the yield to maturity on a five-year bond rises by 2%, the price falls roughly 10%.

  Now we are getting to the truth as to why the ECB's debt bubble must be sustained. It is no longer to support economic growth. A deflating asset bubble will take down the ECB and the wider euro-system, just as the Mississippi bubble took down Banque Royale. And in both cases, the confidence vested in these institutions is reflected in the purchasing power of the money they have issued.

  It may not be long before foreign holders of euros begin to visualise Mr Draghi in a full-bottomed wig, lace jabot and long velvet coat. Their problem will be looking for safety, because the ghosts of eighteenth-century monetary economists can also be imagined at the helm of the other major central banks. In John Law's day, the solution was simple, as the private banker, Richard Cantillon showed. He cashed in early, selling livres for gold.

  Cantillon, who was the equivalent of today's investment banker, not only punted the Mississippi bubble successfully, but he loaned large quantities of fiat livres to the wealthy in Paris, taking in Mississippi stock as collateral. Before the crash, he had the prescience to sell all his own stock for gold. It is said that he also secretly sold all the collateral he had had pledged to him, again settling for gold. Cantillon then removed himself across the border to Italy with his stash of Louis d'Or to await developments.

  After the crash, he returned, and demanded repayment of the outstanding debts from his clients. Cantillon probably became the richest commoner in history, and immensely unpopular in Paris to boot. Rather like the investment bankers of today, he made his fortune while nearly everyone else was impoverished.

  We cannot say for sure what will trigger the end for the ECB and the euro. It could be a member state, like Italy, Spain or even France, running into financial or political trouble. It could be the threatened break-up of the European Union, if the Brexit polls swing in favour of Britain leaving, and the blow that it would impart to European unity. The Muslim immigration problem is often cited as a threat to the European project. It could be developments on the other side of the world, perhaps China driving up commodity prices, leading to future price inflation in the Eurozone, so leaving Eurozone bond markets exposed to the threat of rising interest rates.

  Equally, it might not be an identifiable event. Rather like the Mississippi scam, it could end when the Eurozone's bond markets just run out of steam.

  

  

  

  

  

• Domino's Unleashes Pizza-Delivery-Robot As 2 Out Of 3 Americans Expect Jobs To Be Automated

  The automation of the global workplace is spreading and, as Pew recently found, 65% of Americans now believe their job will inevitably be done by robots.

  

   

  In a low-growth world, every low-skill job is up for grabs by the robot/drone horde as the need to cut costs is core business for every CFO (aside from share buybacks) as minimum wage mandates have forced these cost-cutting CFOs to look for alternatives.

   

  

  Three months ago we warned that it was not just fast-food order-takers and burger-makers that were at risk (a truly terrifying thought for those left in the US economy who are not bartenders or waitresses).

   

  

   

  And while McDonalds has already made the move into automation…

   

  

   

  The latest 'fast food' outlet to snub humans (and their annoying demands and unreliability) is Domino's Pizza which just unveiled it robot-pizza-delivery plans…

  Pizza delivered by a robot? It may seem out of this world, but for one pizza company, the idea may be closer to reality than ever.

  

   

  Meet ‘DRU,’ Domino’s first-ever automated pizza delivery bot that brings your pizza order directly to your door.

  

   

  Domino’s unveiled DRU (short for Domino’s Robotic Unit) in several countries across the globe earlier this week, including Australia, Belgium, France, the Netherlands, German, Japan and New Zealand.

  

   

  The project is a collaborative effort from Domino’s and Australia-based robotic company Marathon Targets, which created the first autonomous robotics for the Australian defense force in the late 2000s.

  As Forbes reports, DRU is reportedly fully autonomous, and sports a water-tight, weather-proof acrylic plastic exterior and aluminum and mild steel interior for keeping orders at their best. Like today’s self-driving cars, it uses LIDAR laser-light sensory technology to detect and navigate around obstacles along its journey, and also has a back-up system of traditional sensors (such as you’d find on home cleaning-bots) to ensure it reaches its destination safely.

  So far, DRU has been tested on approved pathways and roads Down Under–the same territory, incidentally, in which McDonald’s first began testing its own delivery model–and its size, speed, and autonomous navigation mean it won’t be hitting regular streets or highways soon. If the makers of DRU and its autonomous delivery-brethren keep tweaking their tech while pushing to meet food and road safety guidelines, however, the little bot’s Google Maps- and GPS-powered guidance system might soon be delivering it to neighborhoods worldwide before too long.

  

  

  

  

• FBI Cancels Encryption Showdown With Apple After "3rd Party" Showed Them How To Unlock iPhone

  Following a mysterious "third party"'s willingness to show The FBI how to unlock San Bernardino killer Farook's iPhone, court records indicate that the US government wishes to cancel tomorrow's showdown with Apple, filing a motion to vacate the hearing.

  Hours after Tim Cook explcitly told the world (marketed) his firm would never sell out their privacy…

  "For many of us, the iPhone is an extension of ourselves," Cook said, according to USA Today. "We need to decide as a nation how much power the government should have over our data and over our privacy. We did not expect to be in this position, at odds with our own government. But we have a responsibility to help you protect your data and protect your privacy. We owe it to our customers and we owe it to our country."

  "We will not shrink from this responsibility," he added. In case the message wasn’t clear enough, Apple’s music selection spoke for them. At the end of the event, Tom Petty’s “I Won’t Back Down” blasted through the venue.

  

   

  The US government filed a motion on Monday to vacate Tuesday’s hearing against Apple.

  Here's the filing: https://t.co/B4PLFqXBiF https://t.co/oStyEIEgbC

  — Alina Selyukh (@alinaselyukh) March 21, 2016

  "Outside Party" to the rescue – wonder if they were Russian?

   

  

   

  According to the memorandum, “On Sunday, March 20, 2016, an outside party demonstrated to the FBI a possible method for unlocking Farook’s iPhone.” The third party and what the possible methods could be involved are both mysteries.

  *  *  *

  Did Apple fold quietly behind the scenes? Is this how both sides save face with neither side appearing to have given an inch on their defense (or persecution) of personal liberty? Who knows, but if the US Government suddenly places an order for 1 million iPhone SEs, then we have our answer.

   

  

  

  

  

  

• Blindly Dancing At A Top: A Statistical Look At The Rally

  Submitted by Salil Mehta of Statistical Ideas

  Blindly Dancing At A Top

  If it’s too good to be true, then it probably is!  We’ve seen this show before and admonished about it beforehand (here, here).  In the 25 trading days since February 11 (when the S&P closed at 1829), the market surged at an average daily gain of 0.5%.  The S&P fell <-0.5% in just 3 of those 25 days, netting -3% total among those days.  While the S&P rose >0.5% in 10 of those 25 days, netting a whopping 13% total.  The remaining 12 trading days contributed just 0.1% daily to the post-February 11 surge.  And it’s reasonable to state that the market was due for a bounce-back of this nature, after the damage caused earlier in 2016.  The question of course remains: where do we go from here?  Our probability analysis of market patterns forecasts that we are essentially near the top, and the longer we lurch forward at this point, the more grisly an ensuing crash.

  As a quirky statistical coincidence, the market crash in August (here, here) is at the exact midpoint between today and the first trading day of 2015!  And the behavior of markets now don’t statistically resemble anything of grave consequence, prior to the August crash.  We can see in the chart above that the 1st decile S&P levels today are the same as only 6th decile (S&P”6″) price levels of early 2015.  So below average and certainly nothing riveting; and clearly nothing to heavily wager on.

