- Brexit Drives Gold Frenzy, Report 26 June, 2016
The big news this week was that the British voted to exit the European Union. This was not the outcome expected by pundits, or the polls.
“Risk on” assets were relentlessly bid up prior to the vote. For example, S&P 500 index futures had closed the previous Friday, June 17, at 2059. This Thursday, prior to the vote, they were up 60.5 or 2.9%, to 2119.50.
The British pound began its run up a day earlier than the S&P, closing at $1.42 on Thursday, June 16. This Thursday it was up to a high of $1.50. The same pattern occurred in crude oil (West Texas), up over $4 from the June 16 low to the June 23rd high, and in other assets.
After the vote, it was a giant blowout. By Thursday evening (Arizona time), the pound had hit a low of $1.32, a drop of about 18 cents or almost 12%. As of Friday’s close, the S&P was down 3.6% but continued to decline after hours with futures ending down -4.16%.
To hear mainstream gold commentators tell it, gold and silver went up whereas (nearly) everything else went down. That is not how we see it. At all.
The pound, euro, and other currencies are dollar derivatives. Therefore, we think it’s appropriate to price them in terms of the underlying thing from which they are derived. The dollar. The currencies went down in dollar terms, as did stocks.
However, for the same reason that the dollar cannot be properly priced in pounds or euros, gold cannot be priced in the dollar. For the same reason that if you fall off a cliff the height of the cliff top cannot be measured in terms of distance above your head, a meter stick cannot be measured in terms of a rubber band.
The dollar must be priced in gold. The dollar is not precisely a gold derivative. However, it is valuable only because, and only for so long as, gold makes a bid on it.
So we look at it like this. Other currencies and risk assets fell in dollar terms. And the dollar fell in gold terms. The dollar hit its high on that same date (June 16), of 24.36 milligrams of gold. It made a low on Thursday June 23, of 22.89mg, down -1.47mg.
The world’s reserve currency fell 6% in a week. Since everything else went down in terms of that currency, in reality they fell even more.
As always when the dollar falls, most people see only the rise in the price of gold. And gold commentators reiterate their call for gold to go up even more. They say that, now, people are starting to wake up (as if the low price of the metal was due to somnolence), and when they do gold will skyrocket.
We concede that, this time, there is more reason to think that the world of paper may have a big decline (and hence the mirror image, the price of gold, will rise). But as always, we want to see if this price move was real or if it was just leveraged speculators taking on even more leverage and going closer to all-in. So let’s look at the only true picture of the supply and demand fundamentals. But first, here’s the graph of the metals’ prices.
The Prices of Gold and Silver
Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio was down a hair this week.
The Ratio of the Gold Price to the Silver Price
For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.
Here is the gold graph.
The Gold Basis and Cobasis and the Dollar Price
If you wanted to make a case that the price of gold was going to go higher, a picture of gold abundance (i.e. the basis, the blue line) spiking up would be discouraging. The scarcity (i.e. the cobasis, the red line), already deep into negative territory, fell further in a sharp drop from -1.2% to -1.6%.
One can now make an annualized carry of +1.5% to buy gold metal and sell an August future, which will deliver in two months. Where else can you make that kind of return? For comparison, the LIBOR rate for two-month maturity is 0.52%.
There can be no question that the marginal buyer of gold is the warehouseman. With such an outsized profit to carry it, surely these folks are keeping busy and off the streets.
Why is there such a profit to be made carrying gold? Because current speculators are leveraging up even further, and/or new speculators are entering the game, adding their fresh leveraged bets to the table. After all, gold should go up in an event like Britain leaving the Eurozone.
As we hinted above, there is a case to be made that gold is a better asset to hold than UK gilts, German bunds, or US Treasurys. It’s the same case that could have been made in 2001 when the price of gold was low, in 2011, when the price was high, last fall when the price was lower or Thursday when the price spiked to $1359. However, you can’t trade based on the background story.
Maybe some people will change their preferences. Meanwhile, the debtors are under a rising burden for each dollar of debt due to falling interest rates, not to mention a rising number of dollars of debt as well.
About 18 months ago, the Swiss National Bank had been struggling to maintain a peg to the euro, set at 1.2 francs. While the SNB had been blustering that it had unlimited resources to squander, it finally had to let go when it hit its stop-loss. When that happened, the interest rate in Switzerland plunged. Keith wrote a paper arguing that the Swiss franc will collapse.
Negative interest is not just a disincentive to hold paper currency (though it is, of course). It is not merely that gold becomes more attractive than negative-yielding paper (though it does, of course). More importantly, negative interest is a powerful incentive to destroy capital. If you could borrow at -1% per annum, then you have a license to lose capital at a rate of 0.5%. Would you want to extend credit like this?
We note that the Swiss yield curve has sunk further beneath the surface of zero, since that article in January 2015. The 20-year bond is now drowning, and the 30-year is practically zero. 18 months ago, the 10-year was about -0.25%. Now it is below -0.53%.
At some point, this will begin driving people to gold. Not to make a bet on its price, using leverage, and ultimately to make more dollars. But to own, as a way of avoiding falling rates and rising counterparty risk.
However, it doesn’t look like we’re at that point just yet.
