Today’s News June 11, 2015

• Why Greece Must Leave

  Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

  French Economy Minister Emmanuel Macron and German Vice-Chancellor Sigmar Gabriel published a piece in the Guardian last week that instantly revived our long nourished hope for the European Unholy Union to implode and be dissolved, sooner rather than later. The two gentlemen propose a ‘radical’ reform for the EU. Going a full-tard 180º against the tide of rising euroskeptism, the blindest bureaucrats in European capitals are talking about more centralization in the EU.

  Here’s hoping that they follow up with all the energy they can muster, and that we’ll hear a lot more about the ‘reforms’ being proposed. Because that will only serve to increase the resistance and skepticism. Let them try to ‘reform’ the EU. We’re all for it. If only because if they do it thorough enough, referendums will be required in all 28 member nations, which all need to agree, in a unanimous approval vote.

  The gents know of course that that is never ever going to happen. So sneaky ways will have to be found. Something Brussels is quite experienced at. They’ve shown many times they won’t let a little thing like 500 million citizens get in their way. We’re curious to see what they’ll come up with this time.

  Meanwhile, though, the rising skepticism threatens to rule the day in many countries, and Greece is by no means the leader in the field. Germany has a rising right wing party that wants out (just wait till Merkel leaves). Marine Le Pen has vowed to take France out as soon as she gets to power, and she leads many polls. Britain’s Ukip is merely the vanguard of a broad right wing UK ‘movement’ that either want out or have treaties thoroughly renegotiated.

  Portugal’s socialists are soaring in the polls on an EU-unfriendly agenda. Spain’s Podemos is no friend of Brussels. In Italy, M5S’s Beppe Grillo has gone from skeptic to outright adversary over the past few years. There are varying levels of antagonism in all other countries too.

  Now obviously, not all countries in the union carry the same weight, politically speaking (why do we so easily agree that’s obvious, though?). You have Germany, then a big nowhere, then France and Britain.

  Greece, equally obviously, has no say. They can elect a government that wants to change things even just at home, and be told no way. If Germany would elect such a party, all EU policy would change in the blink of an eye. A true union of sovereign nations it therefore is not. And that of course was never possible, it was just something people wished for who never contemplated the details or consequences.

  Still, given that the whole project has always been represented as a one-way street from which escape is not possible, the weight of the smaller nations should not be underestimated. Perhaps all it will take is one defector to make the entire edifice unstable. Statements to the contrary are made only by people who eat hubris for breakfast, lunch and dinner.

  If either France or Germany leave -the former looks far more likely right now-, it’s project over. The same would probably hold for Italy. Spain would be a grave blow. Britain might be quite a bit easier (no euro), though negotiations -let alone referendums- over treaties could cause a lot of havoc and unrest. While various bigwigs try to fool you into thinking that letting small nations leave can be ‘ringfenced’, that is utter nonsense, they have no way of knowing.

  David Cameron tries to convince himself that he can get away with establishing some sort of status aparte for Britain, but others may want such a status too, and they may have a list of points they want to discuss if and when treaty changes are put on the table. Multiple that by 28 and before you know it either nothing changes, or everything does.

  The Union was hastily and sloppily cross-stitched together when everyone was still exclusively dreaming more of mass lift-all-boats profits in the offing, than caring about the fineprint of compromise squared treaties or considering possible future consequences if and when the profits would turn out not to be unlimited. Ergo, everything that happens now is an improvised play performed by 28 at best mildly talented actors trying to convey an air of confidence. That’s all that is left.

  Throw all this in a pile, and renegotiating any EU treaty will to a high degree of probability be akin to opening Pandora’s cesspit. And besides, any changes would never pass if a referendum were held. Macron and Gabriel are all too aware of this pesky factoid:

  “What’s important is the project,” Macron said in an interview with Le Journal du Dimanche. “Treaty change is a method that would ensue and that we have to prepare in due time,” he said, warning that European people would probably reject a new treaty if asked in a referendum.

   

  Meanwhile, British demands to opt-out from “ever closer union” could be accommodated by a special “protocol” to the EU treaties, according to Manfred Weber, a Christian Social Union MEP who is a close ally of German Chancellor Angela Merkel. But in return, Britain would have to accept losing its veto in areas where others forge ahead with deeper integration, the German MEP warned.

  In 2005, both France and Holland rejected the EU constitution in respective national referenda. But Brussels just ‘forged’ ahead as if it didn’t matter. Today, however, let’s see them try that again.

  Ten years ago, the profits were still in vogue. But things have changed, and problems are everywhere. Problems that Brussels seeks to ‘solve’ by gifting itself with ever more centralized powers. But the undoubtedly biggest problem of all they have is that not 10% of Europeans would vote to give them these powers. So please, please, try.

  As for Greece, all the negotiations really are just a matter of fiddling while Rome burns. But that is not because Greece is in trouble; it’s because of what the EU has become. A club that depends on its ability to scare members into submission, the same vein the IMF operates in. The negotiations are about amounts of debt that were imposed upon Greece by the troika when it decided to bail out banks of Europe’s most powerful member nations and put the Greek people on the hook.

  Europe’s high and mighty will yet come to regret the decision not to restructure these banks, because this will be the catalyst that blows up the Union. The reason why will become apparent as debt rises further and asset markets start falling off so many cliffs.

  Greece should get out as fast as it can, all member countries should, especially the poorer ones. There is no benign or even economically viable future for any of them in the Union. A future inside the union is infinitely more frightening than one outside.

  What is evident by now is that the troika creditors don’t come to the table to negotiate, they come to impose their will. And those countries that carry the most debt are most vulnerable to the threats flung across the table. If you don’t get out, in time Germany will decide what you can eat, what your children learn in school, and how you are to behave. You will no longer live in sovereign nations.

  The eurozone must fail. And so must the EU. That is better for everyone who’s not inside the power circles, in the long term. What countries should do now is ‘ringfence’ themselves as best they can from the nuclear fallout the failure will lead to. Focus on resilience.

  While the leadership everywhere dreams of ever more centralized power, economic reality dictates decentralization. It can only be halted through propaganda and violence. But that will merely be temporary.

  Even if Brussels somehow ‘solves’ the Greece issue, others nations will follow, be targets of financial markets, and once it comes to Italy or Spain, who are both in very precarious places, the EU and the ECB are simply not strong enough to absorb the blow. And then where do you think that leaves you?

  I’ve said many times before that all governments, power structures and supra-national organizations are a magnet for the last people you would want to lead them: sociopaths. That’s not an opinion, it’s a description of the dynamics of human group psychology. Greece itself before Syriza is a prime example of this.

  The smaller the countries, states, regions that politicians are allowed to rule over, the less likely leadership posts are to attract sociopaths. Other considerations count too, remuneration, chances to forge ties with an elite and serve their purposes. Larger entities are certain to attract pathological minds. Exceptions to the rule are far and few between. Also: the more a society manages the field of propaganda, the likelier it is to get -and keep- a sociopath as its leader.

  The US is a good example. So is the EU. And obviously, the IMF, World Bank, NATO, FIFA. We always fail at ‘doing large scale’ for the benefit of the people. The large the scale, the less the people benefit.

  Just when its moment of glory seems to arrive, globalization will lead towards decentralization and protectionism. Just as stability leads to instability.

  The EU’s socio-pathological trait is evident in the way the organization’s leaders deal with Ukraine, with the refugees off its southern coasts, and, inside its very borders, with Greek society, unemployment, hunger and hospitals. There is no compassion, no conscience.

  In the EU, the idea(l)s have become the problems, argues Stratfor’s George Friedman:

  Is The European Union Already On The Brink Of Inevitable Disaster?

  The fact of the matter is that a free-trade zone in which the black hole at the centre, Germany, absolutely overwhelms all of its competition, and the competition can’t protect itself, is untenable.

   

  [..] many of the great ideas that the European Union began with have turned, as it frequently happens in history, into the problems.

   

  Q: [..] ..you said a group of squabbling nations, and you’ve alluded to the history, from the Franco-Prussian wars right up to 1945, the history is very, very unpleasant indeed. Is the corollary that Europe will eventually descend back into war?

   

  George Friedman: Well, the question is really has it ascended? From ’45 to ’92, Europe was occupied by the Soviets and the Americans. The fundamental questions of sovereignty were not in the hands of London or Berlin or Rome, it was in the hands of Washington and Moscow. In ’92, the Soviet Union collapsed, and for the first time since WWII, Europe became genuinely sovereign. And for 16 years, they made a go of it. For the last seven years, it’s been rather disastrous, and the question is, can they reverse it?

   

  And if they don’t reverse it, what prevents them from returning to the kind of history that is normal in Europe? And what I’m arguing is that basically, the period of ’92 to 2008 was an interesting aberration. We are now back to the old normal, and how bad it becomes really depends on a bunch of (inaudible) issues. But first we have to really recognise that the Europe that was envisioned in the European Union is not going to return.

  We had better not forget that. If Europe will never be what it was supposed to be, then why would anyone want to be part of it, apart from the few that profit most? If the corollary truly is that Europe will eventually descend back into war, isn’t it time to take care of your own? And isn’t that, really, what the Greeks are already trying to do today?

  Very timely for this article, Tyler Durden posted a piece by Jeff Thomas today that delves deeper:

  The New World Order – A Faustian Bargain

  [..] most people in any given country seem to believe that the political parties that rule them do not collude in their own collective interest and against the best interests of their respective constituents.

   

  Similarly, they are unlikely to accept that fascism exists in their country—that members of their favoured party collude with industries. Further, most people seem to disbelieve that the leaders of their own country collude with the leaders of their country’s enemies in such a way that might create loss or danger to their own people. This is naive. Such collusions are the norm rather than the exception.

   

  Those who tend to be more informed, readily acknowledge that collusion exists between all of the above, to one degree or another. If this group errs, it is often in the opposite assumption—that the collusion is all-encompassing.

   

  There can be no doubt that a New World Order is being sought by some—this has been made clear for at least a hundred years by many who regard themselves as an Elite. It is therefore an open secret.

   

  In my experience in dealing with political leaders (and political hopefuls) from several jurisdictions, I’ve found there to be a consistent sociopathology (by definition, the desire for dominance over others, undeserved self-confidence, lack of empathy, a sense of entitlement, lack of conscience, etc.).

   

  Sociopaths are drawn to political leadership for obvious reasons. First, they’re prone to collusion, as they recognise that it may further their interests [..] Trouble is, the same sociopathology would drive the same individuals to seek to dominate each other.

   

  It has been postulated by many that those who see themselves as an Elite are nearing the completion of what they perceive as world dominance. However, should they succeed, they will betray their partners the very next day, as it’s their nature to do so.

   

  First, there most assuredly are extremely domineering forces (regardless of how closely associated they might be), which, in the near future, will do immense damage to the cause of freedom in the world, particularly in those countries where they are most dominant, or will become most dominant. Second, the situation does appear to be reaching a head.

   

  The two greatest uncertainties will be how much damage will be done before the dust has settled, and how protracted the period of destruction and struggle for dominance might be. [..] The best that can be done is to work at placing ourselves as far outside of their sphere of influence as possible.

  That describes how the EU functions, and why Greece -first of all, and first thing in the morning- needs to leave. There is no future in the EU that anyone wants to live in. It’s not a tide that will lift all boats, it will sink them.

  

  

  
  
  

  

• Slave Or Rebel? Ten Principles For Escaping The Matrix And Standing Up to Tyranny

  Submitted by John Whitehead via The Rutherford Institute,

  “Until they become conscious, they will never rebel, and until after they have rebelled, they cannot become conscious.” – George Orwell

  The more things change, the more they stay the same.

  It’s a shell game intended to keep us focused on and distracted by all of the politically expedient things that are being said – about militarized police, surveillance, and government corruption – while the government continues to frogmarch us down the road toward outright tyranny.

  Unarmed citizens are still getting shot by militarized police trained to view them as the enemy and treated as if we have no rights. Despite President Obama’s warning that the nation needs to do some “soul searching” about issues such as race, poverty and the strained relationship between law enforcement and the minority communities they serve, police killings and racial tensions are at an all-time high. Just recently, in Texas, a white police officer was suspended after video footage showed him “manhandling, arresting and drawing his gun on a group of black children outside a pool party.”

  Americans’ private communications and data are still being sucked up by government spy agencies. The USA Freedom Act was just a placebo pill intended to make us feel better without bringing about any real change. As Bill Blunden, a cybersecurity researcher and surveillance critic, points out, “The theater we’ve just witnessed allows decision makers to boast to their constituents about reforming mass surveillance while spies understand that what’s actually transpired is hardly major change.”