  However ignoring the fact that the S&P is reasonably below the all-time high from early last year, the complacency/euphoria signals that we have today is the same as what we have had at extreme market tops in the past (see the blood colored data on the chart and labeled S&P1, for 1^st decile).  What this suggests is that in our debilitated high-risk regime, there is now only modest upward runway for the markets to run (and wilder choppiness regardless which sometimes may assuredly question your judgment).  But eventually the music stops and the drunkards get bruised stumbling for the exits.  The gravitational weight of excessive frothiness will came back to roost.

  We prefer stability in the markets here.  But if the market momentum continues to bounce higher through the month, then probabilistically we will see another fierce crash that is guaranteed to ensue.

  

  

  

  

  

• IMF Politely Asks China To Explain Exactly How Large Its FX Forwards Book Is

  On the heels of China’s move to devalue the yuan on August 11, the market’s attention abruptly shifted to something we’d been discussing for quite some time. Namely, China’s rapidly depleting FX reserves.

  The problem for China was that they wanted to devalue, but they wanted to do it on their terms and that’s not something that was particularly agreeable to the market. What was immediately apparent to us, but what it took weeks for most observers to understand, was that the PBoC actually transitioned to an FX regime that afforded the market less of a role in determining the exchange rate, not more. Before, China would reset the daily fix to dictate where the spot traded. In the new system, the PBoC simply manipulates the spot in order to dictate the fix, which from August 12 was supposed to “better reflect” the previous day’s trading. But if the previous day’s trading was dictated by PBoC intervention, then the entire endeavor is meaningless.

  Of course daily spot interventions cost money. Lots of it. Especially if the market smells a rat and thinks you may be angling for a larger devaluation down the road but are unwilling to just rip the band-aid off and move to a free float now.

  China blew through nearly $100 billion in the month of August alone supporting the yuan and soon enough, FX reserve data out of Beijing became the market’s new risk on/risk off trigger. The data also became a rather public proxy for capital flight and before long, China got uncomfortable with the amount of attention the headline figure received.

  So, the PBoC decided to find other ways to intervene to both support the onshore spot and ensure that the CNY/CNH spread didn’t widen too much (the weaker the offshore yuan trades relative to the onshore spot, the more depreciation pressure there is). Dabbling in forwards became one of the bank’s go-to strategies.

  What Beijing has been doing actually isn’t all that complicated. The PBoC simply asks policy banks to borrow dollars in the swap market, sell them, and then enter into a forward contract with Beijing which effectively squares the trade for the banks as the PBoC takes everything onto its own balance sheet. 

  

  The problem is that this makes it difficult for the market to get a read on capital outflows and on how much downward pressure the RMB is experiencing (and obscuring those two things is precisely the point for China). And it’s not just the market that’s having a hard time reading the tea leaves, it’s the IMF as well.

  “The International Monetary Fund is pressing China to disclose more data on its currency operations according to the standards the Chinese central bank pledged to follow,” WSJ reported on Monday. Here’s more:

  In recent months, the People’s Bank of China has increasingly turned to the derivatives market to help prop up the currency—a shift from its traditional approach of dipping into its dollar pile to buy yuan.

   

  The new tactic has several advantages for the central bank: It allows it to burn through its foreign-exchange reserves more slowly and drain smaller amounts of yuan from the financial system at a time of economic slowdown. It also leaves less evidence of intervention.

   

  Currency traders and investors, however, complain that the strategy is making it even harder to figure out Beijing’s intentions for the yuan. Now, the IMF is calling on the Chinese central bank to release more data on its holdings of derivatives such as forwards—which have become the main financial instrument used by the PBOC for currency intervention these days, the people said.

   

  The step would be in keeping with China’s pledge in October to adhere to the IMF’s special-data-dissemination standards as part of its effort to win the yuan its long-coveted reserve-currency status. Disclosing the data could also shed more light on how much firepower China has to keep defending the yuan.

   

  The data being sought by the IMF concerns the total holdings of forwards and futures by the PBOC, according to the people. Such data sets reflect future claims to a country’s foreign-exchange reserves; many of the world’s central banks, including those of Thailand, Malaysia and India, have frequently disclosed this data to the fund.

   

  Some market participants estimate that China’s current holdings of forwards range between $150 billion and $300 billion.

  You really needn’t think too hard about all of the above because there are two very simple takeaways: 1) the IMF is going to hold China to its promises of transparency and market oriented reforms now that the Fund has agreed to include the yuan in the SDR basket, and 2) these have to be settled at some point, so just know that the strategy outlined above is just about near-term optics. 

  Perhaps Citi summed it up best last autumn: “If you have a transaction that settles down the road, the actual liquidity impact in the short term may not be as dramatic. Down the road you can’t avoid it.”

  You can see why the IMF and the market more generally want full transparency out of Beijing and given the fear of capital flight, you can probably also understand why China would want to adopt strategies that make the PBoC’s FX intervention as opaque as possible. Unfortunately for the PBoC, the IMF looks set to play the SDR trump card.

  

  

  

  

  

• "Let's Be Honest, Trump Is A Loser!": Elizabeth Warren Loses It, Goes Ballistic On The Donald

  If you’ve ever watched Senator Elizabeth Warren grill a Fed chief on Capitol Hill you know that she’s not one to mince words and she’s not one that’s easily impressed or intimidated. 

  The darling of the liberal Democrats, Warren looms large over the 2016 race which many suspected she would run in. She didn’t, but the Massachusetts Senator casts a long shadow and on Monday, she had apparently seen all she cared to see of GOP frontrunner Donald Trump. 

  In a series of tweets and on a Facebook post, Warren lambasted Trump’s business record and his character before warning Americans that just because “he’s a loser everywhere else doesn’t mean he’ll lose the election.” 

  Here is her message in its entirety: 

  

   

  .@RealDonaldTrump stands ready to tear apart an America that was built on values like decency, community, and concern for our neighbors.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  Listen to experts who say @realDonaldTrump might have more money today if he’d put his inheritance in an index fund & left it alone.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  Let’s be honest – @realDonaldTrump is a loser. Count all his failed businesses. See how he cheated people w/ scams like Trump U.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  .@RealDonaldTrump knows he’s a loser. His insecurities are on parade: petty bullying, attacks on women, cheap racism, flagrant narcissism.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  But just because @realDonaldTrump is a loser everywhere else doesn’t mean he’ll lose this election.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  Many of history’s worst authoritarians started out as losers – and @realDonaldTrump is a serious threat.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  The way I see it, it’s our job to make sure @realDonaldTrump ends this campaign every bit the loser that he started it.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  Forgive us Senator, but if you feel that strongly about it, perhaps you should have had “the courage to run” – to paraphrase your favorite Fed chair.

  All you’ve done now is guarantee Trump another couple of hundred thousand votes.

  

  

  

  

• Clinton Emails Reveal Google’s Role In Attempting To Oust Syria's Assad

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Eric Schmidt, the former chief executive officer of Google, will head a new Pentagon advisory board aimed at bringing Silicon Valley innovation and best practices to the U.S. military, Defense Secretary Ash Carter said on Wednesday.

   

  Carter unveiled the new Defense Innovation Advisory Board with Schmidt during the annual RSA cyber security conference in San Francisco, saying it would give the Pentagon access to “the brightest technical minds focused on innovation.”

   

  – From the Reuters article: Former Google CEO Schmidt to Head New Pentagon Innovation Board

  It’s been observed for quite some time that Google isn’t just a private corporate behemoth, but that its executives are often times more intricately involved in U.S. foreign policy than most people would find appropriate.

  It’d be one thing if this support was for a sane and humanitarian foreign policy, but we all know it’s precisely the opposite. In fact, certain Google executives have demonstrated a particular interest in overthrowing governments throughout the Middle East, which has achieved nothing but sow chaos and result in the creation of powerful new terrorists groups such as ISIS.