Indeed, despite the rise in the market price, we see a drop in our calculated fundamental price. It’s now a bit under $1,100, or about $230 below the market. As we often say, we do NOT recommend naked shorting a monetary metal. It is always possible that some central bank will do something even more crazy and the price could go +$250 in an instant. Additionally, chartists may be drawn to bet on the gold price because they see momentum. We can tell you that the metal is overpriced, or conversely the dollar is underpriced. By a sizeable amount.
Now let’s turn to silver.
The Silver Basis and Cobasis and the Dollar Price
It’s a similar picture in silver.
The fundamental price didn’t move much, while the market price is up about 27 cents. The price of the metal is about $2.60 over what we calculate is its fundamental.
Interestingly, this puts the fundamental ratio below the market, under 72. We shall see if this state persists.
© 2016 Monetary Metals
- Understanding Brexit: The Powerless Press Their Thumb In The Eye Of The Power Elite
Submitted by Charles Hugh-Smith via OfTwoMinds blog,
The sense of having a real say, and possessing actual agency, is very empowering, and very rare, for members of the lower-middle class and the working class today.
The premier strategy for retaining power is to give the powerless a carefully managed illusion of decision-making and autonomy. Having a say over one's life and choices is called agency, and it is the illusion of agency that makes democracy such a powerful tool of control.
The second most effective means of maintaining power is to limit the choices offered the powerless. Offering the powerless false choices, i.e. the choice between two functionally equivalent options, provides the comforting illusion of agency while insuring that the status quo Power Elites remains in charge, regardless of the choice made by the powerless.
For example, give the powerless a choice between Tweedle-Dum (Republicans/Tories) and Tweedle-Dee (Democrats/Labour). Whomever they elect, the self-serving Power Elite of entrenched interests and wealth remains firmly in charge, for the Power Elite speaks with one voice through two mouths, one Establishment Democrat/Labour, the other Establishment Republican/Tory.
If the powerless get restless, make them fearful. This is easily managed via external threats and dramatic predictions of economic doom should the Power Elite be threatened.
If fear has lost its edge due to over-use, then whip up social controversies that divide and conquer the powerless. Divisive, hot-button social controversies are easily staged and media-managed; these serve to distract and fragment the powerless in endless culture wars.
The powerless get very few opportunities to express their dissatisfaction with their gradual impoverishment and powerlessness, and few opportunities to register their disapproval of the Power Elite. They know complaints go nowhere, petitions are ignored, and demonstrations accomplish nothing.
So when a rare chance to stick a thumb in the eye of the Power Elite comes along, they take it. The Brexit vote was just such an opportunity.
Though the benefits that flowed from membership in the European Union may well have been substantial, many people did not have any direct experience of those benefits, which largely flowed to a handful of privileged classes: young, well-educated workers in finance, people who bought housing in London before the huge run-up in valuations, and workers providing services to the wealthy foreigners and highly paid financial professionals.
Many households have seen their quality of life and living standards stagnate or decay during the U.K.'s membership in the E.U. The benefits touted by the Power Elite are either illusory or too modest to matter to these households, and their rage has only grown as the Power Elite tried to browbeat them into approving a membership that yielded no benefits to their households.
The Power Elite simply repeated what has worked well for 60+ years: tout the systemic benefits of E.U. membership, confident in the belief that some of these benefits have trickled down to the lower economic classes, and stoke fears of economic decline if the Powers That Be don't get their way.
Unfortunately for the Power Elite, the benefits of E.U. membership, financialization and globalization have been concentrated at the top of the pyramid: the already wealthy got wealthier, and the young, well-educated, mobile, entrepreneurial class had enhanced opportunities to generate private wealth or at least secure an excellent salary.
A third privileged (i.e. protected) class includes all those benefiting from direct E.U. subsidies.
Those outside these classes saw little if any benefit.
The slow decay of living standards and social mobility was crystallized into anger by the Brexit vote, which was intended to be yet another rigged, illusory choice. The masses were supposed to be persuaded by either the list of goodies that flowed from membership or from fear-mongering about the catastrophic consequences of Brexit.
But neither worked as planned: the benefits were too diffuse or too concentrated in the hands of a few to be persuasive in terms of self-interest, and the fear-mongering only increased awareness of how much the Power Elite wanted a Remain outcome.
Will Brexit hurt the classes that did not directly benefit from E.U. membership? Perhaps. Perhaps it was not in their self-interest to vote for Brexit. But the immeasurable pleasure in depriving the Power Elite of their "democracy" legitimacy was worth any potential sacrifice.
The sense of having a real say, and possessing actual agency, is very empowering, and very rare, for members of the lower-middle class and the working class today. the wealthy and powerful are accustomed to vetoing anything that impairs their wealth or power, and they're accustomed to either winning over or distracting the powerless.
Thus it was a shock when the powerless took the rare opportunity to stick a thumb in the eye of the Power Elite by depriving them of something they wanted.
Is this childish, or self-defeating? Perhaps. But when the system erodes a citizenry's sense of agency, they have little to lose by relishing the chance to use the same power the wealthy constantly wield without any qualm or hesitancy: the power to say "no."
- EURO UNDeRTaKeR…
On Thursday [23 June], voters in Britain basically also voted Angela Merkel out of office. Before she becomes the EU’s gravedigger for good, she should follow David Cameron’s example.–Die Welt
- How The Pentagon Is Preparing For A Tank War With Russia
Submitted by Patriuck Tucker via DefenseOne.com,
Reactive armor and cross-domain fire capabilities are just some of the items on the Army’s must-have list.
