Today’s News December 10, 2015

• Onshore Yuan Has Been In Freefall Since The IMF Added China To The SDR Basket

  For the 5th day in a row, Onshore Yuan has tumbled against the USDollar. Absent the violent devaluation in August, this is the largest drop since March 2014, leaving the Chinese currency at its weakest level against the USD since August 2011. It appears that after showing some signs of 'stability' to appease The IMF's political decision, and following the weak trade data this week, China has decided to escalate the currency wars, perhaps in anticipation of (or in an attempt to stall) any market turbulence when The Fed hikes rates next week and withdraws up to $800bn in liquidity from global markets.

   

  Onshore Yuan is now at its weakest since August 2011…

  

   

  As it seems, with the blessing of The IMF, China has begun its competitive devaluation efforts…slowly and under the cover of darkness from America's mainstream media…

  

   

  Put simply, something is going on as the world's money markets prepare for what lies ahead next week and the asset classes with the most risk (see CCC US Corps, EM FX, Oil) are the first to suffer before the effects of shortened collateral chains ripple up into mom-and-pop's 401k.

   

  Charts: Bloomberg

  

  

  

  

  

• The Global Economic Reset Has Begun

  Submitted by Brandon Smith via Alt-Market.com,

  In my last article, I outlined the deliberately engineered trend toward the forced “harmonization” of national economies and monetary policies, as well as the ultimate end goal of globalists: a single world currency system controlled by the International Monetary Fund and, by extension, global governance, which internationalists sometimes refer to in their more honest public moments as the “new world order.”

  The schematic for the new world order, according to the admissions of the internationalists, cannot possibly include the continued existence of U.S. geopolitical and economic dominance. The plan, in fact, requires the destabilization and reformation of America into a shell of its former glory. The most important element of this plan demands the removal of the U.S. dollar as the de facto world reserve currency, a change that would devastate our current financial structure.

  I outlined with undeniable evidence the reality that major governments, including the BRICS governments of the East, are fully on board with the globalist agenda. There is no way around it; the BRICS, including Russia and China, have openly called for a global monetary system centralized and dictated by the IMF using the SDR basket. This same plan was outlined decades ago in the Rothschild-owned magazine The Economist. We are witnessing that plan being implemented in front of our very eyes today.

  For the past couple of years, the current head of the IMF, Christine Lagarde, has used the phrase “global economic reset” often in her speeches and interviews. There is some (deliberate) ambiguity to this notion, but after sitting through hours upon hours of her most boring and repetitive discussions in globalist think tanks such as the Council On Foreign Relations, the consistent message is pretty straightforward. If anyone can stand to listen to this woman's carefully crafted prattle and well-vetted half-truths for more than five minutes, I suggest they watch this particular speech given in January at the CFR:

  Her message on the global economic reset is essentially this: “Collective” cooperation will not just be encouraged in the new order, it will be required — meaning, the collective cooperation of all nations toward the same geopolitical and economic framework. If this is not accomplished, great fiscal pain will be felt and “spillover” will result. Translation: Due to the forced interdependency of globalism, crisis in one country could cause a domino effect of crisis in other countries; therefore, all countries and their economic behavior must be managed by a central authority to prevent blundering governments or "rogue central banks" from upsetting the balance.

  It’s interesting how the IMF’s answer to the failings of globalization is MORE globalization. In other words, Lagarde would argue that while we are in the midst of an international system, we are not centralized enough for such a system to succeed.

  The IMF points out correctly that the economic situation around the world is not stable and could revert once again to the chaos of the initial 2008 crash. The Bank for International Settlements, the primary hub of central bank control, has also given numerous warnings this year on the potential for disaster, including in its latest quarterly report.

  The warnings of the BIS in particular should not be taken lightly (some analysts are indeed taking them lightly). The BIS knows exactly when financial disasters will erupt because it wrote the central bank policies that created those same events. For example, in 2007, the BIS released a warning that perfectly predicted the elements of the derivatives and credit crisis in 2008.

  What these globalist institutions will not tell you in a direct manner are the real causes and motivations behind the inevitable next stage in the ongoing destruction of the current economic system

  The global reset is not a “response” to the process of collapse we are trapped in today. No, the global reset as implemented by central banks and the BIS/IMF are the CAUSE of the collapse. The collapse is a tool, a flamethrower burning a great hole in the forest to make way for the foundations of the globalist Ziggurat to be built. As outlined in my last article, economic disaster serves the interests of elitists.

  When you look at these actions by the Federal Reserve and the U.S. government in particular, questions arise. Is it “stupidity” that is causing them to sabotage the golden goose? Is it hubris and greed? Their actions are clearly facilitating a program of incremental implosion, yet they continue to ignore the obvious. Why?

  The people who ask these questions are operating on a false assumption; they have assumed that the international bankers and the puppet politicians they control have any interest in protecting the longevity of the U.S. The fact is they do not. They have no loyalty whatsoever to the U.S. system, nor do they see the U.S. as “too big to fail.” This is utter nonsense to globalists. Rather, they see each nation and central bank as a piece in a game, much like chess. Some pieces have to be sacrificed in order to gain a better position on the board. This is all that the U.S., the Federal Reserve and even the dollar are to them: expendable pieces in a larger game.

  The U.S. is now experiencing the next stage of the great reset. Two pillars were put in place on top of an already existing pillar by the central banks in order to maintain a semblance of stability after the 2008 crash.  This faux stability appears to have been necessary in order to allow time for the conditioning of the masses towards greater acceptance of globalist initiatives, to ensure the debt slavery of future generations through the taxation of government generated long term debts, and to allow for internationalists to safely position their own assets.  The three pillars are now being systematically removed by the same central bankers. Why? I believe that they are simply ready to carry on with the next stage of the controlled demolition of the American structure as we know it.

  Bailouts And QE:  The First Pillar Removed

  The bailout bonanza was in part a direct intervention in the deflationary avalanche of the derivatives bubble, but also an indirect intervention in that it changed the psychological dynamics of the markets. As former Fed chairmans Alan Greenspan and Ben Bernanke have both hinted at in interviews and op-eds, one of the primary concerns of the central bank was the psychology behind higher stock prices.

  Stock prices could be propped up by the Fed itself through proxy buyers using the printing press. Or the Fed could inject billions, if not trillions, of dollars into banks and allow them to run wild, artificially boosting investment while doing nothing to solve the existing dilemma of negative fundamentals.  Beyond this, the markets began to move on the mere words or edicts of Fed officials as algo-computers and the general investment world placed bets on rhetoric rather than reality; a dynamic which is now ending.

  The bailouts also reanimated the cadavers of large corporations and banks, not just in the U.S. but in Europe, giving the illusion of life to the financial system while leaving Main Street to rot. In the meantime, quantitative easing measures provided a way to continue financing U.S. government debt at the expense of generations of taxpayers as numerous primary lenders began to abandon typical long-term bond purchases.

  Furthermore, oil markets appear to have been directly inflated by QE intervention. It is important to take note that oil prices remained extraordinarily high despite the continuous fall in global demand UNTIL the moment the Federal Reserve instituted the taper of QE3. Then, prices began to plunge.

  In a September 2013 article, I predicted that the Fed, despite all common sense and the claims of banks like Goldman Sachs, would indeed follow through with the taper: a removal of the first pillar levitating the U.S. system.

  I was, of course, called crazy at the time for this prediction by some people within the alternative economic community.

  “Why in the world” they asked, “would the Fed taper QE when they can simply print to infinity and kick the can down the road perpetually?” Again, these people do not understand that America is under scheduled demolition by the international banks; it is not being protected by them.

  The taper occurred in December of that year.

  Near Zero Interest Rates:  The Second Pillar Nearly Removed

  After the taper of QE, volatility not seen since 2008/2009 returned to the markets. And the public once again was reminded in sporadic moments that the recovery might not be real after all. Europe and Japan quickly stepped in with their own renewed stimulus measures, and Fed officials began using strategic media interviews to “hint” falsely that QE might return. Markets rallied, then fell dramatically, then rallied again, then fell again in a shocking manner. And this volatility has been the trend up until recently, when the question of the end of zero interest rate policy arose.

  Again, very few people have ever asked or demanded the Fed end QE or ZIRP. There was never any legitimate public pressure on the fed to remove these pillars. The investment world has been essentially addicted like heroin junkies to assured gains for three years.  The war cry of the investment world has been BTFD! (Buy the f'ing dip) for quite some time; investors have come to expect and demand inevitable central bank intervention and fiat driven stock market rallies.  Yet, the Fed is ending the party anyway.

  ZIRP is the only pillar left holding stocks in place. Without zero interest rates, and with even the most minor of .25 basis points added, cost-free overnight lending to banks and corporations will end. They will not be able to afford continued lending on the massive scale seen since 2009/2010. This means no more stock buybacks for dying companies like IBM or General Motors, among others. This means a considerable decline in the markets, declines which we have had a taste of in recent plunges in equities at the mere mention of interest rate increases.

  In August in an article entitled 'Economic Crisis Goes Mainstream: What Happen's Next?', I wrote:

  "The Federal Reserve push for a rate hike will likely be determined before 2015 is over. Talk of a September increase in interest rates may be a ploy, and a last-minute decision to delay could be on the table. This tactic of edge-of-the-seat meetings and surprise delays was used during the QE taper scenario, which threw a lot of analysts off their guard and caused many to believe that a taper would never happen. Well, it did happen, just as a rate hike will happen, only slightly later than mainstream analysts expect.

   

  If a delay occurs, it will be short-lived, triggering a dead cat bounce in stocks, with rates increasing by December as dismal retail sales become undeniable leading into the Christmas season."

  You can also read my analysis on the motivations behind a Fed rate hike as well as the theater surrounding their policies.

  The cat seems to have finished its bounce and stocks are returning to volatility.  Retail sales so far for Black Friday weekend (including Thanksgiving) have posted a staggering 10% drop with online sales below expectations. Chain Store sales have recently crashed 6.3% week over week.  Plunging freight rates and global shipping indicate a severe lack of global demand and a terrible sales season ahead.  Janet Yellen, ignoring all negative economic signals as predicted, has all but declared a rate hike a given by Dec. 16.

  I was, yet again, called crazy for this assertion by some at the time; and to be clear, I could still be wrong. The Fed could pull a fast one and not raise rates, though the rhetoric coming from the fed today almost guarantees they will take action. Not raising rates doesn’t match with their past habits; they seem to be following the timing of the taper model perfectly. The point is, despite common assumptions within the alternative media, the Fed is not “trapped” and can do whatever it wants, including killing the markets if it benefits the greater goal of a global economic authority. With the ZIRP pillar gone, expect even more violent swings in stocks and general uncertainty and panic among day-traders and the public.

  U.S. Dollar's World Reserve Status:  The Third Pillar In Progress Of Removal

  I’ve been writing about the loss of the dollar’s reserve status since 2008. And as I have always said, the removal of this final pillar is a process, not an overnight affair. The BRICS nations have been positioning themselves for years — China since 2005, the rest of the BRICS since at least 2010.

  The delusion that some economic analysts have been under is that the BRICS were strategically vying for power by building their own unified banking institution in “opposition” to the IMF and the West. As I presented in my last article, this has proven to be completely false. They were in fact positioning to take their place as puppets within the new global paradigm taking shape. China has now joined the IMF’s SDR basket (as predicted); and Russia, along with the other BRICS, has openly called for the IMF to take control of the global monetary system.

  China’s inclusion, I believe, will hasten the loss of the dollar’s market share of reserve status over the next year, along with other factors. Saudi Arabia has also brought the idea of a depeg from the U.S. dollar into the mainstream discussion. This action, which mainstream economists are calling a possible Black Swan, would end the dollar’s petro-status and result in catastrophe for the U.S. economy. The removal of the final pillar is well underway.

  As I have stated in the past, the U.S. system as it stands does not necessarily deserve to survive, but then again, this does not mean that it should be sacrificed in order to breathe life into the monstrosity of global economic governance. Such a trade-off only serves the interests of a select group of elites, with the global reset ending in the mechanized multicultural suicide of sovereignty, leeching prosperity from the rest of us in the name of “collective progress.” Globalists want us to believe there is no other option but their leadership, and they will create any measure of chaos in order to convince us of their necessity.

  

  

  

  

  

• In Lehman Rerun, Banks Are Buying Protection Against Their Own Systemic Demise Again

  At the peak of the craziness of the last cycle, banks took to protecting themselves by buying (credit) protection on other banks as a 'hedge' for systemic risk (which instead exacerbated contagion concerns, seemingly missing the facts that their bids drove risk wider, increaing counterparty risks, and that the inevitable collapse required to trigger these trades would also mean the payoffs to the 'hedges' would never be realized). Fast forward 8 years and it appears once again, as Bloomberg reports, that banks are buying (equity) protection in order to hedge the stress-test downside scenarios enforced by The Fed.

  For more than a year, dealers in the U.S. equity derivatives market have noted a widening gap in the price of certain options. (chart below shows the absolute premium for downside protection over upside protection)

  

   

  If you want to buy a put to protect against losses in the Standard & Poor’s 500 Index, often you’ll pay twice as much as you would for a bullish call betting on gains. (chart below shows the relative premium for downside protection over upside protection)

  

   

  New research suggests the divergence is a consequence of financial institutions hoarding insurance against declines in stocks. As Bloomberg details,

  While various explanations exist including simply nervousness following a six-year bull market, Deutsche Bank AG says in a Dec. 6 research report that the likeliest explanation may be that demand is being created for downside protection among banks that are subject to stress test evaluations by federal regulators. In short, financial institutions are either hoarding puts or leaving places for them in their models should markets turn turbulent.

   

  “Since so many banking institutions are facing these stress tests, the types of protection that help banks do well in these scenarios obtain extra value,” said Rocky Fishman, an equity derivatives strategist at Deutsche Bank.

   

  “The way the marketplace has compensated for that is by driving up S&P skew.”

  The Federal Reserve’s Comprehensive Capital Analysis & Review, or CCAR, has become one of the most important annual events for the largest banks. It determines whether trading units, including equity derivatives, can handle a market shock and pay out capital to shareholders. In the test, banks must demonstrate that they can weather a crisis and stay above minimum capital ratios even as their amount of equity is reduced by losses and the planned dividends and buybacks.

  One aspect of the stress test is gauging how banks respond to what’s the Fed describes as a “severely adverse” scenario. It’s the most extreme of three situations laid out by the central bank during the annual CCAR.

   

  “One of the reasons S&P puts have been so expensive relative to at-the-money options this year is that the severely adverse scenario prescribed by CCAR program implies a very negative shock to the S&P,” said Fishman. “It creates value for the downside options.”

  Of course, we have seen this kind of systemic hedging by banks before. When banks bought credit protection against other banks during the last crisis. Still, the Fed stress tests remain the cornerstone of the U.S. central bank’s efforts to prevent a repeat of the 2008 financial crisis and to gauge the ability of banks to withstand economic turmoil. To Dan Deming of KKM Financial LLC, their presence will have a lasting effect on risk tolerance.

  “Risk requirements have ramped up to a point where market participants are forced to buy downside puts as an insurance policy against open option positions,” said Deming. “What was perceived as reasonable risk five years ago is no longer seen as reasonable amid all the new requirements.”

  But what regulators (since we are sure the banks know) miss in their math is that these so-called hedges only payoff when a systemic collapse happens and, in the case of the last crisis, the actual assumed payoff disappears as counterparty collateral chains dry up, banks implode, and just when you needed the hedge the most… there is no one left to pay you.

  Charts: Bloomberg

  

  

  

  

  

• Does Fear Lead To Fascism?

  Submitted by John Whitehead via The Rutherford Institute,

  “No one can terrorize a whole nation, unless we are all his accomplices.”—Edward R. Murrow, broadcast journalist

  America is in the midst of an epidemic of historic proportions.

  The contagion being spread like wildfire is turning communities into battlegrounds and setting Americans one against the other.

  Normally mild-mannered individuals caught up in the throes of this disease have been transformed into belligerent zealots, while others inclined to pacifism have taken to stockpiling weapons and practicing defensive drills.

  This plague on our nation—one that has been spreading like wildfire—is a potent mix of fear coupled with unhealthy doses of paranoia and intolerance, tragic hallmarks of the post-9/11 America in which we live.

  Everywhere you turn, those on both the left- and right-wing are fomenting distrust and division. You can’t escape it.

  We’re being fed a constant diet of fear: fear of terrorists, fear of illegal immigrants, fear of people who are too religious, fear of people who are not religious enough, fear of Muslims, fear of extremists, fear of the government, fear of those who fear the government. The list goes on and on.

  The strategy is simple yet effective: the best way to control a populace is through fear and discord.

  Fear makes people stupid.

  Confound them, distract them with mindless news chatter and entertainment, pit them against one another by turning minor disagreements into major skirmishes, and tie them up in knots over matters lacking in national significance.

  Most importantly, divide the people into factions, persuade them to see each other as the enemy and keep them screaming at each other so that they drown out all other sounds. In this way, they will never reach consensus about anything and will be too distracted to notice the police state closing in on them until the final crushing curtain falls.

  This is how free people enslave themselves and allow tyrants to prevail. 

  This Machiavellian scheme has so ensnared the nation that few Americans even realize they are being manipulated into adopting an “us” against “them” mindset. Instead, fueled with fear and loathing for phantom opponents, they agree to pour millions of dollars and resources into political elections, militarized police, spy technology and endless wars, hoping for a guarantee of safety that never comes.