  Two days ago, Wikileaks announced the following to the world via Twitter:

  Hillary Emails: Google tried to boost Assad defections https://t.co/lyma4eJp9a More: https://t.co/ZUfh7WDAT5 pic.twitter.com/nvNG0lFJWt

  — WikiLeaks (@wikileaks) March 19, 2016

   

  This sounds like a pretty huge deal, so you’d think the American media would be all over it. Not quite. In fact, the only story I’ve seen emanating from the U.S. press was published by the Washington Examiner.

  Here are a few excerpts from the story titled, Clinton Email Reveals: Google Sought Overthrow of Syria’s Assad:

  Google in 2012 sought to help insurgents overthrow Syrian President Bashar Assad, according to State Department emails receiving fresh scrutiny this week.

   

  Messages between former secretary of state Hillary Clinton’s team and one of the company’s executives detailed the plan for Google to get involved in the region.

   

  “Please keep close hold, but my team is planning to launch a tool … that will publicly track and map the defections in Syria and which parts of the government they are coming from,” Jared Cohen, the head of what was then the company’s “Google Ideas” division, wrotein a July 2012 email to several top Clinton officials.

   

  “Our logic behind this is that while many people are tracking the atrocities, nobody is visually representing and mapping the defections, which we believe are important in encouraging more to defect and giving confidence to the opposition,” Cohen said, adding that the plan was for Google to surreptitiously give the tool to Middle Eastern media.

  Is this a technology company or the C.I.A.?

  “Given how hard it is to get information into Syria right now, we are partnering with Al-Jazeera who will take primary ownership over the tool we have built, track the data, verify it, and broadcast it back into Syria,” he said.

   

  “Please keep this very close hold and let me know if there is anything [else] you think we need to account for or think about before we launch. We believe this can have an important impact,” Cohen concluded.

   

  The message was addressed to deputy secretary of state Bill Burns; Alec Ross, a senior Clinton advisor; and Clinton’s deputy chief of staff, Jake Sullivan. Sullivan subsequently forwarded Cohen’s proposal to Clinton, describing it as “a pretty cool idea.”

   

  Cohen worked as a low-level staffer at the State Department until 2010, when he was hired to lead Google Ideas, but was tied to the use of social media to incite social uprisings even before he left the department. He once reportedly asked Twitter CEO Jack Dorsey to hold off of conducting system maintenance that officials believed could have impeded a brief 2009 uprising in Iran. Julian Assange, who founded the secret-leaking website WikiLeaks, has for years referred to Cohen as Google’s “director of regime change.”

  Longtime Liberty Blitzkrieg readers will be familiar with the name Jared Cohen, a figure who played a key role in the post: Highlights from the Incredible 2011 Interview of Wikileaks’ Julian Assange by Google’s Eric Schmidt (must read if you missed it the first time).

  Moving along, I want to once again stress the fact that the U.S. media has completely ignored this story. In fact, the only other detailed article I could find on the topic was published earlier today at RT, from which we learn the following nugget, also courtesy of Wikileaks:

  In June 2010, when Syria was a country still at peace, Cohen traveled to the Arab Republic with Alec Ross. “I’m not kidding when I say I just had the greatest frappuccino ever at Kalamoun University north of Damascus,” he tweeted. Ross, in a more serious mood, tweeted: “This trip to #Syria will test Syria’s willingness to engage more responsibly on issues of#netfreedom”.

   

  In an email dated September 24, 2010, entitled ‘1st known case of a successful social media campaign in Syria’, and which was later forwarded to Hillary Clinton, Ross wrote:

   

  “When Jared and I went to Syria, it was because we knew that Syrian society was growing increasingly young (population will double in 17 years) and digital and that this was going to create disruptions in society that we could potential harness for our purposes.”

  Six years later and take a look at Syria. These are the breathtakingly disastrous results you achieve when the U.S. government and Google formulate U.S. foreign policy together behind closed doors.

  Finally, for those of you who remain unaware of the instrumental role the U.S. government and it’s allies played in the creation of ISIS, I leave you with the following excerpts from last year’s post: Additional Details Emerge on How U.S. Government Policy Created, Armed, Supported and Funded ISIS.

  Telling Hasan that he had read the document himself, Flynn said that it was among a range of intelligence being circulated throughout the US intelligence community that had led him to attempt to dissuade the White House from supporting these groups, albeit without success.

  Despite this, Flynn’s account shows that the US commitment to supporting the Syrian insurgency against Bashir al-Assad led the US to deliberately support the very al-Qaeda affiliated forces it had previously fought in Iraq.

   

  The US anti-Assad strategy in Syria, in other words, bolstered the very al-Qaeda factions the US had fought in Iraq, by using the Gulf states and Turkey to finance the same groups in Syria. As a direct consequence, the secular and moderate elements of the Free Syrian Army were increasingly supplanted by virulent Islamist extremists backed by US allies.

   

  It should be noted that precisely at this time, the West, the Gulf states and Turkey, according to the DIA’s internal intelligence reports, were supporting AQI and other Islamist factions in Syria to “isolate” the Assad regime. By Flynn’s account, despite his warnings to the White House that an ISIS attack on Iraq was imminent, and could lead to the destabilization of the region, senior Obama officials deliberately continued the covert support to these factions.

   

  “It was well known at the time that ISIS were beginning serious plans to attack Iraq. Saudi Arabia, Qatar and Turkey played a key role in supporting ISIS at this time, but the UAE played a bigger role in financial support than the others, which is not widely recognized.”

  Springmann says that during his tenure at the US embassy in Jeddah, he was repeatedly asked by his superiors to grant illegal visas to Islamist militants transiting through Jeddah from various Muslim countries. He eventually learned that the visa bureau was heavily penetrated by CIA officers, who used their diplomatic status as cover for all manner of classified operations?—?including giving visas to the same terrorists who would later execute the 9/11 attacks.

   

  Thirteen out of the 15 Saudis among the 9/11 hijackers received US visas. Ten of them received visas from the US embassy in Jeddah. All of them were in fact unqualified, and should have been denied entry to the US.

  For related articles, see:

  Meet “Groundwork” – Google Chairman Eric Schmidt’s Stealth Startup Working to Make Hillary Clinton President

  Former Google CEO Schmidt to Head New Pentagon Innovation Board

  

  

  

  

  

• A Desperate China Begged Fed For "Plunge Protection Playbook" As Its Market Crashed

  Last June, China’s stock market miracle ended in tears.

  The SHCOMP’s inexorable, parabolic ascent was to a large degree facilitated by an explosion of margin debt, the likes of which could not be found in any other major market across the globe. For instance, by the end of June, the outstanding balance of margin transactions as a percentage of the SHCOMP’s free float market cap was nearly 14% compared to just 5.5% for the S&P and less than 1% for the TOPIX.

  A dramatic unwind in the half dozen backdoor margin lending channels that had funneled an additional CNY1.5 trillion into equities brought the party to a thunderous end and by late July, the market was off by more than 30% from its peak.

  Chinese officials had already begun to panic by mid-month and then, on the 27th, the bottom fell out.

  A harrowing bout of late day selling led the SHCOMP to post its worst one-day drop since February of 2007 and its second worst single session decline in history as the market collapsed by 8.5%.

  

  More than two-thirds of stocks in the index traded limit down that day.

  

  At that point, China was out of ideas. It had been nearly three weeks since Beijing announced it would inject capital into China Securities Finance Corp., effectively giving the PBoC a mandate to not only underwrite brokers’ margin lending businesses but in fact to buy A-shares directly, and nothing seemed to be working to arrest the slide.

  Indeed, starting on June 27 (by which time the Shenzhen had fallen by more than 20% from its peak) the PBoC unleashed an eye watering array of measures that encompassed everything from an RRR cut to the easing of regulations to state mandated investments by pension funds to verbal interventions in the form of threats against “malicious” shorts. Nothing was working.