When Lt. Gen. H.R. McMaster briefs, it’s like Gen. Patton giving a TED talk — a domineering physical presence with bristling intellectual intensity.
These days, the charismatic director of the Army’s Capabilities Integration Center is knee-deep in a project called The Russia New Generation Warfare study, an analysis of how Russia is re-inventing land warfare in the mud of Eastern Ukraine. Speaking recently at the Center for Strategic and International Studies in Washington, D.C., McMaster said that the two-year-old conflict had revealed that the Russians have superior artillery firepower, better combat vehicles, and have learned sophisticated use of UAVs for tactical effect. Should U.S. forces find themselves in a land war with Russia, he said, they would be in for a rude, cold awakening.
“We spend a long time talking about winning long-range missile duels,” said McMaster. But long-range missiles only get you through the front door. The question then becomes what will you do when you get there.
“Look at the enemy countermeasures,” he said, noting Russia’s use of nominally semi-professional forces who are capable of “dispersion, concealment, intermingling with civilian populations…the ability to disrupt our network strike capability, precision navigation and timing capabilities.” All of that means “you’re probably going to have a close fight… Increasingly, close combat overmatch is an area we’ve neglected, because we’ve taken it for granted.”
So how do you restore overmatch? The recipe that’s emerging from the battlefield of Ukraine, says McMaster, is more artillery and better artillery, a mix of old and new.
Cross-Domain Fires
“We’re out-ranged by a lot of these systems and they employ improved conventional munitions, which we are going away from. There will be a 40- to 60-percent reduction in lethality in the systems that we have,” he said. “Remember that we already have fewer artillery systems. Now those fewer artillery systems will be less effective relative to the enemy. So we need to do something on that now.”
To remedy that, McMaster is looking into a new area called “cross domain fires,” which would outfit ground units to hit a much wider array of targets. “When an Army fires unit arrives somewhere, it should be able to do surface-to-air, surface-to-surface, and shore-to-ship capabilities. We are developing that now and there are some really promising capabilities,” he said.
While the full report has not been made public, “a lot of this is available open source” said McMaster, “in the work that Phil Karber has done, for example.”
Karber, the president of the Potomac Foundation, went on a fact-finding mission to Ukraine last year, and returned with the conclusion that the United States had long overemphasized precision artillery on the battlefield at the expense of mass fires. Since the 1980s, he said last October, at an Association for the United States Army event, the U.S. has given up its qualitative edge, mostly by getting rid of cluster munitions.
Munitions have advanced incredibly since then. One of the most terrifying weapons that the Russians are using on the battlefield are thermobaric warheads, weapons that are composed almost entirely of fuel and burn longer and with more intensity than other types of munitions.
“In a 3-minute period…a Russian fire strike wiped out two mechanized battalions [with] a combination of top-attack munitions and thermobaric warheads,” said Karber. “If you have not experienced or seen the effects of thermobaric warheads, start taking a hard look. They might soon be coming to a theater near you.”
Karber also noted that Russian forces made heavy and integrated use of electronic warfare. It’s used to identify fire sources and command posts and to shut down voice and data communications. In the northern section, he said, “every single tactical radio [the Ukrainian forces] had was taken out by heavy Russian sector-wide EW.” Other EW efforts had taken down Ukrainian quadcopters. Another system was being used to mess with the electrical fuses on Ukrainian artillery shells, ”so when they hit, they’re duds,” he said.
Karber also said the pro-Russian troops in Donbas were using an overlapping mobile radar as well as a new man-portable air defense that’s “integrated into their network and can’t be spoofed by [infrared] decoys” or flares.
Combat Vehicles and Defenses
The problems aren’t just with rockets and shells, McMaster said. Even American combat vehicles have lost their edge.
“The Bradley [Fighting Vehicle] is great,” he said, but “what we see now is that our enemies have caught up to us. They’ve invested in combat vehicles. They’ve invested in advanced protective systems and active protective systems. We’ve got to get back ahead on combat vehicle development.”
If the war in Eastern Ukraine were a real-world test, the Russian T-90 tank passed with flying colors. The tank had seen action in Dagestan and Syria, but has been particularly decisive in Ukraine. The Ukrainians, Karber said, “have not been able to record one single kill on a T-90. They have the new French optics on them. The Russians actually designed them to take advantage of low light, foggy, winter conditions.”
What makes the T-90 so tough? For starters, explosive reactive armor. When you fire a missile at the tank, its skin of metal plates and explosives reacts. The explosive charge clamps the plates together so the rocket can’t pierce the hull.
But that’s only if the missile gets close enough. The latest thing in vehicle defense is active protection systems, or APS, which automatically spot incoming shells and target them with electronic jammers or just shoot them down. “It might use electronics to ‘confuse’ an incoming round, or it might use mass (outgoing bullets, rockets) to destroy the incoming round before it gets too close,” Army director for basic research Jeff Singleton told Defense One in an email.
The T-90’s active protective system is the Shtora-1 countermeasures suite. “I’ve interviewed Ukrainian tank gunners,” said Karber. “They’ll say ‘I had my [anti-tank weapon] right on it, it got right up to it and then they had this miraculous shield. An invisible shield. Suddenly, my anti-tank missile just went up to the sky.’”