  All the while, those in power—bought and paid for by lobbyists and corporations—move their costly agendas forward, and “we the suckers” get saddled with the tax bills and subjected to pat downs, police raids and round-the-clock surveillance.

  Turn on the TV or flip open the newspaper on any given day, and you will find yourself accosted by reports of government corruption, corporate malfeasance, militarized police and marauding SWAT teams.

  America has already entered a new phase, one in which children are arrested in schools, military veterans are forcibly detained by government agents because of the content of their Facebook posts, and law-abiding Americans are having their movements tracked, their financial transactions documented and their communications monitored

  These threats are not to be underestimated.

  Yet even more dangerous than these violations of our basic rights is the language in which they are couched: the language of fear. It is a language spoken effectively by politicians on both sides of the aisle, shouted by media pundits from their cable TV pulpits, marketed by corporations, and codified into bureaucratic laws that do little to make our lives safer or more secure.

  Fear, as history shows, is the method most often used by politicians to increase the power of government. Even while President Obama insists that “freedom is more powerful than fear,” the tactics of his administration continue to rely on fear of another terrorist attack in order to further advance the agenda of the military/security industrial complex.

  An atmosphere of fear permeates modern America. However, with crime at a 40-year low, is such fear of terrorism rational?

  Even in the wake of the shootings in San Bernardino and Paris, statistics show that you are 17,600 times more likely to die from heart disease than from a terrorist attack. You are 11,000 times more likely to die from an airplane accident than from a terrorist plot involving an airplane. You are 1,048 times more likely to die from a car accident than a terrorist attack. You are 404 times more likely to die in a fall than from a terrorist attack. You are 12 times more likely to die from accidental suffocating in bed than from a terrorist attack. And you are 9 more times likely to choke to death in your own vomit than die in a terrorist attack.

  Indeed, those living in the American police state are 8 times more likely to be killed by a police officer than by a terrorist. Thus, the government’s endless jabbering about terrorism amounts to little more than propaganda—the propaganda of fear—a tactic used to terrorize, cower and control the population.

  So far, these tactics are working.

  The 9/11 attacks, the Paris attacks, and now the San Bernardino shooting have succeeded in reducing the American people to what commentator Dan Sanchez refers to as “herd-minded hundreds of millions [who] will stampede to the State for security, bleating to please, please be shorn of their remaining liberties.”

  Sanchez continues:

  I am not terrified of the terrorists; i.e., I am not, myself, terrorized. Rather, I am terrified of the terrorized; terrified of the bovine masses who are so easily manipulated by terrorists, governments, and the terror-amplifying media into allowing our country to slip toward totalitarianism and total war…

   

  I do not irrationally and disproportionately fear Muslim bomb-wielding jihadists or white, gun-toting nutcases. But I rationally and proportionately fear those who do, and the regimes such terror empowers. History demonstrates that governments are capable of mass murder and enslavement far beyond what rogue militants can muster. Industrial-scale terrorists are the ones who wear ties, chevrons, and badges. But such terrorists are a powerless few without the supine acquiescence of the terrorized many. There is nothing to fear but the fearful themselves…

   

  Stop swallowing the overblown scaremongering of the government and its corporate media cronies. Stop letting them use hysteria over small menaces to drive you into the arms of tyranny, which is the greatest menace of all.

  As history makes clear, fear leads to fascistic, totalitarian regimes.

  It’s a simple enough formula. National crises, reported terrorist attacks, and sporadic shootings leave us in a constant state of fear. Fear prevents us from thinking. The emotional panic that accompanies fear actually shuts down the prefrontal cortex or the rational thinking part of our brains. In other words, when we are consumed by fear, we stop thinking.

  A populace that stops thinking for themselves is a populace that is easily led, easily manipulated and easily controlled.

  As I document in my book Battlefield America: The War on the American People, the following are a few of the necessary ingredients for a fascist state:

  • The government is managed by a powerful leader (even if he or she assumes office by way of the electoral process). This is the fascistic leadership principle (or father figure).
  • The government assumes it is not restrained in its power. This is authoritarianism, which eventually evolves into totalitarianism.
  • The government ostensibly operates under a capitalist system while being undergirded by an immense bureaucracy.
  • The government through its politicians emits powerful and continuing expressions of nationalism.
  • The government has an obsession with national security while constantly invoking terrifying internal and external enemies.
  • The government establishes a domestic and invasive surveillance system and develops a paramilitary force that is not answerable to the citizenry.
  • The government and its various agencies (federal, state, and local) develop an obsession with crime and punishment. This is overcriminalization.
  • The government becomes increasingly centralized while aligning closely with corporate powers to control all aspects of the country’s social, economic, military, and governmental structures.
  • The government uses militarism as a center point of its economic and taxing structure.
  • The government is increasingly imperialistic in order to maintain the military-industrial corporate forces.

  The parallels to modern America are impossible to ignore.

  “Every industry is regulated. Every profession is classified and organized,” writes Jeffrey Tucker. “Every good or service is taxed. Endless debt accumulation is preserved. Immense doesn’t begin to describe the bureaucracy. Military preparedness never stops, and war with some evil foreign foe, remains a daily prospect.”

  For the final hammer of fascism to fall, it will require the most crucial ingredient: the majority of the people will have to agree that it’s not only expedient but necessary. In times of “crisis,” expediency is upheld as the central principle—that is, in order to keep us safe and secure, the government must militarize the police, strip us of basic constitutional rights and criminalize virtually every form of behavior.

  Not only does fear grease the wheels of the transition to fascism by cultivating fearful, controlled, pacified, cowed citizens, but it also embeds itself in our very DNA so that we pass on our fear and compliance to our offspring.

  It’s called epigenetic inheritance, the transmission through DNA of traumatic experiences.

  For example, neuroscientists observed how quickly fear can travel through generations of mice DNA. As The Washington Post reports:

  In the experiment, researchers taught male mice to fear the smell of cherry blossoms by associating the scent with mild foot shocks. Two weeks later, they bred with females. The resulting pups were raised to adulthood having never been exposed to the smell. Yet when the critters caught a whiff of it for the first time, they suddenly became anxious and fearful. They were even born with more cherry-blossom-detecting neurons in their noses and more brain space devoted to cherry-blossom-smelling.

  The conclusion? “A newborn mouse pup, seemingly innocent to the workings of the world, may actually harbor generations’ worth of information passed down by its ancestors.”

  Now consider the ramifications of inherited generations of fears and experiences on human beings. As the Post reports, “Studies on humans suggest that children and grandchildren may have felt the epigenetic impact of such traumatic events such as famine, the Holocaust and the Sept. 11, 2001, terrorist attacks.”

  In other words, fear, trauma and compliance can be passed down through the generations.

  Fear has been a critical tool in past fascistic regimes, and it now operates in our contemporary world—all of which raises fundamental questions about us as human beings and what we will give up in order to perpetuate the illusions of safety and security.

  In the words of psychologist Erich Fromm:

  [C]an human nature be changed in such a way that man will forget his longing for freedom, for dignity, for integrity, for love—that is to say, can man forget he is human? Or does human nature have a dynamism which will react to the violation of these basic human needs by attempting to change an inhuman society into a human one?

  We are at a critical crossroads in American history, and we have a choice: freedom or fascism.

  Let’s hope the American people make the right choice while we still have the freedom to choose.

  

  

  

  

  

• Guest Post: Could Trump Become One Of America's Greatest Presidents?

  Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

  Ganging up on the Donald

  Poor Donald Trump. Everybody’s against him.

  Jeb Bush says he’s “unhinged”…

  …Chris Christie says he has “no idea what [he’s] talking about”…

  …John Kasich accuses him of “outrageous divisiveness”…

   

  

  The Donald – in reality, they love him…

   

   

  …and Marco Rubio describes him as “offensive and outlandish.”

  And those are just his fellow Republicans!

  “Reprehensible… prejudiced…” adds Hillary Clinton.

  Piling on, Martin O’Malley says Trump is a “fascist demagogue.”

  Can a man with enemies like these really be bad?

   

  Looney Leanings

  Donald Trump brought the wrath, ire, and contempt of the mainstream political establishment down on his head yesterday. He called for a “total and complete shutdown on Muslims entering the United States.”

  Most commentators quickly condemned him, pointing out that such a ban would be unconstitutional and completely against the principles on which the nation was founded.

   

  

  Alien anchor hair discovered…

   

  But in a spirit of pure mischief (a blustery billionaire hardly qualifies for our customary support for die-hards, lost causes, and underdogs), we rush to the defense of “The Donald.”

  Yes, his proposal is reckless, stupid, unworkable, unfair, and un-American. But it might not be unpopular. Give the man credit. He’s running for president. To win, he needs the votes of people who are at least as block-headed as he is.

  In that respect (perhaps the only respect) his latest proposal may not be a bad idea. Also, making preposterous and outrageous proposals hardly disqualifies you for the White House.

  Some of our “best” presidents – at least, according to historians and the public – were those who did the looniest things… things that were completely at odds with the Constitution, the spirit of liberty, and their own policy goals.

  President Lincoln told the crowd at Gettysburg that his war against the South was in line with the Declaration of Independence, which clearly asserted the right of a people to choose their own government.

  The war would determine, he said, whether “that nation, or any nation so conceived and so dedicated, can long endure.” The answer was “no.” And he made sure of it.

   

  

  Contemporary cartoon of Lincoln attack him over the human toll of the Union war effort. Columbia, wearing a liberty cap and a shirt made of an American flag, demands, “Mr. Lincoln, give me back my 500,000 sons!” At the right, Lincoln, unfazed, sits at a writing desk, his leg thrown over the chair back. A proclamation calling for “500 Thous. More Troops,” signed by him, lies at his feet – click to enlarge.

  Image credit: Joseph E. Baker

   

  President Wilson did the same thing for foreigners – invading more countries than any other president… while proclaiming the right to self-determination. Elections were fine, said Wilson, as long as they chose “good men.” If he didn’t like the men chosen… he sent in the troops.

  By the standards set by Lincoln and Wilson, Donald Trump has the capacity to be one of our greatest leaders.

   

  

  Vote for Woodrow Wilson “who kept you out of war” (and didn’t saddle you with a Federal Reserve…)

  Image credit: Punch

   

  PS:

  It doesn’t really matter who wins the race for the White House, because the Deep State already controls just about every aspect of American life. From health care, to education, to the food on our tables, to the never-ending war on terror, the Deep State is pulling the strings.

  

  

  

  

  

• America Crosses The Tipping Point: The Middle Class Is Now A Minority

  Americans have long lived in a nation made up primarily of middle-class families, neither rich nor poor, but comfortable enough, notes NPR's Marilyn Geewax, but this year – for the first time in US history, that changed. A new analysis of government data shows that as of 2015, middle-income households have become the minority, extending a multi-decade decline that confirms the hollowing out of society as 49% of all Americans now live in a home that receives money from the government each month. Sadly, the trends that are destroying the middle class in America just continue to accelerate.

  Back in 1971, about 2 out of 3 Americans lived in middle-income households. Since then, the middle has been steadily shrinking.

  Today, just a shade under half of all households (about 49.9 percent) have middle incomes. Slightly more than half of Americans (about 50.1 percent) either live in a lower-class household (roughly 29 percent) or an upper-class household (about 21 percent).

  

  As NPR explains, thanks to factory closings and other economic factors, the country now has 120.8 million adults living in middle-income households, the study found. That compares with the 121.3 million who are living in either upper- or lower-income households.

  "The hollowing of the middle has proceeded steadily for the past four decades," Pew concluded.

  And middle-income Americans not only have shrunk as a share of the population but have fallen further behind financially, with their median income down 4 percent compared with the year 2000, Pew said.

  

   

  Since 1970, the U.S. economy has been growing, and we all have been getting wealthier. But people who have the biggest incomes have been pulling away from the pack in a trend that shows no sign of slowing… as middle-income jobs are still 900,000 short of pre-recession employment levels…

  

   

  And if you’re a millennial, you’d be forgiven for being disillusioned with the American dream. As we recently noted, compared to young Americans in 1986, you’re three times as likely to think the American dream is dead and buried. As WaPo notes, "young workers today are significantly more pessimistic about the possibility of success in America than their counterparts were in 1986, according to a new Fusion 2016 Issues poll – a shift that appears to reflect lingering damage from the Great Recession and more than a decade of wage stagnation for typical workers.”

  

   

  While there are numerous reasons for the collapse of the American Middle Class (most appear driven by political 'fairness' or monetary policy intended consequences), though we suspect politicians learned long ago that it's easier to just import non-Americanized voters to vote for you, than, as FutureMoneyTrends notes, to get naturalized citizens who still cherish the idea of America to vote for things like national healthcare systems, higher taxes on business owners, and the catering to every little tribal group that declares themselves a minority.   

  It is only a matter of time before the middle class is wiped out and America begins to resemble the poverty, violence and tyranny so often associated with the countries from which many illegal migrants originate.

  It appears that time is drawing near as Charles Hugh-Smith recently noted, the mainstream is finally waking up to the future of the American Dream: downward mobility for all but the top 10% of households.

  Downward mobility and social defeat lead to social depression. Here are the conditions that characterize social depression:

   

  1. High expectations of endless rising prosperity have been instilled in generations of citizens as a birthright.

   

  2. Part-time and unemployed people are marginalized, not just financially but socially.

   

  3. Widening income/wealth disparity as those in the top 10% pull away from the shrinking middle class.

   

  4. A systemic decline in social/economic mobility as it becomes increasingly difficult to move from dependence on the state (welfare) or one's parents to financial independence.

   

  5. A widening disconnect between higher education and employment: a college/university degree no longer guarantees a stable, good-paying job.

   

  6. A failure in the Status Quo institutions and mainstream media to recognize social recession as a reality.

   

  7. A systemic failure of imagination within state and private-sector institutions on how to address social recession issues.

   

  8. The abandonment of middle class aspirations by the generations ensnared by the social recession: young people no longer aspire to (or cannot afford) consumerist status symbols such as luxury autos or homeownership.

   

  9. A generational abandonment of marriage, families and independent households as these are no longer affordable to those with part-time or unstable employment, i.e. what I have termed (following Jeremy Rifkin) the end of work.

   

  10. A loss of hope in the young generations as a result of the above conditions.

  If you don't think these apply, please check back in a year. We'll have a firmer grasp of social depression in December 2016.

  

  

  

  

  

• China Says Turkey Needs To Respect Iraq's Sovereignty, Territorial Integrity

  “Turkey is acting recklessly and inexplicably,” Vitaly Churkin, Russia’s ambassador to the UN told the Security Council at a closed-door meeting on Tuesday.

  Churkin was not, as you might have guessed, referring to Ankara’s brazen move to shoot down a Russian warplane near the Syrian border late last month (although we’re quite sure that Moscow would classify that as “reckless and inexplicable” as well).

  Churkin was referencing Erdogan’s decision to send between 150 and 300 Turkish troops along with around two dozen tanks to Bashiqa, just northeast of the ISIS stronghold in Mosul. 

  The Russian ambassador is correct to characterize the deployment as “inexplicable” – at least in terms of Ankara being able to offer an explanation that makes sense to the general public. The official line is that it’s part of an ongoing “training mission” that Iraqi officials agreed to at some point in the past. Baghdad denies this.

  Masoud Barzani supports the Turkish effort (and how could he not, given the fact that without Turkey, the Kurds wouldn’t be able to transport crude independently of Baghdad) which serves to provide a kind of quasi-legitimacy to the Turkish presence. But as we outlined last weekend, this may simply be an attempt to secure oil smuggling routes and ensure that Turkey’s interests in Islamic State-held territory are preserved. 

  The latest from Iraq – as we outlined earlier today – is that some lawmakers are now looking to annul the country’ security agreement with the US on the way to inviting the Russians in to help fight ISIS. As for the “situation” with Turkey, Iraq’s UN ambassador Mohamed Ali Alhakim told reporters after Russia raised the issue that Baghdad and Ankara “are solving it bilaterally.”

  “We have not yet escalated it to the Security Council or to the United Nations,” he added.

  Yes, “not yet,” but it’s difficult to see how “bilateral” talks are going to solve this given the fact that Erdogan clearly had some idea of what he wanted to accomplish by sending troops and tanks to Mosul. He had to have known going in that the whole “we’re just replacing 90 troops that had been there for the better part of two years” excuse wasn’t going to fly with Shiite politicians and the various Iran-backed militias who are all hyper-sensitive now that the The Pentagon has suggested the US is set to insert ground troops to assist the Peshmerga in their efforts against ISIS. 

  Well, when you start to discuss the Security Council in the context of the conflicts raging in Syria and Iraq, it’s important to remember that Russia isn’t the lone voice of dissent among the five permanent members. Recall that back in May of 2014 Beijing voted with Moscow to veto a Security Council resolution that would have seen the conflict in Syria referred to the Hague. Here’s what China had to say at the time:

  For some time now, the Security Council has maintained unity and coordination on the question of Syria, thanks to efforts by Council members, including China, to accommodate the major concerns of all parties. At a time when seriously diverging views exist among the parties concerning the draft resolution, we believe that the Council should continue holding consultations, rather than forcing a vote on the draft resolution, in order to avoid undermining Council unity or obstructing coordination and cooperation on questions such as Syria and other major serious issues. Regrettably, China’s approach has not been taken on board; China therefore voted against the draft resolution.

