- Washington's "Fifth Columns" Inside Russia And China
Submitted by Paul Craig Roberts,
It took two decades for Russia and China to understand that “pro-democracy” and “human rights” organizations operating within their countries were subversive organizations funded by the US Department of State and a collection of private American foundations organized by Washington. The real purpose of these non-governmental organizations (NGOs) is to advance Washington’s hegemony by destabilizing the two countries capable of resisting US hegemony.
Washington’s Fifth Columns pulled off “color revolutions” in former Russian provinces, such as Georgia, the birthplace of Joseph Stalin and Ukraine, a Russian province for centuries.
When Putin was last elected, Washington was able to use its Fifth Columns to pour thousands of protesters into the streets of Russia claiming that Putin had “stolen the election.” This American propaganda had no effect on Russia, where the citizen back their president by 89%. The other 11% consists almost entirely of Russians who believe Putin is too soft toward the West’s aggression. This minority supports Putin as well. They only want him to be tougher. The actual percentage of the population that Washington has been able to turn into treasonous agents is only 2-3 percent of the population. These traitors are the “Westerners,” the “Atlantic integrationists,” who are willing for their country to be an American vassal state in exchange for money. Paid to them, of course.
But Washington’s ability to put its Fifth Columns into the streets of Moscow had an effect on insouciant Americans and Europeans. Many Westerners today believe that Putin stole his election and is intent on using his office to rebuild the Soviet Empire and to crush the West. Not that crushing the West would be a difficult thing to do. The West has pretty much already crushed itself.
China, obsessed with becoming rich, has been an easy mark for Washington. The Rockefeller Foundation is supporting pro-American Chinese professors in the universities. US corporations operating in China create superfluous “boards” to which the relatives of the ruling political class are appointed and paid high “directors’s fees.” This compromises the loyalty of the Chinese ruling class.
Hoping to have compromised the Chinese ruling class with money, Washington then launched its Hong Kong NGOs in protests, hoping that the protests would spread into China and that the ruling class, bought with American money, would be slow to see the danger.
Russia and China finally caught on. It is amazing that the governments of the two countries that Washington regards as “threats” were so tolerant of foreign-financed NGOs for so long. The Russian and Chinese toleration of Washington’s Fifth Columns must have greatly encouraged the American neoconservatives, thus pushing the world closer to conflict.
But as they say, all good things come to an end.
The Saker reports that China finally has acted to protect itself from Washington’s subversion: http://www.vineyardsaker.co.nz/2015/07/30/chinas-ngo-law-countering-western-soft-power-and-subversion-by-eric-draitser/
Russia, also, has acted in her defense: http://www.globalresearch.ca/kicked-out-of-russia-moscow-challenges-washingtons-orwellian-national-endowment-for-democracy/5466082
We Americans need to be humble, not arrogant. We need to acknowledge that American living standards, except for the favored One Percent, are in long-term decline and have been for two decades. If life on earth is to continue, Americans need to understand that it is not Russia and China, any more than it was Saddam Hussein, Gaddafi, Assad, Yemen, Pakistan, and Somalia, that are threats to the US. The threat to the US resides entirely in the crazed neoconservative ideology of Washington’s hegemony over the world and over the American people.
This arrogant goal commits the US and its vassal states to nuclear war.
If Americans were to wake up, would they be able to do anything about their out-of-control-government? Are Europeans, having experienced the devastating results of World War I and World War II, capable of understanding that the incredible damage done to Europe in those wars is minuscule compared to the damage from nuclear war?
If the EU were an intelligent and independent government, the EU would absolutely forbid any member country from hosting a US anti-ballistic missile or any other military base anywhere close to Russia’s borders.
The Eastern European lobby groups in Washington want revenge on the Soviet Union, an entity that is no longer with us. The hatred transmits to Russia. Russia has done nothing except to have failed to read the Wolfowitz Doctrine and to realize that Washington intends to rule the world, which requires prevailing over Russia and China.
- Trump Tops Pre-Debate Polls, Slams Koch Conference Attendees As "Puppets"
Another weekend of glad-handing and Sunday talk-shows and still The Donald dominates the GOP Presidential nominee race. With all eyes firmly glued on this week's debate, Trump had a few choice words for those who attended the Koch brothers' biannual conference (which he was not invited to), tweeting "I wish good luck to all the Republican candidates that traveled to California to beg for money etc. from the Koch Brothers… Puppets?" As WSJ reports, Mr. Trump poses a more delicate short-term challenge for the GOP, thanks to high name recognition, celebrity appeal and a populist message that taps a powerful anti-Washington vein. "I don’t think you should underestimate how frustrated people are," Florida Sen. Marco Rubio said Sunday during a lunch at the Koch gathering. "Mr. Trump has tapped into some of that."
Still ahead…
As The Wall Street Journal reports,
Mr. Trump’s unanticipated ascent coincided with the arrival of five other Republican presidential candidates at a luxury resort here over the weekend to audition for hundreds of wealthy donors convened by billionaire industrialists Charles and David Koch. It’s a gathering that exposes both the promise and the limits of a new campaign financing system for the GOP. More money is flowing into the race, but the party and the candidates have less control over how those dollars are spent. The contenders also risk appearing beholden to deep-pocketed backers.
The biannual Koch conference set the stage for the busiest week yet in the nominating contest, with a candidate forum Monday in New Hampshire and the first candidates’ debate on Thursday in Cleveland.
The Koch conference is an unrivaled convergence of roughly 450 conservatives who have pledged at least $100,000 a year to various political and ideological endeavors. Many are also financing individual presidential candidates and the so-called super PACs that support them.
Outside donors are taking on roles once solely performed by candidates and the party, from television ads to voter outreach. The Koch network plans to spend about $900 million in the run-up to the 2016 election, with about a third of that total devoted to influencing elections outcomes. Yet, these donors don’t always see eye-to-eye with GOP leaders in Washington and could prove nettlesome for a Republican president.
The Koch network, for example, sparred with the Republican National Committee over who controls the vast repository of voter data that GOP candidates at every level of the ballot will need to turn out supporters next fall. The two sides recently reached a deal to share information, but the pact gives an entity backed by the Kochs a central role overseeing the party’s data-collection efforts for the foreseeable future. Candidates also rely increasingly on Koch-financed groups to organize their grassroots events.
* * *
It seems Jimmy Carter was right after all,“It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy with unlimited political bribery being the essence of getting the nominations for President or being elected President. And the same thing applies to governors, and U.S. Senators and congress members. So, now we’ve just seen a subversion of our political system as a payoff to major contributors, who want and expect, and sometimes get, favors for themselves after the election is over. …
At the present time the incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves. Somebody that is already in Congress has a great deal more to sell.”
* * *
Mr Trump did not seem too worried…
I wish good luck to all of the Republican candidates that traveled to California to beg for money etc. from the Koch Brothers. Puppets?
— Donald J. Trump (@realDonaldTrump) August 2, 2015
It's going to be a busy week…
- Connecticut On Its Latest Cash Grab: It’s Not Greed When We Do It
Submitted by Christopher Westley via The Mises Institute,
Those possessing the anti-capitalist mentality — so ascendant in our culture today — often critique market actors as being solely motivated by “greed.” Surely economic systems based on nobler motivations, they say, would better promote the long-run interests of the planet.
The Voluntary Marketplace Uses Greed as Motivation to Serve Others
This is an issue I deal with in detail in my Principles of Economics classes. The fascinating point about the market system isn’t that it is based on greed, but rather that it forces those motivated by greed to act in ways that promote the social interest. If you want to get rich, say by x amount, then you better improve the lives of consumers, through voluntary transactions, by some amount greater than x.
Such are the economic means of acquiring wealth, explained in more detail in 1922 by the German sociologist Franz Oppenheimer, writing at a time before his discipline transmogrified into an enterprise predicated on supporting greater state intervention.
However, problems arise when those motivated by greed find ways to acquire wealth through coercion. Oppenheimer called these the political means (as opposed to the voluntary means of the marketplace), and we witness them today when (1) firms benefit from their relationships to the state as opposed to the consumer, and (2) the state itself uses its legal monopoly on violence to acquire wealth.
A New Death Tax in Connecticut
These ideas ran through my head when I read about the new probate court “fees” approved by the Connecticut legislature this month, reinforcing its status as being among the worst states in which to die. Whereas the maximum fee for settling estates there was $12,500, it can now go as high as $100,000, and in some cases, well over $1 million. These “fees” are in addition to estate taxes that range between 7.2 to 12 percent on estates greater than $2 million.