The Pentagon is well behind some other militaries on this research. Israeli forces declared its Trophy APS operational in 2009, integrated it onto tanks since 2010, and has been using it to protect Israeli tank soldiers from Hamas rockets ever since.
Singleton said the United States is looking to give its Abrams tank the Trophy, which uses buckshot-like guns to down incoming fire without harming nearby troops.
The Army is also experimenting with the Israeli-made Iron Curtain APS for the Stryker, which works similarly, and one for the Bradley that has yet to be named. Raytheon has a system called the Quick Kill that uses a scanned array radar and a small missile to shoot down incoming projectiles.
Anti-Drone Defenses
One of the defining features of the war in Eastern Ukraine is the use of drones by both sides, not to target high-value terrorists but to direct fire in the same way forces used the first combat aircraft in World War I.
The past has a funny way of re-inventing itself, says McMaster.
“I never had to look up in my whole career and say, ‘Is it friendly or enemy?’ because of the U.S. Air Force. We have to do that now,” said McMaster. “Our Air Force gave us an unprecedented period of air supremacy…that changed the dynamics of ground combat. Now, you can’t bank on that.”
Pro-Russian forces use as many as 16 types of UAVs for targeting.
Russian forces are known to have “a 90-kilometer [Multiple Launch Rocket System] round, that goes out, parachute comes up, a UAV pops out, wings unfold, and they fly it around, it can strike a mobile target” said Karber, who said he wasn’t sure it had yet been used in Ukraine.
Karber’s track record for accuracy is less than perfect, as writer Jeffrey Lewis has pointed out in Foreign Policy. At various points, he has inflated estimates of China’s nuclear arsenal from some 300 weapons (based on declassified estimates) to 3,000 squirreled away in mysterious tunnels, a claim that many were able to quickly debunk. In 2014, he helped pass photos to Sen. James Inhofe of the Senate Armed Services Committee that purported to be recent images of Russian forces inside Ukraine. It turned out they were AP photographs from 2008.
“In the haste of running for the airport and trying to respond to a last-minute request with short time fuse,” Karber said by way of explanation, “I made the mistake of believing we were talking about the same photos … and it never occurred to me that the three photos of Russian armor were part of that package or being considered.”
No Foolproof Technological Solution
All of these technologies could shape the future battlefield, but none of them are silver bullets, nor do they, in McMaster’s view, offset the importance of human beings in gaining territory, holding territory, and changing facts on the ground to align with mission objectives.
As the current debate about the authorization for the use of force in Iraq shows, the commitment of large numbers of U.S. ground troops to conflict has become a political nonstarter for both parties. In lieu of a political willingness to put troops in the fight, multi-sectarian, multi-ethnic forces will take the lead, just as they are doing now in Iraq and Syria.
“What’s necessary is political accommodation, is what needs to happen, if we don’t conduct operations and plan campaigns in a way that gets to the political accommodation,” he said. “The most important activity will be to broker political ceasefires and understandings.”
Sometimes that happens at the end of a tank gun…
- 'Cost-Burdened-Renters' Surge To Historic Highs As Hillbama-nomics Fails For Low-Income Faithful
As we have discussed many times in the past, for the Average American, owning a home is increasingly unaffordable. This has led to a dramatic surge in rents, and ultimately to a significant squeeze on the cash flow of renters across the nation.
Recall, here is RealtyTrac's Q1 2016 Home Affordability Index, which showed that 9% of the US county housing markets were less affordable than their historical levels.
The unaffordability of owning a home of course has led to a plummeting national home ownership rate, as shown by Harvard's recent State of the Nation's Housing report.
Not surprisingly, as millennials are making less and drowning in debt, home ownership rates for younger age groups has completely fallen off a cliff. As a reminder, more millennials live at home with their parents now than at any other time since the great depression. However, as the chart below shows, home ownership has fallen across the board.
The result of all of the above, is that rental prices for everyone have surged, and is putting more and more renters in a position of being significantly cost burdened as more income needs to be directed toward paying the rent. The number of cost-burdened households rose by 3.6 million from 2008 to 2014 to a stunning 21.3 million households. Even more concerning is that the number of households with severe burdens (ie: paying more than 50% of income for housing) jumped by 2.1 million to a record 11.4 million households. As the report states, cost-burdened renters are at historic highs.
From the report
The divergence between the rental and owner-occupied markets is evident in the number of cost-burdened households in each segment. On the owner side, the number of households facing cost burdens (paying more than 30 percent of income for housing) has fallen steadily as high foreclosure rates have pushed out many financially strained owners, low interest rates have allowed remaining owners to reduce their housing costs, and fewer young households have moved into homeownership. As of 2014, the number of cost-burdened owners stood at 18.5 million, down 4.4 million since 2008.
The decline has occurred across all age groups, but especially among younger homeowners. Homeowners age 75 and over, however, are among the most cost-burdened groups, with their share at 29 percent compared with 24 percent for households under age 45. With the aging baby boomers swelling the ranks of older homeowners and larger shares of households carrying mortgage debt into retirement, the problem of housing cost burdens among the elderly is likely to grow.