  Thus far, China hasn’t involved itself directly in the latest round of Mid-East conflicts, but if Xi were to step in, it’s clear that he would side with the Russians and the Iranians which means that when it comes to Turkey and the US putting boots on the ground in Iraq against Baghdad’s wishes, Beijing would almost surely fall on the side of the Iraqis. 

  Sure enough, on Wednesday, the Chinese Foreign Ministry weighed in for the first time. Here’s an excerpt from the statement by spokesperson Hua Chunying:

  “The Chinese side believes that we should deal with state-to-state relationship in accordance with purposes and principles of the UN Charter as well as other widely-recognized basic norms governing international relations, and that Iraq’s sovereignty and territorial integrity shall be respected.”

  That may sound like a rather generic statement, but in fact it sends a very clear message. The implication is that Turkey has violated Iraq’s sovereignty and territorial integrity and that is not something the Security Council should condone. 

  The question becomes this: what happens when Baghdad annuls its agreement with Washington and the US troop presence ends up representing a similar violation of Iraq’s sovereignty?

  If Baghdad were to go to the Security Council and claim that The Pentagon’s deployment of SpecOps to northern Iraq constitutes an illegal act, how would the five permanent members resolve an intractable dispute between the US and France on one side (don’t forget, the French are bombing Iraq as well) and Russia and China on the other? 

  In short: how long until Xi decides it’s time to awaken the sleeping dragon and enter the Mid-East fray?

  For now, Chunying says Beijing will “closely follow the development of the incident.” 

  

  

  

  

  

• Amid Commodity Collapse, World's Most Resource-Driven Economy Posts Greatest Jobs Gain In 15 Years

  When Australia released its October jobs data a month ago (printing an astonishing 58k increase – almost 6 times expectations of a 10k increase), the media threw up all over the farce of the best jobs gain in 3 years (amid commodity price collapses, mining industry bankruptcy fears, and China trade implosions) saying simply "don't believe the jobs figure for October." So we cannot wait to see what the men from downunder make of November's print. With expectations of a 10k drop, Australia added a mind-numbing 71,400 jobs – the most in 15 years!! This is equivalent to the US adding almost 1.75 million jobs in 2 months… They just don't care anymore!

  Best Jobs print in 15 months…

  

   

  November was an 8 standard deviation beat… which followed a 6 standard deviation beat in October…

  

  The big surge in jobs last month, which was the largest gain since July 2000, raised renewed skepticism about the accuracy of the data, which the Australian Bureau of Statistics has acknowledged in the past.

  This is the biggest 2-month increase in jobs since January 1988…

  

   

  Does this look like companies that are hiring at the fastest pace in 27 years!!!

  

  “It’s hard to believe that employment has grown 130,000 over two months in the context of everything else,” said Michael Turner, fixed-income and currency strategist at Royal Bank of Canada in Sydney. “But there’s got to be some signal in this, not just noise.”

  No – there really doesn't. It seems Australia has figured out how to create jobs when its biggest trading partner is hemorrhaging them…

  

   

  And it appears the hiring has been going on "stealthily" as businesses are not reporting any improvment at all…

  

   

  The economic propaganda was slammed last month:

  The ABS is itself cautions against placing too much credence on the monthly figures, which are based on a changing sample, particularly the seasonally adjusted data. The statistician encourages people to focus on the trend estimate (which had the unemployment rate unchanged). 

   

  And, after a series of stuff ups, revisions and methodological changes over the past year, there is even more room for caution.

   

  Last year, the ABS was forced to abandon seasonally adjusted labour force numbers for a period after conceding they were unreliable. The former chief statistician recently said the data was not worth the paper it was written on.

  Wait, what: confidence boosting data is unreliable? Surely you jest.

  And here is the ABC's conclusion confirming at least one "developed" country still have a thinking media: "don't be surprised if the October labour market data is revised."

  Nope, no revision – just an even more ridiculous "injection" of confidence.

  * * *

  If only we could say the same about propaganda rags in the United States

  

  

  

  

  

• "We Are Living Amid An Islamic Threat", French Mayor Says: "Our Country Is At War Inside Our Borders"

  Whatever one’s opinion of the Muslim attacks and the perpetrators behind them, one thing is without dispute – the French response, which has been to quickly impose unlimited emergency laws, is nothing short of the second coming of “Operation Gladio.”

  In addition to warrantless searches and raids, France’s state of emergency laws allow the government to put people under house arrest, seal the country’s borders and ban demonstrations. The laws were created during the Algerian war in 1955.

  France is currently aiming to change its constitution to allow a state of emergency to last for six months, according to government sources. The proposal, which has been slammed by many who say the government is abusing its powers, will be put to ministers on December 23, according to AFP.

  As a result of this unprecedented expansion of the French police state and the emergency legislation enacted after last month’s Paris attacks, there has been a fierce crackdown on not only France’s Islamic population but also on various tangential hotspots such as the arrest of 24 climate activists before the culmination of start of the COP21 climate change summit in Paris at the end of November courtesy of the recently introduced “pre-crime” laws.

  As the local press notes, warrantless searches and raids have become commonplace, a move which many say violates the civil liberties of all citizens, not just Muslims.

  But Muslims definitely are getting the short end of the stick.

  Case in point, Daniel Bushell, the manager of the Pepper Grill restaurant on the outskirts of Paris, who recalled a police raid at his restaurant on Saturday night.

  As the restaurant manager recounted to RT, “They blocked the roads with trucks, and up to 40 armed men stormed our restaurant…Saturday night’s the busiest time. Children were eating. The cops had shotguns, black masks, and shields, making the women tremble with fear. Several officers rushed downstairs, then suddenly…they began breaking the doors with battering rams. The door wasn’t even locked.”

  Elsewhere, the emergency laws, implemented after last month’s terror attacks which killed 130 people and left 352 others injured, have led to thousands of warrantless searches and raids.

  It it’s not just private property that is being targeted – Muslims are also being singled out on the street.

  “Police tried to pull the hood off the head of an Arab friend eating with my little brother. Then they detained him, saying it’s a state of emergency so they have the right,” a local told RT on condition of anonymity, fearing police reprisals. He added that the community is “sick of being targeted.”

  Such targeting is reportedly worse for young people, many of whom said they pull hoods over their faces as soon as they see a police car, so officers can’t see the color of their skin.

  The result: even more antagonism, even more retaliations by both sides, until an intifada-like atmosphere settles, with the two groups determined to hurt and kill each other at every opportunity, for reasons lost in the sands of time (for a historical precedent, look no further than the middle east where virtually every ethnic and religious group has been in a two thousand-year long vendetta with every other group).

  Ultimately, there is just one winner – the Police State, which gets more powerful with every passing day as people have no choice but to abdicate even more civil liberties in order to preserve the illusion of “government security.”

  And just to make sure this continues, one French mayor is willing to go the distance and is not backing down, believing that extra security is necessary because France is “living amid an Islamic threat.”

  This is what Robert Menard, mayor of the French town of Beziers, told RT:

  “I’ve already doubled the number of city policemen, but I went even further. I asked all the former policemen, firefighters and servicemen to come and help to protect our citizens. If my initiative goes against the law, we should change the law. We are living amid an Islamic threat and we should be aware of the consequences. Our country, as well as other European countries, is at war – both outside our borders, in Syria for instance, and inside our borders, because our enemies live in our own country,”

  Robert Menard used to be a journalist, a socialist and the outspoken founder of an international press group, Reporters Without Borders. But 18 months ago he caused shockwaves by winning the town hall of Beziers, a city of more than 71,000, on a far-right ticket.

  

  In the US, this man’s comments would lead to an unprecedented media scandal; in France they have barely registered.

  As a reminder, all of this was predicted with uncanny precision by AIG in a presentation from May 2008, in which the author answered the question “What Europe Wants“. His answer:

  To use global issues as excuses to extend its power:

  • environmental issues: increase control over member countries; advance idea of global governance
  • terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
    
  • global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
    
  • EMU: create a crisis to force introduction of “European economic government”

  The US police state wants exactly the same things, and it is coming to get them.

  

  

  

  

  

• "Most Hated Man In America" Martin Shkreli Spends $2 Million On Wu-Tang Clan Album

  Back in September, Martin Shkreli became “the most hated man in America” when the Turing Pharma CEO moved to boost the price of a toxoplasmosis drug by 5000%.

  That rather egregious example of unbridled greed immediately caused the American public as well as lawmakers in Washington to begin taking a closer look at a practice that actually happens all the time in Big Pharma even if the industry’s larger players are careful to be a bit less audacious about it than Shkreli. 

  Following the Turing price hike, Democrats on the House oversight committee sent a letter demanding that serial biotech rollup Valeant Pharmaceuticals provide documents explaining hefty price increases for two heart drugs. Around two months later, Senators Susan Collins (R-Maine) and Claire McCaskill (D-Mo.), who together lead the Senate Special Committee on Aging, opened a bipartisan investigation into pharmaceutical drug pricing.

  At that point, we thought Shkreli’s fifteen minutes of fame might have been up – we were wrong.

  Exactly two weeks after the launch of the Senate investigation, Shkreli swooped in and bought over half of the outstanding shares of KaloBios, which at the time was was trading between $1-2/share, representing a market cap between $5 and $10 million. What happened next was the stuff of market tragicomedy legend as the E-trading Joe Campbells of the world lost a small fortune after Shkreli’s purchase sparked a relentless rally that would have been impressive enough on its own had he stopped there. But he didn’t. He then pulled the borrow and “Volkswagen-ed” some folks as we documented in a series of hilarious pieces posted late last month (see here, here, and here). Summing up:

  

  Ok. Now, prepare yourself for something that will briefly seem like a complete non sequitur – bear with us. 

  Sometime in 2011, or 2012, or 2013, the Wu-Tang Clan began to record a double disc entitled “Once Upon A Time In Shaolin.”

  For those unfamiliar, the Wu-Tang Clan are, well, legends in the rap industry. The group features some of the most famous names to ever touch a mic including Method Man, Raekwon, and Ghostface, all three of which are institutions to hip hop heads the world over. As a team, Wu-Tang has released multiple long plays considered classics among rap aficionados and when you count the various solo offerings from the group’s 10 members, their catalogue is unparalleled in rap’s short history. 

  

  In March of 2014, Forbes reported that “Once Upon A Time In Shaolin” would be a different type of album. The group would mint only a single copy. It would be sold for at least $1 million and would come in a series of handcrafted boxes by British-Moroccan artist Yahya, whose works have been commissioned by royal families and business leaders around the world.”

  

  

  

  

  

  

  

  Last month, Forbes reported that the album had been sold in May to an American collector for a price tag “in the millions” which made it at least four times more expensive than “Jack White’s $300,000 purchase of a rare acetate recording of Elvis Presley’s first song.”

  Now you’re probably starting to see where this is going.

  According to RZA (who has always been the group’s frontman if never the Clan’s most famous member), the album attracted many bidders: “Private collectors, trophy hunters, millionaires, billionaires, unknown folks, publicly known folks, businesses, companies with commercial intent, young, old,” he told Bloomberg. “It varied.” Serious bidders got to hear the 13-minute highlights in private listening sessions arranged by Paddle8 (an upstart, angel investor-backed auction house) in New York.

  Enter America’s most hated man (via Bloomberg): 

  One of [the bidders] was a pharmaceutical company executive named Martin Shkreli. He’s 32 years old but seems much younger, with a tendency to fiddle with his hair and squirm in his seat like an adolescent. The son of Albanian immigrants, Shkreli grew up in what he describes as a tough part of Brooklyn’s Sheepshead Bay neighborhood. He skipped grades in school because he was so bright. Shkreli idolized scientists, but he was also a music fan. Primarily interested in rock as a teenager, he didn’t understand rap, but that changed when he read Shakespeare in high school. “You would get these rhyming couplets and soliloquies and stuff like that, but the couplets would really kind of jar you,” he says. “They would be really these big, soul-crushing moments that Shakespeare intended to stir your spirit. And in many ways, music does that.”

   

  Shkreli was taken by the Wu-Tang song C.R.E.A.M., which stands for “Cash Rules Everything Around Me.” It includes the often-repeated phrase “Dolla dolla bill, y’all!” Shkreli turned out to be good at making dollars himself. He founded two hedge funds that shorted pharmaceutical stocks and then started his own drug company, Retrophin, earning a reputation on Wall Street as something of a boy genius. In September 2014, however, he says he was “asked to leave” by the company’s board. Retrophin later alleged after an internal investigation that he’d abused his position and misused assets. Shkreli says that he didn’t do anything without the company’s approval. Retrophin and its former CEO are now facing off in court. “I was pretty pissed,” Shkreli says. “But I realized that it actually would be better for me, maybe not ego-wise, but financially. I could just sell my stock and build my own next company.”

   

  Now that Shkreli had more money, he started collecting music-related items. He once joked on Twitter about trying to buy Katy Perry’s guitar so he could get a date with her. He purchased Kurt Cobain’s Visa card in a Paddle8 auction and occasionally produces it to get a rise out of people when it’s time to pay a check.

   

  Shkreli heard about Once Upon a Time in Shaolin and thought it would be nice to own, too. He attended a private listening session at the Standard Hotel hosted by Paddle8 co-founder Alexander Gilkes. Shkreli, who describes himself as a bit of a recluse, recalls Gilkes telling him that if he bought the record, he would have the opportunity to rub shoulders with celebrities and rappers who would want to hear it. “Then I really became convinced that I should be the buyer,” Shkreli says. (Paddle8 declined to comment, citing their policy of client confidentiality.)

   

  He also got to have lunch with RZA. “We didn’t have a ton in common,” Shkreli says. “I can’t say I got to know him that well, but I obviously like him.”

  Yes, “obviously,” but what also seems obvious is that RZA doesn’t like Shkreli: “The sale of Once Upon a Time in Shaolin was agreed upon in May, well before Martin Skhreli’s [sic] business practices came to light. We decided to give a significant portion of the proceeds to charity,” he told Bloomberg, in a statement.

  Needless to say, Congress is not amused. “My biggest challenge today is to not lose my temper. The facts underlying this hearing are so egregious but it’s hard not to get emotional about it,” Sen. Claire McCaskill (D-Mo.) said on Wednesday. “This is the same guy who thought it was a great idea to pay millions of dollars for the only existing album of the Wu Tang Clan,” she added, incredulous.

  Now, Claire, that’s not true. It’s not “the only existing Wu-Tang album.” In fact, the Clan has sold many millions in their day:

  

  What he bought was the only existing copy of “Once Upon A Time In Shaolin.” We’re sure that once the Congresswoman understands the distinction, she’ll feel a lot better about the situation. 

  So coming full circle, we can now see why the Martin Shkrelis of the world need to raise prices by thousands of percent (in the process raising healthcare premiums for all Americans as insurers pass along the soaring cost of specialty drugs, which as we reported a few weeks back, has now surpassed the median US household income). If they didn’t, how would they afford one-of-a-kind Wu-Tang albums?

  But before you’re too hard on Shkreli, ask yourself this: how different is this from the big pharma CEO who buys a Rolls Royce and a couple of $50 million Picassos after hiking drug prices? Why is one a titan of industry lauded by the mainstream financial news media and the other a pariah? Both are skewering Americans and getting rich at the expense of the sick. The fact that the public thinks one has better taste than the other is meaningless. 

  *  *  *

  Bonus: Bloomberg’s not-so-subtle tribute to deceased Wu-Tang member Ol’ Dirty Bastard…

  

  Bonus, Bonus: “Once Upon A Time In Shaolin” documentary from Forbes…

  

  

  

  

• Economic Growth: How It Works, How It Fails, & Why Wealth Disparity Occurs

  Submitted by Gail Tverberg via Our Finite World,

  Economists have put together models of how an economy works, but these models were developed years ago, when the world economy was far from limits. These models may have been reasonably adequate when they were developed, but there is increasing evidence that they don’t work in an economy that is reaching limits. For example, my most recent post, “Why ‘supply and demand’ doesn’t work for oil,” showed that when the world is facing the rising cost of oil extraction, “supply and demand” doesn’t work in the expected way.

  In order to figure out what really does happen, we need to consider findings from a variety of different fields, including biology, physics, systems analysis, finance, and the study of past economic collapses. Since I started studying the situation in 2005, I have had the privilege of meeting many people who work in areas related to this problem.

  My own background is in mathematics and actuarial science. Actuarial projections, such as those that underlie pensions and long term care policies, are one place where historical assumptions are not likely to be accurate, if an economy is reaching limits. Because of this connection to actuarial work, I have a particular interest in the problem.

  How Other Species Grow 

  We know that other species don’t amass wealth in the way humans do. However, the number of plants or animals of a given type can grow, at least within a range. Techniques that seem to be helpful for increasing the number of a given species include:

  • Natural selection. With natural selection, all species have more offspring than needed to reproduce the parent. A species is able to continuously adapt to the changing environment because the best-adapted offspring tend to live.
  • Cooperation. Individual cells within an organism cooperate in terms of the functions they perform. Cooperation also occurs among members of the same species, and among different species (symbiosis, parasites, hosts). In some cases, division of labor may occur (for example, bees, other social insects).
  • Use of tools. Animals frequently use tools. Sometimes items such as rocks or logs are used directly. At other times, animals craft tools with their forepaws or beaks.

