Today’s News 28th March 2016

• Does The United States Still Exist?

  Authored by Paul Craig Roberts,

  An address delivered to the Libertarian Party of Florida on March 23, 2016 in Destin, Florida

  To answer the question that is the title, we have to know of what the US consists. Is it an ethnic group, a collection of buildings and resources, a land mass with boundaries, or is it the Constitution. Clearly what differentiates the US from other countries is the US Constitution. The Constitution defines us as a people. Without the Constitution we would be a different country. Therefore, to lose the Constitution is to lose the country.

  Does the Constitution still exist? Let us examine the document and come to a conclusion.

  The Constitution consists of a description of a republic with three independent branches, legislative, executive, and judicial, each with its own powers, and the Bill of Rights incorporated as constitutional amendments. The Bill of Rights describes the civil liberties of citizens that cannot be violated by the government.

  Article I of the Constitution describes legislative powers. Article II describes executive powers, and Article III describes the power of the judiciary. For example, Article I, Section 1 gives all legislative powers to Congress. Article I, Section 8 gives Congress the power to declare war.

  The Bill of Rights protects citizens from the government by making law a shield of the people rather than a weapon in the hands of the government.

  The First Amendment protects the freedom of speech, the press, and assembly or public protest.

  The Second Amendment gives the people the right “to keep and bear arms.”

  The Third Amendment has to do with quartering of soldiers on civilians, a large complaint against King George III, but not a practice of present-day armies.?

  The Fourth Amendment grants “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures” and prevents the issue of warrants except “upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” The Fourth Amendment prevents police and prosecutors from going on “fishing expeditions” in an effort to find some offense with which to charge a targeted individual.

  The Fifth Amendment prohibits double jeopardy, self-incrimination, the taking of life, liberty, or property without due process and the prohibition of seizing property without just compensation.

  The Sixth Amendment guarantees speedy and public trial, requires that a defendent be informed of the charge against him and to be confronted with the witnesses, to present witnesses in his favor, and to have the assistance of an attorney.

  The Seventh Amendment gives the right of trial by jury to civil suits.

  The Eighth Amendment prevents excessive bail and cruel and unusual punishments.

  The Ninth Amendment says that the enumeration of certain rights in the Constitution does not deny or disparage others retained by the people. In other words, people have rights in addition to the those listed in the proscriptions against the government’s use of abusive power.

  The Tenth Amendment reserves the rights not delegated to the federal government to the states.

  The Tenth Amendment is a dead letter amendment. The Third Amendment protects against an abandoned abusive practice of government. The Seventh Amendment is still relevant as it allows damages in civil suits to be determined by a jury, once a protection against unfairness and today not always the case.

  The other seven amendments comprise the major protections of civil liberty. I will examine them in turn, but first let’s look at Section 1 and Section 8 of Article I. These two articles describe the major powers of Congress, and both articles have been breached. The Constitution’s grant of “all legislative powers” to Congress has been overturned by executive orders and signing statements. The president can use executive orders to legislate, and he can use signing statements to render sections of laws passed by Congress and signed by the president into non-enforced status. Legislative authority has also been lost by delegating to executive branch officials the power to write the regulations that implement the laws that are passed. The right that Section 8 gives to Congress to declare war has been usurped by the executive branch. Thus, major powers given to Congress have been lost to the executive branch.

  The First Amendment has been compromised by executive branch claims of “national security” and by extensive classification. Whistleblowers are relentlessly prosecuted despite federal laws protecting them. The right of assembly and public protest are overturned by arrests, tear gas, clubs, rubber bullets, water cannons, and jail terms. Free speech is also limited by political correctness and taboo topics. Dissent shows signs of gradually becoming criminalized.

  The Fourth Amendment is a dead letter amendment. In its place we have warrantless searches, SWAT team home invasions, strip and cavity searches, warrantless seizures of computers and cell phones, and the loss of all privacy to warrantless universal spying.

  The Fifth Amendment is a dead letter amendment. The criminal justice system relies on self-incrimination as plea bargains are self-incrimination produced by psychological torture, and plea bargains are the basis of conviction in 97% of all felony cases. Moreover, physical torture is a feature of the “war on terror” despite its illegality under both US statute and international law and is also experienced by inmates in the US prison system.

  The Fifth Amendment’s protection against deprivation of life, liberty, and property without due process of law has been lost to indefinite detention, executive assassination, and property takings without compensation. The Racketer Influenced Corrupt Organizations Act (RICO) passed in 1970. The act permits asset freezes, which are takings. The Comprehensive Forfeiture Act passed in 1984 and permits police to confiscate property on “probable cause,” which often means merely the presence of cash.

  The Sixth Amendment is a dead letter amendment. Prosecutors routinely withhold exculpatory evidence, and judges at prosecutors’ requests have limited attorneys’ ability to defend clients.The “war on terror” has introduced secret evidence and secret witnesses, making it impossible for a defendant and his attorney to defend against the evidence.

  The Eighth Amendment’s prohibition of excessive bail and torture are routinely violated. It is another dead letter amendment.

  It is paradoxical that every civil liberty in the Bill of Rights has been lost to a police state except for the Second Amendment, the gun rights of citizens. An armed citizenry is inconsistent with a police state, which the US now is.

  Other aspects of our legal protections have been overturned, such as the long standing rule that crime requires intent. William Blackstone wrote: “An unwarrantable act without a vicious will is no crime at all.” But today we have crimes without intent. You can commit a crime and not even know it. See for example, Harvey Silverglate, Three Felonies A Day: How the Feds Target the Innocent.

  Attorney-client privilege has been lost. The indictment, prosecution, and imprisonment of defense attorney Lynne Stewart is a good example. The DOJ prevailed on her to defend a blind Muslim regarded by the DOJ as a “terrorist.” She was informed that “special administrative measures” had been applied to her client. She received a letter from the federal prosecutor informing her that she and her client would not be permitted attorney-client privilege, and that she was required to permit the government to listen to her conversations with her client. She was told that she could not carry any communications from her client to the outside world. She regarded all this as illegal nonsense and proceeded to defend her client in accordance with attorney-client privilege. Lynne Stewart was convicted of violating a letter written by a prosecutor as if the prosecutor’s letter were a law passed by Congress and present in the US code. Based on a prosecutor’s letter, Lynne Stewart was sentenced to prison. No law exists that upholds her imprisonment.

  Our civil liberties are often said to be “natural rights” to which we are entitled. However, in historical fact civil liberty is a human achievement that required centuries of struggle. The long struggle for accountable law that culminated in the Glorious Revolution in England in the late 17th century can be traced back to Alfred the Great’s codification of English common law in the 9th century and to the Magna Carta in the early 13th century. Instead of issuing kingly edicts, Alfred based law on the traditional customs and behavior of the people. The Glorious Revolution established the supremacy of the people over the law and held the king and government accountable to law. The United States and other former British colonies inherited this accomplishment, an accomplishment that makes law a shield of the people and not a weapon in the hands of the state.

  Today law as a shield of the people has been lost. The loss was gradual over time and culminated in the George W. Bush and Obama regime assaults on habeas corpus and due process. Lawrence Stratton and I explain how the law was lost in our book, The Tyranny of Good Intentions. Beginning with Jeremy Bentham in the late 18th century, liberals saw the protective shield of law as a constraint on the government’s ability to do good. Bentham redefined liberty as the freedom of government from restraint, not the freedom of people from government. Bentham’s influence grew over time until in our own day, to use the words of Sir Thomas More in A man for All Seasons, the law was cut down so as to better chase after devils.

  • We cut down the law so that we could better chase after the Mafia.
  • We cut down the law so that we could better chase after drug users.
  • We cut down the law so that we could better chase after child abusers.
  • We cut down the law so that we could better chase after “terrorists.”
  • We cut down the law so that we could better chase after whistleblowers.
  • We cut down the law so that we could better cover up the government’s crimes.

  Today the law is cut down. Any one of us can be arrested on bogus charges and be helpless to do anything about it.

  There is very little concern in legal circles about this. The American Civil Liberties Union (ACLU) does attempt to defend civil liberty. However, just as often the ACLU is not defending the civil liberties in the Bill of Rights that protect us from the abuse of government power, but newly invented “civil rights” that are not in the Constitution, such as “abortion rights,” the right to homosexual marriage, and rights to preferential treatment for preferred minorities.

  An attack on abortion rights, for example, produces a far greater outcry and resistance than the successful attack on habeas corpus and due process. President Obama was able to declare his power to execute citizens by executive branch decision alone without due process and conviction in court, and it produced barely audible protest.

  Historically, a government that can, without due process, throw a citizen into a dungeon or summarily execute him is considered to be a tyranny, not a democracy. By any historical definition, the United States today is a tyranny.

  

  

  

  

  

• Something Just Snapped In The VIX ETF Complex

  As TVIX, the double-levered long VIX ETF unleashed in Nov 2010, decays to record low prices…

  

   

  An unusual (and almost unprecedented) event has occurred. Just as we saw in Gold ETFs, and Oil ETFs, TVIX Shares Outstanding have exploded by a stunning 225% in the last 4 weeks… [the last 3 times TVIX has undeergone such an epic surge in demand marked a major turning point and led a violent surge in VIX]

  

   

  with the largest inflows (bearish bets) on record in the last week…

  

   

  The entire VIX complex is perturbed as the huge bearish TVIX flows contrast with the complacency of the steepest term structure since Nov 2014 (post Bullard-Bounce)…

  

   

  And net speculative positioning at its shortest VIX (most bullish) in 2016…

  

   

  We saw this kind of manic ETF creation recently in Blackrock's Gold ETF, which forced them to halt creation – for lack of supply…

  

   

   

  In the case of the current scramble for TVIX units, forced buying of VIX futures (which explains the steepness of the futures curve) suggests VIX buying pressure is building…

  

  As Barron's adds, volatility is back, but too few investors even know it.

  Most are too focused on the CBOE Volatility Index's extraordinary collapse in recent weeks to 15 from about 28. When the VIX is low, as it is now, it tends to be interpreted as a green light to buy stocks. . .or a sign of investor complacency.

   

  Not enough people realize that the VIX is just a 30-day snapshot of expected returns for the Standard & Poor's 500 index. A more meaningful, if esoteric, indicator is the VIX futures curve, which offers a long-term view of the stock market's perceived risk.

   

  The curve has lately been flat, indicating little risk to owning stocks between now and more distant months. But the futures curve is now "upward sloping," as if sophisticated investors have suddenly regained visibility into what was an opaque stock market.