  At a loss, the PBoC’s New York-based chief representative for the Americas, Song Xiangyan fired off an e-mail on the morning on July 27 to the institution China figured knew the most about propping up markets: the Fed.

  Just after 11 a.m. ET, the e-mail appeared in the inbox of senior Fed staffer Steven Kamin. The subject line read as follows: “Your urgent assistance is greatly appreciated!”

  “My Governor would like to draw from your good experience,” Song told Kamin, the director of the Fed’s International Finance Division. “Could you please inform us ASAP about the major measures you took at the time?,” Song asked.

  Song was referring to what the Fed did to try and allay market fears in the wake of Black Monday when the S&P collapsed 20% on October 19, 1987. Reuters obtained the messages between Song and Kamin via an FOIA request.

  “We’ll try to get something to you soon,” Kamin told Song.

  “What followed five hours later was a 259-word summary of how the Fed worked to calm markets and prevent a recession,” Reuters writes, adding that “Kamin also sent notes to guide PBOC officials through the many dozens of pages of Fed transcripts, statements and reports that were attached to the email.”

  Those documents, Reuters goes on to note, had all been publicly available on the Fed’s website for years and “detail how the Fed began issuing statements the day after the market crash, pledging to supply markets with plenty of cash so they could function.”

  Apparently, Song was especially interested in the Fed’s use of repos to inject cash. “In 1987, the Fed contacted banks directly and encouraged them to meet legitimate funding needs’ of their customers,” Reuters continues, recounting more details from Kamin’s email to Song. “In addition to its pledges and cajoling, the U.S. central bank in 1987 eased collateral restrictions on Wall Street and tried to calm markets by intervening in trading earlier than normal.”

  But US officials did more than that. They also created the PWG or, “the President’s Working Group on Financial Markets,” or, as we know it, the “Plunge Protection Team.” The group was created by an executive order from the Reagan White House in the wake of Black Monday and officially serves as a kind of consortium of top officials who advise the White House on markets when something goes horribly awry. Unofficially, the group directs, facilitates, and otherwise engineers futures buying to support the market. Or so “conspiracy theorists” believe. 

  As Reuters concludes, “it is unclear if [the Fed’s help] played a role in shaping Beijing’s actions.” Right. But what is clear is that when it comes to central bank intervention, the PBoC thinks the Fed has plenty of experience from which to draw dating back specifically to the 1987 crash that precipitated the creation of the body which nowadays operates from 33 Liberty and directs its barely-arm’s-length trading division at Citadel when someone needs to step in and “provide” a bit of ES liquidity.

  If these were the messages exchanged between lowly “senior staffers” at the Fed and PBoC, one can only imagine what higher level talks might have come later because as you might recall, things got much, much worse for China after July 27. If China’s subsequent plunge protection efforts in any way reflect something they learned from the Fed, then there may be a book full of equities sitting around on a secure server in the basement of the Eccles Building that no one’s ever seen. But as noted above, Yellen and Dudley have plenty of leveraged proxies when they think the market might be a bit short on “liquidity.”

  Finally, we would note that if China intends to adopt the post-Black Monday Fed playbook, we’re in for two decades of lunatic monetary policy characterized by unnecessarily low rates and the deliberate perpetuation of the myth that fantastic wealth is simply a matter of multiple expansion. Perhaps we’ll even see the institution of the “Zhou put.”

  *  *  *

  For those who might have missed it, here’s Deutsche Bank’s note from last summer discussing the “mythical” plunge protection team and comparing 1987 to China’s market rout

  The ’87 US plunge protection team: sweet & sour lessons for China

  Unlike 1987 when Greenspan was a one-man plunge protection team using rate cuts to support the market, China has fewer constraints to substantive direct price keeping operations, but there are strong arguments against actions going beyond smoothing activity.

  The PBOC is struggling with ‘the holy trinity’ – maintaining a currency peg for stability, targeting interest rates and RRR directed at the real economy, providing equity support, and all this while attempting to liberalize interest rates and open the capital account. It’s a tall ask. Internationalization of the currency should be slowed. 

  The sweet

  1) The slide in Chinese equities has some characteristics of the US 1987 crash in so much as ’the October crash’ in 1987 unwound relatively short-term gains mostly established in the prior 10 months. As per Figure 1, the one-year prelude to the 1987 US crash showed a similar pattern to China equity gains, albeit Figure 2 also shows how China’s equity appreciation was much larger than the US gains that immediately preceded the 1987 crash. The important point is the equity surge was relatively shortlived, so there never was quite enough time for a feedback loop to develop from higher asset prices driving a stronger real economy driving the asset bubble ever higher. The real economy implications are not as acute when a short-lived bubble pops.

  2) Remember the mythical ‘plunge protection team’. The market has consistently spoken about how the 1987 crash prompted the creation of a ‘crisis group’ of senior US officials that would draw up lines of support for the equity market if faced with a similar collapse in equity prices. For better and worse, China is much more willing and has fewer constraints on official intervention, and the role of the PBOC funding China’s Securities Finance Corp as a source of support notably for a small cap stocks, at a minimum has the prospect of smoothing any price decline.

  

  

  The sour

  1) The flip side of any official equity intervention, and as important the recent suspension of trading in some shares, is the obvious lack of transparency. This has resulted in good stocks/assets being sold to hedge illiquid asset exposure that itself destroys confidence even as it creates good value for select equities. China has the resources to support the equity market in the shortterm, but there are inherent problems in artificially supporting prices. It undermines the markets confidence that a base has been reached, and in the long-term further distorts the allocation of capital. These are arguments why plunge protection should be no more than a smoothing facility to encourage fair price discovery. 

  2). The US substituted a late 1990s equity bubble with a housing bubble which did not end well. China’s experiment in substituting housing froth with equity froth, is plainly not succeeding.This all falls under the title: ‘troubles with policy traction’ that adds to China’s growth risks. 

  3). Collateral damage. The problems of credit creation dominated by bank lending is compounded by the sizable part of lending that is backed by property and a much smaller but substantial amount of collateral comprised of ‘movable’ assets like equities, commodities, and receivables. There is then more scope for contagion to work across asset classes and intercede directly into the banking system via the impact on collateral. This space needs to be watched closely. 

  4). ‘Proof’ that the PBOC is not omnipotent. Greenspan’s rate cuts immediately after the 1987 crash did seem to stabilize the situation. He was a one man plunge stabilization team, and this was in retrospect the early stages of the ‘Greenspan put’. Even this ‘put’ distortion was ultimately seen having huge costs. The PBOC is already much more stretched than the Fed ever was. They are struggling with ‘the holy trinity’ – maintaining a currency peg for stability, interest rates and RRR directed at the real economy, equity support, and all this while attempting to liberalize interest rates and open the capital account while maintaining fiscal discipline. It’s a tall ask. It would suggest that some objectives like the internationalization of the Rmb be deferred.

  *  *  *

  Bonus: Text of Executive Order 12631

  Executive Order 12631–Working Group on Financial Markets

  Source: The provisions of Executive Order 12631 of Mar. 18, 1988, appear at 53 FR 9421, 3 CFR, 1988 Comp., p. 559, unless otherwise noted.

  By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:

  Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:

  (1) the Secretary of the Treasury, or his designee;

  (2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;

  (3) the Chairman of the Securities and Exchange Commission, or his designee; and

  (4) the Chairman of the Commodity Futures Trading Commission, or her designee.

  (b) The Secretary of the Treasury, or his designee, shall be the Chairman of the Working Group.

  Sec. 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence, the Working Group shall identify and consider:

  (1) the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have the potential to achieve the goals noted above; and

  (2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.

  (b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.

  (c) The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes.

  Sec. 3. Administration. (a) The heads of Executive departments, agencies, and independent instrumentalities shall, to the extent permitted by law, provide the Working Group such information as it may require for the purpose of carrying out this Order.
  (b) Members of the Working Group shall serve without additional compensation for their work on the Working Group.
  (c) To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions.