  All species have specific needs of various kinds, including energy needs, water needs, mineral needs, and lack of pollution. They are in constant competition with both other members of the same species and with members of other species to meet these needs. It is individuals who can out-compete others in the resource battle that survive. In some cases, animals find hierarchical behavior helpful in the competition for resources.

  There are various feedbacks that regulate the growth of a biological system. For example, a person or animal eats, and later becomes hungry. Likewise, an animal drinks, and later becomes thirsty. Over the longer term, animals have a reserve of fat for times when food is scarce, and a small reserve of water. If they are not able to eat and drink within the required timeframe, they will die. Another feedback within the system regulates overuse of resources: if any kind of animal eats all of a type of plant or animal that it requires for food, it will not have food in the future.

  Energy needs are one of the limiting factors, both for individual biological members of an ecosystem, and for the overall ecosystem. Energy systems need greater power (energy use per period of time) to out-compete one another. The Maximum Power Principle by Howard Odum says that biological systems will organize to increase power whenever system constraints allow.

  Another way of viewing energy needs comes from the work of Ilya Prigogine, who studied how ordered structures, such as biological systems, can develop from disorder in a thermodynamically open system. Prigogine has called these ordered structures dissipative systems. These systems can temporarily exist as long as the system is held far from equilibrium by a continual flow of energy through the system. If the flow energy disappears, the biological system will die.

  Using either Odum’s or Prigogine’s view, energy of the right type is essential for the growth of an overall ecosystem as well as for the continued health of its individual members.

  How Humans Separated Themselves from Other Animals

  Animals generally get energy from food. It stands to reason that if an animal has a unique way of obtaining additional energy to supplement the energy it gets from food, it will have an advantage over other animals. In fact, this approach seems to have been the secret to the growth of human populations.

  Human population, plus the domesticated plants and animals of humans, now dominate the globe. Humans’ path toward population growth seems to have started when early members of the species learned how to burn biomass in a controlled way. The burning of biomass had many benefits, including being able to keep warm, cook food and ward off predators. Cooking food was especially beneficial, because it allowed humans to use a wider range of foodstuffs. It also allowed bodies of humans to more easily get nutrition from food that was eaten. As a result, stomachs, jaws, and teeth could become smaller, and brains could become bigger, enabling more intelligence. The use of cooked food began long enough ago that our bodies are now adapted to the use of some cooked food.

  With the use of fire to burn biomass, humans could better “win” in the competition against other species, allowing the number of humans to increase. In this way, humans could, to some extent, circumvent natural selection. From the point of the individual who could live longer, or whose children could live to maturity, this was a benefit. Unfortunately, it had at least two drawbacks:

  1. While animal populations tended to become increasingly adapted to a changing environment through natural selection, humans tend not to become better adapted, because of the high survival rate that results from more adequate food supplies and better healthcare. Humans might eventually find themselves becoming less well adapted: more overweight, or having more physical disabilities, or having more of a tendency toward diabetes.
  2. Without a natural limit to population, the quantity of resources per person tends to decline over time. For example, such a tendency tends to lead to less farmland per person. This would be a problem if techniques remained the same. Thus, rising population tends to lead to constant pressure to raise output (more food per arable acre or technological advancements that allow the economy to “do more with less”).

  How Humans Have Been Able to Meet the Challenge of Rising Population Relative to Resources

  Humans were able to meet the challenge of rising population by taking the techniques many animals use, as described above, and raising them to new levels. The fact that humans figured out how to burn biomass, and later would learn to harness other kinds of energy, gave humans many capabilities that other animals did not have.

  • Co-operation with other humans became possible, through a variety of mechanisms (learning of language with our bigger brains, development of financial systems to facilitate trade). Even as hunter-gatherers, researchers have found that economies of scale (enabled by co-operation) allowed greater food gathering per hectare. Division of labor allowed some specialization, even in very early days (gathering, fishing, hunting).
  • Humans have been able to domesticate many kinds of plants and animals.  Generally, the relationship with other species is a symbiotic relationship–the animals gain the benefit of a steady food supply and protection from predators, so their population can increase. Chosen plants have little competition from “weeds,” thanks to the protection humans provide. As a result, they can flourish whether or not they would be competitive with other plants and predators in the wild.
  • Humans have been able to take the idea of making and using tools to an extreme level. Humans first started by using fire to sharpen rocks. With the sharpened rocks, they could make new devices such as boats, and they could make spears to help kill animals for food. Tools could be used for planting the seeds they wanted to grow, so they did not have to live with the mixture of plants nature provided. We don’t think of roads, pipelines, and lines for transmitting electricity as tools, but as a practical matter, they also provide functions similar to those of tools. The many chemicals humans use, such as herbicides, insecticides, and antibiotics, also act in way similar to tools. The many objects that humans create to make life “better” (houses, cars, dishwashers, prepared foods, cosmetics) might in some very broad sense be considered tools as well. Some tools might be considered “capital,” when used to create additional goods and services.
  • Humans created businesses and governments to enable better organization, including division of labor and hierarchical behavior. A single person can create a simple tool, just as an animal can. But there are economies of scale, such as when many devices of a particular kind can be made, or when some individuals learn specialized skills that enable them to perform particular tasks better. As mentioned previously, even in the days of hunter-gatherers, there were economies of scale, if a larger group of workers could be organized so that specialization could take place.
  • Financial systems and changing systems of laws and regulations provide additional structure to the system, telling businesses and customers how much of a given product is required at a given time, and at what prices. In animals, appetite and thirst determine how important obtaining food and water are at a given point in time. Financial systems provide a somewhat similar role for an economy, but the financial system doesn’t operate within as constrained a system as hunger and thirst. As a result, the financial system can give strange signals, including prices that at times fall below the cost of extraction.
  • Humans have tended to put resources of many kinds (arable land, land for homes and businesses, fresh water, mineral resources) under the control of governments. Governments then authorize particular individuals and business to use this land, under various arrangements (“ownership,” leases, or authorized temporary usage). Governments often collect taxes for use of the resources. The practice is in some ways similar to the use of territoriality by animals, but it can have the opposite result. With animals, territoriality is used to prevent crowding, and can act to prevent overuse of shared resources. With human economies, ownership or temporary use permits can lead to a government sanctioned way of depleting resources, and thus, over time, can lead to a higher cost of resource extraction.

  Physicist François Roddier has described individual human economies as another type of dissipative structure, not too different from biological systems, such as plants, animals, and ecosystems. If this is true, an adequate supply of energy is absolutely essential for the growth of the world economy.

  We know that there is a very close tie between energy use and the growth of the world economy. Energy consumption has recently been dropping (Figure 1), suggesting that the world is heading into recession again. The Wall Street Journal indicates that a junk bond selloff also points in the direction of a likely recession in the not-too-distant future.

  

  Figure 1. Three year average growth rate in world energy consumption and in GDP. World energy consumption based on BP Review of World Energy, 2015 data; real GDP from USDA in 2010$.

  What Goes Wrong as Economic Growth Approaches Limits?

  We know that in the past, many economies have collapsed. In fact, if Roddier is correct about economies being dissipative structures, then we know that economies cannot be expected to last forever. Economies will tend to run into energy limits, and these energy limits will ultimately bring them down.

  The symptoms that occur when economies run into energy limits are not intuitively obvious. The following are some of the things that generally go wrong:

  Item 1. A slowdown in economic growth.

  Research by Turchin and Nefedov regarding historical collapses shows that growth tended to start in an economy when a group of people discovered a new energy-related resource. For example, a piece of land might be cleared to allow more arable land, or existing arable land might be irrigated. At first, these new resources allowed economies to grow rapidly for many years. Once the population grew to match the new carrying capacity of the land, economies tended to hit a period of “stagflation” for another period, say 50 or 60 years. Eventually “collapse” occurred, typically over a period of 20 or more years.

  Today’s world economy seems to be following a similar pattern. The world started using coal in quantity in the early 1800s. This helped ramp up economic growth above a baseline of less than 1% per year. A second larger ramp up in economic growth occurred about the time of World War II, as oil began to be put to greater use (Figure 2).

  

  Figure 2. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil’s Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

  Worldwide, the economic growth rate hit a high point in the 1950 to 1965 period, and since then has trended downward. Figure 2 indicates that in all periods analyzed, the increase in energy consumption accounts for the majority of economic growth.

  Since 2001, when China joined the World Trade Organization, world economic growth has been supported by economic growth in China. This growth was made possible by China’s rapid growth in coal consumption (Figure 3).

  

  Figure 3. China’s energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

  China’s growth in energy consumption, particularly coal consumption, is now slowing. Its economy is slowing at the same time, so its leadership in world economic growth is now being lost. There is no new major source of cheap energy coming online. This is a major reason why world economic growth is slowing.

  Item 2. Increased use of debt, with less and less productivity of that debt in terms of increased goods and services produced.  

  Another finding of Turchin and Nefedov is that the use of debt tended to increase in the stagflation period. Since growth was lower in this period, it is clear that the use of debt was becoming less productive.

  If we look at the world situation today, we find a similar situation. More and more debt is being used, but that debt is becoming less productive in terms of the amount of GDP being provided. In fact, this pattern of falling productivity of debt seems to have been taking place since the early 1970s, when the price of oil rose above $20 per barrel (in 2014$). It is doubtful that that economic growth can occur if the price of oil is above $20 per barrel, without debt spiraling ever upward as a percentage of GDP. It is supplemental energy that allows the economy to function. If the price of energy is too high, it becomes unaffordable, and economic growth slows.

  

  Figure 4. Worldwide average inflation-adjusted annual growth rates in debt and GDP, for selected time periods. See author’s post on debt for explanation of methodology.

  China has been using debt to fund its recent expansion. There is evidence that it, too, is encountering falling productivity of additional debt.

  We mentioned that appetite controls how much an animal eats. Debt helps control demand for energy products, and in fact, for products of all kinds in the economy. Appetite is different from debt as a regulator of demand. For one thing, debt can be used for an almost unlimited number of purposes, whether or not these purposes have any real possibility of adding GDP to the economy. (This is especially true if interest rates are close to 0%, or even negative.) There are few controls on debt. Governments have discovered that in some instances, debt stimulates an economy. Because of this, governments have tended to be very liberal in encouraging growth in debt. Often, when a debtor is near default, this problem is hidden by extending the term of the loan and pretending that no problem exists.

  With respect to biological organisms, energy is often stored up as fat and used later when there is a shortfall of energy. This is the opposite of the way financing for human “tools” generally works. Here financing is often obtained when a tool is put into operation, with the hope that the new tool will pay back its worth, plus interest, over the life of the tool. Much debt doesn’t even have such a purpose; sometimes it is used simply to make an expensive object easier to purchase, or to give a young person (perhaps with poor grades) an opportunity to attend college. When debt has such poor regulation, we cannot expect it to work as reliably as biological mechanisms in feeding back information regarding true “demand” through the price system.

  Item 3. Increased disparity of wages; non-elite workers earning less.

  Item 3 is another problem that Turchin and Nefedov encountered in reviewing economies that collapsed. One of the reasons for the increased disparity of wages is the increased need for hierarchical relationships if an economy wants to work around a shortfall in goods and services by adding new “tools”. Businesses and governments need to grow larger if they are to accommodate these more complex processes. In such a case, the natural tendency is for these organizations to become more hierarchical in nature. Also, if there is growth, followed by a temporary need to shrink back, the cutbacks are likely to come disproportionately from the lower ranks of workers, reinforcing the hierarchical structure.

  

  Figure 5. Chart by Pavlina Tscherneva, in Reorienting Fiscal Policy, as reprinted by the Washington Post.

  Funding arrangements for the new “tools” to work around shortages add to the hierarchical behavior. Typically, businesses must expand to fund the development of the new tools. This expansion may be funded by debt, or by stock programs. Regardless of which approach is used for funding, the programs tend to funnel an increasing share of the wealth of the economy to the wealthier members of the economy. This happens because interest payments and dividend payments both go disproportionately to benefit those who are already high up on the wealth hierarchy.

  Furthermore, the inherent problem of fewer resources per person is not really solved, so an increasingly large share of jobs become “service” jobs, using only a small quantity of energy products, but also providing little true benefit to the economy. The wages for these jobs are thus low. The addition of these low-paid jobs to the economy further reinforces the hierarchical nature of the system.

  In a sense, what is happening is that the economy as a whole is growing very little in output of goods and services. An ever-larger share of the output is going to the wealthier members of the economy, because of increased hierarchical behavior and because of growth in debt and dividend payments. Non-elite members of the economy find their wages falling in inflation adjusted terms, because, in a sense, the productivity of their labor as leveraged by a falling amount of energy resources is gradually contracting, rather than increasing. It becomes increasingly difficult for the low-paid members of the economy to “pay the wages” of the high-paid members of the economy, so overall demand for goods and services tends to contract. As a result, the increasingly hierarchical behavior of the economy pushes the economy even more toward contraction.

  Item 4. Increased difficulty in obtaining adequate funding for government programs.

  Governments operate on the surpluses of an economy. As an economy finds itself in a squeeze (job loss, more workers with lower wages, fewer goods and services being produced), governments find themselves increasingly called upon to deal with these problems. Governments may need larger armies to try to obtain resources elsewhere, or they may be needed to build a public works project (like a dam, to get more water and hydroelectric power), or they may need to make transfer payments to displaced workers. Here again, Turchin and Nefedov found governmental funding to be one of the problems of economies reaching limits.

  Energy products are unique in that their value to society can be quite different from their cost of extraction. A third value, which may be different from either of the first two values, is the selling price of the energy product. When the cost of producing energy products is low, the wide difference between the value to society and the cost of extraction can be used to fund government programs and to raise the wages of workers. In fact, this difference seems to be a primary reason why economic growth occurs. (This difference is not recognized by most economists.)

  As the cost of extraction of energy products rises, the difference between the value to society and the cost of extraction falls, because the value to society is pretty close to fixed (except for changes taking place because of energy efficiency changes), based on how far a barrel of oil can move a truck or how many British thermal units of energy it can provide. As the cost of energy extraction rises, it becomes increasingly difficult to obtain enough tax revenue, either from taxing energy products directly, or from taxing wages. Wages tend to reflect the energy consumption required to support each job because supplemental energy acts to leverage the abilities of workers, and thus improves their productivity.

  Energy selling prices may behave in a strange manner, as an economy increasingly reaches limits. Falling prices redistribute what gain is available, so that energy importers get more, while energy exporters get less. Of course, the problem we are now seeing is that oil exporting countries are having difficulty obtaining sufficient revenue for their programs.

  Debt is different this time

  This time truly is different. We should have learned from past experience that debt tends not to be very permanent; it often defaults. We should therefore expect huge periods of debt defaults, and we should expect to need frequent debt jubilees. Economist Michael Hudson reports that the structure of debt was very different in the past (Killing the Host or excerpt). In early times, he found that by far the major creditors were the temples and palaces of Bronze Age Mesopotamia, not private individuals acting on their own. Because of the top-down nature of the debt, it was easy for the temples and palaces to forgive debt and restore balance to the social structure.

  Now, especially since World War II, there is a new belief in the permanency of debt, and about its suitability for funding insurance companies, banks, and pension plans. The rise in economic growth after World War II was important in this new belief in permanency, because without economic growth, it is extremely difficult to pay back debt with interest, unless debt is used for a truly productive purpose. (See also Figures 2 and 4, above)

  

  Figure 6. Ngram showing frequency of words over a period of years, by Google searches of a large number of books. Words searched from top to bottom are “economic growth, IRA, financial services, MBA, and pension plans.”

  The Ngram chart above, showing the frequency of word searches for “economic growth, IRA (Individual Retirement Accounts), financial services, MBA (Master of Business Administration), and pension plans” indicates that economic growth was essentially a new concept after World War II. Once it became clear that the economy could grow, financial services began to grow, as did the training of MBAs. Pension plans grew at first, but once companies with pension programs found that it was difficult to keep them adequately funded, there was a shift to IRAs. With IRAs, employees are expected to fund their own retirements, generally using a combination of stock and debt purchases.

  Now that debt is “reused” and integrated into the economy, it becomes much more difficult to forgive. We have a situation where insurance companies, banks, and pension plans are all tied together. They all depend on the current economic growth paradigm, including use of debt with interest, continued dividend plans, and rising stock market prices. We have a major problem if widespread debt defaults start.

  Demographic Bubble

  The other problem we are up against, making government funding even more difficult than it would otherwise be, is the retirement of the baby boomers, born soon after World War II. This by itself would be a problem for maintaining adequate government funding. When it is added to multiple other problems, including bailing out banks, insurance companies, and pension plans if there are debt defaults, the demographic bubble leaves us in much worse shape than economies that reached limits in the past.

  Note that High Energy Prices Are Not on the List of Expected Problems

  The idea that as we approach limits, we should expect ever-higher energy prices, is simply not true. It should be viewed as a superstition, or as an erroneous understanding of our current situation, based on a poor model of energy supply and demand. Turchin and Nefedov found evidence of spiking food prices, perhaps similar to the spiking we saw in energy prices as we approached the peak in prices in 2008. But with wages of non-elite workers falling too low, especially on an after-tax basis, it was hard for prices to continue to spike.

  The idea that collapse can come from low prices, rather than high, is something that is not obvious, unless a person thinks through the situation carefully. Prices seem to be primarily influenced by two factors:

  (1) Wages of non-elite workers. These wages are important because there is such a large number of them. If their wages are high enough, they buy homes, cars, and other products that are big users of commodities, both when they are made, and as they are operated.