On the renter side, the number of cost-burdened households rose by 3.6 million from 2008 to 2014, to 21.3 million. Even more troubling, the number with severe burdens (paying more than 50 percent of income for housing) jumped by 2.1 million to a record 11.4 million. The severely burdened share among the nation’s 9.6 million lowest-income renters (earning less than $15,000) is particularly high at 72 percent. In all but a small share of markets, at least half of lowest-income renters have severe housing cost burdens (Figure 4). While nearly universal among lowest-income households, cost burdens are rapidly spreading among moderate-income households as well, especially in higher-cost coastal markets.
As a result of all of this, low-income renters are increasingly exposed to the risk of eviction – this is the reality of those who can't seem to understand why all of the experts continue to tell everyone the economy is performing so well.
According to the report, the median asking rent on new apartments was $1,381 per month in 2015, well out of reach for the typical renter earning $35,000 a year. As we pointed out when we discussed this report last year, for anyone curious as to where the "missing" inflation is, look no further than in the rental market. If that doesn't suffice, ask the 710,000 renters who have been threatened with eviction in the previous three months, with nearly eight out of ten of these threats associated with a failure to pay rent. It is no wonder that millennials are being forced to live rent-free back at home with mom and dad.
- TRUMPism and political multi-culturalism post Brexit
Brexit, like a Trump Presidency, is yet another broken cog shaking the Elite’s machine towards global domination. For better or worse, some are calling it a rise of ‘populism.’ But at the end of the day, social unrest can be easily predicted and scientifically quantified. The Elite are doing a poor job running the world. From the French Revolution to the Onion revolution in India – studies have been done that correlate the simple common sense knowledge: when people are hungry, they fight. Very rarely, such as in the case of the Bolshevik revolution in Russia, any drastic social reform is based on intellectual concepts. Usually people are just hungry, fed up, angry, and displeased with their owners. Over a period of 500 years, Feudalism simply changed forms, demographics changed, technology changed the way the people are goverened. The world’s richest lost $127 Billion on Brexit loss. So what? They made Trillions during the last decade. Practically, very little has changed socially over this 500 year period – still there is a 1% of rulers that own and control the 99%. The one percent movement should read history. Again, with few exceptions such as Soviet Russia and a few others, the world has always been like this. But during that time the Elite have learned a lot about people – and specifically what works and what doesn’t. People need entertainment, so they’ve made politics a circus. People don’t want to read books about a political ideology, or study philsophy, they want to watch TV. Modern ‘politics’ is just another form of entertainment for the masses to keep them fat and happy. In their lazy-boys loaded with Prozac, Alcohol, and high fructose corn syrup – they like to watch in Ultra High Definition – other people talk about their opinions. It’s a form of voyeurism (like sports), they don’t actually want to participate in anything, that’s the idea – just press play. But animal planet- it just doesn’t cut it. People like drama, gossip, war, and natural disasters. Hurricanes, Earthquakes, have great ratings.
Tyler Durden keeps talking about how the net winner of the Brexit situation is Russia. Well, recently, a local governor in Russia of Kirov region, has been caught ‘red-handed’ receiving a 400,000 Euro bribe. This begs the question – how is America’s freedom based, capitalist democracy any different from the current system in Russia, or in any other country for that matter? When Russia had the soviet union, it was easier to compare and contrast the two political economic systems, because they were so different. During Stalin, there wasn’t any corruption, they were all killed. But so were millions of innocents. So what’s the best way forward?
First, we need to understand that Russia is like a big capitalist baby. There really is freedom in Russia since the collapse of the Soviet Union – the problem is that – freedom means the freedom to shoot your enemies on the street. It’s not like the 90’s – but still more like the Wild West, than in Britain, Germany, or America. There’s no bankruptcy court, no class action precedents, if you don’t pay loans, banks may send out some rough looking guys to ‘check up on you’. The people who are alive now, they were alive during Soviet Union, either as adults or children. They received in that time, some sort of government stamps, that they used to get products they needed such as food and basics. Day to day life, wasn’t so bad – people worked, with paid vacations. Families would gather in cabins (dachas) near lakes during the summer, much like Americans do in the mid-west (Wisconsin). They had a film industry. Science, art, chess, and their own games like Gorodki. Russia produced Europe’s most advanced culture post World War 2, in many respects. Anyway – the point is that just like today’s Russia – most of what we know about Russia in the west is just wrong.
In Russia, the system needs time to evolve (meaning, many generations). There’s babies being born now who will be the Edward Snowden of their system, the lawyers who will go to law school in New York to return to Moscow and create a securities class action litigation industry. Why is corruption like this not possible in America today? Well, for several reasons – one – there’s a highly monitored electronic payments system that monitors politicians (in extreme cases of outright fraud). Two, political watchdogs, action groups, and even the FBI will follow up on public corruption leads. Why does America have all this? Because public corruption was so bad in America, it even ruined our biggest cities. Many Americans have never heard the name “Tweed” but they should know it:
Tweed was convicted for stealing an amount estimated by an aldermen’s committee in 1877 at between $25 million and $45 million from New York City taxpayers through political corruption, although later estimates ranged as high as $200 million.