The “fees” were justified on an expected budget shortfall of $32 million that the legislature wanted to fill, but I wondered: Where was the outcry from the greed-police? One can imagine the reaction if, due to poor fiscal management, Costco or Best Buy announced they were going to double or triple prices on their popular items to account for losses. Yet, governments do this all the time, and somehow, it is never considered greed when political means are used to acquire wealth.
Adding to the irony is the fact that resources are more likely to be squandered when forced out of private hands and into the public sector, where incentives to waste today promote bigger budgets tomorrow, and where crony capitalism is fed. Resources that might have been saved and directed to productive uses are instead directed to various interest groups and well-connected firms.
Capital Arises from Thriftiness, Not Greed
Those who would encourage greater transfers of wealth to the public sector forget that
[c]apital is not a free gift of God or of nature. It is the outcome of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving. Neither have capital or capital goods in themselves the power to raise the productivity of natural resources and of human labor. Only if the fruits of saving are wisely employed or invested, do they increase the output per unit of the input of natural resources and of labor. If this is not the case, they are dissipated or wasted.
The accumulation of new capital, the maintenance of previously accumulated capital and the utilization of capital for raising the productivity of human effort are the fruits of purposive human action. They are the outcome of the conduct of thrifty people who save and abstain from dissaving, viz., the capitalists who earn interest; and of people who succeed in utilizing the capital available for the best possible satisfaction of the needs of the consumers, viz., the entrepreneurs who earn profit. [Mises, The Anti-Capitalist Mentality, pp. 84–85]
Capital is actually a gift of the thrifty, and it is not free. There’s no surprise that states with no death taxes whatsoever attract capital from places like Connecticut. Its pols are between a rock and a hard place, with the rock being the need to finance the current level of redistribution (and to never, ever reduce it), and the hard place being the increasing willingness of the pilfered to engage in tax avoidance. Its legislature must be the trust attorney’s best friend.
Sick minds deemed the supply of death perfectly inelastic and therefore worthy of tax. But it’s not just people who die in Connecticut. Wealth does too, illustrating what happens when greed is unconstrained by market forces. Some writers might consider Connecticut’s economy something of a model worth emulating, but the fact is that Connecticut — like every other tax jurisdiction — grows its public sector at the expense of its private, and that when capital predictably flows elsewhere, economic opportunity diminishes.
- China Stocks Open Marginally Higher As Regulators Unleash More 'Measures'
Chinese stocks are opening flat to marginally higher – still lower from Friday’s close – despite the government unleashing yet more ‘measures’ in the name of stability. Having banned 5 accounts – reportedly including Fed-favorite Citadel – China is blaming excess market volatility on short-term short-sellers and has put in place curbs on short-selling that force traders to hold for at least one day. On the bright side, margin traders reduced exposure for the seventh day in a row, reducing outstanding balances to 5-month lows.. which leaves the median China stock trading at a remarkable 61x reported earnings (compared with 12x in Hong Kong).
As Bloomberg details,
Investors who borrow shares must now wait one day to pay back the loans, according to statements from the Shanghai and Shenzhen stock exchanges issued after the close of trading on Monday. This prevents investors from selling and buying back stocks on the same day, a practice that may “increase abnormal fluctuations in stock prices and affect market stability,” the Shenzhen exchange said.
The short-selling curbs are the latest measures the government is taking to prop up share prices and prevent market manipulation after an almost $4 trillion selloff. Regulators are probing “malicious” short selling and have examined the futures trading accounts of foreign investors. They’ve also banned stock sales by major shareholders, suspended initial public offerings and compelled state-run institutions to support the market with equity purchases.
“This is apparently aimed at increasing the cost of shorting and easing selling pressure on the market,” said Samuel Chien, a partner of Shanghai-based hedge fund manager BoomTrend Investment Management Co.
He added, though, that short-selling was already difficult, referring to other efforts to limit the practice. These include a move by Chinese brokerages to limit short-selling business.
* * *
But for now it is having only modest impact…
The more measures they apply, the higher the price of pork goes and the more squeezed by inflationary pressures – no matter how bad the economy – the PBOC is to not cut RRR.
In other words, a 21% surge in pork prices – a major component of China CPI – forces the PBOC toapply piecemeal measures and not apply broad based cuts to stimulate the economy. So while some talking heads pray for more bad data in China, they are missing the crucial panic factor – soaring food prices will mean more social unrest than plunging stock prices.
Charts: Bloomberg
- The Rent is Too Damn High: San Fran Residents Pay $1,000/Mth To Live In Shipping Containers
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
There’s nothing quite like a grotesquely lopsided “economic recovery” in which a handful of cities boom, while the rest of the nation stagnates. Even worse, millennials living in such chosen cities face one of two options. Either live in mom and dad’s basement, or face a standard of living far more similar to 19th tenement standards than the late 1990’s tech boom.
With that out of the way, I want to introduce you to what a $1,000 per month rental in the San Francisco Bay area looks like. Shipping containers:
Don’t worry, there’s a lovely garden out back:
We learn more from Bloomberg:
Luke Iseman has figured out how to afford the San Francisco Bay area. He lives in a shipping container.
The Wharton School graduate’s 160-square-foot box has a camp stove and a shower made of old boat hulls. It’s one of 11 miniature residences inside a warehouse he leases across the Bay Bridge from the city, where his tenants share communal toilets and a sense of adventure. Legal? No, but he’s eluded code enforcers who rousted what he calls cargotopia from two other sites. If all goes according to plan, he’ll get a startup out of his response to the most expensive U.S. housing market.
“It’s not making us much money yet, but it allows us to live in the Bay Area, which is a feat,” said Iseman, 31, who’s developing a container-house business. “We have an opportunity here to create a new model for urban development that’s more sustainable, more affordable and more enjoyable.”
As many as 60,000 San Franciscans live in illegal housing, according to the Department of Building Inspection.
Iseman collects $1,000 a month for each of the 11 structures parked in the 17,000-square-foot warehouse he rents for $9,100. Tenants include a Facebook Inc. engineer, a SolarCity Corp. programmer and a bicycle messenger.
It’s not even San Francisco proper either, this is in Oakland. You could probably catch $2k per month for a cargo box in the Mission.
Iseman used to pay $4,200 a month in San Francisco’s Mission District for a two-bedroom apartment with a slanted floor and mosquito-breeding puddles.
He bought his metal box for $2,300, delivery included, then cut out windows with a plasma torch and installed a loft bed, shower and bamboo flooring. He estimates his all-in cost at $12,000, and plans to sell refashioned containers for about $20,000 through his company, Boxouse.
“What we’re doing is converting industrial waste into a house in a couple of weeks,” said Iseman, who also founded a pedicab fleet. Meanwhile, he doesn’t plan on seeking city approval for cargotopia, whose location he asked not be identified. “I’d rather ask forgiveness than ask permission.”
I want to be clear that I’m not knocking Mr. Iseman for starting this project. He seems to be a well-meaning, entrepreneurial guy trying to make the best out of a bad situation and solve a very real problem on his own. What I am knocking is the criminally corrupt American oligarchy, which left this legacy to our youth due to their unfathomable greed, cronyism and nearsightedness.
Of course, I’ve covered this trend several times over the past several years…
Coming to San Francisco…Tenement Sized Apartments!
Back to 19th Century Living in NYC: Bloomberg Proposes “Tenement Sized” Apartments for $2K a Month
- The Complete Breakdown Of Every Hillary And Bill Clinton Speech, And Fee, Since 2013
Earlier today, when we reported that based on Hillary Clinton’s latest tax disclosure, she and her husband had made $139 million in gross income since 2007 most of its from private speaking fees, the one aspect that readers founds most fascinating was the breakdown of all the bribes better known as speeches given by the two Clintons (who in Hillary’s words came out of the White House “dead broke”) in 2013 as well as the going rate.
So due to popular demand, we appended to the 2013 speech detail first released last week the full breakdown of Hillary’s and Bill’s 2014 and 2015 speeches which had been provided previously as part of her mandatory disclosure in May of this year.
As Politico cautions, the disclosure omits an unknown number of speeches that the Clintons delivered while directing the payment or honoraria to the Clinton Foundation, despite instructions on the and guidance from the U.S. Office of Government Ethics, saying that honoraria directed to a charity should be reported.
Still, as readers will note, even the “modest” data that Hillary chose to share is quite stunning.
We hope it will surprise nobody that the bulk of speeches were bought and paid for by Wall Street and affiliated “financial entities” because that’s what hollow populist pandering is all about – pretending to be an “everyday American” while getting paid tens of millions by Wall Street and America’s biggest corporations.