  *  *  *

  Summary of China’s efforts to prop up the market

  
  

  

  

  

  

  

• Connecticut Credit Risk Spikes To Record High

  Amid cuts in aid and surging taxes, it appears the market remains less than impressed at Connecticut’s debt sustainability. Following last week’s disappointing bond auction, CT bond risk has spiked to 65bps over the benchmark – a record spread demanded by investors to take CT repayment risk. CT becomes the 4th riskiest US state after NJ, IL, and PA.

  

   

  As Bloomberg notes,

  The likely culprit was the state’s $550 million general-obligation sale on March 17, which included debt due in 2026 that priced to yield 2.52 percent, compared with an expected 2.37 percent based on Bloomberg’s Connecticut index.  

   

  The state’s office of policy and management said last week that the budget deficit for the current fiscal year is $131 million, an increase of $111 million from the prior month’s estimate.

   

  Moody’s Investors Service dropped its outlook on the state to negative earlier in March.

  Is it any wonder more people than ever are looking to leave the increasing tax burden of this troubled state?

  

  

  

  

  

• Toward A Grand New Bargain: How Donald Trump Can Clear The Field And Realign American Politics

  Submitted by David Stockman via Contra Corner blog,

  It’s actually pretty easy. At an apt moment very soon, Trump should offer Governor Kasich the VP slot and Senator Cruz the vacant Supreme Court seat.

  Such a grand bargain would not only clear the primary field and quash any backroom hijacking of the nomination by the Washington GOP establishment; it would also permit each man to play his highest and best role at this great inflection point in the nation’s history.

  That is, Donald Trump’s job is to destroy the Republican/Neocon establishment and bring working class America back into a modern version of a McKinley-style Republican Party. Ted Cruz’ task is to spend a lifetime bringing strict constructionism back to the high court, thereby helping to restore constitutional restraints on a leviathan state that fundamentally threatens personal liberty and economic freedom and prosperity in America.

  And, yes, there really isn’t much for a washed-out, me-too Republican pol like Kasich to do at all. Except to get out of the way and exercise his apparent talent for preacherly uplift as America’s eulogist-in-chief at foreign state funerals.

  Beyond the rightness of it, there’s some pretty potent logic for the politics of the deal, too, There would be lots of of winners all around—–most especially the long-suffering American people.

  Mitch McConnell and his rudderless Senate wheels, for example, would not need even a ten minute caucus to hand down to young Ted Cruz a life sentence to the Supreme Court.

  At the same time and more importantly, however, the American public would score a twofer——a more faithful high court and one less warmonger on Capitol Hill.

  As to the former, Ted Cruz is about as close to the next Antonin Scalia as exists in America today. It goes without saying that he could do far more for the cause of liberty as a Justice than as a gadfly Senator.

  But there is an angle even more important. Cruz was a top student and debater at Princeton, a distinguished editor of the Harvard Law Review and a clerk on both the DC Court of Appeals and for the great Justice William Rehnquist on the Supreme Court. During the primary debates, he erudition on constitutional matters towered far above the pack.

  He was also described as “off the charts brilliant” by no less an admirer of his own brilliance than Alan Dershowitz. With a prospective long lifetime of service on the high court, Ted Cruz could bring a level of scholarly narrative and intellectual passion and acumen that is sorely needed by the constitutionalist cause.

  At the same time, the American people would be spared of another bellicose politician hell-bent on extending Washington’s imperial depredations. Cruz seems to have the Ronald Reagan disease. That is, his belief in small government does not extend to the Pentagon side of the Potomac; and his high regard for liberty does not appear to encompass innocent foreigners dwelling in the vicinity of desert sands he would cause to glow in the dark.

  As for Kasich, it is hard to think of a more inapt messenger with a more wrong-headed message. America does not need another compromiser, reconciler and wizened Washington ranch hand who can split the difference.

  It needs, instead, a force of nature who can rain shock and awe on the Imperial City. And, so doing, overturn its vast network of prosperous racketeers who feed off the military industrial complex, the health care cartel, the education monopolies, the Wall Street and banking mafias and the legions of other crony capitalist rackets.

  Governor Kasich’s specious claim to be a fiscally prudent budget balancer is especially telling. One of the most outrageous Washington wastes is right under his nose. Namely, the Lima Ohio M-1 tank line that he and the Ohio politicians keep open despite 10,000 such lethal machines already in inventory——-and notwithstanding that no other nation has tanks of this advanced capability or, more dispositively, the means to land them on these shores.

  Actually, M-1 tanks were originally designed to fight the Red Army on the central front——said army and said front having disappeared from the pages of history 25 years ago.

  Since then they have been used for neocon wars of invasion and occupation that did nothing for the safety and security of citizens in Dayton OH or Danbury CT except foster vengeful blowback in the cities and towns they turned into rubble. Even then, the Imperial City’s racketeers offered this folly as proof of the need for more iron and electronic monsters from Lima, while Kasich and his pols lip-synched the sales pitch.

  In truth, Kasich is exactly the kind of political lifer that needs to occupy the Joe Biden chair of policy irrelevance during the monumental reckoning ahead. He has indulged in double talk for so many decades that he no longer even knows when his lips are synching or even moving.

  His victory speech after the Ohio primary, for example, was laced with pious rhetoric about devolving government back to the states and localities.

  C’mon. He took a 90% bribe from Obama to drastically expand Medicaid in Ohio at the expense of taxpayers in Idaho and Texas, whose faithful governors didn’t. Yet he has the nerve to call himself a champion of decentralization?

  Kasich’s brand of phony Federalism goes back to Nelson Rockefeller, who wore thin the patience of New York taxpayers with his out-sized building, spending and other notorious appetites. So looking enviously at the untapped citizens of Nebraska and Oregon, Rocky then cooked-up the idea of revenue sharing and sold it to Nixon. It was actually just a form of interstate larceny.

  As a young Capitol Hill staffer at the time, I saw how the old-fashioned conservative and legendary ruler of the House Ways and Means Committee, Wilbur Mills, had it killed dead as a doornail. His was virtually the last voice of authority and power in Washington during the past half century who insisted that such tax monies should never leave home in the first place; and that the round-trip through Washington was just an opportunity for sticky fingers to skim the pot and for disingenuous politicians to bring home the pork while pretending it was free money.

  If they want to spend it, said Mills, let them tax it first. But sound Federalism was not to be. LBJ’s Great Society had broken the dam and soon Wilbur Mills stumbled into submission on the eve of the 1972 Nixon landslide——perhaps in a foreshadowing of his final stumble two years later into the Tidal Basin with Fanne Foxe.

  The rest, as they say, is history. With Mills’ iconic defense of the old order out of the way, the Nixon-Ford White House massively expanded the Federal grant-in-aid system. At length, a whole generation of GOP politicians became house-trained in Kasich style fiscal doublespeak and hypocrisy.That is, in the art of decrying Washington’s fiscal profligacy on the rubber chicken circuit by night while devoting their day jobs to scrapping for hometown pork from Medicaid and thousands of like and similar Federal gravy trains.

  I have no idea whether Donald Trump will see through this Kasich style fiscal hypocrisy or not. But I do believe him when he decries our $19 trillion national debt and when he says that he is going after Washington’s fiscal profligacy with hammer and tongs.

  In this instance, and much else, Trump’s principal virtue is that his only acquaintanceship with the Imperial City is attendance at an occasional Kennedy Center gala. Accordingly, Trump is unschooled in the self-serving rationalizations that keep the rackets going, even as he is endowed with such ample self-confidence that he is sure to go charging into the nation’s fiscal mess like a bull in a china shop.