  Taxpayer dollars are still being squandered on roads to nowhere, endless wars that do not make us safer, and bloated government agencies that should have been shut down long ago. A good example is the Transportation Security Administration, which, despite its $7 billion annual budget, has shown itself to be bumbling and ineffective.

  And military drills are still being carried out on American soil under the pretext of training soldiers for urban warfare overseas. Southeastern Michigan, the site of one of the many military training drills taking place across the country this summer, has had Black Hawk helicopters buzzing its skies and soldiers dressed for combat doing night combat drills in abandoned buildings around the state.

  In other words, freedom, or what’s left of it, is being threatened from every direction. The threats are of many kinds: political, cultural, educational, media, and psychological. However, as history shows us, freedom is not, on the whole, wrested from a citizenry. It is all too often given over voluntarily and for such a cheap price: safety, security, bread, and circuses.

  This is part and parcel of the propaganda churned out by the government machine. That said, what we face today—mind manipulation and systemic violence—is not new. What is different are the techniques used and the large-scale control of mass humanity, coercive police tactics and pervasive surveillance. As we have seen with the erection of the electronic concentration camp, there is virtually no escaping the invisible prison surrounding us. Once upon a time, one could run and hide or duck into a cave, but that is no longer feasible as caves are quite scarce, and those running the camp have their eyes watching everything.

  Moreover, we are presented with the illusion that we act of our own volition when most of the time we are being watched, prodded, and controlled. “The nature of psychological compulsion is such that those who act under constraint remain under the impression that they are acting on their own initiative,” Aldous Huxley stated. “The victim of mind-manipulation does not know that he is a victim. To him, the walls of his prison are invisible.”

  In fact, with the merger of the Internet and the corporate state, unless you are alert and aware, it will be increasingly difficult to discern the difference between freedom and enslavement. With the methods of mind manipulation available to the corporate state, the very nature of democratic government has been changed. Again, as Aldous Huxley writes:

  [T]he quaint old forms—elections, parliaments, Supreme Courts and all the rest will remain. The underlying substance will be a new kind of nonviolent totalitarianism. All the traditional names, all the hallowed slogans will remain exactly what they were in the good old days. Democracy and freedom will be the theme of every broadcast and editorial . . . Meanwhile the ruling oligarchy and its highly trained elite of soldiers, policemen, thought-manufacturers and mind-manipulators will quietly run the show as they see fit.

  To many, the situation seems hopeless. But is it?

  From the day you’re born until the day you die, the choices you exercise are very limited. You don’t choose to be born or choose what sex you are or who your parents are or where you live. When you are a child, you are told what to do, and when you enter school, you sit plastered to a desk and are taught what others demand you should know. Yes, the indoctrinating process begins on day one.

  Then there are the rules, the endless rules. If you say the wrong word, write the wrong story or wear the wrong clothes, you can get thrown out of school or even arrested. You live where you are told and eat what others think you should eat. As you grow older, this list expands into employment, marriage and so on. In other words, your so-called reality is socially constructed. It is predetermined for you, and if you step out of line and disagree with what the current society deems proper, you will be ostracized. If you speak your mind to the governing authorities, you might find yourself behind bars.

  The point is that in order to develop a compliant citizenry, people must be forced to live in a mental matrix of words, ideas, ideologies, and teachings that are designed to make us conform. “As the Matrix in the movie was used to facilitate the exploitation of humans,” writes author Henry H. Lindner, “so the current ideological Matrix was created for, and serves to exploit us, turning us into unthinking workers and consumers—slaves of the ruling elite who themselves are trapped in the Matrix.” In fact, “few of us are able to escape the Matrix. We do not even know it exists.”

  For there to be any hope of real change, you’ll have to change how you think about yourself, your fellow human beings, freedom, society, and the government. This means freeing your mind, realizing the truth, and unlearning all the myths you have been indoctrinated with since the day you were able to comprehend language.

  The following principles, taken from my new book Battlefield America: The War on the American People, may help any budding freedom fighters in the struggle to liberate themselves and our society.

  First, we must come to grips with the reality that the present system does not foster freedom. It denies freedom and must be altered. “Our authoritarian system is based on cruelty and control—it increasingly drives natural love and feelings from our society and produces violence and greed,” Lindner recognizes. “Our society is deteriorating morally and intellectually. This system cannot be reformed.”

  To start with, we must recognize that the government’s primary purpose is maintaining power and control. It’s an oligarchy composed of corporate giants wedded to government officials who benefit from the relationship. In other words, it is motivated by greed and exists to perpetuate itself. As George Orwell writes:

  We know that no one ever seizes power with the intention of relinquishing it. Power is not a means; it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes a revolution in order to establish a dictatorship. . . .. The object of power is power.

  Second, voting is practically worthless. “In principle, it is a great privilege,” Aldous Huxley recognized. “In practice, as recent history has repeatedly shown, the right to vote, by itself, is no guarantee of liberty.”

  We live in a secretive surveillance state that has virtually no accountability, transparency, or checks and balances of any kind. As Jordan Michael Smith, writing for the Boston Globe, concludes about the American government:

  There’s the one we elect, and then there’s the one behind it, steering huge swaths of policy almost unchecked. Elected officials end up serving as mere cover for the real decisions made by the bureaucracy.

  How many times have the various politicians, when running for office, lied about all they were going to do to bring hope and change to America? Once they get elected, what do they do? They do whatever the corporate powers want. Yes, the old boss is the same as the new boss. The maxim: power follows money.

  Moreover, voting is a way to keep the citizenry pacified. However, many Americans intuitively recognize that something is wrong with the way the electoral process works and have withdrawn from the process. That’s why the government places so much emphasis on the reassurance ritual of voting. It provides the illusion of participation.

  Third, question everything. Don’t assume anything government does is for the good of the citizenry. Again, that is not the purpose of modern government. It exists to perpetuate a regime. Remember the words of James Madison, considered the father of the U.S. Constitution: “All men having power ought to be distrusted to a certain degree.” Power corrupts. And as the maxim goes, absolute power corrupts absolutely.

  Fourth, materialism is a death knell to freedom. While it may be true that Americans are better off than citizens of other nations—we have jobs, food, entertainment, shopping malls, etc.—these are the trappings meant to anesthetize and distract us.

  Like the dodo, any “bird that has learned how to grub up a good living without being compelled to use its wings will soon renounce the privilege of flight and remain forever grounded,” Huxley warned. “Same thing is true of human beings. If bread is supplied regularly and capaciously three times a day, many of them will be perfectly content to live by bread alone—or at least by bread and circuses alone.” Free as a bird, some say, but only if you’re willing to free your mind and sacrifice all for a dangerous concept—freedom.

  In other words, the hope is that the cry of “‘give me television and hamburgers, but don’t bother me with the responsibilities of liberty,’ may give place, under altered circumstances, to the cry of ‘give me liberty or give me death.’” This is indeed dangerous freedom.

  Fifth, there is little hope for any true resistance if you are mindlessly connected to the electronic concentration camp. Remember, what you’re being electronically fed by those in power is meant to pacify, distract, and control you. You can avoid mind manipulations to a large degree by greatly limiting your reliance on electronic devices—cell phones, laptops, televisions, and so on.

  Sixth, an armed revolt will not work. Although we may have returned to a 1776 situation where we need to take drastic actions to restore freedom, this is not colonial America with its muskets and people’s armies. Local police departments have enough militarized firepower to do away with even a large-scale armed revolt. Even attempting to repel a SWAT team raid on your home is futile. You’ll get blown away.

  Seventh, be wise and realize that there is power in numbers. Networks, coalitions, and movements can accomplish much—especially if their objectives are focused and practical—and they are very much feared by government authorities. That’s why the government is armed to the teeth and prepared to put down even small nonviolent protests.

  Eighth, act locally but think nationally. The greatest impact can be had at local governing bodies such as city councils. Join together with friends and neighbors and start a Civil Liberties Oversight Committee. Regularly attend council meetings and demand that government corruption be brought under control and that police activities be brought under the scrutiny of local governing bodies and, thus, the citizenry.

  In Albuquerque, New Mexico, for example, police were involved in 39 shootings dating back to 2010. After a 2014 police shooting of an unarmed homeless man camped out in a public park, residents engaged in nonviolent acts of civil disobedience to disrupt the normal functioning of the city government and demand that the police department be brought under control. Community activists actually went so far as to storm a city council meeting and announce that they would be performing a citizens’ arrest of the police chief, charging him with “harboring fugitives from justice at the Albuquerque police department” and “crimes against humanity.”

  In Davis County, California, in August 2014, after a public uproar over the growing militarization of local police, council members ordered the police to find a way of getting rid of the department’s newly acquired MRAP tank. One man at the council meeting was quoted as saying: “I would like to say I do not suggest you take this vehicle and send it out of Davis, I demand it.”

  Ninth, local towns, cities and states can nullify or say “no” to federal laws that violate the rights and freedoms of the citizenry. In fact, several states have passed laws stating that they will not comply with the National Defense Authorization Act which allows for the military to indefinitely detain (imprison) American citizens. Again, when and if you see such federal laws passed, gather your coalition of citizens and demand that your local town council nullify such laws. If enough towns and cities across the country would speak truth to power in this way, we might see some positive movement from the federal governmental machine.

  Tenth, understand what freedom is all about. “Who were the first persons to get the unusual idea that being free was not only a value to be cherished but the most important thing that someone can possess?” asks Professor Orlando Patterson. “The answer in a word: slaves.”

  Freedom arose from the hearts and minds of those who realized that they were slaves. It became a primary passion of those who were victims of slavery.

  Some Americans are beginning to realize that they are slaves and that if they don’t act soon, they will find themselves imprisoned in the electronic concentration camp indefinitely. Mind you, there may not be any chains hanging from the dungeon walls, but it is a prison nonetheless, and we are, without a doubt, inmates serving life sentences.

  

  

  
  
  

  

• Aussie Central Bank Admits, Property Prices "Have Gone Crazy"

  With The Philly Fed admitting QE has been the driver of inequality in the USA and the Kiwis slashing rates unexpectedly, the fact that Reserve Bank of Australia Governor Glenn Stevens uttered the following is even more crucial. “I think it’s a social problem,” Stevens told the Economic Society of Australia, adding ominously, “I think some of what’s happening is crazy,” specifically pointing to Sydney property prices as an example. No matter where we look around the world, Central Bankers appear to be exercising their honesty glands about the impact of their policies. However Stevens can’t help himself at the end, noting “we remain open to the possibility of further policy easing.”

   

  As Business Spectator reports, Sydney property prices have gone “crazy”, but record low interest rates aren’t entirely to blame, Reserve Bank boss Glenn Stevens says.

  The RBA governor waded into the property debate on Wednesday, telling a business lunch that he finds Sydney’s soaring prices concerning.

   

  However the RBA remains open to cutting rates further and always took into account what was happening in property markets across the country – not just Sydney – when deciding whether to adjust the cash rate, he said.

   

  “What is happening in housing in Sydney I find acutely concerning for a host of reasons, many of which are not to do with monetary policy,” he told the Economic Society of Australia.

   

  “I think it’s a social problem.

   

  “I think some of what’s happening is crazy, but we have a national focus and so that just increases the complexity.”

  In other words – we know it’s crazy what we are creating but we have no choice…

  Treasury boss John Fraser last week said Sydney and wealthier parts of Melbourne were “unequivocally” in a housing bubble.

  While Treasurer Joe Hockey has downplayed fears of a bubble, he has sparked a wave of controversy by telling frustrated first-time buyers that all they need is “a good job that pays good money” if they want to buy a home in Sydney.

  In the meantime, the RBA remains open to cutting interest rates even further to help give the economy a boost.

  “We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth,” Mr Stevens said.

  “I think it’s quite some time before we even think about interest rates going up.”

  *  *  *
  Or maybe not…

  

  

  

  
  
  

  

• Big Pharma Revealed As Puppetmaster Behind TPP Secrecy

  It is no secret that US healthcare corporations have been among, if not the biggest beneficiaries of Obamacare: by “socializing” costs and spreading the reimbursement pool over the entire population in the form of a tax, pharmaceutical companies have been able to boost medical product and service costs to unprecedented levels with the help of complicit insurance companies who have subsequently passed through these costs to the consumer, in the process sending the price of biotech and pharma stocks to levels not seen since the dot com bubble.