How many millions?
Since 2013 Bill Clinton has been paid $26.6 million for 94 speeches; Hillary’s grand total is slightly less: $21.7 million for 92 private appearances.
Below we present the full breakdown of every publicly disclosed speech event by Hillary Clinton, together with the associated fee.
And likewise for Bill Clinton:
And a visual way of showing the above data.
Hillary:
Bill:
Source: Hillaryclinton.con and Politco
Bonus footage: sometime in addition to hundreds of thousands of dollars for speeking for 50 minutes, Hillary would also get a shoe as an added bonus:
- Comex On The Edge? Paper Gold "Dilution" Hits A Record 124 For Every Ounce Of Physical
Over the few days, we got what was merely the latest confirmation that when it comes to sliding gold prices, consumers of physical gold just can’t get enough.
As the Times of India reported over the weekend, India’s gold imports shot up by 61% to 155 tonnes in the first two months of the current fiscal year “due to weak prices globally and the easing of restrictions by the Reserve Bank. In April-May of the last fiscal, gold imports had aggregated about 96 tonnes, an official said.”
This follows confirmations previously that with the price of gold sliding, physical demand has been through the roof, case in point: “US Mint Sells Most Physical Gold In Two Years On Same Day Gold Price Hits Five Year Low“, “Gold Bullion Demand Surges – Perth Mint and U.S. Mint Cannot Meet Demand“, “Gold Tumbles Despite UK Mint Seeing Europeans Rush To Buy Bullion” and so on. Indicatively, as of Friday, the US Mint had sold 170,000 ounces of gold bullion in July: the fifth highest on record, and we expect today’s month-end update to push that number even higher.
But while the dislocation between demand for physical and the price of paper gold has been extensively discussed here over the years, most recently in “Gold And The Silver Stand-Off: Is The Selling Of Paper Gold And Silver Finally Ending?”, something unexpected happened at the CME on Friday afternoon which may be the most important observation yet.
Recall that in the middle of 2013, in an extensive series of articles, we covered what was then a complete collapse in Comex vaulted holding of registered (i.e., deliverable) gold. At the time the culprit was JPM, where for some still unexplained reason, the gold held in the newest Comex’ vault plunged by nearly 2 million ounces in just six short months.
More importantly, the collapse in registered Comex gold sent the gold coverage ratio (the number of ounces of “paper” gold open interest to the ounces of “physical” registered gold) soaring from under 20 where, or roughly in line with its long-term average, to a whopping 112x. This means that there were a total of 112 ounces of claims for every ounces of physical gold that could be delivered at any given moment.
Gradually, the Comex raid was relegated to the backburner when starting in 2014 the amount of registered gold tripled from the upper 300k range to 1.15 million ounces one year ago, at which point the slide in Comex registered gold started anew.
Which brings us to Friday afternoon, also known as month end position squaring, when in the latest daily Comex gold vault depository update we found that while some 270K in Eligible gold had been withdrawn mostly from JPM vaults, what caught our attention was the 25,386 ounces of Registered gold that had been “adjusted” out of registered and into eligible. As a reminder, eligible gold is “gold” that can not be used to satisfy inbound delivery requests without it being converted back to registered gold first, which makes it mostly inert for delivery satisfaction purposes.
Most importantly, this 25,386 oz reduction in deliverable Comex gold from 376,906 on Thursday pushed the amount of registered Comex gold to an all time low: at 351,519 ounces, or just barely over 10 tons, registered Comex gold has never been lower!
Incidentally, as part of the month-end redemption requests, we saw a whopping 22% of the eligible gold in Kilo-bar format (where there is no registered, just eligible) be quietly whisked away from Brink’s vaults: unlike traditional ounce-based contracts, the kilo format traditionally serves as an indication of Chinese demand, and if withdrawals on par with those seen on July 31 persist, it will soon become clear that Chinese buyers are once again scrambling for the safety of gold now that their stock market bubble has blown up.
This covers the sudden surge in demand for physical gold as manifested by CME data.
Meanwhile, over in “paper gold” land, things remained unchanged: as shown in the chart below, the aggregate gold open interest rose modestly to 43.5 million ounces up from 42.9 million the day before.
While on its own, gold open interest – which merely represents the total potential claims on gold if exercised – is hardly exciting, as we have shown previously it has to be observed in conjunction with the physical gold that “backs” such potential delivery requests, also known as the “coverage ratio” of deliverable gold.
It is here that things get a little out of hand, because as the chart below shows, all else equal, the 43.5 million ounces of gold open interest and the record low 351,519 ounces of registered gold imply that as of Friday’s close there was a whopping 123.8 ounces in potential paper claims to every ounces of physical gold.
This is an all time record high, and surpasses the previous period record seen in January 2014 following the JPM gold vault liquidation.
Another way of stating this unprecedented ratio is that the dilution ratio between physical gold and paper gold has hit a record low 0.8%.
Indicatively, the average paper-to-physical coverage ratio since January 1, 2000 is a “modest” 19.1x. As of Friday it had soared to more than 6 times greater.
Which brings us to the usual concluding observations:
First: as we have said previously, at a time when all the gold selling (and naked shorting) is in the paper markets and when demand for physical gold is once again off the charts, with soaring purchases not only in India but also in the US, where is this gold going? Clearly not into CME gold vaults, which are once again a source of physical gold, and as the above shows, have never had less deliverable gold.
Second, total Comex gold has dropped to such precarious levels in the past and while on many occasions market observers have asked if the Comex is close to a failure to deliver, aka a default of the CME’s gold warehouse, it has always avoided such a fate. Still, one wonders: the 10+ tons of deliverable gold at the Comex are now worth a paltry $383 million. It would not be very complicated for a next generation “Hunt Brother” to buy some $400 million in Comex gold, and promptly demand delivery: after all the gold crash of two weeks ago saw some $2.7 billion in paper gold dumped in the most illiquid market – why can’t it be done in reverse. What would happen next is unknown, but unless somehow the Comex found a way of converting millions of ounces of Eligible gold into Registered, the CME would simply be unable to satisfy such a delivery request.
Third: while there are still over 7 million ounces of Eligible gold, why the recent spike in “adjustments” of eligible to registered gold (i.e., missing a warehouse receipt)?
Finally, we assume the mainstream press will once again start paying close attention to the total, and especially registered, gold held at the Comex: at a pace of 25K a day, the gold vaults that make up the CME’s vaulting system would be depleted in just under two weeks of daily withdrawals.
In any case, we are very curious to see how this latest dramatic face off in the long-running war between paper and physical gold, concludes.
- First Default By U.S. Commonwealth In History: Puerto Rico Fails To Make Required Debt Payment
Over the weekend Puerto Rico was supposed to make a modest principal and interest payment of some $58 million due on Public Finance Corp. bonds, which however few expected would be satisfied. As a reminder, on Friday, Victor Suarez, the chief of staff for Governor Alejandro Garcia Padilla, said during a press conference in San Juan that the government simply does not have the money.
Moments ago Melba Acosta, president of the Government Development Bank, confirmed as much, when he announced that only $628,000 of the $58 million payment, or just about 1%, had been paid.
Below is the full statement from Acosta on the service of PFC Bonds:
Today, Government Development Bank for Puerto Rico (“GDR”) President Melba Acosta Febo issued the following statement on the service of Public Finance Corporation (PFC) bonds:
Due to the lack of appropriated funds for this fiscal year the entirety of the PFC payment was not made today. This was a decision that reflects the serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained.
“PFC did make a partial payment of Interest in respect of its outstanding bonds. The partial payment was made from funds remaining from prior legislative appropriations in respect of the outstanding promissory notes securing the PFC bonds. In accordance with the terms of these bonds, which stipulate that these obligations are payable solely from funds specifically appropriated by the Legislature, PFC applied these funds—totaling approximately $628.000—to the August 1 payment.”
WSJ adds that the payment to bondholders is the first skipped since Governor Alejandro Garcia Padilla in June said the island’s debts were unsustainable and urged negotiations with creditors in an effort to restructure about $72 billion. “Still, analysts said it isn’t likely to provoke an acute market wide reaction from investors, many of whom have been inching away for the commonwealth for years.”
Except for those hedge funds who haven’t, and have been BTFD in hopes of another bailout of course.