   

  Nothing bores people more than nerdy derivatives measures, including VIX futures curves. But you should add this volatility gauge to your arsenal of indicators if you trade options or want to be a smarter stock investor.

  Once again it appears the ETF tail is wagging the underlying market 'dog' as hedging with the 'cheapest' instrument – no matter how bad the basis – is the new normal. Remember, options markets are already medium term complacent and longer-term terrified.

  

   

  As detailed previously, the VXV has been around only since 2007. Over that time, the VIX/VXV ratio has dropped to 78% on 4 prior distinct occasions:

  • March 12-20, 2012 – The S&P 500 chopped sideways for a few weeks before falling some 9% over the next 2 months
  • August 13-22, 2012 – The S&P 500 chopped sideways for a few weeks before rallying by as much as some 4% over the next few weeks. 2 months later, the index had lost that entire gain, and another 4%.
  • December 5, 2014 – The S&P 500 immediately dropped 5% over the next 2 weeks before chopping sideways for several months.
  • March 20, 2015 – The S&P 500 dropped 2.5% over the next week before moving sideways for several months.

  Now there is no guarantee that stocks are about to hit an air pocket. However, given the (albeit limited) precedents, the track record in the short to intermediate-term following such readings has not been a positive one. In fact, following the prior 15 days with VIX/VXV readings below 79%, the S&P 500 was lower 3 months later 14 of the days by a median of -3.7%. The only positive return was the 1 point gain following the March 2015 occurrence.

  All in all, this may not be a Defcon 5 level red flag for the market. However, for a rally that has seen scant evidence of exuberance, this is at least one of the first indications of complacency.

  

  

  

  

  

• Condaleeza Rice To Struggling Ukrainians: "Be Thankful You're Not In Liberia"

  Via OrientalReview.org,

  Earlier this month while delivering a public lecture in Kiev, “The Challenges of an Ever-Changing World,” former US Secretary of State Condoleezza Rice made an inspiring remark for anyone who might have been thinking that life in Ukraine was bad:

  “You should go to Liberia where the standard of living is much lower, and then you will be thankful.”

  Ironically, Forbes Ukraine reacted to this with a slightly perplexed analysis that nonetheless led to a conclusion of flawless logic: “Although Liberia has one of the weakest economies in the world, it lags only slightly behind Ukraine with respect to a number of macroeconomic parameters,” and the magazine supported its argument with some anemic statistics (failing however to mention that Liberia’s 85% unemployment rate is far worse than Ukraine’s, even today).

  The rapid deterioration of the Ukrainian economy over the past two post-Maidan years is no longer a taboo topic in the international press (the prominent US academic and former diplomat Nicolai Petro’s recent article in the Guardian made that crystal clear). But to make a long story short, the full picture looks even more depressing:

  People are scrambling to get out of Ukraine. A Kiev-based headhunting agency claims that according to their polls, 70% of the population does not see any future in Ukraine. Ten out of eleven (!!!) Ukrainians are ready to leave the country if offered a job abroad. Forty percent of Kiev’s white-collar workers do not see a secure future for themselves nowadays. Another opinion poll shows that compared to the pre-Maidan period, public pessimism is on the rise. Only 19% of the respondents expected 2016 to bring positive changes for Ukraine (down from 42% in 2013).

  These sentiments are quite understandable if we look at average incomes in Ukraine. According to official data from the finance ministry (as of March 2, 2016), the average salary in Ukraine is only 4,362 hryvnas per month (approximately 145 Euros). The minimum monthly wage is currently set at 1,378 hryvnas (46 Euros). Therefore, the vast majority of working people in Ukraine have to get by on a salary of 2,000-3,000 hryvnas (70-100 Euros) each month. And the number of employed is declining every day. In September 2015, Ukrainian Minister of Social Politics Valery Yaroshenko acknowledged that the unemployment rate had reached its highest point in the history of Ukraine as an independent country, with 23% of young Ukrainians unable to find work (in the parts of the Donetsk region that are controlled by Kiev the jobless rate does approach that of Liberia – 50%!).

   

  

  Flag of Northern Liberia

  Low wages and high unemployment are not the only challenges an ordinary Ukrainian has to cope with. To meet the requirements of the IMF, the Ukrainian government must increase the rates it charges for housing and public utility services at least twice per year. As a result, in January 2016 the average bill per household jumped to 1,250 hryvnas – an 80% increase from 695 hryvnas a year ago. Thus, theoretically (and often factually) a family supported by only one working member and living in a modest apartment might need to survive on the beggarly 128 hryvnas – barely more than 4 Euros (!) – that is left each month after housing and utility costs have been paid! Indeed, taking into account some difference in its latitude (and climate) today’s Ukraine might rightly be called a Northern Liberia!

  Meanwhile the index of commodities prices in Ukraine rose 40.3% in 2015. And since this crisis coincided with a 15% cut in the pensions of retirees who work a side job (this “cost-saving measure” was announced by PM Yatsenyuk in January 2015), clearly the majority of elderly Ukrainians are now facing a disaster. So far they have managed to survive thanks to their personal savings, but that resource is drying up: according to the National Bank, in 2015 Ukrainians sold 2,233 billion USD and bought only 0.684 billion USD. Local experts estimate that Ukrainian citizens will exhaust their personal savings by the end of 2016.

  So it’s no wonder that Ukrainians are leaving their country en masse for Europe, mostly headed to Poland (around 400,000 crossed that border last year), in a desperate attempt to find any paid job. There they are cheated, abused, and cynically exploited, but they prefer to stomach such treatment rather than trying to eke out a miserable existence at home:

  Ukraine’s rapid deindustrialization is picking up speed. The abrupt severing of the traditional ties between Russian and Ukrainian businesses, due to suicidal Kiev-imposed regulations, resulted in a 10.7% decline in GDP in 2014 and another 13.4% drop in 2015. Foreign trade, both imports and exports, decreased by one-third. The naive expectations of the incumbent government in Kiev – that Ukrainian products could obtain access to European markets – have been torn to shreds (Nicolai Petro offers one anecdotal fact: Kiev’s biggest European export, under the agricultural quotas established by the EU-Ukraine Association Agreement, is honey).

  This situation of social and economic degeneration, along with the ready availability of weapons smuggled out of what is known as the “ATO Zone,” has led to an unprecedented tsunami of criminal activity in Ukraine. In the two years since Maidan, the number of recorded criminal offenses has doubled there. In reality, marauding crowds, armed robberies, and street killings are becoming an everyday event and many incidents go unreported. According to the latest findings from the Hague Institute of Innovating Justice, 44% of Ukrainians do not trust their national judicial system or law-enforcement agencies. A number of nationalist gangs (volunteer battalions) seem to operate out of reach of the law and ignore any attempts by the public authorities to rein them in. The most recent scandals (amber-smuggling in the Rovno region, the blockade of Crimea, and the barriers set up to bar Russian transit trucks) are just the tip of the iceberg of the criminal activities of radical groups in Ukraine that have received media attention. Most criminal incidents do not make the headlines. For example there are around 100 cases currently languishing within the legal system against members of the Aidar battalion who have committed criminal offenses, including charges of serious war crimes in the Donbass, all of which are gathering dust in Ukrainian courts.

  Dutch football fans who used to visit Euro-2012 in Ukraine and now thoughtlessly sharing #TakIsJa hashtag, should understand that the country they saw 4 years ago does not exist anymore.

  There is effectively no state in Ukraine. The authorities are busy ingratiating themselves with every available power figure — the US Embassy, local oligarchs, Right Sector, and various Mafia groups — seeing in those the only keys to the government’s own legitimacy and ability to hold on to power. But one point that they apparently do not understand is that any government lacking public support on the ground and dependent on exterior agents is more vulnerable than they could ever imagine. Did the Liberian dictator Samuel Doe, who took power as a result of a US-backed coup d’etat in 1980, ever dream that in ten years he would be forced to eat his own ear and then be publicly executed by a rival tribe? The leaders of “Northern Liberia” may have their own political tracks, but not the final destiny…

  *“The love of liberty brought us here” is the national motto of Liberia.

  

  

  

  

  

• Marc Faber Warns "Gold Will Be The Most Desirable Currency" As 'Terror' Spreads

  “Overall, I’d be rather cautious about investments in equities…”  the editor and publisher of the Gloom, Boom & Doom report told CNBC’s “Fast Money” traders this week.

  However, “over the last 12 to 24 months, many sectors have had huge declines,…And I see here, there are some opportunities.”

  “…US markets are over-valued.”

  Faber also added that “I still think the mining sector has embarked on a new bull market.”

  “[The U.S. dollar] is not a desirable currency,” Faber explains, “I think the most desirable currency will be gold, silver, platinum and palladium.”

  “I don’t understand why the world is so enthusiastic about the US Dollar…in the long-run the US dollar will be a weak currency.”
  

  Full interview below:

  

  

  

  

  

• Mysterious Tombstone For Donald Trump Appears In Central Park

  As part of Trump’s blistering, unconventional and very unexpected rise to the top of the Republican presidential nominee ranks, he has seen his share of threats – some serious, most in jest – to both his person, and in some cases his life. Apocryphally, some commentators have predicted that a Trump presidency would be such a shock to the status quo that if successful in winning the presidency, he would never make to inauguration day alive.

  Today, such concerns were once again inflamed when a mysterious tombstone on behalf of Donald J. Trump (the date of death is blank: 1946 – …) was erected in Central Park.

  

   

  As Gothamist first reported, “someone erected a very classy Trump tombstone in the middle of Central Park this weekend, and were kind enough to leave his expiration date open to the fates.”

  

  Gothamist adds that “tipster Annie Reiss came upon the beautiful tribute to the presumptive GOP presidential candidate this morning near Sheep’s Meadow. “There were people taking pictures which is why I stopped,” she told us. “It was definitely provocative, strange for Easter morning.”

  The tombstone has the inscription, “Made America Hate Again.”

  As Mashable adds, plenty of people shared photos of the tombstone on social media, but no one seems to know what it means, other than “being a prank of questionable taste.”

  By evening, the tombstone had been removed by park officials. 