What Tweed did was create a roadmap for future corrupt politicians – what to do and what not to do. For example, Tweed invented the idea of overbilling for simple jobs, such as $50,000 toilet seat:
….For example, the construction cost of the New York County Courthouse, begun in 1861, grew to nearly $13 million – about $178 million in today’s dollars, and nearly twice the cost of the Alaska Purchase in 1867.[13][17] “A carpenter was paid $360,751 (roughly $4.9 million today) for one month’s labor in a building with very little woodwork … a plasterer got $133,187 ($1.82 million) for two days’ work”.[17]
But finally – it wasn’t possible to sustain and social unrest ultimately caused the corrupt ring to unravel:
..Tweed’s downfall came in the wake of the Orange riot of 1871, which came after Tammany Hall banned a parade of Irish Protestants celebrating a historical victory against Catholicism, because of a riot the year before in which eight people died when a crowd of Irish Catholic laborers attacked the paraders. Under strong pressure from the newspapers and the Protestant elite of the city, Tammany reversed course, and the march was allowed to proceed, with protection from city policemen and state militia. The result was an even larger riot in which over 60 people were killed and more than 150 injured.
It resulted in major reforms. Of course, under such rule, the City of New York could not flourish, regardless of the economic strength.
Thus, the city’s elite met at Cooper Union in September to discuss political reform: but for the first time, the conversation included not only the usual reformers, but also Democratic bigwigs such as Samuel J. Tilden, who had been thrust aside by Tammany. The general consensus was that the “wisest and best citizens” should take over the governance of the city and attempt to restore investor confidence. The result was the formation of the Executive Committee of Citizens and Taxpayers for Financial Reform of the City (also known as “the Committee of Seventy“), which attacked Tammany by cutting off the city’s funding. Property owners refused to pay their municipal taxes, and a judge – Tweed’s old friend George Barnard, no less – enjoined the city Comptroller from issuing bonds or spending money. Unpaid workers turned against Tweed, marching to City Hall demanding to be paid. Tweed doled out some funds from his own purse – $50,000 – but it was not sufficient to end the crisis, and Tammany began to lose its essential base.
But even today, this game of cat and mouse continues, as a group close to the Bush family struggles to control electronic voting in America through Diebold:
Diebold: the controversial manufacturer of voting and ATM machines, whose name conjures up the demons of Ohio’s 2004 presidential election irregularities, is now finally under indictment for a “worldwide pattern of criminal conduct.” Federal prosecutors filed charges against Diebold, Inc. on Tuesday, October 22, 2013 alleging that the North Canton, Ohio-based security and manufacturing company bribed government officials and falsified documents to obtain business in China, Indonesia and Russia. Diebold has agreed to pay $50 million to settle the two criminal counts against it. This is not the first time Diebold’s been accused of bribery. In 2005, the Free Press exposed that Matt Damschroder, Republican chair of the Franklin County of Elections in 2004, reported that a key Diebold operative told Damschroder he made a $50,000 contribution to then-Ohio Secretary of State J. Kenneth Blackwell’s “political interests” while Blackwell was evaluating Diebold’s bids for state purchasing contracts. Damschroder admitted to personally accepting a $10,000 check from former Diebold contractor Pasquale “Patsy” Gallina made out to the Franklin County Republican Party. That contribution was made while Damschroder was involved in evaluating Diebold bids for county contracts. Damschroder was suspended for a month without pay for the incident. Despite the scandal, he was later appointed as Ohio Secretary of State Jon Husted’s Director of Elections.
Corruption is not possible in America, as what happened in Kirov, Russia recently. But one reason, it’s because America has made an industry out of corruption it’s called “lobbying.” Capitalism has created a democracy such that- one dollar = one vote. America is free, but people choose to watch TV and become programmed zombies. If you believe in the free press, if you believe in democracy, read this true life story about a hacker who fixed elections in South America:
When Peña Nieto won, Sepúlveda began destroying evidence. He drilled holes in flash drives, hard drives, and cell phones, fried their circuits in a microwave, then broke them to shards with a hammer. He shredded documents and flushed them down the toilet and erased servers in Russia and Ukraine rented anonymously with Bitcoins. He was dismantling what he says was a secret history of one of the dirtiest Latin American campaigns in recent memory.
For eight years, Sepúlveda, now 31, says he traveled the continent rigging major political campaigns. With a budget of $600,000, the Peña Nieto job was by far his most complex. He led a team of hackers that stole campaign strategies, manipulated social media to create false waves of enthusiasm and derision, and installed spyware in opposition offices, all to help Peña Nieto, a right-of-center candidate, eke out a victory. On that July night, he cracked bottle after bottle of Colón Negra beer in celebration. As usual on election night, he was alone.
Not in America? Remember – our recent account of Tweed. So, while corruption like what happened recently in Kirov is not possible- it is however possible for a family to become billionaires with their power while in office, in a string of odd ‘coincidences.’ (i.e. Clinton, Bush) They can’t make bribes – but they can trade favors, they can do power-broking.
So, has anything really changed in America? Special interest groups dominate the political scene – along with lobbyists, foreigners, and others with a political agenda. But isn’t that a natural evolution of capitalism? Those who amass wealth ultimately buy the system that ensures their dominance? And that includes the political system.
How to stop corruption?