  But when it came to the highly confidential TPP, it was unclear just which corporations were dominant in pulling the strings.

  Now thanks to more documents published by Wikileaks, and analyzed by the NYT, it appears that “big pharma” is once again pulling the strings, this time of the Trans Pacific Partnership, which if passed will “empower big pharmaceutical firms to command higher reimbursement rates in the United States and abroad, at the expense of consumers” according to “public health professionals, generic-drug makers and activists opposed to the trade deal.”

  In other words, just like the narrowly-passed Obamacare was a gift for big Pharma, so America’s legal drug dealers are now trying to go for another price boosting catalyst, one which however will involve not just the US but some 12 countries in the Asia-Pacific region. Worst of all, the negotiations for the next price increase is taking place in utmost secrecy where “American negotiators are still pressing participating governments to open the process that sets reimbursement rates for drugs and medical devices.”

  As RT notes, the latest disclosure links the Healthcare Annex to the secret draft of the quite aptly-named “Transparency” Chapter of the TPP, along with each country’s negotiating position. The leaked “Annex on transparency and procedural fairness for pharmaceutical products and medical devices” is dated from December 2014, with the draft being restricted from release for four years after the passage of the TPP into law.
  

  RELEASE: TPP Transparency Chapter Healthcare Annex https://t.co/jc4hYqh06V #TPP #TTIP #TISA pic.twitter.com/xIlO4QCUu6

  — WikiLeaks (@wikileaks) June 10, 2015

   

  Worse, while in the US the rising healthcare costs are at least spread across a broader social safety net, the TPP is targeting countries where the potential jump in drug prices will have dramatic effects. As the NYT notes, “foreign governments and health care activists have accused pharmaceutical giants, mostly based in the United States, of protecting profits over public health, especially in poor countries where neither the government nor consumers can afford to pay rates anywhere close to those charged in wealthier nations.”

  That fight re-emerged in the Pacific trade negotiations, which involve countries with strong cost-containment policies, like New Zealand, as well as poor countries like Peru and Vietnam.

   

  The agreement “will increase the cost of medicines worldwide, starting with the 12 countries that are negotiating the Trans-Pacific Partnership,” said Judit Rius Sanjuan, a lawyer at Doctors Without Borders, a humanitarian organization that provides medical care in more than 60 countries.

  None other than the CEO of Mylan explained in the simplest possible way what is going on: a government mandated monopoly under the guise of a trade pact: “Heather Bresch, the chief executive of Mylan, one of the largest generic-drug makers, said the brand-name pharmaceutical industry was “establishing, through U.S. trade policy, an international system designed to maximize its monopolies.”

  But where the alarm bells truly go off is when someone, anyone, uses the word “fair” to justify policy, such as surging drug costs. To wit: “drug companies, however, say they need to be able to charge fair prices to compensate for the billions of dollars and decades of research that go into their medicines.”

  What is amusing is that the true motive behind the TPP’s secrecy have been quite clear to virtually everyone but the population of the TPP’s host nation:

  “It was very clear to everyone except the U.S. that the initial proposal wasn’t about transparency. It was about getting market access for the pharmaceutical industry by giving them greater access to and influence over decision-making processes around pricing and reimbursement,” said Deborah Gleeson, a lecturer at the School of Psychology and Public Health at La Trobe University in Australia. And even though the section, known as the transparency annex, has been toned down, she said, “I think it’s a shame that the annex is still being considered at all for the T.P.P.”

  RT adds that one country that should be in arms over the TPP is Australia:

  The secret negotiations now allegedly reveal that Australia’s Pharmaceutical Benefits Scheme might be undermined, pushing up the cost of medicines in the country.

   

  “United States trade negotiators have aggressively pushed for provisions favoring multinational pharmaceutical manufacturers at the expense of national governments and public healthcare systems,” the Sydney Morning Herald wrote.

  But the one place where the biggest price shock may be unleashed is, not surprisingly, the US itself :

  The leaked TPP document “shows that the pact could expose Medicare to pharmaceutical company attacks and constrain future policy reforms, including the ability of the US government to curb rising and unsustainable drug prices,” the US consumer rights advocacy group and think tank Public Citizen said in its Wednesday statement.

   

  The group says president Obama’s administration has been “acting at the behest of pharmaceutical companies,” and the secret negotiations it has been holding within the partnership might affect Medicare, limiting “Congress’ ability to enact policy reforms that would reduce prescription drug costs for Americans.”

  The same Congress, incidentally, which gladly washed its hands of any discussion of the TPP when the Senate “fast-tracked” its passage and as the NYT further notes, “a House vote on final passage of the bill, now expected on Friday, appears extremely close.”

  In other words, in exchange for a few million in lobby spending, aka bribes, by Big Pharma, the US Congress has once again sold out the US population, and this time it even voluntarily bypassed even the mock democratic process of debating the law it will pass.

  Why? Just so shareholders of pharmaceutical companies could reap even greater profits at the expense of not just the US population, but of the populations of some of the biggest US trading partners, all of whom are about to see the prices of medical care skyrocket.

  And since nothing is confirmed until it is officially denied, here is the punchline:

  “The transparency annex in T.P.P. is not subject to Investor-State Dispute Settlement, and nothing in its provisions will undermine our ability to pursue the best health care policy for Americans, including any future action on health care expenditures and cost containment,” a trade representative spokesman said.

  Those Americans who may wish to challenge the claim well, they are out of luck: Congress is about to make sure there is no way anyone can have a say into what big corporations have in store for the US population.

  The full Transparency Chapter Healthcare Annex below:

  

  

  
  
  

  

• Oops! Fed Admits QE Widens Inequality

  Via NotQuant.com,

  Once again, the Federal Reserve proves that it’s the last one to know everything that we knew already.   Today’s stunning announcement:  The Philadelphia Fed admits they (“may have”) made the wealthy wealthier and Main Street poorer.

  Oops.  Sorry America.

  

  The Philly Fed insists that “redistributing wealth” to the wealthy isn’t the main idea, but just a potential side effect of stimulus that they can’t do much about.

  “Monetary policy currently implemented by the Federal Reserve and other major central banks is not intended to benefit one segment of the population at the expense of another by redistributing income and wealth,” …

   

  “However, it is probably impossible to avoid the redistributive consequences of monetary policy”.

  We’re shocked.  Shocked, we tell you.  It turns out that handing out free money,  buying worthless assets at face value and allowing a small cabal of private banks the sole right to access your magic free-money window, “may” have given some financial advantages to “one segment of the population”.   But that’s just a side effect of saving the “economy”.

  Of course, it’s not just the bankers.  The 1% also happen to hold vastly more financial assets than the lower 99% — so they may directly benefit from financial asset-inflating monetary policy.

  

  And low income households which live paycheck-to-paycheck are far more exposed to “inflation-sensitive cash”.

  

  It’s great to see the Federal Reserve finally state this possibility publicly, unfortunately it doesn’t mean they’re about to change their minds.  In the eyes of the Fed, the ends justify the means.  If society as a whole is “better off” then it’s apparently “okay” that the poor are poorer and the rich are richer:

  It might be also true that the gain to society’s well-being from stabilizing the overall economy is greater than the loss coming from associated redistributive effects, in which case we could safely focus on the overall effects and ignore the redistributive effects.

  How convenient: Focus on the winners, not the losers.  Or something like that.

  But the rose-colored glasses have only just been donned:

  One could also argue that, in the long run, the redistributive consequences of monetary policy might average out. In other words, if the same type of households that tend to gain from monetary policy during economic expansions also tend to lose from monetary policy during recessions, then over time the average effect could be a wash.

  Got that?  The Fed is suggesting that while the rich “may” get richer during boom times,  recessions equalize wealth inequality.   So in a perfect world it might all even out.

  First, let’s take a moment to note that the Fed  just admitted that deflationary forces are wealth equalizers and inflationary forces benefit the rich.    That’s noteworthy.

  But let’s also note that the Fed’s money printing creates endless artificial booms, and limits recessions.  Ergo, the Fed reduces the possibility of equalization and creates a continuous money transfer mechanism from poor to rich – as they note:

   …There is a good chance that the redistributive effects do not average out because business cycles are known to be asymmetric —expansions tend to be long and moderate, while recessions tend to be short and sharp.

  Exactly.  And why are recessions so short?   Recessions “tend to be short and sharp” because the entire modus operandi of Federal Reserve policy is to shorten recessions and lengthen expansions.

  In other words, the Fed is admitting that it’s core policy thesis which is inherently inflationary makes the rich richer and the middle-class poorer.

  But as long as the “economy” is doing better, it’s all good.   Right?

  

  
  
  

  

• The Upside Of Soaring Obamacare Premiums?

  More costs…

   

  

   

  Source: Investors.com

  

  

  
  
  

  

• Rigging Markets? How To Determine If You Will Go To Jail In A Simple Flow Chart

  With a constant barage of revelations in the past three years that virtually every market is now rigged and manipulated to the core, the question is not “is [xxx] manipulated” (it is), but whether the manipulator will go to prison. For now, just one person has: a 36-year-old London suburb resident who was living in his parents’ house and… nobody else. So to make it easier for aspiring and existing manipulators, Virtu math PhDs, and various other “cartel” chat room members, here courtesy of Nanex is a flow chart that will answer the all important question: “will i go to prison if caught rigging.”

  

  Source: nanex

  

  

  
  
  

  

• Peter Schiff Warns This May Be The First Bubble To Burst Without A Pin

  Submitted by Peter Schiff via Euro-Pacific Capital,

  It is well known that I don’t think much of the ability of government officials to correctly forecast much of anything. Alan Greenspan and Ben Bernanke have made famously clueless predictions with respect to stock and housing bubbles, and rank and file Fed economists have consistently overestimated the strength of the economy ever since their forecasts became public in 2008 (see my previous article on the subject). But there is one former Fed and White House economist who has a slightly better track record…which is really not saying much. Over his public and private career, former Fed Governor and Bush-era White House Chief Economist Larry Lindsey actually got a few things right.

  Back in the late 1990s, Lindsey was one of the few Fed governors to warn about a pending stock bubble, and to suggest that forecasts for future growth in corporate earnings were wildly optimistic. He also famously predicted that the cost of the 2003 Iraq invasion would greatly exceed the $50 billion promised by then Secretary of Defense Donald Rumsfeld, a dissent that ultimately cost him his White House position. (But even Lindsey’s $100-$200 billion forecast proved way too conservative – the final price of the invasion and occupation is expected to exceed $2 trillion).

   

  Now Lindsey is speaking out again, and this time he is pointing to what he sees as a painfully obvious problem: That the Fed is creating new bubbles that no one seems willing to confront or even acknowledge.  Interviewed by CNBC on June 8th on Squawk Box, Lindsey offered an unusually blunt assessment of the current state of the markets and the economy. To paraphrase:

  “The public and the political class love to have everything going up. We had “Bubble #1” in the 1990s, “Bubble #2” in the 00s, and now we are in “Bubble #3.” It’s a lot of fun while it’s going up, but no one wants to be accused of ending the party early. But it’s the Fed’s job to take away the punch bowl before the party really gets going.”

  To his credit, however, Lindsey sees how this is sowing the seeds for future pain, saying:

  “The current Fed Funds rate is clearly too low, the only question is how we move it higher: Do we do it slowly, and start sooner, or do we wait until we are forced to, by the bond market or by events or statistics, in which case we would need to move more quickly. By far the lower risk approach would be to move slowly and gradually.”

  In other words, he is virtually pleading for his former Fed colleagues to begin raising rates immediately. I would take Lindsey’s assertion one step further; the party really got going years ago and has been raging since September 2011, the last time the Dow corrected more than 10%. (That correction occurred at a time when the Fed had briefly ceased stimulating markets with quantitative easing.) Since then, the Dow has rallied by almost 58% without ever taking a breather. With such confidence, the party has long since passed into the realm of late night delirium.

   

  As if to confirm that opinion, on June 8th the Associated Press published an extensive survey of 500 companies (using data supplied by S&P Capital IQ) that showed how corporate earnings have been inflated by gimmicky accounting. Public corporations, upon whose financial performance great sums may be gained or lost, are supposed to report earnings using standard GAAP (Generally Accepted Accounting Principles) methods. But much like government statisticians (see last month’s commentary on the dismissal of bad first quarter performance), corporate accountants may choose to focus instead on alternative versions of profits to make lemonade from lemons.