   

  (2) Increases or decreases in the amount of debt outstanding. If debt defaults start to rise, it is very easy for growth in the quantity of debt outstanding to slow, or even to fall. In such a case, low commodity prices, rather than high, become a problem. As economic growth slows, we should expect more debt defaults, not fewer. There is also a limit to how high Debt/GDP ratios can rise before many suspect that the world economy functions much like a Ponzi Scheme.

  Mark Twain wrote, “It ain’t what you know that gets you in trouble. It’s what you know for sure, that just ain’t so.” This is especially a problem for academic researchers who depend on the precedents of past academic papers. A researcher may have come to a conclusion years ago, based on a narrow set of research that didn’t cover today’s conditions. The belief can get carried forward endlessly, even though it isn’t really true in today’s situation.

  If we are going to figure out the real answer to how the economy operates, we need to look closely at indications from many areas of research. Such an approach can allow us to see the situation in a broader context and thus “weed out” firmly held beliefs that aren’t really true.

  

  

  

  

  

• Mark Zuckerberg Storms Into The Trump 'Muslim Ban' Scandal, Tells Muslims "You Are Always Welcome Here"

  Moments ago, the latest high profile media figure to boldly go into the rapidly spreading Trump “ban Muslims” scandal, was none other than Facebook CEO Mark Zuckerberg, who in a post on his social network, took the other side of Trump declaring that “Muslims are always welcome here” and that Facebook will “fight to protect your rights and create a peaceful and safe environment for you.” It was not immediately clear if the “community” he was welcoming Muslims to is the United States or the online world of Facebook ad clickers. 

  His full Facebook post (which has so far been “liked” over 215K times) is below:

  I want to add my voice in support of Muslims in our community and around the world.

   

  After the Paris attacks and hate this week, I can only imagine the fear Muslims feel that they will be persecuted for the actions of others.

   

  As a Jew, my parents taught me that we must stand up against attacks on all communities. Even if an attack isn’t against you today, in time attacks on freedom for anyone will hurt everyone.

   

  If you’re a Muslim in this community, as the leader of Facebook I want you to know that you are always welcome here and that we will fight to protect your rights and create a peaceful and safe environment for you.

   

  Having a child has given us so much hope, but the hate of some can make it easy to succumb to cynicism. We must not lose hope. As long as we stand together and see the good in each other, we can build a better world for all people.

  To some online commentators, the statement rings of hollow cynicism, since the gentrified Palo Alto enclave for uber wealthy tech millionaires where Zuckerberg lives is hardly the diverse melting pot of social, ethical and religious strife and tensions, which have come to characterize many of the world’s geographic areas where cohabitation between Muslims and other religions has in recent months unleashed an unprecedented backlash – especially in Europe – against Muslims.

  To others, Zucherberg’s statement comes as a surprise that the social media mogul, who has until now resisted involvement in any openly political debates, has decided to so loudly wage right into this one.

  The reason is that according to a just released poll, nearly two-thirds of likely GOP primary voters support Trump’s proposal to ban Muslims from coming into the country. The latest Bloomberg Politics/Purple Strategies PulsePoll released Wednesday reveals that the real estate mogul’s latest remarks are backed by 65 percent of likely GOP voters. When told both sides of the argument, support for Trump’s proposal remained relatively unchanged at 64 percent.

  The online poll conducted Wednesday also found that about 37 percent of those surveyed would be more likely to vote for the businessman after his call to temporarily halt Muslims from entering the United States until elected leaders can “figure out what’s going on.”

  The risk that Zuckerberg is taking is that by openly endorsing the other side of the argument, while making an ethical stand he is also jeopardizing a business model which relies on the goodwill of its users, many of whom may be openly antagonized by Zuckerberg’s moral stance. And since that 65% of GOP potential GOP voters, whose ideological position is now diametrically opposed to that of the Facebook CEO, is in the tens of millions of Americans, one wonder just how many of the 167 million in North American Daily Active Users…

  

  … Zuckerberg is willing to sacrifice in order to make his stand?

  Meanwhile, even as support for Trump’s proposal appears to be widespread within the republican constituency, others don’t share that view as can be seen by what Atlanta police have dubbed to be “Trump Swastika” which have been reported in various locations in Atlanta.

  Donald Trump swastika graffiti reported in different locations in Atlanta, police say https://t.co/9l8PXGlCDM pic.twitter.com/qJFWC07tVH

  — CBS News (@CBSNews) December 9, 2015

   

  Finally, taking a campaign that has been unorthodox, to say the least, from the start, late yesterday one of the biggest losers from Trump’s relentless popularity, Jeb Bush, went on twitter to speculate that Trump’s campaign is nothing but a conspiracy with Hillary, one which will “put here in the White House”

  Maybe Donald negotiated a deal with his buddy @HillaryClinton. Continuing this path will put her in the White House. https://t.co/AlvByiSrMn

  — Jeb Bush (@JebBush) December 8, 2015

  The Telegraph had some thoughts on the matter:

  Could Donald Trump be doing all this to wreck the Republican Party and clear the path for his old friend Hillary Clinton to take the White House. Here’s the supporting evidence, such as it is:

  1. As recently as 2012 Trump said this of Mrs Clinton: “Hillary Clinton I think is a terrific woman. I am biased because I have known her for years. I live in New York. She lives in New York. I really like her and her husband both a lot. I think she really works hard.”
  2. Trump previously donated money to Mrs Clinton in 2002, 2005, 2006 and 2007.
  3. Trump has donated more than $100,000 to the Clinton Foundation.
  4. Trump’s daughter Ivanka is close friends with Chelsea Clinton.
  5. In 2005 Hillary Clinton attended Mr Trump’s wedding to Melania Knauss, his current wife, in Florida.
  6. Trump was a registered Democrat between 2001 and 2009 before switching to the Republican Party.
  7. It all adds up for Jeb Bush, whose campaign has been killed by Trump’s popularity. Bush said: “Maybe Donald negotiated a deal with his buddy Hillary Clinton. Continuing this path will put her in the White House.”

  Or perhaps, the conspiracy is even greater.

  According to the Chief Investment Officer of CalSTRS, “a presidential matchup between Republican Donald Trump and Democrat Hillary Clinton could sap a full percentage point from anticipated growth in the gross domestic product, the chief investment officer of the second-largest U.S. pension fund said.“

  “Can you imagine a whole year of Trump and Hillary going at each other?” Christopher Ailman, who manages the California State Teachers’ Retirement System’s $184 billion portfolio, said Tuesday on Bloomberg Television. “It’s going to be a drag on the economy.”

  Ailman said 70 percent of the U.S. economy is based on consumer sales, and a divisive presidential campaign is likely to depress consumer confidence. He didn’t comment on Clinton but said Trump’s statements “reverberate” across the global economy. The Republican real-estate mogul, who leads in all national polls for his party’s nomination, this week called for a ban on Muslims entering the U.S.

   

  “I’m worried about 2016,” said Ailman, who has a degree in business economics. “If you took everybody’s GDP projections of 2 to 3 percent growth, I’m sad to say you could probably take a full percentage point off of that.”

  In a year in which a record El Nino is expected to make the GDP-crushing “harsh winter” a distant memory, perhaps a Trump vs Clinton campaign is precisely what the soon to be much weaker US economy needs as the Fed is in urgently need of an alibi when the “expected” growth resulting from the December 16 rate hike fails to materialize – and in fact leads to just the opposite outcome – and the Fed is forced to backtrack instead, launching either NIRP or more QE or both. Thanks to Trump and Hillary going “at each other”, of course.

  What the answer is we don’t know, although as US society appears ready to split along racial, social, cultural and religious lines, we have somehow never felt quite so entertained even as society is quietly tearing itself apart.

  

  

  

  

  

• How Many People Were Shot Near Your Home This Year: Find Out With This Interactive Map

  In the wake of last week’s massacre in San Bernardino, gun violence is once again the topic du jour in America. 

  Gun control crusaders claim the problem is easy access to firearms while gun advocates say America would actually be safer if more responsible citizens obtained concealed carry permits. In between the two extremes are those who support tougher background checks and/or limits on what type of firearms citizens should legally be allowed to purchase. 

  And the debate doesn’t just center around the string of mass shootings that have unfolded across the US over the past several years. There are also very real concerns about the proliferation of gun violence in cities like Chicago and Baltimore.

  The debate reaches to the highest levels of government with politicians on both sides of the aisle weighing and indeed, just two days ago The Supreme Court came down on the side of limiting access to “assault weapons”, a classification which one Illinois resident called “pejorative” in a complaint. 

  Given all the attention the issue has received of late, you might be curious to know just how prevalent gun violence actually is where you live. Fortunately, there’s a map for that courtesy of Slate and The Trace, an independent, nonprofit news organization dedicated to expanding coverage of guns in the United States.

  Utilizing data from the Gun Violence Archive, The Trace has developed an interactive map which allows you to discover how many fatal and non-fatal shooting have occurred in a particular area. Essentially, the map uses location data to find where you are, and tells you if anyone has been shot there recently.

  (click for interactive version)

  

  *  *  *

  Excerpts from “How Many People Have Been Shot Near You This Year“, by Alex Yablon and Chris Kirk, as published in The Trace

  

  In relentless succession, a parade of towns and cities have this year joined the bloodstained ranks of American mass shooting locations. The mere mention of the places — Charleston, Chattanooga, Colorado Springs, San Bernardino — evokes images made familiar at Columbine and Virginia Tech and Tucson and Newtown: the police battalions rushing to respond, the shocked survivors and bereft loved ones, the eerie portraits of newly infamous killers.

  But the truth is that these cities and towns and the events that now define them, however lethal they were and however large they understandably loom, comprise just a small fraction of the gun violence recorded in America during this or any year. In 2013, the last year for which government statistics are available, less than 2 percent of more than 33,000 gun deaths in the country were due to mass shootings. Tallies of gun-related fatalities are in turn dwarfed by totals for gun injuries. Every 12 months, more than 130,000 people are shot; many are left with devastating physical impairments and crippling health care bills.

  Thanks to a nonprofit, nonpartisan project known as the Gun Violence Archive, data on gun homicides and non-fatal shootings is now available well before the federal government releases its statistics. That data includes location information that makes it possible to plot those shootings on a map showing how many have taken place in your vicinity. Where someone was killed, the shooting is coded in red (this includes multiple victim incidents with a mix of fatalities and injuries). Shootings resulting in injuries but not deaths are coded in yellow.

  In all, the map contains 30,284 incidents recorded by the Gun Violence Archive from December 5, 2014 to December 5, 2015. As comprehensive as it is, it’s also incomplete: Guns are used in twice as many suicides as homicides (and are the most lethal means of suicide). But because many suicides are not reported in real time by the law enforcement sites and news outlets that the GVA mines in compiling its database, they are missing from this visualization. 

  What you’re seeing, then, is gun violence in all its other forms: homicides, attempted murders, assaults, self-defense shootings, and accidents. For 80 percent of cases, location information for the shooting is available down to the block level. Another 18 percent of locations are exact to the street level, with the remaining 2 percent limited to the city level.

  

  

  

  

  

• How Hillary Clinton Abused Her State Department Role To Help Her Hedge Funder Son-In-Law

  While Hillary Clinton may have had some entertaining problems when using her Blackberry (or was that iPad) as US Secretary of State, one thing she excelled at was nepotism.

  According to the latest set of emails released by the State Department, and first reported by the Daily Caller, Hillary intervened in a request forwarded by her son-in-law, Marc Mezvisnky, on behalf of a deep-sea mining firm, Neptune Minerals, to meet with her or other State Department officials.

  One of the firm’s investors, Harry Siklas who was Mezvinsky’s coworker at Goldman (which donated between $1 and $5 million to the Clinton Foundation) had asked Mezvinsky, who married Chelsea Clinton in 2010 and who currently runs his own hedge fund (in which Goldman CEO Blankfein is also an investor) for help setting up such contacts, an email from May 25, 2012 shows.

  Siklas told Mezvinsky that Neptune Minerals (a company founded by one of Siklas’ close friends) was poised for great things. He also touted an investment that Goldman Sachs –  had made in the company, which had underwater tenements in the South Pacific.

  Siklas said that he and Adam hoped to meet with State Department officials, including Clinton, to discuss deep sea mining “and the current legal issues and regulations” surrounding it.

  “I introduced them to GS and the bankers took them on as a client,” Siklas wrote.

  “There is a favor I need to ask, and hopefully it will not put you out, as I’m not one to ask for favors typically,” Siklas wrote to Mezvinsky. “I need a contact in Hillary’s office.”

  “Siklas said that he and Adam hoped to meet with State Department officials, including Clinton, to discuss deep sea mining “and the current legal issues and regulations” surrounding it.

  As AP adds, the lobbying effort on behalf of Neptune Minerals  came while Hillary Clinton — now the leading Democratic presidential candidate — was advocating for an Obama administration push for Senate approval of a sweeping Law of the Sea Treaty. The pact would have aided U.S. mining companies scouring for minerals in international waters, but the Republican-dominated Senate blocked it.

  Clinton then ordered a senior State Department official, Thomas Nides and now a vice chairman at Morgan Stanley, to look into the request in August 2012.

  “Could you have someone follow up on this request, which was forwarded to me?” Clinton asked Nides.

  Nides replied: “I’ll get on it.”

  The emails do not show whether Clinton or other State Department officials met with Harry Siklas or with executives from the Florida-based firm. Clinton’s official calendars, recently obtained by The Associated Press, also do not show any meetings between Clinton and Neptune representatives.

  Clinton’s campaign declined through a spokesman to discuss the issue, despite AP asking detailed questions about the matter since Nov. 30. The AP attempted to reach Siklas and a Neptune executive, Josh Adam, by phone, email and in-person visits to their homes last week but received no replies.

  As noted above, Siklas had said in his email that his then-employer, Goldman Sachs, was representing Neptune.

  Unperturbed by the State Department’s stonewalling, AP then dug deeper into its quest to see just how extensive the nepotism ran:

  A spokesman for Eaglevale said Mezvinsky would not comment on his role. Emails to a spokeswoman for Chelsea Clinton went unreturned. Morgan Stanley officials did not respond to an AP request to interview Nides. The AP also left three phone messages with Neptune Minerals’ office in St. Petersburg, Florida, and also left several phone and email messages with Hans Smit, the firm’s current president, also with no reply.

   

  Federal ethics guidelines warn government employees to “not give preferential treatment to any private organization or individual,” but there are no specific provisions prohibiting officials from considering requests prompted by relatives.

  As the AP then notes, “Clinton’s willingness to intercede as a result of her son-in-law’s involvement is the latest example of how the Clinton family’s interests cut across intersecting spheres of influence in American politics, commerce and charity.”

  There’s more:

  A lawyer for an environmental group opposing deep-sea mining said Clinton’s action was “cause for concern that the State Department might take any action that could encourage such activity.” Emily Jeffers, an attorney for the Center for Biological Diversity, a group opposing deep-sea mining, filed suit against Commerce Secretary Penny Pritzker and the National Oceanic and Atmospheric Administration last May, accusing the agencies of failing to conduct comprehensive environmental tests before licensing Lockheed Martin Corp. to mine for minerals in U.S. territorial waters in the Pacific Ocean.

   

  Jeffers said her organization supports the Law of the Sea Treaty that Clinton championed during her tenure at the State Department. She said the proposal would give the U.S. and other countries roles in establishing standards to explore for oil, gas and minerals. Jeffers said her group worries that the U.S. and other commercial nations will encourage deep-sea mining once the treaty is adopted.

   

  One provision of the treaty, backed by corporate interests, would allow nations, including the U.S., to sponsor mining companies seeking to scour deep seas for minerals. Clinton told senators in May 2012 that American mining firms would only be able to compete freely against foreign rivals under standards set by the treaty.

   

  Seabed mining is “very expensive, and before any company will explore a mine site, it will naturally insist on having a secure title to the site and the minerals it will recover,” she said.

  Clinton’s public push for a U.S. role in securing deep sea mining rights quickly hit home at Neptune Mining. Three days after her Senate appearance, Siklas, who described himself as a “passive investor” in Neptune, emailed Mezvinsky.

  As Siklas explained to Clinton’s son in law, Neptune was pursuing sea-floor massive sulfide (SMS) mining in the South Pacific and had just bought out two other mining firms. Siklas said that he and Adam needed “a contact in Hillary’s office: someone my friend Josh (and I perhaps) can reach out via email or phone to discuss SMS mining and the current legal issues and regulations.” Siklas, then registered as a stockbroker at Goldman Sachs in New York, had contributed $2,000 to Hillary Clinton’s 2008 unsuccessful presidential bid.

  Siklas said the State Department would be interested in the subject following Clinton’s Senate testimony. He said he and Adam “would feel very fortunate to have someone’s ear on this topical issue, with the hope that at some point we get in front of the secretary herself.”

  And since the emails do not show how Clinton became directly aware of Siklas’ email to Mezvinsky or why it took three months for her to act after Mezvinsky became involved, it also raises questions how many emails in the chain had been illegally deleted, and what may be contained in them. As the Daily Caller observes:

  … it is unclear why there is no record of Clinton being forwarded the email that Siklas sent to Mezvinsky. Clinton wrote in her email to Nides that she was forwarded the email from Siklas to her son-in-law. If Clinton had turned over all work-related emails that she has sent or received — as she has repeatedly claimed — it would be expected that she had an email sent directly to her inbox with Siklas’s email attached.