  According to Trump’s latest Tweets, he is either unaware, or doesn’t seem too worried about this implicit threat or poorly made joke; instead he is focusing his energy on the previously noted lawsuit which the real estate billionaire threatens to file against Ted Cruz for “stealing” delegates…

  Just to show you how unfair Republican primary politics can be, I won the State of Louisiana and get less delegates than Cruz-Lawsuit coming

  — Donald J. Trump (@realDonaldTrump) March 27, 2016

   

  … as well as the ongoing “wife-gate” involving Heidi Cruz and Melania Trump:

  See Lyin’ Ted, even the @DailyBeast (no fan of mine) says this story came from Rubio, not Trump! pic.twitter.com/Okc8XajVnz

  — Donald J. Trump (@realDonaldTrump) March 27, 2016

  Once again, we can only imagine the shocked media reaction if a tombstone mysteriously emerged in one of the world’s busiest venues for any of the other presidential candidates.

  

  

  

  

  

• The End of America's Two-Party System May Be Upon Us

  Submitted by Chris Perrin via TheAntiMedia.org,

  There’s a reason most parliamentary and presidential democracies have more than two political parties, and both Trump and Sanders are examples of why. Both nominee-hopefuls have increasingly come to represent polar opposites of the singular problem that the American two-party political system is suffering from: Stagnation.

  With only two parties, what this presidential race is showing is that there has been a tendency for those parties to become static and unbending in their policy, stance, and platform. Historically, one or both of the parties must then break, either because the progressive edges within the party force it apart, or voters start to see the party as inflexible and obsolete.

  It has happened before in the U.S., and it looks like it is happening again. The recent increase of voters registering as independent, as well as the parallel growth in independent candidates, is a good example of the level of dissatisfaction people and politicians now have with the GOP and Democratic Party. It is also an indication that American democracy is changing. Again.

  The inclusion of Sanders in the Democratic Party, Trump in the Republican, and the cataclysmic portrayal of them both in the media, has only confused the issue. This is particularly noticeable as Trump is often blamed for the imminent demise of the GOP as a relevant institution. With both candidates running for the nomination of their respective parties, the GOP and the Democratic Party appear internally fractured, split on major issues and confused as to their directions. This can only be the case in a two-party system.

  As a country with a long history of a two-party system, these internal party divisions can feel like a breakdown of sorts. In a multi-party system, however, the issue would not be so destabilizing. Although a multi-party democracy does have the down side of sometimes appearing to have too many parties and politicians to choose from, space exists within the system to have the centre-left (Democratic Party) and centre-right (GOP) represented, while far-left and -right candidates don’t tear the centrist parties apart from within.

  Whatever the new face of democracy in America, and whatever the future implications of the 2016 election, what is clear is that Americans are no longer content to be represented by parties too close together at the center of the political spectrum. At the very least, the fact that Trump and Sanders have gained so much traction throughout their respective nomination bids is a clear indication that the U.S. will not become a single-party state any time soon. That is at least something to be happy about.

  

  

  

  

  

• The World Has 6 Options To Avoid Japan's Fate, And According To HSBC, They Are All Very Depressing

  Last week, when looking back at consensus economist forecasts for Japanese growth as of 1995, we compared what the pundits thought would happen, and what actually did happen: the result was what may have been the worst forecast of all time, leading to a 25% error rate in just five years later. It also unleashed the start of Japan’s three lost decades.

  

  But while laughably wrong economist forecasts are nothing new, a more troubling observation emerges when comparing the evolution of Japan’s 10Y yields start in the 1990s…

  

   

  …with those in the rest of the western world, which are slowly converging with Japan and the Y-axis.

  

  Looking at Japan’s miserable fate ever since the bursting of the 1980 asset bubble, HSBC’s Stephen Major recently said that “finding an explanation for Japan’s ongoing economic weakness is a bit of a ‘chicken and egg’ problem. Was the high level of debt associated with the bubble the key constraint on subsequent economic expansion? Or was the unexpectedly-weak economic expansion a key reason why debt was so indigestible? In truth, the causality ran in both directions, suggesting that Japan – at least in nominal terms – found itself caught in a ‘doom loop’, a world in which policy stimulus did little to help Japan return to the dynamism seen in earlier decades.“

  King then extrapolates the case study of Japan’s “deflationary stagnation” to the “slow puncture” he observes in the rest of the developed world, and provides several ways of previewing of what may lie in store for the world if using Japan as the canary in the coalmine.

  As he says, the world economy’s slow puncture reflects five factors:

  • Ineffective monetary policy, most likely at the zero rate bound.
  • An absence of economic strength in other parts of the world, reducing the efficacy of exchange rate devaluation.
  • High levels of debt in both the private and public sectors implying (i) ongoing private sector deleveraging; (ii) limited room for fiscal action; and (iii) low fiscal multipliers as a result of Ricardian behaviour.
  • Low rates of nominal expansion and flat yield curves, both of which place downward pressure on bank profitability, thereby limiting the ability and willingness of banks to extend credit, particularly to more risky borrowers.
  • Persistent downward pressure on bank share prices, thanks in part to overly-optimistic revenue projections that, in turn, leave costs too high. Put another way, weak nominal growth is likely to leave the industry excessively large.

  In Japan’s case, escape from stagnation has proved difficult. Admittedly, the Japanese authorities were slow to recognise the nature of the problem in the early-1990s, cutting interest rates only slowly, offering little in the way of fiscal stimulus and dragging their feet on bank restructuring.

  In the late-1990s, however, the Japanese banking system was restructured, removing some of its initial ‘doom loop’ problems. Two decades later, the Bank of Japan, under Haruhiko Kuroda, has done exactly what many thought would eventually deliver results: massive balance sheet expansion, a clearly-articulated ambition to raise the inflation rate and a substantial currency devaluation. Yet, despite all this, the path for nominal GDP has barely changed. Perhaps those policies would have worked in a world where Japan was the only country facing deflationary stagnation. As deflationary stagnation has spread, however, the efficacy of these policies appears to have declined.

  This leads us to King’s rhetorical question du jout: “Given this disappointment, what options are available for the rest of the industrialised world?”

  This is his extended answer:
  

  Ultimately, policy has to deal with one of two variables. Either debt has to come down or income has to rise. Otherwise deleveraging is likely to persist and the air will continue to escape from the global economy. Low interest rates should, in theory, help on both counts. By reducing debt service costs, they should make it easier to reduce the outstanding stock of debt and, by making saving less attractive, they should encourage people to spend more. Yet if nominal economic activity still remains weak at the zero rate bound – as, indeed, it  has in recent years – other options may need to be pursued.

  Both quantitative easing and negative nominal interest rates can provide more support. Both, however, have their limitations.

  Quantitative easing may have lifted asset prices and stopped a 1930s-style meltdown but households and companies have mostly been unwilling to spend freely. Meanwhile, the main beneficiaries financially are those already asset rich who, typically, have a low marginal propensity to consume.

  If, for political, social and reputational reasons, banks find it difficult to impose negative interest rates on their depositors, negative interest rates in effect become a tax on banks.

  As a result, the banks’ willingness to take on more deposits will be lowered, limiting their role as financial intermediaries. Other things equal, if banks turn depositors away, the money will end up under the mattress (in which case, the velocity of circulation of money will decline, limiting the impact of negative rates on nominal GDP)

  So what else can be done?

  The fiscal option

  Central to Larry Summers’ argument in favour of ‘secular stagnation’ is the idea that weak demand will, in time, damage supply potential. It’s an old argument, based on the idea that under-utilised resources eventually decay thanks to ‘hysteresis’. Far better, therefore, to  deliver a boost to demand that will prevent resources from standing idly by. Higher demand will prevent supply from atrophying. Put simply, demand safeguards its own supply.

  It’s an attractive idea, partly because it offers a narrative of hope. Yet it has its weaknesses. Fiscal stimulus in Japan led to accusations of ‘bridges to nowhere’: in other words, infrastructure projects that had poor private and social returns and, on occasion, led to accusations of ‘pork barrel’ politics. Before the onset of the global financial crisis, Spain invested very heavily in infrastructure, yet the returns have been paltry at best given the shortfall in nominal GDP in recent years. Government debt levels across the developed world are already very high, suggesting that any attempt to increase government borrowing could be associated with Ricardian equivalence problems.

  Its biggest weakness, however, is that the policy prescription was tried before yet ultimately only brought instability in its wake.

  In 2000, the tech bubble burst. For a while, it looked as though the US was heading towards another Great Depression. Certainly, the fall in stock prices was on a similar scale to 1929. The recession that followed, however, was remarkably mild and recovery was soon underway, helped along by aggressive interest rate cuts and huge tax cuts – precisely the combination that supposedly brings secular stagnation to an end. For a while, the policies seemed to work. In hindsight, however, they merely masked early aspects of deflationary stagnation: the housing boom may have led to an acceleration in growth but the pace of economic expansion was weaker than in the 1980s and 1990s. And it all came to a sorry end in 2008. Asset price gains that cannot be validated through a sustained period of economic growth tend, ultimately, to be asset price bubbles.

  Put another way, if secular stagnation reflects weak growth, the problem began in the US in the early years of the 21st Century, before the global financial crisis. Yet proponents of secular stagnation argue that it began only with the onset of the financial crisis. The story looks good, but the dates don’t fit.

  The helicopter option

  The helicopter option is simple, easily implemented and, for some, offers the closest thing to a free lunch. It can easily be explained – if that’s the right word – using the identity found on the first page of a standard monetary textbook, namely MV?PT, where M is the stock of money, V is its velocity of circulation, P is the price level and T is the volume of transactions. In modern-day parlance, PT might best be labelled nominal GDP.

  Money doesn’t literally drop from helicopters but the effects are roughly the same. The government sells newly-issued debt to the central bank which, in return, provides newly-created money to the government. This newly-created money is either given away in the form of tax cuts or spent on, for example, infrastructure projects. The newly-created money boosts M while the tax cuts or spending increases more or less guarantee an increase in V. Put the two together and nominal GDP simply has to accelerate. Assuming – consistent with secular stagnation – that there is a sizeable output gap, there’s a good chance that the increase in nominal GDP will be reflected more through an increase in output than an increase in inflation.

  If this sounds too good to be true, that’s because it is. Output gaps are notoriously difficult to estimate in real time. The permanent output losses associated with the financial crisis are now considered to be far bigger than had been assumed in its immediate aftermath, suggesting that helicopter money could come with sizeable inflationary risks. Those would be amplified via the foreign exchanges, which  would doubtless deliver a ‘crash-landing’ for any currency subject to the helicopter treatment.