  And that’s much to be welcomed after years of a bipartisan conspiracy of silence and Washington’s perfidiously orchestrated regime of fiscal can-kicking. Broken furniture and bombastic challenges are exactly what the fiscal doctor ordered. Indeed, what a President Trump could actually do is prove that the way to shutdown Washington’s budgetary rackets is by means of an insurrectionist-in-chief inside the White House, not furtive threats to close the Washington Monument lobbed down Pennsylvania Avenue from Capitol Hill.

  Say what you will about Trump’s controversial business history, the four bankruptcies and the rest. Yet it is absolutely certain that he knows at least this much: You don’t stop a flood of budgetary red ink with a 25-year plan to get to a balanced budget by 2038!

  That’s Speaker Paul Ryan’s particular contribution to the GOP establishments’ noxious form of fiscal duplicity and doublespeak. Like in the movie “Dave”, The Donald is likely to dive into the budget himself and then there will be fear and trembling all around the Imperial City.

  Big Pharma and the health insurance cartel are already in Trump’s gun sights, but once he gets to 1600 Pennsylvania Avenue he will quickly discover the target rich environment on the Pentagon side of the Potomac, too. The hideously expensive, technically plagued and completely unneeded trillion dollar F-35 fighter would be the ideal place for him to start.

  And that goes to the larger point. All the swells in the mainstream media are furiously cackling about The Donald’s answer on morning TV about the identity of his top foreign policy advisors. Yet the apparent fact that he has none and is doing his own thinking is why the think tanks and neocon lobbies are in full frontal panic:

  I’m speaking with myself No. 1 because I have a very good brain and I’ve said a lot of things,” he said in an interview on MSNBC. “I talk to a lot of people and at the appropriate time I’ll tell you who the people are.”

  Actually, there is more, and it has to do with one of the many character flaws that self-evidently afflict the man. We speak of his monumental capacity to carry a grudge and seek revenge upon those who personally offend him.

  Here’s the thing. Mitt Romney’s viscous public attack on Trump is only the beard. It is merely the censored for-family-TV-version of what the entire neocon establishment and War Party is saying every day in the corridors of Imperial Washington.

  Needless to say, the Donald is taking names and will not be reluctant to do far more than kick offending posteriors. He will make it his business to hound, denounce, denigrate and dispatch the entire passel of neocon power brokers who have declared war on his candidacy.

  And, yes, an Imperial City purged of Bill Kristol and his gang of bloodthirsty provocateurs would already be on the road to redemption.

  Indeed, if America’s foreign policy could be seized from the grasp of the Washington War Party and its AIPAC subsidiary, the fiscal equation would be instantly transformed. Over and again, Trump seems to grasp that the real security of the homeland has nothing to do with being the world’s policeman and defense sugar-daddy.

  In fact, that’s pretty obvious to any one who hasn’t been mis-educated by globe-trotting harpies of war like Senators Lindsay Graham and John McCain. Trump has had no trouble figuring out that Ukraine, for example, was always part of the greater Russian sphere of influence and geographic propinquity.

  If he had time for an honest briefing, he surely would have no problem at all seeing that it was the meddling, incompetent apparatchiks of the State Department, CIA and National Endowment for Democracy which fostered, funded and facilitated the coup against the constitutionally elected government of Ukraine in the first place.

  Or that Crimea was the equivalent of a Gadsden Purchase which had been unwound by Kruschev in the midst of post-Stalin politburo maneuvers and intrigues; and that its re-annexation by Moscow after the illegal putsch in Kiev was accomplished far more peacefully and consensually than had been the territorial rearrangement of Kosovo by the US Air Force 15 year earlier.

  But whether he has had all the true facts or not, Trump has had no trouble seeing that the solution to the conflict between Ukraine’s Russian speaking minority in the east and the rest of the country was a negotiated deal with Putin, not the demonization of this leader of a country that has no beef with America and a GDP the size of the NYC metropolitan area.

  You can go from that insight straight to a $200 billion cut in the nation’s bloated $600 billion defense budget. When the US economy slides into recession, as it surely will, before the next White House inaugural ceremony has commenced, the Federal deficit will soar back above the $1 trillion mark; it has only been in temporary hibernation, not permanent remission.

  So The Donald will need massive spending cuts in Washington at the very same time that desperate socialist governments in Europe will face  a global recession induced outbreak of red ink in their own fiscal accounts. That will be the Donald’s moment——the opening to disband NATO, slash defense spending across both continents and negotiate the kind of global disarmament deals that Eisenhower unsuccessfully sought and Warren G. Harding actually achieved.

  And that brings us to the supreme irony of this fraught political season. The Washington and New York chattering class has been nearly busting a spleen over the prospect of Trump’s (alleged) stubby fingers on the nuclear button. I haven’t heard such full-throated hysteria since they worked up a similar campaign against Ronald Reagan in the fall of 1980.

  The man did go on to help end the cold war and remove the nuclear sword of Damocles that hung over the planet, even if it was the inherent contradictions and impossibilities of totalitarian socialism that finally brought down the Soviet regime.

  Likewise, in a world heading into the fiscal dumpster, Donald Trump is more likely to negotiate an end to today’s monumental waste on arms and thereby win the Nobel Peace Prize than he is to start a war.

  Stated differently, Trump can lead the world back to the 1991 status quo ante for one salient reason. He never got the War Party memo that proclaimed an American Imperium that has now failed horribly; and he will relish doing unstinting battle against it Imperial City architects——the Clintons and the neocons.

  Still, redemption for the US economy and the nation’s wage and salary earning households will require more than the recovery of fiscal rectitude, as crucial as that is to avoiding a calamitous national bankruptcy during the next decade.

  What is actually needed is a modern rendition of President William McKinley’s “full dinner pail” economics of circa 1900. McKinley was a hard money Republican who impaled William Jennings Bryan twice on his own cross of anti-gold populism by selling the gospel of free enterprise and mild protectionism to the laboring classes of America’s flourishing interior.

  Donald Trump is on to that. But what he needs to better understand is that it was the gold standard and free enterprise elements of the McKinley formula that carried the day, not the moderately protectionist tariffs. The latter had actually been designed a decade earlier by McKinley himself as an Ohio industrial belt Congressman to insure wage equivalence with the principal industrial centers of England and Europe.

  In fact, it was the honest money discipline of the gold standard that kept transatlantic industrial wages in equilibrium, consumer goods inflation non-existent and real living standards steadily rising. Stumping for the protectionist tariff was just the McKinley GOP’s way of emphasizing its solidarity with the wage earning producers of the day.

  To be sure, free trade is always better for real living standards and societal wealth than the deadweight cost of tariffs, but in truth the McKinley tariff was as much a revenue tariff as it was an modern style instrument of statist protectionism.  After all, it was not until 1913 that the nation even had an income tax on individuals and corporations.

  And that gets us to a segue to The Donald’s well-intended but incomplete stance on global trade, the massive loss of full-pay productive jobs in America during recent decades and his claim that we are “losing” $500 billion a year to China, $59 billion to Mexico and so forth.

  He is right. But it’s not just, or even mainly, due to bad trade deals negotiated by stupid bureaucrats in the state department and the USTR office.

  It’s mainly owing to bad money created by stupid Keynesians at the Federal Reserve. They have enabled the rise of a virulent form of export mercantilism and currency manipulation throughout the entirety of East Asia and much of the EM world which drafts in its economic wake.

  Stated differently, the two decade long regime of central bank driven free money has destroyed the possibility of free trade. What passes for “free trade” today has nothing to do with the real thing.

  So-called free trade arrangements like NAFTA and the pending TPP are essentially statist deals negotiated among corporate, labor, environmentalist and other interest groups. If they actually result in increased global trade, the impact is marginal and largely incidental.