  The answer is simple: Clinton did not in fact produce all emails as had been demanded. But while the emails do not show a reply from Mezvinsky, Hillary Clinton eventually obtained a copy and sent it to Nides that August, ordering a follow-up.

  Most importantly, as DC concludes, the email shows that people close to Clinton had the inside track in pushing her their pet projects — a pattern that has been on display with nearly every monthly release of Clinton emails. 

  For those who are shocked, feel free to read what little evidence Clinton did provide of just that, shown below.

  

  

  

  

  

  

• The Screaming Fundamentals For Owning Gold

  Submitted by Chris Martenson via PeakProsperity.com,

  Every year or two we update this report, which lays out the investment thesis for gold. Here is this year's version.

   

  Silver is touched upon only as necessary; as a separate report of equal scope is required for that precious metal.

   

  Gold is one of the few investments that every investor should have in their portfolio. We are now at the dangerous end-game period of a very bold but very reckless & disappointing experiment with the world's fiat (unbacked) currencies. If this experiment fails — and we observe it's in the process of failing — gold will provide one of the best forms of wealth insurance. But like all insurance products, it only works if you buy it before you need to rely on it.

  Risky Markets

  As the world’s central banks perform increasingly bizarre and desperate maneuvers to keep the financial system from falling apart, the most frequently asked question we receive is: What should I do?

  Unfortunately, there’s no simple answer to that question. Even seasoned pros running gigantic funds are baffled by the unusual set of conditions created by 4 decades of excessive borrowing and 7 years of aggressive money printing by central banks.  We expect market conditions to be even more perilous in 2016 as they are here in December 2015. Worse, we fear a major market correction — if not a financial/banking accident of historic proportions — could easily happen in the not too distant future.

  In short: this is a dangerous time for investors. At a time like this, we believe it's prudent to focus more on protecting one’s wealth rather than gambling for capital gains.

  The Opportunity In These Strange Times

  In 2001, as we witnessed the painful end of the long stock bull market, like many of you I imagine, I began to grow quite concerned about my traditionally-managed stock and bond holdings. Other than a house with 27 years left on a 30-year mortgage, these paper assets represented 100% of my investing portfolio.

  So I dug into the economic data to discover what the future likely held. What I found shocked me. The insights are all in the Crash Course, in both video and book form, so I won't go into all of that data here. But one key takeaway for me was: the US and many other governments around the world are spending far more than they are taking in, and are supporting that gap by printing a whole lot of new money.

  By 2002, I had investigated enough about our monetary, economic, and political systems that I came to the conclusion that holding gold and silver would be a very good idea for protecting the purchasing power of my financial wealth from all this money printing. So took an extreme step: I poured 50% of my liquid net worth into precious metals at that time, and sat back and waited.

  Despite the ups and downs in the years that followed — years of ups until 2011, years of down since — that move has still turned out to be a very sound investment for me. And I forecast the best is yet to come for precious metals holders like me. 

  But part of my is depressed by that conviction. Why? Because the forces that are going to drive the price of gold (and silver) higher are the very same trends that are going to leave most people on the planet financially much worse off than they are now.

  Here at PeakProsperity.com, we admit that we initially were utterly baffled that the vicious secular decline in the price of gold began at almost the exact same time that the US Federal Reserve announced the largest and most aggressive money printing operation in all of history – known as QE3 – which pumped over $1.7 trillion into the financial system between 2012-2014, throwing an astonishing $85 billion dollars of newly created 'thin air' money into the financial system every month!

  Such an unprecedented and excessive act of monetary desperation should have sent gold's price to the moon; but in fact, the opposite happened. Strange times.

  As we’ll soon explain, even as the price of gold futures were being relentlessly driven down in the US paper markets, the purchase of physical gold by China exploded. It's as if the West suddenly decided gold wasn't worth owning. Strange times, indeed.

  As we'll now explain in detail, we are witness to an incredibly aberrant moment in financial history — one where the price of gold is extremely undervalued relative to its true value. And similarly, many paper assets are overvalued well-above their intrinsic worth. The dichotomy of this moment in time is likely not to be repeated in our lifetimes; and those who understand the fundamentals accurately have the opportunity to position themselves now to benefit greatly (or at least, to not be impoverished) as this extreme imbalance corrects, as it must. 

  Why Own Gold?

  The reasons to hold gold (and silver) — I mean physical bullion here — are pretty straightforward. Let’s begin with the primary ones:

  1. To protect against monetary recklessness
  2. As insurance against the possibility of a major calamity in the banking/financial system
  3. For the embedded 'option value' that will pay out handsomely if gold is re-monetized

  Reason No. 1: To Protect Against Monetary Recklessness

  By ‘monetary recklessness,’ we mean the creation of more money out of thin air than the productive economy actually needs or can use. The central banks of the world have been doing this for decades, but it has kicked into high gear ever since the onset of the 2008 financial crisis.

  In our system money is created out of thin air.  It is created when a bank lends you money for a mortgage and it is created when the Federal Reserve buys a trillion dollars’ worth of mortgages from the banks.  If you didn’t know that money was ‘loaned into existence’ then you should really watch (or read) those parts of the Crash Course that explain the significance of this process.

  Since 1970 the US has been compounding its total credit market debts at the astounding rate of nearly 8% per annum which gives us a chart that swoops into the air, and which reveals an astonishing 39-fold expansion since 1970 to nearly $60 trillion dollars:

  

  Why is this astonishing? Isn’t it true that our economy has expanded tremendously since 1970, as well? After all, if our economy has expanded by the same amount, then the advance is not astonishing at all.

  But sadly, the economy, as measure by Gross Domestic Product, or GDP, has grown by less than half as much over the same time frame:

  

  Where credit zoomed from $1.5 trillion to $59 trillion, GDP only advanced from $1.1 trillion to $18 trillion. In other words, debt has been growing far faster than real things that have real value. (And to make things worse, as we explain in Chapter 18 of the Crash Course, GDP numbers are artificially overstated. The debt figures, sadly, are not.)

  The crazy part of this story is that the financial and monetary system are so addicted to exponential expansion that they literally threaten to collapse violently if that growth ceases or even slows.  Remember 2008 and 2009, back when the financial world seemed to be ending?  Well, collapse was a very real possibility and here’s what almost caused that:

  

  Anything other than smooth, continuous, exponential growth at a pace faster than GDP seems to be a death knell for our current over-indebted system of finance.  If you are like us, you see the problem in that right away.

  The short version is this: Nothing can grow exponentially forever. But our credit system not only wants to, but has to. Or else it will collapse. 

  This desperate drive for continuous compounding growth in money and credit is a principal piece of evidence that convinces us that hard assets — of which gold is perhaps the star representative for the average person — are an essential ingredient in a crash-proof portfolio.

  Back to our main narrative: because all money is loaned into existence, the next thing we should be wondering is where’s all the money that was created when those loans were made?  We’d expect it to mirror credit creation in shape.

  What we find, unsurprisingly, is another exponential chart. This time of the money supply (of zero maturity, or MZM in banker parlance):

  

  Money is a claim on real things, which you buy with it. Money is no good all by itself; it’s useful because you can buy a car with it, or land, or groceries, or medical services.  Which is why we state that money is a claim on goods and services.

  Debt, on the other hand, is a claim on future money. Your mortgage is your debt, and you satisfy that debt by paying out money, in the future.  That’s why we say that debt is a claim on future money. 

  By now you should be thinking about how important it is that money and debt grow at the same rate as goods and services. If they grow at a slower rate, then there won’t be enough money and credit to make purchases, and the economy would thus contract. 

  But it's equally important that money and credit do not grow faster than goods and services. If they do, then there will be too much money chasing too few real things, which causes prices to rise. That’s inflation.

  Here’s the punch-line: Since 1980, money and credit have been growing at more than twice the rate of real things. There’s far more money and debt in the economy than there is real "stuff" all that paper is laying claim to.  Worse, the system seems addicted to forever growing its debts faster than its income (or GDP) — a mathematical impossibility any 4th grader can point out.

  This is a dangerously unstable system. And it’s going to either crumble slowly for a long time  — or violently explode at some point. This isn't an opinion, it’s just math. 

  The Federal Reserve has created and nourished a monster. It simply does not know how to begin starving the beast without it turning on the hand that feeds it, and thus destroying huge swaths of so-called paper "wealth" along with the actual economy. 

  So the Fed and its central bank brethren just keep pumping more and more money into the syste, fueling ever-higher levels of debt while hoping for an outcome that is simply impossible. 

  Negative Real Interest Rates

  Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). Even more startling, there are trillions of dollars worth of sovereign debt that has negative nominal yields.  This means that investors pay various governments to take their money from them for periods as long as seven years. For example, at the time of this writing in late 2015, $1,000 loaned to the German government for 5 years will pay back $980 at the end of those five years.  That’s insane. Or at least, a very new wrinkle that we have yet to determine how it will alter investor decisions and psychology. 

  Negative interest rates are a forced, manipulated outcome courtesy of central banks. Of course, the true rate of inflation is much higher than the officially-reported statistics by at least a full percent or possibly two; and so I consider real bond yields to be far more negative than is currently reported. 

  Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver but not until then. That's as close to an absolute requirement as I have in this business.  Recently commodities have been hard-hit, declining in price by large amounts. So negative interest rates are giving us different results this time than we'd expect…so far. 

  Dangerous Policies

  Monetary policies across the developed world remain as accommodating as they’ve ever been. Even Greenspan's 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke engineered over his more recent tenure. Janet Yellen has extended those polices along with the help of foreign central banks into extreme, never-before-seen territory that now includes negative nominal interest rates!  As mentioned above, this means people are paying governments for the ‘privilege’ of lending those same governments their money.

  But it is the highly aggressive and ‘alternative’ use of the Federal Reserve's balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no end to these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape. In Europe, the European Central Bank (ECB) is aggressively expanding its balance sheet. In Japan we have Prime Minister Abe's ultra-aggressive policy of doubling the monetary base in just two years. Suffice it to say that such grand experiments have never been tried before, and anyone that has the vast bulk of their wealth tied up in financial assets is making an explicit bet that these experiments will go exactly as planned. Who in their right mind thinks it will?

  Reason No 2: To Protect Against a Major Banking Failure

  Reason #2, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold.

  And let me clear: I’m not referring to “paper" gold, which includes the various tradable vehicles (like the "GLD" ETF) that you can buy like stocks through your broker. I’m talking about physical gold and silver (coins, bars, etc). Its their unusual ability to sit outside of the banking/monetary system and act as monetary assets that appeals to me.

  Literally everything else financial, including the paper US bills in our wallets and purses, is simultaneously somebody else’s liability. But gold and silver bullion are not. They are simply — boringly, perhaps — just assets. This is a highly desirable characteristic that is not easily replicated in today's world of ‘money.’

  Should the banking system suffer a systemic breakdown — to which I ascribe a reasonably high probability of greater than 1-in-3 over the next 5 years — I expect banks to close for some period of time. Whether it's two weeks or six months is unimportant. No matter the length of time, I'd prefer to be holding gold than bank deposits if/when that happens.

  What most people don’t know is that the banking crisis in Cyprus in 2013 ushered in an entirely new set of rules as well as a new financial term: the “bail-in.”   Where a bail-out uses taxpayer funds to re-capitalize a failed bank, a bail-in uses internal assets to accomplish that task.  Which ‘internal assets?’  Bank deposits, as in the accounts regular people like you hold at your bank. Even worse, the new rules adopted within the US specifically call for the derivative bets made between banks to have seniority over bank deposits when it comes to a bail-in restructuring event.  That means that the money you hold in your bank account will be used to pay off any and all reckless bets your bank may have made with another financial entity via derivative bets. And US banks hold a LOT of derivatives on their books right now.

  During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rockets up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy: keep some ‘money’ out of the system to spend during an emergency. We advocate three months of living expenses in cold, hard cash; but you owe it to yourself to have at least a little gold and silver in your possession as well.

  The test run for such a bank holiday recently played out in Cyprus where people woke up one day and discovered that their bank accounts were frozen. Those with large deposits had a very material percentage of those funds seized so that the bank's more senior creditors, the bondholders, could avoid the losses they were due. Sound fair to you? Me neither.

  Most people, at least those paying attention, learned two things from Cyprus:

  1. In a time of crisis, those in power will do whatever it takes to assure that the losses are spread across the population rather than be taken by the relatively few institutions and individuals responsible for those losses.
  2. If you make a deposit with a bank, you are actually an unsecured creditor of that institution. This means you are legally last in line for repayment should that institution fail.

  Reason No. 3 – Gold May Be Re-monetized

  The final reason for holding gold, because it may be remonetized, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high for those holding gold should it occur.

  Here are some numbers: the total amount of 'official gold', that held by central banks around the world, is 31,320 tonnes, or 1.01 billion troy ounces. In 2013 the total amount of money stock in the world was roughly $55 trillion.

  If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($55T/1.01BOz) = $54,455 per troy ounce.

  Clearly that's a silly number (or is it?). But even a 10% partial backing of money yields $5,400 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world's money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a small fraction of the world's money supply by gold will result in a far higher number than today's ~$1,080/oz.

  The Difference Between Silver & Gold

  A quick word on silver: often people ask me if I hold "goldandsilver" as if it were one word. I do own both, but for almost entirely different reasons.

  Gold, to me, is a monetary substance. It has money-like qualities and it has been used as money by diverse cultures throughout history. I expect that to continue.

  There is a slight chance that gold will be re-monetized on the international stage due to a failure of the current all-fiat regime. If or when the fiat regime fails, there will have to be some form of replacement, and the only one that we know from the past that works for sure is a gold standard. Therefore, a renewed gold standard has the best chance of being the ‘new’ system selected during the next bout of difficulties.

  So gold is money.

  Silver is an industrial metal with a host of enviable and irreplaceable attributes. It is the most conductive element on the periodic table, and therefore it is widely used in the electronics industry. It is used to plate critical bearings in jet engines and as an antimicrobial additive to everything from wall paints to clothing fibers. In nearly all of these uses, plus a thousand others, it is used in vanishingly-small quantities that are hardly worth recovering at the end of the product life cycle — so they often aren't.

  Because of this dispersion effect, above-ground silver is actually quite a bit less abundant than you might suspect. When silver was used primarily for monetary and ornamentation purposes, the amount of above-ground, refined silver grew with every passing year. After industrial uses cropped up, that trend reversed. Today it's calculated that roughly half of all the silver ever mined in human history has been irretrievably dispersed.  

  Because of this consumption dynamic, it's entirely possible that over the next twenty years not one single net new ounce of above-ground silver will be added to inventories. In contrast, a few billion ounces of gold are forecast to be added.

  I hold gold as a monetary metal. I own silver because of its residual monetary qualities, but more importantly because I believe it will continue to be in demand for industrial uses for a very long time, and it will become a scarce and rare item.

  The Fed Indeed Cares About Gold

  Gold, when unfettered, has a habit of sending signals that the Fed very much doesn’t like. Therefore the Fed is at the top of everyone’s suspect list when it comes to wondering who might be behind the suspicious gold slams seen almost daily in today's markets. Whether the Fed does this directly is doubtful; but it has a lot of proxies out there in its cartel network who likely are doing its dirty work.

  To reveal the extent to which gold sits front and center in the Fed’s mind, and how the Fed thinks of gold, here’s an excerpt from a 1993 FOMC meeting’s full transcript. Note that the full meeting notes from Fed meetings are only released many years after the fact, long after many or all of the voting members are no longer serving. (The most recent ones available are only from 2009.) Listen to what this FOMC voting member had to say about gold:

  At the last meeting I was very concerned about what commodity prices were doing. And as you know, they got lucky again and told us that the rate of inflation was higher than we thought it was.

   

  Now, I know there's nothing to it but they did get lucky. I've had plenty of econometric studies tell me how lucky commodity prices can get. I told you at the time that the reason I had not been upset before the March FOMC meeting was that the price of gold was well behaved.

   

  But I said that the price of gold was moving. The price of gold at that time had moved up from 328 to 344, and I don't know what I was so excited about! I guess it was that I thought the price of gold was going on up. Now, if the price of gold goes up, long bond rates will not be involved.

   

  People can talk about gold's price being due to what the Chinese are buying; that's the silliest nonsense that ever was. The price of gold is largely determined by what people who do not have trust in fiat money system want to use for an escape out of any currency, and they want to gain security through owning gold.

   

  A monetary policy step at this time is a win/win. I don't know what is going to happen for sure. I hope Mike is correct that the rate of inflation will move back down to 2.6 percent for the remaining 8 months of this calendar year. If we make a move and Mike is correct, we could take credit for having accomplished this and the price of gold will soon be down to the 328 level and we can lower the fed funds rate at that point in time and declare victory.

  (Source – Fed)

  There it is, in black and white from an FOMC member’s own mouth spelling out the primary reason why I hold gold: I lack faith in our fiat money system. He nailed it.  Or rather, I have very great faith that the people managing the money system will print too much and ultimately destroy it. Same thing, said differently.

  And of course the people at the Fed are acutely aware of gold's role as a barometer of people’s faith in ‘fiat money.’ Of course they track it very carefully, discuss it, and worry about it when it is sending ‘the wrong signals.’ I would, too, if in their shoes.