  In truth, helicopter money is likely to work only if it leads to higher inflation. Its success crucially depends on policymakers committing to being ‘irresponsible’. In the mid-1930s, countries managed to raise both inflation and inflationary expectations even in the depths of depression thanks to their departures from the Gold Standard, freeing them to loosen both monetary and fiscal policy in unprecedented fashion. Higher inflation, in turn, reduced the real value of nominal debts. Deleveraging faded, credit risks shrank, banks’ bad debts became less problematic, lending increased and, before long, recovery was on the way.

  Repeating the process today would not be easy. Abandoning – or raising – inflation targets would be no easy task: ageing populations typically are repulsed by inflation, largely because of its effects on fixed nominal incomes. Fear of higher inflation could also lead to panic buying, triggering an uncontrollable rise in V and, hence, a severe inflationary overshoot: it’s no coincidence that helicopter money and hyperinflation are mentioned in the same breath. And, ultimately, higher inflation would only work by penalising savers to benefit borrowers.

  Put another way, the pursuit of higher inflation through helicopter money is not much more than a re-distributional fiscal policy dressed up in monetary clothes. It is effectively a tax on wealth – mostly on forms of wealth that come with little in the way of inflation protection. It is therefore more likely to hit small savers and pensioners than property tycoons and those with large equity portfolios (both real estate and equities tend to outperform liquid assets during periods of relatively high inflation). In other words, helicopter money is a stealthy form of organised default, taking money away from creditors in the hope that debtors – faced with now-lower real debts – will spend more freely. Given the maturity of its slow puncture problems, Japan might be more willing than others to fly its monetary helicopters but, given the politics of its demographic situation, it would surely be a reluctant pilot.

  The default option

  In truth, this is not so different from the helicopter option. It is more relevant, however, for those countries which lack helicopter pilots. Specifically, default is an option for those national governments in the Eurozone that lack a printing press and are unable to prevent government debt from rising ever higher.

  To be fair, quantitative easing has, to a degree, reduced pressure on individual sovereigns. The risk hasn’t completely gone, however. At the time of writing, Greek and Portuguese 10 year bond yields were 9.6% and 3.0% respectively, compared with German yields at a remarkably low 0.17%. And the default option may become more pressing in coming years if, as seems likely, government debt levels continue to rise.

  Like inflation, default passes the problem from debtor to creditor. In doing so, it raises a whole series of new financial threats, most obviously the danger of a renewed erosion of trust within the financial system. As a result, it would further limit the power of monetary policy. Savers would seek to hide their money under the proverbial mattress and, as a result, velocity might fall further.

  Another option might be simply to cancel government debt held on central banks’ balance sheets rather than selling it back to the market. That sounds like a free lunch but it would presumably lead to expectations of higher inflation associated with a reduction in fiscal discipline over the long term: in that sense, the policy would be remarkably similar to helicopter money, particularly in terms of its exchange rate implications.

  The ‘liquidate’ option

  One of the undoubted triumphs of the post-financial crisis world has been the extent to which unemployment has declined in the US, the UK and Germany. Admittedly, not everyone has shared their good fortune: the increase in Greek unemployment in recent years, for example, is nothing short of scandalous: the lessons of the 1930s were clearly not learnt. Nevertheless, for some of the largest economies in the industrialised world, the employment consequences stemming from the financial crisis have been considerably better than was originally feared.

  However, given the slow pace of economic expansion in recent years, good news on unemployment implies bad news for productivity. Perhaps deflationary stagnation partly reflects an absence of supply.

  The standard dismissive response to this argument is to note that weaker supply, other things equal, implies a smaller output gap and, hence, higher inflation. And yet, in recent years, inflation has drifted lower. So the explanation for persistently weak growth cannot lie with supply.

  At this point, it’s worth coming back to Japan. If supply is weaker than expected, claims on future economic activity need to be reduced. One way to do this is indeed via inflation. The other is via declines in nominal asset values. The 1970s economic slowdown – in response to multiple oil shocks – was associated with inflation. Japan’s lost decades were associated with falling asset prices, deflation and weak nominal GDP growth. Weaker supply potential can thus be associated with both inflation and deflation: it all depends on how claims on future economic activity are reduced.

  In an era of rapid technological gains, why has productivity growth been so weak? Of the competing explanations – from mis-measurement through to an innovation shortfall – one is directly related to the amount of stimulus on offer since the financial crisis. Quantitative easing worked domestically through its effect on the value of real estate and financial assets, most obviously corporate bonds and equities. Higher values for financial assets meant that companies which, in other circumstances, would have been under pressure to reduce their costs could carry on with business as usual. Put another way, they could happily employ people who might otherwise have lost their jobs. Capital markets were thus no longer able easily to perform their central function, namely the efficient allocation of capital. Too much capital stayed in bloated and inefficient companies leaving too little to support the growth of smaller, more dynamic, enterprises. It was, perhaps, a western version of the Japanese ‘zombie company’ problem.

  At the beginning of the Great Depression, Andrew Mellon, the US Treasury Secretary, famously urged Herbert Hoover to ‘liquidate labour, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.’ To say the least, it probably wasn’t the best strategy. Nevertheless, Mellon still had a point. Zombie companies preserve inefficiencies and dampen enterprise. Their preservation limits the ‘creative destruction’ that Joseph Schumpeter famously described in his ‘Capitalism, Socialism and Democracy’.

  Acting on zombie companies may be one way of ending deflationary stagnation but, if badly managed, the situation could become even worse. Imagine, for example, that all companies within a particular industry suddenly recognised that the pace of nominal economic expansion would not be sufficient to support their current cost base. Imagine, as a result, that there was a prolonged wave of restructuring, associated with mass layoffs. The result would be an even lower level of nominal output, triggering a further wave of restructuring – unless, that is, the restructuring led to significant productivity spillovers.

  It might, therefore, be better to act on both supply and demand, forcing a greater degree of restructuring while, at the same time, offering a fiscal cushion, perhaps through a range of public works programmes. Put another way, neither supply-side reform nor demand-side stimulus will work unless they operate in conjunction with each other.

  The trade option

  One of the striking features of the post-financial crisis world has been the slowdown and then shrinkage in world trade. This is highly unusual. Although the pace of economic recovery has been soft, it is typically the case that world trade expands more quickly than world GDP in the recovery phase.

  Possible reasons for the weakness in world trade include (i) the attenuation of global supply chains either to reduce their fragility (following, most obviously, the Fukushima nuclear disaster in Japan) or in response to new technologies (3D printing may have led to renewed onshoring) (ii) an increase in ‘hidden’ protectionism associated with the aggressive imposition of ‘standards’ (iii) a reduction in trade finance in the post-financial crisis era; and (iv) an increase in uncertainty associated with the impact of currency wars.

  Openness matters. We have surely learnt over the last few decades that economies that trade with one another are more likely to enjoy increases in living standards. We have also found, disappointingly, that global trade deals have become more or less impossible: the Doha trade round is dead in the water and there is nothing waiting in the wings to replace it.

  Still, there is hope. The Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership and the Regional Comprehensive Economic Partnership could lead to more integrated regional economies and, perhaps, greater cooperation between those regions. Over the long term, openness matters more than any variety of monetary or fiscal stimulus. The world needs to be protected from  protectionism. Sadly, it’s not obvious that it will be.

  The ‘wall’ option

  Should all else fail, the political narrative will shift. Indeed, it already is. If economies cannot easily be kick-started, nationalism is in danger of spreading. Whether it’s building a wall to prevent Mexicans from entering the US or passively watching as the Schengen  arrangements in Europe slowly crumble, trouble is brewing. Global markets are under threat precisely because policymakers have been unable to deliver the outcomes they had previously promised. Protectionism in all its many forms is never far away: under current conditions, it threatens to make an unwelcome return.

  * * *

  Which brings us to Stephen King’s rather pessimistic conclusions:

  The economic slow puncture was once associated with Japan alone. Persistent undershoots in nominal economic activity since the onset of the global financial crisis suggest that the problem has spread. As more and more countries succumb, so the ability to escape declines – as, indeed, Japan itself has discovered in the light of disappointments associated with Abenomics.  

  Devaluations simply pass deflationary pressures from one part of the world to another. What was once seen as monetary stimulus is now more typically described as the latest salvo in a protracted currency war. Central banks have seemingly lost the ability to bring inflation back to target.

  The good news is that much of the rest of the world does not share Japan’s cross-shareholding problem, reducing the threat from a ‘doom-loop’ intrinsically linked to the banking system. Still, continuous nominal GDP undershoots still create problems for bank profitability, leading to relative share price under-performance and, eventually, to downward pressure on equity markets as a whole, particularly where QE drugs are no longer freely available.

  The escape options are a mixture of the ineffectual, the limited, the risky, the foolhardy or the excessively slow. As Japan’s recent experiments have demonstrated, upping the monetary dosage alone is not enough to cure the affliction. Indeed, to the extent that monetary stimulus only encourages a further wave of risk-taking within financial markets – often outside of the mainstream banking system – it may only perpetuate unstable deflationary stagnation. A more sustained recovery is possible but to believe that central banks, on their own, can deliver such an outcome is surely a triumph of false hope over bitter reality.

  

  

  

  

  

• Mexicans Burn Donald Trump Effigies To Celebrate Easter

  While The Donald may proclaim that "Hispanics love me," it appears some – that is to say hundreds – are not yuuge fans.

   

  As Reuters reports, Mexicans celebrating an Easter ritual late on Saturday burnt effigies of U.S. Republican presidential hopeful Donald Trump, as hundreds of cheering residents yelled "death" and various insults as they watched the explosion of the grinning papier-mâché mock-up of the real estate tycoon…

  

   

  Media reported that Trump effigies burned across Mexico, from Puebla to Mexico's industrial hub Monterrey.

  The burning is part of a widespread Mexican Holy Week tradition where neighborhoods burn effigies to represent Judas Iscariot, who betrayed Jesus Christ according to the Bible. The effigies are often modeled on unpopular political figures.

   

  

   

  "Since he started his campaign and began talking about immigrants, Mexico, and Mexicans, I said 'I've got to get this guy,'" said Felipe Linares, the artisan who crafted Trump and whose family has been making Judases for more than 50 years.

   

  

   

  Trump, the front-runner to win the Republican nomination for the Nov. 8 election, has drawn fire in Mexico with his campaign vow to build a wall along the southern U.S. border to keep out illegal immigrants and drugs, and to make Mexico pay for it.

   

  

  Mexican President Enrique Pena Nieto has said his country will not pay for the wall and likened Trump's "strident tone" to the ascent of dictators like Adolf Hitler and Benito Mussolini.