  The whole trade calamity that Trump is declaiming goes back four and one-half decades; and can be laid at the doorstep of Milton Friedman and his acolytes in the White House who convinced Nixon to default on America’s obligation to redeem unwanted dollars for gold, and to instead float the dollar at Camp David in August 1971.

  What the well-intended but hopelessly naïve free market professor failed to reckon with is that once the Fed was freed of the shackles of even the flawed Bretton Woods gold exchange standard, it would only be a matter of time before statist professors and Washington policy apparatchiks would open the monetary floodgates in the name of taming the business cycle or achieving the mythical Keynesian nirvana of full-employment.

  Worse still, Friedman was clueless about the probability that this monetary profligacy would prove to be virulently contagious, especially among the developing economies of East Asia where free market capitalism had never really existed. What happened is a relentless, long-lasting and destructive “dirty float” that continues to this day.

  The recipients of the Fed’s flood of dollar liabilities after Greenspan took the helm in 1987 engaged in massive currency intervention and manipulation in order to promote their export industries, and avoid what would have otherwise happened under Friedman’s theoretical fiat money regime. To wit, the dollar would have collapsed and Asian exporter exchange rates would have soared, halting America’s 25 year borrowing spree before it really got started.

  The truth is, had Alan Greenspan and his successors maintained even a modicum of monetary restraint and permitted money and capital markets to clear under the laws of supply and demand, nominal US interest rates would have remained unusually high in the face of deep negative US trade balances stemming from the post-1994 mobilization of cheap labor in China and East Asia.

  American households would not have lived high on the hog by borrowing from foreigners in order to consume more than they produced. Under honest money in the 1990s and thereafter, wages and productivity in the US would have sweated themselves back to competitive levels as they did during the McKinley era of full dinner pail economics.

  Needless to say, that is all water over the dam now in 2016. American labor is hopelessly over-priced and the American standard of living teeters precariously on a debt-swollen economy that has no capacity to grow or create what used to be called middle class jobs.

  I call them breadwinner jobs and there have been no net new ones formed in America since the turn of the century. The new jobs heralded on bubblevision every month are mainly born-again from the last cyclical downturn or low pay, part-time jobs in bars, restaurants, theme parks, nursing homes, home health outfits, temp agencies and student loan dependent for-profit tuition mills.

  

  Yet Trump’s relentless harping on trade might provide an avenue to reset a hopelessly impaired domestic labor market. In brief, the prospective GOP nominee should embrace Ted Cruz’s business flat tax as he sends its author on his way to the Supreme Court.

  But rather than replacing the income tax, which over half of US households do not pay anyway, the Cruz flat tax should be calibrated at a rate which will permit elimination of the payroll tax entirely. Lifting the roughly 16% employer/employee wedge off the cost of labor in America—–a burden of some $1.4 trillion annually—- would do more to restore full dinner pail economics to main street than any other conceivable measure.

  In truth, the Cruz business flat tax is just a  gussied up value added tax (VAT). And that’s exactly what America needs—notwithstanding decades of caterwauling against it by the Washington business lobbies and their GOP bag carriers—–because it taxes consumption, not labor and enterprise.

  Better still, it would fully tax the $2.4 trillion of goods imports which come into the country every year while being rebated on the $1.7 trillion of US exports which fight for foreign markets with their arm tied behind their back—-owing to systematic foreign protectionism and the blatant currency pegging and manipulation that Donald Trump has rightly called out.

  Indeed, a Trump administration would not need to start any trade war at all. It only needs to fire Janet Yellen and her merry band of money printers and replace them with sound money proponents who will stop pegging interest rates and allow the money and capital markets to clear at free market levels.

  In no time the dollar would strengthen and China’s $30 trillion house of cards would come crashing back to earth. The comrades in Beijing would have no choice except to shutdown the Peoples Printing Press of China in order to prevent an outward stampede of flight capital like the world has never seen.

  Even then, a Trump VAT could be calibrated to bring the one sided trade flows of the world back into more favorable balance. It would simply involve a surtax on the basic VAT rate for the goods of any country that continued to abuse its access to US markets via state export subsidies and exchange rate manipulations designed to artificially lower the price of its exports.

  To be sure, in an ideal world the US should welcome the foolishness of any foreign government which subsidizes its exports. That is actually a form of foreign aid to American consumers.

  But like the mild McKinley tariff, the harm from taxing foreign goods would be far outweighed by the good that would come from relieving the existing payroll tax burden on domestic labor and enterprise. Likewise, the urgent necessity to close the nation’s disastrous fiscal gap would be far better accomplished by raising whatever revenues are required—– after a thorough fiscal housecleaning on both sides of the Potomac—–by taxing consumption, not production.

  Call it a revenue tariff, if need be. It brought full dinner pail economics to the McKinley era and could again.

  It also brought the laboring classes to the Republican party and that’s essential. There is no hope for capitalism, fiscal solvency and constitutional governance and liberty in America if the Republican party remains in thrall to the War Party and the crony capitalist racketeers who occupy its commanding heights in the Imperial City.

  No wonder they will stop at nothing to stop Trump.

  But they won’t succeed. The American public is finished with the corruptions and destructions of the Imperial City. The Grand Old Party Is done.

  So just maybe the door is open for The Donald to usher in a Grand New Bargain.

  

  

  

  

  

• It's Not Over Yet – Moody's Put Deutsche Bank On Review For Downgrades

  In a worryingly coincidentally timed move, Moody's has put Desutche Bank on review for downgrade, citing "execution challenges" in its new strategic plan. The worrying aspect comes from the fact the timing is entirely fitting with the ratings downgrade that started the last and most painful down-leg in Lehman's collapse…

  Full Moody's statement:

  Moody's reviews for downgrade Deutsche Bank's ratings (senior debt at Baa1)

   

  New York, March 21, 2016 — Moody's Investors Service has placed on review for possible downgrade the ratings of Deutsche Bank AG ("Deutsche Bank") and affiliates, including the bank's long-term deposit rating of A2, its senior unsecured debt rating of Baa1, its standalone baseline credit assessment ("BCA") of baa3, its counterparty risk assessment of A2(cr), as well as its short term ratings and short term counterparty risk assessment of Prime-1 and Prime-1(cr), respectively.

   

  Also placed on review for downgrade were the long-term ratings of US-based Deutsche Bank Trust Corporation and its trust company affiliates, considering the close linkages of the franchise value of these operations to those of the parent Deutsche Bank. Principal ratings affected include the long-term deposit ratings of A1, issuer ratings of Baa1, the standalone baseline credit assessments of a3, and the counterparty risk assessments of A2(cr) and Prime-1(cr). The Prime-1 short-term deposit ratings of the trust companies were affirmed.

   

  For Deutsche Bank's subsidiary Deutsche Postbank AG, Moody's placed the entity's main ratings on review for downgrade, with the exception of the bank's ba1 BCA which was unaffected by today's rating action. The Postbank ratings placed on review for downgrade include the bank's A2 long-term deposits ratings, its (P)Baa1 senior unsecured programme rating, the bank's Prime-1 short-term debt and deposits ratings and the A2(cr)/P-1(cr) counterparty risk assessment. Each of these ratings benefit from one notch of affiliate support, based on the BCA of Deutsche Bank.

   

  RATINGS RATIONALE

   

  The review for downgrade is prompted by the rising execution hurdles facing Deutsche Bank in its efforts to strengthen and stabilize profitability over the next three years. The firm recently indicated weak performance within its capital markets operations in the first two months of 2016 (typically the strongest quarter in the year for this business), and this follows on a weak fourth quarter 2015 performance. "Deutsche Bank's diminished performance in the most recent two periods is a function of both environmental and firm-specific factors" said Peter Nerby, a Moody's Senior Vice-President.