And confirming that making just 1% of the contractual payment is not the same as making 100% of it, moments ago Moody’s confirmed what most had already known:
- MOODY’S VIEWS PUERTO RICO IN DEFAULT
More via CNBC:
“Moody’s views this event as a default,” Emily Raimes, vice president at Moody’s Investors Service, said in a statement, adding that payment of “debt service on these bonds is subject to appropriation, and the lack of appropriation means there is not a legal requirement to pay the debt, nor any legal recourse for bondholders.
“This event is consistent with our belief that Puerto Rico does not have the resources to make all of its forthcoming debt payments. This is a first in what we believe will be broad defaults on commonwealth debt,” she added.
In other words, small or not, PR has failed a mandatory principal repayment and is now in default under the PFC bonds. Up next, as per Bloomberg’s preview “the default promises to escalate the debt crisis racking the island, where officials are pushing for what may be the biggest restructuring ever in the municipal market.”
“An event like this is significant enough that it could hurt prices for Puerto Rico bonds,” said Richard Larkin, director of credit analysis at Herbert J Sims & Co. in Boca Raton, Florida. “I can’t believe a default on debt with Puerto Rico’s name will go unnoticed.”
It is unclear if creditors will now threaten the commonwealth with a “temporary” expulsion from the dollarzone as part of their hardball negotiating tactics. Nor is it clear if Schauble is still willing to trade Puerto Rico for Greece.
What is clear is that the first default by a US commonwealth is now in the history books.
- Pictures Worth A Thousand Words: Coafeidian, The Chinese Eco-City That Became A Ghost Town
Authored by Gilles Sabrie, originally posted at The Guardian,
"As precious as gold…" That was how then-president Hu Jintao described Caofeidian during his visit in 2006. It was pledged to be "the world’s first fully realised eco-city" – yet 10 years and almost $100bn later, only a few thousand inhabitants have moved to this land reclaimed from the sea.. as yet another 'centrally planed' idea is completely FUBAR.
China’s ‘eco-cities’: empty of hospitals, shops and people
The leftover gate from a construction site – for a road that doesn’t lead anywhere. Caofeidian eco-city, begun in 2003, is located 200km southeast of Beijing. All photographs: Gilles Sabrie
Locals fish for crabs in the Bohai Sea as construction sites stand idle in the background. Caofeidian, in Hebei province, was originally a small island that has expanded using land reclaimed from the sea.
The ‘eco-city’ was made possible through huge bank loans. Once it was half-built, these loans were halted and many projects suspended due to the rising cost of raw materials and a lack of government support.
The knock-on effects are also to be seen in this abandoned tourist resort by the shore of Bohai Sea.
A lone worker inside Caofeidian city’s mostly abandoned industrial park. He works for a company producing solar panels – a heavily subsidised industry in China that is plagued by over capacity.
Caofeidian eco-city was planned to accommodate one million inhabitants, yet only a few thousand live there today. It has joined the growing ranks of China’s ghost cities.
A torn poster showing the original plan for Caofeidian Environmental Industries Park. Government and state owned industrial enterprises are said to have invested 561 billion yuan (US $91bn) in the area over the past decade, but the park was never completed.
A shopping mall modelled on a traditional Italian city was finished, but businesses haven’t moved owing to the small number of city residents.
Behind the empty mall, a branch of Tangshan University is under construction. The provincial government is moving it to Caofeidian to make up for the lack of businesses in the new city.
Security guards by Cafofeidian harbour, where coal and iron ore are unloaded to feed the Shougang steel mill. The mill was moved from Beijing to Caofeidian in 2006, but is mired in debt.
Bridge to nowhere: a six-lane road span was abandoned after 10 support pylons had been erected.
An Japanese factory stands idle in the Caofeidian Sino-Japanese eco-industry park. The factory moved from Tangshan city, attracted by government incentives, but never re-started operations.
Empty residential buildings in Caofeidian eco-city. Once described as the world’s first fully realised eco-city, Caofeidian is now struggling to pay daily interest rates on the billions of yuan borrowed to build it.
- Obama's Climate Fascism Is Another Nail In The Coffin For The U.S. Economy
Submitted by Michael Snyder via The Economic Collapse blog,
Is Barack Obama trying to kill the economy on purpose? On Sunday, we learned that Obama is imposing a nationwide 32 percent carbon dioxide emission reduction from 2005 levels by the year 2030. When it was first proposed last year, Obama’s plan called for a 30 percent reduction, but the final version is even more dramatic. The Obama administration admits that this is going to cost the U.S. economy billions of dollars a year and that electricity rates for many Americans are going to rise substantially. And what Obama is not telling us is that this plan is going to kill what is left of our coal industry and will destroy countless numbers of American jobs. The Republicans in Congress hate this plan, state governments across the country hate this plan, and thousands of business owners hate this plan. But since Barack Obama has decided that this is a good idea, he is imposing it on all of us anyway.
So how can Obama get away with doing this without congressional approval?
Well, he is using the “regulatory power” of the Environmental Protection Agency. Congress is increasingly becoming irrelevant as federal agencies issue thousands of new rules and regulations each and every year. The IRS, for example, issues countless numbers of new rules and regulations each year without every consulting Congress. Government bureaucracy has spun wildly out of control, and most Americans don’t even realize what is happening.
In the last 15 days of 2014 alone, 1,200 new government regulations were published. We are literally being strangled with red tape, and it has gotten worse year after year no matter which political party has been in power.
These new greenhouse gas regulations are terrible. The following is a summary of what Obama is now imposing on the entire country…
Last year, the Obama administration proposed the first greenhouse gas limits on existing power plants in U.S. history, triggering a yearlong review and 4 million public comments to the Environmental Protection Agency. In a video posted to Facebook, Obama said he would announce the final rule at a White House event on Monday, calling it the biggest step the U.S. has ever taken on climate change.
The final version imposes stricter carbon dioxide limits on states than was previously expected: a 32 percent cut by 2030, compared to 2005 levels, senior administration officials said. Obama’s proposed version last year called only for a 30 percent cut.
In America today, the burning of coal produces approximately 40 percent of the electrical power used by Americans each year.
So what is this going to do to our electricity bills?
You guessed it – at this point even the Obama administration is admitting that they are going to go up. The following comes from Fox News…
The Obama administration previously predicted emissions limits will cost up to $8.8 billion annually by 2030, though it says those costs will be far outweighed by health savings from fewer asthma attacks and other benefits. The actual price is unknown until states decide how they’ll reach their targets, but the administration has projected the rule would raise electricity prices about 4.9 percent by 2020 and prompt coal-fired power plants to close.
In the works for years, the power plant rule forms the cornerstone of Obama’s plan to curb U.S. emissions and keep global temperatures from climbing, and its success is pivotal to the legacy Obama hopes to leave on climate change. Never before has the U.S. sought to restrict carbon dioxide from existing power plants.
And we must keep in mind that government projections are always way too optimistic. The real numbers would almost surely turn out to be far, far worse than this.
In addition, these new regulations are going to complete Barack Obama’s goal of destroying our coal industry. In a previous article, I included an excerpt from a recent news article about how some of the largest coal producers in America have just announced that they are declaring bankruptcy…
On Thursday, Bloomberg reported that the biggest American producer of coking coal, Alpha Natural Resources, could file for bankruptcy as soon as Monday.
Competitor Walter Energy filed for bankruptcy earlier this month, and several others have done the same this year.
Barack Obama has actually done something that he promised to do.
He promised to kill the coal industry, and he is well on the way to accomplishing that goal.
Of course Hillary Clinton thinks that this is a splendid idea. She called Obama’s plan “the floor, not the ceiling”, and she is pledging to do even more to reduce greenhouse gas emissions. The following comes from the Washington Post…
Democratic presidential front-runner Hillary Rodham Clinton pledged Sunday that if elected she will build on a new White House clean-energy program and defend it against those she called “Republican doubters and defeatists.”
Clinton was the first 2016 candidate to respond to the ambitious plan that President Obama will debut on Monday. Details of the program, which aims to cut greenhouse-gas pollution, were released over the weekend. The new regulation will require every state to reduce emissions from coal-burning power plants.
And you know what?
The climate control freaks will never be satisfied. Since just about all human activity affects the climate in some way, they will eventually demand control over virtually everything that we do in the name of “saving the planet”. That is why I call it “climate fascism” – in the end it is all about control.
During the month of September, the Pope is going to travel to the United Nations to give a major speech to kick off the conference at which the UN’s new sustainable development agenda will be launched. As I have documented previously, this new agenda does not just cover greenhouse gas emissions and the environment. It also addresses areas such as economics, agriculture, education and gender equality. It has been called “Agenda 21 on steroids”, and it is basically a blueprint for governing the entire planet.