  The Federal Reserve Note (a.k.a. the US dollar) is literally nothing more than an idea. It has no intrinsic value. America's money supply is just digital ones and zeros careening about the planet, accompanied by a much smaller amount of actual paper currency. The last thing an idea needs is to be exposed as fraudulent. Trust is everything for a currency — when that dies, the currency dies.

  The other thing you can note from these FOMC minutes is that gold pops up 19 times in the conversation. The Fed members are actively and deliberately discussing its price, its role in setting interest rates, and the psychological impact of a rising or falling gold price.

  Later in that same meeting Mr. Greenspan says:

  My inclination for today–and I'm frankly most curious to get other people's views–would be to go to a tilt toward tightness and to watch the psychology as best we can. By the latter I mean to watch what is happening to the bond market, the exchange markets, and the price of gold…

   

  I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market.

   

  There's an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology. Now, we don't have the legal right to sell gold but I'm just frankly curious about what people's views are on situations of this nature because something unusual is involved in policy here. We're not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing.

  The recap of all this is that the Fed watches the price of gold carefully, frets over whether the price of gold is ‘sending the right signals’ to market participants, and pays attention to gold's impact on market psychology (with an eye to controlling it).

  In short, the Fed keeps a close eye on the "golden thermometer".

  Back to the supply story for gold.  Not long after gold began its downward price movement in 2012, the GLD ETF trust began coughing up a lot of gold, eventually shedding more than 500 tonnes; a truly massive amount.

  

  (Source)

  In my mind, the absolute slamming of gold in 2013 was done by a few select entities and represents one of the clearest cases of price manipulation on the recent record. While we can debate the reasons ‘why’ gold was manipulated lower or ‘who’ did it, to me, there’s no question about how it was done. Or that it was done. 

  Massive amounts of paper gold were dumped into a thin overnight market with the specific intent of driving down the price of gold.

  It’s an open and shut case of price manipulation. Textbook perfect. 

  Even if these bear raids were performed by self-interested parties that made money while doing it, you can be sure the Fed was smiling thankfully in the background and that the SEC wasn’t going to spend one minute looking into whether any securities laws were broken (especially those related to price manipulation).

  Gold's falling "thermometer" was exactly what the central planners wanted the world to see.

  Down And Out

  The paper markets for gold are centered in the US, while the physical market for gold is centered in London (and increasingly Shanghai). It’s safe to say that the paper markets set the spot price, while the physical movement of gold originates in London.

  What’s increasingly obvious is the growing disconnect between the paper and physical markets. This is exactly what we’d expect to see if the paper markets were pushing in one direction (down) while physical gold was heading in a different direction (out).

  The tension between these ‘down and out’ movements is building and, according to a senior manager of one of the largest gold refineries in the world located in Switzerland, the current price of gold “has no correlation to the physical market.”

  He notes a lot of on-going tightness in the physical market. Unsurprisingly, gold is moving from West to East with vaults in London supplying much of the physical metal that's being refined into fresh kilo bars and sent off to China and India.

  But given the astonishing amount of physical demand, why has the price of gold been heading steadily lower over the past several years? 

  The aforementioned Swiss refiner is equally perplexed:

  If I am honest, the only thing I could share now with you would be that I’m perplexed about the discrepancy between the prices and the situation of the physical market.

   

  This is something I still do not understand and is a riddle for me every day. For all people who are interested in precious metals, the physical side of this business should be given more emphasis.

  (Source – Transcript)

  There’s no mystery as to demand going up in China and India as the price of gold has moved down. Interested buyers will buy more at a lower price.

  But it’s a big mystery as to why Western “investors” seem more interested in selling gold than buying it right now.

  Go East Young Man

  The biggest untold story of the past few years has been the absolutely massive extent of the flow of gold heading from the West to the East.  Gold has been leaving London and Switzerland and heading to China and India.

  Besides the first-hand experience of the Swiss refiner, there have been numerous stories in the main stream press also pointing to tightness in the London physical gold market as well as relentless demand from China and India being the driver of that condition:

  Gold demand from China and India picks up

  Sep 2, 2015

   

  London’s gold market is showing tentative signs of increased demand for bullion from consumers in emerging markets, after the price of the precious metal fell to its lowest level in five years in July.

   

  The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants

   

  “[The rise] does indicate there is physical tightness in the market for gold for immediate delivery,” said Jon Butler, analyst at Mitsubishi.

   

  The move comes as Indian gold demand picked up in July, with shipments of gold from Switzerland to India more than trebling. Most of that gold is likely to originally come from London before it is melted down into kilobars by Swiss refineries, according to analysts.

   

  In the first half of this year, total recorded exports of gold from the UK were 50 per cent higher than the first half of 2014, on a monthly average basis, according to Rhona O’Connell, head of metals for GFMS at Thomson Reuters. More than 90 per cent was headed for a combination of China, Hong Kong and Switzerland.

   

  London remains the world’s biggest centre for trading and storing gold.

  (Source)

  

  (Source)

  Shipments and exports are up very strongly and nearly all of that gold is headed to just two countries; China and India. 

  India Precious Metals Import Explosive – August Gold 126t, Silver 1,400t

  Sept 10, 2015

   

  In the month of August 2015, India imported 126 tonnes of gold and 1,400 tonnes of silver, according to data from Infodrive India. Gold import into India is rising after a steep fall due to government import restrictions implemented in 2013.

   

  Year-to-date India has imported 654 tonnes of gold, which is 66 % up year on year. 6,782 tonnes in silver bars have crossed the Indian border so far this year, up 96 % y/y.

   

  Gold import is set to reach an annualized 980 tonnes, which would be up 26 % relative to 2014 and would be the second highest figure on (my) record – my record goes back to 2008.

   

  Silver import is on track to reach an annualized 10,172 tonnes, up 44 % y/y! This would be a staggering 37 % of world mining.

  (Source)

  To summarize, the gold and silver imports into India have been absolutely on a tear lately as that country tends to buy more and more as the price drops lower and lower. 

  While the paper games setting the price of gold and silver in the West continue to support lower and lower prices, for whatever reasons, this only stimulates more demand from China and India.

  Seen collectively, there’s what gold demand looks like for “Chindia.”

  

  (Source)

  To make things even more interesting, the world’s central banks have been increasingly strong net buyers, not sellers, of gold for the past 5 years.

  Central Banks

  Another factor driving demand has been the reemergence of central banks as net acquirers of gold. This is actually a pretty big deal. Over the past few decades, central banks have been actively reducing their gold holdings, preferring paper assets over the 'barbarous relic.' Famously, Canada and Switzerland vastly reduced their official gold holdings during this period (to effectively zero in the case of Canada), a decision that many citizens of those countries have openly and actively questioned.

  The UK-based World Gold Council is the primary firm that aggregates and reports on gold supply-and-demand statistics. Here's their most recent data on official (i.e., central bank) gold holdings:

  

  (Source)

  After more than a decade of selling gold to suppress the price, central banks turned into net acquirers right as gold began its plummet from its 2011 highs.  2015 looks to be an even stronger year for central bank purchases.

  With China and India’s combined appetite for gold being higher than total world mining output, and central banks on a buying spree, it only stands to reason that somebody has to be parting with their physical gold — and those selling entities appear to be substantially located in the US and UK.

  An interesting piece of detective work was done by Ronan Manly at Bullionstar.com where he noted that the LBMA reported pronounced drops in the amount of gold stored in London vaults, which includes both gold held at the Bank of England as well as non-official vaults within the LBMA system.

  To summarize his report, here’s the amount of gold reportedly held in London:

  • April 2014 – 9,000 tonnes
  • Early 2015 – 7,500 tonnes
  • June 2015 – 6,250 tonnes

  That means that 2,750 tonnes left London over the past 1+ year.

  Does such a large number even make sense?

  Well, sure, if we consider that just these four countries cumulatively imported (or increased reserves) by ~4,500 tonnes since the beginning of 2014.

  

  (Source)

  Confirming this is this handy chart of UK gold flows as compared to Shanghai Gold Exchange (SGE) withdrawals:

  

  (Source)

  Quite interestingly, the highest flows out of the UK were during the months of the gold price bloodbath in early 2013 (a coincidence?), but the flows had picked up in earnest in the months prior.  Without the ‘liberation’ of gold from GLD, it’s quite possible that physical shortages would have appeared much earlier.  Again, the price smash of gold seems to have been a stroke of good luck for the central planners in the West, both for the psychological impact but also for liberating so much physical gold from weak hands.

  What we can also see is that, generally speaking, the UK has been steadily losing gold month in and month out for the past 2.5 years. Also interestingly, the gold that the UK does import has mainly come, of late, from the US and Canada. 

  The only question is: How much longer can this continue?

  Ronan Manly took a stab at estimating how much of the remaining 6,250 tonnes of gold in the UK was available for export and the answer was ‘not very much.’  He estimated that, of the gold that did not belong to the BoE, that perhaps ~120 tonnes was not spoken for by various gold ETFs and other allocated accounts. To put that in context, 120 tonnes is a couple of weeks of demand at China's Shanghai Exchange, or a month of Indian demand.

  Warning Signs At The COMEX

  While I used to be among the people that expected the eventual default on gold to happen in the COMEX warehouse, I no longer think that.  In fact, should things ever get to the point that COMEX cannot deliver on a physical contract, the rules will almost certainly be changed to force a cash settlement and that will be that.

  When things get serious, they lie. Or change the rules. Or both.

  However, the internet has been abuzz lately with some very interesting oddities coming out of the COMEX, notably a sharp decline in the amount of gold that is ‘registered’ to be delivered to settle a futures contract that has matured and declared for physical delivery.

  

  (Source)

  When compared to the number of contracts outstanding, the ratio of open contracts to registered gold has never been higher.

  

  This means that, if just 0.5% of the futures contracts stood for delivery, the COMEX warehouse would be wiped out of registered gold.

  The reason this is not actually a big concern is that new gold can and would be moved out of the ‘eligible’ category and over to the registered category to satisfy whatever shortfall existed.

  For those interested, here’s a quick primer on the distinction between ‘eligible’ and ‘registered’:

  Eligible Silver

   

  To be eligible for storage in a CME-authorized depository, silver must be 99.9 percent pure. For the standard 5,000-ounce futures contract, the silver must be cast into bars weighing 1,000 troy ounces, give or take 6 percent. Each silver bar must be marked with its weight, purity, a serial number and the brand of the refiner. Only brands officially listed by the CME can be eligible for storage. Should a refiner deliver silver that is below standard, the metal is rejected or sold, and the refiner risks losing its authorization to warehouse silver for Comex futures.

   

  Registered Silver

  Eligible silver stored at a CME-authorized depository is not available for sale unless it is registered. An owner can register eligible silver deposits by having the depository issue a warrant that certifies the details of ownership. Silver warrants were once printed on paper, but were converted to electronic form in 2011. Not all eligible silver is registered for sale, but all registered silver must first be eligible. Silver owners frequently extend or withdraw registration depending on whether or not they wish to sell their holdings at current prices.

  (Source)

  The real question is whether there’s enough total gold at the COMEX to cover any physical buying demand that might arise and the answer, for now, is ‘yes’:

  

  The reason I don’t worry about (or hope for) a COMEX default is that it’s not really a place where players show up to get physical gold (or silver). It's merely a depository that provides the necessary optics for paper speculators to place bets against each other.

  Yes, it’s the place that ends up setting the price of gold and silver for the world, but the number of shenanigans that can be pulled to manipulate prices higher or lower are numerous and routinely used.

  When I Would Worry About (or Hope For) A Default

  My view is that the first stage of a sharp rebound in the price of gold will begin with increasing tightness and eventually shortages in the London bullion market.

  Needing to secure more gold, on a reasonable time frame, refiners would then turn to the COMEX market, but with the intention of taking delivery. If/when that happens it won’t take long for COMEX to be stripped clean of both categories of gold.

  There’s ~220 tonnes of gold in COMEX and, again, that’s just a month or two of current demand (that is in excess of total world mining output).

  As soon as it’s recognized that COMEX is being drawn upon to satisfy Eastern demand, the price fireworks will start.  Or the rules will be changed.  But I’m betting on price being the chosen mechanism to align supply and demand.

  The summary of the fundamental analysis of gold demand is

  • there is a huge and pronounced flow of gold from the West to the East
  • there is rising demand from all quarters except for the 'hot money' GLD investment vehicle (which I have never been a fan of)
  • all of this demand has handily outstripped mine supply which means that someone's vaults are being emptied (the West's) as someone else's are rapidly filling (the East's)

  Now about that supply…

  Gold Supply

  Not surprisingly, the high prices for gold and silver in 2010 and 2011 stimulated a lot of exploration and new mine production. Conversely, the bear market from 2012 though 2015 has done the opposite.

  However, the odd part of the story for those with a pure economic view is that, with more than a decade of steadily rising prices, there has been relatively little incremental new mine production. But for those of us with an understanding of resource depletion, it's not surprising at all.

  In 2011, the analytical firm Standard Chartered calculated a subdued 3.6% rate of gold production growth over the next five years based on lowered ore grades and very high cash operating costs:

  Most market commentary on gold centers on the direction of US dollar movements or inflation/deflation issues – we go beyond this to examine future mine supply, which we regard as an equally important driver. In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years.

  (Source – Standard Chartered)

  Since then, the trends for lower ore grade and higher costs have only gotten worse. But the huge drop in the price of gold in 2011 and 2012 was the final nail in the coffin and resulted in the slashing of CAPEX investment by gold mining companies.

  Of course, none of this is actually surprising to anyone who understands where we are in the depletion cycle, but it's probably quite a shock to many an economist. The quoted report goes on to calculate that existing projects just coming on-line need an average gold price of $1,400 to justify the capital costs, while green field, or brand-new, projects require a gold price of $2,000 an ounce.

  This enormous increase in required gold prices to justify the investment is precisely the same dynamic that we are seeing with every other depleting resource: energy costs run smack-dab into declining ore yields to produce an exponential increase in operating costs. And it's not as simple as the fuel that goes into the Caterpillar D-9s; it's the embodied energy in the steel and all the other energy-intensive mining components all along the entire supply chain.

  Just as is the case with oil shales that always seem to need an oil price $10 higher than the current price to break even, the law of receding horizons (where rising input costs constantly place a resource just out of economic reach) will prevent many an interesting, but dilute, gold ore body from being developed. Given declining net energy, that's that same as "forever" as far as I'm concerned.

  Just like any resource, before you can produce it you have to find it. Therefore the relationship between gold discoveries and future output is a simple one; the more you have discovered in the past, the more you can expect to produce in the future, all things being equal. 

  This next chart should tell you everything you need to know about where we are in the depletion cycle for gold, as even with the steadily rising prices between 1999 and 2011 (going from $300 an ounce to $1,900), gold discoveries plummeted in 1999 and remained on the floor thereafter:

  

  (Source)

  Here we see that the 1990's decade saw quite a number of large discoveries that are currently still in production but which were not matched in later years. Since it takes roughly ten years to bring a mine into full production following discovery, it's fair to say that we are currently enjoying production from the discoveries of the 1990's. Future gold production will largely be shaped by the discoveries made since then.

  In other words: Expect less gold production in the future.

  Meanwhile, there will be more money, more credit, and more people (especially in the East) competing for that diminished supply of gold going forward.

  Let's take another angle on gold supply, one which circles back and supports the above chart showing fewer and smaller discoveries in recent years.

  The United States Geological Survey, or USGS, keeps a mountain of data on literally every important mined substance. I think it's staffed by credible people, doing good work, and I've yet to detect overt political influence in their reported statistics.

  At any rate, the latest assessment on gold reveals that their best guess for world supply is that something on the order of 52,000 tonnes of reserves are left. Which means that, at the 2012 mining rate of 2,700 tonnes, there are 19 years of reserves left:

  

  (Source)

  This doesn't mean that in 19 years there will be no more new gold to be had, as reserves are always a function of price; but it gives us a sense of what's out there right now at current prices.

  As much as I like the folks at the USGS, I will point out one glaring discrepancy in their data as a means of exposing why I think these reserves, like those for many other critical things like oil, are probably overstated.  And that story begins with South Africa.

  There you'll note that, at 6,000 tonnes, South Africa has the second largest stated country reserves. However, according to official South African data, they claim to have an astonishing 36,000 tonnes of reserves.  Which is right? 

  Neither as it turns out.

  First, the true story of South African gold production is completely obvious from the production data. It's a story of being well and truly past the peak of production:

  

  (Source)

  And not just a little bit past peak, but 44 years past; down a bit more than 80% from the peak in 1970. The above chart is simply not even slightly in alignment with the claims of the South African government to have 36,000 tonnes of reserves. But pity the poor South African government, which knows that gold exports represent fully one third of all their exports. Of course they will want to loudly proclaim massive reserves that will support many future years of robust exports.

  Instead, the South African production data can be modeled by the same methods as any other depleting resource and one such analysis has been done and arrived at the conclusion that there are around 2,900 tonnes left to be mined in South Africa.

  

  (Source)

  The analysis is quite sound; and the authors went on to point out that the social, economic, energy, and environmental costs of extracting those last 2,900 tonnes are quite probably higher than the current market value of those same tonnes. If they are extracted, South Africa will be net poorer for those efforts. This is the same losing proposition as if it took more than one barrel of oil to get a barrel of oil out of the ground — the activity is a loss and should not be undertaken.