   

  Using creative accounting, bad performance can be explained away, moved forward, depreciated, offset, or otherwise erased. Given the enormity and complexity of corporate accounting, investors have deputized the analyst community to sniff out these shenanigans. Unfortunately, our deputies may have been napping on the job. 

   

  The AP found that 72% of the 500 companies had adjusted profits that were higher than net income in the first quarter of this year, and that the gap between those figures had widened to sixteen percent from nine percent five years ago. They also found that 21% of companies reported adjusted profits that were 50% more than net income, up from just 13% five years ago. 

   

  But with the fully spiked punch bowl still on the table, and the disco beat thumping on the speakers, investors have consistently looked past the smoke and mirrors and have accepted adjusted profits at face value. In a similar vein, they have looked past the distorting effect made by the huge wave of corporate share buybacks (financed on the back of six years of zero percent interest rates from the Fed). The buybacks have created the illusion of earnings per share growth even while revenues have stalled.   

   

  So kudos to Lindsey for pointing out the ugly truth. But I do not share his belief that the economy and the stock market can survive the slow, steady rate increases that he advocates. I believe that a very large portion of even our modest current growth is based on the “wealth effect” of rising stock, bond, and real estate prices that have only been made possible by zero percent rates in the first place. In my opinion, it is no coincidence that economic growth and stock market performance have stagnated since December 2014 when the Fed’s QE program came to an end (it has very little to do with either bad winter weather or the West Coast port closings).

   

  Prior to that, the $80+ billion dollars per month that the Fed had been pumping into the economy had helped push up asset prices across the board. With QE gone, the only thing helping to keep them from falling, and the economy from an outright recession (which is technically a possibility for the first half of 2015), is zero percent interest rates. Given this, even modest increases in interest rates could be devastating. Lindsey’s gradual approach may be equally as dangerous as the rapid variety. But the quick hit has the virtue of bringing the inevitable pain forward quickly and dealing with it all at once. Call it the band-aid removal approach; it may seem brutal, but at least it’s direct, decisive and makes us deal with our problems now, rather than pushing them endlessly into the future.

   

  The last attempt made by the Fed to raise rates gradually occurred after 2003-2004 when Alan Greenspan had attempted to withdraw the easy liquidity that he had supplied to the markets in the form of more than one years’ worth of 1% interest rates. But by raising rates in quarter point increments for the succeeding two years, Greenspan was unable to get in front of and contain the growing housing bubble, which burst a few years later and threatened to bring down the entire economy. In retrospect, Greenspan may have done us all a favor if he had moved more decisively.

   

  Today, we face a similar but far more dangerous prospect. Whereas Greenspan kept rates at 1% for only a year, Bernanke and Yellen have kept them at zero for almost seven. We have pumped in massively more liquidity this time around, and our economy has become that much more addicted and unbalanced as a result. Arguably, the bubbles we have created (in stocks, bonds, student debt, auto loans, and real estate) in the years since rates were cut to zero in 2008 have been far larger than the stock and housing bubbles of the Greenspan era. When they pop, look out below. Unfortunately, the gradual approach did not save us last time (worse, it backfired by making the ensuing crisis that much worse), and I believe it won’t work this time.   

   

  In fact, the current bubbles are so large and fragile that air is already coming out with rates still locked at zero. However, unlike prior bubbles that pricked in response to Fed rate hikes, the current bubble may be the first to burst without a pin. It appears the Fed fears this and will do everything it can to avoid any possible stress. That is why Fed officials will talk about raising rates, but keep coming up with excuses why they can’t.   

   

  Lindsey will be right that the markets will eventually force the Fed to raise rates even more abruptly if it waits too long to raise them on its own. But he grossly underestimates the magnitude of the rise and the severity of the crisis when that happens. It won’t just be the end of a raging party, but the beginning of the worst economic hangover this nation has yet experienced.

  

  

  
  
  

  

• China Officially Doubles Down On Multi-Trillion Yuan Debt Swap Program

  Last week, in “China May Double Down On Debt Swap As ABS Issuance Stumbles,” we discussed the likelihood that China’s local government debt swap pilot program would be expanded in the very near future. To recap, here’s what you need to know about the refi effort:

  China’s local governments are sitting on a pile of debt that amounts to around 35% of GDP. That’s a problem because some of this debt was accumulated off balance sheet through LGFVs (an effort to skirt official restrictions on borrowing via shadow banking conduits) meaning in some cases yields are far higher (at roughly 7%) than they would have been otherwise. The idea is to swap this debt for muni bonds and save 300 or so bps, in what amounts to a giant refi effort. The program officially got off the ground midway through last month with Jiangsu province sold paper with maturities ranging from 3 to 10 years at yields between 2.94% and 3.41%. 

   

  

  
  

  The program is a big deal for two reasons: 1) China’s local governments simply cannot afford 7% coupons on CNY20 trillion in debt, and 2) thanks to the fact that the PBoC will accept the muni bonds as collateral for cash loans, each new muni issue translates to new credit creation in the real economy — or at least that’s the idea. Shortly after launching the program, Beijing eased restrictions on LGFV financing, meaning that suddenly, local governments were once again able to borrow through the very same vehicles which got them into trouble in the first place. In the end, local governments are essentially able to roll their legacy high-yield LGFV debt via the issuance of muni bonds while re-leveraging via more LGVF financing. Meanwhile, the banks who purchase the newly issued munis pledge them for PBoC cash which is then used to make standard loans to individuals and businesses.

  If this sounds convoluted and self-defeating, that’s because it is. It’s a prime example of China attempting to deleverage and re-leverage at the same time. Local governments get to reduce their debt service burden (deleveraging) but the very mechanism which makes that possible also leads to further credit creation (re-leveraging). 

  Because the total debt burden for China’s local government stands at around 35% of GDP, the debt swap program can theoretically be expanded from the initial CNY1 trillion to as much as CNY20 trillion and indeed, we now have confirmation that the quota on the pilot program has been doubled. WSJ has more: 

  China will let its cities and provinces issue another 1 trillion yuan ($161 billion) of bonds as it continues an effort to rev up the economy and help local governments refinance their hefty debt burdens.

   

  The move, which doubles the amount Beijing initially authorized, will help local governments refinance 1.86 trillion yuan in debt due this year, according to the official Xinhua News Agency. It said swapping 1 trillion yuan will save local governments about 50 billion yuan in annual interest payments.

   

  The move, which was expected, underscores Beijing’s continued worries about slowing economic growth and mounting debt. China’s 7% first-quarter year-over-year growth rate was the slowest in six years, and recent trade and inflation data continue to point to soft domestic demand.

   

  China’s local governments had run up 17.9 trillion yuan of debt as of mid-2013, or $2.89 trillion at current exchange rates, according to the most recent official data. That was up sharply from negligible levels six years earlier.

   

  Much of the debt was from a massive stimulus push in the wake of the 2008 financial crisis. In recent years, China’s local governments circumvented rules that bar them from borrowing to fund the infrastructure and housing projects that have been essential in maintaining fast economic growth. The debt-fueled investment boom shielded China from the global financial crisis but left the country with greater financial vulnerabilities.

   

  Last month, China’s eastern province of Jiangsu became the first of several provinces to auction bonds. After a brief delay, it sold 52.2 billion yuan of debt at interest rates that ranged from 2.94% for three-year debt to 3.41% for 10-year bonds.

   

  Other local governments that have followed suit include the provinces of Hebei, Shandong, Hubei, Guangxi, and the municipalities of Chongqing and Tianjin.

  While the program is unequivocally positive for local governments as it effectively allows provincial authorities to kick the can a little further down the road while retaining access to LGFV financing in the mean time, it’s not clear whether the PBoC’s move to allow banks to pledge the new bonds for cash loans will be effective in terms of boosting credit creation and lowering real rates. 

  If three benchmark rate cuts in seven months and two RRR cuts since the beginning of the year haven’t done the trick, it’s unclear how pumping more liquidity into the system via LTROs is going to effect a meaningful change, especially considering the fact that rising defaults and NPLs are making banks think twice about taking on more credit risk. 

  

  

  
  
  

  

• CIA Humor – Mocking Transparency, "Conspiracy Theories"

  Earlier today, the CIA celebrated its first anniversary on Twitter. As part of its festivities it released five “reasons why you should follow the CIA” among which two stood out:

  5: The comments. Some of our followers have the most entertaining conspiracy theories on the internet.
  #aliensinthebasement
  #Twitterversary

  — CIA (@CIA) June 10, 2015

  and:

  4: In our second year we are going to ?????? #???
  #Twitterversary

  — CIA (@CIA) June 10, 2015

  And there you have it: in a nation in which a “conspiracy theory”, namely that the NSA was secretly spying on every single US citizen, and where the entire spy apparatus is undergoing a massive overhaul as a result of the “theory” becoming “fact” due to the impenetrable secrecy surrounding every decision of an administration whose biggest accomplishment will be passing a law that nobody has seen, the very subject of public transparency is now being ridiculed by the government itself.

  As expected, Edward Snowden’s lesson was lost on, well, everyone.

  

  
  
  

  

• Hospitals Are Blatantly Ripping Us Off

  Submitted by Michael Snyder via The Economic Collapse blog,

  Most Americans are deathly afraid to go to the hospital these days – and it is because of the immense pain that it will cause to their wallets.  If you want to get on a path that will lead you to bankruptcy, just start going to the hospital a lot.  In America today, hospitals and doctors are blatantly ripping us off and they aren’t making any apologies for it.  As you will read about below, some hospitals mark up treatments by 1,000 percent. 

  In other instances, basic medical supplies are being billed out at hundreds of times what they cost providers.  For example, it has been reported that some hospitals are charging up to 30 dollars for a single aspirin pill.  It would be difficult to argue that the extreme greed that we see in the medical system is even matched by the crooks on Wall Street.  These medical predators get their hands on us when we are at our most vulnerable.  They know that in our lowest moments we are willing to pay just about anything to get better or to make the pain go away.  And so they very quietly have us sign a bunch of forms without ever telling us how much everything is going to cost.  Eventually when the bills come in the mail, it is too late to do anything about it.

  How would you feel if someone sold you something for ten times the amount that it was worth?

  Would you feel ripped off?

  Well, that is what hospitals all over the country are doing every single day.  Just check out what one brand new study has discovered…

  Some hospitals are marking up treatments by as much as 1,000 percent, a new study finds, and the average U.S. hospital charges uninsured patients three times what Medicare allows.

   

  Twenty of the hospitals in the top 50 when it comes to marking up charges are in Florida, the researchers write in the journal Health Affairs. And three-quarters of them are operated by two Tennessee-based for-profit hospital systems: Community Health Systems and Hospital Corporation of America.

   

  “We just want to raise public awareness of the problem,” said Ge Bai of Washington & Lee University in Virginia, an accounting professor who wrote the study along with Gerard Anderson of Johns Hopkins University in Baltimore.

  Does reading that make you angry?

  It should.

  They are greedily taking advantage of all of us.

  Other studies have come up with similar results.  Here is one example…

  According to National Nurses United, U.S. hospital charges continue to soar with a handful of them, such as Meadowlands Hospital Medical Center in Secaucus, N.J., going as far as charging more than ten times the total cost — or almost $1,200 per $100 of the cost of care. Meanwhile, the hundred priciest hospitals in the nation were found to have this cost ratio begin at 765 percent, which is more than twice the national average of 331 percent.

  Much of the time, we are being overcharged for tests, services and procedures that we don’t even need.

  It has been estimated that the amount of truly wasteful spending in the U.S. medical system comes to a grand total of about $600 billion to $700 billion annually.  That means that wasteful medical spending in the U.S. each year is greater than the GDP of the entire country of Sweden.

  And of course almost everyone has a story about an absolutely ridiculous medical bill that they have received.  In fact, if you have one that you would like to share, please feel free to share it at the end of this article.  The following are just a few examples that were shared in an editorial in a local newspaper…

  Have you heard about the little girl who required three stitches over her right eye? The emergency room sent her parents a bill for $1,500 — $500 per stitch (NY Times, Dec. 3). My neighbor recently spent six hours in the emergency room with bleeding from the mouth. He was on a blood thinner, needed several blood tests, and his heart was monitored. His hospital bill came to $22,000. A California man diagnosed with lung cancer chose to fight his cancer aggressively. Eleven months later his widow received a bill exceeding $900,000.