Unfortunately, that is ultimately what the elite want.
They want to micromanage the lives of every, man, woman and child on the globe.
They will tell us that unless people everywhere are forced to reduce their “carbon footprints” that climate catastrophe is absolutely certain, but their “solutions” always mean more power and more control in their hands.
Barack Obama promised to fundamentally transform America, and he is doing it in hundreds of different ways. These new greenhouse gas regulations are just one example. Our nation is being gutted like a fish, and most Americans don’t seem to care.
What in the world will it take for this country to finally wake up?
- Why The U.S. Is the Next Greece: Doug Casey On America's Economic Problems
“With these stupid governments printing trillions and trillions of new currency units,” warns investor Doug Casey, “it’s building up to a catastrophe of historic proportions.” In an excellent brief interview with Reason magazine Editor-in-Chief Matt Welch, Casey expounds on the US noting that “as any institution gets larger and older it inevitably becomes corrupt and fails.” What to do? “I wouldn’t keep significant capital in banks,” he exclaimed, “most of the banks in the world are bankrupt. That didn’t stop the “brain dead” Greeks who left their money in banks as all the signs were on the wall, he notes as he addresses whether gold is a good investment in 2015, and offers back-handed bright side: Catastrophes create many opportunities to earn a profit.
- Breaking Down China's $23 Trillion Debt Pile
Back in April, we highlighted Beijing’s “massive debt problem“, noting that as of last year, total debt in China amounted to some $28 trillion when you include government debt, corporate debt, and household borrowing.
As Bloomberg noted at the time – and as we’ve discussed extensively – Beijing is facing the virtually impossible task of trying to de-leverage and releverage at the same time.
“Various parts of the government don’t always seem to be working from the same playbook,” Bloomberg observed, before quoting Credit Agricole’s Dariusz Kowalczyk who pointed out the “obvious contradiction between attempts to deleverage the economy and attempts to boost growth.”
Indeed, there are times when the scale seems to tip in favor of deleveraging. For instance, Beijing has recently shown a willingness to tolerate defaults and the case of Baoding Tianwei Group Co even suggested that in some instances, state-affiliated companies may not receive immediate government support. Nevertheless, the abrupt 180 on LGVF financing and the transformation of the local government debt restructuring initiative into the Chinese version of LTROs betrays the extent to which China is still reluctant to deleverage its economy in the face of flagging growth.
Against that backdrop we bring you the following graphic from Bloomberg which breaks down China’s massive debt pile and shows the degree to which it’s grown over the past decade.
- Jimmy Carter Rages At What The U.S. Has Become: "Just An Oligarchy With Unlimited Political Bribery"
Submitted by Eric Zeusse,
On July 28th, Thom Hartmann interviewed former U.S. President Jimmy Carter, and, at the very end of his show (as if this massive question were merely an aftethought), asked him his opinion of the 2010 Citizens United decision and the 2014McCutcheon decision, both decisions by the five Republican judges on the U.S. Supreme Court. These two historic decisions enable unlimited secret money (including foreign money) now to pour into U.S. political and judicial campaigns. Carter answered:
“It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy with unlimited political bribery being the essence of getting the nominations for President or being elected President. And the same thing applies to governors, and U.S. Senators and congress members. So, now we’ve just seen a subversion of our political system as a payoff to major contributors, who want and expect, and sometimes get, favors for themselves after the election is over. …
At the present time the incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves. Somebody that is already in Congress has a great deal more to sell.”
He was then cut off by the program, though that statement by Carter should have been the start of the program, not its end. (And the program didn’t end with an invitation for him to return to discuss this crucial matter in depth — something for which he’s qualified.)
So: was this former President’s provocative allegation merely his opinion? Or was it actually lots more than that? It was lotsmore than that.
Only a single empirical study has actually been done in the social sciences regarding whether the historical record shows that the United States has been, during the survey’s period, which in that case was between 1981 and 2002, a democracy (a nation whose leaders represent the public-at-large), or instead an aristocracy (or ‘oligarchy’) — a nation in which only the desires of the richest citizens end up being reflected in governmental actions. This study was titled “Testing Theories of American Politics,” and it was published by Martin Gilens and Benjamin I. Page in the journal Perspectives on Politics, issued by the American Political Science Association in September 2014. I had summarized it earlier, on 14 April 2014, while the article was still awaiting its publication.
The headline of my summary-article was “U.S. Is an Oligarchy Not a Democracy Says Scientific Study.” I reported: "The clear finding is that the U.S. is an oligarchy, no democratic country, at all. American democracy is a sham, no matter how much it's pumped by the oligarchs who run the country (and who control the nation's 'news' media).” I then quoted the authors’ own summary: “The preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.”
The scientific study closed by saying: “In the United States, our findings indicate, the majority does not rule—at least not in the causal sense of actually determining policy outcomes.” A few other tolerably clear sentences managed to make their ways into this well-researched, but, sadly, atrociously written, paper, such as: “The preferences of economic elites (as measured by our proxy, the preferences of ‘affluent’ citizens) have far more independent impact upon policy change than the preferences of average citizens do.” In other words, they found: The rich rule the U.S.
Their study investigated specifically “1,779 instances between 1981 and 2002 in which a national survey of the general public asked a favor/oppose question about a proposed policy change,” and then the policy-follow-ups, of whether or not the polled public preferences had been turned into polices, or, alternatively, whether the relevant corporate-lobbied positions had instead become public policy on the given matter, irrespective of what the public had wanted concerning it.
The study period, 1981-2002, covered the wake of the landmark 1976 U.S. Supreme Court decision, Buckley v. Valeo, which had started the aristocratic assault on American democracy, and which seminal (and bipartisan) pro-aristocratic court decision is described as follows by wikipedia: It “struck down on First Amendment grounds several provisions in the 1974 Amendments to the Federal Election Campaign Act. The most prominent portions of the case struck down limits on spending in campaigns, but upheld the provision limiting the size of individual contributions to campaigns. The Court also narrowed, and then upheld, the Act's disclosure provisions, and struck down (on separation of powers grounds) the make-up of the Federal Election Commission, which as written allowed Congress to directly appoint members of the Commission, an executive agency.”
Basically, the Buckley decision, and subsequent (increasingly partisan Republican) Supreme Court decisions, have allowed aristocrats to buy and control politicians.
Already, the major ‘news’ media were owned and controlled by the aristocracy, and ‘freedom of the press’ was really just freedom of aristocrats to control the ‘news’ — to frame public issues in the ways the owners want. The media managers who are appointed by those owners select, in turn, the editors who, in their turn, hire only reporters who produce the propaganda that’s within the acceptable range for the owners, to be ‘the news’ as the public comes to know it.
But, now, in the post-Buckley-v.-Valeo world, from Reagan on (and the resulting study-period of 1981-2002), aristocrats became almost totally free to buy also the political candidates they wanted. The ‘right’ candidates, plus the ‘right’ ‘news’-reporting about them, has thus bought the ‘right’ people to ‘represent’ the public, in the new American ‘democracy,’ which Jimmy Carter now aptly calls “subversion of our political system as a payoff to major contributors.”
Carter — who had entered office in 1976, at the very start of that entire era of transition into an aristocratically controlled United States (and he left office in 1981, just as the study-period was starting) — expressed his opinion that, in the wake now of the two most extreme pro-aristocratic U.S. Supreme Court decisions ever (which are Citizens United in 2010, andMcCutcheon in 2014), American democracy is really only past tense, not present tense at all — no longer a reality.
He is saying, in effect, that, no matter how much the U.S. was a dictatorship by the rich during 1981-2002 (the Gilens-Page study era), it’s far worse now.
Apparently, Carter is correct: The New York Times front page on Sunday 2 August 2015 bannered, "Small Pool of Rich Donors Dominates Election Giving,” and reported that:
"A New York Times analysis of Federal Election Commission reports and Internal Revenue Service records shows that the fund-raising arms race has made most of the presidential hopefuls deeply dependent on a small pool of the richest Americans. The concentration of donors is greatest on the Republican side, according to the Times analysis, where consultants and lawyers have pushed more aggressively to exploit the looser fund-raising rules that have fueled the rise of super PACs. Just 130 or so families and their businesses provided more than half the money raised through June by Republican candidates and their super PACs.”