  For lots of political and economic reasons, however, gold mining will continue in South Africa. But, realistically… someone in government there should be thinking this through quite carefully.

  The larger story wrapped into the South African example is this: Perhaps there are 19 years of global gold reserves left (at current rates of production), but I doubt it.

  Instead, the story of future gold production will be one of declining production at ever higher extraction costs — exacerbated by the 80,000,000 new people who swell the planet's population every twelve months, the hundreds of millions of people in the East who enter the ranks of the middle class annually, and the trillions of new monetary claims that are forced into the system each year.

  And this brings me to my final point of the public part of this report.

  Scarcity

  If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 4x more than today, we have to ask ourselves some important questions:

  • How many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation then?
  • How many will simply shut down because their energy and associated costs will have exceeded their marginal economic benefits?

  After just 100 years of modern, machine-powered mining, all of the great ore bodies are gone, most of the good ones are already in operation, and only the poorest ones are left to be exploited in the future.

  By the time you are reading stories like this next one, you should be thinking, man, we’re pretty far along in the story of depletion, aren’t we?

  South African Miners Dig Deeper to Extend Gold Veins' Life Spans

  Feb, 2011

   

  JOHANNESBURG—With few new gold strikes around the world that can be turned into profitable mines, South Africa's gold miners are planning to dig deeper than ever before to get access to rich veins.

   

  Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company's Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn't in time operate an additional 3,000-plus feet deeper. Deep mining isn't easy, nor pleasant. The deeper a mine goes, the more at risk it is from underground earthquakes, rock bursts, gas discharges and flooding. And for workers, conditions themselves get progressively more uncomfortable from heat and cramped spaces.

   

  South Africa is at the forefront of deep mining. Agnico-Eagle Mines Ltd.'s LaRonde mine in northwestern Quebec, one of the deepest mines outside South Africa, operates at about 7,260 feet below the surface. Before closing in 2002, Homestake Gold Mine in South Dakota was considered the deepest mine in the Western Hemisphere at about 8,045 feet. 

  (Source)

  The above article is just a different version of the story that led to the Deepwater Horizon incident. Greater risks and engineering challenges are being met by hardworking people going to ever greater lengths to overcome the lack of high quality reserves to go after.

  By the time efforts this exceptional are being expended to scrape a little deeper, after ever smaller and more dilute deposits, it tells the alert observer everything they need to know about where we are in the depletion cycle, which is, we are closer to the end than the beginning.  Perhaps there are a few decades left, but we're not far off from the day where it will take far more energy to get new metals out of the ground compared to scavenging those already above ground in refined form.

  At that point we won't be getting any more of them out of the ground, and we'll have to figure out how to divvy up the ones we have on the surface. This is such a new concept for humanity — the idea of actual physical limits — that only very few have incorporated this thinking into their actions.  Most still trade and invest as is the future will always be larger and more plentiful, but the data no longer supports that view. 

  We are at a point in history where we can easily look forward and make the case for declining per-capita production of numerous important elements just on the basis of constantly falling ore grades. Gold and silver fit into that category rather handily. Depletion of reserves is a very real dynamic. It is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.

  Protecting Your Wealth With Gold

  For all the reasons above, it's only prudent to consider gold an essential element of a sound investment portfolio.

  In Part 2: Using Gold to Protect Yourself In Advance of the Greatest Wealth Transfer of Our Lifetime we detail out the specifics of how much of your net worth to consider investing in gold, in what forms to hold it, which price targets are gold and silver most likely to reach, and which eventual indicators to look for that will signal that it's time to sell out of your precious metal investments.

  The battle to keep gold's price in check is truly one for the ages. Not because gold deserves such treatment, but because the alternative is for the world's central planners to admit that they've poorly managed an ill-designed monetary system of their own creation. 

  Make sure you're taking steps today to ensure that the purchasing power of your wealth is protected, if not enhanced, when the trends identified above arrive in full force.

  Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

   

  

  

  

  

  

• Australian Police Storm Home Of Outed Bitcoin "Founder"

  On Tuesday, Wired and Gizmodo revealed the identity of the man they say is Satoshi Nakamoto, the pseudonymous creator of Bitcoin. 

  Although they stop short of saying that the “trove” of evidence obtained from Gwern Branwen (another pseudonym), an independent security researcher and dark web analyst is conclusive, they seem all but certain that Nakamoto is actually a 44-year-old Australian named Craig Steven Wright. 

  

  In the world of bitcoin enthusiasts Wright was, until yesterday anyway, a “nobody.” When he spoke via Skype at the Bitcoin Investor’s Conference in Las Vegas, the moderator had to ask him who he was.

  Branwen allegedly began receiving leaked documents from a source close to Nakamoto last month – he then passed along the information to Wired. According to Wired’s detailed account, the documents immediately led to several direct, publicly visible connections between Nakamoto and Wright. Here they are: 

  • An August 2008 post on Wright’s blog, months before the November 2008 introduction of the bitcoin whitepaper on a cryptography mailing list. It mentions his intention to release a “cryptocurrency paper,” and references “triple entry accounting,” the title of a 2005 paper by financial cryptographer Ian Grigg that outlines several bitcoin-like ideas.
  • A post on the same blog from November, 2008. It includes a request that readers who want to get in touch encrypt their messages to him using a PGP public key apparently linked to Satoshi Nakamoto. A PGP key is a unique string of characters that allows a user of that encryption software to receive encrypted messages. This one, when checked against the database of the MIT server where it was stored, is associated with the email address satoshin@vistomail.com, an email address very similar to the satoshi@vistomail.com address Nakamoto used to send the whitepaper introducing bitcoin to a cryptography mailing list.
  • An archived copy of a now-deleted blog post from Wright dated January 10, 2009, which reads: “The Beta of Bitcoin is live tomorrow. This is decentralized… We try until it works.” (The post was dated January 10, 2009, a day after Bitcoin’s official launch on January 9th of that year. But if Wright, living in Eastern Australia, posted it after midnight his time on the night of the 9th, that would have still been before bitcoin’s launch at 3pm EST on the 9th.) That post was later replaced with the rather cryptic text “Bitcoin – AKA bloody nosey you be…It does always surprise me how at times the best place to hide [is] right in the open.” Sometime after October of this year, it was deleted entirely.

  

  Of course this isn’t the first time Nakamoto has been “found” and we’ll leave it to readers to review the Wired piece and evaluate the evidence in its entirety, but it seems fairly clear that Wired managed to convince the Australian Federal Police because on Wednesday, they broke into what Reuters describes as “a modest brick house in the leafy middle class suburb of Gordon” in an apparent raid on Wright’s property. 

  “Locksmiths broke open the door of the property, in a suburb on Sydney’s north shore,” Reuters writes, adding that “when asked what they were doing, one officer told a reporter they were ‘clearing the house.'”

  “More than 10 police personnel arrived at the house in the Sydney suburb of Gordon at about 1.30pm. Two police staff wearing white gloves could be seen from the street searching the cupboards and surfaces of the garage. At least three more were seen from the front door,” The Guardian adds.

  Authorities then proceeded to “clear” Wright’s businesses as well. Again, from Reuters: “A reporter who approached an office listed as the location of two of Wright’s registered businesses, DeMorgan Ltd and Panopticrypt Pty Ltd, in another Sydney suburb, was turned away by police with one officer saying: ‘There’s an operation going on at the moment, I can’t answer any questions.'” 

  Yes “an operation” was going on and although you’d have to be completely naive to believe that the raids aren’t connected with the revelation that Wright may be Nakamoto, that was the official line: “Officers’ presence at Mr. Wright’s property is not associated with the media reporting overnight about bitcoins”.

  Of course not – it’s a complete coincidence.

  As Reuters goes on to remind readers, “the treatment of bitcoin for tax purposes in Australia has been the subject of considerable debate [and] the ATO ruled in December 2014 that cryptocurrency should be considered an asset, rather than a currency, for capital gains tax purposes.”

  Police referred all inquiries to the Australian Tax Office, which in turn said it wouldn’t comment due to legal confidentiality of individuals’ tax affairs.

  Wright lived at the home with his wife Ramona Watts, who landlord Gary Hayres described as “a lovely lady,” “They didn’t seem bad,” he added.

  Amusingly, one neighbor said Wright had a nickname: “Cold fish Craig.” 

  Gizmodo published a transcript of an interview Wright allegedly conducted with Australian Tax authorities (embedded below). “I did my best to try and hide the fact that I’ve been running bitcoin since 2009 but I think it’s getting – most – most – by the end of this half the world is going to bloody know,” the document quotes Wright as saying. 

  As Gizmodo goes on to recount, “Wright appears to have been trying to persuade the Australian government to treat his Bitcoin holdings as currency, as opposed to an asset subject to greater taxation. Without this regulatory move, his business interests would be scuttled.”

  John Chesher, Wright’s accountant, who attended one of the ATO meetings told Gizmodo that he “may have” told autorities that Wright was in possession of a Satoshi-sized Bitcoin sum. For the uninitiated, a “Satoshi size sum” is rumored to be somewhere in the neighborhood of nine figures worth of the cryptocurrency. 

  So clearly, the idea that the raids and the revelations published by Wired and Gizmodo aren’t related is patently absurd, but hey, it’s the governement so what do you expect? 

  Regardless of whether Wright is Satoshi (and we wouldn’t be entirely surprised to see this story fade away like those that came before it), the bottom line here seems to be that the Australian Tax authority thinks this is a guy who may be sitting on a rather sizeable fortune that isn’t getting taxed “properly” and we all know what happens when the government thinks it might not be getting its cut.

  *  *  *

  20140218 Transcript Redacted

  

  

  

  

  

• Carnage In Currency-Land – Dollar Dump Sparks Stock Slump

  Well that escalated quickly…

   

  The big story of the day – as long as you don't watch CNBC – was the bloodbath in currencies. China's devaluation to 4 year lows overnight…

  

   

  Appears to have acccelerated a shift away from the USDollar across all the majors… (biggest USD drop ex-ECB since the post-China devaluation collapse) – the only thing saving the USD modestly was weakness in commodity currencies (AUD and CAD)…

  

   

  Slamming the USD to 6-week lows… with the biggest 5-day drop since China devalued

  

   

  Some context for that move are evident in the world's most used carry currency – USDJPY crashed…

  

   

  And in EURUSD, which had its biggest (ex ECB) jump since the China devaluation….

  

   

  In case you were wondering what "fundamentals" were weighing on stocks…

  

   

  Focusing on stocks, futures provides the cleearest view of the last few days/weeks…

  

   

  On the day, it was extremely volatile… with stocks ending up back to pre-payrolls levels…

  

   

  Nasdaq was the worst on the day… Dow was saved by DuPont which added 50 points…

  

   

  S&P broke below its 50- and 200-DMA…

  

   

  As FANGs faded…

  

   

  With Trannies worst on the week…

  

   

  Leaving all the major indices back in the red for 2015 (apart from Nasdaq)…

  

   

  Since The ECB let the world down (and implicitly left The Fed set to remove up to $800 bn of liquidity next week)… Gold and EUR are the winners, stocks and Crude the losers…

  

   

  Stocks played nicely with crude all day…

  

   

  What happens next?

  

   

  Treasury yields were mixed today with the short-end rallying, long-end flat (dragging yields below pre-ECB levels…

  

   

   

  Commodities ignored the USD dump as once again the 8ET to 12ET period saw dramatic volatility across all…

  

   

  The post-DOE data ramp perfectly tagged $39 stops and then dumped back below $37 finding support there again…

  

   

  Charts: Bloomberg

  Bonus Chart: What happens next?

  

  

  

  

  

• The "American Dream" Is Over… And Voters Know It

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  If the American Dream depends on skyrocketing debt built on a weakening foundation of stagnant productivity and income, then it is indeed over.

  Despite a ceaseless propaganda campaign declaring all is well with the U.S. economy, the Status Quo is fragile – and voters know it. Not only do they know the economy–and their financial security–is one crisis away from meltdown, they're also fed up with all the official gerrymandering of data to make the economy appear healthy.

  The Economy Is Better — Why Don’t Voters Believe It?

  The American Dream–characterized by plentiful jobs offering living wages, security and opportunities to get ahead–is over, and voters know this, too. People are realizing the U.S. economy has changed qualitatively in the past 20 years, and claims that it's stronger then ever ring hollow to people outside Washington D.C., academic ivory-towers and ideologically driven think-tanks.

  Many econo-gurus lay the blame for the Great Depression on the Federal Reserve tightening too soon, or not loosening credit enough, but this is nonsense: The Great Depression was the result of credit/borrowing (i.e. debt) outrunning the foundation that supports debt: productivity and income.

  Piling more debt on a base that isn't expanding fast enough to support skyrocketing debt leads to a collapse of the feebly supported debt: borrowers default, asset prices crash as buyers vanish and lenders go bankrupt as the assets held as collateral are repriced.

  To suggest that policy tweaks could have averted the collapse of unsupportable debt is absurd. Farmers were leveraging farmland that was already mortgaged to the hilt to buy more land to increase production. When grain prices softened, the debt bubble burst. No policy tweak could reverse the supply-demand imbalance or magically force marginal farmland to suddenly be worth a fortune.

  When credit expansion gets ahead of productivity and the production of goods, services and income that support all borrowing, the only possible result is a repricing of debt, risk, collateral and assets–that is, a crash. The global central banks have pushed that repricing forward seven years by lowering interest rates to near-zero (or less than zero), enabling borrowers to add more debt even though their incomes have stagnated or declined.

  But enabling more debt does not reverse supply-demand imbalances or create income out of thin air. As a result, piling on more debt is not a solution; it's simply a politically expedient method to forestall the crisis, while guaranteeing the eventual repricing will be even more severe because the debt load is now so much larger.

  Unsurprisingly, adding more debt to a weakening base of real productivity and income yields diminishing returns. Seven years of strong, widely distributed global growth before the 2008 Global Financial meltdown required $15 trillion in additional non-financial global debt. Seven years of tepid, fragile expansion since 2008 required $40 trillion in additional debt.

  That is the definition of diminishing returns:

  

  In the U.S., debt has completely outpaced the expansion of goods, services and income for years: look how debt has soared while GDP has expanded only modestly:

  

  GDP (not adjusted for inflation) is up 282% since 1990, while total credit skyrocketed 444%. The tiny decline in credit in the 2008 Global Financial Meltdown almost destroyed the entire credit-bubble dependent economy:

  

  Meanwhile, earned income as a percentage of GDP has been falling for decades. How can an economy support additional debt if earned income is declining as a percentage of economic activity? It can't.

  

  Here's another look at wage stagnation:

  

  Does the trendline of federal debt look remotely sustainable to you? if so, I strongly recommend reducing your dosage of Delusionol. The New Drug of Choice in the White House, Federal Reserve and Treasury: Delusionol

  

  At long last, credit growth is rolling over. The trick of enabling more debt by weakening lending standards and lowering interest rates has now reached diminishing returns.

  

  If the American Dream depends on skyrocketing debt built on a weakening foundation of stagnant productivity and income, then it is indeed over. Voters sense this fragile, debt-dependent economy is one repricing away from implosion, and they're uneasy for good reason. Voters are rightly angry that the official statistics mask or manipulate this reality, for if we can't face reality then we have zero hope of solving any problems.

  *  *  *

  My new book is in the top 10 of Amazon's category of international economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $8.45, a 15% discount from its list price of $9.95.

  

  

  

  

  

• Credit Card Data Reveals First Core Retail Sales Decline Since The Recession

  While we await the government’s retail sales data on December 11, the last official economic report the Fed will see before its December 16 FOMC decision, Bank of America has been kind enough to provide its own full-month credit card spending data.

  And while a week ago the same Bank of America disclosed the first holiday spending decline since the recession, in today’s follow up report BofA reveals that if one goes off actual credit card spending – which conveniently resolves the debate if one spends online or in brick and mortar stores as it is all funded by the same credit card – the picture is even more dire.

  According to the bank’s credit and debit card spending data, core retail sales (those excluding autos which are mostly non-revolving credit funded) just dropped by 0.2% in November, the first annual decline since the financial crisis!

  

  At this point, BofA which recently laid out its bullish 2016 year-end forecast which sees the S&P rising almost as high as 2,300, and is thus conflicted from presenting a version of events that does not foot with its erroenous economic narrative, engages in a desperate attempt to cover up the ugly reality with the following verbiage, which ironically confirms that a Fed hike here would be a major policy error and lead to even more downside once it is digested by the market.

  • Retail sales ex-autos are down 0.2% yoy. However, part of this weakness owes to a decline in prices. After controlling for deflation, real retail sales ex-autos are up 1.3% yoy in November, revealing a slowing trend but not an outright decline.
  • Much of the decline in the deflator is due to the drop in gasoline prices. The most recent drop in oil prices could imply there is another leg lower in gasoline prices as well.
  • Moreover, there are disinflationary pressures elsewhere, presumably reflecting pass-through from the stronger dollar, which could continue.

  In other words, nominal spending down for the first time, and while “much” of the decline is due to gas prices, these are a tiny fraction of the overall spending basket. And then the punchline BofA throws in: “disinflationary pressures elsewhere.”

  To sum up: retail spending is now negative, and one can add deflation on top.

  Can someone please explain to us again just what “data” the “data” dependent Fed is looking at, because we are lost…

  

  

  

  

  

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