  One of the most disturbing trends that we are witnessing all over the nation is something called “drive by doctoring”.  That is where an extra doctor that isn’t even necessary “pops in” to visit patients that are not his or “assists” with a surgery in order to stick the patient with a big, fat extra bill.  The following is from a New York Times article about this disgusting practice…

  Before his three-hour neck surgery for herniated disks in December, Peter Drier, 37, signed a pile of consent forms. A bank technology manager who had researched his insurance coverage, Mr. Drier was prepared when the bills started arriving: $56,000 from Lenox Hill Hospital in Manhattan, $4,300 from the anesthesiologist and even $133,000 from his orthopedist, who he knew would accept a fraction of that fee.

   

  He was blindsided, though, by a bill of about $117,000 from an “assistant surgeon,” a Queens-based neurosurgeon whom Mr. Drier did not recall meeting.

  How would you like to receive a bill for $117,000 from a doctor that you had never met and that you did not know would be at your surgery?

  This is how broken our medical system has become.

  And of course this type of abuse is not just happening in New York.  It is literally happening all over the nation…

  In operating rooms and on hospital wards across the country, physicians and other health providers typically help one another in patient care. But in an increasingly common practice that some medical experts call drive-by doctoring, assistants, consultants and other hospital employees are charging patients or their insurers hefty fees.

   

  They may be called in when the need for them is questionable. And patients usually do not realize they have been involved or are charging until the bill arrives.

  If you or a close family member has been to the hospital recently, you probably know how astronomical some of these bills can be.

  And if you have a chronic, life threatening disease, you can very rapidly end up hundreds of thousands of dollars in debt.

  If you doubt this, just check out the following excerpt from an article that appeared in Time Magazine.  One cancer patient out in California ran up nearly a million dollars in hospital bills before he finally died…

  By the time Steven D. died at his home in Northern California the following November, he had lived for an additional 11 months. And Alice had collected bills totaling $902,452. The family’s first bill — for $348,000 — which arrived when Steven got home from the Seton Medical Center in Daly City, Calif., was full of all the usual chargemaster profit grabs: $18 each for 88 diabetes-test strips that Amazon sells in boxes of 50 for $27.85; $24 each for 19 niacin pills that are sold in drugstores for about a nickel apiece. There were also four boxes of sterile gauze pads for $77 each. None of that was considered part of what was provided in return for Seton’s facility charge for the intensive-care unit for two days at $13,225 a day, 12 days in the critical unit at $7,315 a day and one day in a standard room (all of which totaled $120,116 over 15 days). There was also $20,886 for CT scans and $24,251 for lab work.

  The sad truth is that the U.S. health care system has become all about the money.

  A select few are becoming exceedingly wealthy while millions go broke.  One very disturbing study discovered that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt.  And collection agencies seek to collect unpaid medical bills from approximately 30 million Americans every single year.

  Once upon a time, going into the medical profession was a sacrifice and you did it because you wanted to help people.

  Today, it is considered to be a path to riches.

  If the U.S. health care system was a separate country, it would actually be the 6th largest economy on the entire planet.  Even though our system is deeply broken, nobody wants to rock the boat because trillions of dollars are at stake.  If it was up to me, I would tear the entire thing down and rebuild it from scratch.

  

  

  
  
  

  

• Biotech Bubble; China Crash; Rate Rumble: How Goldman Is Hedging The "What Ifs"

  It is no secret that in recent weeks Goldman has been particular bearish (if only to the outside world), with statements such as the following by chief equity strategist David Kostin:

  … by almost any measure, US equity valuations look expensive. The typical stock in the S&P 500 trades at 18.1x forward earnings, ranking at the 98th percentile of historical valuation since 1976. For the overall index, the aggregate forward P/E multiple equals 17.2x, a rise of 63% since September 2011, compared with the median expansion of 48% during 9 previous P/E expansion cycles. Financial metrics such as EV/EBITDA, EV/Sales, and P/B also suggest that US stocks have stretched valuations. With tightening on the horizon, the P/E expansion phase of the current bull market is behind us.”

  So with the firm not expecting much if any stock market upside at this point, all else equal, it is only logical that it must be expecting downside. Or so it would like its clients to believe.

  Which is perhaps why this afternoon, the 200 West firm with alumni manning every single central bank of relevance, released a note covering what are the three biggest market concerns, i.e., bubbles, and how Goldman is hedging them, or as Goldman puts it, the “what if” scenarios. To wit:

  In today’s report we examine several “what-if” scenarios on several key debates in the market with a focus on out of consensus ideas. Namely we ask 1.) How does one monetize a potential drawdown in Biotech. 2.) What stocks work better if the FED moves faster than expected? and 3.) What if China reforms don’t do the trick?

  Said otherwise, Goldman is hedging the biotech bubble, the China crash, and the rate rumble. Here’s how.

  First, Biotechs
  

  Many investors we speak to are concerned about a pullback in Biotech. It is easy to see the underlying sources of concern given strong sector outperformance, negative FCF for smid-caps, and increasingly early stage IPOs. While there are many reasons to be optimistic (strong new product cycles, advances in I/O and gene therapy, M&A), there are potential headwinds on the horizon. S&P Biotech (SPSIBITR) is up 85% in the past year and has outperformed the SPXTR by 250% over the past 5 years. In 2014, there were 71 IPOs, up 90% from 2013 as Venture Capital accelerated exits. Excitement has pushed the median stock to 11.6x EV/sales despite 90% of the NBI being unprofitable.

   

  Concerns that might have caused volatility in recent months:
   

  1. Availability of capital may quickly vanish with a broad market self-off or rate shock. Either could disproportionately pressure biotech.
      
  2. Pipeline setbacks have caused recent volatility in a few smid-cap biotechs including AERI (Oct 2013 IPO). CLDN (Jan 2014 IPO) and EBIO (Feb 2014 IPO).
  3. Lockup expirations have also been cited by investors as a source of weakness for some stocks such as FGEN and ATRA in recent months.

  How to Hedge: Buy XBI Dec 10% out-of-the-money puts for 5%. XBI puts (S&P biotech ETF) are attractive to hedge against a sell-off. XBI 3m implied volatility of 29% is near the lows vs. the past year, showing investors are complacent about risks. We prefer Dec XBI options as the XBI contains more smid-cap biotech and December options capture the critical fall conference season where data from recent trials is often made public. Put buyers risk losing their premium paid.

  Next: Interest Rates

  

  The timing and path of the Fed’s lift-off remains a key debate, with Fed Fund futures stall pricing in the first hike in 4Q despite recent improving economic indicators. Commentary from Fed governors continues to stress hike will be data dependent and Chair Janet Yellen noted in late May an increase could come this year if the US economy improves. Futures also imply a very gradual increase in rates with just three additional 25 bp hikes priced in for 2016. This compares to an average 200 bp increase in the 12m following the initial move in the last three rate cycles (2004: 200 bp, 1999: 175 bp. 1993: 250 bp).

   

  How to Hedge: Buy GSRHRATE. This basket includes 12 Financials

   

  across Discount Brokers, Regional Banks and Trust Banks that each have 20%+ EPS upside to normalized Fed Funds (300 bp) driven by higher net interest margins and money market fee waivers rolling off. While our Financial analysts estimate an initial hike is already priced in for most stocks in GSRHRATE, this baskel is still likely to be sensitive to any pull-forward in rate expectations as EPS estimates will likely be revised higher. The basket has been more correlated with treasury yields (2YR, 5YR, 10YR) than either the XLF (Financials) or SKX (Banks Index) over the last year.

  Finally, China.

  

   

  Market reform: A key pillar in the China re-railing story. The CSI 300 IChina A-shares) has irnere than doubled over the tam. year (+149%) and the HSCEI (China H-shares( is up 33%. A-shares have continued to outpace hi-shares in 2015 with the CS! 300 up 50% and the HSCEI up 16%. China bulls locus on the potential (Or the Shanghai and Sheranen stock connects io increase foreign inflows and enhance the liquidity profile required by key benchmark providers like MSC! and FTSE. Both index providers have cited that market accessibility concerns need to be resolved before including A-shares into benChrnaikS. Bears cite China’s debt buildup. NPLs and a slower China growth trajectory.

   

  Investors have been using options for access. Higher demand for upside calls (long with a hedge) rather than downside puts (fade the rally) has led to a rarity in the options Space. HSCEI and HSI are now the Only major global indices with negative skew, which all else equal. implies that put options are ‘fading inexpensive relative to calls. The term structure of implied volatility is also sharply downward sloping implying longer-dated options are trading at a discount to shorter-daled options.

   

  To position for upside with limited loss: Buy the HSCEI 105/125% call spread expiring December 30, 2015 for 4% (potential 5:1 payout). The December expiration benefits from the downward sloping term structure and potentially captures the Shenzhen-Hong Kong Connect expected to launch tater this year. The trade takes advantage of elevated call Skew by selling a deep otm call to cheapen the structure.

   

  To hedge the China rally: Take advantage of inverted skew. For investors who caught the rally or want to position for downside we like buying the HSCEI 90% put expiring December 30, 2015 for 3.9%.

  As for the real question: is Goldman truly hedging its positions or, as is almost always the case, merely looking for willing counterparties to its own prop exposure. Because if Goldman is happy to take the other side of these trades, then S&P 2400 may be just over the horizon.

  

  
  
  

  

• Deutsche Bank Head Of Asia-Pac Equities Loses Control Of His $580,000 Ferrari, Kills Innocent Bystander

  As recently as several months ago, the financial press was surprised when a wave of Deutsche Bank employees, particularly those in the bank’s legal department (such as here and here), decided to take their own lives. Now at least one Deutsche Banker, perhaps perturbed by the recent news involving the unexpected departure of his co-CEOs coupled with the even more unexpected raid of the bank’s global headquarters, has decided to show the jump from sui– to homicide is a simple one.

  Earlier today, Hong Kong police arrested a 48-year-old Deutsche Bank employee on “suspicion of dangerous driving and causing death.” The fatal accident happened early on Tuesday at a car park near Deutsche’s office at International Commerce Center, across the harbor from the city’s financial district.

  According to Reuters, the driver was Deutsche’s head of Asia-Pacific equities trading, Robert James Ebert, 48, who was behind the wheel of a Ferrari at the time of the accident.

  Below is his Linkedin profile:

  

  Police said the arrested driver, whom it identified only as James, had said he lost control of his car. The police said a 53-year-old man, who was next to the barriers, died after suffering serious head and shoulder injuries. He was pronounced dead in the hospital early in the afternoon.

  The Apple Daily newspaper also identified the driver as Ebert and said he was driving a black, HK$4.5 million ($580,502) Ferrari 458 Spider, which was in collision with a HK$2.4 million Maserati at the car park entrance before hitting a security guard.

  

  

   

  The police said the driver was not charged.  “We are investigating whether the car was driving beyond the speed limit of 30km/h at the time,” a police source said.

  It is safe to say the answer is yes, as a simple check of the security cameras would confirm.

  Ebert was released on bail in the early hours of Wednesday and has to report back in mid-July, the police said.

  Ejiinsight adds that Ebert’s car went on to sweep across three barricades and hit the guard, who was pinned to a post at the carpark entrance.

  Koo was rushed to the hospital but was pronounced dead by 2 p.m.

   

  Ebert and the Maserati driver were unhurt. Police said both drivers passed a breathalyser test.

   

  Skid marks stretching 10 meters were found at the entrance of the carpark.

   

  Ebert told police his car had a brake failure. He was arrested on suspicion of dangerous driving causing death.

  So guy drives a car which costs more than most Americans will make in a decade (pretax), crashes in what may have been an improvised drag race, kills an innocent bystander, and promptly posts bail and is allowed to roam, and drive, in freedom.

  Meanwhile Nav Sarao rots in the UK’s worst prison unable to pay his ridiculous $5 million bail, for the simple reason that he was a good trader and dared to expose the HFTs’ rigging to regulators. He faces a maximum sentence of 380 years in jail.

  It’s ok though: when Stan Fischer and Mark Carney said bankers have to go to prison for “at least” 10 years when caught rigging markets they said nothing about bankers who engage in homicide. It appears the legal system will need a central bank explainer on how to proceed in that specific case.

  

  

  
  
  

  

• China's Global Ambitions Take Shape As AIIB Structure Revealed, Germany Pledges Full Support

  China is working diligently to expand its global economic and political footprint. Two critical pieces of the puzzle for Beijing are the $40 billion Silk Road Fund and the $50 billion AIIB. 