The Times study shows that the Republican Party is overwhelmingly advantaged by the recent unleashing of big-corporate money power. All of the evidence suggests that though different aristocrats compete against each other for the biggest chunks of whatever the given nation has to offer, they all compete on the same side against the public, in order to lower the wages of their workers, and to lower the standards for consumers’ safety and welfare so as to increase their own profits (transfer their costs and investment-losses onto others); and, so, now, the U.S. is soaring again toward Gilded Age economic inequality, perhaps to surpass the earlier era of unrestrained robber barons. And, the Times study shows: even in the Democratic Party, the mega-donations are going to only the most conservative (pro-corporate, anti-public) Democrats. Grass-roots politics could be vestigial, or even dead, in the new America.
The question has become whether the unrestrained power of the aristocracy is locked in this time even more permanently than it was in that earlier era. Or: will there be yet another FDR (Franklin Delano Roosevelt) to restore a democracy that once was? Or: is a President like that any longer even possible in America?
As for today’s political incumbents: they now have their careers for as long as they want and are willing to do the biddings of their masters. And, then, they retire to become, themselves, new members of the aristocracy, such as the Clintons have done, and such as the Obamas will do. (Of course, the Bushes have been aristocrats since early in the last century.)
Furthermore, the new age of aristocratic control is not merely national but international in scope; so, the global aristocracy have probably found the formula that will keep them in control until they destroy the entire world. What’s especially interesting is that, with all of the many tax-exempt, ‘non-profit’ ‘charities,’ which aristocrats have established, none of them is warring to defeat the aristocracy itself — to defeat the aristocrats’ system of exploitation of the public. It’s the one thing they won’t create a ‘charity’ for; none of them will go to war against the expoitative interests of themselves and of their own exploitative peers. They’re all in this together, even though they do compete amongst themselves for dominance, as to which ones of them will lead against the public. And the public seem to accept this modern form of debt-bondage, perhaps because of the ‘news’ they see, and because of the news they don’t see (such as this).
- What's The Difference Between Hillary, Snowden And Manning?
As the race for The White House heats up, it’s looking increasingly likely that the biggest threat to Hillary Clinton’s bid for the US Presidency will in fact be Hillary Clinton.
On the GOP side, Donald Trump has thus far proven to be “gaffe proof”, as a series of vitriolic attacks against everyone from Mexicans to war heroes has only served to increase his lead over rivals, prompting some to brand the incorrigible billionaire the “Teflon Don”, after the late New York crime boss John Gotti. Fortunately for Hillary, Trump’s popularity has further splintered an already divided Republican party, and in the eyes of some commentators, this makes the road (back) to The White House that much easier for Clinton.
That is unless the controversy surrounding her handling of classified e-mails mushrooms into a bigger public relations nightmare than it already is and as we noted late last month, it now looks as though it won’t be easy for the presumed Democratic frontrunner to shake accusations that she violated protocol.
“It’s not that Donald Trump needed help in his juggernaut campaign across the GOP presidential primary, but the flamboyant billionaire got an unexpected present from the WSJ which may have just crippled the chances of his biggest democrat competitor as well, Hillary Clinton,” we wrote, introducing a WSJ piece which cited an internal government review showing that the former Secretary of State, “sent at least four emails from her personal account containing classified information during her time heading the State Department.” Here’s more from McClatchy:
The classified emails stored on former Secretary of State Hillary Clinton’s private server contained information from five U.S. intelligence agencies and included material related to the fatal 2012 Benghazi attacks, McClatchy has learned.
Of the five classified emails, the one known to be connected to Benghazi was among 296 emails made public in May by the State Department. Intelligence community officials have determined it was improperly released.
Revelations about the emails have put Clinton in the crosshairs of a broadening inquiry into whether she or her aides mishandled classified information when she used a private server set up at her New York home to conduct official State Department business.
While campaigning for the 2016 Democratic presidential nomination, Clinton has repeatedly denied she ever sent or received classified information. Two inspectors general have indicated that five emails they have reviewed were not marked classified at the time they were stored on her private server but that the contents were in fact “secret.”
That last passage is critical. Having a security clearance comes with a certain amount of responsibility and those who are privy to potentially sensitive information are expected to exercise good judgement.
In other words, whether or not the information carried a giant red “top secret” stamp isn’t the relevant question, nor is “no harm no foul” a legitimate after the fact defense.
And that, apparently, is the difference between a Clinton and say a Manning or a Snowden – that is, holding Hillary (or any other member of what Jimmy Carter would call America’s “political oligarchy”) to the same standards as everyone else turns out to be an uphill battle.
Here’s Peter Van Buren writing for Reuters with more on what’s wrong with Clinton’s defense.
* * *
What everyone with a Top Secret security clearance knows – or should know
In the world of handling America’s secrets, words – classified, secure, retroactive – have special meanings. I held a Top Secret clearance at the State Department for 24 years and was regularly trained in protecting information as part of that privilege. Here is what some of those words mean in the context of former Secretary of State Hillary Clinton’s emails.
The Inspectors General for the State Department and the intelligence community issued astatement saying Clinton’s personal email system contained classified information. This information, they said, “should never have been transmitted via an unclassified personal system.” The same statement voiced concern that a thumb drive held by Clinton’s lawyer also contains this same secret data. Another report claims the U.S. intelligence community is bracing for the possibility that Clinton’s private email account contains multiple instances of classified information, with some data originating at the CIA and NSA.
A Clinton spokesperson responded that “Any released emails deemed classified by the administration have been done so after the fact, and not at the time they were transmitted.” Clinton claims unequivocally her email contained no classified information, and that no message carried any security marking, such as Confidential or Top Secret.
Yet even if retroactive classification was applied only after Clinton hit “send” (and State’s own Inspector General says it wasn’t), she is not off the hook.
What matters in the world of secrets is the information itself, which may or may not be marked “classified.” Employees at the highest levels of access are expected to apply the highest levels of judgment, based on the standards in Executive Order 13526. The government’s basic nondisclosure agreement makes clear the rule is “marked or unmarkedclassified information.”
In addition, the use of retroactive classification has been tested and approved by the courts, and employees are regularly held accountable for releasing information that was unclassified when they released it, but classified retroactively.
It is a way of doing business inside the government that may at first seem nonsensical, but in practice is essential for keeping secrets.
For example, if an employee were to be handed information sourced from an NSA intercept of a foreign government leader, somehow not marked as classified, she would be expected to recognize the sensitivity of the material itself and treat it as classified.
In other cases, an employee might hear something sensitive and be expected to treat the information as classified. The emphasis throughout the classification system is not on strict legalities and coded markings, but on judgment. In essence, employees are required to know right from wrong. It is a duty, however subjective in appearance, one takes on in return for a security clearance.
“Not knowing” would be an unexpected defense from a person with years of government experience.
In addition to information sourced from intelligence, Clinton’s email may contain some back-and-forth discussions among trusted advisors. Such emails are among the most sensitive information inside State, and are otherwise always considered highly classified.
The problem for Clinton may be particularly damaging. Every email sent within the State Department’s own systems contains a classification; an employee technically cannot hit “send” without one being applied. Just because Clinton chose to use her own hardware does not relieve her or her staff of this requirement.
Some may say even if Clinton committed security violations, there is no evidence the material got into the wrong hands – no blood, no foul. Legally that is irrelevant. Failing to safeguard information is the issue. It is not necessary to prove the information reached an adversary, or that an adversary did anything harmful with the information for a crime to have occurred. See the cases of Chelsea Manning, Edward Snowden, Jeff Sterling, Thomas Drake, John Kiriakou or even David Petraeus. The standard is “failure to protect” by itself.
- Fed Finally Figures Out Soaring Student Debt Is Reason For Exploding College Costs
Back in May 2014, in one of its patented utterly worthless “analyses” (that cost taxpayers several tens of thousands of dollars) the San Francisco Fed, home of such titans of central planning thought as Janet Yellen, asked “is it still worth going to college.” Not surprisingly, its answer was yes after some contrived mathematics that completely forgot to include just one thing: debt.
At the time, we had the following comment:
Oddly enough, having perused the paper several times, and having done
a word search for both “loan” and “debt” (both of which return no
hits), we find zero mention of one particular hockeystick. This one:
Perhaps for the San Fran Fed to be taken seriously one of these
years, it will actually do an analysis that covers all sides of a given
problem, instead of just the one it was goalseeked to “conclude” before
any “research” was even attempted.An analysis, even a painfully simple one, such as the one we put together less than a month later:
It is common knowledge that in the hierarchy of bubbles, not even the stock market comes close to the student loan bubble. If it isn’t, one glance at the chart below which shows the exponential surge in Federal student debt starting just after the great financial crisis, should put the problem in its context.