   

  Since changing leadership last June and recalibrating its strategic plan last November, the operating environment has worsened for Deutsche Bank. This is increasing the already high level of execution challenges the group faces in addressing its structural cost issues and achieving its new strategic plan. Moody's forecasts that revenue and expense headwinds may delay an improvement in profitability and achievement of Deutsche Bank's interim cost-to-income targets (principally a cost-to-income ratio of approximately 70%) for 2018. The scale of the firm's reengineering task, the potential for further weak revenue, and the risk of incremental litigation charges also create uncertainty, further increasing the execution challenge.

   

  Despite the near-term earnings challenges, the firm's overall solvency and liquidity profiles support its creditworthiness and provide the firm time and flexibility to adjust the plan as conditions warrant. Deutsche Bank's solvency is supported by a solid overall capital and litigation reserve position, as well as its asset risk profile. Deutsche Bank also maintains a strong liquidity profile. As such, Moody's expects that should there be a downgrade of Deutsche Bank's Baa1 senior debt and A2 deposit ratings, it would be limited to one notch.

   

  Furthermore, the ultimate objectives of the new strategic plan are credit positive. The business mix of the bank will be tilted away from more volatile and capital-intensive capital markets activities, with a greater emphasis on more stable, annuity franchises, including transaction banking and asset and wealth management. As a result, Deutsche Bank is committed to having a simpler and more stable business mix, operating with lower leverage and targeting a more conservative return-on-equity. However it is not clear whether the revenue attrition from shrinking the balance sheet and streamlining the client base can be quickly offset by growth in new areas.

   

  The review will focus on the details of the execution plan for 2016 and 2017, in particular, and the extent to which it will have to be adapted given challenges in the operating environment. The review also will focus on details and timing of the plan to renew the technological platform of the bank, a key enabler of future revenues and cost efficiencies.

   

  Moody's will also review Deutsche Bank's Additional Tier 1 securities (Ba3) to evaluate whether its execution challenges increase the risk of a coupon deferral on them. This could warrant additional, wider notching for these securities and result in up to a two notch downgrade for these securities.

  But it's different this time…

  

  May/June 2008 – S&P downgrades major US banks including Merrill, Lehman, and Morgan Stanley (all after the banks raised additional equity capital, sparking the bounce).

  It's not over yet.

  

  

  

  

  

• Stocks Edge Higher Despite Dismal Data & Hawkish Fed As Bonds & Bullion Slide

  To sum up: China car sales crash by most on record (boom goes the overseas growth meme), US existing home sales plunge most in 6 years (boom goes the domestic housing strength supporting consumption meme), Williams and Lockhart go full hawk-tard (positing April as "live" and suggesting everything is hawkishly awesome), and one of our most succeesful 'innovative' tech firms unveils the worst product launch ever… and investors buy stocks with both hands and feet…

   

  Futures show the flip-floppiness of the day best…A ramp in the afternoon session of China (thanks to eased margin requirements) which gave way as Europe traded weak then was slammed by Fed's Williams "April live" comments… a ramp back into the US open was then slammed by crappy housing data… which the machines ramped into Europe's close… Then Fed's Lockhart reiterated "April live" warnings but early weakness just spurred USDJPY to ignite momentum in stocks to overnight high stops…

  

   

  Leaving Nasdaq the winner as cash equities rallied into the European close and sold off after NYMEX close despite extended gains from oil…

  

   

  Post-Fed, things are back to normal as they should be… stocks #winning over gold and bonds… (buty silver is still in the lead)

  

   

  AAPL disappointed…

  

   

  It appears last week's apparent "QE Trade" – buy stocks, buy bonds, buy gold, sell USDs – is fading…

  

   

  Treasury yields rose 4-5bps on the day with some modest steepening…(japanese markets on holiday) Notice that the buying was between US open and EU close..

  

   

  The USD gained ground for the 2nd day ion a row – best gain in March…

  

   

  Commodities dropped as China closed, rallied into US open, then flatlined…

  

   

  But once again Crude was up and down faster than a whore's drawers…

  

   

  Charts: Bloomberg

  

  

  

  

• If Hillary Isn't Indicted, The Rule Of Law & The Republic Are Dead

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  Once the Oligarchy is above the law, the Republic is already dead.

  To paraphrase Ernest Hemingway: How did you lose your Republic? Two ways, gradually and then suddenly. The Romans experienced this when their Republic was extinguished by Empire.

  The erosion of the Republic was gradual: slowly but surely, the lower classes' representation in governance was curtailed; the Oligarchy of the wealthy and powerful cemented their privileges at the expense of the many; Oligarchs rose above the laws that were supposed to apply to all, and executive power was consolidated in top administrators and the wealthy at the expense of the Senate.

  When Caesar crossed the Rubicon with his army to seize control of Rome, the Roman Republic ceased to exist. Gradually and then suddenly: this is how Republics become Empires.

  We find ourselves in a parallel moment in history: the American Republic has been hollowed into a shell that is maintained for PR purposes. Beneath the propaganda, the Establishment runs the nation for its own benefit. The people are ignored, because they are powerless in this hollow shell of democracy: their only role is to provide bodies, talent and blood for the Imperial armed forces, pay taxes if they have any money, and be content with their food stamps if they don't.

  Here's the proof:

  Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens

  Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.

  Here are two articles in the same vein:

  America the Banana Republic

  The Quiet Coup

  The United States has reached a crossing the Rubicon moment: either Hillary Clinton is indicted for knowingly violating statutes regarding State Department security, or the rule of law and the Republic are dead. This is a binary moment: we either let Hillary evade the laws that were established to protect the security of the nation and confess there is no rule of law now for the Oligarchy, or the agencies tasked with defending the nation indict her.

  There is no middle ground. If Hillary isn't indicted, the rule of law, i.e. no one is above the law, is dead.

  

  If you believe Hillary that she didn't really do anything to violate the spirit or the letter of security laws, please review these statutes:

  U.S. Department of State Foreign Affairs Manual Volume 12 – Diplomatic Security
  12 FAM 531.1 Top Secret Storage
  12 FAM 531.1-1 Domestic
  (CT:DS-185; 01-31-2012)
  (Uniform State, USAID, OPIC, TDP)

  2 FAM 558 CRIMINAL LAWS
  (TL:DS-70; 10-01-2000)

  Incidents involving intentional or grossly negligent release or mishandling of classified information may be subject to criminal penalties. An illustrative list of criminal statutes establishing penalties of fine and imprisonment for the release of classified information is set forth in 12 FAM 558 Exhibit 558.

  Once the Oligarchy is above the law, the Republic is already dead. Once the people have lost the ability to influence the central state's policies and decisions, the Republic is dead. Once the elected officials can no longer impose the nation's statues on the Oligarchy (or have lost interest in doing so because they are all corrupted cronies), the Republic is dead. Once the nation's agencies of law enforcement are stayed from indicting, prosecuting and jailing members of the Oligarchy, be they super-wealthy politicos like Hillary or super-wealthy Wall Street bankers, the Republic is dead.

  The Democratic Party bosses and special interests have already selected Hillary as their shoo-in candidate for the Presidency, and these Oligarchs and special interests won't let any pesky details like laws protecting the security of the nation stand in the way of their Not So Quiet Coup.

  The nation's Deep State, which I have covered extensively, has at least grudgingly approved Hillary as the next neo-conservative (never met an Imperial entanglement or drone strike she didn't like), neocolonial (we're going to put the "little people" in their rightful place, i.e. under our management) Imperial President.

  A vote for Hillary, unindicted Oligarch, is a vote in favor of the destruction of the rule of law and the Republic. This is the Rubicon every voter must decide to cross or refuse to cross: vote for Hillary (destroy the Republic and surrender to Imperial Oligarchy) or refuse to vote for an unindicted Imperial Oligarch.

  

  

  

  

  

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