  

  

  

  

  

• Trump Slams Cruz For "Stealing Delegates," Says American Politics "Is A Broken System"

  In the escalating war between "Lyin'" Ted Cruz and "Snivelling Coward" Donald Trump, reports that Cruz could end up with more delegates than Trump from Louisiana – despite The Donald's victory – have incensed the New York businessman. As Politico reports, Trump raged that Ted Cruz is trying to "steal" delegates, "because that's the way Ted works."

  GOP presidential front-runner Donald Trump on Sunday said Sen. Ted Cruz is trying to "steal" delegates the New York businessman needs to become the presidential nominee of the Republican Party, which he called "a disgrace." As DailyCaller details,

  Appearing on ABC’s “This Week” on Sunday, guest host Jonathan Karl asked Trump if Cruz was “trying to steal” the nomination from Trump because he might be leaving Louisiana with “as many as 10 more delegates… on the key committees that will write the rules for the Republican convention.”

   

  “Well, it tells you what a crooked system we have and what a rotten political system we have. And frankly, I’m so — I’m millions of votes more than — I have millions of votes more than ‘Lying Ted.’ I have millions — millions of votes more.”

   

  “I have so many millions of votes more,” Trump argued. “I’ve brought people into this party by the millions. You understand that. They voted by the millions more. It’s one of the biggest stories in all of politics.”

   

  “And what do I have,” Trump rhetorically asked. “I have a guy going around trying to steal people’s delegates. This is supposed to be America, a free America. This is supposed to be a system of votes where you go out, you have elections, free elections.”

  Continuing his rant, Trump claimed,

  “I won Louisiana and now I hear he’s trying to steal delegates. You know, welcome to, uh, the Republican Party.”

  “What’s going on in the Republican Party is a disgrace,” Trump claimed. “I have so many more votes and so many more delegates. And, frankly, whoever at the end, whoever has the most votes and the most delegates should be the nominee.”

  Full ABC Interview below (Fwd to 13:00 for "stealing" rant)…

  "He's trying to steal things because that's the way Ted works," Trump said. "The system is a broken system. The Republican tabulation system is a broken system. It's not fair."

  

  

  

  

  

• "It's An Attack On Higher Education": Connecticut Seeks To Tax Yale Endowment As Plug To Surging Deficit

  One week ago, we observed an unexpected spike in the yield spread of Connecticut bonds over AAA-rate munis:

  

   

  There were two specific catalysts for the spike in yield:

  • First was last week’s disappointing bond auction, as a result of which CT bond risk has spiked to 65bps over the benchmark,  a record spread demanded by investors to take CT repayment risk. In the process CT, one of the states historically most preferred by the wealthy hedge fund community, became the 4th riskiest US state after NJ, IL, and PA. As Bloomberg noted at the time, the state’s $550 million general-obligation sale on March 17, which included debt due in 2026, priced to yield 2.52 percent, compared with an expected 2.37 percent based on Bloomberg’s Connecticut index.  
  • The second, and more troublesome, reason was that the state’s office of policy and management said two weeks ago 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. Worse, the state is facing a $266 million shortfall for fiscal 2016, according to the state Office of Fiscal Analysis.

  One week later, we find that the state with the ballooning budget deficit has taken proactive measures to fill said gap, even if the proposed measures are not particularly enticing for one of the highest profile tenants of the state: Yale University.

  According to Bloomberg, a proposed Connecticut bill would seek a share of Yale’s endowment gains as a source of state tax revenue. According to the introduced legislature, schools with funds of $10 billion or more, which is clearly aimed at Yale as that is the only university to fit the criteria. Yale’s record $25.6 billion fund is the second largest in U.S. higher education, behind Harvard University’s $37.6 billion.

  

  It’s not just the state which is seeking to collect a share of these generous returns: the richest college endowments, many at their highest values ever, also have drawn scrutiny from federal lawmakers. Last month, the U.S. Senate Finance and House Ways and Means committees sent a joint inquiry to the richest 56 private schools about endowments, seeking to understand the impact of their tax-exempt status on the price tag of higher education, among other issues.

  But back to CT, where legislators believe that taxing the endowment’s earnings could help close the state’s budget gap. “Supporters of the bill want Yale to spend more money to expand access to higher education and “create innovative, high-paying jobs,” Martin Looney, a Democrat who presides over the Senate and whose district includes Yale’s campus in New Haven, said in written testimony submitted for a committee hearing on March 22.”

  “It is our hope that these rich schools can use their wealth to create job opportunities, rather than simply to get richer,” Looney said, adding that Yale “possesses the resources to have an even greater impact on our economy.”

  To be sure, Yale and the Greater New Haven Chamber of Commerce urged legislators to reject the bill. Yale currently makes a voluntary payment to New Haven of more than $8.2 million annually, according to the school.

  Yale was particularly distressed, and Richard Jacob, the school’s associate vice president for federal and state relations, said in written testimony that the bill and a second one that would tax college property are a “specific attack on higher education.”

  Yale does have a point:

  “The proposed taxes on Yale would diminish the university’s ability to carry out its charitable mission and to enable and support growth in New Haven,” Jacob wrote. “Yale’s generous financial aid policies, which enable Yale College students to avoid any loans, and which waive any parent contribution for low-income students, exist because of the endowment.”

  Unfortunately, in a time when only the 1% are swimming, while the rest are sinking, any profitable entity becomes a target.

  Bloomberg adds that Yale’s endowment allocated $1.1 billion to the operating budget for the year ended June 30, according to the school’s annual report. The fund earned a return of 11.5% in the period, among the top performers of endowments. It returned an annualized 10 percent over the last decade.

  The school’s annual budget is $3.2 billion, including $2 billion in wages and benefits, and almost a third of Yale’s 13,000 employees live in New Haven, according to the school.

  The budget will promptly change if first the State, followed shortly by the Federal government, decide that it is only fair that well-endowed colleges such as Yale can double down as piggybanks for cash-strapped and money-losing entities, of which there are many within the government apparatus.

  

  

  

  

  

• Has The Biggest Of All Bubbles Popped: Central Bank Omnipotence?

  Authored by Mark St.Cyr,

  Since the initial turmoil began with the onset of what is now referred to as “The great financial crisis,” one strategy has proven more profitable than any other. That strategy? BTFD (buy the f___n’ dip.)

  Regardless of what proprietary advice (short of insider trading,) nothing, as well as, nobody has had a track record worthy of comparison. All one has needed to do is, whenever a selloff occurred (as rare as they had been,) when “the dip” presented itself, the only thing to do was to “buy, buy, buy!”

  Forget 2/20 management. Forget stock picking. Forget listening to experts, economists, fund managers, et al. You would beat them all over the last 6+ years if you just BTFD, then bought some more. It had been that easy. However, if it was that easy – why didn’t everyone “just do it?” Easy…

  A great many (and I put myself squarely in this camp) still believed that the fundamental laws governing free markets and stocks were still at play. No one, and I do mean that as in nobody with a modicum of business acumen thought, let alone believed the extent, as well as, the vast amounts of money printed ex nihilo by the Fed. would go on not only for as long, but also, in the amounts to which it has.

  Now, today, some $4,000,000,000,000.00+ (i.e., over 4 TRILLION) later what has all this balance sheet accrual bought? Probably the bubble of all bubbles. The irony? That “bubble” is in the only true asset the Fed. had left. e.g., Confidence in their omnipotence. And it’s beginning to look more like it’s already popped with every passing FOMC meeting. And just as the name “bubble” implies – all it needed was the tiniest of pins to bring it crashing down. And it now appears a 25 basis point rate hike was just tiny enough.

  Since the ending of QE in late 2014 one thing about the “markets” has been crystallizing more and more for everyone to see. Even if they try to turn their heads, it can no longer be avoided: without central bank (and now that includes all CB’s) continuous intervention – there is no market. It all falls apart like the house-of-cards that it is.

  Again, without central bankers in one form or fashion continuously interjecting their willingness, as well as, openness as to do “whatever it takes” the markets will at first vacillate in place until they relent and plummet in unison causing conciliatory panicked responses from one central banker after another.

  However, the responses to these actions or statements as of late have been in a way I believe these monetary bodies not only never considered, but rather, never thought possible.

  Not only have they been creating doubt (as in saying one thing then doing the opposite) in their credibility, rather – their dictates are now having the complete opposite responses of their desired market reaction. i.e., Deliver a weaker currency inspired directive?  That currency actually spikes upward and running ever higher!

  This phenom first presented itself with the grandest of foolish monetary policies brought forth by central banking Keynesian devotees: Negative interest rates. e.g, NIRP.

  First it was the European Central Bank (ECB.) Then the Bank of Japan (BoJ.) Sure there have been others, but these are by far the “big players.” The result? Exactly the opposite of what had been anticipated.

  “Big bazooka” commentary from Mr. Draghi at the ECB along with “Banzai” styled implementation as witnessed via Mr. Kuroda at the BoJ saying one thing, than doing the exact opposite only a week later, has pushed not only confusion further into the financial markets, but also, sent global currency trades on a roller-coaster ride worthy of having its own theme park.

  Both the €uro as well as the ¥en strengthened. And not by little amounts either. The resulting spikes were so sudden, and with such ferocity, the resulting margin calls for those caught within its death grip suddenly found themselves sharing the same experience as those on the fictional planet Alderaan, “as if millions of voices suddenly cried out in terror – then were silenced.”

  You know who was more caught off guard with this move than those with positions on? The central banks themselves. All one needed for proof was the subsequent jawboning from one official after another to state emphatically: “Don’t worry, we got this!” (we think) As they tried desperately to reassure their “markets.”

  Again, for proof: all one needs is to remember Mario Draghi’s now infamous mea culpa when replying to whether or not his newest remarks were in reaction to the market’s response, e.g., “No not really. But not—well, of course. (Laughter.) And, It’s been pretty much the same only in different languages from one central banker after the next these past few months.

  Yet, the one central bank that has been near impervious to this “credibility” or “omnipotent” issue has been the Federal Reserve. That is to say – until now.

  Since the beginning of what is now considered “the zenith of unabashed central bank interventionism” few were willing to speculate, let alone admit, that without the Federal Reserve continuously pumping money in one form or another, while simultaneously keeping interest rates at the zero bound – the markets had no fundamental reason whatsoever to be at these current levels. Period. It was, and still is, a bubble created and encouraged by the central bank. Again – period. End of discussion.