And while we have previously reported that a shocking amount of the loan proceeds are used to fund anything but tuition payments, a major portion of the funding does manage to find itself to its intended recipient: paying the college tuition bill.
Which means that with student debt being so easily accessible anyone can use (and abuse), it gives colleges ample room to hike tuition as much as they see fit: after all students are merely a pass-through vehicle (even if one which for the most part represents non-dischargeable “collateral”) designed to get funding from point A, the Federal Government to point B, the college treasury account.
It should thus come as no surprise that in a world in which colleges can hike tuition by any amount they choose, and promptly be paid courtesy of the federal government, and with endless amounts of propaganda whispering every day in the ears of impressionable potential students the only way they can get a well-paying job is to have a college diploma (see San Francisco Fed’s latest paper confirming just this) there is no shortage of applicants willing to take on any amount of debt to make sure this cycle continues, that soaring tuition costs are one of the few items not even the BLS can hedonically adjust to appear disinflationary.
End result: tutitions have literally expoded across the country in both public and private colleges.
None of this was rocket science, in fact that ultra cheap, widely available government-funded student debt is the cause for soaring prices, in this case college tuitions, is so obvious even tenured economists at the Federal Reserve should be able to get it.
Well, we are delighted to report that about 7 years after it was glaringly obvious to everyone except the Fed of course, now – with the usual half decade delay – even the NY Fed has finally figured out what even 5 year olds get.
As the WSJ helpfully reminds us, the federal government has boosted aid to families in recent decades to make college more affordable. However “a new study from the New York Federal Reserve faults these policies for enabling college institutions to aggressively raise tuitions.”
The implication is the federal government is fueling a vicious cycle of higher prices and government aid that ultimately could cost taxpayers and price some Americans out of higher education, similar to what some economists contend happened with the housing bubble.
But… but… the San Fran Fed said…
Could it be possible that the Fed itself, with its imbecilic monetary policies, and the Federal government with its resultant $1.2 trillion in cheap debt, is the cause for tuition prices which are soaring by 6% every year, some three times higher than the increase in broad wages?
Not only is it possible, but it is precisely what has happened. And now, even the Fed has figured it out.
The heresy continues:
“There’s widespread concern among policy makers and college officials that it has become too easy for students to borrow large amounts of money without necessarily appreciating what they are getting into,” said Terry Hartle of the American Council on Education, a trade group representing college and university presidents.
The government’s student-credit spigot burst open in recent decades as Americans sought a leg up in an increasingly sophisticated economy, and accelerated during the last recession. Annual student-loan disbursements—which include some private loans but come mostly from the federal government—more than doubled between 2001 and 2012 to $120 billion, according to the New York Fed’s David O. Lucca, Taylor Nadauld and Karen Shen.
The math became so clear even economists, even Fed economists, finally figured it out:
Federal student loans allow Americans to borrow at below-market rates with scant scrutiny of their credit and no assessment of their ability to repay. Meanwhile, federal Pell grants, which help low-income college students and don’t need to be repaid, more than tripled to more than $30 billion a year between 2001 and 2012. Education tax credits roughly quadrupled to about $20 billion a year.
The cost of getting a degree similarly exploded. From 2000 to 2014, consumers’ out-of-pocket costs for college and graduate-school tuition rose 6% a year, on average, according to the Labor Department’s consumer-price index. By comparison, medical-care inflation looks meek at an average 3.8%. Overall consumer prices climbed 2.4% a year.
And so on.
What is most embarrassing about this above is not that what has been patently common sensical has finally been confirmed, but that the this was so confusing to the “smartest central planners in the room”, it took them years upon years, and not only faulty analysis (thank you San Fran Fed) to finally get it right.
What will they figure out next: the buying E-Minis to prop up the S&P, after having monetized 30% of all 10Year equivalents, is a recipe for the greatest disaster ever? But at least also today the Fed (ironically the San Fran edition) finally admitted that the US economy can’t function without bubbles, so there…
In fact, the only sensible thing out of this entire hodge-podge of Fed economist BS, was one of the comments to the WSJ piece, which stands on its own merit:
Any first WEEK student of economics knows that more money begets higher prices – regardless of whether it is higher education or the housing market – and that throwing tax dollars at the problem only makes things worse. This study was a waste of money, but what it really shows is that basic economics shouldn’t wait for “higher education” and should be taught in high school.
The problem, dear commentator is that the Fed’s only purpose to exist, is to throw tax, or newly printed, dollars at problems.
- Fed Admits Economy Can't Function Without Bubbles
In short, the dot-com bust was the last chance for the Fed to pivot and liberate the American economy from the corrosive financialization it had fostered. A determined policy of higher interest rates and renunciation of the Greenspan Put would have paved the way for a return to current account balance, sharply increased domestic savings, the elevation of investment over consumption, and a restoration of financial discipline in both public and private life. Needless to say, the Fed never even considered this historic opportunity. Instead, it chose to double-down on the colossal failure it had already produced, driving interest rates into the sub-basement of historic experience. This inexorably triggered the next and most destructive bubble ever. – David Stockman, The Great Deformation
Over the course of the roughly twelve and a half years from Black Monday to the beginning of the end for the dot-com bubble, the Fed effectively engineered a mania by facilitating the explosion of bank loans, GSE debt, and the shadow banking complex, which together grew from under $5 trillion in 1987 to $17 trillion by the beginning of 2000.
For evidence that this expansion was indeed the work of monetary authorities and was not funded by an increase in America’s savings, look no further than the following chart which shows an accommodative Fed and an increasingly savings averse American public:
When the Nasdaq collapsed, the Fed was given an opportunity to restore some semblance of order and discipline to a market that had learned to rely on the Greenspan put. Instead, it chose to inflate a still larger bubble and now, courtesy of Janet Yellen’s friends at the San Francisco Fed, we know precisely why.
* * *
Interest Rates and House Prices: Pill or Poison?
Wild swings in asset prices over the past 20 years and the associated boom-bust cycles have sparked considerable debate about how monetary policy might play a stabilizing role.
We can now calculate how much interest rates would have had to increase relative to the historical record to keep housing prices in check. Figure 4 displays the historical U.S. post-World War II ratio of house prices to income, stated in log terms so that changes can be read approximately as percentage changes. That ratio had declined steadily until 2002. Using a linear approximation from 1950 to 2002, we extrapolate the trend rate through 2006. We then calculate the percent difference between actual observed house prices and this trend, which turns out to be about 40%. A similar number would result from comparing house prices to the consumer price index, so this difference is not particular to our choice of normalization. The United Kingdom suffered a similar 40% house price boom. Since a 1 percentage point increase in the short rate translates into about a 4.4% decline in house prices, keeping house prices on trend would have required about an 8 percentage point increase in the federal funds rate in 2002 according to our calculations.
What actually happened? The federal funds rate, the Fed’s short-term policy rate, stayed between 1% and 1.25% from the end of 2002 until the middle of 2004. Starting in June 2004, the federal funds rate rose 4.25 percentage points, reaching 5.25% by June 2006. In our experiment, the rate would have been about 8 percentage points higher at the end of 2002, but would have ended at about the same level observed in June 2006. That is, preemptive interest rate policy would have been extraordinarily tight in 2002 then would have gradually abated to around the level eventually reached in June 2006. By our calculations, such a large increase in interest rates would have depressed output more than the Great Recession did, roughly speaking.
What is the takeaway then? Slowing down a boom in house prices is likely to require a considerable increase in interest rates, probably by an amount that would be widely at odds with the dual mandate of full employment and price stability. Moreover, the Fed would need a crystal ball to foretell house price booms. In restraining asset prices, while the power of interest rate policy is uncontestable, its wisdom is debatable.
* * *
Got that? In other words, the Fed would have needed to hike rates by 800 bps in the wake of the dot-com collapse in order to prevent the housing bubble. That would have purged the system and gradually, the FOMC could have eased by around 300 bps over the next four years. That policy course would have prevented the speculative bubble that brought capital markets the world over to their knees in 2008.
And why didn’t the Fed do this? Because “such a large increase in interest rates would have depressed output more than the Great Recession did, roughly speaking.” In other words, thanks to Alan Greenspan, the US economy cannot function under a normalized monetary policy regime, “roughly speaking.”
We suppose the only question now is this: if rates needed to be 9.25% in 2002 in order to completely disabuse markets of the idea that the Fed will everywhere and always move to support asset prices, how high should rates be today?