Ultimately, if corruption is out of control – the only way to stop it is with a mass of angry villagers with pitchforks. Whether it be the riots that stopped Tweed, or the million man march in Washington DC – this is the only real change. Protests, political action groups, lawsuits, are a step in the right direction, but by themselves meaningless. Corruption can be stopped only by exposing the corruption first, and then by presenting with a solution. Without a solution then the corrupt politicians will just be replaced with another corrupt politician. Is a Trump presidency a start to shake up that status quo? Trump supporters think so. Will the election be fixed? Well, the Republican party is already trying to change the rules, that they won’t let Trump on the ballot. One delegate of the RNC is suing on grounds that Trump isn’t fit to be President:
Correll is bound to vote for Trump on the first ballot at the convention. Trump won Virginia’s primary on Super Tuesday.
“Correll believes that Donald Trump is unfit to serve as President of the United States and that voting for Donald Trump would therefore violate Correll’s conscience,” the complaint reads. “Accordingly, Correll will not vote for Donald Trump on the first ballot, or any other ballot, at the national convention. He will cast his vote on the first ballot, and on any additional ballots, for a candidate whom he believes is fit to serve as President.”
Most of the RNC is against Trump – can they stop him? Well, they certainly can choose to not support him, but Trump can always form his own political party. It’s surprising he hasn’t done this already. Those in politics always try to change the rules in their favor – it’s part of how politics works. Reagan got the Christian Coalition to vote for him, Christians who previously weren’t even registered. The Democrats then retorted with the Black & Hispanic vote, and finally the gay vote. Rules of registered voters, where the district lines are drawn, and how voting is held – can change election results. In the most extreme case, which is unlikely, the Electoral College could basically select whoever they want for President – Newt Gingrich. Someone they all know.
Only a mass of people can stop corruption, in a number of ways. One way – stop voting. Stop paying taxes. If no one voted, there could be no corrupt winner. But everyone believes in the system, and ‘buys in’ to the party line, that their candidate is less evil than the other, even though they know deep down that 99% of candidates are dirty, lying, corrupt, scummy, vultures. In the corporate world we see often Boycotts as a means to stop a practice that consumers don’t like. Generally, it works. In the case of Russia – the people need to wake up and start participating. And same as in America too and probably all countries – there’s always freedom to drop out. It’s not legally required to have a Television. It’s possible to shoot it, or throw it out the window.
In other words, by using the system, the people support it. This is true with any system, such as the US Dollar. When America has a ‘strong dollar’ policy, they encourage the use of the US Dollar. It has nothing to do with Fed interest rate policy. Because when people need to use the US Dollar, there is a natural demand to buy dollars. To understand how this works checkout Splitting Pennies – Understanding Forex. It’s the same with the political system. As long as people use it, and support it – they’ll get the politicians they deserve. In fact, voters always get the politicians they deserve. Democracy works, even though it’s a terrible idea. Democracy is the tyranny of the mob; the weak, unwashed, unenlightened, and incompetent.
- They Are Putting Armed Guards On Food Trucks In Venezuela
Submittted by Michael Snyder via The End of The American Dream blog,
We are watching what happens when the economy of a developed nation totally implodes. Just a few years ago, Venezuela was the wealthiest nation in all of South America, and they still have more proven oil reserves than anyone else on the entire planet including Saudi Arabia. But now people down there are so hungry and so desperate that some of them are actually hunting dogs, cats and pigeons for food. Just a few days ago, I gave a talk down at Morningside during which I warned that someday we would see armed guards on food trucks in America. After that talk was done, I went back up to my room and I came across a New York Times article which had been republished by MSN that explained that this exact thing is already happening down in Venezuela…
With delivery trucks under constant attack, the nation’s food is now transported under armed guard. Soldiers stand watch over bakeries. The police fire rubber bullets at desperate mobs storming grocery stores, pharmacies and butcher shops. A 4-year-old girl was shot to death as street gangs fought over food.
Venezuela is convulsing from hunger.
Hundreds of people here in the city of Cumaná, home to one of the region’s independence heroes, marched on a supermarket in recent days, screaming for food. They forced open a large metal gate and poured inside. They snatched water, flour, cornmeal, salt, sugar, potatoes, anything they could find, leaving behind only broken freezers and overturned shelves.
All over the country, people are standing in extremely long lines day after day hoping to get some food. Sometimes the food trucks don’t bring anything, and sometimes it is just scraps like fish heads and rotten fruit. To get a better idea of what life is like in Venezuela right now, just check out this YouTube video…
As people down in Venezuela get hungrier and hungrier, extreme desperation is setting in. And with extreme desperation comes crime and violence…
A 4-year-old girl, Britani Lara, was reportedly shot to death Tuesday in the Caracas suburb of Guatire as she stood in line with her mother outside a government-owned Mercal grocery store.
El Nacional newspaper reported that gangs on motorcycles have fought over the right to control and distribute food at the Guatire store and that the gunfire may have been a result of that dispute. Eight others were reportedly injured in the incident.
Violence also was reported at a food protest staged in front of a store in the city of Cariaco in central Sucre state, where 21-year-old Luis Fuentes was killed by a gunshot. Eleven others were wounded, according to El Nacional newspaper.
Could you imagine living in a nation where all this is going on?
Most Americans could not even conceive of such a thing. But of course the truth is that up until just recently most Venezuelans could not either. In fact, just a couple years ago Venezuela was one of the most prosperous nations in all of South America…
Two years ago, Venezuela was a normal functioning nation, relatively speaking of course. It was by no means a free country, but the people still had a standard of living that was higher than most developing nations.