  As a refresher, The Silk Road Fund is backed by China’s FX reserves, the Export-Import Bank of China, and China Development Bank and seeks to increase ROIC for Chinese SOEs by investing in infrastructure projects across the developing world, while the AIIB is funded by 57 founding member countries (the US and Japan have not joined) and will serve to upend traditionally dominant multilateral institutions which have failed to respond to the rising influence and economic clout of their EM membership. This failure has been exemplified of late by Washington’s steadfast refusal to reform the IMF in order to ensure the Fund reflects the economic clout of its members. Although the failure falls largely at the feet of Congress — US lawmakers’ utter inability to legislate has left reform measures stalled — it recently manifested itself at the Presidential level when President Obama had an opportunity to change the structure of the IMF (for the better) without congressional approval but chose not to do so. Importantly, Obama’s decision not to act was not made out of reverence for Congress. Rather, The White House believed that supporting the reform agenda would have jeopardized the US veto, which US officials at all levels view as sacrosanct. 

  As China builds its own multilateral institutions, Beijing has been keen to dispel the notion that it seeks to supplant the Bretton Woods order with its own brand of Eastern hegemony and although one can certainly question the degree to which China’s aims are rooted purely in an inclination to be benevolent towards nations in need of fixed asset investment, Beijing is making an effort to distance itself from the way the US governs the institutions under its control. WSJ has more on the structure of the AIIB:

  The bank’s voting structure means that China will retain the upper hand as the largest shareholder, according to its articles of incorporation and people close to the bank. China has offered to forgo outright veto power in day-to-day operations, which helped win over some key founding members.

   

  The articles, agreed to at a meeting of the bank’s 57 founding member countries last month, call for the Asian Infrastructure Investment Bank to be overseen by an unpaid, nonresident board of directors, unlike the World Bank and the Asian Development Bank. The new bank, which will be based in Beijing and use English as its operating language, will open bidding for projects to all, unlike the ADB, which restricts contracts to member countries, according to a copy of the articles reviewed by The Wall Street Journal.

   

  
  

   

  The new Asian bank also gives a bigger voice to developing nations—a turnaround from the International Monetary Fund and World Bank, which China lobbied for years for greater representation.

   

  “China benefited a lot from existing multilateral organizations, but it was also frustrated in a lot of ways that they didn’t increase the weight of China and other developing markets, that they are often slow and bureaucratic,” said David Dollar, a senior fellow at Brookings Institution and former World Bank and U.S. Treasury official in China who has done unpaid consulting for the new bank…

   

  Voting shares are apportioned according to a complex formula that factors in each member’s capital contribution, the size of its economy, basic votes each member receives equally plus another 600 votes allocated to each founding member.

   

  At least 75% of share votes are reserved for members located in the Asia-Pacific region, giving smaller Asian countries a greater say than they have in other global organizations.

   

  “They will try and increase the efficiency of investment compared to other development banks with long approval procedures,” said Cui Fan, a professor with Beijing’s University of International Business and Economics.

   

  The bank is expected to maintain a lean staff, according to analysts and those close to the bank, compared with the World Bank, which has over 12,000 staff and consultants. Doing without a resident board of directors should save the bank money and friction in decision-making.

   

  Mr. Dollar, of Brookings, said the resident board costs the World Bank some $70 million annually. When he worked at the bank, “There was often a certain tension between the management and the board members whose resident staff wanted to find out about projects at an early stage.”

  Germany, one of the European nations which signed on after the UK spurned Washington and opened the AIIB membership floodgates by pledging to join the bank, will become the fourth largest shareholder, demonstrating the degree to which Western powers believe the new institution will be far more influential than some US commentators have led the world to believe. 

  Via Reuters:

  Germany plans to take a 4.1 percent stake in the new China-led Asian Infrastructure Investment Bank (AIIB), making it the fourth-biggest member, according to a finance ministry draft document seen by Reuters on Tuesday.

   

  A total of 57 countries, including Britain, France and Iran, have joined the AIIB, which is seen as a rival to the Western-dominated World Bank and a major plank in spreading China’s “soft power”.

   

  It was launched in Beijing last year to support investment in Asia in transport, energy, telecommunications and other infrastructure. The articles of agreement are expected to be ready for signing at the end of June.

   

  Germany will be the fourth-biggest shareholder in the $100 billion lender after China, India and Russia. It plans to contribute around $900 million in the period 2016-2019 and take on $3.6 billion in guarantees from 2016, according to the document.

  In the AIIB, the US faces a far greater threat to its position in the global economic order than anyone in Washington dares to admit. The smear campaign (that’s really the only way to cast it) aimed at painting the new bank as relatively small and meaningful only to the degree that it symbolizes China’s global and regional ambitions is profoundly misleading.

  This is not a pet project for Beijing and the founding members are not pledging hundreds of millions so they can play a part in petty Chinese theatrics. The bank is real. The sooner Washington recognizes and accepts this, the better off it will be in terms of helping to repair the reputational damage the IMF and ADB have suffered as a result of American and Japanese belligerence. 

  

  

  
  
  

  

• Why EIA, IEA, And BP Oil Forecasts Are Too High

  Submitted by Gail Tverberg via Our Finite World blog,

  When forecasting how much oil will be available in future years, a standard approach seems to be the following:

  1. Figure out how much GDP growth the researcher hopes to have in the future.
  2. “Work backward” to see how much oil is needed, based on how much oil was used for a given level of GDP in the past. Adjust this amount for hoped-for efficiency gains and transfers to other fuel uses.
  3. Verify that there is actually enough oil available to support this level of growth in oil consumption.

  In fact, this seems to be the approach used by most forecasting agencies, including EIA, IEA and BP. It seems to me that this approach has a fundamental flaw. It doesn’t consider the possibility of continued low oil prices and the impact that these low oil prices are likely to have on future oil production. Hoped-for future GDP growth may not be possible if oil prices, as well as other commodity prices, remain low.

  Future Oil Resources Seem to Be More Than Adequate

  It is easy to get the idea that we have a great deal of oil resources in the ground. For example, if we start with BP Statistical Review of World Energy, we see that reported oil reserves at the end of 2013 were 1,687.9 billion barrels. This corresponds to 53.3 years of oil production at 2013 production levels.

  If we look at the United States Geological Services 2012 report for one big grouping–undiscovered conventional oil resources for the world excluding the United States–we get a “mean” estimate of 565 billion barrels. This corresponds to another 17.8 years of production at the 2013 level of oil production. Combining these two estimates gets us to a total of 71.1 years of future production. Furthermore, we haven’t even begun to consider oil that may be available by fracking that is not considered in current reserves. We also haven’t considered oil that might be available from very heavy oil deposits that is not in current reserves. These would theoretically add additional large amounts.

  Given these large amounts of theoretically available oil, it is not surprising that forecasters use the approach they do. There appears to be no need to cut back forecasts to reflect inadequate future oil supply, as long as we can really extract oil that seems to be available.

  Why We Can’t Count on Oil Prices Rising Indefinitely

  There is clearly a huge amount of oil available with current technology, if high cost is no problem. Without cost constraints, fracking can be used in many more areas of the world than it is used today. If more water is needed for fracking than is available, and price is no object, we can desalinate seawater, or pump water uphill for hundreds of miles.

  If high cost is no problem, we can extract very heavy oil in many deposits around the world using energy intensive heating approaches similar to those used in the Canadian oil sands. We can also create gasoline using a coal-to-liquids approach. Here again, we may need to work around water shortages using very high cost methods.

  The amount of available future oil is likely to be much lower if real-world price constraints are considered. There are at least two reasons why oil prices can’t rise indefinitely:

  1. Any time oil prices rise, economies that use a high proportion of oil in their energy mix experience financial problems. For example, countries that get a lot of their revenue from tourism seem to be vulnerable to high oil prices, because high oil prices raise the cost of airline travel. Also, if any oil is used for making electricity, its high cost makes it expensive to manufacture goods for export.
  2. When oil prices rise, workers find that the cost of food tends to rise, as does the cost of commuting. To offset these rising expenses, workers cut back on discretionary spending, such as going to restaurants, going on long-distance vacations, and buying more expensive homes. These spending cutbacks adversely affect the economy.

  The combination of these two effects tends to lead to recession, and recession tends to bring commodity prices in general down. The result is oil prices that cannot rise indefinitely. The oil extraction limit becomes a price limit related to recessionary impacts.

  The cost of oil is currently in the $60 per barrel range. It is not even clear that oil prices can rise back to the $100 per barrel level without causing recession in many counties. In fact, the demand for many things is low, including labor and capital. Why should the price of oil rise, if the overall economy is not generating enough demand for goods of all kinds, including oil?

  Oil Companies Can Report a Wide Range of Oil Prices Needed for Profitability

  The discussion of required oil prices is confusing because there are many different ways to compute oil prices needed for profitability. Companies make use of this fact in choosing information to report to the press. They want to make their situations look as favorable as possible, because they do not want to frighten bondholders and prospective stock buyers. This usually means reporting as low a needed price for profitability as possible.

  Oil prices can be computed on any of the following bases (arranged roughly from lowest to highest):

  • (a) The “going forward” cost of extracting oil from wells that are already in place, excluding fixed expenses that the company would incur anyhow. This cost is likely to be very low, likely less than $30 barrel.
  • (b) The cost of drilling new “infill” wells in existing fields, excluding the overhead expenses the company would incur anyhow.
  • (c) The cost of opening up a new oil field and drilling new wells, excluding the overhead expenses the company would incur anyhow.
  • (d) Add to (c), overhead expenses (but not including taxes paid to governments, dividends to policyholders, and interest on borrowed funds).
  • (e) Add to (d) amounts paid to government, dividends to policyholders, and interest on borrowed funds.
  • (f) The price required so that the oil company has sufficient cash flow so that it doesn’t need to keep taking on more debt. Instead, it can earn a reasonable profit (and from this pay dividends), and still have sufficient funds left for “Exploration & Development” of new fields to offset declines in production in existing fields. It can also pay governments the high taxes they require, and pay other ongoing expenses. Thus, the system can continue to operate, without assistance from other sources.

  I would argue that if we actually want to extract a large share of technically recoverable oil, we need oil prices up at this top level–a level at which companies are making a reasonable profit on a cash flow basis, so that they don’t have to go further and further into debt. If they are getting less than they really need, they will send drilling rigs home. They will use available funds to buy back their own shares, rather than spending as much money as is required to develop new fields to offset declines in existing fields.

  Required Oil Prices

  Many people believe that low prices started in late-2014, when oil prices dropped below the $100 barrel level. If we look back, we find that there was a problem as early as 2013, when oil prices were over $100 per barrel. Oil companies were then complaining about not making a profit on a cash flow basis–in other words, the highest price basis listed above.

  My February 2014 post called Beginning of the End? Oil Companies Cut Back on Spending (relating to a presentation by Steve Kopits) talks about oil companies already doing poorly on a cash flow basis. Many needed to borrow money in order to have sufficient funds to pay both dividends and “Exploration & Production” expenses related to potential new fields. Figure 1 is a slide by Kopits showing prices required for selected individual companies to be cash flow neutral:

  

  Figure 1.See this link for larger view of image.

  The problem back in 2013 was that $100 per barrel was not sufficient for most companies to be profitable on a cash flow basis. At that time, Figure 1 indicates that a price of over $130 per barrel was needed for many US companies to be profitable on that basis. Russian companies needed prices in the $100 to $125 range, while the Chinese companies PetroChina and Sinopec needed prices in the $115 to $130 per barrel range. The Brazilian company Petrobas needed a price over $150 per barrel to be cash flow neutral.

  Kopits doesn’t show required prices for OPEC countries to be cash flow neutral, but similar price estimates (required funding including budgeted tax amounts) are available from Arab Petroleum Investments Corporation (Figure 2, below).

  

  Figure 2. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from Arab Petroleum Investments Corporation.

  Based on this exhibit, OPEC costs are generally over $100 per barrel. In other words, OPEC costs are not too different from non-OPEC costs, when all types of expenses, including taxes, are included.

  As more oil is extracted, the tendency is for costs to rise. Figure 3, also from the Kopits’ presentation, shows a rapid escalation in some types of costs after 1999. This is what we would expect when we reach the end of readily available “cheap to extract” oil and move to more expensive-to-extract unconventional types of oil.

  

  Figure 3. Figure by Steve Kopits of Douglas Westwood showing trends in world oil exploration and production costs per barrel. CAGR is “Compound Annual Growth Rate”.