- "The Worldwide Credit Boom Is Over, Now Comes The Tidal Wave Of Global Deflation"
Submitted by David Stockman via Contra Corner blog,
If you want a cogent metaphor for the central bank enabled crack-up boom now underway on a global basis, look no further than today’s scheduled chapter 11 filling of met coal supplier Alpha Natural Resources (ANRZ). After becoming a public company in 2005, its market cap soared from practically nothing to $11 billion exactly four years ago. Now it’s back at the zero bound.
ANRZ Market Cap data by YCharts
Yes, bankruptcies happen, and this is most surely a case of horrendous mismanagement. But the mismanagement at issue is that of the world’s central bank cartel.
The latter have insured that there will be thousands of such filings in the years ahead because since the mid-1990s the central banks has engulfed the global economy in an unsustainable credit based spending boom, while utterly disabling and falsifying the financial system that is supposed to price assets honestly, allocate capital efficiently and keep risk and greed in check.
Accordingly, the ANRZ stock bubble depicted above does not merely show that the boys, girls and robo-traders in the casino got way too rambunctious chasing the “BRICs will grow to the sky” tommyrot fed to them by Goldman Sachs. What was actually happening is that the central banks were feeding the world economy with so much phony liquidity and dirt cheap capital that for a time the physical economy seemed to be doing a veritable jack-and-the-beanstalk number.
In fact, the central banks generated a double-pumped boom——first in the form of a credit-fueled consumption spree in the DM economies that energized the great export machine of China and its satellite suppliers; and then after the DM consumption boom crashed in 2008-2009 and threatened to bring the export-mercantilism of China’s red capitalism crashing down on Beijing’s rulers, the PBOC unleashed an even more fantastic investment and infrastructure boom in China and the rest of the EM.
During the interval between 1992 and 1994 the world’s monetary system—–which had grown increasingly unstable since the destruction of Bretton Woods in 1971——took a decided turn for the worst. This was fueled by the bailout of the Wall Street banks during the Mexican peso crisis; Mr. Deng’s ignition of export mercantilism in China and his discovery that communist party power could better by maintained from the end of the central bank’s printing presses, rather than Mao’s proverbial gun; and Alan Greenspan’s 1994 panic when the bond vigilante’s dumped over-valued government bonds after the Fed finally let money market rates rise from the ridiculously low level where Greenspan had pegged them in the interest of re-electing George Bush Sr. in 1992.
From that inflection point onward, the global central banks were off to the races and what can only be described as a credit supernova exploded throughout the warp and woof of the world’s economy. To wit, there was about $40 trillion of debt outstanding in the worldwide economy during 1994, but this figure reached $85 trillion by the year 2000, and then erupted to $200 trillion by 2014. That is, in hardly two decades the world debt increased by 5X.
To be sure, in the interim a lot of phony GDP was created in the world economy. This came first in the credit-bloated housing and commercial real estate sectors of the DM economies through 2008; and then in the explosion of infrastructure and industrial asset investment in the EM world in the aftermath of the financial crisis and Great Recession. But even then, the growth of unsustainable debt fueled GDP was no match for the tsunami of debt itself.
At the 1994 inflection point, world GDP was about $25 trillion and its nominal value today is in the range of $70 trillion—-including the last gasp of credit fueled spending (fixed asset investment) that continues to deliver iron ore mines, container ships, earthmovers, utility power plants, deep sea drilling platforms and Chinese airports, highways and high rises which have negligible economic value. Still, even counting all the capital assets which were artificially delivered to the spending (GDP) accounts, and which will eventually be written-down or liquidated on balance sheets, GDP grew by only $45 trillion in the last two decades or by just 28% of the $160 trillion debt supernova.
Here is what sound money men have known for decades, if not centuries. Namely, that this kind of runaway credit growth feeds on itself by creating bloated, artificial demand for materials and industrial commodities that, in turn, generate shortages of capital assets like mines, ships, smelters, factories, ports and warehouses that require even more materials to construct. In a word, massive artificial credit sets the world digging, building, constructing, investing and gambling like there is no tomorrow.
In the case of Alpha Natural Resources, for example, the bloated demand for material took the form of met coal. And the price trend shown below is not at all surprising in light of what happened to steel capacity in China alone. At the 1994 inflection point met coal sold for about $35/ton, but at that point the Chinese steel industry amounted to only 100 million tons. By the time of the met coal peak in 2011, the Chinese industry was 11X larger and met coal prices had soared ten-fold to $340 per ton.
And here is where the self-feeding dynamic comes in. That is, how we get monumental waste and malinvestment from a credit boom. In a word, the initial explosion of demand for commodities generates capacity shortages and therefore soaring windfall profits on in-place capacity and resource reserves in the ground.
These false profits, in turn, lead speculators to believe that what are actually destructive and temporary economic rents represents permanent value streams that can be capitalized by equity owners.
But as shown below, eventually the credit bubble stops growing, materials demand flattens-out and begins to rollover, thereby causing windfall prices and profits to disappear. This happens slowly at first and then with a rush toward the drain.
ANRZ is thus rushing toward the drain because it got capitalized as if the insanely uneconomic met coal prices of 2011 would be permanent.
Needless to say, an honest equity market would never have mistaken the peak met coal price of $340/ton in early 2011 as indicative of the true economics of coking coal. After all, freshman engineering students know that the planet is blessed (cursed?) with virtually endless coal reserves including grades suitable for coking.
Yet in markets completely broken and falsified by central bank manipulation and repression, the fast money traders know nothing accept the short-run “price action” and chart points. In the case of ANZR, this led its peak free cash flow of $380 million in early 2011 to be valued at 29X.
ANRZ Free Cash Flow (TTM) data by YCharts
Self-evidently, a company that had averaged $50 to $75 million of free cash flow in the already booming met coal market of 2005-2008 was hardly worth $1 billion. The subsequent surge of free cash flow was nothing more than windfall rents on ANZR’s existing reserves, and, accordingly, merited no increase in its market capitalization or trading multiple at all.
In fact, even superficial knowledge of the met coal supply curve and production economics at the time would have established that even prices of $100 per ton would be hard to sustain after the long-term capacity expansion than underway came to fruition.
This means that ANRZ’s sustainable free cash flow never exceeded about $80 million, and that at its peak 2011 capitalization of $11 billion it was being traded at 140X. In a word, that’s how falsified markets go completely haywire in a central bank driven credit boom.
As it happened, the full ANZR story is far worse. During the last 10 years it generated $3.2 billion in cash flow from operations——including the peak cycle profit windfalls embedded in its reported results. Yet it spent $5 billion on CapEx and acquisitions during the same period, while spending nearly another $750 million that it didn’t have on stock buybacks and dividends.
Yes, it was the magic elixir of debt that made ends appear to meet in its financial statements. Needless to say, the climb of its debt from $635 million in 2005 to $3.3 billion presently was reported in plain sight and made no sense whatsoever for a company dependent upon the volatile margins and cash flows inherent in the global met coal trade.
So when we insist that markets are broken and the equities have been consigned to the gambling casinos, look no farther than today’s filing by Alpha Natural Resources.
Markets which were this wrong on a prominent name like ANRZ at the center of the global credit boom did not make a one-time mistake; they are the mistake.
As it now happens, the global credit boom is over; DM consumers are stranded at peak debt; and the China/EM investment frenzy is winding down rapidly.
Now comes the tidal wave of global deflation. The $11 billion of bottled air that disappeared from the Wall Street casino this morning is just the poster boy—–the foreshock of the thundering collapse of inflated asset values the lies ahead.
- Despite VIX Flash-Crash, Stocks Slammed As Crude Crashes To 5-Month Lows
"We got this…" Right up until around 55 seconds in the following clip…
China was ugly…
And Greece crashed 30% at the open…
An early bounce and the ubiquitous pre-EU close ramp both failed to hold stocks which had an ugly day… notice the dump after Europ closed and the ramp after 330ET… as VIX was smashed
Energy stocks led the downturn…
As WTI led stocks broadly…
Carnage in AAPL and TWTR…
as stocks catch down to bond yields…
VIX flash crashed in a desprate bid to get S&P back to VWAP… right as PR defaulted
AND sure enough S&P Futs tagged VWAP and turned around…
It appears hope is fading that Macro will help us…
Treasury yields leaked higher overnight but plunged after weak data…
The US Dollar pushed generally higher today with a retracement into the EU close that then recovered to the days highs…
Commodities continueed to get clobbered…
But crude was utterly carnaged today…
Charts: Bloomberg
Bonus Chart: Main Street Lost!!
- The World Explained In One Chart
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