Venezuelans could still afford the basic necessities of life, and a few luxuries too.
They could send their children to school and expect them to receive a reasonably good education, and they could go to the hospital and expect to be effectively treated with the same medical standards you’d find in a developed nation. They could go to the grocery store and buy whatever they needed, and basic government services like law enforcement and infrastructure maintenance worked fairly well. The system was far from perfect, but it worked for the most part.
There are all sorts of signs that the thin veneer of civilization that we all take for granted in the United States is starting to crumble as well. If you follow End Of The American Dream on a regular basis, you know that I post articles about this theme all the time. But today I just want to share one tidbit with you. Reuters is reporting that the number of heroin users in this country has nearly tripled since 2003, and the number of heroin-related deaths is now about five times higher than it was in the year 2000…
A heroin “epidemic” is gripping the United States, where cheap supply has helped push the number of users to a 20-year high, increasing drug-related deaths, the United Nations said on Thursday.
According to the U.N.’s World Drug Report 2016, the number of heroin users in the United States reached around one million in 2014, almost three times as many as in 2003. Heroin-related deaths there have increased five-fold since 2000.
“There is really a huge epidemic (of) heroin in the U.S.,” said Angela Me, the chief researcher for the report which was released on Thursday.
Just like Venezuela, our society is rotting too. As I have warned before, the exact same things that are happening down there right now are coming here too.
It is just a matter of time.
On a side note, I would like to congratulate the British people for voting for independence from the European Union. As I have been writing this article, the results have been coming in, and at this point it looks like victory is virtually assured for the “Leave” campaign.
I would have voted “Leave” myself if I lived in the United Kingdom, but let there be no doubt about what comes next. Uncertainty and chaos are going to reign in European financial markets, and we have already seen the biggest one day drop in the history of the British pound. There is going to be short-term economic and financial pain, but the people of the United Kingdom have done the right thing for their children and their grandchildren, and for that they are to be applauded.
- China Devalues Yuan Most In 10 Months As Premier Li Warns Of Brexit "Butterfly Effect" On Financial Markets, Economy
In a somewhat shockingly honest admission of the frgaility of the global financial system, Chinese Premier Li warns that a disillusioned British butterfly has flapped its wings and the entire global financial system could collapse. Responding to the plunge in offshore Yuan since the Brexit vote (down 7 handles to 5-month lows over 6.65), PBOC devalued Yuan fix by 0.9% (6 handles) – the most since the August crash – to Dec 2010 lows. Finally, we note USD liquidity pressures building as EUR-USD basis swaps plunge.
Offshore Yuan is 3 handles cheap to onshore Yuan and 9 handles cheap to Friday's fix…
And so PBOC was somewhat forced to devalue yuugely…
- *CHINA WEAKENS YUAN FIXING BY 0.9%, MOST SINCE AUGUST
- *PBOC TO INJECT 270B YUAN WITH 7-DAY REVERSE REPOS: TRADER
While Chinese stocks remain 'stable' (despite Goldman suggesting more pain is due – regional cost of equity to rise 50-75bps as risk appetite shrinks after Brexit, equal to 5%-10% index decline), the less managed rest of the world is struggling and China knows it…
Premier Li Keqiang said an increase in instability in a particular country or region could trigger the "Butterfly Effect," which could, in turn, affect the global economic recovery and financial market stability, according to comments posted on Chinese central govt’s website.
All economies highly dependent on each other and no country can manage alone, Li said during meeting with WEF executive chairman Klaus Schwab in Tianjin.
Li called on all nations to enhance coordination and work together to address difficulties.
The shift in the Yuan Fix (red) seemed clear from the collapse in offshore Yuan… CNH > 6.65 (7 handles weaker than pre-Brexit)
Here's why Americans might want to care about this Brexit butterfly and China crash…
Finally, we note that USD liquidty needs are getting very serious as EUR-USD basis swaps surge lower indicating major USD demand…
- Is The US Locking Up Its Available Male Labor Force?
A few years ago we noted an extremely disturbing trend, namely that there was never a lower percentage of white men over 20 working in America. The decline in labor force participation rate for males ages 25-54 has accelerated sharply since 1980, and we may have an answer as to why.
Here is the labor force participation rate for men ages 25-54. Although the downward trend is clear since it topped out out 97.9% in 1954, a notable accelerated decline takes place since 1980, which as of May 1, 2016 put the rate at 88.4%.
As the WSJ points out, there is a sharp divergence in participation rates by educational attainment.
Which one could argue is evidence of the declining middle class in America, as blue-collar jobs are disappearing.
There is one more critical chart that the WSJ provides that is notable however, and is something to consider. As the decline in labor force participation for working age males has accelerated its decline since 1980, male prisoners who have been incarcerated has accelerated in the complete opposite direction.
* * *
Is the male labor force collapsing because more and more are being sent to prison? The data certainly shows that is a possibility.
Here is a look at how the US imprisonment rate has grown since 1880 – look at the pop since 1980.
And just because it has been an insane weekend, we'll add to it by reminding readers that despite all of the above, Senator Tom Cotton (R-AR) is actively advocating that the US has an "under-incarceration problem." Perhaps Cotton wishes to lock up the entire male labor force instead of just most of it.
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