  What prices do we need on a going-forward basis, to keep the oil extraction system operating on a long-term basis? I would argue that we need a price of at least $130 now in 2015. In the future, this price needs to rise to higher and higher levels, perhaps moving up quite quickly as we move to more-expensive-to-extract resources.

  Is it really necessary to include tax revenues in these calculations? I would argue that the inclusion of taxes is especially important for oil exporting nations. Most of these countries depend heavily on oil taxes to provide funds to operate programs providing food and jobs. As the quantity of oil that they can extract depletes, and as the population of these countries rises, the per-barrel amount of revenue required to fund these government programs is likely to increase. If we want to have a reasonable chance of stability within these countries (so that exports can continue), then we need to expect that the tax loads of companies in oil exporting nations will increase in the future.

  Also, if there is any plan to subsidize “renewables,” funds to make this possible need to come from somewhere. Indirectly, these funds are available because of surpluses made possible by the fossil fuel industry. Thus taxes from the fossil fuel industry might be considered a way of subsidizing renewables.

  Why Production Doesn’t Quickly Reset to Match Prices

  Do we really have a problem with oil prices, if oil production hasn’t dropped quickly in response to low prices? I think we do still have a problem.

  One reason why oil production doesn’t quickly reset to match prices is related to many different ways of reporting oil extraction costs, mentioned above. A company may not be making money when all costs are included, but it is making money on a cash flow basis if “sunk costs” are ignored.

  Another reason why oil production doesn’t quickly reset to match prices is the fact that oil is the lifeblood of companies that produce it. “Cutting back” means laying off trained workers. If these workers are laid off, companies will find it nearly impossible to rehire the same workers later. The workers have families to support; they will need to find work, even if it is in other industries. Companies will need to train new workers from scratch. Thus, companies will do almost anything to keep employees, no matter how low prices drop on a temporary basis.

  A similar issue applies to equipment used in oil operations. Drilling equipment that is not used will deteriorate over time and may not be usable in the future. A USA Today article talks about auctions of equipment used in the oil industry. This equipment is likely to be permanently lost to the oil industry, making it hard to ramp back up again.

  If a company is a government owned company in an oil-exporting nation, there is an even greater interest in keeping the company operating. Very often, oil is the backbone of the entire country’s economy; most tax revenue comes from oil and gas companies. There is no real option of substantially cutting back operations, because tax funds and jobs are badly needed by the economy. Civil unrest could be a problem without tax revenue. In the short run, some countries, including Saudi Arabia, have reserve funds set aside to cover a rainy day. But these run out, so it is important to maintain market share.

  There are additional reasons why oil production stays high in the short term:

  • Some companies have contracts in the futures market that cushion price fluctuations, so they may not directly “feel” the impact of low prices. Because of this, they may not react quickly.
  • Oil companies will very often have debt obligations that they need to meet, and need cash flow to keep meet them. Any cash flow, even if the price covers only a bit more in the direct cost of extraction, is helpful.
  • Large amounts of equity funding have been available, even for companies issuing “junk bonds.” Companies that would otherwise be reaching debt limits have been able to issue large amounts of stock instead. Bloomberg reports that in the first quarter, $8 billion in stock was issued, which is a record.

  All of these considerations have allowed production to continue temporarily, but are unlikely to be long-term solutions. In the long run, we know that we are likely to see problems such as defaults on junk rated bonds of oil companies. Futures contracts guaranteeing high prices eventually run out. Also, if prices remain low, government programs of oil exporting countries may need to be cut back, leading to unrest by citizens.

  Regardless of what is happening in the short-term, it is clear that eventually production will drop, quite possibly permanently, unless oil prices rise substantially.

  Why are Oil Prices so Low?

  I see two reasons for low oil prices:

  1. Debt is now not rising fast enough, because debt levels are reaching limits. Increases in debt levels tend to hold up commodity prices because increasing amounts of debt allow consumers to buy additional cars, homes, factories and other goods, thus creating “demand” for oil and other commodities. At some point, debt limits are reached. This can happen because a growth spurt is slowing, as in China, or because governments are reaching limits on the ratio of debt to GDP that they can carry. When debt levels stop rising rapidly, the debt “pump” that has been holding up prices in the past disappears, and commodity prices tend to stay at a lower level.
  2. The wages of ordinary workers are lagging behind. If a young person cannot find a good paying job (or owes too much on college loans), he most likely will live with his parents longer, delaying the purchase of a house and car. If a family discovers that the cost of day care for children plus the cost of commuting is more than the wages of the lower-earning parent, the lower-earning parent may choose not to work. A household with only one employed worker is less likely to buy a house or a second car than a two-worker household. These kinds of responses to low wages tend to hold down “demand” for goods made with commodities. Thus, affordability issues (or low demand related to affordability) tends to hold down the prices of commodities.

  The problem of lagging wages of ordinary workers is a very old one. The problem occurs whenever there are issues with diminishing returns. For example, when population reaches a level where there are too many farmers for available land, the average size of plot for each farmer tends to decrease. Each farmer tends to produce less, because of the smaller size of plot available. If each farmer is paid for what he produces, his wages will drop.

  We are reaching the same problem today with oil. We continue to produce increasing amounts of oil, but doing so requires increasing numbers of workers and increasing amounts of resources of other types (including fresh water, steel, sand for fracking, and energy products). Workers are on average producing less oil per hour worked. In theory, they should be paid less, because the value of oil is determined by what the oil can do (how far it can move a vehicle), not how much labor was required to produce the oil.

  The same problem is occurring in other areas of the economy, including natural gas production, coal production, electricity production, medicine, and higher education. At some point, we find the economy as a whole becoming less efficient, rather than more efficient, because of diminishing returns.

  We know from Peter Turchin and Surgey Nefedov’s book, Secular Cycles, that low wages of common workers were frequently a major contributing factor to collapses in pre-fossil fuel days. With lower wages, workers were not able to buy adequate food, allowing epidemics to take hold. Also, governments could not collect adequate taxes from the large number of low-earning workers, leading to governmental financial problems. A person wonders whether today’s economy is reaching a similar situation. Will low wage growth of common workers hold down future GDP growth, or even lead to collapse?

  Are the Projections of EIA, IEA, BP, and all the Others Right?

  Perhaps these projections would be reasonable, if oil prices could immediately bounce to  $130 per barrel and could continue to inflate in the years ahead.

  If, on the other hand, low oil prices are really being caused by lagging wages of ordinary workers and the failure of debt levels to keep rising, then I don’t think we can expect oil prices to reach these lofty levels. Instead, we can expect oil production to fall because of low prices.

  The amount of oil available at $60 per barrel seems to be quite low. Perhaps a little low-priced oil would be available from Kuwait and Qatar at that price, but not much else. Some additional oil might be obtained, if governments of non-oil exporters (such as the USA and China) choose to cut back their tax levels on oil companies. Even with the additional oil made possible by lower taxes, total oil supply would still be far less than needed to run today’s world economy.

  The world economy would need to contract greatly in order to shrink down to the oil available. Such shrinkage might be accomplished by a cutback in trade and loss of jobs. Debt defaults would likely be another feature of the new smaller economy. Such a scenario would explain how future oil production may deviate significantly from the forecasts of EIA, IEA, and BP.

  

  

  
  
  

  

• Bush Brother Calls Putin "Bully", Warns Of "Consequences" For Russia If Elected

  On Monday we highlighted what looks to be the new campaign strategy for Republican presidential hopefuls: blame the “Putin boogeyman.” 

  Note that this goes beyond the usual Russophobic rhetoric that plays well with the hopelessly naive American public. In 2009, Hillary Clinton famously presented Russian foreign minister Sergei Lavrov with a big red “reset” button which the two pressed together in a priceless (for its sheer absurdity) photo op in Geneva. The media spectacle was meant to mark a new era for US-Russian relations.

  

  Like many other promises made in the early days of the Obama presidency, the Russian relations reset has not gone according to plan.

  In fact, one annexation, one bloody proxy war, innumerable thinly-veiled nuclear threats, and six years later, and the only thing that’s been “reset” in US-Russian relations is the Cold War. 

  Now, with tensions running high on the heels of escalating violence in Ukraine, calls for stepped up economic sanctions on Moscow, and a shifting US strategy that will reportedly involve measures to “contain” the Russian threat, the likely Republican frontrunner is trying his hand at casting Putin as the embodiment of Democrats’ failed foreign policy. Jeb Bush, who is traveling in Europe ahead of announcing his candidacy, notes that when it comes to Putin, the unassuming subtlety that typically characterizes Bush family foreign policy should be discarded. Reuters has more:

  Jeb Bush, who is traveling Europe ahead of announcing his candidacy, notes that when it comes to Putin, the unassuming subtlety that typically characterizes Bush family foreign policy should be discarded. Reuters has more:

   

  “Ultimately I think to deal with Putin you need to deal from strength – he’s a bully and … you enable bad behavior when you’re nuanced with a guy like that,” Bush, the former governor of Florida, told reporters in Berlin.

   

  “Just being clear – I’m not talking about being bellicose – but saying ‘there are the consequences of your actions’, that would deter the kind of bad outcome we don’t want to see.”

   

  

  (Bush speaks in Germany on Tuesday)

   

  Bush said signaling what further sanctions Russia could face, and reassuring Poland and the Baltic states that the United States would meet its NATO obligations to view an attack on one member state as an attack against the whole alliance could help halt Putin’s aggression.

   

  “If he thinks we’re resolute I think that that’s the greatest possibility of restricting any kind of further aggressions,” he said.

  Yes, no room for “nuance” when you’re talking about a “guy like that.” Bush goes on to say that given the size of the US military, there’s no reason why Eastern Europe should fear the “little green men” or the type of “organized Russian crime syndicates” that were recently blamed for an IRS data breach:

  “There are things that we could do given the scale of our military to send a strong signal that we’re on the side of Poland and the Baltics and the countries that truly feel threatened by the little green men and this new cyber warfare and these other tactics that Russia now is using.”

  Finally, Bush notes that although he doesn’t have the type of on-the-ground information and intelligence he would need to accurately appraise the situation and make fact-based decisions, if he had to act on no information at all, he would have preferred a “more robust” response:

  “If I was president of the United States, I’d clearly take the advice of the commanders on the ground but from the outside, without having any kind of classified information, it appears that we could have a more robust response.”

  We’re once again reminded of the hilariously accurate assessment of US foreign policy released by the Kremlin’s security council back in March:

  The Strategy emphasizes [that] the armed forces are considered as the basis of US national security and military superiority is considered a major factor in the American world leadership. 

  

  

  
  
  

  

• Guess How Many Nations In The World Do Not Have A Central Bank?

  Submitted by Michael Snyder via The Economic Collapse blog,

  

  Central banking has truly taken over the entire planet.  At this point, the only major nation on the globe that does not have a central bank is North Korea.  Yes, there are some small island countries such as the Federated States of Micronesia that do not have a central bank, but even if you count them, more than 99.9% of the population of the world still lives in a country that has a central bank. 

  So how has this happened?  How have we gotten the entire planet to agree that central banking is the best system?  Did the people of the world willingly choose this?  Of course not.  To my knowledge, there has never been a single vote where the people of a nation have willingly chosen to establish a central bank.  Instead, what has happened is that central banks have been imposed on all of us. 

  All over the world, people have been told that monetary issues are “too important” to be subject to politics, and that the only solution is to have a group of unelected, unaccountable bankers control those things for us.

  So precisely what does a central bank do?

  You would be surprised at how few people can actually answer that question accurately.  The following is how Wikipedia describes what a central bank does…

  A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state’s legal tender. Examples include the European Central Bank (ECB), the Bank of England, the Federal Reserve of the United States and the People’s Bank of China.

  In the United States, we are told that we have a free market system.  But in a true free market system, market forces would determine what interest rates are.  We wouldn’t need anyone to “set interest rates” for us.

  And why have we given a private banking cartel (the Federal Reserve) the authority to create and manage our money supply?  The U.S. Constitution specifically delegates that authority to Congress.

  It is not as if we actually need the Federal Reserve.  In fact, the greatest period of economic growth in U.S. history happened during the decades before the Federal Reserve was created.

  Unfortunately, a little over 100 years ago our leaders decided that it would be best to turn over our financial future to a newly created private banking cartel that was designed by very powerful Wall Street interests.  Since that time, the value of our currency has diminished by more than 96 percent and our national debt has gotten more than 5000 times larger.