  And nowhere has this phenom become more visible and undeniable as made manifest over the last 14+ months with “market” volatility and price movement. Currently, the only direction the “markets” have shown a propensity to go in both momentum, as well as, fury during this period has been – down.

  Currently up seems to only happen in response after some jawboning or implied immediate implementation. Where the theme is more mea culpa in nature. Rather, than fortitude or conviction of policy.

  In other words: the moment we get up to levels I coined “fortitude central” (i.e., 2050ish SPX) where the policy members begin to show backbone and imply: “Yep, we’re going to start withdrawing accommodation.”  The markets begin to reverse in unison. And as soon as it appears the level of 1800ish SPX is about to be breached? A reversal, or better said “capitulation of error” begins to show up (in unison) as one Fed. official after another begins touting backpedaling statements in one form after another. The real issue here?

  The “markets” and it’s real players (i.e., HFT’s along with their headline reading algo’s and stop running programs etc., etc.) not only know this. I believe – they now know how to front run it with deadly efficiency. Exacerbating the issue of credibility as well as omnipotence for the Fed. Or, stated differently – the “market” now not only can push the Fed’s hand – It now knows at what level it needs to exert the desired response at will.

  This phenom has now become so glaringly obvious even Fed. friendly publications such as Barron’s™ can’t avert from the obvious any longer as shown by their latest article titled, When The Fed’s Bullard Speaks, the Market Listens. All I’ll say is this: If the main stream financial press has finally figured it out – that’s usually your first sign that what ever bubble there was – has either already popped. Or, about too.

  But not too worry, after all, I didn’t even mention China and their forthcoming central bank omnipotent policies. Remember, they know how to control and manipulate a market and currency better than anyone. Just ask them. And if you don’t like what they state today? Don’t worry – they’ll change it again any day or minute from now. Again.

  But why be of concern? After all, it was the Fed. itself that just reiterated “international developments” is their first cause. So don’t worry. I’m sure they got this. Until 1800ish SPX that is. Then we’ll see just how much confidence to BTFD truly remains.

  

  

  

  

  

• "Forgotten Sandlot" Or "The Next Dubai"? This Tiny African Nation Is Now A Geopolitical Hot Spot

  When last we checked in on Djibouti, the tiny east African nation of 900,000 people that shares a border with lawless Somalia to the south, and is separated from war-torn Yemen by just 13 miles of water across the Bab el-Mandeb Strait, China had just announced that the country would play host to Beijing’s first overseas military outpost.

  Nearly 5,000 miles from the Chinese capital, Djibouti is situated in a highly strategic, if exceedingly dangerous part of the world.

  The Bab el-Mandeb Strait is one of the planet’s most important oil chokepoints and thus there are any number of nations that have an interest in keeping it open and secure. Additionally, Djibouti’s location on the horn of Africa makes it an attractive base from which to conduct anti-terror operations in both Africa and the Mid-East.

  

  While some observers view China’s establishment of a military base in the country as a reflection of Xi’s efforts to i) project Beijing’s growing military prowess, and ii) serve notice that in the wake of the PLA’s unexpected visit to the besieged Yemeni port of Aden last year, China isn’t afraid to get involved in the region’s affairs, it’s worth noting that the Chinese are no strangers to Djibouti. China has been investing in the country’s infrastructure for years, most notably in the form of a $4 billion railroad connecting the country to the Ethiopian capital of Addis Ababa.

  And that’s not all.

  “China is financing a railroad, as well as an expansion of port terminals, fuel and water pipelines, a natural gas liquefaction plant, highway upgrades, two proposed airports, and several government buildings,” Bloomberg writes, adding that “the new military installation will be a sort of insurance policy, a security station to protect its investments and extend its economic reach.”

  China is pitching its involvement in the country’s development as an extension of Xi’s ambitious “One Belt, One Road” initiative, which is essentially an expansive initiative that i) gives China an excuse to take a stake in any country that’s willing to accept FDI, and ii) creates a kind of pressure valve for Beijing’s excess industrial capacity.

  “China is explaining it as part of the ‘one road, one belt’ strategy, to help link Ethiopia to the sea,” one Western diplomat who has been briefed by Chinese officials on the Djibouti base, told Reuters this week. “China does not want to be seen as a threat.”

  And frankly, they probably aren’t. Or at least not any more of a threat than all of the other countries that have military outposts in Djibouti. Countries like the US, which unsurprisingly has the largest military presence of any nation and which uses its bases there as a launching pad for drone missions. “Djibouti is also the U.S. military’s regional hub for drones, and it sends thousands of Predators and Reapers across the region each year,” Bloomberg notes, before recounting a hilarious string of drone and spy plane mishaps that eventually led Washington to move the unmanned killing machines away from the country’s airport. Here are a few additional excerpts from Bloomberg’s latest on the country:

  [In the late seventies] Djibouti, a country about the size of New Jersey, had one paved road and less than a square mile of arable land. The Associated Press deemed it perfectly devoid of resources, “except for sand, salt, and 20,000 camels.” The New York Times guessed the new nation might get swallowed up by one of its neighbors—Ethiopia or Somalia, maybe—because it was “so impoverished that it cannot stand on its own.”

   

  Years passed, and those neighbors were too preoccupied with wars, famine, and civil anarchy to pay much attention to it. Such upheavals, and almost everything else, skirted Djibouti. Then the new century rolled around and, seemingly overnight, the country’s sleepiness became a valuable commodity.

   

  After Sept. 11, the U.S. military rushed to establish its first base dedicated to counterterrorism, and Djibouti was about the only country in the neighborhood that wasn’t on fire. Sitting beside the narrow Bab el-Mandeb strait—a gateway to the Suez Canal at the mouth of the Red Sea, and one of the most trafficked shipping lanes in the world—it provided easy access to hot spots in both Africa and the Middle East. A few years later, when Somali pirates started threatening the global shipping industry, the militaries of Germany, Italy, and Spain joined France, which has maintained a base since colonial times, by moving troops to Djibouti. Japan arrived in 2011, opening its first military base on foreign soil since World War II.

   

  

   

  U.S. soldiers can’t go anywhere without being reminded of the People’s Republic. On the drive to the clinic, I’d noticed lengths of black tubing lying by the side of the road. “That’s a new water pipeline to Ethiopia,” the driver said, “built by the Chinese.” Nobody knows how the new Chinese base will change things, mostly because its scale isn’t yet known, but traces of anticipatory tension are palpable. Several diplomatic officials and members of U.S. Congress have publicly fretted over China’s growing influence in Djibouti, speculating that it might signal an era of increased Chinese military engagement around the world. Kelly, the U.S. ambassador, told me that “snooping,” electronic or otherwise, will be an obvious concern around Camp Lemonnier.

   

  The Americans still have the largest foreign military presence in the country, but China’s intensifying interest in Djibouti is shifting the balance of influence.

   

  With a lineup of natural resources—along with a port on one of the most geopolitically significant straits in the world—[some] believe that in the next 20 years or so, Djibouti will become the next Dubai, a magnet for capital and free trade. To hear them talk, making billions by selling the world’s militaries on the country’s lack of incident was just the first step.

   

  “And why not?” asks Foreign Minister Mahamoud Ali Youssouf. “We have some assets that Dubai never had.”

   

  

  (Djibouti City)

   

  First, there’s that shipping lane. It’s busier than Dubai’s. Second, there are all those landlocked African countries stacked up behind it; they’re desperate for a portal to the wider world. Third, there’s the infrastructure. Not traditional infrastructure, which, China notwithstanding, is still in short supply, but rather digital infrastructure. Seven submarine fiber-optic cables, the kind that carry the vast majority of the world’s digital information, come ashore in Djibouti, making it the most important hub of connectivity in East Africa. “Forget gigabytes,” says Finance Minister Ilyas Moussa Dawaleh. “We offer terabytes.”

   

  The scouring Khamsin winds, which blow through the country from June to August, are being harnessed to power a 60-megawatt wind farm, and the pitiless sun, which beats down with near-kinetic force, will power solar energy developments and more than quadruple the country’s total domestic energy output. Within a decade, the government hopes to be the first country in Africa to be powered solely by renewable energy.

  One country that isn’t likely to be particularly enamored with China’s new military outpost is India. “If I were Indian I would be very worried about what China is up to in Djibouti,” a Western official told Reuters. “Djibouti enables China to base its long-range naval air assets there and these are capable of maintaining surveillance over the Arabian Sea as well as India’s island territories off the Western coast,” Indian army brigadier Mandip Singh says.

  Underscoring the point we made above (i.e. that the new base is an extension of the PLA’s move to dock in Aden last year when the Iran-backed Houthis set upon the city creating a humanitarian crisis) a diplomatic source in China says Beijing got the idea for the outpost when the Chinese ship that showed up across the Strait in Yemen ran out of supplies. “It’s a supply facility pure and simple,” the source remarked.

  Whatever the case, it will be interesting to watch Djibouti’s development in the years ahead. With al-Shabaab operating out of Somalia and Islamic State (not to mention al-Qaeda) maintaining a notable presence just across the Bab al-Mandeb as well as to the north and northeast in Africa, there are certainly a number of security concerns. Additionally, the contention that solar and wind power will help transform the country into “the next Dubai,” assumes alternative energy can create the same kind of prosperity the Emirates enjoy thanks to their vast stores of crude. That may be wishful thinking. If nothing else, it does appear that this “forgotten sandlot” (as Bloomberg calls Djibouti) will play a key geopolitical role going forward as a kind of regional hub where world powers jostle for influence – and that alone makes it worth paying attention to.

  

  

  

  

  

• Bad – But Better Than What's Coming

  Submitted by John Rubino via DollarCollapse.com,

  Talk about diminished expectations. Friday morning’s estimate of 1.4% Q4 GDP growth is being hailed as a pleasant surprise. Which is odd, considering that for most of the past century a number this low would have been seen as weak enough to require emergency action.

  And that’s just the headline number. Dig a little deeper and the picture — at least when viewed through a non-Keynesian lens — is of a system in crisis. Consider:

  Corporate profits are, as today’s Bloomberg puts it, sliding.

  

  Meanwhile (also from Bloomberg),

  A firm labor market and low inflation encourage households to keep shopping. Today’s fourth-quarter growth figure reflected more spending on services, particularly on recreation and transportation. “It’s really U.S. consumers who are powering the global economy forward at this point,” said Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh.

  But if companies are earning less money, how likely is it that they’ll step up hiring going forward? Not very. And since today fewer Americans have full time jobs than in 2007 (making the current stellar 4.9% unemployment rate look like a cruel joke) a new round of mass layoffs will make the job market even more dire for anyone hoping to support a family with full-time work.

  “If profits remain depressed, the prospects for capex and hiring will come under greater pressure,” Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, wrote in a research note.

  What are the chances of profits remaining depressed? Pretty good, considering that two of the big growth drivers of the past few years have been student debt and car loans. The former is, as everyone by now knows, at levels that consign a whole generation of kids to life in their parents’ basements — not a recipe for robust consumption.

  Car loans, meanwhile, are starting to look like subprime mortgages circa 2006:

  Unpaid subprime car loans hit 20-year high

  (CNN Money) – Americans with lower credit scores are falling behind on auto payments at an alarming pace.

  The rate of seriously delinquent subprime car loans soared above 5% in February, according to Fitch Ratings. That’s worse than during the Great Recession and the highest level since 1996.

   

  It’s a surprising development given the relative health of the overall economy. Fitch blames it on a dramatic rise in loans with lax borrowing standards that have helped fuel the recent boom in auto sales. More Americans bought new cars last year than ever before and the amount of auto loans soared beyond $1 trillion.

   

  Fitch points out that the subprime end of the market is where there’s increased competition to peddle loans. The ratings firm flagged an increase in loans to “borrowers with no FICO scores,” lower downpayments, and extended term lending.

  Toss in contracting global trade, turmoil in Europe and Latin America, and a grinding multi-month decline in US manufacturing output and the year ahead doesn’t look any better. Here’s the Atlanta Fed’s GDPNow measure of current growth, which shows a huge drop in just the past month:

  

  What does all this mean?

  Very simply, if you borrow too much money life gets harder and the things that used to work stop working. For a country, lower interest rates no longer induce businesses and individuals to borrow and spend, and government deficits no longer translate directly into more full-time private sector jobs. Growth slows, voters get mad, politics gets crazy, and generally bad times ensue.

  The only question is why this is a surprise to the people whose choices brought us to the edge of the abyss.

  

  

  

  

  

• Five Years After Fukushima, 16 U.S. Cleanup Ships Are Still Contaminated With Radiation

  The Fukushima disaster was over five years ago, and may have been largely forgotten by the general public and the media (perhaps because the Japanese olympics are just four years from now), but its effects still linger. Perhaps nowhere more so than for those who took pare in the Fukushima clean up effort: as Starts and Stripes reports, sixteen U.S. ships that participated in relief efforts after Japan’s nuclear disaster five years ago remain contaminated with low levels of radiation from the crippled Fukushima Dai-ichi nuclear power plant.

  In all, 25 ships took part in Operation Tomadachi, the name given for the U.S. humanitarian aid operations after the magnitude-9.0 earthquake and subsequent tsunami on March 11, 2011. In the years since the crisis, the ships have undergone cleanup efforts, the Navy said, and 13 Navy and three Military Sealift Command vessels still have some signs of contamination, mostly to ventilation systems, main engines and generators.

  

  That’s the bad news.

  The good news is that the “normally accessible” areas have been largely cleaned. “The low levels of radioactivity that remain are in normally inaccessible areas that are controlled in accordance with stringent procedures,” the Navy said in an email to Stars and Stripes. “Work in these areas occurs mainly during major maintenance availabilities and requires workers to follow strict safety procedures.”

  All normally accessible spaces and equipment aboard the ships have been surveyed and decontaminated, Vice Adm. William Hilarides, commander of Naval Sea Systems Command, wrote to Stars and Stripes.

  “The radioactive contamination found on the ships involved in Operation Tomodachi is at such low levels that it does not pose a health concern to the crews, their families, or maintenance personnel,” Hilarides said.

  One may be allowed to be skeptical: after all Tepco and the Japanese government lied for years about the “safety” of the Fukushima aftermath, and only 5 years later was the severity of the situation finally revealed.

  The largest U.S. ship to take part in the relief operation was the USS Ronald Reagan aircraft carrier, which normally carries a crew of more than 5,000 sailors. In 2014, three years after the disaster, the Reagan’s ventilation system was contaminated with 0.01 millirems of radiation per hour, according to the Navy. Nuclear Regulatory Commission guidelines advise no more than 2 millirems of radiation in one hour in any unrestricted area, and 100 millirems total in a calendar year from external and internal sources in unrestricted and controlled areas, so full-time exposure on the Reagan would be below that.

  In the days after the tsunami hit the Fukushima complex, the plant suffered multiple explosions and reactors began to melt down. Officials from the NRC told Congress that extremely high levels of radiation were being emitted from the impaired plant. Japanese nuclear experts said winds forced a radioactive plume out to sea, and efforts to keep fuel rods cool using sea water caused tons of radiated water to be dumped into the ocean.

  The Reagan was dispatched to take part in relief efforts, arriving the next day. Navy officials say the Nimitz-class nuclear-powered supercarrier stayed at least 100 nautical miles away from the damaged plant, but many sailors have disputed the Navy’s accounting, saying they were so close that they could see the plant.

  The Navy has acknowledged that the Reagan passed through a plume of radiation. Navy images showed sailors with their faces covered, scrubbing the deck of the Reagan with soap and water as a precautionary measure afterward. The Reagan and sailors stayed off the coast of Japan for several weeks to aid their Japanese allies.

  The multibillion-dollar ship, projected to last at least 50 years after its launch in 2001, then was taken offline for more than a year for “deep maintenance and modernization” at the Puget Sound Naval Shipyard and Intermediate Maintenance Facility in Bremerton, Wash., according to Navy officials.

  “Procedures were in place to survey, control and remove any low-level residual contamination,” the Navy said. “Personnel working on potentially contaminated systems were monitored with sensitive dosimeters, and no abnormal radiation exposures were identified.” Upgrades and cleaning also took place at the ship’s next stop in San Diego.

  Sailors who performed the work said it entailed entering spaces deep within the ship, testing for high levels of radiation, and if it was found, sanding, priming and painting the areas. They say there were given little to no protective gear, a claim that the Navy denies.

  Of the 1,360 individuals aboard the Reagan who were monitored by the Navy following the incident, more than 96 percent were found not to have detectable internal contamination, the Navy said. The highest measured dose was less than 10 percent of the average annual exposure to someone living in the United States.

  Experts differ on the effects of radiation in general and, specifically, for those involved in Operation Tomodachi.

  Eight Reagan sailors, claiming a host of medical conditions they say are related to radiation exposure, filed suit in 2012 against the nuclear plant’s operator, the Tokyo Electric Power Co. The suit asserts that TEPCO lied, coaxing the Navy closer to the plant even though it knew the situation was dire. General Electric, EBASCO, Toshiba Corp. and Hitachi were later added as defendants for allegations of faulty parts for the reactors.

  A spokesman for TEPCO declined to comment for this story because of the sailors’ lawsuit, which was slated to go forward pending appeals in the U.S. 9th Circuit Court of Appeals.

  The illnesses listed in the lawsuit include genetic immune system diseases, headaches, difficulty concentrating, thyroid problems, bloody noses, rectal and gynecological bleeding, weakness in sides of the body accompanied by the shrinking of muscle mass, memory loss, leukemia, testicular cancer, problems with vision, high-pitch ringing in the ears and anxiety.

  The list of sailors who have joined the lawsuit, which is making its way through the courts, has grown to 370.

  In early 2014, Congress ordered Assistant Secretary of Defense for Health Affairs Dr. Jonathan Woodson to investigate the claims.

  After a peer-reviewed study into the levels of exposure, Woodson reported back to Congress, defending the military’s response and safeguards. Any illnesses that sailors have developed since the operation are not a result of the relief campaign, he said.

  “There is no objective evidence that the sailors … experienced radiation exposures that would result in an increase in the expected number of radiogenic diseases over time,” Woodson wrote. “The estimated radiation doses for all individuals in the Operation Tomodachi registry, including sailors on the USS Ronald Reagan, were very small and well below levels associated with adverse medical conditions.”

  Furthermore, Woodson said, more sailors would have been sick if the levels were high enough to cause the illnesses cited. There were upward of 5,000 sailors aboard the Reagan at the time of the operation. He also said symptoms developed too early to be associated with the operation.

  Perhaps the assumption here is that the US government would not lie.

  But Shinzo Kimura — a professor at Dokkyo Medical University in Japan who has studied radiation exposure from Hiroshima and Nagasaki to Chernobyl and, now, Fukushima — said it wasn’t too early for sailors to show symptoms of exposure-related conditions. Doctors have seen conditions in children living near the plant that surfaced earlier than would normally be expected.

  Kimura, hired by the Nihonmatsu city government for his expertise in the field, was the first scientist on the ground taking readings in the wake of the Fukushima disaster. He said each person and the way their body is affected by radiation is different.

  While unable to definitively say if the sailors were sickened by the radiation, Kimura reasoned that the levels aboard the Reagan were high enough to cause illnesses. Otherwise, he said, why go through the bother of repeated cleanings to lower radiation levels?

  “It is impossible to speculate or calculate how much the doses were before the two decontamination works,” he said. “The U.S. military is very good at risk-management. Considering that, it is assumed that decontaminations were conducted twice because the levels were not favorable.”

  

  

  

  

  

• Why America May Not Be Considered A "First World Country" Much Longer

  Submitted by Chris Perrin via TheAntiMedia.org,

  Before George Manuel published The Fourth World: An Indian Reality, the idea that any real differences existed among population groups in fully developed countries was still taboo. At the time, Indigenous rights were still something of a political non-issue, a blemish on a relatively clean looking statistical sheet that First World countries paid lip service to all too infrequently. Since then, an increasing amount of scholarship seeks to understand the differences between Fourth World populations living inside First World countries.

  The Fourth World, basically, are populations living within a state who have little or no representation by that state. These populations, from the standpoint of the First World, are generally impoverished and would not fit the criteria for a “First World” country. They are, essentially and literally, the oppressed. It is what we see as the Third World when we are looking at Africa and South America, hidden within the First World just outside our doors. Unfortunately, the Fourth World is growing.

  As Anthony J. Hall points out in his book The American Empire and the Fourth World, Indigenous populations are not the only peoples who are finding themselves marginalized within the North American Fourth World (p. 283). The ongoing Flint Water Crisis is just the most recent example of the state-sponsored expansion of the Fourth World, particularly as it looks so similar to something that might happen in the Third World.