  But despite all of the problems, the vast majority of Democrats and the vast majority of Republicans are not even willing to consider slightly curtailing the immense power of the Federal Reserve.  And the idea of getting rid of the Fed altogether is tantamount to blasphemy to most of our politicians.

  Of course the same thing is true all over the planet.  Central banks are truly “the untouchables” of the modern world.  Even though everybody can see what they are doing, there has not been a single successful political movement anywhere on the globe (that I know about) to shut a central bank down.

  Instead, in recent years we have just seen the reach of central banking just continue to expand.

  For example, just look at what has happened to some of the countries that were not considered to be “integrated” into the “global community”…

  -In 2001, the United States invaded Afghanistan.  In 2003, Da Afghanistan Bank (who picked that name?) was established by presidential decree.  You can find the official website of the bank right here.  Now Afghanistan has a modern central bank just like the rest of us.

  -In 2003, the United States invaded Iraq.  In early 2004, the Central Bank of Iraq was established to manage the Iraqi currency and integrate Iraq into the global financial system.  The following comes from the official website of the Central Bank of Iraq…

  Following the deposition of Saddam Hussein in the 2003 invasion of Iraq, the Iraqi Governing Council and the Office for Reconstruction and Humanitarian Assistance began printing more Saddam dinar notes as a stopgap measure to maintain the money supply until new currency could be introduced.

   

  The Banking Law was issued September 19, 2003. The law brings Iraq’s legal framework for banking in line with international standards, and seeks to promote confidence in the banking system by establishing a safe, sound, competitive and accessible banking system.

   

  Between October 15, 2003 and January 15, 2004, the Coalition Provisional Authority issued new Iraqi dinar coins and notes, with the notes printed using modern anti-forgery techniques, to “create a single unified currency that is used throughout all of Iraq and will also make money more convenient to use in people’s everyday lives. Old banknotes were exchanged for new at a one-to-one rate, except for the Swiss dinars, which were exchanged at a rate of 150 new dinars for one Swiss dinar.

  The Central Bank of Iraq (Arabic: ????? ??????? ???????) was established as Iraq’s independent central bank by the Central Bank of Iraq Law of March 6, 2004

  -In 2011, the United States bombed the living daylights out of Libya.  Before Muammar Gaddafi was even overthrown, the U.S. helped the rebels establish a new Central Bank of Libya and form a new national oil company.

  Central banks are specifically designed to trap nations in debt spirals from which they can never possibly escape.  Today, the debt to GDP ratio for the entire planet is up to an all-time high record of 286 percent.  Humanity is being enslaved by a perpetual debt machine, but most people are not even aware that it is happening.

  It is time for an awakening.  We need to educate as many people as possible about why we need to get rid of the central banks.  For those living in the United States, my previous article entitled “On The 100th Anniversary Of The Federal Reserve Here Are 100 Reasons To Shut It Down Forever” is a good place to start.  In other countries, we need people to write similar articles about their own central banks in their own languages.

  The global elite dominate us because we allow them to dominate us.  Their debt-based system greatly enriches them while it enslaves the remainder of the planet.  We need to expose their evil system and the dark agenda behind it while we still have time.

  

  

  
  
  

  

• 20 Years Later, Bill Clinton's Home Ownership Dream For America Is Dead

  In “America’s Housing Problem: Buying And Renting Are Both Unaffordable,” we documented the rather disconcerting situation facing America’s renters.

  Despite the fact that Fannie Mae and Freddie Mac now back home loans with down payments as low as 3% (down from a previous floor of 5%) and despite the fact that the FHFA’s move to lower the down payment requirement effectively forced FHA to cut premiums in order to stay competitive, presumably making housing even more ‘affordable’, the homeownership dream is quickly slipping away for many Americans. 

  In short, non-existent wage growth (remember, wage growth in America is now almost solely concentrated in the hands of what the BLS describes as ‘supervisory’ workers who make up less than a fifth of the labor force) and crushing student debt (the Class of 2015 graduated with an average debt load of $35,000) are conspiring with the BEA’s fabricated, double-adjusted “recovery” to make saving enough for a down payment virtually impossible.

  

  Meanwhile, the very fact that many Americans are shut out of homeownership means more demand for rentals which in turn drives up rents, squeezing household balance sheets further and effectively leaving many stuck between homes they can’t buy and rents they can’t afford. The result: the homeownership rate in America is now back to where it was 20 years ago and some Americans face the very real possibility of not having a place to live at all. 

  Now, the question is whether the homeownership rates that persisted in the years leading up to the crisis were realistic in the first place or simply represented what happens when a political mandate (promote the “American Dream”) meets the Wall Street securitization machine. 

  Whatever the case, renewed scrutiny on the demise of the American homeowner comes at a rather inconvenient time because, as WSJ reports, this month marks the twenty year anniversary of Bill Clinton’s National Homeownership Strategy which was unveiled with the help of Jean Mikitz, an Allentown, Pennsylvania resident who, at the time, had just bought a home with her husband Jim with the help of an FHA guaranteed loan — Jim eventually went into foreclosure. Here’s more:

  This month marks 20 years since President Bill Clinton unveiled his “National Homeownership Strategy,” a 100-point action plan that put as its overarching goal achieving an “all-time high level of homeownership in America within the next six years.”

   

  That set in motion an effort by both parties in Washington to work with the private sector to loosen lending standards and make it easier for middle-class Americans with less savings or inherited wealth to purchase homes.

   

  Jean and Jim Mikitz of Allentown, Pa., had just bought a home using a loan backed by the Federal Housing Administration when the Clinton administration was rolling out its homeownership campaign. Their mortgage broker connected them with administration housing officials, which is how Ms. Mikitz ended up introducing Mr. Clinton at his June 1995 speech, a few weeks after they closed on the purchase.

   

  The homeownership rate, then at around 64%, steadily climbed to 69% in 2004, after President George W. Bush similarly embraced a goal of increasing homeownership. Today, the homeownership rate has fallen back to below where it was 20 years ago following the bursting of the housing bubble, which led to millions of foreclosures.

   

  Mr. and Ms. Mikitz’s story, it turns out, also ended in foreclosure. Mr. Mikitz, a 41-year-old mechanic, lost the house in 2004, according to public records. Mr. Mikitz said they stopped making payments on the home when he and his wife divorced. “It pretty much forced me into bankruptcy,” he said. His former wife couldn’t be reached for this article.

  There you have it.

  The American Dream in one cautionary tale.

  We’ll leave you with Clinton’s 1995 speeach introducing The National Home Ownership Strategy.

  

  

  
  
  

  

• No Steve Schwarzman, That's Not How "The Next Financial Crisis Will Happen"

  Overnight, in a lengthy op-ed, Blackstone CEO, Steve Schwarzman described, in his opinion, “How the Next Financial Crisis Will Happen.” In the article, the author, correctly, notes that bond market liquidity is collapsing – something that has been discussed here constantly for the past 3 years – yet incorrectly assigns the cause to “politicians and regulators” who “constructed an expansive and untested regulatory framework that will have unintended consequences for liquidity in our financial system.”

  The reason for the Blackstone CEO’s conflicted position is obvious: for a company whose lifeblood is abundant credit, the only gating factor preventing it from recreating the LBO spree of the mid-2000s, and thus a massive windfall to the partners, is somewhat more stringent regulations than the unregulated free-for-all in which Wall Street was expected to “police” itself. We all know how that ended.

  And while we can explain once again why Scwharzman is wrong (we will simply link back to the comprehensive explanation why liquidity has imploded at the end of this piece), we prefer to give the podium to Citi’s chief credit strategist Matt King to disabuse Schwarzman and his Wall Street peers of the assumption that the collapse of liquidity is due solely to regulation, when in reality the answer is the disastrous central bank policy of the past 7 years coupled with the relentless ascent of Hiigh Frequency Trading.

  Here are the choice excerpts from Matt King’s May 4, 2015 note:

  We take issue with the widespread notion that the problem is solely due to regulators having raised the cost of dealer balance sheet, and could be ameliorated if only there were greater investment in e-trading or a rise in non-dealer-to-non dealer activity. To be sure, we see the growth in regulation – leverage ratio and net stable funding ratio (NSFR) in particular – as one of the main reasons why rates markets are now starting to be afflicted, and indeed we expect further declines in repo volumes to add to such pressures. But illiquidity is a growing concern even in markets like equities and FX, which use barely any balance sheet at all, and where e-trading is the already the norm rather than the exception.

   

  Instead, we argue that in addition to bank regulations, there is a broad-based problem insofar as the investor base across markets has developed a greater tendency to crowd into the same trades, to be the same way round at the same time. This “herding” effect leads to markets which trend strongly, often with low day-to-day volatility, but are prone to air pockets, and ultimately to abrupt corrections. Etrading if anything reinforces this tendency, by creating the illusion of lliquidity which evaporates under stress…. Because the herding is not directly backed by leverage, it is unlikely to be reduced by macroprudential regulation.

   

  * * *

   

  One possibility is that regulation is once again the culprit. Greater constraints on dealers’ ability to act in a principal capacity, even for a few seconds, could be taking their toll. The Volcker Rule, for example, forbids dealers subject to US regulations from running positions except so as to facilitate client trades. It is possible that this has prompted dealers to become more cautious than previously, and that this increased caution is missed particularly on occasions when markets become volatile. While no numbers are available on even prop desk profits, never mind their balance sheet usage, some market participants do point to their importance as an uncorrelated source of risk-taking, in particular during moments of stress. Nor are dealers the only ones to have been subjected to increased regulation in recent years: others have pointed to the way in which accounting and capital requirements for insurance companies and pension funds may also cause them to move in an increasingly procyclical fashion.

   

  The trouble is, this still feels like an incomplete explanation as to why short-term illiquidity problems should be affecting quite so many markets, including those where pension companies, insurers and even dealers have not historically been considered particularly important drivers of pricing. And above all, it does nothing at all to explain why illiquidity pockets should be being encountered so suddenly and with so little obvious cause. At least in historically famous illiquidity episodes – such as the LTCM-related crisis in 1998 – there was a glaring cause of sufficiently large magnitude to help explain the incident. Many recent air pockets seem to have started almost from nothing. To complete the picture, we think you need to look beyond the regulations and in a different direction.

   

  * * * 

   

  To sum up, we are left with a paradox. Markets are liquid when they work both ways. Market participants, though, find themselves increasingly needing to move the same way. This is not only because of procyclical regulation; it is also because central banks have become a far larger driver of markets than was true in the past. The more liquidity the central banks add, the more they disrupt the natural heterogeneity of the market. On the way in, it has mostly proved possible to accommodate this, as investors have moved gradually, and their purchases have been offset by new issuance. The way out may not prove so easy; indeed, we are not sure there is any way out at all.

  And there it is: regulation is merely a small, procyclical part of the big “liquidity paradox” although now that Wall Street is screaming bloody murder and blaming it all on Volcker, Dodd Frank and other rules which nobody follows anyway, one can be certain that regulatory capital and leverage constraints will soon be quietly lifted. And since these are not the reason for the underlying illiquidty, the result will be an even more illiquid market, only one where the inherent leverage will be that much greater, leading to even more spectacular flash, and not so flash, crashes.

  But that doesn’t matter to people like Steve: all they care is to be able to push the LBO multiple from 10x to 15x or, heck, why not 20x. After all it is not like they won’t find bond buyers for any ludicrously levered transaction, allowing them to soak up the equity quickly and efficiently, leaving an insolvent husk behind.

  Which means the rich will get even richer, while leave even recorder debt behind, even greater defaults, and an even greater and more catastrophic collapse when everything crashes once again, which it will. After all even Citi admits “there may not be a way out at all.”

  But at least we now know why calls for regulatory repeal will intensify until, grudgingly, Wall Street’s bought politicians concede and all the lunatics to once again take over the asylum. Which, incidentally, is at this junction the best possible outcome: with the biggest bubble in developed markets history unfolding before everyone eyes, and with most rational people able to willing to admit what is happening, yet powerless to stop it, the only way this insanity ever ends is by hitting its inevitable peak sooner rather then later… and allowing humanity to proceed with the reset as soon as possible.

  One can only hope there are enough people left alive and who remember the stupidity and mistakes of the New Normal time of idiocy.

  * * *

  Finally, for the real and complete answer why there is no bond market liquidity, read our post on the Liquidity Paradox, or why “The more liquidity central banks add, the less there is in markets.“

  

  

  
  
  

  

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