  For African-Americans and Hispanic Americans, the Fourth World is an old reality with a new name. Since the economic collapse of 2008, Black and Hispanic populations have been increasingly marginalized, and the way the government once spoke about Indigenous populations must now be applied to other racial and ethnic groups. Where Indigenous peoples are confined to racially segregated Reservations, Black Americans are finding themselves increasingly limited to urban ghettos where First World opportunities are equally non-existent. Moreover, as Flint and the #BlackLivesMatter movement indicate, African-Americans and Hispanics are less and less represented by the state, clearly placing them within the boundaries of the Fourth World — boundaries that are quickly moving beyond the typical racial norm.

  The Occupy Movement represented a clear indication that the working poor, or precariat, is no longer feeling represented by the First World state. With this massive inclusion of a working-class, poor, ethnically diverse group, to the already and obviously marginalized, the population of Fourth World America at the very least rivals the population of First World America. And while the American government continues to nominally supply aid to the Third World, the Fourth World inside the U.S. is slowly being forgotten.

  While the First World criticises various governments in traditionally Third World continents as being unfair and corrupt — calling them out for their ongoing human rights abuses — the abuses being perpetrated on the Fourth World are constantly ignored, no matter how similar the two start to appear. Meanwhile, as the Governor of Michigan, Rick Snyder, defines the Flint issue as “a failure of government at all levels,” those governments still claim to represent the citizens of Flint and their best interests.

  If this is the representation a growing majority of people are subject to in America, then the way the First and Fourth World are understood needs to be reevaluated. More importantly, where the United States fits within the list must be reconsidered. Only when we begin to see our own situation from a new perspective can we learn how to fix it, or find a solution.

  

  

  

  

  

• New Legislation Permits Authorities to Freeze Accounts and Use Them For Bail-ins

  The world will soon be facing a tsunami of defaults on bad debts. This will include municipal or local government defaults, governments “defaulting” on promises they’ve made to the people (Social Security, Medicaid), a default on the social contract between society and politicians such as the one in Cyprus (a default on the notions of private property and Democracy), stealth defaults on debts in the form of inflation and finally, of course, outright sovereign defaults.

   

  The sovereign defaults will come last; all other options will be tried first.

   

  The reason for this is that sovereign bonds (think of US Treasuries, German Bunds or Japanese Government bonds) are the senior most collateral posted by banks for the hundreds of trillions of Dollars worth of derivatives bets they’ve made with each other.

   

  The minute an actual sovereign default occurs in Europe, Asia or the US, then the large global banks will all be vaporized. End of story.  As is now clear, the Central banks do not care about ordinary citizens. They only care about propping up the big banks.

   

  This is why Cyprus decided to default on the social contract with its people and steal their funds rather than simply instigating a formal default. And it’s why in general we’re going to see Governments implementing more and more theft in the form of “taxes” (Cyprus called its theft a tax) in the future.

   

  Make no mistake, the words “wealth tax” mean freezing of assets and then taking some of your savings. Anyone with more than $100,000 in a bank account should be prepared for this.

   

  This will be sold to the public as either an attempt to tax those with a lot of money because it’s only fair that they put in more to bailout the nation OR as a form of financial terrorism e.g. “either you take a 7% cut on your deposits and the bank stays afloat or the bank crashes and you lose everything.”

   

  This will be spreading throughout the world, GUARANTEED.

   

  Spain, Canada (which allegedly has the safest banks in the world), New Zealand and now even Germany are implementing confiscation schemes for depositors in the event of a banking crisis.

   

  It can happen in the UK and the US as well. I am not writing that to simply scare people. The FDIC, working with the Bank of England published a paper proposing precisely these methods to deal with Systemically Important Financial Entities (SIFIs). The paper was published in December 2012. Below are some excerpts worth your attention:

   

  This paper focuses on the application of “top-down” resolution strategies that involve a single resolution authority applying its powers to the top of a financial group, that is, at the parent company level. The paper discusses how such a top-down strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context…

   

  These strategies have been designed to enable large and complex cross- border firms to be resolved without threatening financial stability and without putting public funds at risk…

  Under the strategies currently being developed by the U.S. and the U.K., the resolution authority could intervene at the top of the group. Culpable senior management of the parent and operating businesses would be removed, and losses would be apportioned to shareholders and unsecured creditors. In all likelihood, shareholders would lose all value and unsecured creditors should thus expect that their claims would be written down to reflect any losses that shareholders did not cover. Under both the U.S. and U.K. approaches, legal safeguards ensure that creditors recover no less than they would under insolvency.

   

  An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company into equity. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution. Throughout, subsidiaries (domestic and foreign) carrying out critical activities would be kept open and operating, thereby limiting contagion effects. Such a resolution strategy would ensure market discipline and maintain financial stability without cost to taxpayers.

   

  Title II of the Dodd-Frank Act provides the FDIC with new powers to resolve SIFIs [systemically important financial institutions] by establishing the orderly liquidation authority (OLA). Under the OLA, the FDIC may be appointed receiver for any U.S. financial company that meets specified criteria, including being in default or in danger of default, and whose resolution under the U.S. Bankruptcy Code (or other relevant insolvency process) would likely create systemic instability.

   

  [In the US] Title II requires that the losses of any financial company placed into receivership will not be borne by taxpayers, but by common and preferred stockholders, debt holders, and other unsecured creditors, and that management responsible for the condition of the financial company will be replaced…

   

  [In the UK] The introduction of a statutory bail-in resolution tool (the power to write down or convert into equity the liabilities of a failing firm) under the RRD is critical to implementing a whole group resolution of U.K… But insofar as a bail-in provides for continuity in operations and preserves value losses to a deposit guarantee scheme in a bail-in should be much lower than in liquidation. Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

   

  http://www.fdic.gov/about/srac/2012/gsifi.pdf

   

  So… if a large bank fails in the US, the FDIC steps in and takes over, replacing management, and works to shrink the bank by writing-down liabilities and converting debt into equity.

   

  In other words… any liability at the bank is in danger of being written-down should the bank fail. And guess what? Deposits are considered liabilities according to US Banking Law and depositors are creditors.

   

  So… if a large bank fails in the US, your deposits at this bank would either be “written-down” (read: disappear) or converted into equity or stock shares in the company. And once they are converted to equity you are a shareholder not a depositor… so you are no longer insured by the FDIC.

   

  So if the bank then fails (meaning its shares fall)… so does your deposit.

   

  Let’s run through this.

   

  Let’s say ABC bank fails in the US. ABC bank is too big for the FDIC to make hold. So…

   

  1)   The FDIC takes over the bank.

  2)   The bank’s managers are forced out.

  3)   The bank’s debts and liabilities are converted into equity or the bank’s stock. And yes, your deposits are considered a “liability” for the bank.

  4)   Whatever happens to the bank’s stock, affects your wealth. If the bank’s stock falls at this point because everyone has figured out the bank is in major trouble… your wealth falls to.

   

  Let’s say you have $1,000,000 in deposits at financial institutions ABC. When ABC fails, your deposits are converted into $1,000,000 worth of ABC’s stock (let’s say you get 1,000,000 shares valued at $1 each for $1,000,000).

   

  Now let’s say ABC’s shares fall in value from $1.00 to $0.50.

   

  You just lost $500,000 of your wealth.

   

  This is precisely what has happened in Spain during the 2012 banking crisis over there.

  And it is perfectly legal in the US courtesy of a clause in the Dodd-Frank bill.

   

  This is the template for what’s going to be implemented globally in the coming months.  When push comes to shove, it will be taxpayers, NOT Central Banks who are on the hook for the next round of bailouts.

   

  Indeed, we've uncovered a secret document outlining how the Feds plan to take hold of savings during the next round of the crisis to stop individuals from getting their money out.

   

  We detail this paper and outline three investment strategies you can implement right now to protect your capital from this sinister plan in our Special Report

  Survive the Fed's War on Cash.

   

  We are making 1,000 copies available for FREE the general public.

   

  To pick up yours, swing by….

  http://www.phoenixcapitalmarketing.com/cash.html

   

  Best Regards

  Phoenix Capital Research

   

  Our FREE e-letter: http://gainspainscapital.com/

  Follow us on Twitter: http://twitter.com/GainsPainsCapit

   

   

   

   

   

   

   

   

  

  

  

  

• Inflation Is Not Risen – It's The Cheapest Easter "Since Lehman"

  As christians remember the fall and rise of Jesus, there is another – perhaps more important to many – rising-and-falling thing to celebrate: Egg prices are the cheapest for Easter since at least 2008…

   

  While pork prices are soaring in China; in America, egg prices are tumbling…

  

   

  Just in time for Easter…(cheapest Easter for eggs since at least 2008)

  

   

  As Bloomberg notes,

  Wholesale prices at stores in the U.S. Midwest have averaged $1 a dozen since mid-February, or more than 60 percent below the all-time highs seen in mid-2015, when a record bird-flu outbreak led to the death of millions of hens.

   

  The egg industry “continues to rebuild,” and output is forecast to rebound by about 4 percent in 2016, the U.S. Department of Agriculture said March 9.

  Happy Easter everyone.

  

  

  

  

  

• Al Jazeera Presenter Corners Saudi Ambassador – "Why Support Democracy In Syria But Not Saudi Arabia?"

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  This past week, Al Jazeera presenter Mehdi Hasan sat down with Saudi Arabia’s ambassador to the UN. He asked him a very pointed question regarding why he supports democracy in Syria but not in Saudi Arabia.

  It’s a great question, and let’s just say the answer was not at all convincing.

  Too much media these days merely serves as public relations for the status quo. What Mr. Hasan does in this interview is exactly what journalists are supposed to be doing, but very rarely do in these United States:

   

  I asked the Saudi ambassador to the UN why he supports democracy in Syria but not in Saudi Arabia – @AJUpFront clip:https://t.co/bblCAHCdZS

  — Mehdi Hasan (@mehdirhasan) March 25, 2016

   

  Speak truth to power. 

  

  Well done Mr. Hasan. The entire interview can be watched below…

  

  

  

  

  

• Australian Dollar versus United States Dollar Currency Cross Analysis 3 27 2016 (Video)

  By EconMatters

  

  We look at the AUD/USD Currency Cross in this video. Will the AUD get back to parity with the USD? The AUD is off the 2016 lows, will it strengthen or weaken from here for the remainder of the year? This is the big question for currency traders after the rally off the January lows in the AUD.

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle  

  

  

  

  

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